[Federal Register Volume 71, Number 186 (Tuesday, September 26, 2006)]
[Notices]
[Pages 56199-56201]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-15709]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27494 ; 812-13209]


Quaker Investment Trust and Quaker Funds, Inc.; Notice of 
Application

September 20, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 15(a) of the Act and rule 18f-2 under the Act, as well as 
certain disclosure requirements.

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    Summary of Application: Applicants request an order that would 
permit them to enter into and materially amend subadvisory agreements 
without shareholder approval and would grant relief from certain 
disclosure requirements.
    Applicants: Quaker Investment Trust (the ``Trust'') and Quaker 
Funds, Inc. (the ``Adviser'').
    Filing Dates: The application was filed on July 6, 2005, and 
amended on September 5, 2006.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on October 16, 2006, and should be accompanied by proof of 
service on the applicants, in the form of an affidavit, or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the writer's interest, the reason for the request, and the 
issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities & Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicants, 309 Technology 
Drive, Malvern, PA 19355.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 551-6817 or Stacy L. Fuller, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 100 F Street, NE., Washington, DC 
20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    1. The Trust, a Massachusetts business trust, is registered under 
the Act as an open-end management investment company. The Trust 
currently is comprised of eight series (each a ``Fund'' and 
collectively, the ``Funds''), each with a separate investment 
objective, policy and restrictions.\1\ The Adviser is registered as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act'') and serves as investment adviser to the Funds 
pursuant to an investment advisory agreement (``Advisory Agreement'') 
with the Trust. The Advisory Agreement has been approved by the Trust's 
board of trustees (the ``Board''), including a majority of the trustees 
who are not ``interested persons,'' as defined in section 2(a)(19) of 
the Act, of the Trust or the Adviser (``Independent Trustees''), as 
well as by each Fund's shareholders.
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    \1\ Applicants request that any relief granted pursuant to the 
application also apply to any future series of the Trust and any 
other existing or future registered open-end management investment 
company or series thereof that: (a) is advised by the Adviser; (b) 
uses the management structure described in the application; and (c) 
complies with the terms and conditions of the application (included 
in the term ``Funds''). The Trust is the only existing registered 
open-end management investment company that currently intends to 
rely on the order. All references to the term ``Adviser'' include 
(a) the Adviser and (b) an entity controlling, controlled by, or 
under common control with the Adviser. If the name of any Fund 
contains the name of a Subadviser (as defined below), the name of 
the Adviser that serves as primary adviser to the Fund will precede 
the name of the Subadviser.
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    2. Under the terms of the Advisory Agreement, the Adviser provides 
investment advisory services to each Fund, supervises the investment 
program for each Fund, and has the authority, subject to Board 
approval, to enter into investment subadvisory agreements 
(``Subadvisory Agreements'') with one or more investment subadvisers 
(``Subadvisers''). The Adviser monitors and evaluates the Subadvisers 
and recommends to the Board their hiring, retention or termination. 
Subadvisers recommended to the Board by the Adviser must be selected 
and approved by the Board, including a majority of the Independent 
Trustees. Each Subadviser to a Fund is, and any future Subadviser to a 
Fund will be, an investment adviser registered under the Advisers Act. 
The Adviser compensates each Subadviser out of the fees paid to the 
Adviser under the Advisory Agreement.

[[Page 56200]]

    3. Applicants request an order to permit the Adviser, subject to 
Board approval, to enter into and materially amend Subadvisory 
Agreements without obtaining shareholder approval. The requested relief 
will not extend to any Subadviser that is an affiliated person, as 
defined in section 2(a)(3) of the Act, of the Trust or of the Adviser, 
other than by reason of serving as a Subadviser to one or more of the 
Funds (``Affiliated Subadviser''). None of the current Subadvisers is 
an Affiliated Subadviser.
    4. Applicants also request an exemption from the various disclosure 
provisions described below that may require a Fund to disclose fees 
paid by the Adviser to each Subadviser. An exemption is requested to 
permit each Fund to disclose (as both a dollar amount and as a 
percentage of each Fund's net assets): (a) The aggregate fees paid to 
the Adviser and any Affiliated Subadvisers; and (b) the aggregate fees 
paid to Subadvisers other than Affiliated Subadvisers (``Aggregate Fee 
Disclosure''). For any Fund that employs an Affiliated Subadviser, the 
Fund will provide separate disclosure of any fees paid to the 
Affiliated Subadviser.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except under a written contract that has been 
approved by the vote of a majority of the company's outstanding voting 
securities. Rule 18f-2 under the Act provides that each series or class 
of stock in a series company affected by a matter must approve such 
matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 14(a)(3) of Form N-1A requires disclosure of 
the method and amount of the investment adviser's compensation.
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to an investment company to comply with Schedule 14A under the 
Securities Exchange Act of 1934 (``1934 Act''). Items 22(c)(1)(ii), 
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together, 
require a proxy statement for a shareholder meeting at which the 
advisory contract will be voted upon to include the ``rate of 
compensation of the investment adviser,'' the ``aggregate amount of the 
investment adviser's fees,'' a description of the ``terms of the 
contract to be acted upon,'' and, if a change in the advisory fee is 
proposed, the existing and proposed fees and the difference between the 
two fees.
    4. Form N-SAR is the semi-annual report filed with the Commission 
by registered investment companies. Item 48 of Form N-SAR requires 
registered investment companies to disclose the rate schedule for fees 
paid to their investment advisers, including the Subadvisers.
    5. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of investment company 
registration statements and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
registered investment companies to include in their financial 
statements information about investment advisory fees.
    6. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction or any class or classes of 
persons, securities, or transactions from any provisions of the Act, or 
from any rule thereunder, if such exemption is necessary or appropriate 
in the public interest and consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
Act. Applicants state that their requested relief meets this standard 
for the reasons discussed below.
    7. Applicants assert that the shareholders are relying on the 
Adviser's experience to select one or more Subadvisers best suited to 
achieve a Fund's investment objectives. Applicants assert that, from 
the perspective of the investor, the role of the Subadvisers is 
comparable to that of the individual portfolio managers employed by 
traditional investment company advisory firms. Applicants state that 
requiring shareholder approval of each Subadvisory Agreement would 
impose costs and unnecessary delays on the Funds, and may preclude the 
Adviser from acting promptly in a manner considered advisable by the 
Board. Applicants note that the Advisory Agreement will remain subject 
to section 15(a) of the Act and rule 18f-2 under the Act.
    8. Applicants assert that many Subadvisers charge their customers 
for advisory services according to a ``posted'' fee schedule. 
Applicants state that while Subadvisers are willing to negotiate fees 
that are lower than those posted on the schedule, they are reluctant to 
do so where the fees are disclosed to other prospective and existing 
customers. Applicants submit that the requested relief will allow the 
Adviser to negotiate more effectively with each Subadviser.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Fund may rely on the order requested in the 
application, the operation of the Fund in the manner described in the 
application will be approved by a majority of the Fund's outstanding 
voting securities, as defined in the Act, or in the case of a Fund 
whose shareholders purchase shares on the basis of a prospectus 
containing the disclosure contemplated by condition 2 below, by the 
sole initial shareholder before offering that Fund's shares to the 
public.
    2. The prospectus for each Fund will disclose the existence, 
substance, and effect of any order granted pursuant to the application. 
Each Fund will hold itself out to the public as employing the 
management structure described in the application. The prospectus will 
prominently disclose that the Adviser has ultimate responsibility 
(subject to oversight by the Board) to oversee the Subadvisers and 
recommend their hiring, termination, and replacement.
    3. Within 90 days of the hiring of a new Subadviser, the affected 
Fund shareholders will be furnished all information about the new 
Subadviser that would be included in a proxy statement, except as 
modified to permit Aggregate Fee Disclosure. This information will 
include Aggregate Fee Disclosure and any change in such disclosure 
caused by the addition of the new Subadviser. To meet this obligation, 
the Fund will provide shareholders within 90 days of the hiring of a 
new Subadviser with an information statement meeting the requirements 
of Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the 
1934 Act, except as modified by the order to permit Aggregate Fee 
Disclosure.
    4. The Adviser will not enter into a Subadvisory Agreement with any 
Affiliated Subadviser without that agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Fund.
    5. At all times, at least a majority of the Board will be 
Independent Trustees, and the nomination of new or additional 
Independent Trustees will be placed within the discretion of the then-
existing Independent Trustees.
    6. Whenever a Subadviser change is proposed for a Fund with an 
Affiliated Subadviser, the Board, including a majority of the 
Independent Trustees, will make a separate finding, reflected in the 
applicable Board minutes, that

[[Page 56201]]

such change is in the best interests of the Fund and its shareholders 
and does not involve a conflict of interest from which the Adviser or 
the Affiliated Subadviser derives an inappropriate advantage.
    7. Whenever a Subadviser is hired or terminated, the Adviser will 
provide the Board with information showing the expected impact on the 
profitability of the Adviser.
    8. The Adviser will provide general management services to each 
Fund, including overall supervisory responsibility for the general 
management and investment of the Fund's assets, and, subject to review 
and approval of the Board, will: (a) Set each Fund's overall investment 
strategies, (b) evaluate, select and recommend Subadvisers to manage 
all or a part of a Fund's assets, (c) allocate and, when appropriate, 
reallocate a Fund's assets among one or more Subadvisers; (d) monitor 
and evaluate the performance of Subadvisers; and (e) implement 
procedures reasonably designed to ensure that the Subadvisers comply 
with the relevant Fund's investment objective, policies and 
restrictions.
    9. No trustee or officer of the Trust or a Fund, or director or 
officer of the Adviser, will own, directly or indirectly (other than 
through a pooled investment vehicle that is not controlled by such 
person), any interest in a Subadviser, except for: (a) Ownership of 
interests in the Adviser or any entity that controls, is controlled by, 
or is under common control with the Adviser, or (b) ownership of less 
than 1% of the outstanding securities of any class of equity or debt of 
any publicly traded company that is either a Subadviser or an entity 
that controls, is controlled by or is under common control with a 
Subadviser.
    10. Each Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.
    11. The requested order will expire on the effective date of rule 
15a-5 under the Act, if adopted.
    12. Independent legal counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Trustees. The 
selection of such counsel will be within the discretion of the then-
existing Independent Trustees.
    13. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per-Fund basis. The information will reflect the impact on 
profitability of the hiring or termination of any Subadviser during the 
applicable quarter.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6-15709 Filed 9-25-06; 8:45 am]
BILLING CODE 8010-01-P