
[Federal Register Volume 78, Number 139 (Friday, July 19, 2013)]
[Notices]
[Pages 43251-43254]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17316]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30599; 812-14110]


Grosvenor Alternative Funds Master Trust, et al.; Notice of 
Application

July 15, 2013.
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: 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: Grosvenor Alternative Funds Master Trust (``Master 
Trust''), Grosvenor Alternative Funds (``GAF Trust''), and Grosvenor 
Capital Management, L.P. (the ``Initial Adviser'') (collectively, 
``Applicants'').

DATES: 
    Filing Dates: The application was filed on January 8, 2013, and 
amended on May 10, 2013.
    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 August 9, 2013 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 and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090. Applicants: Girish Kashyap, 
Grosvenor Capital Management, L.P., 900 North Michigan Avenue, Suite 
1100, Chicago, IL 60611.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 551-6812, or David P. Bartels, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Exemptive Applications Office).

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 for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. The Master Trust \1\ and the GAF Trust (collectively with the 
Master Trust, ``Trusts'') will be registered under the Act as open-end 
management investment companies organized as Delaware statutory 
trusts.\2\ Each Trust will offer one or more series (each a ``Fund'' 
and collectively the ``Funds''), each of which has or will have its own 
distinct investment objectives, policies and restrictions.\3\ The 
Initial Adviser, an Illinois limited partnership, is registered as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act''). The Initial Adviser will serve as investment 
adviser to each Fund pursuant to an investment advisory agreement 
(``Advisory Agreement'') with the respective Fund.\4\

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Each Advisory Agreement will be approved by the relevant 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'') and by the 
shareholders of the relevant Fund in the manner required by sections 
15(a) and 15(c) of the Act and rule 18f-2 under the Act.
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    \1\ Applicants state that each series of the Master Trust is a 
master fund (``Master Fund'') in a master-feed structure pursuant to 
section 12(d)(1)(E) of the Act. Certain Funds (as defined below), as 
well as any future Fund and any other investment company or series 
thereof that is advised by the Initial Adviser (as defined below), 
may invest substantially all their assets in the Master Fund (each a 
``Feeder Fund''). No Feeder Fund will engage any subadviser other 
than through approving the applicable Master Fund's subadviser, if 
any.
    \2\ Applicants also request relief with respect to any future 
Fund as well as any other existing or future registered open-end 
management investment company or series thereof that: (a) is advised 
by the Initial Adviser or any entity controlling, controlled by, or 
under common control with the Initial Adviser or its successors 
(collectively, the ``Adviser''); (b) uses the manager of managers 
structure (``Manager of Managers Structure'') described in the 
application; and (c) complies with the terms and conditions of the 
application (together with any Funds that currently use the Manager 
of Mangers Structure, each a ``Subadvised Fund'' and collectively, 
the ``Subadvised Funds''). The only existing registered open-end 
management investment companies that currently intend to rely on the 
requested order are named as applicants. For purposes of the 
requested order, ``successor'' is limited to an entity or entities 
that result from a reorganization into another jurisdiction or a 
change in the type of business organization. If the name of any 
Subadvised Fund contains the name of a Subadviser (as defined 
below), the name of the Adviser will precede the name of the 
Subadviser.
    \3\ The initial and current Fund of the Master Trust is 
Grosvenor Alternative Strategies Master Fund. The initial and 
current Fund of the GAF Trust is Grosvenor Alternative Strategies 
Fund.
    \4\ Applicants state that, under a master-feeder operating 
structure, the initial Fund in the GAF Trust is a Feeder Fund that 
pursues its investment objective by investing all of its investable 
assets in a corresponding series of the Master Trust having 
identical investment objectives to those of the Fund. All investment 
management for the Feeder Funds takes place at the Master Fund level 
and no investment management takes place at the Feeder Fund level. 
Investment management for any future Funds that do not operate under 
a master-feeder structure will occur at the Fund level.
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    2. Under the terms of the Advisory Agreements, the Adviser, subject 
to the oversight of the Board, will furnish a continuous investment 
program for each Fund. The Adviser periodically reviews investment 
policies and strategies of each Fund and, based on the need of a 
particular Fund, may recommend changes to the investment policies and 
strategies of the Fund for consideration by its Board. For its services 
to each Fund, the Adviser will receive an investment advisory fee from 
that Fund as specified in the applicable Advisory Agreement based on 
the average daily net asset value of that Fund. The terms of the 
Advisory Agreements also permit the Adviser, subject to the approval of 
the relevant Board, including a majority of the Independent Trustees 
and the shareholders of the applicable Subadvised Funds (if required by 
applicable law), to delegate portfolio management responsibilities of 
all or a portion of the assets of the Subadvised Fund to one or more 
subadvisers (``Subadvisers''). The Adviser intends to enter into 
subadvisory agreements (``Subadvisory Agreements'') with various 
Subadvisers to provide investment advisory services to various 
Subadvised Funds. Each Subadviser will be an investment adviser as 
defined in section 2(a)(20) of the Act and registered with the 
Commission as an ``investment adviser'' under the Advisers Act. The 
Adviser will evaluate, allocate assets to and oversee the Subadvisers, 
and will make recommendations about their hiring, termination and 
replacement to the Board, at all times subject to the authority of the 
Board. The Adviser will compensate each Subadviser out of the fee paid 
to the Adviser under the relevant Advisory Agreement, or the Subadvised 
Fund will be responsible for paying subadvisory fees directly to the 
Subadviser.\5\
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    \5\ Under the requested order, for Subadvised Funds that pay 
fees to a Subadviser directly from Fund assets, any change to a 
Subadvisory Agreement or Investment Advisory Agreement that would 
not result in an increase in the total management and advisory fees 
payable by the Subadvised Fund would not need to be submitted to 
affected shareholders for approval. For instance, the management and 
advisory fees payable by a Subadvised Fund to a Subadviser could be 
increased without shareholder approval if there were a corresponding 
decrease in the management and advisory fees payable by the 
Subadvised Fund to the Adviser.
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    3. The Subadvised Funds will inform shareholders of the hiring of a 
new Subadviser pursuant to the following procedures (``Modified Notice 
and Access Procedures''): (a) within 90 days after a new Subadviser is 
hired for any Subadvised Fund, that Subadvised Fund will send its 
shareholders \6\ either a Multi-Manager Notice or a Multi-Manager 
Notice and Multi-Manager Information Statement; \7\ and (b) the 
Subadvised Fund will make the Multi-Manager Information Statement 
available on the Web site identified in the Multi-Manager Notice no 
later than when the Multi-Manager Notice (or Multi-Manager Notice and 
Multi-Manager Information Statement) is first sent to shareholders, and 
will maintain it on that Web site for at least 90 days.
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    \6\ If the Subadvised Fund is a Master Fund, for purposes of the 
Modified Notice and Access Procedures, ``shareholders'' include both 
the shareholders of the applicable Master Fund and the shareholders 
of its Feeder Funds.
    \7\ A ``Multi-Manager Notice'' will be modeled on a Notice of 
Internet Availability as defined in rule 14a-16 under the Securities 
Exchange Act of 1934 (``Exchange Act''), and specifically will, 
among other things: (a) Summarize the relevant information regarding 
the new Subadviser; (b) inform shareholders that the Multi-Manager 
Information Statement is available on a Web site; (c) provide the 
Web site address; (d) state the time period during which the Multi-
Manager Information Statement will remain available on that Web 
site; (e) provide instructions for accessing and printing the Multi-
Manager Information Statement; and (f) instruct the shareholder that 
a paper or email copy of the Multi-Manager Information Statement may 
be obtained, without charge, by contacting the Subadvised Fund. A 
``Multi-Manager Information Statement'' will meet the requirements 
of Regulation 14C, Schedule 14C and Item 22 of Schedule 14A under 
the Exchange Act for an information statement, except as modified by 
the requested order to permit Aggregate Fee Disclosure (as defined 
below). Multi-Manager Information Statements will be filed 
electronically with the Commission via the EDGAR system.
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    4. Applicants request an order to permit the Adviser, subject to 
Board approval, to select Subadvisers to manage all or a portion of the 
assets of a Subadvised Fund pursuant to a Subadvisory Agreement and to 
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 a 
Feeder Fund or a Subadvised Fund or the Adviser, other than by reason 
of serving as a Subadviser to a Subadvised Funds (``Affiliated 
Subadviser'').
    5. Applicants also request an order exempting the Subadvised Funds 
from certain disclosure provisions described below that may require the 
Applicants to disclose fees paid by the Adviser or a Subadvised Fund to 
each Subadviser. Applicants seek an order to permit each Subadvised 
Fund to disclose (as a dollar amount and a percentage of each 
Subadvised Fund's net assets) only: (a) the aggregate fees paid to the 
Adviser and any Affiliated Subadvisers; and (b) the aggregate fees paid 
to Subadvisers other than Affiliated Subadvisers (collectively, the 
``Aggregate Fee Disclosure'').\8\ A Subadvised Fund that employs an 
Affiliated Subadviser will provide separate disclosure of any fees paid 
to the Affiliated Subadviser.
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    \8\ For any Subadvised Fund that is a Master Fund, applicants 
request that this relief also permit any Feeder Fund invested in 
that Master Fund to disclose Aggregate Fee Disclosure.
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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 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 investment company affected by a matter must 
approve that matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 19(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 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. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of a registered investment 
company's registration statement and shareholder

[[Page 43253]]

reports filed with the Commission. Sections 6-07(2)(a), (b) and (c) of 
Regulation S-X require a registered investment company to include in 
its financial statement information about the investment advisory fees.
    5. 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 the requested relief meets this standard for 
the reasons discussed below.
    6. Applicants assert that the shareholders expect the Adviser, 
subject to the review and approval of the Board, to select the 
Subadvisers who are best suited to achieve the Subadvised Fund's 
investment objective. Applicants assert that, from the perspective of 
the shareholder, the role of the Subadviser is substantially equivalent 
to the role of the individual portfolio managers employed by an 
investment adviser to a traditional investment company. Applicants 
state that requiring shareholder approval of each Subadvisory Agreement 
would impose unnecessary delays and expenses on the Subadvised Funds, 
and enable the Subadvised Fund to act more quickly when the Board and 
the Adviser believe that a change would benefit a Subadvised Fund and 
its shareholders. Applicants note that the Investment Advisory 
Agreements and any Subadvisory Agreement with an Affiliated Subadviser 
(if any) will continue to be subject to the shareholder approval 
requirements of section 15(a) of the Act and rule 18f-2 under the Act.
    7. Applicants assert that the requested disclosure relief would 
benefit shareholders of the Subadvised Funds because it would improve 
the Adviser's ability to negotiate the fees paid to Subadvisers. 
Applicants state that the Adviser may be able to negotiate rates that 
are below a Subadviser's ``posted'' amounts, if the Adviser is not 
required to disclose the Subadvisers' fees to the public. Applicants 
submit that the requested relief will encourage Subadvisers to 
negotiate lower subadvisory fees with the Adviser if the lower fees are 
not required to be made public.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Subadvised Fund may rely on the requested order, the 
operation of the Subadvised Fund in the manner described in the 
application will be approved by a majority of the Subadvised Fund's 
outstanding voting securities as defined in the Act, which in the case 
of a Master Fund will include voting instructions provided by 
shareholders of the Feeder Funds investing in such Master Fund or other 
voting arrangements that comply with section 12(d)(1)(E)(iii)(aa) of 
the Act, or, in the case of a Subadvised Fund whose public shareholders 
purchase shares on the basis of a prospectus containing the disclosure 
contemplated by condition 2 below, by the initial shareholder before 
such Subadvised Fund's shares are offered to the public.
    2. The prospectus for each Subadvised Fund, and in the case of a 
Master Fund relying on the requested relief, the prospectus for each 
Feeder Fund investing in such Master Fund, will disclose the existence, 
substance, and effect of any order granted pursuant to the application. 
In addition, each Subadvised Fund (and any such Feeder Fund) will hold 
itself out to the public as employing a Manager of Managers Structure. 
The prospectus will prominently disclose that the Adviser has the 
ultimate responsibility, subject to oversight by the Board, to oversee 
the Subadvisers and recommend their hiring, termination, and 
replacement.
    3. Subadvised Funds will inform shareholders, and if the Subadvised 
Fund is a Master Fund, shareholders of any Feeder Funds, of the hiring 
of a new Subadviser within 90 days after the hiring of the new 
Subadviser pursuant to the Modified Notice and Access Procedures.
    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 Subadvised Fund, which in the case of a Master Fund 
will include voting instructions provided by shareholders of the Feeder 
Fund investing in such Master Fund or other voting arrangements that 
comply with Section 12(d)(1)(E)(iii)(aa) of the Act.
    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. 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.
    7. Whenever a Subadviser change is proposed for a Subadvised Fund 
with an Affiliated Subadviser, the Board, including a majority of the 
Independent Trustees, will make a separate finding, reflected in the 
Board minutes, that the change is in the best interests of the 
Subadvised Fund and its shareholders, and if the Subadvised Series is a 
Master Fund, the best interests of any applicable Feeder Funds and 
their respective shareholders, and does not involve a conflict of 
interest from which the Adviser or the Affiliated Subadviser derives an 
inappropriate advantage.
    8. 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.
    9. The Adviser will provide general management services to each 
Subadvised Fund, including overall supervisory responsibility for the 
general management and investment of the Subadvised Fund's assets and, 
subject to review and approval of the Board, will: (a) Set the 
Subadvised Fund's overall investment strategies; (b) evaluate, select 
and recommend Subadvisers to manage all or a portion of the Subadvised 
Fund's assets; (c) allocate and, when appropriate, reallocate the 
Subadvised Fund's assets among Subadvisers; (d) monitor and evaluate 
the Subadvisers' performance; and (e) implement procedures reasonably 
designed to ensure that Subadvisers comply with the Subadvised Fund's 
investment objective, policies and restrictions.
    10. No Trustee or officer of a Subadvised Fund or of a Feeder Fund 
that invests in a Subadvised Fund that is a Master 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.
    11. Each Subadvised Fund and any Feeder Fund that invests in a 
Subadvised Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.
    12. In the event the Commission adopts a rule under the Act 
providing

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substantially similar relief to that in the order requested in the 
application, the requested order will expire on the effective date of 
that rule.
    13. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per Subadvised Fund basis. The information will reflect the impact on 
profitability of the hiring or termination of any Subadviser during the 
applicable quarter.
    14. For Subadvised Funds that pay fees to a Subadviser directly 
from Fund assets, any changes to a Subadvisory Agreement that would 
result in an increase in the total management and advisory fees payable 
by a Subadvised Fund will be required to be approved by the 
shareholders of the Subadvised Fund.

For the Commission, by the Division of Investment Management, under 
delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-17316 Filed 7-18-13; 8:45 am]
BILLING CODE 8011-01-P


