Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of the SPDR Blackstone/GSO Senior Loan ETF Under NYSE Arca Equities Rule 8.600, 10233-10246 [2013-03278]

Download as PDF Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices Act 19 and Rule 19b–4(f)(6) thereunder.20 The Exchange has requested that the Commission waive the 30-day operative delay. The Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest because the proposal is substantially similar to those of other exchanges that have expanded and modified their STOS programs, which been approved by the Commission or filed for immediate effectiveness as ‘‘copycat’’ filings.21 Waiver of the delay would allow BATS to compete with these exchanges and clarify its rules without undue delay. Therefore, the Commission grants the Exchange’s waiver request and designates the proposal operative upon filing.22 At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–BATS–2013–006 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. 19 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires the Exchange to give the Commission written notice of the Exchange’s intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange satisfied this requirement. 21 See supra, notes 7–8, 11–13, and 15–16. 22 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). mstockstill on DSK4VPTVN1PROD with NOTICES 20 17 VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 All submissions should refer to File Number SR–BATS–2013–006. 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 (https://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 such 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–BATS– 2013–006 and should be submitted on or before March 6, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–03304 Filed 2–12–13; 8:45 am] BILLING CODE 8011–01–P 10233 notice is hereby given that on January 24, 2013, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade shares of the SPDR Blackstone/ GSO Senior Loan ETF under NYSE Arca Equities Rule 8.600. The text of the proposed rule change is available on the Exchange’s Web site at www.nyse.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 self-regulatory organization 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 those 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 parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68862; File No. SR– NYSEArca–2013–08] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of the SPDR Blackstone/ GSO Senior Loan ETF Under NYSE Arca Equities Rule 8.600 February 7, 2013. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 23 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 The Exchange proposes to list and trade the shares (‘‘Shares’’) of the following under NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares 4 on the Exchange: SPDR Blackstone/GSO 4 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 Investment Company Units, listed and traded on the Exchange under NYSE Arca Equities Rule 5.2(j)(3), 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. E:\FR\FM\13FEN1.SGM 13FEN1 10234 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES Senior Loan ETF (the ‘‘Fund’’).5 The Shares will be offered by SSgA Active ETF Trust (the ‘‘Trust’’), which is organized as a Massachusetts business trust and is registered with the Commission as an open-end management investment company.6 SSgA Funds Management, Inc. (‘‘Adviser’’ or ‘‘SSgA FM’’) serves as the investment adviser to the Fund (the ‘‘Adviser’’). GSO/Blackstone Debt Funds Management LLC will serve as subadviser (‘‘Sub-Adviser’’ or ‘‘GSO’’) to the Portfolio (as referenced below) and the Fund, subject to supervision by the Adviser and the Trust’s Board of Trustees (‘‘Board’’). State Street Global Markets, LLC (the ‘‘Distributor’’ or ‘‘Principal Underwriter’’) will be the principal underwriter and distributor of the Fund’s Shares. State Street Bank and Trust Company (the ‘‘Administrator,’’ ‘‘Custodian’’ or ‘‘Transfer Agent’’) will serve as administrator, custodian and transfer agent for the Fund. Commentary .06 to Rule 8.600 provides that, if the investment adviser to the 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 brokerdealer with respect to access to information concerning the composition and/or changes to such investment 5 The Commission has previously approved listing and trading on the Exchange of a number of actively managed funds under Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73 FR 27878 (May 14, 2008) (SR– NYSEArca–2008–31) (order approving Exchange listing and trading of twelve actively-managed funds of the WisdomTree Trust); 60981 (November 10, 2009), 74 FR 59594 (November 18, 2009) (SR– NYSEArca–2009–79) (order approving listing and trading of five fixed income funds of the PIMCO ETF Trust); 62502 (July 15, 2010), 75 FR 42471 (July 21, 2010) (SR–NYSEArca–2010–57) (order approving listing and trading of AdvisorShares WCM/BNY Mellon Focused Growth ADR ETF); 63076 (October 12, 2010), 75 FR 63874 (October 18, 2010) (SR–NYSEArca–2010–79) (order approving listing and trading of Cambria Global Tactical ETF); 63329 (November 17, 2010), 75 FR 71760 (November 24, 2010) (SR–NYSEArca–2010–86) (order approving listing and trading of Peritus High Yield ETF). Additionally, the Commission has previously approved the listing and trading of five other actively managed SSgA FM advised funds on the Exchange under Rule 8.600. Securities Exchange Act Release No. 66343 (February 7, 2012) 77 FR 7647 (February 13, 2012). 6 The Trust is registered under the 1940 Act. On April 1, 2011, the Trust filed with the Commission Form N–1A under the Securities Act of 1933 (15 U.S.C. 77a) (‘‘1933 Act’’), and under the 1940 Act relating to the Fund (File Nos. 333–173276 and 811–22542) (‘‘Registration Statement’’). The description of the operation of the Trust and the Fund herein is based, in part, on 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. 29524 (December 13, 2010) (File No. 812–13487) (‘‘Exemptive Order’’). VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 company portfolio. In addition, Commentary .06 further requires that personnel who make decisions on the open-end fund’s portfolio composition must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the open-end fund’s portfolio.7 Commentary .06 to Rule 8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the establishment of a ‘‘fire wall’’ between the investment adviser and the broker-dealer reflects the applicable open-end fund’s portfolio, not an underlying benchmark index, as is the case with index-based funds. The Adviser and the Sub-Adviser are each affiliated with a broker-dealer and have implemented a ‘‘fire wall’’ with respect to such broker-dealers regarding access to information concerning the composition and/or changes to the Fund’s portfolio. In the event (a) the Adviser or Sub-Adviser becomes newly affiliated with a brokerdealer, or (b) any new adviser or subadviser becomes affiliated with a brokerdealer, they will implement a fire wall with respect to such broker-dealer regarding access to information concerning the composition and/or changes to the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolio. SPDR Blackstone/GSO Senior Loan ETF The investment objective of the Fund is to provide current income consistent with the preservation of capital. Under 7 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 Sub-Adviser and their 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 Rule 204A–1 under the Advisers Act. 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. PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 normal market conditions,8 the Fund will invest all of its assets in the shares of the Blackstone/GSO Senior Loan Portfolio (the ‘‘Portfolio’’), a separate series of the SSgA Master Trust with an identical investment objective as the Fund. As a result, the Fund will invest indirectly through the Portfolio. According to the Registration Statement, in pursuing its investment objective, the Fund, under normal market conditions, will seek to outperform a primary and secondary loan index (as described below), by investing at least 80% of its net assets (plus any borrowings for investment purposes) in ‘‘Senior Loans,’’ which are described further below in ‘‘Description of Senior Loans and the Senior Loan Market.’’ The S&P/LSTA U.S. Leveraged Loan 100 Index (the ‘‘Primary Index’’) is comprised of the 100 largest Senior Loans, as measured by the borrowed amounts outstanding. The Markit iBoxx USD Leveraged Loan Index (the ‘‘Secondary Index’’) selects the 100 most liquid Senior Loans in the market. In addition to size, liquidity is also measured, in part, based on the number of market makers who trade a specific Senior Loan and the number and size of transactions in the context of the prevailing bid/offer spread. Markit utilizes proprietary models for the Secondary Index composition and updates to the Secondary Index. The Fund will not seek to track either the Primary or Secondary Index, but rather will seek to outperform those indices. In doing so, the Sub-Adviser represents that the Portfolio will primarily invest in Senior Loans.9 The 8 The terms ‘‘under normal market conditions’’ or ‘‘under normal market circumstances’’ include, but are not limited to, the absence of extreme volatility or trading halts in the fixed income markets or the financial markets generally; operational issues causing dissemination of inaccurate market information; or force majeure type events such as systems failure, natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance. In periods of extreme market disturbance, the Fund may take temporary defensive positions, by overweighting its portfolio in cash/cash-like instruments; however, to the extent possible, the investment Sub-Adviser would continue to seek to achieve the Fund’s investment objective. Specifically, the Portfolio and Fund would continue to invest in Senior Loans. In response to prolonged periods of constrained or difficult market conditions the Sub-Adviser will likely focus on investing in the largest and most liquid loans available in the market. 9 The Sub-Adviser represents that, in general, the Portfolio (i.e., the master fund) is where investments will be held, which investments will primarily consist of Senior Loans; and may, to a lesser extent, include ‘‘other investments’’ as described under ‘‘Other Investments’’ below. The Fund (i.e., the feeder fund) will invest in shares of the Portfolio and will not invest in ‘‘Other Investments,’’ but may be exposed to such investments by means of the Fund’s investment in E:\FR\FM\13FEN1.SGM 13FEN1 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES Portfolio intends to hold a large percentage of the components of the Primary and Secondary Indices. It is anticipated that the Portfolio, in accordance with its principal investment strategy, will invest approximately 50% to 75% of its net assets in Senior Loans that are eligible for inclusion and meet the liquidity thresholds of the Primary and/or the Secondary Indices. Each of the Portfolio’s Senior Loan investments is expected to have no less than $250 million USD par outstanding. The Sub-Adviser considers Senior Loans to be first lien senior secured floating rate bank loans. A Senior Loan is an advance or commitment of funds made by one or more banks or similar financial institutions to one or more corporations, partnerships or other business entities and typically pays interest at a floating or adjusting rate that is determined periodically at a designated premium above a base lending rate, most commonly the London-Interbank Offered Rate (‘‘LIBOR’’). A Senior Loan is considered senior to all other unsecured claims against the borrower, senior to or pari passu with all other secured claims, meaning that in the event of a bankruptcy the Senior Loan, together with other first lien claims, is entitled to be the first to be repaid out of proceeds of the assets securing the loans, before other existing unsecured claims or interests receive repayment. However, in bankruptcy proceedings, there may be other claims, such as taxes or additional advances which take precedence.10 According to the Registration Statement, the Portfolio will invest in Senior Loans that are made predominantly to businesses operating in North America, but may also invest in Senior Loans made to businesses operating outside of North America. The Portfolio may invest in Senior Loans directly, either from the borrower as part of a primary issuance or in the secondary market through assignments of portions of Senior Loans from third parties, or participations in Senior Loans, which are contractual shares of the Portfolio. In extraordinary instances, the Fund reserves the right to make direct investments in Senior Loans and other investments. 10 Senior Loans consist generally of obligations of companies and other entities (collectively, ‘‘borrowers’’) incurred for the purpose of reorganizing the assets and liabilities of a borrower; acquiring another company; taking over control of a company (leveraged buyout); temporary refinancing; or financing internal growth or other general business purposes. Senior Loans are often obligations of borrowers who have incurred a significant percentage of debt compared to equity issued and thus are highly leveraged. VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 relationships with an existing lender in a loan facility whereby the Portfolio purchases the right to receive principal and interest payments on a loan but the existing lender remains the record holder of the loan. Under normal market conditions, the Portfolio expects to maintain an average interest rate duration of less than 90 days. In selecting securities for the Portfolio, the Portfolio’s Sub-Adviser will seek to construct a portfolio of loans that it believes is less volatile than the general loan market. In addition, when making investments, the SubAdviser will seek to maintain appropriate liquidity and price transparency for the Portfolio. On an ongoing basis, the Sub-Adviser will add or remove those individual loans that it believes will cause the Portfolio to outperform or underperform, respectively, either the Primary or Secondary Index. When identifying prospective investment opportunities in Senior Loans, the Sub-Adviser currently intends to invest primarily in Senior Loans that are below investment grade quality and will rely on fundamental credit analysis in an effort to attempt to minimize the loss of the Portfolio’s capital.11 The Sub-Adviser expects to invest in Senior Loans or other debt of companies possessing the attributes described below, which it believes will help generate higher risk adjusted total returns.12 The Sub-Adviser does not 11 The Portfolio will primarily invest in securities (including Senior Loans) which typically will be rated below investment grade. Securities rated below investment grade, commonly referred to as ‘‘junk’’ or ‘‘high yield’’ securities, include securities that are rated Ba1/BB+/BB+ or below by Moody’s Investors Service, Inc. (‘‘Moody’s’’), Fitch Inc., or Standard & Poor’s, Inc. (‘‘S&P’’), respectively, and may involve greater risks than securities in higher rating categories. 12 According to the Registration Statement, the loan market, as represented by the S&P/LSTA (Loan Syndications and Trading Association) Leveraged Loan Index, experienced significant growth in terms of number and aggregate volume of loans outstanding since the inception of the index in 1997. In 1997, the total amount of loans in the market aggregated less than $10 billion. By April of 2000, it had grown to over $100 billion, and by July of 2007 the market had grown to over $500 billion. The size of the market peaked in November of 2008 at $594 billion. During this period, the demand for loans and the number of investors participating in the loan market also increased significantly. According to the Registration Statement, since 2008, the aggregate size of the market has contracted, characterized by limited new loan issuance and payoffs of outstanding loans. From the peak in 2008 through July 2010, the overall size of the loan market contracted by approximately 15%. The number of market participants also decreased during that period. Although the number of new loans being issued in the market since 2010 is increasing, there can be no assurance that the size of the loan market, and the number of participants, will return to earlier levels. An increase in demand for Senior Loans may benefit the Fund by providing PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 10235 intend to purchase Senior Loans that are in default. However, the Portfolio may hold a Senior Loan that has defaulted subsequent to its purchase by the Portfolio. The Sub-Adviser intends to invest in Senior Loans or other debt of companies that it believes have developed strong positions within their respective markets and exhibit the potential to maintain sufficient cash flows and profitability to service their obligations in a range of economic environments. The Sub-Adviser will seek Senior Loans or other debt of companies that it believes possess advantages in scale, scope, customer loyalty, product pricing, or product quality versus their competitors, thereby minimizing business risk and protecting profitability. The Sub-Adviser intends to invest primarily in Senior Loans or other debt of established companies which have demonstrated a record of profitability and cash flows over several economic cycles. The Sub-Adviser believes such companies are well-positioned to maintain consistent cash flow to service and repay their obligations and maintain growth in their businesses or market share. The Sub-Adviser does not intend to invest in Senior Loans or other debt of primarily start-up companies, companies in turnaround situations or companies with speculative business plans. The Sub-Adviser intends to focus on investments in which the Senior Loans or other debt of a target company has an experienced management team with an established track record of success. The Sub-Adviser will typically require companies to have in place proper incentives to align management’s goals with the Portfolio’s goals. Often the Sub-Adviser will seek to participate in transactions sponsored by what it believes to be high-quality private equity firms. The Sub-Adviser believes that a private equity sponsor’s willingness to invest significant sums of equity capital into a company is an implicit endorsement of the quality of the investment. Further, private equity sponsors of companies with significant investments at risk have the ability and a strong incentive to contribute increased liquidity for such loans and higher sales prices, but it may also adversely affect the rate of interest payable on such loans acquired by the Portfolio and the rights provided to the Portfolio under the terms of the applicable loan agreement, and may increase the price of loans that the Portfolio wishes to purchase in the secondary market. A decrease in the demand for Senior Loans may adversely affect the price of loans in the Portfolio, which could cause the Fund’s net asset value (‘‘NAV’’) to decline. E:\FR\FM\13FEN1.SGM 13FEN1 10236 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES additional capital in difficult economic times should operational issues arise. The Sub-Adviser will seek to invest in Senior Loans or other debt broadly among companies and industries, thereby potentially reducing the risk of a downturn in any one company or industry having a disproportionate impact on the value of the Portfolio’s holdings. However, as a result of its investment in participations in loans and the fact that originating banks may be deemed issuers of loans, the Portfolio may be deemed to concentrate its investments in the financial services industries. Loans, and the collateral securing them, are typically monitored by agents for the lenders, which may be the originating bank or banks.13 The Portfolio and the Fund are expected to be managed in a ‘‘masterfeeder’’ structure, under which the Fund, under normal market conditions, will invest all of its assets in the Portfolio, the corresponding ‘‘master fund,’’ which is a separate 1940 Actregistered mutual fund that has an identical investment objective. As a result, the Fund (i.e., a ‘‘feeder fund’’) has an indirect interest in all of the securities owned by the Portfolio. Because of this indirect interest, the Fund’s investment returns should be the same as those of the Portfolio, adjusted for the expenses of the Fund. In extraordinary instances, the Fund reserves the right to make direct investments. The Sub-Adviser will manage the investments of the Portfolio. Under the master-feeder arrangement, investment advisory fees charged at the master-fund level are deducted from the advisory fees charged at the feeder-fund level. According to the Registration Statement, this arrangement avoids a ‘‘layering’’ of fees, e.g., the Fund’s total annual operating expenses would be no higher as a result of investing in a masterfeeder arrangement than they would be if the Fund pursued its investment objectives directly. In addition, the 13 According to the Registration Statement, the Portfolio may be reliant on the creditworthiness of the agent bank and other intermediate participants in a Senior Loan, in addition to the borrower, since rights that may exist under the loan against the borrower if the borrower defaults are typically asserted by or through the agent bank or intermediate participant. Agents are typically large commercial banks, although for Senior Loans that are not broadly syndicated they can also include thrift institutions, insurance companies or finance companies (or their affiliates). Such companies may be especially susceptible to the effects of changes in interest rates resulting from changes in U.S. or foreign fiscal or monetary policies, governmental regulations affecting capital raising activities or other economic or market fluctuations. It is the expectation that the Portfolio will only invest in broadly syndicated loans. VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 Fund may discontinue investing through the master-feeder arrangement and pursue its investment objectives directly if the Trust’s Board of Trustees determines that doing so would be in the best interests of shareholders. According to the Registration Statement, historically, the amount of public information available about a specific Senior Loan has been less extensive than if the loan were registered or exchange-traded. As noted above, the loans in which the Portfolio will invest will, in most instances, be Senior Loans, which are secured and senior to other indebtedness of the borrower. Each Senior Loan will generally be secured by collateral such as accounts receivable, inventory, equipment, real estate, intangible assets such as trademarks, copyrights and patents, and securities of subsidiaries or affiliates. The value of the collateral generally will be determined by reference to financial statements of the borrower, by an independent appraisal, by obtaining the market value of such collateral, in the case of cash or securities if readily ascertainable, or by other customary valuation techniques considered appropriate by the SubAdviser. The value of collateral may decline after the Portfolio’s investment, and collateral may be difficult to sell in the event of default. Consequently, the Portfolio may not receive all the payments to which it is entitled. By virtue of their senior position and collateral, Senior Loans typically provide lenders with the first right to cash flows or proceeds from the sale of a borrower’s collateral if the borrower becomes insolvent (subject to the limitations of bankruptcy law, which may provide higher priority to certain claims such as employee salaries, employee pensions, and taxes). This means Senior Loans are generally repaid before unsecured bank loans, corporate bonds, subordinated debt, trade creditors, and preferred or common stockholders. To the extent that the Portfolio invests in unsecured loans, if the borrower defaults on such loan, there is no specific collateral on which the lender can foreclose. If the borrower defaults on a subordinated loan, the collateral may not be sufficient to cover both the senior and subordinated loans. According to the Registration Statement, there is no organized exchange on which loans are traded and reliable market quotations may not be readily available. A majority of the Portfolio’s assets are likely to be invested in loans that are less liquid than securities traded on national exchanges. Loans with reduced liquidity involve greater risk than securities with PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 more liquid markets. Available market quotations for such loans may vary over time, and if the credit quality of a loan unexpectedly declines, secondary trading of that loan may decline for a period of time. During periods of infrequent trading, valuing a loan can be more difficult and buying and selling a loan at an acceptable price can be more difficult and delayed. In the event that the Portfolio voluntarily or involuntarily liquidates Portfolio assets during periods of infrequent trading, it may not receive full value for those assets. Therefore, elements of judgment may play a greater role in valuation of loans. To the extent that a secondary market exists for certain loans, the market may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods. According to the Registration Statement, Senior Loans will usually require, in addition to scheduled payments of interest and principal, the prepayment of the Senior Loan from free cash flow, as described in the Registration Statement. The degree to which borrowers prepay Senior Loans, whether as a contractual requirement or at their election, may be affected by general business conditions, the financial condition of the borrower and competitive conditions among loan investors, among others. As such, prepayments cannot be predicted with accuracy. Recent market conditions, including falling default rates among others, have led to increased prepayment frequency and loan renegotiations. These renegotiations are often on terms more favorable to borrowers. Upon a prepayment, either in part or in full, the actual outstanding debt on which the Portfolio derives interest income will be reduced. However, the Portfolio may receive a prepayment penalty fee assessed against the prepaying borrower. Other Investments According to the Registration Statement, in addition to the principal investments described above, the Portfolio may invest in other investments, as described below. The Fund may (indirectly through its investments in the Portfolio or, in extraordinary circumstances, directly) invest in the following types of investments. The investment practices of the Portfolio are the same in all material respects to those of the Fund. The Portfolio may invest in bonds, including corporate bonds; high yield debt securities; and U.S. Government E:\FR\FM\13FEN1.SGM 13FEN1 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES obligations.14 The Portfolio also may invest in preferred securities. The Portfolio may invest in repurchase agreements with commercial banks, brokers or dealers to generate income from its excess cash balances and its securities lending cash collateral. A repurchase agreement is an agreement under which the Portfolio acquires a financial instrument (e.g., a security issued by the U.S. government or an agency thereof, a banker’s acceptance or a certificate of deposit) from a seller, subject to resale to the seller at an agreed upon price and date (normally, the next business day). A repurchase agreement may be considered a loan collateralized by securities. In addition, the Portfolio may enter into reverse repurchase agreements, which involve the sale of securities with an agreement to repurchase the securities at an agreedupon price, date and interest payment and have the characteristics of borrowing. The Portfolio may invest in commercial paper. Commercial paper consists of short-term, promissory notes issued by banks, corporations and other entities to finance short-term credit needs. These securities generally are discounted but sometimes may be interest bearing. Subject to limitations, the Portfolio may invest in secured loans that are not first lien loans or loans that are unsecured. These loans have the same characteristics as Senior Loans except that such loans are not first in priority of repayment and/or may not be secured by collateral. Accordingly, the risks associated with these loans are higher than the risks for loans with first priority over the collateral. Because these loans are lower in priority and/or unsecured, they are subject to the additional risk that the cash flow of the borrower may be insufficient to meet scheduled payments after giving effect to the secured obligations of the borrower or in the case of a default, recoveries may be lower for unsecured loans than for secured loans.15 14 U.S. Government obligations are a type of bond and include securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities. The Portfolio also may purchase U.S. registered, dollar-denominated bonds of foreign corporations, governments, agencies and supra-national entities. 15 According to the Registration Statement, secured loans that are not first lien and loans that are unsecured generally have greater price volatility than Senior Loans and may be less liquid. There is also a possibility that originators will not be able to sell participations in these loans, which would create greater credit risk exposure for the holders of such loans. Secured loans that are not first lien and loans that are unsecured share the same risks as other below investment grade instruments. VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 The Portfolio may invest in short-term instruments, including money market instruments (including money market funds advised by the Adviser), cash and cash equivalents, on an ongoing basis to provide liquidity or for other reasons. The Portfolio may invest in the securities of other investment companies, including closed-end funds (including loan-focused closed end funds), subject to applicable limitations under Section 12(d)(1) of the 1940 Act.16 To the extent allowed by law, regulation, the Portfolio’s investment restrictions and the Trust’s Exemptive Order, the Portfolio may invest its assets in securities of investment companies that are money market funds, including those advised by the Adviser or otherwise affiliated with the Adviser, in excess of the limits discussed above. In addition, the Portfolio may invest in exchange-traded notes (‘‘ETNs’’), such as securities listed on the Exchange under NYSE Arca Equities Rule 5.2(j)(6), which are debt obligations of investment banks that are traded on exchanges and the returns of which are linked to the performance of certain reference assets, which may include market indexes. The Portfolio will not invest 25% or more of the value of its total assets in securities of issuers in any one industry; however it may be deemed to concentrate its investment in any of the industries or group of industries in the financial services sector (consisting of financial institutions, including commercial banks, insurance companies and other financial companies and their respective holding companies) to the extent that the banks originating or acting as agents for the lenders, or granting or acting as intermediaries in participation interests, in loans held by the Portfolio are deemed to be issuers of such loans.17 The Portfolio may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment), including Rule 144A securities, junior subordinated loans and unsecured loans deemed illiquid by the Adviser and 16 The Portfolio may invest in other debt or fixed income exchange-traded funds (‘‘ETFs’’), such as securities listed on the Exchange under NYSE Arca Equities Rules 5.2(j)(3), 8.100 and 8.600, (including ETFs managed by the Adviser). ETFs may be structured as investment companies that are registered under the 1940 Act, typically as openend funds or unit investment trusts. These ETFs are generally based on specific domestic and foreign market securities indices. 17 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). PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 10237 Sub-Adviser. The Portfolio 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 Portfolio’s net assets are held in illiquid securities. Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets as determined in accordance with Commission staff guidance.18 Except for investments in ETFs that may hold non-U.S. issues, the Portfolio will not otherwise invest in non-U.S.registered equity issues. The Portfolio will not invest in options contracts, futures contracts or swap agreements. In certain situations or market conditions, the Portfolio may temporarily depart from its normal investment policies and strategies provided that the alternative is consistent with the Portfolio’s investment objective and is in the best interest of the Portfolio. For example, the Portfolio may hold a higher than normal proportion of its assets in cash in times of extreme market stress.19 The Portfolio may borrow money from a bank as permitted by the 1940 Act or other governing statute, by applicable rules thereunder, or by Commission or other regulatory agency with authority over the Portfolio, but only for temporary or emergency purposes. The Portfolio will be classified as a ‘‘diversified’’ investment company under the 1940 Act.20 The Portfolio intends to qualify for and to elect treatment as a separate 18 The Commission has stated that 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), footnote 34. See also, Investment Company Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) (Statement Regarding ‘‘Restricted Securities’’); Investment Company Act Release No. 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 No. 14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a–7 under the 1940 Act); Investment Company Act Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under the 1933 Act). 19 See note 8, supra. 20 The diversification standard is set forth in Section 5(b)(1) of the 1940 Act (15 U.S.C. 80a–5). E:\FR\FM\13FEN1.SGM 13FEN1 10238 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices regulated investment company (‘‘RIC’’) under Subchapter M of the Internal Revenue Code.21 The Portfolio’s investments will be consistent with the Portfolio’s investment objective and will not be used to enhance leverage. Criteria To Be Applied to the Fund While the Fund, which would be listed pursuant to the criteria applicable to actively managed funds under NYSE Arca Equities Rule 8.600, is not eligible for listing under NYSE Arca Equities Rule 5.2(j)(3) applicable to listing and trading of Investment Company Units based on a securities index, the Adviser and Sub-Adviser represent that, under normal market conditions, the Fund would satisfy the generic fixed income initial listing requirements in NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 on a continuous basis measured at the time of purchase, as described below.22 21 26 U.S.C. 851. Arca Equities Rule 5.2(j)(3), Commentary .02 sets forth generic listing criteria applicable to listing under Rule 19b–4(e) under the Exchange Act of Investment Company Units (‘‘Units’’) based on an index or portfolio of ‘‘Fixed Income Securities,’’ which are debt securities that are notes, bonds, debentures or evidence of indebtedness that include, but are not limited to, U.S. Department of Treasury securities (‘‘Treasury Securities’’), government-sponsored entity securities (‘‘GSE Securities’’), municipal securities, trust preferred securities, supranational debt and debt of a foreign country or a subdivision thereof. NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(a) is as follows: (a) Eligibility Criteria for Index Components. Upon the initial listing of a series of Units pursuant to Rule 19b–4(e) under the Securities Exchange Act of 1934 on the Corporation, the components of an index or portfolio underlying a series of Units shall meet the following criteria: (1) The index or portfolio must consist of Fixed Income Securities; (2) Components that in aggregate account for at least 75% of the weight of the index or portfolio each shall have a minimum original principal amount outstanding of $100 million or more; (3) A component may be a convertible security, however, once the convertible security component converts to the underlying equity security, the component is removed from the index or portfolio; (4) No component fixed-income security (excluding Treasury Securities and GSE Securities) shall represent more than 30% of the weight of the index or portfolio, and the five most heavily weighted component fixed-income securities in the index or portfolio shall not in the aggregate account for more than 65% of the weight of the index or portfolio; (5) An underlying index or portfolio (excluding one consisting entirely of exempted securities) must include a minimum of 13 non-affiliated issuers; and (6) Component securities that in aggregate account for at least 90% of the weight of the index or portfolio must be either (a) from issuers that are required to file reports pursuant to Sections 13 and 15(d) of the Securities Exchange Act of 1934; (b) from issuers that have a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more; (c) from issuers that have outstanding securities that are notes, bonds debentures, or evidence of indebtedness having a total remaining principal amount of at least $1 billion; (d) exempted securities as defined in Section 3(a)(12) of the mstockstill on DSK4VPTVN1PROD with NOTICES 22 NYSE VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 With respect to the requirement of Commentary .02(a)(1), as noted in the Registration Statement, the Fund (though its investment in the Portfolio) will invest at least 80% of its net assets (plus any borrowings for investment purposes) in Senior Loans. The Adviser and Sub-Adviser expect that substantially all of the Fund’s assets will be invested in Fixed Income Securities or cash/cash-like instruments. With respect to the requirement of Commentary .02(a)(2), the Portfolio’s Adviser and Sub-Adviser expect that substantially all, but at least 75% of the Portfolio’s portfolio will be invested in loans that have an aggregate outstanding exposure of greater than $100 million. With respect to the requirement of Commentary .02(a)(3), the Sub-Adviser represents that the Portfolio will not typically invest in convertible securities; however, should the Portfolio make such investments, the SubAdviser would direct the Portfolio to divest any converted equity security as soon as practicable. With respect to the requirement of Commentary .02(a)(4), the Sub-Adviser represents that the Portfolio will not concentrate its investments in excess of 30% in any one security (excluding Treasury Securities and GSE Securities), and will not invest more than 65% of its assets in five or fewer securities (excluding Treasury Securities and GSE Securities). With respect to the requirement of Commentary .02(a)(5), the Sub-Adviser represents that the Portfolio will invest in Senior Loans issued to at least 13 non-affiliated borrowers. With respect to the requirements of Commentary .02(a)(6), the Sub-Adviser represents that the Portfolio’s portfolio may make investments on a continuous basis in compliance with such requirement at the time of purchase; however, the market for Senior Loans differs in several material respects from the market of other fixed income securities (e.g., bonds). A significant percentage of the Senior Loan market would not meet the criteria set forth in Commentary .02(a)(6), but would be readily tradable in the secondary market. For the 12 month period ending August 12, 2012, 53.4% of the borrowers of primary Senior Loans (also known as leveraged loans) had total indebtedness of $1 billion or less and Senior Loans outstanding of $250 million or more. (Source: S&P). In order to add to the Portfolio’s diversification and to expand the Portfolio’s investment Securities Exchange Act of 1934; or (e) from issuers that are a government of a foreign country or a political subdivision of a foreign country. PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 universe, the Portfolio may invest in Senior Loans borrowed by entities that would not meet the criteria set forth in Commentary .02(a)(6) above provided the borrower has at least $250 million outstanding in Senior Loans. The Senior Loans borrowed by such entities would be well known to participants in the Senior Loan markets, would typically attract multiple market makers, and would share liquidity and transparency characteristics of senior secured debt borrowed by entities meeting the criteria in the generic listing criteria of NYSE Arca Equities Rule 5.2(j)(3), Commentary .02. Description of Senior Loans and the Senior Loan Market The Sub-Adviser represents that Senior Loans represent debt obligations of sub-investment grade corporate borrowers, similar to high yield bonds; however, Senior Loans are different from traditional high yield bonds in several important respects. First, Senior Loans are typically senior to other obligations of the borrower and secured by the assets of the borrower. Senior Loans rank at the top of a borrower’s capital structure in terms of priority of payment, ahead of any subordinated debt (high yield) or the borrower’s common equity. These loans are also secured, as the holders of these loans have a lien on most if not all of the corporate issuer’s plant, property, equipment, receivables, cash balances, licenses, trademarks, etc. Furthermore, the corporate borrower of Senior Loans executes a credit agreement that typically restricts what it can do (debt incurrence, asset dispositions, etc.) without the lenders’ approval, and, in addition, often requires the borrower to meet certain ongoing financial covenants (EBITDA, leverage tests, etc.). Finally, Senior Loans are floating rate obligations which typically pay a fixed spread over 3 month LIBOR. Institutional investors access the market today primarily through commingled funds or separately managed accounts. Individual investors have gained exposure to Senior Loans primarily through registered open end or closed end mutual funds and business development companies or occasionally through limited partnerships. The performance of a Senior Loans portfolio is driven by credit selection. Investing in Senior Loans involves detailed credit analysis and sound investment judgment culminating in the timely payout of interest and ultimate return of principal. Loans are generally prepayable at any time, typically without penalty. Loans are typically E:\FR\FM\13FEN1.SGM 13FEN1 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES purchased at close to 100 (‘‘par’’) and are also typically repaid at 100; the return to the investor comes from the quarterly interest coupons and the return of principal. Underperformance comes from making investment misjudgments whereby the corporate borrower fails to repay the loan at maturity or otherwise defaults on the obligation.23 The Sub-Adviser represents that the Senior Loan market, in terms of total outstanding loans by dollar volume is approximately equal in size to the high yield corporate bond market in the U.S.—between $1.2 trillion and $1.5 trillion. The market for Senior Loans is almost exclusively comprised of noninvestment grade corporate borrowers. The Loan Syndication and Trading Association (‘‘LSTA’’), a trade group sponsored by both underwriters of and institutional investors in senior bank loans, has been tracking trading volumes and bid-offer spreads for the asset class since 2007. For the month ended June 30, 2012—a representative period—$30 billion of Senior Loans changed hands representing 1,109 individual transactions. (Source: LSTA.) Average quarterly Senior Loan trading volume exceeded $100 billion during 2011. Quarterly trading volumes fell modestly to $98 billion in the second calendar quarter of 2012.24 The Portfolio, as noted above, will primarily invest in the more liquid and higher rated segment of the Senior Loan market. The average credit rating of the Senior Loans that the Fund typically will hold will be rated between BB+ and B+ as rated by S&P. The most actively traded loans will generally have a tranche size outstanding (or total float of the issue) in excess of $250 million. The borrowers of these broadly syndicated bank loans will typically be followed by many ‘‘buy-side’’ and ‘‘sell-side’’ credit 23 Additional capital features inherent to Senior Loans include the following: (1) Such loans are subject to mandatory and discretionary prepayments and can be prepaid in full, often without penalty, for a variety of reasons; (2) companies may opt to refinance an existing loan at a lower spread or repay the loan with a high yield bond issuance; (3) required excess cash flow sweeps; (4) covenants requiring loan prepayment from proceeds of asset sales; and (5) quarterly amortization. 24 As of October 2012, 195 open ended loan funds and open ended bond funds were invested in the Senior Loan market as a primary or secondary asset class. (Source: Morningstar.) As of October 2012, there were approximately $65 billion of assets under management in 39 open ended loan funds and approximately $252 billion of assets under management in 158 open ended high yield bond funds. 86 of the 158 open ended high yield bond funds made an allocation to Senior Loans, and, among high yield bond funds that had an allocation to Senior Loans, such allocation was 4.99% on average. (Source: Morningstar Direct.) VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 analysts who will in turn rely on the borrower to provide transparent financial information concerning its business performance and operating results. The Sub-Adviser represents that such borrowers typically provide significant financial transparency to the market through the delivery of financial statements on at least a quarterly basis as required by the executed credit agreements. Additionally, bid and offers in the Senior Loans are available throughout the trading day on larger Senior Loans issues with multiple dealer quotes available. The Sub-Adviser represents that the underwriters, or agent banks, which distribute, syndicate and trade Senior Loans are among the largest global financial institutions, including JPMorgan, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley, Wells Fargo, Deutsche Bank, Barclays, Credit Suisse and others. It is common for multiple firms to act as underwriters and market makers for a specific Senior Loan issue. For example, two underwriters may co-underwrite and fund a Senior Loan that has a $1 billion institutional tranche. One of the underwriters acting as syndication agent for the financing, will then draft an offering memorandum (similar to an equity IPO prospectus), distribute it to potential investors, schedule management meetings with the largest loan investors and arrange a bank meeting that includes management presentations along with a question and answer session. The investor audience attends in person as well as via telephone with both live and recorded conference call options. After a two week syndication process where investors can complete their due diligence work with access to company management and underwriter bankers to answer credit questions, investors’ commitments are collected by the underwriter. The underwriter will typically allocate the loan to 80–120 investors within the following week, with the largest position representing 3– 5% of the tranche size in a successful syndication. The underwriters will both make executable two sided markets in the loan with eighth to a quarter point bid/ask spreads on sizes in the $2 million to $20 million range, depending on the issue. Other banks also have Senior Loan trading desks that make secondary bid/ask markets in the loans after they are allocated. Senior Loan investors can also obtain information on Senior Loans and their borrowers from numerous public sources, including Bloomberg, FactSet, public financial PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 10239 statement filings (Forms 10–K and 10– Q), and sell side research analysts. The Sub-Adviser represents that the segment of the Senior Loan market that the Portfolio will focus on is highly liquid. Senior Loans of $250 million or more in issuance are typically quite liquid and will have multiple market makers and typically 75 or more institutional holders. The standard bid/ offer spreads for such loans are 1⁄4 to 1⁄2 point, although the largest firms, such as the Sub-Adviser, can transact on a 1/8th point market across dealers for Senior Loans of $250 million or more outstanding.25 The Sub-Adviser represents that, while Senior Loans are not reported through TRACE,26 there is significant transparency with dealers updating investors on trades and trading activity throughout the day. Dealers update their ‘‘trading runs’’ of Senior Loans throughout the day and distribute these via electronic messaging to the institutional investor community. The Adviser represents further that, upon commencement of trading in the Fund, the Adviser and Sub-Adviser would ensure that all ‘‘Authorized Participants’’ (as described below) for the Portfolio were added to these intraday market maker Senior Loan ‘‘trading runs.’’ Description of the S&P/LSTA U.S. Leveraged Loan 100 Index 27 The Primary Index is a market valueweighted index designed to measure the performance of the largest segment of the U.S. syndicated leveraged loan market. The Primary Index consists of 100 loan facilities drawn from a larger benchmark—the S&P/LSTA Leveraged Loan Index (‘‘LLI’’)—which covers more than 900 facilities and, as of June 30, 2011, had a market value of more than US$ 490 billion. As of June 30, 2011, the Primary Index had a total market value of US$ 183.4 billion. 25 The Exchange notes that the PowerShares Senior Loan Portfolio (Symbol: BKLN), is an indexbased exchange-traded fund listed on the Exchange since March 5, 2011 under NYSE Arca Equities Rule 5.2(j)(3). The underlying index for BKLN is the S&P/LSTA U.S. Leveraged Loan 100 Index, the Fund’s Primary Index. As of November 20, 2012, BKLN had assets under management of approximately $1.28 billion. Since inception, BKLN’s average daily trading volume has been 545,065 shares, with an average premium/discount to NAV of 0.43%. 26 TRACE (Trade Reporting and Compliance Engine), is a vehicle developed by the Financial Industry Regulatory Authority (‘‘FINRA’’) that facilitates the mandatory over-the-counter secondary market transactions in eligible fixed income securities. 27 The description herein of the Primary Index is based on information in ‘‘S&P LSTA U.S. Leveraged Loan 100 Index Methodology, August 2011’’ (‘‘Primary Index Description’’). E:\FR\FM\13FEN1.SGM 13FEN1 mstockstill on DSK4VPTVN1PROD with NOTICES 10240 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices The Primary Index is designed to reflect the largest facilities in the leveraged loan market. It mirrors the market-weighted performance of the largest institutional leveraged loans based upon market weightings, spreads and interest payments. The Primary Index is rules based, although the S&P/LSTA U.S. Leveraged Loan 100 Index Committee (the ‘‘Index Committee,’’ described below) reserves the right to exercise discretion when necessary.28 The Primary Index is rebalanced semi-annually to avoid excessive turnover, but reviewed weekly to reflect pay-downs and ensure that the Primary Index portfolio maintains 100 loan facilities. The constituents of the Primary Index (the ‘‘Index Loans’’) are drawn from a universe of syndicated leveraged loans representing over 90% of the leveraged loan market. All syndicated leveraged loans covered by the LLI universe are eligible for inclusion in the Primary Index. Term loans from syndicated credits must meet the following criteria at issuance in order to be eligible for inclusion in the LLI: • Senior secured • Minimum initial term of one year • Minimum initial spread of LIBOR + 125 basis points • U.S. dollar denominated. All Primary Index loans must have a publicly assigned CUSIP. According to the Primary Index Description, the Primary Index is designed to include the largest loan facilities from the LLI universe. Par outstanding is a key criterion for loan selection. Loan facilities are included if they are among the largest first lien facilities from the Primary Index in terms of par amount outstanding. There is no minimum size requirement on individual facilities in the Primary Index, but the LLI universe minimum is US$ 50 million. Only the 100 largest first lien facilities from the LLI that meet all eligibility requirements are considered for inclusion. The Primary Index covers all borrowers regardless of origin; however, all facilities must be denominated in U.S. dollars. A Primary Index addition is generally made only if a vacancy is created by a Primary Index deletion. Primary Index additions are reviewed on a weekly basis and are made according to par outstanding and overall liquidity. Liquidity is determined by the par outstanding and number of market bids 28 S&P is not a broker-dealer or affiliated with a broker-dealer and has implemented procedures designed to prevent the use and dissemination of material, non-public information regarding the Primary Index. VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 available. Facilities are retired when they are no longer priced by ‘‘LSTA/LPC Mark-to-Market Pricing’’ or when the facility is repaid.29 Each loan facility’s total return is calculated by aggregating the interest return, reflecting the return due to interest paid and accrued interest, and price return, reflecting the gains or losses due to changes in end-of-day prices and principal prepayments. The Primary Index is maintained in accordance with the following rules: • The Primary Index is reviewed each week to ensure that it includes 100 Index Loans. • A complete review and rebalancing of all Primary Index constituents is completed on a semi-annual basis coinciding with the last weekly rebalance in June and in December. • Eligible loan facilities approved by the Primary Index Committee are added to the Primary Index during the semiannual rebalancing. Eligible loan facilities are added to the Primary Index at the weekly review only if other facilities are repaid or otherwise drop out of the Primary Index, in order to maintain 100 Index Loans. • Any loan facility that fails to meet any of the eligibility criteria or that has a term to maturity less than or equal to 12 months plus 1 calendar day, as of the weekly Rebalancing Date, will not be included in the Primary Index. • Par amounts of Primary Index loans will be adjusted on the weekly Rebalancing Date to reflect any changes that have occurred since the previous Rebalancing Date, due, for example, to partial pre-payments and pay-downs.30 • Constituent facilities are capped at 2% of the Primary Index and drawndown at the weekly rebalancing. When a loan facility exceeds the 2% cap, the weight is reduced to 1.90% and the proceeds are invested in the other Primary Index components on a relative-weight basis. The Primary Index is normally reviewed and rebalanced on a weekly basis to maintain 100 constituents. The Primary Index Committee (as described 29 LSTA/LPC Mark-to-Market Pricing is used to price each loan in the index. LSTA/LPC Mark-toMarket Pricing is based on bid/ask quotes gathered from dealers and is not based upon derived pricing models. The Primary Index uses the average bid for its market value calculation. 30 The Sub-Adviser represents that loan prepayments in 2011 were 40% of the S&P/LSTA Leveraged Loan Index and LTM September 30, 2012 are 28% (Source: LCD Quarterly Review, Third Quarter 2012). As a result of prepayments, the weighted average life of a loan is typically 2–3 years versus average maturity of 5–7 years. Existing investors in the Senior Loan may decline to participate in a loan refinancing that occurs at a lower spread in which case the loan would be repaid. PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 below), nevertheless, reserves the right to make adjustments to the Primary Index at any time that it believes appropriate. Weekly Primary Index rebalancing maintenance (additions, deletions, paydowns, and other changes to the Primary Index) is based on data as of Friday (or the last business day of the week in the case of holidays) and is announced the following Wednesday (or Tuesday in the case of a holiday) for implementation on the following Friday. Publicly available information, up to and including each Wednesday’s close, is considered in each weekly rebalancing. Primary Index changes published in the announcement generally are not subject to revision and will become effective on the date listed in the announcement. The Primary Index Committee The Primary Index Committee maintains the Primary Index.31 The Primary Index Committee is comprised of employees of S&P. The Primary Index Committee is chaired by the Managing Director and Primary Index Committee Chairman at S&P. Meetings are held annually and, from time to time, as needed. It is the sole responsibility of the Primary Index Committee to decide on all matters relating to methodology, maintenance, constituent selection and index procedures. The Primary Index Committee makes decisions based on all available information and Primary Index Committee discussions are kept confidential to avoid any unnecessary impact on market trading. Markit iBoxx USD Liquid Leveraged Loan Index 32 According to the Secondary Index Description, the Markit iBoxx USD Liquid Leveraged Loan Index is a subset of the benchmark Markit iBoxx USD Leveraged Loan Index (USD LLI). The Secondary Index limits the number of constituent loans by selecting larger and more liquid loans from the wider USD LLI index universe as determined by the Liquidity Ranking Procedure, described below. The procedure utilizes daily liquidity scores from the Markit Loan Pricing Service, which is a broader measure of liquidity, summarizing the performance of each loan across several 31 The Primary Index Committee has implemented procedures designed to prevent the use and dissemination of material, non-public information regarding the Primary Index. 32 The description herein of the Secondary Index is based on ‘‘Markit iBoxx USD Liquid Leveraged Loan Index—Index Guide,’’ September 2011 (‘‘Secondary Index Description’’). E:\FR\FM\13FEN1.SGM 13FEN1 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES liquidity metrics, such as number of quotes, or bid-offer sizes.33 The selection process for the Secondary Index will be used on the index inception date and at every monthly rebalancing (‘‘Secondary Index Selection Date’’). The selection process will involve the identification of the eligible universe using the eligibility criteria set out below. If the size of the eligible universe is greater than the target number of loans, the Liquidity Ranking Procedure will be used to determine the final index constituents. Once the index members are selected, they are automatically carried forward to the following month’s selection, unless they no longer satisfy the eligibility criteria or enter a prolonged period of relative illiquidity. The Secondary Index eligibility criteria and the liquidity ranking procedure are described in further detail below. The following six selection criteria are used to derive the eligible universe from the MarkitWSO USD-denominated loan universe: loan type; minimum size; liquidity/depth of market; spread; credit rating; and minimum time to maturity.34 Only USD-denominated loans are eligible for the Secondary Index. Eligible loan types are fully funded term loans (fixed and floating rate) and defaulted loans. Ineligible loan types are 364-day facility; delayed term loans; deposit-funded tranche; letters of credit; mezzanine; PIK Toggle; PIK; pre-funded acquisition; revolving credit; strips; synthetic lease; and unfunded loans. A minimum facility size of $500 million USD nominal is required to be eligible for the Secondary Index. A constituent is removed at the next rebalancing if its nominal outstanding falls below $500 million USD. According to the Secondary Index Description, liquidity and depth of the market can be measured by the number of prices available for a particular loan and the length of time prices have been provided by the minimum required number of price contributors. The liquidity check is based on the 3-month period prior to the rebalancing cut-off date (liquidity test period). Only loans with a minimum liquidity/depth of 2 for at least 50% of trading days of the liquidity test period are eligible. Loans issued less than 3 months prior to the rebalancing cut-off date require a 33 Markit is not a broker-dealer or affiliated with a broker-dealer and has implemented procedures designed to prevent the use and dissemination of material, non-public information regarding the Secondary Index. 34 MarkitWSO is a corporate loan data base that Markit maintains using information provided by agent banks on each constituent Senior Loan in its data base of approximately 4,300 Senior Loans. VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 10241 minimum liquidity/depth of 3 for at least 50% of trading days in the period from the issue date to the rebalancing cut-off date. Only sub-investment grade loans are eligible for the Secondary Index. Each rated loan is assigned a composite index rating based on the ratings from Moody’s and S&P’s. If more than one agency publishes a rating for a loan, the average of the ratings determines the composite rating. The average rating is calculated as the numerical average of the ratings provided. To calculate the average, each rating [sic] assigned an integer number as follows: AAA/Aaa is assigned a 1, AA+/Aa1 a 2, etc. The resulting average is rounded to the nearest integer with .5 rounded up. Loans designated as ‘‘Not Rated’’ by both Moody’s and S&P must have a minimum current spread of 125 basis points over LIBOR to be eligible for the Secondary Index. Loans designated as ‘‘Not Rated’’ are not assigned an index rating. Defaulted loans are eligible for the Secondary Index provided they meet all other criteria.35 The initial time to maturity is measured from the loan’s issue date to its maturity date. A minimum initial time to maturity of one year is required for potential constituents. The minimum time to maturity threshold reduces the Secondary Index turnover and transaction costs associated with short-dated loans. Existing constituents with time to maturities of less than 1 year remain in the Secondary Index until maturity provided they meet all other eligibility criteria. In order to determine the final Secondary Index constituents, the loans in the eligible universe are ranked according to their liquidity scores, as provided by the Markit Loan Pricing Service. Each loan in the MarkitWSO database 36 is assigned a daily score based on the loan’s performance on the following liquidity metrics: • Sources Quote: The number of dealers sending out runs. • Frequency of Quotes: Total number of dealer runs. • Number of Sources with Size: The number of dealer runs with associated size. • Bid-offer spreads: The average bidoffer spread in dealer runs. • Average quote size: The average size parsed from quotes. • Movers Count: The end of day composite contributions which have moved on that day. Each loan carries a score ranging from 1 to 5 in ascending order of liquidity, depending on the daily values for the above components. A loan with a score of 1 will have the best performance in each of the categories above. In the liquidity ranking procedure described below, average liquidity scores are calculated for each loan, over a calendar one or three month period immediately preceding each rebalancing date. On the Secondary Index inception day, the target number of loans will be 100. Loans will be removed from the Secondary Index if they are no longer present in the current eligible universe or are not ranked within the first 125 places in terms of 3 month average liquidity score. On every subsequent rebalancing, the number of new loans to be selected will be equal to the number of loans which will be removed from the Secondary Index. According to the Secondary Index Description, the parameters used in the selection process, including the target number of loans and the eligibility criteria, are subject to an annual review process to ensure that the Secondary Index continues to reflect the underlying loans market. The results of the analysis are submitted to the oversight committee for the Markit iBoxx USD Leveraged Loans Indices (’’Oversight Committee’’).37 The review will consist of a qualitative and quantitative assessment of any developments in the loans market in terms of market size, depth, and overall liquidity conditions of the market together with a recommendation whether current index rules should be modified. Factors that will be considered in the assessment will include: size of the market; new issuance patterns and trends; outstanding number of loans and borrowers; and liquidity conditions. All Markit iBoxx USD Leveraged Loans Indices are calculated at the end of each business day and re-balanced at the end of each month. The Markit iBoxx USD Leveraged Loans Indices are calculated on the basis of end-of-day prices provided by Markit Loan Pricing services on each recommended Securities Industry and Financial Markets Association (‘‘SIFMA’’) U.S. trading day. On each pricing day, end-of-day bid, mid and ask price quotes for the applicable loans are received from Markit Loan Pricing. Prices for all loans are taken at 4:15 p.m. Eastern time 35 While the Secondary Index can include defaulting Senior Loans, the Sub-Adviser does not intend to invest in such loans. 36 See note 34, supra. 37 The Oversight Committee has implemented procedures designed to prevent the use and dissemination of material, non-public information regarding the Secondary Index. PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 E:\FR\FM\13FEN1.SGM 13FEN1 10242 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES (‘‘E.T.’’). Secondary Index data is published and distributed on the next day by 8:00 a.m. E.T. and is available on the Markit index Web site, https:// indices.markit.com, and through Bloomberg and Reuters. Markit will provide bid, mid and ask prices for all eligible loans at the end of each index calculation day. Reference loan data will be provided by Markit, which represents up-to-date reference and transactional information on over 1,000 leveraged loans. Creations and Redemptions of Shares The Fund will issue and redeem Shares only in Creation Units at the NAV next determined after receipt of an order on a continuous basis every day except weekends and specified holidays. The NAV of the Fund will be determined once each business day, normally as of the close of trading of the New York Stock Exchange (‘‘NYSE’’), generally, 4:00 p.m. E.T. Creation Unit sizes will be 50,000 Shares per Creation Unit. The Trust will issue and sell Shares of the Fund only in Creation Units on a continuous basis through the Distributor, without a sales load (but subject to transaction fees), at their NAV per Share next determined after receipt of an order, on any business day, in proper form pursuant to the terms of the Authorized Participant agreement (as referred to below). The consideration for purchase of a Creation Unit of the Fund generally will consist of either (i) the in-kind deposit of a designated portfolio of securities (primarily Senior Loans) (the ‘‘Deposit Securities’’) per each Creation Unit and the Cash Component (defined below), computed as described below or (ii) the cash value of the Deposit Securities (‘‘Deposit Cash’’) and the ‘‘Cash Component,’’ computed as described below. The primary method of creation and redemption transactions will be in cash. In-kind creation and redemption transactions will be available only if requested by an Authorized Participant and approved by the Trust. When accepting purchases of Creation Units for cash, the Fund may incur additional costs associated with the acquisition of Deposit Securities that would otherwise be provided by an inkind purchaser. Together, the Deposit Securities or Deposit Cash, as applicable, and the Cash Component will constitute the ‘‘Fund Deposit,’’ which represents the minimum initial and subsequent investment amount for a Creation Unit of the Fund. The ‘‘Cash Component’’ will be an amount equal to the difference between the NAV of the Shares (per Creation Unit) and the market value of the Deposit Securities or VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 Deposit Cash, as applicable. If the Cash Component is a positive number (i.e., the NAV per Creation Unit exceeds the market value of the Deposit Securities or Deposit Cash, as applicable), the Cash Component will be such positive amount. If the Cash Component is a negative number (i.e., the NAV per Creation Unit is less than the market value of the Deposit Securities or Deposit Cash, as applicable), the Cash Component will be such negative amount and the creator will be entitled to receive cash in an amount equal to the Cash Component. The Cash Component will serve the function of compensating for any differences between the NAV per Creation Unit and the market value of the Deposit Securities or Deposit Cash, as applicable. According to the Registration Statement, to be eligible to place orders with respect to creations and redemptions of Creation Units, an entity must be (i) a ‘‘Participating Party,’’ i.e., a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation (‘‘NSCC’’); or (ii) a Depository Trust Company (‘‘DTC’’) participant. In addition, each Participating Party or DTC Participant (each, an ‘‘Authorized Participant’’) must execute an agreement that has been agreed to by the Principal Underwriter and the Transfer Agent, and that has been accepted by the Trust, with respect to purchases and redemptions of Creation Units. The Custodian, through the NSCC, will make available on each business day, immediately prior to the opening of business on the Exchange’s Core Trading Session (currently 9:30 a.m., E.T.), the list of the names and the required number of shares of each Deposit Security or the required amount of Deposit Cash, as applicable, to be included in the current Fund Deposit (based on information at the end of the previous business day) for the Fund. Such Fund Deposit is subject to any applicable adjustments as described below, in order to effect purchases of Creation Units of the Fund until such time as the next-announced composition of the Deposit Securities or the required amount of Deposit Cash, as applicable, is made available. Shares may be redeemed only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Fund through the Transfer Agent and only on a business day. With respect to the Fund, the Custodian, through the NSCC, will make PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 available immediately prior to the opening of business on the Exchange (9:30 a.m. Eastern time) on each business day, the list of the names and share quantities of the Portfolio’s portfolio securities (‘‘Fund Securities’’) or the required amount of Deposit Cash that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that day. Fund Securities received on redemption may not be identical to Deposit Securities. Redemption proceeds for a Creation Unit will be paid either in-kind or in cash or a combination thereof, as determined by the Trust. With respect to in-kind redemptions of the Fund, redemption proceeds for a Creation Unit will consist of Fund Securities as announced by the Custodian on the business day of the request for redemption received in proper form plus cash in an amount equal to the difference between the NAV of the Shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Securities (the ‘‘Cash Redemption Amount’’), less a fixed redemption transaction fee and any applicable additional variable charge as set forth in the Registration Statement. In the event that the Fund Securities have a value greater than the NAV of the Shares, a compensating cash payment equal to the differential will be required to be made by or through an Authorized Participant by the redeeming shareholder. Notwithstanding the foregoing, at the Trust’s discretion, an Authorized Participant may receive the corresponding cash value of the securities in lieu of the in-kind securities value representing one or more Fund Securities. The creation/redemption order cut-off time for the Fund is expected to be 4:00 p.m. Eastern Time for purchases of Shares. On days when the Exchange closes earlier than normal, the Fund may require orders for Creation Units to be placed earlier in the day. Net Asset Value The NAV per Share for the Fund will be computed by dividing the value of the net assets of the Fund (i.e., the value of its total assets less total liabilities) by the total number of Shares outstanding, rounded to the nearest cent. Expenses and fees, including the management fees, are accrued daily and taken into account for purposes of determining NAV.38 The NAV of the Fund will be 38 Markit will be the primary price source for Senior Loans in calculating the Portfolio’s NAV. To E:\FR\FM\13FEN1.SGM 13FEN1 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES calculated by the Custodian and determined at the close of the regular trading session on the NYSE (ordinarily 4:00 p.m., E.T.) on each day that such exchange is open, provided that fixedincome assets (and, accordingly, the Fund’s NAV) may be valued as of the announced closing time for trading in fixed-income instruments on any day that SIFMA (or the applicable exchange or market on which the Fund’s investments are traded) announces an early closing time. Creation/redemption order cut-off times may also be earlier on such days. In calculating the Portfolio’s and Fund’s NAV per Share, the Portfolio’s investments will generally be valued using market valuations. A market valuation generally means a valuation (i) obtained from an exchange, a pricing service, or a major market maker (or dealer), (ii) based on a price quotation or other equivalent indication of value supplied by an exchange, a pricing service, or a major market maker (or dealer) or (iii) based on amortized cost. The Adviser may use various pricing services, or discontinue the use of any pricing service, as approved by the Fund’s Board from time to time. A price obtained from a pricing service based on such pricing service’s valuation matrix may be considered a market valuation. Any assets or liabilities denominated in currencies other than the U.S. dollar will be converted into U.S. dollars at the current market rates on the date of valuation as quoted by one or more sources. In the event that current market valuations are not readily available or such valuations do not reflect current market value, the Trust’s procedures require the Pricing and Investment Committee to determine a security’s fair value if a market price is not readily available.39 In determining such value the Trust’s Pricing and Investment Committee may consider, among other things, (i) price comparisons among multiple sources, (ii) a review of corporate actions and news events, and (iii) a review of relevant financial the extent ‘‘Other Investments’’ are held, International Data Corporation (‘‘IDC’’) will be the primary price source for such investments. 39 The Trust’s Board has established a Pricing and Investment Committee that is composed of officers of the Trust, investment management personnel of the Adviser and senior operations and administrative personnel of State Street Bank and Trust Company. The Pricing and Investment Committee is responsible for the valuation and revaluation of any portfolio investments for which market quotations or prices are not readily available. The Pricing and Investment Committee has implemented procedures designed to prevent the use and dissemination of material, non-public information regarding valuation and revaluation of any portfolio investments. VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 indicators (e.g., movement in interest rates, market indices, and prices from the Fund’s index providers). In these cases, the Fund’s NAV may reflect certain portfolio securities’ fair values rather than their market prices. Fair value pricing involves subjective judgments and it is possible that the fair value determination for a security is materially different than the value that could be realized upon the sale of the security. The Shares will conform to the initial and continued listing criteria under NYSE Arca Equities Rule 8.600. The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 40 under the Act, as provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares for the Fund 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, as defined in NYSE Arca Equities Rule 8.600(c)(2), will be made available to all market participants at the same time. Availability of Information The Fund’s Web site (www.spdrs.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 additional quantitative information updated on a daily basis, including, for the Fund, (1) daily trading volume, the prior business day’s reported closing price, NAV and midpoint of the bid/ask spread at the time of calculation of such NAV (the ‘‘Bid/ Ask Price’’),41 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 each of the four previous calendar quarters. On each business day, before commencement of trading in Shares in the Core Trading Session on the Exchange, the Fund will disclose on its Web site the Disclosed Portfolio that will form the basis for the Fund’s 40 17 CFR 240.10A–3. 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. 41 The PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 10243 calculation of NAV at the end of the business day.42 On a daily basis, the Disclosed Portfolio will include each portfolio security, including Senior Loans, and other financial instruments of the Portfolio with the following information on the Fund’s Web site: ticker symbol (if applicable), name of security and financial instrument, number of shares (if applicable) and dollar value of securities (including Senior Loans) and financial instruments held in the Portfolio, and percentage weighting of the security and financial instrument in the Portfolio. The Web site information will be publicly available at no charge. One or more major market data vendors will widely disseminate, every fifteen seconds during the NYSE Arca Core Trading Session, a Portfolio Indicative Value (‘‘PIV’’) (as defined in NYSE Arca Equities Rule 8.600 (c)(3)), relating to the Fund.43 The PIV calculations will be estimates of the value of the Fund’s NAV per Share using market data converted into U.S. dollars at the current currency rates. The PIV price will be based on quotes and closing prices from the securities’ local market and may not reflect events that occur subsequent to the local market’s close. Premiums and discounts between the PIV and the market price may occur. This should not be viewed as a ‘‘real-time’’ update of the NAV per Share of the Fund, which is calculated only once a day. In addition, a basket composition file, which includes the security names, amount and share quantities, as applicable, required to be delivered in exchange for the Fund’s Shares, together with estimates and actual cash components, will be publicly disseminated daily prior to the opening of the NYSE via NSCC. The basket represents one Creation Unit of the Fund. The Primary Index description and Secondary Index description are publicly available. Primary and Secondary Index information, including values, components, and weightings, is updated and provided daily on a subscription basis by S&P and Markit, respectively. Complete methodologies for the Primary and Secondary Index are 42 Under accounting procedures 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’’). 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. 43 Currently, it is the Exchange’s understanding that several major market data vendors display and/ or make widely available PIVs taken from the Consolidated Tape Association (‘‘CTA’’) or other data feeds. E:\FR\FM\13FEN1.SGM 13FEN1 10244 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES made available on the Web sites of S&P and Markit, respectively. Investors can also obtain the Trust’s Statement of Additional Information (‘‘SAI’’), the Fund’s Shareholder Reports, and its Form N–CSR and Form N–SAR, filed twice a year. The Trust’s SAI and Shareholder Reports are 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. 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 information will be published daily in the financial section of newspapers. Quotation and last sale information for the Shares will be available via the CTA high-speed line. The dissemination of the PIV, together with the Disclosed Portfolio, will allow investors to determine the value of the underlying Portfolio of the Fund on a daily basis and to provide a close estimate of that value throughout the trading day. The intra-day, closing and settlement prices of the Portfolio securities, including Senior Loans and other assets, will also be readily available from the national securities exchanges trading such securities, automated quotation systems, published or other public sources, or on-line information services such as Bloomberg or Reuters. Additional information regarding the Trust and the Shares, including investment strategies, risks, creation and redemption procedures, fees, Portfolio holdings disclosure policies, distributions and taxes is included in the Registration Statement. All terms relating to the Fund that are referred to, but not defined in, this proposed rule change are defined in the Registration Statement. Trading Halts 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.44 Trading in Shares of the Fund will be halted if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been reached. Trading also may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in 44 See NYSE Arca Equities Rule 7.12, Commentary .04. VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 the Shares inadvisable. These may include: (1) The extent to which trading is not occurring in the securities and/or the financial instruments comprising 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 will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances under which Shares of the Fund may be halted. Trading Rules The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. Shares will trade on the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading Sessions). The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. As provided in NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price variation (‘‘MPV’’) for quoting and entry of orders in equity securities traded on the NYSE Arca Marketplace is $0.01, with the exception of securities that are priced less than $1.00 for which the MPV for order entry is $0.0001. Surveillance The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.45 The Exchange represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. 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 with other markets that are members of 45 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. PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 the Intermarket Surveillance Group (‘‘ISG’’) or with which the Exchange has in place a comprehensive surveillance sharing agreement.46 In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. Information Bulletin Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit (‘‘ETP’’) Holders in an Information Bulletin (‘‘Bulletin’’) of the special characteristics and risks associated with trading the Shares. Specifically, the Bulletin will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Unit aggregations (and that Shares are not individually redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (3) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated PIV will not be calculated or publicly disseminated; (4) how information regarding the PIV is disseminated; (5) the requirement that ETP Holders 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 Bulletin will reference that the Fund is subject to various fees and expenses described in the Registration Statement. The Bulletin will discuss any exemptive, no-action, and interpretive relief granted by the Commission from any rules under the Act. The Bulletin will also disclose that the NAV for the Shares will be calculated after 4:00 p.m., E.T. each trading day. 2. Statutory Basis The basis under the Act for this proposed rule change is the requirement under Section 6(b)(5) 47 that an exchange have rules that are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest. 46 For a list of the current members of ISG, see www.isgportal.org. The Exchange notes that not all components of the Disclosed Portfolio may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. 47 15 U.S.C. 78f(b)(5). E:\FR\FM\13FEN1.SGM 13FEN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices 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 NYSE Arca Equities Rule 8.600. The Exchange has in place surveillance procedures that are adequate to properly monitor trading in the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. The Exchange may obtain information via ISG from other exchanges that are members of ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement. In pursuing its investment objective, the Portfolio seeks to outperform the Primary Index by normally investing at least 80% of its net assets (plus any borrowings for investment purposes) in Senior Loans. It is anticipated that the Portfolio, in accordance with its principal investment strategy, will invest 50% to 75% of its net assets in Senior Loans that are eligible for inclusion and meet the liquidity thresholds of the Primary and/or the Secondary Indices. Each of the Portfolio’s Senior Loan investments will have no less than $250 million USD par outstanding. The Portfolio will not invest 25% or more of the value of its total assets in securities of borrowers in any one industry. The Portfolio may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment), including Rule 144A securities deemed illiquid by the Adviser and SubAdviser. The Adviser and the SubAdviser are each affiliated with a broker-dealer and have implemented a ‘‘fire wall’’ with respect to such brokerdealers regarding access to information concerning the composition and/or changes to the Fund’s Portfolio. The Portfolio’s and Fund’s investments will be consistent with the Portfolio’s and Fund’s investment objective and will not be used to enhance leverage. The Portfolio will not invest in options contracts, futures contracts or swap agreements. The Adviser and SubAdviser represent that, under normal market conditions, the Fund would satisfy the generic fixed income listing requirements in NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 on a continuous basis measured at the time of purchase, as described above. Except for Underlying ETFs that may hold nonU.S. issues, the Fund will not otherwise invest in non-U.S.-registered equity issues. The Primary Index Committee has implemented procedures designed VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 to prevent the use and dissemination of material, non-public information regarding the Primary Index. The Oversight Committee has implemented procedures designed to prevent the use and dissemination of material, nonpublic information regarding the Secondary Index. 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 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 is publicly available regarding the Fund and the Shares, thereby promoting market transparency. S&P and Markit are not broker-dealers or affiliated with a broker-dealer and each has implemented procedures designed to prevent the use and dissemination of material, non-public information regarding the Primary Index and Secondary Index, respectively. The PIV will be disseminated by one or more major market data vendors at least every 15 seconds during the Exchange’s Core Trading Session. On each business day, before commencement of trading in Shares in the Core Trading Session on the Exchange, the Fund will disclose on its Web site the Disclosed Portfolio 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 will be available via the CTA high-speed line. The intraday, closing and settlement prices of the Portfolio securities are also readily available from the national securities exchanges trading such securities, automated quotation systems, published or other public sources, or on-line information services. The Web site for the Fund 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 ETP Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. Trading in Shares of the Fund will be halted if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been reached or because of market conditions or for reasons that, in the PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 10245 view of the Exchange, make trading in the Shares inadvisable, and trading in the Shares will be subject to NYSE Arca Equities Rule 8.600(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 PIV, the Disclosed Portfolio, and quotation and last sale information for the Shares. The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of an additional type of activelymanaged exchange-traded product that will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, the Exchange has in place surveillance procedures relating to trading in the Shares and may obtain information via ISG from other exchanges that are members of ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement. In addition, as noted above, investors will have ready access to information regarding the Fund’s holdings, the PIV, the Disclosed Portfolio, and quotation and last sale information for the Shares. 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 Act. The Exchange believes that the proposed rule change will facilitate the listing and trading of an additional type of activelymanaged 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 solicited or received with respect to the proposed rule change. 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 (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory E:\FR\FM\13FEN1.SGM 13FEN1 10246 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Notices organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. 2013–08 and should be submitted on or before March 6, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.48 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–03278 Filed 2–12–13; 8:45 am] Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml ); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2013–08 on the subject line. mstockstill on DSK4VPTVN1PROD with NOTICES 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: ACTION: Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington DC 20549–1090. All submissions should refer to File Number SR–NYSEArca-2013–08. 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 (https://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 will also 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 No. SR–NYSEArca- VerDate Mar<15>2010 17:21 Feb 12, 2013 Jkt 229001 BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION Data Collection Available for Public Comments and Recommendations 60 Day Notice and request for comments. In accordance with the Paperwork Reduction Act of 1995, this notice announces the Small Business Administration’s intentions to request approval on a new and/or currently approved information collection. DATES: Submit comments on or before April 15, 2013. ADDRESSES: Send all comments regarding whether these information collections are necessary for the proper performance of the function of the agency, whether the burden estimates are accurate, and if there are ways to minimize the estimated burden and enhance the quality of the collections, to Sandra Johnston, Program Analyst, Office of Financial Assistance, Small Business Administration, 409 3rd Street, 8th Floor, Washington, DC 20416. FOR FURTHER INFORMATION CONTACT: Sandra Johnston, Program Analyst, mailto:202–205–7507%20%20gail. hepler@sba.gov, 202–205–7528, sandra.johnston@sba.gov, Curtis B. Rich, Management Analyst, 202–205– 7030, curtis.rich@sba.gov; SUPPLEMENTARY INFORMATION: Small Business Administration (SBA) regulations require that we determine that a participating Certified Development Company’s Non-Bank Lender Institutions’ or Microlender’s management, ownership, etc. is of ‘‘good character’’. To do so requires the information requested on the Form 1081. This form also provides data used to determine the qualifications and capabilities of the lenders key personnel. Title: ’’Statement of Personal History.’’ Description of Respondents: Small Business Lending Companies. Form Number: 1081. Annual Responses: 243. Annual Burden: 122. SUMMARY: 48 17 PO 00000 CFR 200.30–3(a)(12). Frm 00120 Fmt 4703 Sfmt 4703 Under Small Business Administration (SBA) Dealer Floor Plan Pilot initiative SBA can now guarantee floor plan lines of credit made by participating lenders. The information collected from these lenders helps SBA to determine whether and to what extent the lines are revolving, as well as to develop more efficient and effective subsidy model for revolving loans. Title: ’’Lenders Disbursement & Collection Report.’’ Description of Respondents: Small Business Lending Companies. Form Number: 1502R. Annual Responses: 750. Annual Burden: 180. ADDRESSES: Send all comments regarding whether this information collection is necessary for the proper performance of the function of the agency, whether the burden estimates are accurate, and if there are ways to minimize the estimated burden and enhance the quality of the collection, to Brenda Washington, Senior Program Analyst Office of HUBZone, Small Business Administration, 409 3rd Street, 8th Floor, Washington, DC 20416. FOR FURTHER INFORMATION CONTACT: Brenda Washington, Office of HUBZone, mailto:202–205–7507%20%20gail. hepler@sba.gov, 202–205–7663, brenda. washington@sba.gov.; Curtis B. Rich, Management Analyst, 202–205–7030, curtis.rich@sba.gov. SUPPLEMENTARY INFORMATION: The purpose of collecting this data is to perform economic impact analysis of the HUBZone Program. With the data collected, the Program will be able to measure the effect of the jobs creation and capital investment of the participating firms on various economic activity indicators of the designed communities such as unemployment rate, income and poverty rate. Title: ’’HUBZone Application Data Update.’’ Description of Respondents: Small Business Concerns. Form Number: 2298. Annual Responses: 500. Annual Burden: 250. ADDRESSES: Send all comments regarding whether this information collection is necessary for the proper performance of the function of the agency, whether the burden estimates are accurate, and if there are ways to minimize the estimated burden and enhance the quality of the collection, to Rachel Newman-Karton, Program Analyst, Office of Small Business Development Centers, Small Business Administration, 409 3rd Street, 6th Floor, Washington, DC 20416. SUPPLEMENTARY INFORMATION: E:\FR\FM\13FEN1.SGM 13FEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 30 (Wednesday, February 13, 2013)]
[Notices]
[Pages 10233-10246]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03278]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68862; File No. SR-NYSEArca-2013-08]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing and Trading of the SPDR
Blackstone/GSO Senior Loan ETF Under NYSE Arca Equities Rule 8.600

February 7, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on January 24, 2013, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III 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.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to list and trade shares of the SPDR
Blackstone/GSO Senior Loan ETF under NYSE Arca Equities Rule 8.600. The
text of the proposed rule change is available on the Exchange's Web
site at www.nyse.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 self-regulatory organization
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 those 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 parts of such statements.

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

1. Purpose
The Exchange proposes to list and trade the shares (``Shares'') of
the following under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares \4\ on the Exchange: SPDR
Blackstone/GSO

[[Page 10234]]

Senior Loan ETF (the ``Fund'').\5\ The Shares will be offered by SSgA
Active ETF Trust (the ``Trust''), which is organized as a Massachusetts
business trust and is registered with the Commission as an open-end
management investment company.\6\ SSgA Funds Management, Inc.
(``Adviser'' or ``SSgA FM'') serves as the investment adviser to the
Fund (the ``Adviser''). GSO/Blackstone Debt Funds Management LLC will
serve as sub-adviser (``Sub-Adviser'' or ``GSO'') to the Portfolio (as
referenced below) and the Fund, subject to supervision by the Adviser
and the Trust's Board of Trustees (``Board''). State Street Global
Markets, LLC (the ``Distributor'' or ``Principal Underwriter'') will be
the principal underwriter and distributor of the Fund's Shares. State
Street Bank and Trust Company (the ``Administrator,'' ``Custodian'' or
``Transfer Agent'') will serve as administrator, custodian and transfer
agent for the Fund.
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\4\ 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 Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), 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.
\5\ The Commission has previously approved listing and trading
on the Exchange of a number of actively managed funds under Rule
8.600. See, e.g., Securities Exchange Act Release Nos. 57801 (May 8,
2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order
approving Exchange listing and trading of twelve actively-managed
funds of the WisdomTree Trust); 60981 (November 10, 2009), 74 FR
59594 (November 18, 2009) (SR-NYSEArca-2009-79) (order approving
listing and trading of five fixed income funds of the PIMCO ETF
Trust); 62502 (July 15, 2010), 75 FR 42471 (July 21, 2010) (SR-
NYSEArca-2010-57) (order approving listing and trading of
AdvisorShares WCM/BNY Mellon Focused Growth ADR ETF); 63076 (October
12, 2010), 75 FR 63874 (October 18, 2010) (SR-NYSEArca-2010-79)
(order approving listing and trading of Cambria Global Tactical
ETF); 63329 (November 17, 2010), 75 FR 71760 (November 24, 2010)
(SR-NYSEArca-2010-86) (order approving listing and trading of
Peritus High Yield ETF). Additionally, the Commission has previously
approved the listing and trading of five other actively managed SSgA
FM advised funds on the Exchange under Rule 8.600. Securities
Exchange Act Release No. 66343 (February 7, 2012) 77 FR 7647
(February 13, 2012).
\6\ The Trust is registered under the 1940 Act. On April 1,
2011, the Trust filed with the Commission Form N-1A under the
Securities Act of 1933 (15 U.S.C. 77a) (``1933 Act''), and under the
1940 Act relating to the Fund (File Nos. 333-173276 and 811-22542)
(``Registration Statement''). The description of the operation of
the Trust and the Fund herein is based, in part, on 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. 29524 (December 13, 2010) (File
No. 812-13487) (``Exemptive Order'').
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Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the 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 portfolio. In addition, Commentary
.06 further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding the open-end fund's portfolio.\7\ Commentary .06 to Rule
8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the
establishment of a ``fire wall'' between the investment adviser and the
broker-dealer reflects the applicable open-end fund's portfolio, not an
underlying benchmark index, as is the case with index-based funds. The
Adviser and the Sub-Adviser are each affiliated with a broker-dealer
and have implemented a ``fire wall'' with respect to such broker-
dealers regarding access to information concerning the composition and/
or changes to the Fund's portfolio. In the event (a) the Adviser or
Sub-Adviser becomes newly affiliated with a broker-dealer, or (b) any
new adviser or sub-adviser becomes affiliated with a broker-dealer,
they will implement a fire wall with respect to such broker-dealer
regarding access to information concerning the composition and/or
changes to the portfolio, and will be subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding such portfolio.
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\7\ 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 Sub-Adviser and their 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
Rule 204A-1 under the Advisers Act. 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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SPDR Blackstone/GSO Senior Loan ETF
The investment objective of the Fund is to provide current income
consistent with the preservation of capital. Under normal market
conditions,\8\ the Fund will invest all of its assets in the shares of
the Blackstone/GSO Senior Loan Portfolio (the ``Portfolio''), a
separate series of the SSgA Master Trust with an identical investment
objective as the Fund. As a result, the Fund will invest indirectly
through the Portfolio.
---------------------------------------------------------------------------

\8\ The terms ``under normal market conditions'' or ``under
normal market circumstances'' include, but are not limited to, the
absence of extreme volatility or trading halts in the fixed income
markets or the financial markets generally; operational issues
causing dissemination of inaccurate market information; or force
majeure type events such as systems failure, natural or man-made
disaster, act of God, armed conflict, act of terrorism, riot or
labor disruption or any similar intervening circumstance. In periods
of extreme market disturbance, the Fund may take temporary defensive
positions, by overweighting its portfolio in cash/cash-like
instruments; however, to the extent possible, the investment Sub-
Adviser would continue to seek to achieve the Fund's investment
objective. Specifically, the Portfolio and Fund would continue to
invest in Senior Loans. In response to prolonged periods of
constrained or difficult market conditions the Sub-Adviser will
likely focus on investing in the largest and most liquid loans
available in the market.
---------------------------------------------------------------------------

According to the Registration Statement, in pursuing its investment
objective, the Fund, under normal market conditions, will seek to
outperform a primary and secondary loan index (as described below), by
investing at least 80% of its net assets (plus any borrowings for
investment purposes) in ``Senior Loans,'' which are described further
below in ``Description of Senior Loans and the Senior Loan Market.''
The S&P/LSTA U.S. Leveraged Loan 100 Index (the ``Primary Index'') is
comprised of the 100 largest Senior Loans, as measured by the borrowed
amounts outstanding. The Markit iBoxx USD Leveraged Loan Index (the
``Secondary Index'') selects the 100 most liquid Senior Loans in the
market. In addition to size, liquidity is also measured, in part, based
on the number of market makers who trade a specific Senior Loan and the
number and size of transactions in the context of the prevailing bid/
offer spread. Markit utilizes proprietary models for the Secondary
Index composition and updates to the Secondary Index.
The Fund will not seek to track either the Primary or Secondary
Index, but rather will seek to outperform those indices. In doing so,
the Sub-Adviser represents that the Portfolio will primarily invest in
Senior Loans.\9\ The

[[Page 10235]]

Portfolio intends to hold a large percentage of the components of the
Primary and Secondary Indices. It is anticipated that the Portfolio, in
accordance with its principal investment strategy, will invest
approximately 50% to 75% of its net assets in Senior Loans that are
eligible for inclusion and meet the liquidity thresholds of the Primary
and/or the Secondary Indices. Each of the Portfolio's Senior Loan
investments is expected to have no less than $250 million USD par
outstanding.
---------------------------------------------------------------------------

\9\ The Sub-Adviser represents that, in general, the Portfolio
(i.e., the master fund) is where investments will be held, which
investments will primarily consist of Senior Loans; and may, to a
lesser extent, include ``other investments'' as described under
``Other Investments'' below. The Fund (i.e., the feeder fund) will
invest in shares of the Portfolio and will not invest in ``Other
Investments,'' but may be exposed to such investments by means of
the Fund's investment in shares of the Portfolio. In extraordinary
instances, the Fund reserves the right to make direct investments in
Senior Loans and other investments.
---------------------------------------------------------------------------

The Sub-Adviser considers Senior Loans to be first lien senior
secured floating rate bank loans. A Senior Loan is an advance or
commitment of funds made by one or more banks or similar financial
institutions to one or more corporations, partnerships or other
business entities and typically pays interest at a floating or
adjusting rate that is determined periodically at a designated premium
above a base lending rate, most commonly the London-Interbank Offered
Rate (``LIBOR''). A Senior Loan is considered senior to all other
unsecured claims against the borrower, senior to or pari passu with all
other secured claims, meaning that in the event of a bankruptcy the
Senior Loan, together with other first lien claims, is entitled to be
the first to be repaid out of proceeds of the assets securing the
loans, before other existing unsecured claims or interests receive
repayment. However, in bankruptcy proceedings, there may be other
claims, such as taxes or additional advances which take precedence.\10\
---------------------------------------------------------------------------

\10\ Senior Loans consist generally of obligations of companies
and other entities (collectively, ``borrowers'') incurred for the
purpose of reorganizing the assets and liabilities of a borrower;
acquiring another company; taking over control of a company
(leveraged buyout); temporary refinancing; or financing internal
growth or other general business purposes. Senior Loans are often
obligations of borrowers who have incurred a significant percentage
of debt compared to equity issued and thus are highly leveraged.
---------------------------------------------------------------------------

According to the Registration Statement, the Portfolio will invest
in Senior Loans that are made predominantly to businesses operating in
North America, but may also invest in Senior Loans made to businesses
operating outside of North America. The Portfolio may invest in Senior
Loans directly, either from the borrower as part of a primary issuance
or in the secondary market through assignments of portions of Senior
Loans from third parties, or participations in Senior Loans, which are
contractual relationships with an existing lender in a loan facility
whereby the Portfolio purchases the right to receive principal and
interest payments on a loan but the existing lender remains the record
holder of the loan. Under normal market conditions, the Portfolio
expects to maintain an average interest rate duration of less than 90
days.
In selecting securities for the Portfolio, the Portfolio's Sub-
Adviser will seek to construct a portfolio of loans that it believes is
less volatile than the general loan market. In addition, when making
investments, the Sub-Adviser will seek to maintain appropriate
liquidity and price transparency for the Portfolio. On an on-going
basis, the Sub-Adviser will add or remove those individual loans that
it believes will cause the Portfolio to outperform or underperform,
respectively, either the Primary or Secondary Index.
When identifying prospective investment opportunities in Senior
Loans, the Sub-Adviser currently intends to invest primarily in Senior
Loans that are below investment grade quality and will rely on
fundamental credit analysis in an effort to attempt to minimize the
loss of the Portfolio's capital.\11\ The Sub-Adviser expects to invest
in Senior Loans or other debt of companies possessing the attributes
described below, which it believes will help generate higher risk
adjusted total returns.\12\ The Sub-Adviser does not intend to purchase
Senior Loans that are in default. However, the Portfolio may hold a
Senior Loan that has defaulted subsequent to its purchase by the
Portfolio.
---------------------------------------------------------------------------

\11\ The Portfolio will primarily invest in securities
(including Senior Loans) which typically will be rated below
investment grade. Securities rated below investment grade, commonly
referred to as ``junk'' or ``high yield'' securities, include
securities that are rated Ba1/BB+/BB+ or below by Moody's Investors
Service, Inc. (``Moody's''), Fitch Inc., or Standard & Poor's, Inc.
(``S&P''), respectively, and may involve greater risks than
securities in higher rating categories.
\12\ According to the Registration Statement, the loan market,
as represented by the S&P/LSTA (Loan Syndications and Trading
Association) Leveraged Loan Index, experienced significant growth in
terms of number and aggregate volume of loans outstanding since the
inception of the index in 1997. In 1997, the total amount of loans
in the market aggregated less than $10 billion. By April of 2000, it
had grown to over $100 billion, and by July of 2007 the market had
grown to over $500 billion. The size of the market peaked in
November of 2008 at $594 billion. During this period, the demand for
loans and the number of investors participating in the loan market
also increased significantly.
According to the Registration Statement, since 2008, the
aggregate size of the market has contracted, characterized by
limited new loan issuance and payoffs of outstanding loans. From the
peak in 2008 through July 2010, the overall size of the loan market
contracted by approximately 15%. The number of market participants
also decreased during that period. Although the number of new loans
being issued in the market since 2010 is increasing, there can be no
assurance that the size of the loan market, and the number of
participants, will return to earlier levels. An increase in demand
for Senior Loans may benefit the Fund by providing increased
liquidity for such loans and higher sales prices, but it may also
adversely affect the rate of interest payable on such loans acquired
by the Portfolio and the rights provided to the Portfolio under the
terms of the applicable loan agreement, and may increase the price
of loans that the Portfolio wishes to purchase in the secondary
market. A decrease in the demand for Senior Loans may adversely
affect the price of loans in the Portfolio, which could cause the
Fund's net asset value (``NAV'') to decline.
---------------------------------------------------------------------------

The Sub-Adviser intends to invest in Senior Loans or other debt of
companies that it believes have developed strong positions within their
respective markets and exhibit the potential to maintain sufficient
cash flows and profitability to service their obligations in a range of
economic environments. The Sub-Adviser will seek Senior Loans or other
debt of companies that it believes possess advantages in scale, scope,
customer loyalty, product pricing, or product quality versus their
competitors, thereby minimizing business risk and protecting
profitability.
The Sub-Adviser intends to invest primarily in Senior Loans or
other debt of established companies which have demonstrated a record of
profitability and cash flows over several economic cycles. The Sub-
Adviser believes such companies are well-positioned to maintain
consistent cash flow to service and repay their obligations and
maintain growth in their businesses or market share. The Sub-Adviser
does not intend to invest in Senior Loans or other debt of primarily
start-up companies, companies in turnaround situations or companies
with speculative business plans.
The Sub-Adviser intends to focus on investments in which the Senior
Loans or other debt of a target company has an experienced management
team with an established track record of success. The Sub-Adviser will
typically require companies to have in place proper incentives to align
management's goals with the Portfolio's goals.
Often the Sub-Adviser will seek to participate in transactions
sponsored by what it believes to be high-quality private equity firms.
The Sub-Adviser believes that a private equity sponsor's willingness to
invest significant sums of equity capital into a company is an implicit
endorsement of the quality of the investment. Further, private equity
sponsors of companies with significant investments at risk have the
ability and a strong incentive to contribute

[[Page 10236]]

additional capital in difficult economic times should operational
issues arise.
The Sub-Adviser will seek to invest in Senior Loans or other debt
broadly among companies and industries, thereby potentially reducing
the risk of a downturn in any one company or industry having a
disproportionate impact on the value of the Portfolio's holdings.
However, as a result of its investment in participations in loans and
the fact that originating banks may be deemed issuers of loans, the
Portfolio may be deemed to concentrate its investments in the financial
services industries. Loans, and the collateral securing them, are
typically monitored by agents for the lenders, which may be the
originating bank or banks.\13\
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\13\ According to the Registration Statement, the Portfolio may
be reliant on the creditworthiness of the agent bank and other
intermediate participants in a Senior Loan, in addition to the
borrower, since rights that may exist under the loan against the
borrower if the borrower defaults are typically asserted by or
through the agent bank or intermediate participant. Agents are
typically large commercial banks, although for Senior Loans that are
not broadly syndicated they can also include thrift institutions,
insurance companies or finance companies (or their affiliates). Such
companies may be especially susceptible to the effects of changes in
interest rates resulting from changes in U.S. or foreign fiscal or
monetary policies, governmental regulations affecting capital
raising activities or other economic or market fluctuations. It is
the expectation that the Portfolio will only invest in broadly
syndicated loans.
---------------------------------------------------------------------------

The Portfolio and the Fund are expected to be managed in a
``master-feeder'' structure, under which the Fund, under normal market
conditions, will invest all of its assets in the Portfolio, the
corresponding ``master fund,'' which is a separate 1940 Act-registered
mutual fund that has an identical investment objective. As a result,
the Fund (i.e., a ``feeder fund'') has an indirect interest in all of
the securities owned by the Portfolio. Because of this indirect
interest, the Fund's investment returns should be the same as those of
the Portfolio, adjusted for the expenses of the Fund. In extraordinary
instances, the Fund reserves the right to make direct investments.
The Sub-Adviser will manage the investments of the Portfolio. Under
the master-feeder arrangement, investment advisory fees charged at the
master-fund level are deducted from the advisory fees charged at the
feeder-fund level. According to the Registration Statement, this
arrangement avoids a ``layering'' of fees, e.g., the Fund's total
annual operating expenses would be no higher as a result of investing
in a master-feeder arrangement than they would be if the Fund pursued
its investment objectives directly. In addition, the Fund may
discontinue investing through the master-feeder arrangement and pursue
its investment objectives directly if the Trust's Board of Trustees
determines that doing so would be in the best interests of
shareholders.
According to the Registration Statement, historically, the amount
of public information available about a specific Senior Loan has been
less extensive than if the loan were registered or exchange-traded. As
noted above, the loans in which the Portfolio will invest will, in most
instances, be Senior Loans, which are secured and senior to other
indebtedness of the borrower. Each Senior Loan will generally be
secured by collateral such as accounts receivable, inventory,
equipment, real estate, intangible assets such as trademarks,
copyrights and patents, and securities of subsidiaries or affiliates.
The value of the collateral generally will be determined by reference
to financial statements of the borrower, by an independent appraisal,
by obtaining the market value of such collateral, in the case of cash
or securities if readily ascertainable, or by other customary valuation
techniques considered appropriate by the Sub-Adviser. The value of
collateral may decline after the Portfolio's investment, and collateral
may be difficult to sell in the event of default. Consequently, the
Portfolio may not receive all the payments to which it is entitled. By
virtue of their senior position and collateral, Senior Loans typically
provide lenders with the first right to cash flows or proceeds from the
sale of a borrower's collateral if the borrower becomes insolvent
(subject to the limitations of bankruptcy law, which may provide higher
priority to certain claims such as employee salaries, employee
pensions, and taxes). This means Senior Loans are generally repaid
before unsecured bank loans, corporate bonds, subordinated debt, trade
creditors, and preferred or common stockholders. To the extent that the
Portfolio invests in unsecured loans, if the borrower defaults on such
loan, there is no specific collateral on which the lender can
foreclose. If the borrower defaults on a subordinated loan, the
collateral may not be sufficient to cover both the senior and
subordinated loans.
According to the Registration Statement, there is no organized
exchange on which loans are traded and reliable market quotations may
not be readily available. A majority of the Portfolio's assets are
likely to be invested in loans that are less liquid than securities
traded on national exchanges. Loans with reduced liquidity involve
greater risk than securities with more liquid markets. Available market
quotations for such loans may vary over time, and if the credit quality
of a loan unexpectedly declines, secondary trading of that loan may
decline for a period of time. During periods of infrequent trading,
valuing a loan can be more difficult and buying and selling a loan at
an acceptable price can be more difficult and delayed. In the event
that the Portfolio voluntarily or involuntarily liquidates Portfolio
assets during periods of infrequent trading, it may not receive full
value for those assets. Therefore, elements of judgment may play a
greater role in valuation of loans. To the extent that a secondary
market exists for certain loans, the market may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement
periods.
According to the Registration Statement, Senior Loans will usually
require, in addition to scheduled payments of interest and principal,
the prepayment of the Senior Loan from free cash flow, as described in
the Registration Statement. The degree to which borrowers prepay Senior
Loans, whether as a contractual requirement or at their election, may
be affected by general business conditions, the financial condition of
the borrower and competitive conditions among loan investors, among
others. As such, prepayments cannot be predicted with accuracy. Recent
market conditions, including falling default rates among others, have
led to increased prepayment frequency and loan renegotiations. These
renegotiations are often on terms more favorable to borrowers. Upon a
prepayment, either in part or in full, the actual outstanding debt on
which the Portfolio derives interest income will be reduced. However,
the Portfolio may receive a prepayment penalty fee assessed against the
prepaying borrower.
Other Investments
According to the Registration Statement, in addition to the
principal investments described above, the Portfolio may invest in
other investments, as described below. The Fund may (indirectly through
its investments in the Portfolio or, in extraordinary circumstances,
directly) invest in the following types of investments. The investment
practices of the Portfolio are the same in all material respects to
those of the Fund.
The Portfolio may invest in bonds, including corporate bonds; high
yield debt securities; and U.S. Government

[[Page 10237]]

obligations.\14\ The Portfolio also may invest in preferred securities.
---------------------------------------------------------------------------

\14\ U.S. Government obligations are a type of bond and include
securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies or instrumentalities. The Portfolio
also may purchase U.S. registered, dollar-denominated bonds of
foreign corporations, governments, agencies and supra-national
entities.
---------------------------------------------------------------------------

The Portfolio may invest in repurchase agreements with commercial
banks, brokers or dealers to generate income from its excess cash
balances and its securities lending cash collateral. A repurchase
agreement is an agreement under which the Portfolio acquires a
financial instrument (e.g., a security issued by the U.S. government or
an agency thereof, a banker's acceptance or a certificate of deposit)
from a seller, subject to resale to the seller at an agreed upon price
and date (normally, the next business day). A repurchase agreement may
be considered a loan collateralized by securities. In addition, the
Portfolio may enter into reverse repurchase agreements, which involve
the sale of securities with an agreement to repurchase the securities
at an agreed-upon price, date and interest payment and have the
characteristics of borrowing.
The Portfolio may invest in commercial paper. Commercial paper
consists of short-term, promissory notes issued by banks, corporations
and other entities to finance short-term credit needs. These securities
generally are discounted but sometimes may be interest bearing.
Subject to limitations, the Portfolio may invest in secured loans
that are not first lien loans or loans that are unsecured. These loans
have the same characteristics as Senior Loans except that such loans
are not first in priority of repayment and/or may not be secured by
collateral. Accordingly, the risks associated with these loans are
higher than the risks for loans with first priority over the
collateral. Because these loans are lower in priority and/or unsecured,
they are subject to the additional risk that the cash flow of the
borrower may be insufficient to meet scheduled payments after giving
effect to the secured obligations of the borrower or in the case of a
default, recoveries may be lower for unsecured loans than for secured
loans.\15\
---------------------------------------------------------------------------

\15\ According to the Registration Statement, secured loans that
are not first lien and loans that are unsecured generally have
greater price volatility than Senior Loans and may be less liquid.
There is also a possibility that originators will not be able to
sell participations in these loans, which would create greater
credit risk exposure for the holders of such loans. Secured loans
that are not first lien and loans that are unsecured share the same
risks as other below investment grade instruments.
---------------------------------------------------------------------------

The Portfolio may invest in short-term instruments, including money
market instruments (including money market funds advised by the
Adviser), cash and cash equivalents, on an ongoing basis to provide
liquidity or for other reasons.
The Portfolio may invest in the securities of other investment
companies, including closed-end funds (including loan-focused closed
end funds), subject to applicable limitations under Section 12(d)(1) of
the 1940 Act.\16\ To the extent allowed by law, regulation, the
Portfolio's investment restrictions and the Trust's Exemptive Order,
the Portfolio may invest its assets in securities of investment
companies that are money market funds, including those advised by the
Adviser or otherwise affiliated with the Adviser, in excess of the
limits discussed above.
---------------------------------------------------------------------------

\16\ The Portfolio may invest in other debt or fixed income
exchange-traded funds (``ETFs''), such as securities listed on the
Exchange under NYSE Arca Equities Rules 5.2(j)(3), 8.100 and 8.600,
(including ETFs managed by the Adviser). ETFs may be structured as
investment companies that are registered under the 1940 Act,
typically as open-end funds or unit investment trusts. These ETFs
are generally based on specific domestic and foreign market
securities indices.
---------------------------------------------------------------------------

In addition, the Portfolio may invest in exchange-traded notes
(``ETNs''), such as securities listed on the Exchange under NYSE Arca
Equities Rule 5.2(j)(6), which are debt obligations of investment banks
that are traded on exchanges and the returns of which are linked to the
performance of certain reference assets, which may include market
indexes.
The Portfolio will not invest 25% or more of the value of its total
assets in securities of issuers in any one industry; however it may be
deemed to concentrate its investment in any of the industries or group
of industries in the financial services sector (consisting of financial
institutions, including commercial banks, insurance companies and other
financial companies and their respective holding companies) to the
extent that the banks originating or acting as agents for the lenders,
or granting or acting as intermediaries in participation interests, in
loans held by the Portfolio are deemed to be issuers of such loans.\17\
---------------------------------------------------------------------------

\17\ 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).
---------------------------------------------------------------------------

The Portfolio may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment),
including Rule 144A securities, junior subordinated loans and unsecured
loans deemed illiquid by the Adviser and Sub-Adviser. The Portfolio
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
Portfolio's net assets are held in illiquid securities. Illiquid
securities include securities subject to contractual or other
restrictions on resale and other instruments that lack readily
available markets as determined in accordance with Commission staff
guidance.\18\
---------------------------------------------------------------------------

\18\ The Commission has stated that 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), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 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 No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the 1933 Act).
---------------------------------------------------------------------------

Except for investments in ETFs that may hold non-U.S. issues, the
Portfolio will not otherwise invest in non-U.S.-registered equity
issues.
The Portfolio will not invest in options contracts, futures
contracts or swap agreements.
In certain situations or market conditions, the Portfolio may
temporarily depart from its normal investment policies and strategies
provided that the alternative is consistent with the Portfolio's
investment objective and is in the best interest of the Portfolio. For
example, the Portfolio may hold a higher than normal proportion of its
assets in cash in times of extreme market stress.\19\ The Portfolio may
borrow money from a bank as permitted by the 1940 Act or other
governing statute, by applicable rules thereunder, or by Commission or
other regulatory agency with authority over the Portfolio, but only for
temporary or emergency purposes.
---------------------------------------------------------------------------

\19\ See note 8, supra.
---------------------------------------------------------------------------

The Portfolio will be classified as a ``diversified'' investment
company under the 1940 Act.\20\
---------------------------------------------------------------------------

\20\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act (15 U.S.C. 80a-5).
---------------------------------------------------------------------------

The Portfolio intends to qualify for and to elect treatment as a
separate

[[Page 10238]]

regulated investment company (``RIC'') under Subchapter M of the
Internal Revenue Code.\21\
---------------------------------------------------------------------------

\21\ 26 U.S.C. 851.
---------------------------------------------------------------------------

The Portfolio's investments will be consistent with the Portfolio's
investment objective and will not be used to enhance leverage.
Criteria To Be Applied to the Fund
While the Fund, which would be listed pursuant to the criteria
applicable to actively managed funds under NYSE Arca Equities Rule
8.600, is not eligible for listing under NYSE Arca Equities Rule
5.2(j)(3) applicable to listing and trading of Investment Company Units
based on a securities index, the Adviser and Sub-Adviser represent
that, under normal market conditions, the Fund would satisfy the
generic fixed income initial listing requirements in NYSE Arca Equities
Rule 5.2(j)(3), Commentary .02 on a continuous basis measured at the
time of purchase, as described below.\22\
---------------------------------------------------------------------------

\22\ NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 sets
forth generic listing criteria applicable to listing under Rule 19b-
4(e) under the Exchange Act of Investment Company Units (``Units'')
based on an index or portfolio of ``Fixed Income Securities,'' which
are debt securities that are notes, bonds, debentures or evidence of
indebtedness that include, but are not limited to, U.S. Department
of Treasury securities (``Treasury Securities''), government-
sponsored entity securities (``GSE Securities''), municipal
securities, trust preferred securities, supranational debt and debt
of a foreign country or a subdivision thereof. NYSE Arca Equities
Rule 5.2(j)(3), Commentary .02(a) is as follows: (a) Eligibility
Criteria for Index Components. Upon the initial listing of a series
of Units pursuant to Rule 19b-4(e) under the Securities Exchange Act
of 1934 on the Corporation, the components of an index or portfolio
underlying a series of Units shall meet the following criteria: (1)
The index or portfolio must consist of Fixed Income Securities; (2)
Components that in aggregate account for at least 75% of the weight
of the index or portfolio each shall have a minimum original
principal amount outstanding of $100 million or more; (3) A
component may be a convertible security, however, once the
convertible security component converts to the underlying equity
security, the component is removed from the index or portfolio; (4)
No component fixed-income security (excluding Treasury Securities
and GSE Securities) shall represent more than 30% of the weight of
the index or portfolio, and the five most heavily weighted component
fixed-income securities in the index or portfolio shall not in the
aggregate account for more than 65% of the weight of the index or
portfolio; (5) An underlying index or portfolio (excluding one
consisting entirely of exempted securities) must include a minimum
of 13 non-affiliated issuers; and (6) Component securities that in
aggregate account for at least 90% of the weight of the index or
portfolio must be either (a) from issuers that are required to file
reports pursuant to Sections 13 and 15(d) of the Securities Exchange
Act of 1934; (b) from issuers that have a worldwide market value of
its outstanding common equity held by non-affiliates of $700 million
or more; (c) from issuers that have outstanding securities that are
notes, bonds debentures, or evidence of indebtedness having a total
remaining principal amount of at least $1 billion; (d) exempted
securities as defined in Section 3(a)(12) of the Securities Exchange
Act of 1934; or (e) from issuers that are a government of a foreign
country or a political subdivision of a foreign country.
---------------------------------------------------------------------------

With respect to the requirement of Commentary .02(a)(1), as noted
in the Registration Statement, the Fund (though its investment in the
Portfolio) will invest at least 80% of its net assets (plus any
borrowings for investment purposes) in Senior Loans. The Adviser and
Sub-Adviser expect that substantially all of the Fund's assets will be
invested in Fixed Income Securities or cash/cash-like instruments. With
respect to the requirement of Commentary .02(a)(2), the Portfolio's
Adviser and Sub-Adviser expect that substantially all, but at least 75%
of the Portfolio's portfolio will be invested in loans that have an
aggregate outstanding exposure of greater than $100 million. With
respect to the requirement of Commentary .02(a)(3), the Sub-Adviser
represents that the Portfolio will not typically invest in convertible
securities; however, should the Portfolio make such investments, the
Sub-Adviser would direct the Portfolio to divest any converted equity
security as soon as practicable.
With respect to the requirement of Commentary .02(a)(4), the Sub-
Adviser represents that the Portfolio will not concentrate its
investments in excess of 30% in any one security (excluding Treasury
Securities and GSE Securities), and will not invest more than 65% of
its assets in five or fewer securities (excluding Treasury Securities
and GSE Securities).
With respect to the requirement of Commentary .02(a)(5), the Sub-
Adviser represents that the Portfolio will invest in Senior Loans
issued to at least 13 non-affiliated borrowers.
With respect to the requirements of Commentary .02(a)(6), the Sub-
Adviser represents that the Portfolio's portfolio may make investments
on a continuous basis in compliance with such requirement at the time
of purchase; however, the market for Senior Loans differs in several
material respects from the market of other fixed income securities
(e.g., bonds). A significant percentage of the Senior Loan market would
not meet the criteria set forth in Commentary .02(a)(6), but would be
readily tradable in the secondary market. For the 12 month period
ending August 12, 2012, 53.4% of the borrowers of primary Senior Loans
(also known as leveraged loans) had total indebtedness of $1 billion or
less and Senior Loans outstanding of $250 million or more. (Source:
S&P). In order to add to the Portfolio's diversification and to expand
the Portfolio's investment universe, the Portfolio may invest in Senior
Loans borrowed by entities that would not meet the criteria set forth
in Commentary .02(a)(6) above provided the borrower has at least $250
million outstanding in Senior Loans. The Senior Loans borrowed by such
entities would be well known to participants in the Senior Loan
markets, would typically attract multiple market makers, and would
share liquidity and transparency characteristics of senior secured debt
borrowed by entities meeting the criteria in the generic listing
criteria of NYSE Arca Equities Rule 5.2(j)(3), Commentary .02.
Description of Senior Loans and the Senior Loan Market
The Sub-Adviser represents that Senior Loans represent debt
obligations of sub-investment grade corporate borrowers, similar to
high yield bonds; however, Senior Loans are different from traditional
high yield bonds in several important respects. First, Senior Loans are
typically senior to other obligations of the borrower and secured by
the assets of the borrower. Senior Loans rank at the top of a
borrower's capital structure in terms of priority of payment, ahead of
any subordinated debt (high yield) or the borrower's common equity.
These loans are also secured, as the holders of these loans have a lien
on most if not all of the corporate issuer's plant, property,
equipment, receivables, cash balances, licenses, trademarks, etc.
Furthermore, the corporate borrower of Senior Loans executes a credit
agreement that typically restricts what it can do (debt incurrence,
asset dispositions, etc.) without the lenders' approval, and, in
addition, often requires the borrower to meet certain ongoing financial
covenants (EBITDA, leverage tests, etc.). Finally, Senior Loans are
floating rate obligations which typically pay a fixed spread over 3
month LIBOR.
Institutional investors access the market today primarily through
commingled funds or separately managed accounts. Individual investors
have gained exposure to Senior Loans primarily through registered open
end or closed end mutual funds and business development companies or
occasionally through limited partnerships.
The performance of a Senior Loans portfolio is driven by credit
selection. Investing in Senior Loans involves detailed credit analysis
and sound investment judgment culminating in the timely payout of
interest and ultimate return of principal. Loans are generally
prepayable at any time, typically without penalty. Loans are typically

[[Page 10239]]

purchased at close to 100 (``par'') and are also typically repaid at
100; the return to the investor comes from the quarterly interest
coupons and the return of principal. Underperformance comes from making
investment misjudgments whereby the corporate borrower fails to repay
the loan at maturity or otherwise defaults on the obligation.\23\
---------------------------------------------------------------------------

\23\ Additional capital features inherent to Senior Loans
include the following: (1) Such loans are subject to mandatory and
discretionary prepayments and can be prepaid in full, often without
penalty, for a variety of reasons; (2) companies may opt to
refinance an existing loan at a lower spread or repay the loan with
a high yield bond issuance; (3) required excess cash flow sweeps;
(4) covenants requiring loan prepayment from proceeds of asset
sales; and (5) quarterly amortization.
---------------------------------------------------------------------------

The Sub-Adviser represents that the Senior Loan market, in terms of
total outstanding loans by dollar volume is approximately equal in size
to the high yield corporate bond market in the U.S.--between $1.2
trillion and $1.5 trillion. The market for Senior Loans is almost
exclusively comprised of non-investment grade corporate borrowers. The
Loan Syndication and Trading Association (``LSTA''), a trade group
sponsored by both underwriters of and institutional investors in senior
bank loans, has been tracking trading volumes and bid-offer spreads for
the asset class since 2007. For the month ended June 30, 2012--a
representative period--$30 billion of Senior Loans changed hands
representing 1,109 individual transactions. (Source: LSTA.) Average
quarterly Senior Loan trading volume exceeded $100 billion during 2011.
Quarterly trading volumes fell modestly to $98 billion in the second
calendar quarter of 2012.\24\
---------------------------------------------------------------------------

\24\ As of October 2012, 195 open ended loan funds and open
ended bond funds were invested in the Senior Loan market as a
primary or secondary asset class. (Source: Morningstar.) As of
October 2012, there were approximately $65 billion of assets under
management in 39 open ended loan funds and approximately $252
billion of assets under management in 158 open ended high yield bond
funds. 86 of the 158 open ended high yield bond funds made an
allocation to Senior Loans, and, among high yield bond funds that
had an allocation to Senior Loans, such allocation was 4.99% on
average. (Source: Morningstar Direct.)
---------------------------------------------------------------------------

The Portfolio, as noted above, will primarily invest in the more
liquid and higher rated segment of the Senior Loan market. The average
credit rating of the Senior Loans that the Fund typically will hold
will be rated between BB+ and B+ as rated by S&P. The most actively
traded loans will generally have a tranche size outstanding (or total
float of the issue) in excess of $250 million. The borrowers of these
broadly syndicated bank loans will typically be followed by many ``buy-
side'' and ``sell-side'' credit analysts who will in turn rely on the
borrower to provide transparent financial information concerning its
business performance and operating results. The Sub-Adviser represents
that such borrowers typically provide significant financial
transparency to the market through the delivery of financial statements
on at least a quarterly basis as required by the executed credit
agreements. Additionally, bid and offers in the Senior Loans are
available throughout the trading day on larger Senior Loans issues with
multiple dealer quotes available.
The Sub-Adviser represents that the underwriters, or agent banks,
which distribute, syndicate and trade Senior Loans are among the
largest global financial institutions, including JPMorgan, Bank of
America, Citigroup, Goldman Sachs, Morgan Stanley, Wells Fargo,
Deutsche Bank, Barclays, Credit Suisse and others. It is common for
multiple firms to act as underwriters and market makers for a specific
Senior Loan issue. For example, two underwriters may co-underwrite and
fund a Senior Loan that has a $1 billion institutional tranche. One of
the underwriters acting as syndication agent for the financing, will
then draft an offering memorandum (similar to an equity IPO
prospectus), distribute it to potential investors, schedule management
meetings with the largest loan investors and arrange a bank meeting
that includes management presentations along with a question and answer
session. The investor audience attends in person as well as via
telephone with both live and recorded conference call options. After a
two week syndication process where investors can complete their due
diligence work with access to company management and underwriter
bankers to answer credit questions, investors' commitments are
collected by the underwriter. The underwriter will typically allocate
the loan to 80-120 investors within the following week, with the
largest position representing 3-5% of the tranche size in a successful
syndication. The underwriters will both make executable two sided
markets in the loan with eighth to a quarter point bid/ask spreads on
sizes in the $2 million to $20 million range, depending on the issue.
Other banks also have Senior Loan trading desks that make secondary
bid/ask markets in the loans after they are allocated. Senior Loan
investors can also obtain information on Senior Loans and their
borrowers from numerous public sources, including Bloomberg, FactSet,
public financial statement filings (Forms 10-K and 10-Q), and sell side
research analysts.
The Sub-Adviser represents that the segment of the Senior Loan
market that the Portfolio will focus on is highly liquid. Senior Loans
of $250 million or more in issuance are typically quite liquid and will
have multiple market makers and typically 75 or more institutional
holders. The standard bid/offer spreads for such loans are \1/4\ to \1/
2\ point, although the largest firms, such as the Sub-Adviser, can
transact on a 1/8th point market across dealers for Senior Loans of
$250 million or more outstanding.\25\
---------------------------------------------------------------------------

\25\ The Exchange notes that the PowerShares Senior Loan
Portfolio (Symbol: BKLN), is an index-based exchange-traded fund
listed on the Exchange since March 5, 2011 under NYSE Arca Equities
Rule 5.2(j)(3). The underlying index for BKLN is the S&P/LSTA U.S.
Leveraged Loan 100 Index, the Fund's Primary Index. As of November
20, 2012, BKLN had assets under management of approximately $1.28
billion. Since inception, BKLN's average daily trading volume has
been 545,065 shares, with an average premium/discount to NAV of
0.43%.
---------------------------------------------------------------------------

The Sub-Adviser represents that, while Senior Loans are not
reported through TRACE,\26\ there is significant transparency with
dealers updating investors on trades and trading activity throughout
the day. Dealers update their ``trading runs'' of Senior Loans
throughout the day and distribute these via electronic messaging to the
institutional investor community. The Adviser represents further that,
upon commencement of trading in the Fund, the Adviser and Sub-Adviser
would ensure that all ``Authorized Participants'' (as described below)
for the Portfolio were added to these intraday market maker Senior Loan
``trading runs.''
---------------------------------------------------------------------------

\26\ TRACE (Trade Reporting and Compliance Engine), is a vehicle
developed by the Financial Industry Regulatory Authority (``FINRA'')
that facilitates the mandatory over-the-counter secondary market
transactions in eligible fixed income securities.
---------------------------------------------------------------------------

Description of the S&P/LSTA U.S. Leveraged Loan 100 Index \27\
---------------------------------------------------------------------------

\27\ The description herein of the Primary Index is based on
information in ``S&P LSTA U.S. Leveraged Loan 100 Index Methodology,
August 2011'' (``Primary Index Description'').
---------------------------------------------------------------------------

The Primary Index is a market value-weighted index designed to
measure the performance of the largest segment of the U.S. syndicated
leveraged loan market. The Primary Index consists of 100 loan
facilities drawn from a larger benchmark--the S&P/LSTA Leveraged Loan
Index (``LLI'')--which covers more than 900 facilities and, as of June
30, 2011, had a market value of more than US$ 490 billion. As of June
30, 2011, the Primary Index had a total market value of US$ 183.4
billion.

[[Page 10240]]

The Primary Index is designed to reflect the largest facilities in
the leveraged loan market. It mirrors the market-weighted performance
of the largest institutional leveraged loans based upon market
weightings, spreads and interest payments.
The Primary Index is rules based, although the S&P/LSTA U.S.
Leveraged Loan 100 Index Committee (the ``Index Committee,'' described
below) reserves the right to exercise discretion when necessary.\28\
---------------------------------------------------------------------------

\28\ S&P is not a broker-dealer or affiliated with a broker-
dealer and has implemented procedures designed to prevent the use
and dissemination of material, non-public information regarding the
Primary Index.
---------------------------------------------------------------------------

The Primary Index is rebalanced semi-annually to avoid excessive
turnover, but reviewed weekly to reflect pay-downs and ensure that the
Primary Index portfolio maintains 100 loan facilities. The constituents
of the Primary Index (the ``Index Loans'') are drawn from a universe of
syndicated leveraged loans representing over 90% of the leveraged loan
market.
All syndicated leveraged loans covered by the LLI universe are
eligible for inclusion in the Primary Index. Term loans from syndicated
credits must meet the following criteria at issuance in order to be
eligible for inclusion in the LLI:
Senior secured
Minimum initial term of one year
Minimum initial spread of LIBOR + 125 basis points
U.S. dollar denominated.
All Primary Index loans must have a publicly assigned CUSIP.
According to the Primary Index Description, the Primary Index is
designed to include the largest loan facilities from the LLI universe.
Par outstanding is a key criterion for loan selection. Loan facilities
are included if they are among the largest first lien facilities from
the Primary Index in terms of par amount outstanding. There is no
minimum size requirement on individual facilities in the Primary Index,
but the LLI universe minimum is US$ 50 million. Only the 100 largest
first lien facilities from the LLI that meet all eligibility
requirements are considered for inclusion. The Primary Index covers all
borrowers regardless of origin; however, all facilities must be
denominated in U.S. dollars.
A Primary Index addition is generally made only if a vacancy is
created by a Primary Index deletion. Primary Index additions are
reviewed on a weekly basis and are made according to par outstanding
and overall liquidity. Liquidity is determined by the par outstanding
and number of market bids available. Facilities are retired when they
are no longer priced by ``LSTA/LPC Mark-to-Market Pricing'' or when the
facility is repaid.\29\
---------------------------------------------------------------------------

\29\ LSTA/LPC Mark-to-Market Pricing is used to price each loan
in the index. LSTA/LPC Mark-to-Market Pricing is based on bid/ask
quotes gathered from dealers and is not based upon derived pricing
models. The Primary Index uses the average bid for its market value
calculation.
---------------------------------------------------------------------------

Each loan facility's total return is calculated by aggregating the
interest return, reflecting the return due to interest paid and accrued
interest, and price return, reflecting the gains or losses due to
changes in end-of-day prices and principal prepayments.
The Primary Index is maintained in accordance with the following
rules:
The Primary Index is reviewed each week to ensure that it
includes 100 Index Loans.
A complete review and rebalancing of all Primary Index
constituents is completed on a semi-annual basis coinciding with the
last weekly rebalance in June and in December.
Eligible loan facilities approved by the Primary Index
Committee are added to the Primary Index during the semi-annual
rebalancing. Eligible loan facilities are added to the Primary Index at
the weekly review only if other facilities are repaid or otherwise drop
out of the Primary Index, in order to maintain 100 Index Loans.
Any loan facility that fails to meet any of the
eligibility criteria or that has a term to maturity less than or equal
to 12 months plus 1 calendar day, as of the weekly Rebalancing Date,
will not be included in the Primary Index.
Par amounts of Primary Index loans will be adjusted on the
weekly Rebalancing Date to reflect any changes that have occurred since
the previous Rebalancing Date, due, for example, to partial pre-
payments and pay-downs.\30\
---------------------------------------------------------------------------

\30\ The Sub-Adviser represents that loan prepayments in 2011
were 40% of the S&P/LSTA Leveraged Loan Index and LTM September 30,
2012 are 28% (Source: LCD Quarterly Review, Third Quarter 2012). As
a result of prepayments, the weighted average life of a loan is
typically 2-3 years versus average maturity of 5-7 years. Existing
investors in the Senior Loan may decline to participate in a loan
refinancing that occurs at a lower spread in which case the loan
would be repaid.
---------------------------------------------------------------------------

Constituent facilities are capped at 2% of the Primary
Index and drawn-down at the weekly rebalancing. When a loan facility
exceeds the 2% cap, the weight is reduced to 1.90% and the proceeds are
invested in the other Primary Index components on a relative-weight
basis.
The Primary Index is normally reviewed and rebalanced on a weekly
basis to maintain 100 constituents. The Primary Index Committee (as
described below), nevertheless, reserves the right to make adjustments
to the Primary Index at any time that it believes appropriate.
Weekly Primary Index rebalancing maintenance (additions, deletions,
pay-downs, and other changes to the Primary Index) is based on data as
of Friday (or the last business day of the week in the case of
holidays) and is announced the following Wednesday (or Tuesday in the
case of a holiday) for implementation on the following Friday. Publicly
available information, up to and including each Wednesday's close, is
considered in each weekly rebalancing.
Primary Index changes published in the announcement generally are
not subject to revision and will become effective on the date listed in
the announcement.
The Primary Index Committee
The Primary Index Committee maintains the Primary Index.\31\ The
Primary Index Committee is comprised of employees of S&P. The Primary
Index Committee is chaired by the Managing Director and Primary Index
Committee Chairman at S&P.
---------------------------------------------------------------------------

\31\ The Primary Index Committee has implemented procedures
designed to prevent the use and dissemination of material, non-
public information regarding the Primary Index.
---------------------------------------------------------------------------

Meetings are held annually and, from time to time, as needed. It is
the sole responsibility of the Primary Index Committee to decide on all
matters relating to methodology, maintenance, constituent selection and
index procedures. The Primary Index Committee makes decisions based on
all available information and Primary Index Committee discussions are
kept confidential to avoid any unnecessary impact on market trading.
Markit iBoxx USD Liquid Leveraged Loan Index \32\
---------------------------------------------------------------------------

\32\ The description herein of the Secondary Index is based on
``Markit iBoxx USD Liquid Leveraged Loan Index--Index Guide,''
September 2011 (``Secondary Index Description'').
---------------------------------------------------------------------------

According to the Secondary Index Description, the Markit iBoxx USD
Liquid Leveraged Loan Index is a subset of the benchmark Markit iBoxx
USD Leveraged Loan Index (USD LLI). The Secondary Index limits the
number of constituent loans by selecting larger and more liquid loans
from the wider USD LLI index universe as determined by the Liquidity
Ranking Procedure, described below. The procedure utilizes daily
liquidity scores from the Markit Loan Pricing Service, which is a
broader measure of liquidity, summarizing the performance of each loan
across several

[[Page 10241]]

liquidity metrics, such as number of quotes, or bid-offer sizes.\33\
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\33\ Markit is not a broker-dealer or affiliated with a broker-
dealer and has implemented procedures designed to prevent the use
and dissemination of material, non-public information regarding the
Secondary Index.
---------------------------------------------------------------------------

The selection process for the Secondary Index will be used on the
index inception date and at every monthly rebalancing (``Secondary
Index Selection Date''). The selection process will involve the
identification of the eligible universe using the eligibility criteria
set out below. If the size of the eligible universe is greater than the
target number of loans, the Liquidity Ranking Procedure will be used to
determine the final index constituents. Once the index members are
selected, they are automatically carried forward to the following
month's selection, unless they no longer satisfy the eligibility
criteria or enter a prolonged period of relative illiquidity. The
Secondary Index eligibility criteria and the liquidity ranking
procedure are described in further detail below.
The following six selection criteria are used to derive the
eligible universe from the MarkitWSO USD-denominated loan universe:
loan type; minimum size; liquidity/depth of market; spread; credit
rating; and minimum time to maturity.\34\
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\34\ MarkitWSO is a corporate loan data base that Markit
maintains using information provided by agent banks on each
constituent Senior Loan in its data base of approximately 4,300
Senior Loans.
---------------------------------------------------------------------------

Only USD-denominated loans are eligible for the Secondary Index.
Eligible loan types are fully funded term loans (fixed and floating
rate) and defaulted loans. Ineligible loan types are 364-day facility;
delayed term loans; deposit-funded tranche; letters of credit;
mezzanine; PIK Toggle; PIK; pre-funded acquisition; revolving credit;
strips; synthetic lease; and unfunded loans.
A minimum facility size of $500 million USD nominal is required to
be eligible for the Secondary Index. A constituent is removed at the
next rebalancing if its nominal outstanding falls below $500 million
USD.
According to the Secondary Index Description, liquidity and depth
of the market can be measured by the number of prices available for a
particular loan and the length of time prices have been provided by the
minimum required number of price contributors. The liquidity check is
based on the 3-month period prior to the rebalancing cut-off date
(liquidity test period). Only loans with a minimum liquidity/depth of 2
for at least 50% of trading days of the liquidity test period are
eligible. Loans issued less than 3 months prior to the rebalancing cut-
off date require a minimum liquidity/depth of 3 for at least 50% of
trading days in the period from the issue date to the rebalancing cut-
off date.
Only sub-investment grade loans are eligible for the Secondary
Index. Each rated loan is assigned a composite index rating based on
the ratings from Moody's and S&P's. If more than one agency publishes a
rating for a loan, the average of the ratings determines the composite
rating. The average rating is calculated as the numerical average of
the ratings provided. To calculate the average, each rating [sic]
assigned an integer number as follows: AAA/Aaa is assigned a 1, AA+/Aa1
a 2, etc. The resulting average is rounded to the nearest integer with
.5 rounded up. Loans designated as ``Not Rated'' by both Moody's and
S&P must have a minimum current spread of 125 basis points over LIBOR
to be eligible for the Secondary Index. Loans designated as ``Not
Rated'' are not assigned an index rating. Defaulted loans are eligible
for the Secondary Index provided they meet all other criteria.\35\
---------------------------------------------------------------------------

\35\ While the Secondary Index can include defaulting Senior
Loans, the Sub-Adviser does not intend to invest in such loans.
---------------------------------------------------------------------------

The initial time to maturity is measured from the loan's issue date
to its maturity date. A minimum initial time to maturity of one year is
required for potential constituents. The minimum time to maturity
threshold reduces the Secondary Index turnover and transaction costs
associated with short-dated loans. Existing constituents with time to
maturities of less than 1 year remain in the Secondary Index until
maturity provided they meet all other eligibility criteria.
In order to determine the final Secondary Index constituents, the
loans in the eligible universe are ranked according to their liquidity
scores, as provided by the Markit Loan Pricing Service. Each loan in
the MarkitWSO database \36\ is assigned a daily score based on the
loan's performance on the following liquidity metrics:
---------------------------------------------------------------------------

\36\ See note 34, supra.
---------------------------------------------------------------------------

Sources Quote: The number of dealers sending out runs.
Frequency of Quotes: Total number of dealer runs.
Number of Sources with Size: The number of dealer runs
with associated size.
Bid-offer spreads: The average bid-offer spread in dealer
runs.
Average quote size: The average size parsed from quotes.
Movers Count: The end of day composite contributions which
have moved on that day.
Each loan carries a score ranging from 1 to 5 in ascending order of
liquidity, depending on the daily values for the above components. A
loan with a score of 1 will have the best performance in each of the
categories above. In the liquidity ranking procedure described below,
average liquidity scores are calculated for each loan, over a calendar
one or three month period immediately preceding each rebalancing date.
On the Secondary Index inception day, the target number of loans
will be 100. Loans will be removed from the Secondary Index if they are
no longer present in the current eligible universe or are not ranked
within the first 125 places in terms of 3 month average liquidity
score. On every subsequent rebalancing, the number of new loans to be
selected will be equal to the number of loans which will be removed
from the Secondary Index.
According to the Secondary Index Description, the parameters used
in the selection process, including the target number of loans and the
eligibility criteria, are subject to an annual review process to ensure
that the Secondary Index continues to reflect the underlying loans
market. The results of the analysis are submitted to the oversight
committee for the Markit iBoxx USD Leveraged Loans Indices (''Oversight
Committee'').\37\ The review will consist of a qualitative and
quantitative assessment of any developments in the loans market in
terms of market size, depth, and overall liquidity conditions of the
market together with a recommendation whether current index rules
should be modified. Factors that will be considered in the assessment
will include: size of the market; new issuance patterns and trends;
outstanding number of loans and borrowers; and liquidity conditions.
---------------------------------------------------------------------------

\37\ The Oversight Committee has implemented procedures designed
to prevent the use and dissemination of material, non-public
information regarding the Secondary Index.
---------------------------------------------------------------------------

All Markit iBoxx USD Leveraged Loans Indices are calculated at the
end of each business day and re-balanced at the end of each month.
The Markit iBoxx USD Leveraged Loans Indices are calculated on the
basis of end-of-day prices provided by Markit Loan Pricing services on
each recommended Securities Industry and Financial Markets Association
(``SIFMA'') U.S. trading day.
On each pricing day, end-of-day bid, mid and ask price quotes for
the applicable loans are received from Markit Loan Pricing. Prices for
all loans are taken at 4:15 p.m. Eastern time

[[Page 10242]]

(``E.T.''). Secondary Index data is published and distributed on the
next day by 8:00 a.m. E.T. and is available on the Markit index Web
site, https://indices.markit.com, and through Bloomberg and Reuters.
Markit will provide bid, mid and ask prices for all eligible loans
at the end of each index calculation day. Reference loan data will be
provided by Markit, which represents up-to-date reference and
transactional information on over 1,000 leveraged loans.
Creations and Redemptions of Shares
The Fund will issue and redeem Shares only in Creation Units at the
NAV next determined after receipt of an order on a continuous basis
every day except weekends and specified holidays. The NAV of the Fund
will be determined once each business day, normally as of the close of
trading of the New York Stock Exchange (``NYSE''), generally, 4:00 p.m.
E.T. Creation Unit sizes will be 50,000 Shares per Creation Unit. The
Trust will issue and sell Shares of the Fund only in Creation Units on
a continuous basis through the Distributor, without a sales load (but
subject to transaction fees), at their NAV per Share next determined
after receipt of an order, on any business day, in proper form pursuant
to the terms of the Authorized Participant agreement (as referred to
below).
The consideration for purchase of a Creation Unit of the Fund
generally will consist of either (i) the in-kind deposit of a
designated portfolio of securities (primarily Senior Loans) (the
``Deposit Securities'') per each Creation Unit and the Cash Component
(defined below), computed as described below or (ii) the cash value of
the Deposit Securities (``Deposit Cash'') and the ``Cash Component,''
computed as described below. The primary method of creation and
redemption transactions will be in cash. In-kind creation and
redemption transactions will be available only if requested by an
Authorized Participant and approved by the Trust.
When accepting purchases of Creation Units for cash, the Fund may
incur additional costs associated with the acquisition of Deposit
Securities that would otherwise be provided by an in-kind purchaser.
Together, the Deposit Securities or Deposit Cash, as applicable, and
the Cash Component will constitute the ``Fund Deposit,'' which
represents the minimum initial and subsequent investment amount for a
Creation Unit of the Fund. The ``Cash Component'' will be an amount
equal to the difference between the NAV of the Shares (per Creation
Unit) and the market value of the Deposit Securities or Deposit Cash,
as applicable. If the Cash Component is a positive number (i.e., the
NAV per Creation Unit exceeds the market value of the Deposit
Securities or Deposit Cash, as applicable), the Cash Component will be
such positive amount. If the Cash Component is a negative number (i.e.,
the NAV per Creation Unit is less than the market value of the Deposit
Securities or Deposit Cash, as applicable), the Cash Component will be
such negative amount and the creator will be entitled to receive cash
in an amount equal to the Cash Component. The Cash Component will serve
the function of compensating for any differences between the NAV per
Creation Unit and the market value of the Deposit Securities or Deposit
Cash, as applicable.
According to the Registration Statement, to be eligible to place
orders with respect to creations and redemptions of Creation Units, an
entity must be (i) a ``Participating Party,'' i.e., a broker-dealer or
other participant in the clearing process through the Continuous Net
Settlement System of the National Securities Clearing Corporation
(``NSCC''); or (ii) a Depository Trust Company (``DTC'') participant.
In addition, each Participating Party or DTC Participant (each, an
``Authorized Participant'') must execute an agreement that has been
agreed to by the Principal Underwriter and the Transfer Agent, and that
has been accepted by the Trust, with respect to purchases and
redemptions of Creation Units.
The Custodian, through the NSCC, will make available on each
business day, immediately prior to the opening of business on the
Exchange's Core Trading Session (currently 9:30 a.m., E.T.), the list
of the names and the required number of shares of each Deposit Security
or the required amount of Deposit Cash, as applicable, to be included
in the current Fund Deposit (based on information at the end of the
previous business day) for the Fund. Such Fund Deposit is subject to
any applicable adjustments as described below, in order to effect
purchases of Creation Units of the Fund until such time as the next-
announced composition of the Deposit Securities or the required amount
of Deposit Cash, as applicable, is made available.
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Fund through the Transfer Agent and only on a business day.
With respect to the Fund, the Custodian, through the NSCC, will
make available immediately prior to the opening of business on the
Exchange (9:30 a.m. Eastern time) on each business day, the list of the
names and share quantities of the Portfolio's portfolio securities
(``Fund Securities'') or the required amount of Deposit Cash that will
be applicable (subject to possible amendment or correction) to
redemption requests received in proper form (as defined below) on that
day. Fund Securities received on redemption may not be identical to
Deposit Securities.
Redemption proceeds for a Creation Unit will be paid either in-kind
or in cash or a combination thereof, as determined by the Trust. With
respect to in-kind redemptions of the Fund, redemption proceeds for a
Creation Unit will consist of Fund Securities as announced by the
Custodian on the business day of the request for redemption received in
proper form plus cash in an amount equal to the difference between the
NAV of the Shares being redeemed, as next determined after a receipt of
a request in proper form, and the value of the Fund Securities (the
``Cash Redemption Amount''), less a fixed redemption transaction fee
and any applicable additional variable charge as set forth in the
Registration Statement. In the event that the Fund Securities have a
value greater than the NAV of the Shares, a compensating cash payment
equal to the differential will be required to be made by or through an
Authorized Participant by the redeeming shareholder. Notwithstanding
the foregoing, at the Trust's discretion, an Authorized Participant may
receive the corresponding cash value of the securities in lieu of the
in-kind securities value representing one or more Fund Securities.
The creation/redemption order cut-off time for the Fund is expected
to be 4:00 p.m. Eastern Time for purchases of Shares. On days when the
Exchange closes earlier than normal, the Fund may require orders for
Creation Units to be placed earlier in the day.
Net Asset Value
The NAV per Share for the Fund will be computed by dividing the
value of the net assets of the Fund (i.e., the value of its total
assets less total liabilities) by the total number of Shares
outstanding, rounded to the nearest cent. Expenses and fees, including
the management fees, are accrued daily and taken into account for
purposes of determining NAV.\38\ The NAV of the Fund will be

[[Page 10243]]

calculated by the Custodian and determined at the close of the regular
trading session on the NYSE (ordinarily 4:00 p.m., E.T.) on each day
that such exchange is open, provided that fixed-income assets (and,
accordingly, the Fund's NAV) may be valued as of the announced closing
time for trading in fixed-income instruments on any day that SIFMA (or
the applicable exchange or market on which the Fund's investments are
traded) announces an early closing time. Creation/redemption order cut-
off times may also be earlier on such days.
---------------------------------------------------------------------------

\38\ Markit will be the primary price source for Senior Loans in
calculating the Portfolio's NAV. To the extent ``Other Investments''
are held, International Data Corporation (``IDC'') will be the
primary price source for such investments.
---------------------------------------------------------------------------

In calculating the Portfolio's and Fund's NAV per Share, the
Portfolio's investments will generally be valued using market
valuations. A market valuation generally means a valuation (i) obtained
from an exchange, a pricing service, or a major market maker (or
dealer), (ii) based on a price quotation or other equivalent indication
of value supplied by an exchange, a pricing service, or a major market
maker (or dealer) or (iii) based on amortized cost. The Adviser may use
various pricing services, or discontinue the use of any pricing
service, as approved by the Fund's Board from time to time. A price
obtained from a pricing service based on such pricing service's
valuation matrix may be considered a market valuation. Any assets or
liabilities denominated in currencies other than the U.S. dollar will
be converted into U.S. dollars at the current market rates on the date
of valuation as quoted by one or more sources.
In the event that current market valuations are not readily
available or such valuations do not reflect current market value, the
Trust's procedures require the Pricing and Investment Committee to
determine a security's fair value if a market price is not readily
available.\39\ In determining such value the Trust's Pricing and
Investment Committee may consider, among other things, (i) price
comparisons among multiple sources, (ii) a review of corporate actions
and news events, and (iii) a review of relevant financial indicators
(e.g., movement in interest rates, market indices, and prices from the
Fund's index providers). In these cases, the Fund's NAV may reflect
certain portfolio securities' fair values rather than their market
prices. Fair value pricing involves subjective judgments and it is
possible that the fair value determination for a security is materially
different than the value that could be realized upon the sale of the
security.
---------------------------------------------------------------------------

\39\ The Trust's Board has established a Pricing and Investment
Committee that is composed of officers of the Trust, investment
management personnel of the Adviser and senior operations and
administrative personnel of State Street Bank and Trust Company. The
Pricing and Investment Committee is responsible for the valuation
and revaluation of any portfolio investments for which market
quotations or prices are not readily available. The Pricing and
Investment Committee has implemented procedures designed to prevent
the use and dissemination of material, non-public information
regarding valuation and revaluation of any portfolio investments.
---------------------------------------------------------------------------

The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents
that, for initial and/or continued listing, the Fund will be in
compliance with Rule 10A-3 \40\ under the Act, as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares for the Fund 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, as defined in NYSE Arca Equities Rule
8.600(c)(2), will be made available to all market participants at the
same time.
---------------------------------------------------------------------------

\40\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Availability of Information
The Fund's Web site (www.spdrs.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 additional quantitative information updated on a
daily basis, including, for the Fund, (1) daily trading volume, the
prior business day's reported closing price, NAV and mid-point of the
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask
Price''),\41\ 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 each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, the
Fund will disclose on its Web site the Disclosed Portfolio that will
form the basis for the Fund's calculation of NAV at the end of the
business day.\42\
---------------------------------------------------------------------------

\41\ 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.
\42\ Under accounting procedures 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''). 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.
---------------------------------------------------------------------------

On a daily basis, the Disclosed Portfolio will include each
portfolio security, including Senior Loans, and other financial
instruments of the Portfolio with the following information on the
Fund's Web site: ticker symbol (if applicable), name of security and
financial instrument, number of shares (if applicable) and dollar value
of securities (including Senior Loans) and financial instruments held
in the Portfolio, and percentage weighting of the security and
financial instrument in the Portfolio. The Web site information will be
publicly available at no charge.
One or more major market data vendors will widely disseminate,
every fifteen seconds during the NYSE Arca Core Trading Session, a
Portfolio Indicative Value (``PIV'') (as defined in NYSE Arca Equities
Rule 8.600 (c)(3)), relating to the Fund.\43\ The PIV calculations will
be estimates of the value of the Fund's NAV per Share using market data
converted into U.S. dollars at the current currency rates. The PIV
price will be based on quotes and closing prices from the securities'
local market and may not reflect events that occur subsequent to the
local market's close. Premiums and discounts between the PIV and the
market price may occur. This should not be viewed as a ``real-time''
update of the NAV per Share of the Fund, which is calculated only once
a day.
---------------------------------------------------------------------------

\43\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available PIVs
taken from the Consolidated Tape Association (``CTA'') or other data
feeds.
---------------------------------------------------------------------------

In addition, a basket composition file, which includes the security
names, amount and share quantities, as applicable, required to be
delivered in exchange for the Fund's Shares, together with estimates
and actual cash components, will be publicly disseminated daily prior
to the opening of the NYSE via NSCC. The basket represents one Creation
Unit of the Fund.
The Primary Index description and Secondary Index description are
publicly available. Primary and Secondary Index information, including
values, components, and weightings, is updated and provided daily on a
subscription basis by S&P and Markit, respectively. Complete
methodologies for the Primary and Secondary Index are

[[Page 10244]]

made available on the Web sites of S&P and Markit, respectively.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports are 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. 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
information will be published daily in the financial section of
newspapers. Quotation and last sale information for the Shares will be
available via the CTA high-speed line.
The dissemination of the PIV, together with the Disclosed
Portfolio, will allow investors to determine the value of the
underlying Portfolio of the Fund on a daily basis and to provide a
close estimate of that value throughout the trading day. The intra-day,
closing and settlement prices of the Portfolio securities, including
Senior Loans and other assets, will also be readily available from the
national securities exchanges trading such securities, automated
quotation systems, published or other public sources, or on-line
information services such as Bloomberg or Reuters.
Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, Portfolio holdings disclosure policies, distributions
and taxes is included in the Registration Statement. All terms relating
to the Fund that are referred to, but not defined in, this proposed
rule change are defined in the Registration Statement.
Trading Halts
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.\44\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. 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 comprising 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 will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D),
which sets forth circumstances under which Shares of the Fund may be
halted.
---------------------------------------------------------------------------

\44\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------

Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by FINRA on behalf
of the Exchange, which are designed to detect violations of Exchange
rules and applicable federal securities laws.\45\ The Exchange
represents that these procedures are adequate to properly monitor
Exchange trading of the Shares in all trading sessions and to deter and
detect violations of Exchange rules and applicable federal securities
laws.
---------------------------------------------------------------------------

\45\ 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 with other markets that are members of the Intermarket
Surveillance Group (``ISG'') or with which the Exchange has in place a
comprehensive surveillance sharing agreement.\46\
---------------------------------------------------------------------------

\46\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio 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 also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares
in Creation Unit aggregations (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated PIV will not be calculated or publicly
disseminated; (4) how information regarding the PIV is disseminated;
(5) the requirement that ETP Holders 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 Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m., E.T. each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \47\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

\47\ 15 U.S.C. 78f(b)(5).

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

[[Page 10245]]

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 NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. The Exchange may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a comprehensive surveillance sharing
agreement. In pursuing its investment objective, the Portfolio seeks to
outperform the Primary Index by normally investing at least 80% of its
net assets (plus any borrowings for investment purposes) in Senior
Loans. It is anticipated that the Portfolio, in accordance with its
principal investment strategy, will invest 50% to 75% of its net assets
in Senior Loans that are eligible for inclusion and meet the liquidity
thresholds of the Primary and/or the Secondary Indices. Each of the
Portfolio's Senior Loan investments will have no less than $250 million
USD par outstanding. The Portfolio will not invest 25% or more of the
value of its total assets in securities of borrowers in any one
industry. The Portfolio may hold up to an aggregate amount of 15% of
its net assets in illiquid securities (calculated at the time of
investment), including Rule 144A securities deemed illiquid by the
Adviser and Sub-Adviser. The Adviser and the Sub-Adviser are each
affiliated with a broker-dealer and have implemented a ``fire wall''
with respect to such broker-dealers regarding access to information
concerning the composition and/or changes to the Fund's Portfolio. The
Portfolio's and Fund's investments will be consistent with the
Portfolio's and Fund's investment objective and will not be used to
enhance leverage. The Portfolio will not invest in options contracts,
futures contracts or swap agreements. The Adviser and Sub-Adviser
represent that, under normal market conditions, the Fund would satisfy
the generic fixed income listing requirements in NYSE Arca Equities
Rule 5.2(j)(3), Commentary .02 on a continuous basis measured at the
time of purchase, as described above. Except for Underlying ETFs that
may hold non-U.S. issues, the Fund will not otherwise invest in non-
U.S.-registered equity issues. The Primary Index Committee has
implemented procedures designed to prevent the use and dissemination of
material, non-public information regarding the Primary Index. The
Oversight Committee has implemented procedures designed to prevent the
use and dissemination of material, non-public information regarding the
Secondary Index.
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 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 is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. S&P and Markit are not broker-
dealers or affiliated with a broker-dealer and each has implemented
procedures designed to prevent the use and dissemination of material,
non-public information regarding the Primary Index and Secondary Index,
respectively. The PIV will be disseminated by one or more major market
data vendors at least every 15 seconds during the Exchange's Core
Trading Session. On each business day, before commencement of trading
in Shares in the Core Trading Session on the Exchange, the Fund will
disclose on its Web site the Disclosed Portfolio 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 will be available via the CTA high-
speed line. The intra-day, closing and settlement prices of the
Portfolio securities are also readily available from the national
securities exchanges trading such securities, automated quotation
systems, published or other public sources, or on-line information
services. The Web site for the Fund 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 ETP Holders in an
Information Bulletin of the special characteristics and risks
associated with trading the Shares. Trading in Shares of the Fund will
be halted if the circuit breaker parameters in NYSE Arca Equities Rule
7.12 have been reached 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 NYSE Arca
Equities Rule 8.600(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 PIV, the Disclosed Portfolio, and quotation and last sale
information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect 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. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the PIV, the Disclosed Portfolio, and quotation and last sale
information for the Shares.

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 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 solicited or received with respect to the
proposed rule change.

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 (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory

[[Page 10246]]

organization consents, the Commission will:
(A) By order approve or disapprove the 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 (https://www.sec.gov/rules/sro.shtml ); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2013-08 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2013-08. 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 (https://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 will also 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 No. SR-NYSEArca-2013-08 and should be
submitted on or before March 6, 2013.
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\48\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\48\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03278 Filed 2-12-13; 8:45 am]
BILLING CODE 8011-01-P

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