EXECUTION COPY
INVESTMENT MANAGEMENT AGREEMENT
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INVESTMENT MANAGEMENT AGREEMENT ("AGREEMENT"), dated as of April 30,
2009 between Grail Advisors ETF Trust, a Delaware statutory trust ("Trust"), and
Grail Advisors, LLC, a Delaware limited liability company ("Grail" or
"Manager").
WHEREAS, the Trust is registered as an investment company under the
Investment Company Act of 1940, as amended ("Investment Company Act");
WHEREAS, Grail is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
WHEREAS, the Trust is and will continue to be a series fund having one
or more investment portfolios, each with its own investment objectives,
investment policies and restrictions;
WHEREAS, the Investment Company Act prohibits any person from acting as
an investment adviser to a registered investment company except pursuant to a
written contract; and
WHEREAS, the Board of Trustees of the Trust (collectively, the
"Trustees," and each member individually, a "Trustee") wishes to appoint Grail
as the investment manager of the Trust;
NOW, THEREFORE, the Trust and Grail hereby agree as follows:
1. APPOINTMENT OF MANAGER
The Trust hereby appoints Grail as the investment manager for each of
the Funds of the Trust specified in Appendix A to this Agreement, as such
Appendix A may be amended by Manager and the Trust from time to time ("Funds"),
subject to the supervision of the Trustees of the Trust and in the manner and
under the terms and conditions set forth in this Agreement. Manager accepts such
appointment and agrees to render the services and to assume the obligations set
forth in this Agreement commencing on its effective date in conformity with
applicable laws and regulations, including, but not limited to, the Investment
Company Act and the Advisers Act and in accordance with the Fund's investment
objectives, policies and restrictions as stated in the Trust's Trust Instrument,
By-Laws, and such Fund's Prospectus, Statement of Additional Information ("SAI")
and Compliance Manual, as is from time to time in effect. Manager will be an
independent contractor and will have no authority to act for or represent the
Trust in any way or otherwise be deemed an agent unless authorized in this
Agreement or writing by the Trust and Manager.
2. DUTIES OF MANAGER
A. Scope of Authority. Subject to the oversight and supervision of the
Trustees: Manager will provide a continuous investment program for each Fund and
shall determine what securities and other investments will be purchased,
retained, sold or loaned by each Fund and what portion of such assets will be
invested or held uninvested as cash. To carry out such decisions, Manager is
authorized, as agent and attorney-in-fact for the Trust, for the account of, at
the risk of and in the name of the Trust, to place orders and issue instructions
with respect to transactions for each Fund. Manager, in consultation with any
appropriate Sub-Adviser(s), will initially establish and make subsequent
modifications to the lists of securities required to be tendered and accepted in
connection with Fund creations and redemptions, respectively. Manager will have
the authority to act for each Fund in the same manner and with the same force
and effect as such Fund itself might or could do with respect to purchases,
sales and other transactions for the Fund, as well as all other things necessary
or incidental to the furtherance of such purchases, sales and other
transactions.
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B. Delegation of Authority.
(i) The Trust acknowledges and agrees that it is contemplated
that Manager will select and contract with one or more investment advisers
("Sub-Advisers") to manage the investment operations and portfolio composition
of each Fund and render investment advice to each Fund, including the purchase,
retention, and disposition of the investments, securities and cash contained in
each Fund, in conformity with applicable laws and regulations, including, but
not limited to, the Investment Company Act and the Advisers Act and in
accordance with the Fund's investment objectives, policies and restrictions as
stated in the Trust's Trust Instrument, By-Laws, and such Fund's Prospectus, SAI
and Compliance Manual, as is from time to time in effect; provided, that any
contract with a Sub-Adviser (a "Subadvisory Agreement") shall be in compliance
with and approved as required by the Investment Company Act or in accordance
with any exemptive relief granted by the Securities and Exchange Commission
("SEC") under the Investment Company Act. Under such circumstances, Manager will
have (A) overall supervisory responsibility for the general management and
investment of each Fund's assets; (B) discretion to select new or additional
Sub-Advisers for each Fund; (C) discretion to enter into and materially modify
existing Subadvisory Agreements; (D) discretion to terminate and replace any
Sub-Adviser; and (E) investment discretion to make all determinations with
respect to the investment of a Fund's assets not then managed by a Sub-Adviser,
subject in the case of clauses (B) through (D) to applicable provisions of the
Investment Company Act or any exemptive relief therefrom. In connection with any
such delegation, Manager will oversee the performance of delegated functions by
each Sub-Adviser, directly or indirectly supervise each Sub-Adviser and be
responsible for compensating each Sub-Adviser, directly or indirectly (through
the Primary Sub-Adviser (as defined below) if any), in the manner specified in
its agreement with the Sub-Adviser.
(ii) The Trust acknowledges and agrees that, with respect to
certain Funds, it is contemplated that Manager will select and contract with one
Sub-Adviser to act as the lead portfolio manager for the Fund ("Primary
Sub-Adviser") and, pursuant to a Subadvisory Agreement with that Primary
Sub-Adviser ("Primary Subadvisory Agreement") consult with such Primary
Sub-Adviser in carrying out certain of the responsibilities described above in
section 2.B(i). To the extent that Manager enters into a Primary Subadvisory
Agreement, Manager will retain (A) overall supervisory responsibility for the
general management and investment of each Fund's assets; (B) discretion to enter
into and materially modify the Primary Subadvisory Agreement; (C) discretion to
terminate and replace any Primary Sub-Adviser; and (D) responsibility for
overseeing the performance of delegated functions by the Primary Sub-Adviser
subject in the case of clauses (B) and (C) to applicable provisions of the
Investment Company Act or any exemptive relief therefrom. In connection with any
such delegation, Manager will consult with the Primary Sub-Adviser, to oversee
the performance of delegated functions by each other Sub-Adviser. Manager will
be responsible for compensating any Primary Sub-Adviser in the manner specified
in the relevant Primary Subadvisory Agreement.
C. Exercise of Rights. Manager, unless and until otherwise directed by
the Trustees, will exercise all rights of security holders with respect to
securities held by each Fund, including, but not limited to, voting proxies.
D. Reports to the Trustees. Upon request, Manager shall provide to the
Trustees such analyses and reports as may be required by law or otherwise
reasonably required to fulfill its responsibilities under this Agreement.
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E. Manager will also furnish to the Trust, at its own expense and
without remuneration from or other cost to the Trust, the following:
(i) Office Space. Manager will provide office space in the
offices of Manager or in such other place as may be reasonably agreed
upon by the parties hereto from time to time, and all necessary office
facilities and equipment;
(ii) Personnel. Manager will provide necessary executive and
other personnel, including personnel for the performance of clerical
and other office functions, exclusive of those functions: (a) related
to and to be performed under the Trust's contract or contracts for
administration, custodial, accounting, bookkeeping, transfer, and
dividend disbursing agency or similar services by any entity, including
Manager or its affiliates, selected to perform such services under such
contracts; and (b) related to the services to be provided by any
Sub-Adviser pursuant to a Subadvisory Agreement;
(iii) Preparation of Prospectus and Other Documents. Manager
will provide other information and services, other than services of
outside counsel or independent accountants or services to be provided
by any Sub-Adviser under any Subadvisory Agreement required in
connection with the preparation of all registration statements and
Prospectuses, Prospectus supplements, SAIs, all annual, semiannual, and
periodic reports to shareholders of the Trust, regulatory authorities,
or others, and all notices and proxy solicitation materials, furnished
to shareholders of the Trust or regulatory authorities, and all tax
returns; and
(iv) Cooperation with Trust Agents. Manager agrees to
cooperate with and provide reasonable assistance to the Trust, any
Trust custodian or foreign sub-custodians, any Trust pricing agents and
all other agents and representatives of the Trust, such information
with respect to the Funds as they may reasonably request from time to
time in the performance of their obligations, provide prompt responses
to reasonable requests made by such persons and establish appropriate
interfaces with each so as to promote the efficient exchange of
information and compliance with applicable laws and regulations.
Manager may enter into arrangements with its parent or other persons affiliated
or unaffiliated with Manager for the provision of certain personnel and
facilities to Manager to enable Manager to fulfill its duties and obligations
under this Agreement.
F. Section 11 of the Securities Exchange Act of 1934, as amended. The
Trust hereby agrees that any entity or person associated with Manager that is a
member of a national securities exchange is authorized to effect any transaction
on such exchange for the account of a Fund to the extent and as permitted by
Section 11(a)(1)(H) of the Securities Exchange Act of 1934, as amended ("1934
Act").
G. Section 28(e) of the 1934 Act. Subject to the appropriate policies
and procedures approved by the Trustees, Manager may, to the extent authorized
by Section 28(e) of the 1934 Act, cause a Fund to pay a broker or dealer that
provides brokerage or research services to Manager, a Sub-Adviser, the Trust and
the Fund an amount of commission for effecting a Fund transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if Manager determines, in good faith, that such
amount of commission is reasonable in relationship to the value of such
brokerage or research services provided in terms of that particular transaction
or Manager's overall responsibilities to the Fund, the Trust or its other
investment advisory clients. To the extent authorized by said Section 28(e) and
the Trustees, Manager shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action.
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H. Directed Brokerage. Subject to the requirement to seek best
execution, and to the appropriate policies and procedures approved by the
Trustees, the Trust reserves the right to direct Manager to cause Sub-Advisers
to effect transactions in Fund securities through broker-dealers in a manner
that will help generate resources to pay the cost of certain expenses which the
Trust is required to pay or for which the Trust is required to arrange payment
pursuant to this Agreement.
3. ALLOCATION OF EXPENSES
A. Expenses Paid by Manager:
(i) Salaries, Expenses and Fees of Certain Persons. Manager
(or its affiliates) shall pay all salaries, expenses, and fees of the
Trustees and officers of the Trust who are officers,
directors/trustees, partners, or employees of Manager or its
affiliates; and
(ii) Assumption of Trust Expenses. The payment or assumption
by Manager of any expense of the Trust that Manager is not required by
this Agreement to pay or assume shall not obligate Manager to pay or
assume the same or any similar expense of the Trust on any subsequent
occasion.
B. Expenses Paid by the Trust: The Trust will pay all expenses of its
organization, operations, and business not specifically assumed or agreed to be
paid by Manager, as provided in this Agreement, or by a Sub-Adviser, as provided
in a Subadvisory Agreement. Without limiting the generality of the foregoing,
the Trust shall pay or arrange for the payment of the following:
(i) Preparing, Printing and Mailing of Certain Documents. The
costs of preparing, setting in type, printing and mailing of
Prospectuses, Prospectus supplements, SAIs, annual, semiannual and
periodic reports, and notices and proxy solicitation materials required
to be furnished to shareholders of the Trust or regulatory authorities,
and all tax returns;
(ii) Officers and Trustees. Compensation of the officers and
Trustees of the Trust who are not officers, directors/trustees,
partners or employees of Manager or its affiliates;
(iii) Registration Fees and Expenses. All legal and other fees
and expenses incurred in connection with the affairs of the Trust,
including those incurred with respect to registering its shares with
regulatory authorities and all fees and expenses incurred in connection
with the preparation, setting in type, printing, and filing with
necessary regulatory authorities of any registration statement and
Prospectus, and any amendments or supplements that may be made from
time to time, including registration, filing and other fees in
connection with requirements of regulatory authorities;
(iv) Custodian and Accounting Services. All expenses of the
transfer, receipt, safekeeping, servicing and accounting for the
Trust's cash, securities, and other property, including all charges of
depositories, custodians, and other agents, if any;
(v) Independent Legal and Accounting Fees and Expenses. The
charges for the services and expenses of the independent accountants
and legal counsel retained by the Trust, for itself or its Independent
Trustees;
(vi) Transfer Agent. The charges and expenses of maintaining
shareholder accounts, including all charges of transfer, bookkeeping,
and dividend disbursing agents appointed by the Trust;
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(vii) Brokerage Costs. All brokers' commissions and issue and
transfer taxes chargeable to the Trust in connection with securities
transactions to which the Trust is a party;
(viii) Taxes. All taxes and corporate fees payable by or with
respect to the Trust to federal, state, or other governmental agencies,
including preparation of such documents as required by any governmental
agency in connection with such taxes;
(ix) Trade Association Fees. Any membership fees, dues or
expenses incurred in connection with the Trust's membership in any
trade association or similar organizations;
(x) Bonding and Insurance. All insurance premiums for fidelity
and other coverage;
(xi) Shareholder and Board of Trustees Meetings. All expenses
incidental to holding shareholders and Trustees meetings, including the
printing of notices and proxy materials and proxy solicitation fees and
expenses;
(xii) Pricing. All expenses of pricing of the net asset value
per share of each Fund, including the cost of any equipment or services
to obtain price quotations; and
(xiii) Nonrecurring and Extraordinary Expenses. Such
extraordinary expenses, such as indemnification payments or damages
awarded in litigation or settlements made.
The Trust agrees that Manager may, but is not obligated to, enter into
a separate letter agreement with the Trust, pursuant to which Manager would
reimburse a Fund's expenses or waive a portion of Manager's fee to the extent
necessary to maintain the Fund's expense ratio at an agreed-upon amount for an
agreed-upon period of time. To the extent and on the terms provided in such
separate letter agreement, Manager may recoup such expenses reimbursed or waived
by it, which a Fund was obligated to pay, and such recoupment will not be
considered to be a part of the Manager's compensation under section 4 of this
Agreement.
4. COMPENSATION OF MANAGER
For its services performed hereunder, the Trust will pay Manager with
respect to each Fund the compensation specified in Appendix A to this Agreement.
Such compensation shall be paid to Manager by the Trust monthly; however, the
Trust will calculate this charge on the average daily net asset value of each
Fund and accrue it on a daily basis. If this Agreement becomes effective or
terminates with respect to any Fund before the end of any month, the fee for the
period from the effective date to the end of the month or from the beginning of
such month to the date of termination, as the case may be, shall be prorated
according to the proportion that such period bears to the full month in which
such effectiveness or termination occurs.
5. NON-EXCLUSIVITY
The services of Manager to the Trust are not to be deemed to be
exclusive, and Manager shall be free to render investment management, advisory
or other services to others (including other investment companies) and to engage
in other activities so long as the services provided hereunder by Manager are
not impaired. It is understood and agreed that the directors, officers and
employees of Manager are not prohibited from engaging in any other business
activity or from rendering services to any other person, or from serving as
partners, officers, directors/trustees, or employees of any other firm or
corporation, including other investment companies.
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6. LIMITATIONS ON LIABILITY
A. Manager. Manager will exercise its best judgment in rendering its
services to the Trust, and the Trust agrees, as an inducement to Manager's
undertaking to do so, that Manager will not be liable for any error of judgment
or mistake of law or for any loss suffered by the Trust in connection with the
matters to which this Agreement relates, but will be liable only for willful
misconduct, bad faith, gross negligence or reckless disregard of its duties or
obligations in rendering its services to the Trust as specified in this
Agreement. Any person, even though an officer, director, employee or agent of
Manager, who may be or become an officer, Trustee, employee or agent of the
Trust, shall be deemed, when rendering services to the Trust or when acting on
any business of the Trust, to be rendering such services to or to be acting
solely for the Trust and not as an officer, director, employee or agent, or one
under the control or direction of Manager, even though paid by it.
B. Trustees and Shareholders. Manager is hereby expressly put on notice
of the limitation of shareholder liability as set forth in the Trust Instrument
and agrees that obligations assumed by a Trust pursuant to this Agreement shall
be limited in all cases to a Trust and its assets, and if the liability relates
to one or more Fund, the obligations hereunder shall be limited to the
respective assets of that Fund. The Manager further agrees that it shall not
seek satisfaction of any such obligation from the shareholders or any individual
shareholder of the Fund, nor from the Trustees or any individual Trustee of a
Trust. This Agreement is executed by each Trust's Trustees and/or officers in
their capacities as Trustees and/or officers and the obligations of this
Agreement are not binding upon any of them or the shareholders individually;
rather, they are binding only upon the assets and property of the Trust.
C. Consequential Damages. Neither party shall be liable to the other
party for consequential damages under any provision of this Agreement.
7. BOOKS AND RECORDS
The records relating to the services provided under this Agreement
shall be the property of the Trust and shall be under its control; however, the
Trust shall furnish to Manager such records and permit it to retain such records
(either in original or in duplicate form) as it shall reasonably require in
order to carry out its duties. In the event of the termination of this
Agreement, such records shall promptly be returned to the Trust by Manager free
from any claim or retention of rights therein, provided that Manager may retain
copies of any such records that are required by law. Manager shall keep
confidential any information obtained in connection with its duties hereunder,
including information concerning the holdings, transactions or business
activities of the Trust or any of its portfolios, and disclose such information
only if the Trust has authorized such disclosure, or if such disclosure is in
accordance with policies and procedures adopted by the Trust or is expressly
required or lawfully requested by applicable federal or state regulatory
authorities.
8. DURATION OF AGREEMENT
This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has been
approved: (i) by a vote of a majority of those trustees of the Trust who are not
"interested persons" (as defined in the Investment Company Act) ("Independent
Trustees") of any party to the Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (ii) by vote of a majority of the
Trust's outstanding securities. The Agreement will continue in effect for two
years from the date of its effectiveness and may be continued for successive
annual periods thereafter so long as such continuance is specifically approved
at least annually either by (i) the Trustees or (ii) by the vote, as
appropriate, of either a majority of the outstanding voting securities of the
Trust or a majority of the outstanding voting securities of any affected Fund.
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9. AMENDMENTS TO THE AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no material amendment of this Agreement as to a given Fund shall be
effective until approved by the Trustees and such Fund shareholders to the
extent required by the Investment Company Act.
10. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees, including a majority of the Independent Trustees,
by the vote of a majority of the outstanding voting securities of the Trust, or,
with respect to any affected Fund, by the vote of a majority of the outstanding
voting securities of such Fund, on sixty (60) days' written notice to Manager,
or by Manager on sixty (60) days' written notice to the Trust. This Agreement
will automatically terminate, without payment of any penalty, in the event of
its assignment.
11. PROVISION OF CERTAIN INFORMATION BY MANAGER
Manager will notify the Trust of the occurrence of any of the following
events:
A. Manager fails to be registered as an investment adviser under the
Advisers Act or under the laws of any jurisdiction in which Manager is required
to be registered as an investment adviser in order to perform its obligations
under this Agreement;
B. Manager is served or otherwise receives notice of any action, suit,
proceeding, inquiry or investigation, at law or in equity, before or by any
court, public board or body, involving the affairs of the Trust; and/or
C. A change in control or management of Manager is anticipated.
12. NAMING RIGHTS
The Trust and each Fund may use the name "Grail Advisors ETF Trust" and
"Grail" for only so long as this Agreement or any extension, renewal or
amendment hereof remains in effect, including any similar agreement with any
organization which shall have succeeded to the business of the Manager. At such
time as such an agreement shall no longer be in effect, the Trust and each Fund
will (to the extent that it lawfully can) cease to use any name derived from
Grail Advisors, LLC or any successor organization.
13. FORCE MAJEURE
Manager shall not be liable for delays or errors occurring by reason of
circumstances beyond its control, including but not limited to acts of civil or
military authority, national emergencies, work stoppages, fire, flood,
catastrophe, acts of God, insurrection, war, riot, or failure of communication
or power supply. In the event of equipment breakdowns beyond its control,
Manager shall take reasonable steps to minimize service interruptions but shall
have no liability with respect thereto.
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14. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware (without giving effect to its
conflict of laws principles), or any of the applicable provisions of the
Investment Company Act. To the extent that the laws of the State of Delaware, or
any of the provisions in this Agreement, conflict with applicable provisions of
the Investment Company Act, the latter shall control. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the Investment Company Act
shall be resolved by reference to such term or provision of the Investment
Company Act and to interpretations thereof, if any, by the United States courts
or, in the absence of any controlling decision of any such court, by rules,
regulations or orders of the SEC validly issued pursuant to the Investment
Company Act. Specifically, the terms "vote of a majority of the outstanding
voting securities," "interested persons," "assignment," and "affiliated
persons," as used herein shall have the meanings assigned to them by Section
2(a) of the Investment Company Act unless otherwise stated herein. In addition,
where the effect of a requirement of the Investment Company Act reflected in any
provision of this Agreement is relaxed by a rule, regulation or order of the
SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
15. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
16. INTERPRETATION
Nothing herein contained shall be deemed to require the Trust to take
any action contrary to its Trust Instrument or By-Laws, or any applicable
statutory or regulatory requirements to which it is subject or by which it is
bound, or to relieve or deprive the Trustees of their responsibility for and
control of the conduct of the affairs of the Trust.
17. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
18. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
19. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or Manager
in person or by registered mail or a private mail or delivery service providing
the sender with notice of receipt. Notice shall be deemed given on the date
delivered in accordance with this section.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first mentioned above.
GRAIL ADVISORS ETF TRUST
By: _______________________________
GRAIL ADVISORS, LLC
By: ______________________________
APPENDIX A
TO THE
INVESTMENT MANAGEMENT AGREEMENT
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Fund Effective Date Fee Rate
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Grail American Beacon Large Cap Value ETF 04/30/09 0.50%
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Grail American Beacon International Equity ETF 04/30/09 0.58%
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RP Growth ETF 08/31/09 0.65%
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RP Focused Large Cap Growth ETF 08/31/09 0.65%
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RP Technology ETF 08/31/09 0.65%
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RP Financials ETF 08/31/09 0.65%
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