Grail Advisors LLC and Grail Advisors ETF Trust; Notice of Application, 48324-48327 [E9-22686]
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48324
Federal Register / Vol. 74, No. 182 / Tuesday, September 22, 2009 / Notices
except as to price adjustments. See id.
The Postal Service represents that the
new contract is consistent with 39
U.S.C. 3633(a). See id., Attachment E.
The existing contract’s terms and
conditions for Express Mail remain in
effect.
The Postal Service filed much of the
supporting materials, including the
specific Priority Mail Contract 18, under
seal. In its Request, the Postal Service
maintains that the contract and related
financial information, including the
customer’s name and the accompanying
analyses that provide prices, terms,
conditions, cost data, and financial
projections should remain under seal.
Id. at 2. It also requests that the
Commission order that the duration of
such treatment of all customer
identifying information be extended
indefinitely, instead of ending after ten
years. Id., Attachment F, at 1 and 7.
II. Notice of Filing
The Commission establishes Docket
Nos. MC2009–42 and CP2009–63 for
consideration of the Request pertaining
to the proposed Priority Mail Contract
18 product and the related contract,
respectively. In keeping with practice,
these dockets are addressed on a
consolidated basis for purposes of this
Order; however, future filings should be
made in the specific docket in which
issues being addressed pertain.
Interested persons may submit
comments on whether the Postal
Service’s filings in the captioned
dockets are consistent with the policies
of 39 U.S.C. 3632, 3633, or 3642 and 39
CFR part 3015 and 39 CFR 3020 subpart
B. Comments are due no later than
September 23, 2009. The public
portions of these filings can be accessed
via the Commission’s Web site (https://
www.prc.gov).
The Commission appoints Paul L.
Harrington to serve as Public
Representative in these dockets.
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III. Supplemental Information
The Commission requests the Postal
Service to provide the following
supplemental information regarding the
new agreement by September 21, 2009:
1. Please explain if the spreadsheets
filed on February 20, 2009 need to be
revised to reflect the modifications in
the current spreadsheets, and clarify
whether all volumes, weight, and cubic
feet figures are actual shipper’s data.
2. Please verify that the existing
contract, as revised, still complies with
39 U.S.C. 3633(a).
IV. Ordering Paragraphs
It is ordered:
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1. The Commission establishes Docket
Nos. MC2009–42 and CP2009–63 for
consideration of the matter raised in
each docket.
2. Pursuant to 39 U.S.C. 505, Paul L.
Harrington is appointed to serve as
officer of the Commission (Public
Representative) to represent the
interests of the general public in these
proceedings.
3. Comments by interested persons in
these proceedings are due no later than
September 23, 2009.
4. Responses to the supplemental
information request are due by
September 21, 2009.
5. The Secretary shall arrange for
publication of this order in the Federal
Register.
Issued September 15, 2009.
By the Commission.
Shoshana M. Grove,
Secretary.
[FR Doc. E9–22692 Filed 9–21–09; 8:45 am]
BILLING CODE 7710–FW–P
Primary Counties: Los Angeles.
Contiguous Counties:
California: Kern, Orange, San
Bernardino, Ventura.
The Interest Rates are:
Percent
Homeowners With Credit Available Elsewhere .........................
Homeowners
Without
Credit
Available Elsewhere ..................
Businesses With Credit Available
Elsewhere .................................
Businesses & Small Agricultural
Cooperatives Without Credit
Available Elsewhere ..................
Other (Including Non-Profit Organizations) With Credit Available
Elsewhere .................................
Businesses and Non-Profit Organizations Without Credit Available Elsewhere .........................
5.500
2.750
6.000
4.000
4.500
4.000
The number assigned to this disaster
for physical damage is 11880 5 and for
economic injury is 11881 0.
The State which received an EIDL
Declaration # is California.
SMALL BUSINESS ADMINISTRATION
(Catalog of Federal Domestic Assistance
Numbers 59002 and 59008)
[Disaster Declaration #11880 and #11881]
Dated: September 14, 2009.
Karen G. Mills,
Administrator.
[FR Doc. E9–22691 Filed 9–21–09; 8:45 am]
California Disaster #CA–00142
AGENCY: U.S. Small Business
Administration.
ACTION: Notice.
BILLING CODE 8025–01–P
SUMMARY: This is a notice of an
Administrative declaration of a disaster
for the State of California dated 09/14/
2009.
Incident: Station Fire.
Incident Period: 08/26/2009 and
continuing.
Effective Date: 09/14/2009.
Physical Loan Application Deadline
Date: 11/13/2009.
Economic Injury (EIDL) Loan
Application Deadline Date: 06/14/2010.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street, SW., Suite 6050,
Washington, DC 20416.
SUPPLEMENTARY INFORMATION: Notice is
hereby given that as a result of the
Administrator’s disaster declaration,
applications for disaster loans may be
filed at the address listed above or other
locally announced locations.
The following areas have been
determined to be adversely affected by
the disaster:
DATES:
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SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
28900; File No. 812–13516–01]
Grail Advisors LLC and Grail Advisors
ETF Trust; Notice of Application
September 14, 2009.
AGENCY: Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application under
section 6(c) of the Investment Company
Act of 1940 (‘‘Act’’) for an exemption
from section 15(a) of the Act and rule
18f–2 under the Act, as well as from
certain disclosure requirements.
SUMMARY OF THE APPLICATION:
Applicants, including an activelymanaged open-end exchange traded
fund, 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: Grail Advisors LLC
(‘‘Manager’’) and Grail Advisors ETF
Trust (‘‘Trust’’).
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Federal Register / Vol. 74, No. 182 / Tuesday, September 22, 2009 / Notices
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Filing Dates: The application was
filed on April 10, 2008, and amended on
May 15, 2009, and September 14, 2009.
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 7, 2009 and
should be accompanied by proof of
service on 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
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
1090. Applicants, c/o Mr. William M.
Thomas, Grail Advisors, LLC, One Ferry
Building, Suite 255, San Francisco, CA
94111.
FOR FURTHER INFORMATION CONTACT: Jean
E. Minarick, Senior Counsel, at (202)
551–6811, or Michael W. Mundt,
Assistant Director, 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 via the Commission’s
Web site by searching for the file
number, or an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations
1. The Trust is organized as a
Delaware statutory trust and is
registered under the Act as an open-end
management investment company. The
Trust operates as an actively-managed
exchange traded open-end fund (‘‘ETF’’)
in reliance on an exemptive order.1 The
Trust currently has two initial funds
(‘‘Initial Funds’’); additional funds
(together with the Initial Funds, the
‘‘Funds’’) may be added in the future.
Each Fund has its own investment
objective(s), policies and restrictions.
2. The Manager, a Delaware limited
liability company, is registered as an
investment adviser under the
1 Grail Advisors, LLC and Grail Advisors’ Alpha
ETF Trust, Investment Company Act Rel. Nos.
28571 (Dec. 23, 2008) (notice) and 28604 (Jan. 16,
2009) (order).
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21:23 Sep 21, 2009
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Investment Advisers Act of 1940
(‘‘Advisers Act’’). The Manager is a
majority-owned subsidiary of Grail
Partners LLC. The Manager serves as the
investment adviser to the Initial Funds
and will serve as investment adviser to
any other Fund. The Manager has an
investment advisory agreement with the
Trust for the Initial Funds (an
‘‘Investment Advisory Agreement’’)
approved by the board of trustees of the
Trust (the ‘‘Board’’), including a
majority of the trustees who are not
‘‘interested persons,’’ as defined in
section 2(a)(19) of the Act (the
‘‘Independent Board Members’’), and
the shareholders of each Fund.2
3. Under the Investment Advisory
Agreement, the Manager is responsible
for providing a program of continuous
investment management to each Fund
in accordance with the investment
objective, policies and limitations of the
Fund. The Investment Advisory
Agreement permits the Manager to enter
into separate advisory agreements
(‘‘Sub-Advisory Agreements’’) with subadvisers (‘‘Sub-Advisers’’). Each SubAdviser is, and any future Sub-Adviser
will be, registered as an investment
adviser under the Advisers Act. The
specific investment decisions for each
Fund are made by the Manager based on
purchase and sale recommendations
from one or more Sub-Advisers selected
by the Manager to focus on all or a
portion of the assets of the Fund or, at
the discretion of the Manager, by the
Sub-Advisers themselves with respect to
the portion of any Fund portfolio
allocated to them, subject to the general
supervision by the Manager and the
Board. The Manager will select SubAdvisers based on an evaluation of the
Sub-Adviser’s performance, the SubAdviser’s fees and services in relation to
other investment advisers performing
similar services, the nature of the advice
provided by the Sub-Adviser and the
Sub-Adviser’s reputation in the
investment community. Sub-Advisers
must be approved by the Board,
including a majority of the Independent
2 Applicants also request relief with respect to
future Funds and any other existing or future
registered open-end management investment
company or series thereof that: (a) Is advised by the
Manager or any person controlling, controlled by,
or under common control with the Manager
(included in the term ‘‘Manager’’); (b) uses the
management structure described in the application;
and (c) complies with the terms and conditions
contained in the application (included in the term
‘‘Funds’’). The Trust is the only existing investment
company that currently intends to rely on the
requested order. If the name of any Fund contains
the name of a Sub-Adviser (as defined below), the
name of the Manager, including the legal name of
the Manager and/or any ‘‘doing business as’’ or
business unit names used by the Manager, will
precede the name of the Sub-Adviser.
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Board Members. The Manager will
monitor and evaluate the performance
of Sub-Advisers and recommend to the
Board their hiring, termination and
replacement. The Manager will
compensate each Sub-Adviser out of the
advisory fees paid to the Manager by the
Fund.
4. Applicants request an order to
permit the Manager, subject to Board
approval, to enter into and materially
amend Subadvisory Agreements
without obtaining shareholder approval.
The requested relief will not extend to
any Sub-Adviser who is an affiliated
person, as defined in section 2(a)(3) of
the Act, of a Fund, the Trust or the
Manager, other than by reason of serving
as a Sub-Adviser to one or more of the
Funds (‘‘Affiliated Sub-Adviser’’).
5. Applicants also request an
exemption from the various disclosure
provisions described below that may
require the Funds to disclose fees paid
by the Manager to the Sub-Advisers. An
exemption is requested to permit a Fund
to disclose (both as a dollar amount and
as a percentage of the Fund’s net assets):
(a) The aggregate fees paid to the
Manager and any Affiliated SubAdvisers; and (b) the aggregate fees paid
to Sub-Advisers other than Affiliated
Sub-Advisers (collectively, ‘‘Aggregate
Fee Disclosure’’). Any Fund that
employs an Affiliated Sub-Adviser will
provide separate disclosure of any fees
paid to the Affiliated Sub-Adviser.
6. Applicants state that the requested
relief is unusual insofar as the requested
order seeks relief for an ETF. However,
applicants believe that operations of the
Funds under the requested order
address the concerns historically
considered by the Commission when
granting identical relief to mutual funds.
Applicants believe that similar to
shareholders of a mutual fund who may
‘‘vote with their feet’’ by redeeming
their individual shares at net asset value
(‘‘NAV’’) if they do not approve of a
change in sub-adviser or sub-advisory
agreement, Fund shareholders will be
able to sell shares in the secondary
market at negotiated prices that closely
track the relevant Fund’s NAV if they do
not approve of a change. Applicants
state that the Funds will rely on the
same delivery mechanisms currently
used by certain mutual funds to ensure
that shareholders who purchase shares
in the secondary market receive a
prospectus and all of the information
that would have been provided in a
proxy statement, except for the
modifications discussed below, in an
information statement. Applicants note
that the requested relief is not broader
in scope than the relief previously
granted to mutual funds.
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Federal Register / Vol. 74, No. 182 / Tuesday, September 22, 2009 / Notices
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 pursuant to a written
contract that has been approved by a
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
investment company affected by a
matter must approve the 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
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 (‘‘Exchange 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 investment
companies to disclose the rate schedule
for fees paid to their investment
advisers, including the Sub-Advisers.
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 that investment companies
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
3 Form N–1A was recently amended by the
Commission, effective March 31, 2009, and Item
14(a)(3) should be read to refer to Item 19(a)(3) for
each Fund when that Fund begins using the revised
form.
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21:23 Sep 21, 2009
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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
seek the same relief previously granted
to mutual funds, and believe that the
requested relief is equally appropriate
for ETFs. Applicants state that the
requested relief meets the necessary
standards for the reasons discussed
below.
7. Applicants assert that the
shareholders rely on the Manager to
select and monitor the Sub-Advisers
best suited to achieve a Fund’s
investment objectives. Applicants
contend that, from the perspective of the
investor, the role of the Sub-Advisers is
comparable to that of individual
portfolio managers employed by
traditional investment 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 Manager
from acting promptly in a manner
considered advisable by the Board.
Applicants note that the Investment
Advisory Agreements and any SubAdvisory Agreement with an Affiliated
Sub-Adviser will remain subject to
section 15(a) of the Act and rule 18f–2
under the Act.
8. Applicants assert that many SubAdvisers use a ‘‘posted’’ rate schedule to
set their fees. Applicants state that,
while Sub-Advisers are willing to
negotiate fees lower than those posted
in the schedule, they are reluctant to do
so when the fees are disclosed to other
prospective and existing customers.
Applicants submit that the requested
relief will encourage potential SubAdvisers to negotiate lower subadvisory
fees with the Manager.
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
requested order, 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 public
shareholders purchase shares on the
basis of a prospectus containing the
disclosure contemplated by condition 2
below, by the sole initial shareholder
before offering the Fund’s shares to the
public.
2. Each Fund will disclose in its
prospectus the existence, substance and
effect of the order granted pursuant to
the application. In addition, each Fund
will hold itself out to the public as
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employing the management structure
described in the application. The
prospectus will prominently disclose
that the Manager has ultimate
responsibility, subject to oversight by
the Board, to oversee the Sub-Advisers
and recommend their hiring,
termination, and replacement.
3. Within 90 days of the hiring of any
new Sub-Adviser, the Manager will
furnish shareholders all information
about the new Sub-Adviser that would
be included in a proxy statement, except
as modified to permit the Aggregate Fee
Disclosure. This information will
include Aggregate Fee Disclosure and
any change in such disclosure caused by
the addition of a new Sub-Adviser. To
meet this obligation, the Fund will
provide shareholders of the applicable
Fund within 90 days of the hiring of a
new Sub-Adviser with an information
statement meeting the requirements of
Regulation 14C, Schedule 14C and Item
22 of Schedule 14A under the Exchange
Act, except as modified by the order to
permit Aggregate Fee Disclosure.
4. The Manager will not enter into a
Sub-Advisory Agreement with any
Affiliated Sub-Adviser 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 Board
Members and the nomination of new or
additional Independent Board Members
will be at the discretion of the thenexisting Independent Board Members.
6. When a change of Sub-Adviser is
proposed for a Fund with an Affiliated
Sub-Adviser, the Board, including a
majority of the Independent Board
Members, will make a separate finding,
reflected in the applicable Board
minutes, that such change is in the best
interests of the Fund and its
shareholders and does not involve a
conflict of interest from which the
Manager or an Affiliated Sub-Adviser
derives an inappropriate advantage.
7. The Manager 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, for each
Fund: (a) Set the Fund’s overall
investment strategies; (b) evaluate,
select and recommend Sub-Advisers to
provide purchase and sale
recommendations to the Manager or
investment advice to all or a part of the
Fund’s assets; (c) when appropriate,
allocate and reallocate the Fund’s assets
among multiple Sub-Advisers; (d)
monitor and evaluate the Sub-Advisers’
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performance; and (e) implement
procedures reasonably designed to
ensure compliance by the Sub-Advisers
with the Fund’s investment objective,
policies and restrictions.
8. No director, trustee or officer of the
Trust or a Fund, or director or officer of
the Manager, will own directly or
indirectly (other than through a pooled
investment vehicle over which such
person does not have control), any
interest in a Sub-Adviser except for: (a)
Ownership of interests in the Manager
or any entity that controls, is controlled
by, or is under common control with the
Manager; 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 Sub-Adviser.
9. Each Fund will disclose in its
registration statement the Aggregate Fee
Disclosure.
10. Independent legal counsel, as
defined in rule 0–1(a)(6) under the Act,
has been and will continue to be
engaged to represent the Independent
Board Members. The selection of such
counsel will be within the discretion of
the then-existing Independent Board
Members.
11. In the event the Commission
adopts a rule under the Act providing
substantially similar relief to that in the
order requested in the application, the
requested order will expire on the
effective date of that rule.
12. The Manager will provide the
Board, no less frequently than quarterly,
with information about the Manager’s
profitability on a per Fund basis. This
information will reflect the impact on
profitability of the hiring or termination
of any Sub-Adviser during the
applicable quarter.
13. Whenever a Sub-Adviser is hired
or terminated, the Manager will provide
the Board with information showing the
expected impact on the profitability of
the Manager.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–22686 Filed 9–21–09; 8:45 am]
BILLING CODE 8010–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60671; File No. SR–NYSE–
2009–71]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Approving a Proposed Rule Change
Amending NYSE Rule 1000 to Allow
Exchange Systems to Access CCS
Interest To Partially Fill an Incoming
Limit Order
September 15, 2009.
I. Introduction
On July 20, 2009, New York Stock
Exchange LLC (‘‘NYSE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend NYSE Rule 1000 to allow
Exchange systems to access CCS interest
to partially fill an incoming limit order.
The proposed rule change was
published for comment in the Federal
Register on August 11, 2009.3 The
Commission did not receive any
comment letters on the proposed rule
change. This order approves the
proposed rule change.
II. Description
Background
The NYSE offers Designated Market
Makers (‘‘DMMs’’) the ability to create a
schedule of additional non-displayed
liquidity at various price points where
the DMM is willing to interact with, and
provide price improvement to, incoming
orders in the Exchange’s system. This
schedule is known as the DMM Capital
Commitment Schedule (‘‘CCS’’).4 CCS
provides the Display Book® 5 with the
amount of shares that the DMM is
willing to trade at price points outside,
at, and inside the Exchange BBO. CCS
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 60429
(August 4, 2009), 74 FR 40259 (‘‘Notice’’).
4 The provisions of NYSE Rule 1000 relating to
CCS are in effect pursuant to a pilot that
commenced in October 2008 and that is currently
scheduled to end on October 1, 2009. The
Commission understands that NYSE plans to
request an extension of the pilot before it expires.
5 The Display Book® system is an order
management and execution facility. The Display
Book system receives and displays orders to the
DMMs, contains the order information, and
provides a mechanism to execute and report
transactions and publish the results to the
Consolidated Tape. The Display Book system is
connected to a number of other Exchange systems
for the purposes of comparison, surveillance, and
reporting information to customers and other
market data and national market systems.
2 17
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48327
interest is separate and distinct from
other DMM interest and serves as the
interest of last resort.
When an order is entered for an
amount of shares that exceeds the
liquidity available at the Exchange BBO,
Exchange systems review all the
liquidity available on the Display Book,
including CCS interest, to determine the
final price point at which the order can
be fully executed (the ‘‘completion
price’’). Exchange systems determine
the completion price by calculating the
unfilled volume of the incoming order
(i.e., the volume of the incoming order
that exceeds the volume available to
execute against it that is then present in
the Exchange bid or offer) and reviewing
the additional displayed and nondisplayed interest available in the
Display Book, which may be at more
than one price point, including the CCS
interest submitted by the DMM unit that
is available at the completion price.
Exchange systems also take into account
protected bids or offers on markets other
than the Exchange (‘‘away interest’’)
when determining the completion price.
Exchange systems then review the
CCS to determine if the number of
shares provided via the DMM’s CCS at
the completion price is less than the
number of CCS shares provided at the
next different price that has interest that
is one minimum price variation
(‘‘MPV’’) (as that term is defined in
Exchange Rule 62 6) or more higher (in
the case of an order to sell) or at the next
different price that has interest that is
one MPV or more lower (in the case of
an order to buy) (hereinafter collectively
referred to as ‘‘better price’’). If the
volume of CCS interest that would be
accessed is greater at the completion
price, or is the same at the completion
price and the better price, Exchange
systems access CCS interest at the
completion price with CCS interest
yielding to any other interest in
Exchange systems at the completion
price. If the number of shares that
would be allocated to the CCS interest
at the better price is greater than the
number of shares that would be
allocated to the DMM’s CCS interest at
the completion price, then Exchange
systems will access the CCS liquidity
available at the better price with CCS
interest yielding to any other interest in
Exchange systems (both displayed and
undisplayed reserve interest) at the
better price. Any remaining balance of
the incoming order is executed at the
completion price against displayable
and non-displayable interest pursuant to
6 See
E:\FR\FM\22SEN1.SGM
NYSE Rule 62, Supplementary Material .10.
22SEN1
]]>Agencies
[Federal Register Volume 74, Number 182 (Tuesday, September 22, 2009)]
[Notices]
[Pages 48324-48327]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-22686]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 28900; File No. 812-13516-01]
Grail Advisors LLC and Grail Advisors ETF Trust; Notice of
Application
September 14, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (``Act'') for an exemption from section 15(a) of
the Act and rule 18f-2 under the Act, as well as from certain
disclosure requirements.
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Summary of the Application: Applicants, including an actively-managed
open-end exchange traded fund, 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: Grail Advisors LLC (``Manager'') and Grail Advisors ETF
Trust (``Trust'').
[[Page 48325]]
Filing Dates: The application was filed on April 10, 2008, and
amended on May 15, 2009, and September 14, 2009.
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 7, 2009 and should be accompanied by proof of
service on 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 and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090. Applicants, c/o Mr. William M.
Thomas, Grail Advisors, LLC, One Ferry Building, Suite 255, San
Francisco, CA 94111.
FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at
(202) 551-6811, or Michael W. Mundt, Assistant Director, 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 via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at https://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Trust is organized as a Delaware statutory trust and is
registered under the Act as an open-end management investment company.
The Trust operates as an actively-managed exchange traded open-end fund
(``ETF'') in reliance on an exemptive order.\1\ The Trust currently has
two initial funds (``Initial Funds''); additional funds (together with
the Initial Funds, the ``Funds'') may be added in the future. Each Fund
has its own investment objective(s), policies and restrictions.
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\1\ Grail Advisors, LLC and Grail Advisors' Alpha ETF Trust,
Investment Company Act Rel. Nos. 28571 (Dec. 23, 2008) (notice) and
28604 (Jan. 16, 2009) (order).
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2. The Manager, a Delaware limited liability company, is registered
as an investment adviser under the Investment Advisers Act of 1940
(``Advisers Act''). The Manager is a majority-owned subsidiary of Grail
Partners LLC. The Manager serves as the investment adviser to the
Initial Funds and will serve as investment adviser to any other Fund.
The Manager has an investment advisory agreement with the Trust for the
Initial Funds (an ``Investment Advisory Agreement'') approved by the
board of trustees of the Trust (the ``Board''), including a majority of
the trustees who are not ``interested persons,'' as defined in section
2(a)(19) of the Act (the ``Independent Board Members''), and the
shareholders of each Fund.\2\
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\2\ Applicants also request relief with respect to future Funds
and any other existing or future registered open-end management
investment company or series thereof that: (a) Is advised by the
Manager or any person controlling, controlled by, or under common
control with the Manager (included in the term ``Manager''); (b)
uses the management structure described in the application; and (c)
complies with the terms and conditions contained in the application
(included in the term ``Funds''). The Trust is the only existing
investment company that currently intends to rely on the requested
order. If the name of any Fund contains the name of a Sub-Adviser
(as defined below), the name of the Manager, including the legal
name of the Manager and/or any ``doing business as'' or business
unit names used by the Manager, will precede the name of the Sub-
Adviser.
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3. Under the Investment Advisory Agreement, the Manager is
responsible for providing a program of continuous investment management
to each Fund in accordance with the investment objective, policies and
limitations of the Fund. The Investment Advisory Agreement permits the
Manager to enter into separate advisory agreements (``Sub-Advisory
Agreements'') with sub-advisers (``Sub-Advisers''). Each Sub-Adviser
is, and any future Sub-Adviser will be, registered as an investment
adviser under the Advisers Act. The specific investment decisions for
each Fund are made by the Manager based on purchase and sale
recommendations from one or more Sub-Advisers selected by the Manager
to focus on all or a portion of the assets of the Fund or, at the
discretion of the Manager, by the Sub-Advisers themselves with respect
to the portion of any Fund portfolio allocated to them, subject to the
general supervision by the Manager and the Board. The Manager will
select Sub-Advisers based on an evaluation of the Sub-Adviser's
performance, the Sub-Adviser's fees and services in relation to other
investment advisers performing similar services, the nature of the
advice provided by the Sub-Adviser and the Sub-Adviser's reputation in
the investment community. Sub-Advisers must be approved by the Board,
including a majority of the Independent Board Members. The Manager will
monitor and evaluate the performance of Sub-Advisers and recommend to
the Board their hiring, termination and replacement. The Manager will
compensate each Sub-Adviser out of the advisory fees paid to the
Manager by the Fund.
4. Applicants request an order to permit the Manager, subject to
Board approval, to enter into and materially amend Subadvisory
Agreements without obtaining shareholder approval. The requested relief
will not extend to any Sub-Adviser who is an affiliated person, as
defined in section 2(a)(3) of the Act, of a Fund, the Trust or the
Manager, other than by reason of serving as a Sub-Adviser to one or
more of the Funds (``Affiliated Sub-Adviser'').
5. Applicants also request an exemption from the various disclosure
provisions described below that may require the Funds to disclose fees
paid by the Manager to the Sub-Advisers. An exemption is requested to
permit a Fund to disclose (both as a dollar amount and as a percentage
of the Fund's net assets): (a) The aggregate fees paid to the Manager
and any Affiliated Sub-Advisers; and (b) the aggregate fees paid to
Sub-Advisers other than Affiliated Sub-Advisers (collectively,
``Aggregate Fee Disclosure''). Any Fund that employs an Affiliated Sub-
Adviser will provide separate disclosure of any fees paid to the
Affiliated Sub-Adviser.
6. Applicants state that the requested relief is unusual insofar as
the requested order seeks relief for an ETF. However, applicants
believe that operations of the Funds under the requested order address
the concerns historically considered by the Commission when granting
identical relief to mutual funds. Applicants believe that similar to
shareholders of a mutual fund who may ``vote with their feet'' by
redeeming their individual shares at net asset value (``NAV'') if they
do not approve of a change in sub-adviser or sub-advisory agreement,
Fund shareholders will be able to sell shares in the secondary market
at negotiated prices that closely track the relevant Fund's NAV if they
do not approve of a change. Applicants state that the Funds will rely
on the same delivery mechanisms currently used by certain mutual funds
to ensure that shareholders who purchase shares in the secondary market
receive a prospectus and all of the information that would have been
provided in a proxy statement, except for the modifications discussed
below, in an information statement. Applicants note that the requested
relief is not broader in scope than the relief previously granted to
mutual funds.
[[Page 48326]]
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 pursuant to a written contract that has been
approved by a 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 investment company affected by a matter must
approve the 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\
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\3\ Form N-1A was recently amended by the Commission, effective
March 31, 2009, and Item 14(a)(3) should be read to refer to Item
19(a)(3) for each Fund when that Fund begins using the revised form.
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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 (``Exchange 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
investment companies to disclose the rate schedule for fees paid to
their investment advisers, including the Sub-Advisers.
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
that investment companies 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 seek the same relief previously granted to mutual
funds, and believe that the requested relief is equally appropriate for
ETFs. Applicants state that the requested relief meets the necessary
standards for the reasons discussed below.
7. Applicants assert that the shareholders rely on the Manager to
select and monitor the Sub-Advisers best suited to achieve a Fund's
investment objectives. Applicants contend that, from the perspective of
the investor, the role of the Sub-Advisers is comparable to that of
individual portfolio managers employed by traditional investment
advisory firms. Applicants state that requiring shareholder approval of
each Sub-Advisory Agreement would impose costs and unnecessary delays
on the Funds, and may preclude the Manager from acting promptly in a
manner considered advisable by the Board. Applicants note that the
Investment Advisory Agreements and any Sub-Advisory Agreement with an
Affiliated Sub-Adviser will remain subject to section 15(a) of the Act
and rule 18f-2 under the Act.
8. Applicants assert that many Sub-Advisers use a ``posted'' rate
schedule to set their fees. Applicants state that, while Sub-Advisers
are willing to negotiate fees lower than those posted in the schedule,
they are reluctant to do so when the fees are disclosed to other
prospective and existing customers. Applicants submit that the
requested relief will encourage potential Sub-Advisers to negotiate
lower subadvisory fees with the Manager.
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 requested order, 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 public shareholders purchase
shares on the basis of a prospectus containing the disclosure
contemplated by condition 2 below, by the sole initial shareholder
before offering the Fund's shares to the public.
2. Each Fund will disclose in its prospectus the existence,
substance and effect of the order granted pursuant to the application.
In addition, 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 Manager has ultimate responsibility,
subject to oversight by the Board, to oversee the Sub-Advisers and
recommend their hiring, termination, and replacement.
3. Within 90 days of the hiring of any new Sub-Adviser, the Manager
will furnish shareholders all information about the new Sub-Adviser
that would be included in a proxy statement, except as modified to
permit the Aggregate Fee Disclosure. This information will include
Aggregate Fee Disclosure and any change in such disclosure caused by
the addition of a new Sub-Adviser. To meet this obligation, the Fund
will provide shareholders of the applicable Fund within 90 days of the
hiring of a new Sub-Adviser with an information statement meeting the
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule
14A under the Exchange Act, except as modified by the order to permit
Aggregate Fee Disclosure.
4. The Manager will not enter into a Sub-Advisory Agreement with
any Affiliated Sub-Adviser 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 Board Members and the nomination of new or additional
Independent Board Members will be at the discretion of the then-
existing Independent Board Members.
6. When a change of Sub-Adviser is proposed for a Fund with an
Affiliated Sub-Adviser, the Board, including a majority of the
Independent Board Members, will make a separate finding, reflected in
the applicable Board minutes, that such change is in the best interests
of the Fund and its shareholders and does not involve a conflict of
interest from which the Manager or an Affiliated Sub-Adviser derives an
inappropriate advantage.
7. The Manager 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, for each Fund: (a) Set the Fund's
overall investment strategies; (b) evaluate, select and recommend Sub-
Advisers to provide purchase and sale recommendations to the Manager or
investment advice to all or a part of the Fund's assets; (c) when
appropriate, allocate and reallocate the Fund's assets among multiple
Sub-Advisers; (d) monitor and evaluate the Sub-Advisers'
[[Page 48327]]
performance; and (e) implement procedures reasonably designed to ensure
compliance by the Sub-Advisers with the Fund's investment objective,
policies and restrictions.
8. No director, trustee or officer of the Trust or a Fund, or
director or officer of the Manager, will own directly or indirectly
(other than through a pooled investment vehicle over which such person
does not have control), any interest in a Sub-Adviser except for: (a)
Ownership of interests in the Manager or any entity that controls, is
controlled by, or is under common control with the Manager; 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 Sub-
Adviser or an entity that controls, is controlled by, or is under
common control with a Sub-Adviser.
9. Each Fund will disclose in its registration statement the
Aggregate Fee Disclosure.
10. Independent legal counsel, as defined in rule 0-1(a)(6) under
the Act, has been and will continue to be engaged to represent the
Independent Board Members. The selection of such counsel will be within
the discretion of the then-existing Independent Board Members.
11. In the event the Commission adopts a rule under the Act
providing substantially similar relief to that in the order requested
in the application, the requested order will expire on the effective
date of that rule.
12. The Manager will provide the Board, no less frequently than
quarterly, with information about the Manager's profitability on a per
Fund basis. This information will reflect the impact on profitability
of the hiring or termination of any Sub-Adviser during the applicable
quarter.
13. Whenever a Sub-Adviser is hired or terminated, the Manager will
provide the Board with information showing the expected impact on the
profitability of the Manager.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-22686 Filed 9-21-09; 8:45 am]
BILLING CODE 8010-01-P
