Document ID: SEC-2017-0707-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2017-05-03T04:00Z

[Federal Register Volume 82, Number 84 (Wednesday, May 3, 2017)]
[Notices]
[Pages 20673-20685]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08899]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80540; File No. SR-NASDAQ-2017-039]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To List and Trade the 
Guggenheim Limited Duration ETF

April 27, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on April 13, 2017, The NASDAQ Stock Market LLC 
(``Nasdaq'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade the common shares of 
beneficial interest of the Guggenheim Limited Duration ETF (the 
``Fund''), a series of Claymore Exchange-Traded Fund Trust (the 
``Trust''), under Nasdaq Rule 5735 (``Rule 5735''). The common shares 
of beneficial interest of the Fund are referred to herein as the 
``Shares.''
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares of the Fund 
under Rule 5735, which rule governs the listing and trading of Managed 
Fund Shares \3\ on the Exchange.\4\ The Shares will be

[[Page 20674]]

offered by the Fund, which will be an actively managed exchange-traded 
fund (``ETF''). The Fund is a series of the Trust. The Trust was 
established as a Delaware statutory trust on May 24, 2006. The Trust is 
registered with the Commission as an open-end management investment 
company and has filed a post-effective amendment to its registration 
statement on Form N-1A (the ``Registration Statement'') with the 
Commission to register the Fund and its Shares under the 1940 Act and 
the Securities Act of 1933.\5\
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    \3\ A ``Managed Fund Share'' is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized 
as an open-end investment company or similar entity that invests in 
a portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Index Fund Shares, listed 
and traded on the Exchange under Nasdaq Rule 5705, seeks to provide 
investment results that correspond generally to the price and yield 
performance of a specific foreign or domestic stock index, fixed 
income securities index or combination thereof.
    \4\ The Commission approved Nasdaq Rule 5735 (formerly Nasdaq 
Rule 4420(o)) in Securities Exchange Act Release No. 57962 (June 13, 
2008), 73 FR 35175 (June 20, 2008) (SR-NASDAQ-2008-039). There are 
already multiple actively managed funds listed on the Exchange; see, 
e.g., Securities Exchange Act Release Nos. 69464 (April 26, 2013), 
78 FR 25774 (May 2, 2013) (SR-NASDAQ-2013-036) (order approving 
listing and trading of First Trust Senior Loan Fund); 66489 
(February 29, 2012), 77 FR 13379 (March 6, 2012) (SR-NASDAQ-2012-
004) (order approving listing and trading of WisdomTree Emerging 
Markets Corporate Bond Fund); and 78533 (August 10, 2016), 81 FR 
54634 (August 16, 2016) (SR-NASDAQ-2016-086) (order approving 
listing and trading of VanEck Vectors Long/Flat Commodity ETF). 
Additionally, the Commission has previously approved the listing and 
trading of a number of actively-managed funds on NYSE Arca, Inc. 
pursuant to Rule 8.600 of that exchange. See, e.g., Securities 
Exchange Act Release No. 68870 (February 8, 2013), 78 FR 11245 
(February 15, 2013) (SR-NYSEArca-2012-139) (order approving listing 
and trading of First Trust Preferred Securities and Income ETF). 
Moreover, the Commission previously approved the listing and trading 
of other actively managed funds within the Guggenheim family of 
ETFs. See, e.g., Security [sic] Exchange Act Release Nos. 64550 (May 
26, 2011), 76 FR 32005 (June 2, 2011) (SR-NYSEArca-2011-11) (order 
approving listing of Guggenheim Enhanced Core Bond ETF and 
Guggenheim Enhanced Ultra-Short Bond ETF); 76719 (December 21, 
2015), 80 FR 248 (December 28, 2015) (SR-NYSEArca-2015-73) (order 
approving listing of Guggenheim Total Return Bond ETF). The Exchange 
believes the proposed rule change raises no significant issues not 
previously addressed in those prior Commission orders.
    \5\ See Registration Statement for the Trust, filed on April 12, 
2016 (File Nos. 333-134551 and 811-21906). The descriptions of the 
Fund and the Shares contained herein are based, in part, on 
information in the Registration Statement. In addition, the 
Commission has issued an order granting certain exemptive relief to 
the Trust under the 1940 Act. See Investment Company Act Release No. 
29271 (May 18, 2010) (File No. 13534) (``Exemptive Order'').
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    Guggenheim Partners Investment Management, LLC will serve as the 
investment adviser (the ``Adviser'') to the Fund. Guggenheim Funds 
Distributors, LLC will serve as the principal underwriter and 
distributor of the Fund's Shares (the ``Distributor''). The Bank of New 
York Mellon will act as the custodian, transfer agent and fund 
accounting agent for the Fund (the ``Custodian''). MUFG Investor 
Services, LLC will serve as the administrator for the Fund (the 
``Administrator'').
    Paragraph (g) of Rule 5735 provides that, if the investment adviser 
to an investment company issuing Managed Fund Shares is affiliated with 
a broker-dealer, such investment adviser shall erect a ``fire wall'' 
between the investment adviser and the broker-dealer with respect to 
access to information concerning the composition and/or changes to such 
investment company's portfolio.\6\ In addition, paragraph (g) of Rule 
5735 further requires that personnel who make decisions on such 
investment company's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the investment company's portfolio.
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with the Advisers Act and Rule 204A-1 
thereunder. In addition, Rule 206(4)-7 under the Advisers Act makes 
it unlawful for an investment adviser to provide investment advice 
to clients unless such investment adviser has (i) adopted and 
implemented written policies and procedures reasonably designed to 
prevent violation, by the investment adviser and its supervised 
persons, of the Advisers Act and the Commission rules adopted 
thereunder; (ii) implemented, at a minimum, an annual review 
regarding the adequacy of the policies and procedures established 
pursuant to subparagraph (i) above and the effectiveness of their 
implementation; and (iii) designated an individual (who is a 
supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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    Rule 5735(g) is similar to Nasdaq Rule 5705(b)(5)(A)(i), which 
applies to index-based funds and requires ``fire walls'' between 
affiliated broker-dealers and investment advisers regarding the index-
based fund's underlying benchmark index. Rule 5735(g), however, applies 
to the establishment of a ``fire wall'' between affiliated investment 
advisers and the broker-dealers with respect to the investment 
company's portfolio and not with respect to an underlying benchmark 
index, as is the case with index-based funds.
    The Adviser is not a broker-dealer, but it is affiliated with the 
Distributor, a broker-dealer. The Adviser has therefore implemented and 
will maintain a fire wall with the Distributor with respect to the 
access of information concerning the composition and/or changes to the 
Fund's portfolio.
    In the event (a) the Adviser or any sub-adviser becomes newly 
affiliated with a different broker-dealer, or (b) any new adviser to 
the Fund is a registered broker-dealer or becomes affiliated with a 
broker-dealer, each will implement and maintain a fire wall with 
respect to its relevant personnel and/or such broker-dealer affiliate, 
if applicable, regarding access to information concerning the 
composition and/or changes to the Fund's portfolio and will be subject 
to procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio.
Guggenheim Limited Duration ETF
    The Fund will be an actively-managed ETF, and its investment 
objective is to seek to provide a level of income consistent with 
preservation of capital.
Principal Investments
    The Fund will seek to achieve its investment objective by 
investing, under normal market conditions,\7\ at least 80% of its net 
assets (plus the amount of any borrowings for investment purposes) in a 
diversified portfolio of ``Debt Instruments'' (as described below) of 
any interest rate, credit quality,\8\ maturity or duration; however, 
the Fund expects, under normal market conditions, to maintain a dollar-
weighted average duration \9\ of generally less than 3.5 years (the 
``80% Policy''). The 80% Policy may be represented by certain 
derivative instruments as discussed below,\10\ and ETFs \11\ and 
exchange-traded and over-the-counter (``OTC'') closed-end funds 
(``CEFs'') (which may include ETFs and CEFs affiliated with the Fund), 
provided that such ETFs and CEFs invest substantially all of their 
assets in Debt Instruments. The Fund will, as described further below, 
invest in the following Debt Instruments: Corporate debt securities of

[[Page 20675]]

U.S. and non-U.S. issuers, including corporate bonds; \12\ securities 
issued by the U.S. government or its agencies, instrumentalities or 
sponsored corporations (including those not backed by the full faith 
and credit of the U.S. government); \13\ inflation-indexed bonds issued 
by both governments and corporations; \14\ debt securities issued by 
states or local governments and their agencies, authorities and other 
government-sponsored enterprises (``Municipal Bonds''); \15\ tender 
option bonds; \16\ obligations of non-U.S. governments and their 
subdivisions, agencies and government-sponsored enterprises; 
obligations of international agencies or supranational entities; cash 
equivalents; \17\ agency \18\ and non-agency mortgage-backed securities 
(``MBS'') and asset-backed securities (``ABS''); \19\U.S. agency 
mortgage pass-through securities; \20\ repurchase agreements; \21\ 
commercial instruments (including asset-backed commercial instruments); 
\22\ zero-coupon and payment-in-kind securities; \23\ convertible 
securities; \24\ preferred securities and step-up securities (such

[[Page 20676]]

as step-up bonds); \25\ bank capital; \26\ bank instruments, including 
certificates of deposit (``CDs''),\27\ time deposits and bankers' 
acceptances from U.S. banks; \28\ debtor-in-possession financings; \29\ 
participations in and assignments of bank loans or corporate loans, 
which loans include senior loans,\30\ syndicated bank loans, junior 
loans,\31\ bridge loans,\32\ unfunded commitments,\33\ revolving credit 
facilities,\34\ and participation interests \35\.
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    \7\ The term ``normal market conditions'' includes, but is not 
limited to, the absence of trading halts in the applicable financial 
markets generally; operational issues (e.g., systems failure) 
causing dissemination of inaccurate market information; or force 
majeure type events such as natural or manmade disaster, act of God, 
armed conflict, act of terrorism, riot or labor disruption or any 
similar intervening circumstance.
    \8\ The Fund may hold fixed-income securities of any quality, 
rated or unrated, including those that are rated below-investment 
grade (also known as ``high yield securities'' or ``junk bonds''), 
or if unrated, determined by the Adviser to be of comparable 
quality. If nationally recognized statistical rating organizations 
assign different ratings to the same security, the Fund will use the 
higher rating for purposes of determining the security's credit 
quality. However, the Fund will not invest more than 35% of its 
total assets in fixed-income securities that are rated below 
investment grade as described below under ``Investment 
Restrictions.''
    \9\ Duration is a measure of the price volatility of a debt 
instrument as a result of changes in market rates of interest, based 
on the weighted average timing of the instrument's expected 
principal and interest payments. Duration differs from maturity in 
that it considers a security's yield, coupon payments, principal 
payments and call features in addition to the amount of time until 
the security matures. As the value of a security changes over time, 
so will its duration. The longer a security's duration, the more 
sensitive it will be to changes in interest rates.
    \10\ See ``The Fund's Use of Derivatives,'' infra.
    \11\ The ETFs in which the Fund may invest include Index Fund 
Shares (as described in Nasdaq Rule 5705), Portfolio Depositary 
Receipts (as described in Nasdaq Rule 5705), and Managed Fund Shares 
(as described in Nasdaq Rule 5735). The shares of ETFs in which the 
Fund may invest will be limited to securities that trade in markets 
that are members of the Intermarket Surveillance Group (``ISG''), 
which includes all U.S. national securities exchanges, or exchanges 
that are parties to a comprehensive surveillance sharing agreement 
with the Exchange. The Fund will not invest more than 20% of its net 
assets in leveraged or inverse-leveraged ETFs. The Fund will not 
invest in non-U.S. exchanged-listed ETFs.
    \12\ The Adviser expects that under normal market conditions the 
Fund will invest at least 75% of its corporate debt securities 
assets (including zero coupon and payment-in-kind securities) in 
issuances that have at least $100,000,000 par amount outstanding in 
developed countries or at least $200,000,000 par amount outstanding 
in emerging market countries.
    \13\ U.S. government securities include U.S. Treasury 
obligations and securities issued or guaranteed by various agencies 
of the U.S. government, or by various instrumentalities which have 
been established or sponsored by the U.S. government. U.S. Treasury 
obligations are backed by the ``full faith and credit'' of the U.S. 
government. Securities issued or guaranteed by federal agencies and 
U.S. government sponsored instrumentalities may or may not be backed 
by the full faith and credit of the U.S. government.
    \14\ Inflation-indexed bonds (other than municipal inflation-
indexed bonds and certain corporate inflation-indexed bonds) are 
fixed income securities whose principal value is periodically 
adjusted according to the rate of inflation (e.g., Treasury 
Inflation Protected Securities (``TIPS'')). Municipal inflation-
indexed securities are municipal bonds that pay coupons based on a 
fixed rate plus the Consumer Price Index for All Urban Consumers 
(``CPI''). With regard to municipal inflation-indexed bonds and 
certain corporate inflation-indexed bonds, the inflation adjustment 
is reflected in the semi-annual coupon payment.
    \15\ Municipal Bonds are debt securities issued by or on behalf 
of states, local governments, territories and possessions of the 
United States and the District of Columbia and their political 
subdivisions, agencies, and instrumentalities, the payments from 
which, in the opinion of bond counsel to the issuer, are excludable 
from gross income for Federal Income tax purposes, or that pay 
interest excludable from gross income for purposes of state and 
local income taxes of the designated state and/or allow the value of 
the Fund's shares to be exempt from state and local taxes of the 
designated state. The Fund will primarily invest in Municipal Bonds 
in developed countries, but may also invest in Municipal Bonds in 
emerging markets. The Fund will invest its Municipal Bond assets in 
issuances of at least $10,000,000. The Fund may invest in Municipal 
Bonds of any quality, rated or unrated, including those that are 
rated below-investment grade, or if unrated, determined by the 
Investment Adviser to be of comparable quality. The Fund will 
primarily invest in investment-grade Municipal Bonds.
    \16\ Tender option bonds are created by depositing intermediate- 
or long-term, fixed-rate or variable rate, municipal bonds into a 
trust and issuing two classes of trust interests (or 
``certificates'') with varying economic interests to investors. 
Holders of the first class of trust interests, or floating rate 
certificates, receive tax-exempt interest based on short-term rates 
and may tender the certificate to the trust at par. As consideration 
for providing the tender option, the trust sponsor (typically a 
bank, broker-dealer, or other financial institution) receives 
periodic fees. The trust pays the holders of the floating rate 
certificates from proceeds of a remarketing of the certificates or 
from a draw on a liquidity facility provided by the sponsor. The 
Fund investing in a floating rate certificate effectively holds a 
demand obligation that bears interest at the prevailing short-term 
tax-exempt rate. The floating rate certificate is typically an 
eligible security for money market funds. Holders of the second 
class of interests, sometimes called the residual income 
certificates, are entitled to any tax-exempt interest received by 
the trust that is not payable to floating rate certificate holders, 
and bear the risk that the underlying municipal bonds decline in 
value.
    \17\ Cash equivalents in which the Fund may invest will be U.S. 
Treasury Bills, investment grade commercial paper, cash, and Short 
Term Investment Funds (``STIFs''). STIFs are a type of fund that 
invests in short-term investments of high quality and low risk.
    \18\ Agency securities for these purposes generally includes 
securities issued by the following entities: Government National 
Mortgage Association (Ginnie Mae), Federal National Mortgage 
Association (Fannie Mae), Federal Home Loan Banks (FHLBanks), 
Federal Home Loan Mortgage Corporation (Freddie Mac), Farm Credit 
System (FCS) Farm Credit Banks (FCBanks), Student Loan Marketing 
Association (Sallie Mae), Resolution Funding Corporation (REFCORP), 
Financing Corporation (FICO), and the FCS Financial Assistance 
Corporation (FAC). Agency securities can include, but are not 
limited to, mortgage-backed securities.
    \19\ The MBS in which the Fund may invest may also include 
residential mortgage-backed securities (``RMBS''), collateralized 
mortgage obligations (``CMOs'') and commercial mortgage-backed 
securities (``CMBS''). The ABS in which the Fund may invest include 
collateralized debt obligations (``CDOs''). CDOs include 
collateralized bond obligations (``CBOs''), collateralized loan 
obligations (``CLOs'') and other similarly structured securities. A 
CBO is a trust which is backed by a diversified pool of high risk, 
below investment grade fixed income securities. A CLO is a trust 
typically collateralized by a pool of loans, which may include 
domestic and foreign senior secured loans, senior unsecured loans, 
and subordinate corporate loans, including loans that may be rated 
below investment grade or equivalent unrated loans. Specifically, 
the Exchange notes that such ABS are bonds backed by pools of loans 
or other receivables and are securitized by a wide variety of assets 
that are generally broken into three categories: Consumer, 
commercial, and corporate. The consumer category includes credit 
card, auto loan, student loan, and timeshare loan ABS. The 
commercial category includes trade receivables, equipment leases, 
oil receivables, film receivables, rental cars, aircraft 
securitizations, ship and container securitizations, whole business 
securitizations, and diversified payment right securitizations. 
Corporate ABS include cash flow collateralization loan obligations, 
collateralized by both middle market and broadly syndicated bank 
loans. ABS are issued through special purpose vehicles that are 
bankruptcy remote from the issuer of the collateral. The credit 
quality of an ABS tranche depends on the performance of the 
underlying assets and the structure. To protect ABS investors from 
the possibility that some borrowers could miss payments or even 
default on their loans, ABS include various forms of credit 
enhancement.
    \20\ The Fund will seek to obtain exposure to U.S. agency 
mortgage pass-through securities primarily through the use of ``to-
be-announced'' or ``TBA transactions.'' ``TBA'' refers to a commonly 
used mechanism for the forward settlement of U.S. agency mortgage 
pass-through securities, and not to a separate type of mortgage-
backed security. Most transactions in mortgage pass-through 
securities occur through the use of TBA transactions. TBA 
transactions generally are conducted in accordance with widely-
accepted guidelines which establish commonly observed terms and 
conditions for execution, settlement and delivery.
    \21\ Repurchase agreements are fixed-income securities in the 
form of agreements backed by collateral. These agreements, which may 
be viewed as a type of secured lending by the Fund, typically 
involve the acquisition by the Fund of securities from the selling 
institution (such as a bank or a broker-dealer), coupled with the 
agreement that the selling institution will repurchase the 
underlying securities at a specified price and at a fixed time in 
the future (or on demand). The Fund may accept a wide variety of 
underlying securities as collateral for the repurchase agreements 
entered into by the Fund. Such collateral may include U.S. 
government securities, corporate obligations, equity securities, 
municipal debt securities, asset- and mortgage-backed securities, 
convertible securities and other fixed-income securities. Any such 
securities serving as collateral are marked-to-market daily in order 
to maintain full collateralization (typically purchase price plus 
accrued interest).
    \22\ Commercial instruments include commercial paper, master 
notes, asset-backed commercial paper and other short-term corporate 
instruments. Commercial paper normally represents short-term 
unsecured promissory notes issued in bearer form by banks or bank 
holding companies, corporations, finance companies and other 
issuers. Commercial paper may be traded in the secondary market 
after its issuance. Master notes are demand notes that permit the 
investment of fluctuating amounts of money at varying rates of 
interest pursuant to arrangements with issuers who meet the quality 
criteria of the Fund. Master notes are generally illiquid and 
therefore subject to the Fund's percentage limitations for 
investments in illiquid securities. Asset-backed commercial paper is 
issued by a special purpose entity that is organized to issue the 
commercial paper and to purchase trade receivables or other 
financial assets.
    \23\ Zero-coupon and payment-in-kind securities are debt 
securities that do not make regular cash interest payments. Zero-
coupon securities are sold at a deep discount to their face value. 
Payment-in-kind securities pay interest through the issuance of 
additional securities.
    \24\ Convertible securities include bonds, debentures, notes and 
other securities that may be converted into a prescribed amount of 
common stock or other equity securities at a specified price and 
time. The Fund may invest in convertible securities traded on an 
exchange or OTC. The convertible securities in which the Fund may 
invest will be converted into a prescribed amount of common stock or 
other equity securities (i) whose principal market is a member of 
the Intermarket Surveillance Group (``ISG'') [sic], or (ii) subject 
to the Fund's 10% limit on equity securities whose principal market 
is not a member of the ISG or is a market with which the Exchange 
does not have a comprehensive surveillance sharing agreement.
    \25\ The preferred securities in which the Fund may invest 
include preferred stock, contingent capital securities, contingent 
convertible securities, capital securities, and hybrid securities of 
debt and preferred stock. The Fund may invest in preferred 
securities traded on an exchange or OTC. Preferred securities pay 
fixed or adjustable rate dividends to investors, and have 
``preference'' over common stock in the payment of dividends and the 
liquidation of a company's assets. The Fund will primarily invest in 
preferred securities that are either exchange-traded, or are Trade 
Reporting and Compliance Engine-eligible (``TRACE-eligible'') and 
settled via the Depository Trust Company (``DTC''). The Fund may 
invest in step-up bonds traded on an exchange or OTC.
    \26\ There are two common types of bank capital: Tier I and Tier 
II. Bank capital is generally, but not always, of investment grade 
quality. Tier I securities are typically preferred stock or 
contingent capital securities. Tier I securities are often perpetual 
or long-dated (with no maturity date). Tier II securities are 
typically subordinated debt securities.
    \27\ A CD is a negotiable interest-bearing instrument with a 
specific maturity.
    \28\ A bankers' acceptance is a bill of exchange or time draft 
drawn on and accepted by a commercial bank.
    \29\ Debtor-in-possession financing (``DIP financing'') is a 
special form of financing provided for companies in financial 
distress, typically during restructuring under corporate bankruptcy 
law (such as Chapter 11 bankruptcy under the U.S. Code). Usually, 
DIP financing is considered senior to all other debt, equity, and 
any other securities issued by the distressed company.
    \30\ Senior loans are business loans made to borrowers that may 
be U.S. or foreign corporations, partnerships, or other business 
entities. The interest rates on senior loans periodically are 
adjusted to a generally recognized base rate such as the London 
Interbank Offered Rate (LIBOR) or the prime rate as set by the 
Federal Reserve. Senior loans typically are secured by specific 
collateral of the borrower and hold the most senior position in the 
borrower's capital structure or share the senior position with the 
borrower's other senior debt securities.
    \31\ The Fund may invest in secured and unsecured junior loans.
    \32\ Bridge loans are short-term loan arrangements (e.g., 
maturities that are generally less than one year) typically made by 
a borrower following the failure of the borrower to secure other 
intermediate-term or long-term permanent financing. A bridge loan 
remains outstanding until more permanent financing, often in the 
form of high yield notes, can be obtained. Most bridge loans have a 
step-up provision under which the interest rate increases 
incrementally the longer the loan remains outstanding so as to 
incentivize the borrower to refinance as quickly as possible. In 
exchange for entering into a bridge loan, the Fund typically will 
receive a commitment fee and interest payable under the bridge loan 
and may also have other expenses reimbursed by the borrower. Bridge 
loans may be subordinate to other debt and generally are unsecured.
    \33\ Unfunded commitments are contractual obligations pursuant 
to which the Fund agrees in writing to make one or more loans up to 
a specified amount at one or more future dates. The underlying loan 
documentation sets out the terms and conditions of the lender's 
obligation to make the loans as well as the economic terms of such 
loans. The portion of the amount committed by a lender that the 
borrower has not drawn down is referred to as ``unfunded.'' Loan 
commitments may be traded in the secondary market through dealer 
desks at large commercial and investment banks although these 
markets are generally not considered liquid.
    \34\ Revolving credit facilities (``revolvers'') are borrowing 
arrangements in which the lender agrees to make loans up to a 
maximum amount upon demand by the borrower during a specified term. 
As the borrower repays the loan, an amount equal to the repayment 
may be borrowed again during the term of the revolver. Revolvers 
usually provide for floating or variable rates of interest.
    \35\ The Fund normally will invest at least 75% of its bank loan 
or corporate loan assets, which includes senior loans, syndicated 
bank loans, junior loans, bridge loans, unfunded commitments, 
revolvers and participation interests, in issuances that have at 
least $100 million par amount outstanding.
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    With respect to Debt Instrument investments, the Fund may invest in 
restricted securities (Rule 144A and Regulation S securities \36\), 
which are subject to legal restrictions on their sale.
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    \36\ The Fund will invest in Rule 144A securities that are 
TRACE-eligible.
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    In addition, with respect to Debt Instrument investments, the Fund 
may, without limitation, seek to obtain market exposure to the 
securities in which it primarily invests by entering into a series of 
purchase and sale contracts or by using other investment techniques 
(such as buy backs and dollar rolls).
    The Fund may also use leverage to the extent permitted under the 
1940 Act by entering into reverse repurchase agreements and borrowing 
transactions (principally lines of credit) for investment purposes. The 
Fund's exposure to reverse repurchase agreements will be covered by 
securities having a value equal to or greater than such commitments. 
Under the 1940 Act, reverse repurchase agreements are considered 
borrowings. Although there is no limit on the percentage of Fund assets 
that can be used in connection with reverse repurchase agreements, the 
Fund does not expect to engage, under normal circumstances, in reverse 
repurchase agreements with respect to more than 33\1/3\% of its assets.
Other Investments of the Fund
    While under normal market conditions the Fund will invest at least 
80% of its assets pursuant to the 80% Policy described above, the Fund 
may invest its remaining assets in the securities and financial 
instruments described below.
    The Fund may invest in exchange-traded and OTC hybrid instruments, 
which combine a traditional stock, bond, or commodity with an option or 
forward contract. Generally, the principal amount, amount payable upon 
maturity or redemption, or interest rate of a hybrid is tied 
(positively or negatively) to the price of some commodity, currency or 
securities index or another interest rate or some other economic factor 
(``underlying benchmark'').\37\
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    \37\ Certain hybrid instruments may provide exposure to the 
commodities markets. These are derivative securities with one or 
more commodity-linked components that have payment features similar 
to commodity futures contracts, commodity options, or similar 
instruments. Commodity-linked hybrid instruments may be either 
equity or debt securities, and are considered hybrid instruments 
because they have both security and commodity-like characteristics. 
A portion of the value of these instruments may be derived from the 
value of a commodity, futures contract, index or other economic 
variable. The Fund would only invest in commodity-linked hybrid 
instruments that qualify, under applicable rules of the Commodity 
Futures Trading Commission, for an exemption from the provisions of 
the Commodity Exchange Act (7 U.S.C. 1).
---------------------------------------------------------------------------

    The Fund is permitted to invest in structured notes, which are debt 
obligations that also contain an embedded derivative component with 
characteristics that adjust the obligation's risk/return profile. 
Generally, the performance of a structured note will track that of the 
underlying debt obligation and the derivative embedded within it.
    The Fund may invest in credit-linked notes, which are a type of 
structured note.\38\
---------------------------------------------------------------------------

    \38\ The difference between a credit default swap and a credit-
linked note is that the seller of a credit-linked note receives the 
principal payment from the buyer at the time the contract is 
originated. Through the purchase of a credit-linked note, the buyer 
assumes the risk of the reference asset and funds this exposure 
through the purchase of the note. The buyer takes on the exposure to 
the seller to the full amount of the funding it has provided. The 
seller has hedged its risk on the reference asset without acquiring 
any additional credit exposure. The Fund has the right to receive 
periodic interest payments from the issuer of the credit-linked note 
at an agreed-upon interest rate and a return of principal at the 
maturity date.
---------------------------------------------------------------------------

    The Fund may invest in risk-linked securities (``RLS''), which are 
a form of derivative issued by insurance companies and insurance-
related special purpose vehicles that apply securitization techniques 
to catastrophic property and casualty damages.\39\
---------------------------------------------------------------------------

    \39\ RLS are typically debt obligations for which the return of 
principal and the payment of interest are contingent on the non-
occurrence of a pre-defined ``trigger event.'' Depending on the 
specific terms and structure of the RLS, this trigger could be the 
result of a hurricane, earthquake or some other catastrophic event. 
Insurance companies securitize this risk to transfer to the capital 
markets the truly catastrophic part of the risk exposure. A typical 
RLS provides for income and return of capital similar to other 
fixed-income investments, but would involve full or partial default 
if losses resulting from a certain catastrophe exceeded a 
predetermined amount.

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[[Page 20677]]

    The Fund may invest a portion of its assets in high-quality money 
market instruments, including money market mutual funds, on an ongoing 
basis to provide liquidity.
    The Fund may invest in U.S. and foreign common stocks, both 
exchange-listed and OTC.
    The Fund may gain exposure to commodities through the use of 
investments in exchange-traded products (``ETPs'') \40\ and exchange-
traded notes (``ETNs'').\41\
---------------------------------------------------------------------------

    \40\ Such ETPs include Trust Issued Receipts (as described in 
Nasdaq Rule 5720); Commodity-Based Trust Shares (as described in 
Nasdaq Rule 5711(d)); Currency Trust Shares (as described in Nasdaq 
Rule 5711(e)); Commodity Index Trust Shares (as described in Nasdaq 
Rule 5711(f)); and Trust Units (Nasdaq Rule 5711(i)).
    \41\ ETNs include Index-Linked Securities (as described in NYSE 
Arca Equities Rule 5.2(j)(6)). The Fund will not invest more than 
20% of its net assets in leveraged or inverse-leveraged ETPs and 
ETNs. The Fund will not invest in non-U.S. exchange-listed ETPs and 
ETNs.
---------------------------------------------------------------------------

    The Fund may invest in the securities of exchange-traded and OTC 
real estate investment trusts (``REITs'').\42\
---------------------------------------------------------------------------

    \42\ REITs are pooled investment vehicles which invest primarily 
in income producing real estate or real estate related loans or 
interests. REITs are generally classified as equity REITs, mortgage 
REITs or hybrid REITs. Equity REITs invest the majority of their 
assets directly in real estate property and derive income primarily 
from the collection of rents. Equity REITs can also realize capital 
gains by selling properties that have appreciated in value. Mortgage 
REITs invest the majority of their assets in real estate mortgages 
and derive income from the collection of interest payments. A hybrid 
REIT combines the characteristics of equity REITs and mortgage 
REITs, generally by holding both direct ownership interests and 
mortgage interests in real estate.
---------------------------------------------------------------------------

Investment Restrictions of the Fund
    The Fund may not invest more than 25% of the value of its net 
assets in securities of issuers in any one industry or group of 
industries. This restriction will not apply to obligations issued or 
guaranteed by the U.S. government, its agencies or 
instrumentalities.\43\
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    \43\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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    The Fund may invest up to 20% of its total assets in the aggregate 
in MBS and ABS that are privately issued, non-agency and non-government 
sponsored entity (``Private MBS/ABS''). Such holdings would be subject 
to the respective limitations on the Fund's investments in illiquid 
assets and high yield securities. The liquidity of such securities, 
especially in the case of Private MBS/ABS, will be a substantial factor 
in the Fund's security selection process.
    The Fund may invest up to 20% of its total assets in the aggregate 
in participations in and assignments of bank loans or corporate loans, 
which loans include syndicated bank loans, junior loans, bridge loans, 
unfunded commitments, revolvers and participation interests (but 
specifically do not include senior loans), in structured notes, in 
credit-linked notes, in risk-linked securities, in OTC REITs, and in 
OTC hybrid instruments. Such holdings would be subject to the 
respective limitations on the Fund's investments in illiquid assets and 
high yield securities. The liquidity of such securities will be a 
substantial factor in the Fund's security selection process.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including commercial instruments deemed illiquid by the Adviser.\44\ 
The Fund will monitor its portfolio liquidity on an ongoing basis to 
determine whether, in light of current circumstances, an adequate level 
of liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid securities or other illiquid assets. 
Illiquid securities and other illiquid assets include those subject to 
contractual or other restrictions on resale and other instruments or 
assets that lack readily available markets as determined in accordance 
with Commission staff guidance.\45\
---------------------------------------------------------------------------

    \44\ In reaching liquidity decisions, the Adviser may consider 
the following factors: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; and the nature of the 
security and the nature of the marketplace in which it trades (e.g., 
the time needed to dispose of the security, the method of soliciting 
offers and the mechanics of transfer).
    \45\ Long-standing Commission guidelines have required open-end 
funds to hold no more than 15% of their net assets in illiquid 
securities and other illiquid assets. See Investment Company Act 
Release No. 28193 (March 11, 2008), 73 FR 14618 (March 18, 2008), FN 
34. See also Investment Company Act Release Nos. 5847 (October 21, 
1969), 35 FR 19989 (December 31, 1970) (Statement Regarding 
``Restricted Securities''); and 18612 (March 12, 1992), 57 FR 9828 
(March 20, 1992) (Revisions of Guidelines to Form N-1A). A fund's 
portfolio security is illiquid if it cannot be disposed of in the 
ordinary course of business within seven days at approximately the 
value ascribed to it by the fund. See Investment Company Act Release 
Nos. 14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); and 17452 (April 23, 
1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under the 
Securities Act of 1933).
---------------------------------------------------------------------------

    The Fund may invest up to 35% of its total assets in high yield 
debt securities (``junk bonds''), which are debt securities that are 
rated below-investment grade by nationally recognized statistical 
rating organizations such as Moody's Investors Service, Inc. 
(``Moody's), Standard & Poor's Rating Group (``S&P''), or Fitch 
Investor Services (``Fitch''), or are unrated securities that the 
Adviser believes are of comparable below-investment grade quality. The 
Fund may invest in defaulted or distressed securities that are in 
default at the time of investment or that default subsequent to 
purchase by the Fund, in which case the Adviser will determine in its 
sole discretion whether to hold or dispose of security, subject to the 
Fund's 35% limitation in high yield debt securities.
    While the Fund will principally invest in debt securities listed, 
traded or dealt in developed markets, it may also invest in securities 
listed, traded or dealt in other countries, including emerging markets 
countries. Such securities may be denominated in foreign currencies. 
However, the Fund may not invest more than 35% of its total assets in 
debt securities and instruments that are economically tied to emerging 
market countries, as determined by the Adviser, and non-U.S. dollar 
denominated securities.\46\
---------------------------------------------------------------------------

    \46\ Emerging market countries are countries with developing 
economies or markets and may include any country recognized to be an 
emerging market country by the International Monetary Fund, MSCI, 
Inc. or Standard & Poor's Corporation or recognized to be a 
developing country by the United Nations. Generally, the Fund 
considers an instrument to be economically tied to an emerging 
market country through consideration of some or all of the following 
factors: (i) Whether the issuer is the government of the emerging 
market country (or any political subdivision, agency, authority or 
instrumentality of such government), or is organized under the laws 
of the emerging market country; (ii) amount of the issuer's revenues 
that are attributable to the emerging market country; (iii) the 
location of the issuer's management; (iv) if the security is secured 
or collateralized, the country in which the security or collateral 
is located; and/or (v) the currency in which the instrument is 
denominated or currency fluctuations to which the issuer is exposed.
---------------------------------------------------------------------------

    The Fund may not invest more than 10% of its net assets in the 
aggregate in equity securities and REITs whose principal market is not 
a member of the ISG or is a market with which the Exchange does not 
have a comprehensive surveillance sharing agreement.
    The Fund may not invest more than 20% of its net assets in bank 
capital.
    The Fund will be considered diversified within the meaning of the 
1940 Act.\47\
---------------------------------------------------------------------------

    \47\ Under the 1940 Act, for a fund to be classified as a 
diversified investment company, at least 75% of the value of the 
fund's total assets must be represented by cash and cash items 
(including receivables), government securities, securities of other 
investment companies, and securities of other issuers, which for the 
purposes of this calculation are limited in respect of any one 
issuer to an amount (valued at the time of investment) not greater 
in value than 5% of the fund's total assets and to not more than 10% 
of the outstanding voting securities of such issuer.

---------------------------------------------------------------------------

[[Page 20678]]

    The Fund intends to qualify for and to elect to be treated as a 
regulated investment company under Subchapter M of the Internal Revenue 
Code.\48\
---------------------------------------------------------------------------

    \48\ 26 U.S.C. 851.
---------------------------------------------------------------------------

    The Fund's investments will be consistent with the Fund's 
investment objective. The Fund's investments will not be used to 
enhance leverage. That is, while the Fund will be permitted to borrow 
as permitted under the 1940 Act, the Fund will not be operated as a 
``leveraged ETF,'' i.e., it will not be operated in a manner designed 
to seek a multiple or inverse multiple of the performance of the Fund's 
primary broad-based securities benchmark index (as defined in Form N-
1A).\49\
---------------------------------------------------------------------------

    \49\ The Fund's broad-based securities benchmark index will be 
the Bloomberg Barclays U.S. Aggregate Bond 1-3 Total Return Index.
---------------------------------------------------------------------------

The Fund's Use of Derivatives
    The Fund proposes to seek certain exposures through derivative 
transactions as described below. The Fund may invest in the following 
derivative instruments: Foreign exchange forward contracts; OTC foreign 
exchange options; exchange-traded futures on securities, commodities, 
indices, interest rates and currencies; exchange-traded and OTC options 
on securities and indices; exchange-traded and OTC options on interest 
rate futures contracts; exchange-traded and OTC interest rate swaps, 
exchange-traded and OTC cross-currency swaps, OTC total return swaps, 
exchange-traded and OTC inflation swaps and exchange-traded and OTC 
credit default swaps; and options on such swaps (``swaptions'').\50\
---------------------------------------------------------------------------

    \50\ Options on swaps are traded OTC. In the future, in the 
event that there are exchange-traded options on swaps, the Fund may 
invest in these instruments.
---------------------------------------------------------------------------

    Generally, derivatives are financial contracts whose value depends 
upon, or is derived from, the value of an underlying asset, reference 
rate or index, and may relate to stocks, bonds, interest rates, 
currencies or currency exchange rates, commodities, and related 
indexes. The Fund may, but is not required to, use derivative 
instruments for risk management purposes or as part of its investment 
strategies.\51\ The Fund may also engage in derivative transactions for 
speculative purposes to enhance total return, to seek to hedge against 
fluctuations in securities prices, interest rates or currency rates, to 
change the effective duration of its portfolio, to manage certain 
investment risks and/or as a substitute for the purchase or sale of 
securities or currencies.
---------------------------------------------------------------------------

    \51\ The Fund will seek, where possible, to use counterparties 
whose financial status is such that the risk of default is reduced; 
however, the risk of losses resulting from default is still 
possible. The Adviser will monitor the financial standing of 
counterparties on an ongoing basis. This monitoring may include 
information provided by credit agencies, as well as the Adviser's 
credit analysts and other team members who evaluate approved 
counterparties using various methods of analysis, including but not 
limited to earnings updates, the counterparty's reputation, the 
Adviser's past experience with the broker-dealer, market levels for 
the counterparty's debt and equity, the counterparty's liquidity and 
its share of market participation.
---------------------------------------------------------------------------

    Investments in derivative instruments will be made in accordance 
with the 1940 Act and consistent with the Fund's investment objective 
and policies. As described further below, the Fund will typically use 
derivative instruments as a substitute for taking a position in the 
underlying asset and/or as part of a strategy designed to reduce 
exposure to other risks, such as interest rate or currency risk. The 
Fund may also use derivative instruments to enhance returns. To limit 
the potential risk associated with such transactions, the Fund will 
segregate or ``earmark'' assets determined to be liquid by the Adviser 
in accordance with procedures established by the Trust's Board of 
Trustees (the ``Board'') and in accordance with the 1940 Act (or, as 
permitted by applicable regulation, enter into certain offsetting 
positions) to cover its obligations under derivative instruments. These 
procedures have been adopted consistent with Section 18 of the 1940 Act 
and related Commission guidance. In addition, the Fund will include 
appropriate risk disclosure in its offering documents, including 
leveraging risk. Leveraging risk is the risk that certain transactions 
of the Fund, including the Fund's use of derivatives, may give rise to 
additional leverage, causing the Fund to be more volatile than if it 
had not been leveraged.\52\ Because the markets for certain securities, 
or the securities themselves, may be unavailable or cost prohibitive as 
compared to derivative instruments, suitable derivative transactions 
may be an efficient alternative for the Fund to obtain the desired 
asset exposure.
---------------------------------------------------------------------------

    \52\ To mitigate leveraging risk, the Adviser will segregate or 
``earmark'' liquid assets or otherwise cover the transactions that 
may give rise to such risk.
---------------------------------------------------------------------------

    The Adviser believes that derivatives can be an economically 
attractive substitute for an underlying physical security that the Fund 
would otherwise purchase. For example, the Fund could purchase Treasury 
futures contracts instead of physical Treasuries or could sell credit 
default protection on a corporate bond instead of buying a physical 
bond. Economic benefits include potentially lower transaction costs or 
attractive relative valuation of a derivative versus a physical bond 
(e.g., differences in yields).
    The Adviser further believes that derivatives can be used as a more 
liquid means of adjusting portfolio duration as well as targeting 
specific areas of yield curve exposure, with potentially lower 
transaction costs than the underlying securities (e.g., interest rate 
swaps may have lower transaction costs than physical bonds). Similarly, 
money market futures can be used to gain exposure to short-term 
interest rates in order to express views on anticipated changes in 
central bank policy rates. In addition, derivatives can be used to 
protect client assets through selectively hedging downside (or ``tail 
risks'') in the Fund.
    The Fund also can use derivatives to increase or decrease credit 
exposure. Index credit default swaps (CDX) can be used to gain exposure 
to a basket of credit risk by ``selling protection'' against default or 
other credit events, or to hedge broad market credit risk by ``buying 
protection.'' Single name credit default swaps (CDS) can be used to 
allow the Fund to increase or decrease exposure to specific issuers, 
saving investor capital through lower trading costs. The Fund can use 
total return swap contracts to obtain the total return of a reference 
asset or index in exchange for paying a financing cost. A total return 
swap may be more efficient than buying underlying securities of an 
index, potentially lowering transaction costs.
    The Fund may attempt to reduce foreign currency exchange rate risk 
by entering into contracts with banks, brokers or dealers to purchase 
or sell foreign currencies at a future date (``forward 
contracts'').\53\
---------------------------------------------------------------------------

    \53\ A foreign currency forward contract is a negotiated 
agreement between the contracting parties to exchange a specified 
amount of currency at a specified future time at a specified rate. 
The rate can be higher or lower than the spot rate between the 
currencies that are the subject of the contract.
---------------------------------------------------------------------------

    The Adviser believes that the use of derivatives will allow the 
Fund to selectively add diversifying sources of return from selling 
options. Option purchases and sales can also be used to hedge specific 
exposures in the portfolio, and can provide access to return streams 
available to long-term

[[Page 20679]]

investors such as the persistent difference between implied and 
realized volatility. Option strategies can generate income or improve 
execution prices (e.g., covered calls).
    In addition to the Fund's use of derivatives in connection with its 
80% Policy, under the proposal the Fund would seek to invest in 
derivative instruments not based on Debt Instruments, consistent with 
the Fund's investment restrictions relating to exposure to those asset 
classes.
Valuation Methodology for Purposes of Determining Net Asset Value
    The net asset value (``NAV'') of the Fund's Shares will be 
determined by dividing the total value of the Fund's portfolio 
investments and other assets, less any liabilities, by the total number 
of Shares outstanding. Fund Shares will be valued as of the close of 
regular trading (normally 4:00 p.m., Eastern Time (``E.T.'')) (the 
``NYSE Close'') on each day the New York Stock Exchange (``NYSE'') is 
open (``Business Day''). Information that becomes known to the Fund or 
its agents after the NAV has been calculated on a particular day will 
not generally be used to retroactively adjust the price of a portfolio 
asset or the NAV determined earlier that day. The Fund reserves the 
right to change the time its NAV is calculated if the Fund closes 
earlier, or as permitted by the Commission.
    For purposes of calculating NAV, portfolio securities and other 
assets for which market quotes are readily available will be valued at 
market value. Market value will generally be determined on the basis of 
last reported sales prices, or if no sales are reported, then based on 
quotes obtained from a quotation reporting system, established market 
makers, or pricing services. Domestic and foreign fixed income 
securities and non-exchange-traded derivatives will normally be valued 
on the basis of quotes obtained from brokers and dealers or pricing 
services using data reflecting the earlier closing of the principal 
markets for those assets. Prices obtained from independent pricing 
services use information provided by market makers or estimates of 
market values obtained from yield data relating to investments or 
securities with similar characteristics. Exchange-traded options and 
options on futures will generally be valued at the settlement price 
determined by the applicable exchange.
    Derivatives for which market quotes are readily available will be 
valued at market value. Local closing prices will be used for all 
instrument valuation purposes. Futures will be valued at the last 
reported sale or settlement price on the day of valuation. Swaps traded 
on exchanges such as the Chicago Mercantile Exchange (``CME'') or the 
Intercontinental Exchange (``ICE-US'') will use the applicable exchange 
closing price where available.
    Foreign currency-denominated derivatives will generally be valued 
as of the respective local region's market close.
    With respect to specific derivatives:
     Currency spot and forward rates from major market data 
vendors \54\ will generally be determined as of the NYSE Close.
---------------------------------------------------------------------------

    \54\ Major market data vendors may include, but are not limited 
to: Thomson Reuters, JPMorgan Chase PricingDirect Inc., Markit Group 
Limited, Bloomberg, Interactive Data Corporation, or other major 
data vendors.
---------------------------------------------------------------------------

     Exchange-traded futures will generally be valued at the 
settlement price of the relevant exchange.
     A total return swap on an index will be valued at the 
publicly available index price. The index price, in turn, is determined 
by the applicable index calculation agent, which generally values the 
securities underlying the index at the last reported sale price.
     Equity total return swaps will generally be valued using 
the actual underlying equity at local market closing, while bank loan 
total return swaps will generally be valued using the evaluated 
underlying bank loan price minus the strike price of the loan.
     Exchange-traded non-equity options (for example, options 
on bonds, Eurodollar options, and U.S. Treasury options), index 
options, and options on futures will generally be valued at the 
official settlement price determined by the relevant exchange, if 
available.
     OTC and exchange-traded equity options will generally be 
valued on a basis of quotes obtained from a quotation reporting system, 
established market makers, or pricing services or at the settlement 
price of the applicable exchange.
     OTC foreign currency (FX) options will generally be valued 
by pricing vendors.
     All other OTC and exchange-traded swaps such as interest 
rate swaps, inflation swaps, swaptions, credit default swaps, and CDX/
CDS will generally be valued by pricing services or at the settlement 
price of the applicable exchange.
    Exchange-traded equity securities (including common stocks, ETPs, 
ETFs, ETNs, CEFs, exchange-traded convertible securities, REITs, and 
preferred securities) will be valued at the official closing price or 
the last trading price on the exchange or market on which the security 
is primarily traded at the time of valuation. If no sales or closing 
prices are reported during the day, exchange-traded equity securities 
will generally be valued at the closing bid price on the exchange or 
market on which the security is primarily traded, or using other market 
information obtained from quotation reporting systems, established 
market makers, or pricing services. Investment company securities that 
are not exchange-traded will be valued at NAV. Equity securities traded 
OTC will be valued based on price quotations obtained from a broker-
dealer who makes markets in such securities or other equivalent 
indications of value provided by a third-party pricing service. 
Structured notes, exchange-traded and OTC hybrids and RLS will be 
valued based on prices obtained from an independent pricing vendor such 
as IDC or Reuters or on the basis of prices obtained from brokers and 
dealers. Debt Instruments will generally be valued on the basis of 
independent pricing services or quotes obtained from brokers and 
dealers.
    If a foreign security's value has materially changed after the 
close of the security's primary exchange or principal market but before 
the NYSE Close, the security will be valued at fair value based on 
procedures established and approved by the Board. Foreign securities 
that do not trade when the NYSE is open will also be valued at fair 
value.
    The Board has adopted policies and procedures for the valuation of 
the Fund's investments (the ``Valuation Procedures''). Pursuant to the 
Valuation Procedures, the Board has delegated to a valuation committee, 
consisting of representatives from Guggenheim's investment management, 
fund administration, legal and compliance departments (the ``Valuation 
Committee''), the day-to-day responsibility for implementing the 
Valuation Procedures, including, under most circumstances, the 
responsibility for determining the fair value of the Fund's securities 
or other assets. Valuations of the Fund's securities are supplied 
primarily by pricing services appointed pursuant to the processes set 
forth in the Valuation Procedures. The Valuation Committee convenes 
monthly, or more frequently as needed and will review the valuation of 
all assets which have been fair valued for reasonableness. The Fund's 
officers, through the Valuation Committee and consistent with the 
monitoring and review responsibilities set forth in the Valuation 
Procedures, regularly review

[[Page 20680]]

procedures used by, and valuations provided by, the pricing services.
    Debt securities with a maturity of greater than 60 days at 
acquisition will be valued at prices that reflect broker/dealer 
supplied valuations or are obtained from independent pricing services, 
which may consider the trade activity, treasury spreads, yields or 
price of bonds of comparable quality, coupon, maturity, and type, as 
well as prices quoted by dealers who make markets in such securities. 
Short-term securities with remaining maturities of 60 days or less will 
be valued at amortized cost, provided such amount approximates market 
value. Money market instruments will be valued at NAV.
    Generally, trading in foreign securities markets is substantially 
completed each day at various times prior to the close of the NYSE. The 
values of foreign securities are determined as of the close of such 
foreign markets or the close of the NYSE, if earlier. All investments 
quoted in foreign currency will be valued in U.S. dollars on the basis 
of the foreign currency exchange rates prevailing at the close of U.S. 
business at 4:00 p.m. E.T. The Valuation Committee will determine the 
current value of such foreign securities by taking into consideration 
certain factors which may include those discussed above, as well as the 
following factors, among others: The value of the securities traded on 
other foreign markets, closed-end fund trading, foreign currency 
exchange activity, and the trading prices of financial products that 
are tied to foreign securities. In addition, under the Valuation 
Procedures, the Valuation Committee and the Adviser are authorized to 
use prices and other information supplied by a third party pricing 
vendor in valuing foreign securities.
    Investments for which market quotations are not readily available 
will be fair valued as determined in good faith by the Adviser, subject 
to review by the Valuation Committee, pursuant to methods established 
or ratified by the Board. Valuations in accordance with these methods 
are intended to reflect each security's (or asset's) ``fair value.'' 
Each such determination will be based on a consideration of all 
relevant factors, which are likely to vary from one pricing context to 
another. Examples of such factors may include, but are not limited to: 
Market prices; sales price; broker quotes; and models which derive 
prices based on inputs such as prices of securities with comparable 
maturities and characteristics, or based on inputs such as anticipated 
cash flows or collateral, spread over Treasuries, and other information 
analysis.
    Investments initially valued in currencies other than the U.S. 
dollar will be converted to the U.S. dollar using exchange rates 
obtained from pricing services. As a result, the NAV of the Fund's 
Shares may be affected by changes in the value of currencies in 
relation to the U.S. dollar. The value of securities traded in markets 
outside the United States or denominated in currencies other than the 
U.S. dollar may be affected significantly on a day that the NYSE is 
closed. As a result, to the extent that the Fund holds foreign (non-
U.S.) securities, the NAV of the Fund's Shares may change when an 
investor cannot purchase, redeem or exchange shares.
Derivatives Valuation Methodology for Purposes of Determining Intra-Day 
Indicative Value
    On each Business Day, before commencement of trading in Fund Shares 
on the Exchange, the Fund will disclose on its Web site the identities 
and quantities of the portfolio instruments and other assets held by 
the Fund that will form the basis for the Fund's calculation of NAV at 
the end of the Business Day.
    In order to provide additional information regarding the intra-day 
value of Shares of the Fund, the Exchange or a market data vendor will 
disseminate every 15 seconds through the facilities of the Consolidated 
Tape Association (``CTA'') or other widely disseminated means an 
updated Intra-day Indicative Value (``IIV'') for the Fund as calculated 
by a third party market data provider.
    A third party market data provider will calculate the IIV for the 
Fund. For the purposes of determining the IIV, the third party market 
data provider's valuation of derivatives is expected to be similar to 
their valuation of all securities. The third party market data provider 
may use market quotes if available or may fair value securities against 
proxies (such as swap or yield curves).
    With respect to specific derivatives:
     Foreign currency derivatives, including foreign exchange 
forward contracts, foreign exchange options and currency futures, may 
be valued intraday using market quotes, or another proxy as determined 
to be appropriate by the third party market data provider.
     Futures may be valued intraday using the relevant futures 
exchange data, or another proxy as determined to be appropriate by the 
third party market data provider.
     Interest rate swaps and cross-currency swaps may be mapped 
to a swap curve and valued intraday based on changes of the swap curve, 
or another proxy as determined to be appropriate by the third party 
market data provider.
     Index credit default swaps (such as, CDX/CDS) may be 
valued using intraday data from market vendors, or based on underlying 
asset price, or another proxy as determined to be appropriate by the 
third party market data provider.
     Total return swaps may be valued intraday using the 
underlying asset price, or another proxy as determined to be 
appropriate by the third party market data provider.
     Exchange listed options may be valued intraday using the 
relevant exchange data, or another proxy as determined to be 
appropriate by the third party market data provider.
     OTC options and swaptions may be valued intraday through 
option valuation models (e.g., Black-Scholes) or using exchange traded 
options as a proxy, or another proxy as determined to be appropriate by 
the third party market data provider.
Disclosed Portfolio
    The Fund's disclosure of derivative positions in the Disclosed 
Portfolio will include information that market participants can use to 
value these positions intraday. On a daily basis, the Adviser will 
disclose on the Fund's Web site the following information regarding 
each portfolio holding, as applicable to the type of holding: Ticker 
symbol, CUSIP number or other identifier, if any; a description of the 
holding (including the type of holding, such as the type of swap); the 
identity of the security, commodity, index or other asset or instrument 
underlying the holding, if any; for options, the option strike price; 
quantity held (as measured by, for example, par value, notional value 
or number of shares, contracts or units); maturity date, if any; coupon 
rate, if any; effective date, if any; market value of the holding; and 
the percentage weighting of the holding in the Fund's portfolio. The 
Web site information will be publicly available at no charge.
Impact on Arbitrage Mechanism
    The Adviser believes there will be minimal, if any, impact to the 
arbitrage mechanism as a result of the use of derivatives. Market 
makers and participants should be able to value derivatives as long as 
the positions are disclosed with relevant information. The Adviser 
believes that the price at which Shares trade will continue to be 
disciplined by arbitrage opportunities

[[Page 20681]]

created by the ability to purchase or redeem creation Shares at their 
NAV, which should ensure that Shares will not trade at a material 
discount or premium in relation to their NAV.
    The Adviser does not believe there will be any significant impacts 
to the settlement or operational aspects of the Fund's arbitrage 
mechanism due to the use of derivatives. Because derivatives generally 
are not eligible for in-kind transfer, they will typically be 
substituted with a ``cash in lieu'' amount when the Fund processes 
purchases or redemptions of creation units in-kind.
Creation and Redemption of Shares
    Investors may create or redeem in Creation Unit size of 100,000 
Shares or aggregations thereof (``Creation Unit'') through an 
Authorized Participant (``AP''), as described in the Registration 
Statement. The size of a Creation Unit is subject to change. In order 
to purchase Creation Units of the Fund, an investor must generally 
deposit a designated portfolio of securities (the ``Deposit 
Securities'') (and/or an amount in cash in lieu of some or all of the 
Deposit Securities) per each Creation Unit constituting a substantial 
replication, or representation, of the securities included in the 
Fund's portfolio as selected by the Adviser (``Fund Securities'') and 
generally make a cash payment referred to as the ``Cash Component.'' 
The list of the names and the amounts of the Deposit Securities will be 
made available by the Fund's Custodian through the facilities of the 
National Securities Clearing Corporation (``NSCC'') prior to the 
opening of business of the Exchange (9:30 a.m., E.T.). The Cash 
Component will represent the difference between the NAV of a Creation 
Unit and the market value of the Deposit Securities.
    Shares may be redeemed only in Creation Unit size at their NAV on a 
day the Exchange is open for business. The Fund's custodian will make 
available immediately prior to the opening of the Exchange, through the 
facilities of NSCC, the list of the names and the amounts of the Fund 
Securities that will be applicable that day to redemption requests in 
proper form. Fund Securities received on redemption may not be 
identical to Deposit Securities which are applicable to purchases of 
Creation Units. The creation/redemption order cut-off time for the Fund 
will be 4:00 p.m. E.T.
Availability of Information
    The Fund's Web site (www.guggenheiminvestments.com), which will be 
publicly available prior to the public offering of Shares, will include 
a form of the prospectus for the Fund that may be downloaded. The 
Fund's Web site will include the ticker symbol for the Shares, CUSIP 
and exchange information, along with additional quantitative 
information updated on a daily basis, including, for the Fund: (1) 
Daily trading volume, the prior Business Day's reported NAV, closing 
price and mid-point of the bid/ask spread at the time of calculation of 
such NAV (the ``Bid/Ask Price''),\55\ and a calculation of the premium 
and discount of the Bid/Ask Price against the NAV; and (2) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid/Ask Price against the NAV, within appropriate 
ranges, for the most recently completed calendar year and each of the 
four most recently completed calendar quarters since that year (or the 
life of the Fund if shorter).
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    \55\ The Bid/Ask Price of the Fund will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
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    On each Business Day, before commencement of trading in Shares in 
the Regular Market Session \56\ on the Exchange, the Fund will disclose 
on its Web site the identities and quantities of the portfolio of 
securities and other assets (the ``Disclosed Portfolio'' as such term 
is defined in Nasdaq Rule 5735(c)(2)) held by the Fund that will form 
the basis for the Fund's calculation of NAV at the end of the Business 
Day.\57\
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    \56\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30 
a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or 
4:15 p.m. E.T.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m. 
to 8 p.m. E.T.).
    \57\ Under accounting procedures to be followed by the Fund, 
trades made on the prior Business Day (``T'') will be booked and 
reflected in NAV on the current Business Day (``T+1''). 
Notwithstanding the foregoing, portfolio trades that are executed 
prior to the opening of the Exchange on any Business Day may be 
booked and reflected in NAV on such Business Day. Accordingly, the 
Fund will be able to disclose at the beginning of the Business Day 
the portfolio that will form the basis for the NAV calculation at 
the end of the Business Day.
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    In addition to disclosing the identities and quantities of the 
portfolio of securities and other assets in the Disclosed Portfolio, 
the Fund also will disclose on a daily basis on its Web site the 
following information, as applicable to the type of holding: Ticker 
symbol, if any, CUSIP number or other identifier, if any; a description 
of the holding (including the type of holding, such as, a type of 
swap), quantity held (as measured by, for example, par value, number of 
shares or units); identity of the security, index, or other asset or 
instrument underlying the holding, if any; for options, the options 
strike price; quantity held (as measured by, for example, par value, 
notional value, or number of shares, contracts or units); maturity 
date, if any; coupon rate, if any; market value of the holding; and 
percentage weighting of the holding in the Fund's portfolio. The Web 
site and information will be publicly available at no charge.
    In addition, to the extent the Fund permits full or partial 
creations in-kind, a basket composition file, which will include the 
security names and share quantities to deliver (along with requisite 
cash in lieu) in exchange for Shares, together with estimates and 
actual Cash Components, will be publicly disseminated daily prior to 
the opening of the Exchange via the NSCC. The basket will equal a 
Creation Unit.
    In addition, for the Fund, an estimated value, defined in Rule 
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of the Fund's Disclosed Portfolio, will be 
disseminated by a major market data vendor per the terms of a data 
services agreement that will be finalized with the Adviser prior to the 
Fund's launch (the ``IOPV Vendor''). Moreover, the Intraday Indicative 
Value, available on the NASDAQ Information LLC proprietary index data 
service,\58\ will be calculated by the IOPV Vendor based upon the sum 
of the current value for the components of the Disclosed Portfolio and 
the estimated cash amount per share of the Fund, divided by the total 
amount of outstanding Shares. The Intraday Indicative Value will be 
updated and widely disseminated by the IOPV Vendor and broadly 
displayed at least every 15 seconds during the Regular Market Session. 
The Intraday Indicative Value will be calculated based on the IOPV 
Vendor's calculations. If there is an issue or problem with any of the 
components of the calculation, the previously calculated Intraday 
Indicative Value will be disseminated until such issue or problem is 
resolved. With respect to equity securities, if trading in a component 
of the Disclosed Portfolio is halted while the market is open, the last 
traded price for that security will be used in the calculation until 
trading resumes. If trading is halted before the

[[Page 20682]]

market is open, the previous day's last sale price will be used. For 
components of the Disclosed Portfolio that are not U.S. listed, the 
last sale price is used, after being converted into U.S. Dollars, when 
the local market is open. When the local market closes, the closing 
price for the component of the Disclosed Portfolio continues to be 
updated by the applicable exchange rate.
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    \58\ Currently, the Nasdaq Global Index Data Service (``GIDS'') 
is the Nasdaq global index data feed service, offering real-time 
updates, daily summary messages, and access to widely followed 
indexes and Intraday Indicative Values for ETFs. GIDS provides 
investment professionals with the daily information needed to track 
or trade Nasdaq indexes, listed ETFs, or third-party partner indexes 
and ETFs.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of the Fund on a daily basis and will provide 
a close estimate of that value throughout the trading day.
    Intraday executable price quotations on certain Debt Instruments 
and other assets not traded on an exchange will be available from major 
broker-dealer firms or market data vendors, as well as from automated 
quotation systems, published or other public sources, or online 
information services. Additionally, the Trade Reporting and Compliance 
Engine (``TRACE'') of the Financial Industry Regulatory Authority 
(``FINRA'') will be a source of price information for corporate bonds, 
privately-issued securities (including Rule 144A securities), MBS, ABS, 
CDOs and CBOs to the extent transactions in such securities are 
reported to TRACE.\59\ Intra-day, executable price quotations on the 
securities and other assets held by the Fund, as well as closing price 
information, will be available from major broker-dealer firms or on the 
exchange on which they are traded, as applicable. Intra-day and closing 
price information related to U.S. government securities, money market 
instruments (including money market mutual funds), and other short-term 
investments held by the Fund also will be available through 
subscription services, such as Bloomberg, Markit and Thomson Reuters, 
which can be accessed by APs and other investors. Electronic Municipal 
Market Access (``EMMA'') will be a source of price information for 
municipal bonds.
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    \59\ Broker-dealers that are FINRA member firms have an 
obligation to report transactions in specified debt securities to 
TRACE to the extent required under applicable FINRA rules. 
Generally, such debt securities will have at issuance a maturity 
that exceeds one calendar year.
---------------------------------------------------------------------------

    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume for the 
Shares will be published daily in the financial section of newspapers. 
Quotation and last sale information will be available via the CTA high-
speed line for the Shares and for the following U.S. exchange-traded 
securities: Common stocks, hybrid instruments, convertible securities, 
preferred securities, REITs, CEFs, ETFs, ETPs, and ETNs. Price 
information for foreign exchange-traded stocks will be available from 
the applicable foreign exchange and from major market data vendors. 
Price information for exchange-traded derivative instruments will be 
available from the applicable exchange and from major market data 
vendors. Price information for OTC REITs, OTC common stocks, OTC 
preferred securities, OTC convertible securities, OTC step-up bonds, 
OTC CEFs, OTC options, money market instruments, forwards, structured 
notes, credit linked notes, risk-linked securities, OTC derivative 
instruments and OTC hybrid instruments will be available from major 
market data vendors. Price information for restricted securities, 
including Regulation S and Rule 144A securities, will be available from 
major market data vendors. Intra-day and closing price information for 
exchange-traded options and futures will be available from the 
applicable exchange and from major market data vendors. In addition, 
price information for U.S. exchange-traded options is available from 
the Options Price Reporting Authority. Quotation information from 
brokers and dealers or independent pricing services will be available 
for Debt Instruments.
    Additional information regarding the Fund and the Shares, including 
investment strategies, risks, creation and redemption procedures, fees, 
portfolio holdings disclosure policies, distributions and taxes, will 
be included in the Registration Statement. Investors also will be able 
to obtain the Fund's Statement of Additional Information (``SAI''), the 
Fund's Shareholder Reports, and its Trust's Form N-CSR and Form N-SAR, 
each of which is filed twice a year, except the SAI, which is filed at 
least annually. The Fund's SAI and Shareholder Reports will be 
available free upon request from the Trust, and those documents and the 
Form N-CSR and Form N-SAR may be viewed on-screen or downloaded from 
the Commission's Web site at www.sec.gov.
Initial and Continued Listing of the Fund's Shares
    The Shares will conform to the initial and continued listing 
criteria applicable to Managed Fund Shares, as set forth under Rule 
5735. The Exchange represents that, for initial and continued listing, 
the Fund will be in compliance with Rule 10A-3 \60\ under the Exchange 
Act. A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \60\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts of the Fund's Shares
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. Nasdaq will halt trading in the 
Shares under the conditions specified in Nasdaq Rules 4120 and 4121, 
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12). 
Trading also may be halted because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable. These may include: (1) The extent to which trading is not 
occurring in the securities and/or the financial instruments 
constituting the Disclosed Portfolio of the Fund; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present. Trading in the Shares also will be 
subject to Rule 5735(d)(2)(D), which sets forth circumstances under 
which Shares of the Fund may be halted.
Trading Rules
    Nasdaq deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to Nasdaq's existing rules governing the 
trading of equity securities. Nasdaq will allow trading in the Shares 
from 4:00 a.m. until 8:00 p.m. E.T. The Exchange has appropriate rules 
to facilitate transactions in the Shares during all trading sessions. 
As provided in Nasdaq Rule 5735(b)(3), the minimum price variation for 
quoting and entry of orders in Managed Fund Shares traded on the 
Exchange is $0.01.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by both Nasdaq and 
FINRA, on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities 
laws.\61\ The Exchange represents that these procedures are adequate to 
properly monitor Exchange

[[Page 20683]]

trading of the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and applicable federal securities laws.
---------------------------------------------------------------------------

    \61\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations. FINRA, on 
behalf of the Exchange, will communicate as needed regarding trading in 
the Shares and such other exchange-traded securities and instruments 
held by the Fund with other markets and other entities that are members 
of the ISG,\62\ and FINRA may obtain trading information regarding 
trading in the Shares and other exchange-traded securities (including 
ETFs and preferred stock) and instruments held by the Fund from such 
markets and other entities. Moreover, FINRA, on behalf of the Exchange, 
will be able to access, as needed, trade information for certain Debt 
Instruments, and other debt securities held by the Fund reported to 
FINRA's TRACE.
---------------------------------------------------------------------------

    \62\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    In addition, the Exchange may obtain information regarding trading 
in the Shares and such other exchange-traded securities and instruments 
held by the Fund from markets and other entities that are members of 
ISG, which includes securities exchanges, or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.
    Not more than 10% of the net assets of the Fund in the aggregate 
invested in equity securities (other than non-exchange-traded 
investment company securities) shall consist of equity securities whose 
principal market is not a member of the ISG or is a market with which 
the Exchange does not have a comprehensive surveillance sharing 
agreement. Furthermore, not more than 10% of the net assets of the Fund 
in the aggregate invested in futures contracts and exchange-traded 
options contracts shall consist of futures contracts and exchange-
traded options contracts whose principal market is not a member of ISG 
or is a market with which the Exchange does not have a comprehensive 
surveillance sharing agreement.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value and the Disclosed Portfolio is 
disseminated; (4) the risks involved in trading the Shares during the 
Pre-Market and Post-Market Sessions when an updated Intraday Indicative 
Value will not be calculated or publicly disseminated; (5) the 
requirement that members purchasing Shares from the Fund for resale to 
investors deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (6) trading information.
    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Exchange Act.
    Additionally, the Information Circular will reference that the Fund 
is subject to various fees and expenses. The Information Circular will 
also disclose the trading hours of the Shares of the Fund and the 
applicable NAV calculation time for the Shares. The Information 
Circular will disclose that information about the Shares of the Fund 
will be publicly available on the Fund's Web site.
Continued Listing Representations
    All statements and representations made in this filing regarding 
(a) the description of the portfolio, (b) limitations on portfolio 
holdings or reference assets, (c) dissemination and availability of the 
reference asset or intraday indicative values, or (d) the applicability 
of Exchange listing rules shall constitute continued listing 
requirements for listing the Shares on the Exchange. In addition, the 
issuer has represented to the Exchange that it will advise the Exchange 
of any failure by the Fund to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 19(g)(1) 
of the Act, the Exchange will monitor for compliance with the continued 
listing requirements. If the Fund is not in compliance with the 
applicable listing requirements, the Exchange will commence delisting 
procedures under the Nasdaq 5800 Series.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Exchange Act, in general, and Section 6(b)(5) \63\ of the 
Exchange Act, in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to, and perfect the mechanism of a free and open 
market and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 78(f)(b)(5) [sic].
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Nasdaq Rule 5735. The 
Exchange represents that trading in the Shares will be subject to the 
existing trading surveillances, administered by both Nasdaq and FINRA, 
on behalf of the Exchange, which are designed to deter and detect 
violations of Exchange rules and applicable federal securities laws and 
are adequate to properly monitor trading in the Shares in all trading 
sessions. The Adviser is affiliated with a broker-dealer and have 
implemented a fire wall with respect to its broker-dealer affiliate 
regarding access to information concerning the composition and/or 
changes to the Fund's portfolio. In addition, paragraph (g) of Nasdaq 
Rule 5735 further requires that personnel who make decisions on an 
open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material, non-public 
information regarding the open-end fund's portfolio.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect

[[Page 20684]]

investors and the public interest in that it will facilitate the 
listing and trading of an additional type of actively-managed exchange-
traded product that will enhance competition among market participants, 
to the benefit of investors and the marketplace.
    FINRA may obtain information via ISG from other exchanges that are 
members of ISG. In addition, the Exchange may obtain information 
regarding trading in the Shares and other exchange-traded securities 
(including ETFs and preferred stock) and instruments held by the Fund 
from markets and other entities that are members of ISG, which includes 
securities exchanges, or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. The Fund will limit its 
investments in illiquid securities or other illiquid assets to an 
aggregate amount of 15% of its net assets (calculated at the time of 
investment). The Fund also may invest directly in ETFs.
    Additionally, the Fund may engage in frequent and active trading of 
portfolio securities to achieve its investment objective. The Fund's 
investments will not be used to enhance leverage. That is, while the 
Fund will be permitted to borrow as permitted under the 1940 Act, the 
Fund will not be operated as a ``leveraged ETF,'' i.e., it will not be 
operated in a manner designed to seek a multiple or inverse multiple of 
the performance of the Fund's primary broad-based securities benchmark 
index (as defined in Form N-1A).
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily every day that 
the Fund is traded, and that the NAV and the Disclosed Portfolio will 
be made available to all market participants at the same time. In 
addition, a large amount of information will be publicly available 
regarding the Fund and the Shares, thereby promoting market 
transparency. Moreover, the Intraday Indicative Value, available on the 
NASDAQ Information LLC proprietary index data service, will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Exchange's Regular Market Session. On each Business 
Day, before commencement of trading in Shares in the Regular Market 
Session on the Exchange, the Fund will disclose on its Web site the 
Disclosed Portfolio of the Fund that will form the basis for the Fund's 
calculation of NAV at the end of the Business Day.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services, and 
quotation and last-sale information for the Shares will be available 
via Nasdaq proprietary quote and trade services, as well as in 
accordance with the Unlisted Trading Privileges and the CTA plans for 
the Shares. Quotation and last sale information will be available via 
the CTA high-speed line for the Shares and for the following U.S. 
exchange-traded securities: Common stocks, hybrid instruments, 
convertible securities, preferred securities, REITs, CEFs, ETFs, ETPs, 
and ETNs. Price information for foreign exchange-traded stocks will be 
available from the applicable foreign exchange and from major market 
data vendors. Price information for exchange-traded derivative 
instruments will be available from the applicable exchange and from 
major market data vendors. Price information for OTC REITs, OTC common 
stocks, OTC preferred securities, OTC convertible securities, OTC step-
up bonds, OTC CEFs, OTC options, money market instruments, forwards, 
structured notes, credit linked notes, risk-linked securities, OTC 
derivative instruments, and OTC hybrid instruments will be available 
from major market data vendors. Price information for restricted 
securities, including Regulation S and Rule 144A securities, will be 
available from major market data vendors. Intra-day and closing price 
information for exchange-traded options and futures will be available 
from the applicable exchange and from major market data vendors. In 
addition, price information for U.S. exchange-traded options is 
available from the Options Price Reporting Authority. Quotation 
information from brokers and dealers or independent pricing services 
will be available for Debt Instruments.
    The Fund's Web site will include a form of the prospectus for the 
Fund and additional data relating to NAV and other applicable 
quantitative information. Moreover, prior to the commencement of 
trading, the Exchange will inform its members in an Information 
Circular of the special characteristics and risks associated with 
trading the Shares. Trading in Shares of the Fund will be halted under 
the conditions specified in Nasdaq Rules 4120 and 4121 or because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable, and trading in the Shares will 
be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances 
under which Shares of the Fund may be halted. In addition, as noted 
above, investors will have ready access to information regarding the 
Fund's holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Exchange 
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Exchange Act. The Exchange 
believes that the proposed rule change will facilitate the listing and 
trading of an additional type of actively-managed exchange-traded 
product that will enhance competition among market participants, to the 
benefit of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2017-039 on the subject line.

[[Page 20685]]

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2017-039. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2017-039, and should 
be submitted on or before May 24, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\64\
---------------------------------------------------------------------------

    \64\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08899 Filed 5-2-17; 8:45 am]
 BILLING CODE 8011-01-P