Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of Shares of AdvisorShares Sage Core Reserves ETF Under NYSE Arca Equities Rule 8.600, 70370-70380 [2013-28162]

Download as PDF 70370 Federal Register / Vol. 78, No. 227 / Monday, November 25, 2013 / Notices Electronic Comments Paper Comments sroberts on DSK5SPTVN1PROD with NOTICES • 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–CME–2013–30. 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 or 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 CME and on CME’s Web site at https://www.cmegroup.com/marketregulation/rule-filings.html. 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–CME–2013–30 and should be submitted on or before December 16, 2013. 17:53 Nov 22, 2013 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 BILLING CODE 8011–01–P • 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 No. SR– CME–2013–30 on the subject line. VerDate Mar<15>2010 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–28161 Filed 11–22–13; 8:45 am] 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: Jkt 232001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70902; File No. SR– NYSEArca–2013–121] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of Shares of AdvisorShares Sage Core Reserves ETF Under NYSE Arca Equities Rule 8.600 November 19, 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 November 5, 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 and II below, which Items have been prepared by the self-regulatory organization. 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 the shares of the following under NYSE Arca Equities Rule 8.600 (‘‘Managed Fund Shares’’): AdvisorShares Sage Core Reserves ETF. 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 13 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 00114 Fmt 4703 Sfmt 4703 1. Purpose The Exchange proposes to list and trade shares (‘‘Shares’’) of the following under NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares: 4 AdvisorShares Sage Core Reserves ETF(‘‘Fund’’). The Shares will be offered by AdvisorShares Trust (the ‘‘Trust’’),5 a statutory trust organized under the laws of the State of Delaware and registered with the Commission as an open-end management investment company.6 The investment adviser to the Fund will be AdvisorShares Investments, LLC (the ‘‘Adviser’’). Sage Advisory Services Ltd. Co. (‘‘Sub-Adviser’’) will be the Fund’s sub-adviser and will provide day-to-day portfolio management of the Fund. 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) (‘‘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 Trust is registered under the 1940 Act. On August 13, 2013, the Trust filed with the Commission an amendment to its registration statement on Form N–1A under the Securities Act of 1933 (15 U.S.C. 77a) (‘‘Securities Act’’), and under the 1940 Act relating to the Fund (File Nos. 333–157876 and 811–22110) (‘‘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. 29291 (May 28, 2010) (File No. 812–13677) (‘‘Exemptive Order’’). 6 The Commission has 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. 63076 (October 12, 2010), 75 FR 63874 (October 18, 2010) (SR–NYSEArca–2010–79) (order approving Exchange listing and trading of Cambria Global Tactical ETF); 63802 (January 31, 2011), 76 FR 6503 (February 4, 2011) (SR–NYSEArca–2010–118) (order approving Exchange listing and trading of the SiM Dynamic Allocation Diversified Income ETF and SiM Dynamic Allocation Growth Income ETF); and 65468 (October 3, 2011), 76 FR 62873 (October 11, 2011) (SR–NYSEArca–2011–51) (order approving Exchange listing and trading of TrimTabs Float Shrink ETF). E:\FR\FM\25NON1.SGM 25NON1 Federal Register / Vol. 78, No. 227 / Monday, November 25, 2013 / Notices Foreside Fund Services, LLC (the ‘‘Distributor’’) will be the principal underwriter and distributor of the Fund’s Shares. The Bank of New York Mellon (the ‘‘Administrator’’) will serve as the administrator, custodian, transfer agent, and accounting 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 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 non-public 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. Neither the Adviser nor the SubAdviser is registered as a broker-dealer or is affiliated with a broker-dealer. In the event (a) the Adviser or the SubAdviser becomes a registered brokerdealer or becomes newly affiliated with a broker-dealer, or (b) any new adviser or sub-adviser is a registered broker- sroberts on DSK5SPTVN1PROD with NOTICES 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. VerDate Mar<15>2010 17:53 Nov 22, 2013 Jkt 232001 dealer or becomes affiliated with a broker-dealer, it will implement a fire wall with respect to its relevant personnel or its broker-dealer affiliate 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. Principal Investments According to the Registration Statement, the Fund will seek to preserve capital while maximizing income. Under normal market conditions,8 the Sub-Adviser will seek to achieve the Fund’s investment objective by investing at least 80% of the Fund’s net assets in a variety of fixed income securities issued by U.S. and foreign issuers. Such fixed income securities will be U.S. dollardenominated investment grade debt securities rated Baa or higher by Moody’s Investors Service, Inc. (‘‘Moody’s’’), or equivalently rated by Standard & Poor’s Ratings Services (‘‘S&P’’) or Fitch, Inc. (‘‘Fitch’’), or, if unrated, determined by the Sub-Adviser to be of comparable quality. The Fund may retain a security if its rating falls below investment grade and the SubAdviser determines that retention of the security is in the Fund’s best interest.9 The Exchange notes that the Fund’s investment portfolio of fixed income securities will meet certain criteria for index-based, fixed income exchangetraded funds (‘‘ETFs’’) contained in NYSE Arca Equities Rule 5.2(j)(3), Commentary .02.10 8 The term ‘‘under normal market conditions’’ means, without limitation, 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 manmade disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance. 9 In determining whether a security is of ‘‘comparable quality’’, the Sub-Adviser will consider, for example, whether the issuer of the security has issued other rated securities; whether the obligations under the security are guaranteed by another entity and the rating of such guarantor (if any); whether and (if applicable) how the security is collateralized; other forms of credit enhancement (if any); the security’s maturity date; liquidity features (if any); relevant cash flow(s); valuation features; other structural analysis; macroeconomic analysis and sector or industry analysis. 10 See NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 governing fixed income based Investment Company Units. The requirements of Rule 5.2(j)(3), Commentary .02(a) that will be met include the following: (i) The index or portfolio must consist of Fixed Income Securities (as defined in Rule 5.2(j)(3), Commentary.02) (Commentary .02(a)(1)); (ii) components that in the aggregate PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 70371 The average duration of the Fund will vary based on the Sub-Adviser’s forecast for interest rates and will normally not exceed one year.11 The dollar-weighted average portfolio maturity of the Fund will normally not be expected to exceed three years. The Fund may invest in debt securities, which are securities consisting of a certificate or other evidence of a debt (secured or unsecured) on which the issuing company or governmental body promises to pay the holder thereof a fixed, variable, or floating rate of interest for a specified length of time, and to repay the debt on the specified maturity date. Some debt securities, such as zero coupon bonds, do not make regular interest payments but are issued at a discount to their principal or maturity value. The debt securities that the Fund will invest in will include a variety of fixed income obligations, including, but not limited to, corporate debt securities, government securities, municipal securities, convertible securities, and mortgage-backed securities. The Fund may invest in variable and floating rate instruments, which involve certain obligations that may carry variable or floating rates of interest, and may involve a conditional or unconditional demand feature. Such instruments bear interest at rates which are not fixed, but which vary with changes in specified market rates or indices. The interest rates on these securities may be reset daily, weekly, quarterly, or some other reset period, and may have a set floor or ceiling on interest rate changes. There is a risk that the current interest rate on such obligations may not accurately reflect existing market interest rates. A demand instrument with a demand notice exceeding seven days may be account for at least 75% of the weight of the index or portfolio each must have a minimum original principal amount outstanding of $100 million or more (Rule 5.2(j)(3), Commentary.02(a)(2)); (iii) a component may be a convertible security; however, once the convertible security converts to an underlying equity security, the component is removed from the index or portfolio (Rule 5.2(j)(3), Commentary.02(a)(3)); (iv) no component fixedincome security (excluding Treasury Securities) will represent more than 30% of the weight of the index or portfolio, and the five highest weighted component fixed-income securities do not in the aggregate account for more than 65% of the weight of the index or portfolio (Rule 5.2(j)(3), Commentary.02(a)(4)); and (v) an underlying index or portfolio (excluding exempted securities) must include securities from a minimum of 13 nonaffiliated issuers (Rule 5.2(j)(3), Commentary.02(a)(5)). 11 Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The longer a security’s duration, the more sensitive it will be to changes in interest rates. E:\FR\FM\25NON1.SGM 25NON1 sroberts on DSK5SPTVN1PROD with NOTICES 70372 Federal Register / Vol. 78, No. 227 / Monday, November 25, 2013 / Notices considered illiquid if there is no secondary market for such security. The Fund may invest in bank obligations, including certificates of deposit, bankers’ acceptances, and fixed time deposits. Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers’ acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are ‘‘accepted’’ by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Fixed time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but may be subject to early withdrawal penalties which vary depending upon market conditions and the remaining maturity of the obligation. The Fund may invest in commercial paper. Commercial paper is a short-term obligation with a maturity ranging from one to 270 days issued by banks, corporations, and other borrowers. Such investments are unsecured and usually discounted. To the extent the Fund invests in commercial paper, the Fund will invest in commercial paper rated A–1 or A–2 by S&P or Prime-1 or Prime2 by Moody’s. The Fund may invest in U.S. government securities. Securities issued or guaranteed by the U.S. government or its agencies or instrumentalities include U.S. Treasury securities, which are backed by the full faith and credit of the U.S. Treasury and which differ only in their interest rates, maturities, and times of issuance. U.S. Treasury bills have initial maturities of one year or less; U.S. Treasury notes have initial maturities of one to ten years; and U.S. Treasury bonds generally have initial maturities of greater than ten years. Certain U.S. government securities are issued or guaranteed by agencies or instrumentalities of the U.S. government including, but not limited to, obligations of U.S. government agencies or instrumentalities such as Fannie Mae, Freddie Mac, the Government National Mortgage Association (‘‘Ginnie Mae’’), the Small Business Administration, the Federal Farm Credit Administration, the Federal Home Loan Banks, Banks for Cooperatives (including the Central Bank for Cooperatives), the Federal Land Banks, the Federal Intermediate Credit Banks, the Tennessee Valley Authority, the Export-Import Bank of the United States, the Commodity Credit Corporation, the Federal Financing VerDate Mar<15>2010 17:53 Nov 22, 2013 Jkt 232001 Bank, the National Credit Union Administration, and the Federal Agricultural Mortgage Corporation (‘‘Farmer Mac’’). The Fund may invest in inflationindexed bonds, which are fixed income securities whose principal value is periodically adjusted according to the rate of inflation. Two structures are common. The U.S. Treasury and some other issuers use a structure that accrues inflation into the principal value of the bond. Most other issuers pay out the Consumer Price Index (‘‘CPI’’) accruals as part of a semiannual coupon. Inflation-indexed securities issued by the U.S. Treasury have maturities of five, ten or thirty years, although it is possible that securities with other maturities will be issued in the future. The U.S. Treasury securities pay interest on a semi-annual basis, equal to a fixed percentage of the inflation-adjusted principal amount. The Fund may invest in mortgagerelated securities and asset-backed securities (‘‘ABSs’’).12 Mortgage-related securities are interests in pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks, and others. Pools of mortgage loans are assembled as securities for sale to investors by various governmental, government-related and private organizations. The Fund also may invest in debt securities which are secured with collateral consisting of mortgagerelated securities. Interests in pools of mortgage-related securities differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a monthly payment which consists of both interest and principal payments. In effect, these payments are a ‘‘pass-through’’ of the monthly payments made by the individual borrowers on their residential or commercial mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal resulting from the sale of the underlying property, 12 ABSs are bonds backed by pools of loans or other receivables. ABSs are created from many types of assets, including auto loans, credit card receivables, home equity loans, and student loans. ABSs are issued through special purpose vehicles that are bankruptcy remote from the issuer of the collateral. The credit quality of an ABS transaction depends on the performance of the underlying assets. To protect ABS investors from the possibility that some borrowers could miss payments or even default on their loans, ABSs include various forms of credit enhancement. PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 refinancing or foreclosure, net of fees or costs which may be incurred. Some mortgage-related securities (such as securities issued by Ginnie Mae) are described as ‘‘modified pass-through’’. These securities entitle the holder to receive all interest and principal payments owed on the mortgage pool, net of certain fees, at the scheduled payment dates regardless of whether or not the mortgagor actually makes the payment. The Fund may invest in agency mortgage-related securities. The principal governmental guarantor of mortgage-related securities is Ginnie Mae. Ginnie Mae is a wholly owned United States Government corporation within the Department of Housing and Urban Development. Ginnie Mae is authorized to guarantee, with the full faith and credit of the United States Government, the timely payment of principal and interest on securities issued by institutions approved by Ginnie Mae (such as savings and loan institutions, commercial banks, and mortgage bankers) and backed by pools of mortgages insured by the Federal Housing Administration (the ‘‘FHA’’), or guaranteed by the Department of Veterans Affairs (the ‘‘VA’’). The Fund may invest up to 10% of its net assets in privately issued (nongovernment-sponsored entity (‘‘GSE’’)) mortgage-related securities, including commercial mortgage-backed securities,13 collateralized mortgage obligations (‘‘CMOs’’),14 and adjustable rate mortgage-backed securities (‘‘ARMBSs’’).15 Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential mortgage loans. Such issuers may be the originators and/or servicers of the 13 Commercial mortgage-backed securities include securities that reflect an interest in, and are secured by, mortgage loans on commercial real property. 14 CMOs are debt obligations of a legal entity that are collateralized by mortgages and divided into classes. Similar to a bond, interest and prepaid principal is paid, in most cases, on a monthly basis. CMOs may be collateralized by whole mortgage loans or private mortgage bonds, but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by Ginnie Mae, Freddie Mac, or Fannie Mae, and their income streams. 15 ARMBSs have interest rates that reset at periodic intervals. Acquiring ARMBSs permits the Fund to participate in increases in prevailing current interest rates through periodic adjustments in the coupons of mortgages underlying the pool on which ARMBSs are based. Such ARMBSs generally have higher current yield and lower price fluctuations than is the case with more traditional fixed income debt securities of comparable rating and maturity. E:\FR\FM\25NON1.SGM 25NON1 Federal Register / Vol. 78, No. 227 / Monday, November 25, 2013 / Notices underlying mortgage loans as well as the guarantors of the mortgage-related securities. The Fund will not purchase mortgage-related securities (including non-GSE mortgage-related securities) or any other assets which in the SubAdviser’s opinion are illiquid if, as a result, more than 15% of the Fund’s net assets will be invested in illiquid securities.16 The Sub-Adviser will seek to manage the portion of the Fund’s assets committed to privately issued mortgagerelated securities in a manner consistent with the Fund’s investment objective, policies and overall portfolio risk profile. In determining whether and how much to invest in privately issued mortgage-related securities, and how to allocate those assets, the Sub-Adviser will consider a number of factors. These include, but are not limited to: (1) The nature of the borrowers (e.g., residential vs. commercial); (2) the collateral loan type (e.g., for residential: First Lien— Jumbo/Prime, First Lien—Alt-A, First Lien—Subprime, First Lien—PayOption or Second Lien; for commercial: Conduit, Large Loan or Single Asset/ Single Borrower); and (3) in the case of residential loans, whether they are fixed rate or adjustable mortgages. Each of these criteria can cause privately issued mortgage-related securities to have differing primary economic characteristics and distinguishable risk factors and performance characteristics. Other Fund Investments According to the Registration Statement, to respond to adverse market, economic, political or other conditions, the Fund may invest 100% of its total assets, without limitation, in investment grade debt securities and money market instruments, either directly or through ETFs.17 The Fund may be invested in this manner for extended periods, depending on the Sub-Adviser’s assessment of market conditions. Such debt securities and money market instruments include shares of other fixed income mutual funds, commercial paper, certificates of deposit, bankers’ acceptances, U.S. government securities, repurchase agreements, and bonds that are rated BBB or higher. While the Fund is in a 16 See note 29 and accompanying text, infra. ETFs in which the Fund may invest will be registered under the 1940 Act and include Investment Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca Equities Rule 8.100); and Managed Fund Shares (as described in NYSE Arca Equities Rule 8.600). Such ETFs all will be listed and traded in the U.S. on registered exchanges. While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged or inverse leveraged (e.g., 2X, –2X, 3X or –3X) ETFs. sroberts on DSK5SPTVN1PROD with NOTICES 17 The VerDate Mar<15>2010 17:53 Nov 22, 2013 Jkt 232001 defensive position, the opportunity to achieve its investment objective will be limited. While the Fund, under normal market conditions, will invest at least 80% of its net assets in investment grade fixed income securities, as described above, the Fund may invest its remaining assets in the following. The Fund may invest in noninvestment-grade securities. Noninvestment-grade securities, also referred to as ‘‘high yield securities’’ or ‘‘junk bonds,’’ are debt securities that are rated lower than the four highest rating categories by a nationally recognized statistical rating organization (for example, lower than Baa3 by Moody’s or lower than BBB- by S&P) or are determined to be of comparable quality by the Fund’s Sub-Adviser. These securities are generally considered to be, on balance, predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation and will generally involve more credit risk than securities in the investment-grade categories. Investment in these securities generally provides greater income and increased opportunity for capital appreciation than investments in higher quality securities, but they also typically entail greater price volatility and principal and income risk. The Fund may invest in equity securities, including common stocks, preferred stocks, warrants to acquire common stock, securities convertible into common stock, investments in master limited partnerships and rights. With respect to its equity securities investments, the Fund will invest only in equity securities that trade in markets that are members of the Intermarket Surveillance Group (‘‘ISG’’) or are parties to a comprehensive surveillance sharing agreement with the Exchange.18 The Fund may invest in exchangetraded notes (‘‘ETNS’’). ETNs (also called ‘‘index-linked securities’’ as would be listed, for example, under NYSE Arca Equities Rule 5.2(j)(6)), are senior, unsecured unsubordinated debt securities issued by an underwriting bank that are designed to provide returns that are linked to a particular benchmark less investor fees. ETNs have a maturity date and, generally, are backed only by the creditworthiness of the issuer. The Fund may invest in CMO residuals, which are mortgage securities issued by agencies or instrumentalities of the U.S. government or by private originators of, or investors in, mortgage 18 See PO 00000 loans, including savings and loan associations, homebuilders, mortgage banks, commercial banks, investment banks, and special purpose entities of the foregoing. CMO residuals, whether or not registered under the 1933 Act, may be subject to certain restrictions on transferability, and may be deemed ‘‘illiquid’’ and subject to the Fund’s limitations on investment in illiquid securities. The Fund may invest in the securities of exchange-traded pooled vehicles that are not investment companies and, thus, not required to comply with the provisions of the 1940 Act.19 As a result, as a shareholder of such pooled vehicles, the Fund will not have all of the investor protections afforded by the 1940 Act. Such pooled vehicles may, however, be required to comply with the provisions of other federal securities laws, such as the Securities Act. These pooled vehicles typically hold currency or commodities, such as gold or oil, or other property that is itself not a security. If the Fund invests in, and, thus, is a shareholder of, a pooled vehicle, the Fund’s shareholders will indirectly bear the Fund’s proportionate share of the fees and expenses paid by the pooled vehicle, including any applicable management fees, in addition to both the management fees payable directly by the Fund to the Adviser and the other expenses that the Fund bears directly in connection with its own operations. The Fund may invest in equities issuers located outside the United States directly,20 or in financial instruments, 19 Such securities include Trust Issued Receipts (as described in NYSE Arca Equities Rule 8.200); Commodity-Based Trust Shares (as described in NYSE Arca Equities Rule 8.201); Currency Trust Shares (as described in NYSE Arca Equities Rule 8.202); Commodity Index Trust Shares (as described in NYSE Arca Equities Rule 8.203); and Trust Units (as described in NYSE Arca Equities Rule 8.500). 20 Securities of such equities issuers may be any one of the following: American Depositary Receipts (‘‘ADRs’’), Global Depositary Receipts (‘‘GDRs’’), European Depositary Receipts (‘‘EDRs’’), International Depository Receipts (‘‘IDRs’’), ‘‘ordinary shares,’’ and ‘‘New York shares’’ issued and traded in the U.S. (collectively, ‘‘Equity Financial Instruments’’). ADRs are U.S. dollar denominated receipts typically issued by U.S. banks and trust companies that evidence ownership of underlying securities issued by a foreign issuer. Generally, ADRs in registered form are designed for use in domestic securities markets and are traded on exchanges or over-the-counter in the U.S. GDRs, EDRs, and IDRs are similar to ADRs in that they are certificates evidencing ownership of shares of a foreign issuer; however, GDRs, EDRs, and IDRs may be issued in bearer form and denominated in other currencies, and are generally designed for use in specific or multiple securities markets outside the U.S. EDRs, for example, are designed for use in European securities markets while GDRs are designed for use throughout the world. Ordinary shares are shares of foreign issuers that are traded note 38, infra. Frm 00117 Fmt 4703 70373 Continued Sfmt 4703 E:\FR\FM\25NON1.SGM 25NON1 70374 Federal Register / Vol. 78, No. 227 / Monday, November 25, 2013 / Notices sroberts on DSK5SPTVN1PROD with NOTICES ETFs, ETNs and exchange-traded pooled vehicles that are indirectly linked to the performance of foreign issuers. The Fund may invest directly and indirectly in foreign currencies. The Fund may conduct foreign currency transactions on a spot (i.e., cash) or forward basis (i.e., by entering into forward contracts to purchase or sell foreign currencies). At the discretion of the Adviser, the Fund may, but is not obligated to, enter into forward currency exchange contracts for hedging purposes to help reduce the risks and volatility caused by changes in foreign currency exchange rates. When used for hedging purposes, forward currency contracts tend to limit any potential gain that may be realized if the value of the Fund’s foreign holdings increases because of currency fluctuations. The Fund may invest in other mortgage-related securities, which include securities other than those described above that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property, including mortgage dollar rolls (that is, a series of purchase and sale contracts),21 or stripped mortgagebacked securities (‘‘SMBS’’), which are derivative multi-class mortgage securities.22 Such other mortgagerelated securities may be debt securities issued by agencies or instrumentalities abroad and on a U.S. exchange. New York shares are shares that a foreign issuer has allocated for trading in the U.S. ADRs may be sponsored or unsponsored, but unsponsored ADRs will not exceed 10% of the Fund’s net assets. With respect to its investments in equity securities (including Equity Financial Instruments), the Fund will invest at least 90% of its assets invested in such securities that trade in markets that are members of the ISG or are parties to a comprehensive surveillance sharing agreement with the Exchange. See note 38, infra. 21 A mortgage dollar roll involves the sale of mortgage-backed securities by the Fund and its agreement to repurchase the instrument (or one which is substantially similar) at a specified time and price. 22 SMBSs are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. A common type of SMBS will have one class receiving some of the interest and most of the principal from the mortgage assets, while the other class will receive most of the interest and the remainder of the principal. In the most extreme case, one class will receive all of the interest (the ‘‘IO’’ class), while the other class will receive all of the principal (the principal-only or ‘‘PO’’ class). The yield to maturity on an IO class is extremely sensitive to the rate of principal payments (including pre-payments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on the Fund’s yield to maturity from these securities. If the underlying mortgage assets experience greater than anticipated pre-payments of principal, the Fund may fail to recoup some or all of its initial investment in these securities even if the security is in one of the highest rating categories. VerDate Mar<15>2010 17:53 Nov 22, 2013 Jkt 232001 of the U.S. government or by private originators of, or investors in, mortgage loans, including savings and loan associations, homebuilders, mortgage banks, commercial banks, investment banks, partnerships, trusts, and special purpose entities of the foregoing. The Fund may invest in closed-end funds. Closed-end funds are pooled investment vehicles that are registered under the 1940 Act and whose shares are listed and traded on U.S. national securities exchanges. The Fund may invest in U.S. exchange-traded futures contracts, options on futures contracts, including stock index futures, U.S. Treasury futures, and options on such futures. The Fund also may invest in U.S. exchange and over-the-counter traded options, which will generally be based on U.S. Treasuries. The Fund may enter into swap agreements generally based on fixed income securities, including, but not limited to, total return swaps, index swaps, and interest rate swaps. The Fund may utilize swap agreements in an attempt to gain exposure to the securities in a market without actually purchasing those securities, or to hedge a position. The Fund will utilize cleared swaps if available, to the extend [sic] practicable and not enter into any swap agreement unless the Adviser believed that the other party to the transaction is creditworthy. Swaps utilized by the Fund will be backed by collateral of the Fund’s assets, as required. The SubAdviser will evaluate the creditworthiness of counterparties on an ongoing basis. In addition to information provided by credit agencies, the Sub-Adviser’s credit analysts will evaluate each approved counterparty using various methods of analysis, including company visits, earnings updates, the broker-dealer’s reputation, past experience with the broker-dealer, market levels for the counterparty’s debt and equity, the counterparty’s liquidity and its share of market participation. The Fund may invest in each of collateralized bond obligations (‘‘CBOs’’), collateralized loan obligations (‘‘CLOs’’), other collateralized debt obligations (‘‘CDOs’’) and other similarly structured securities. CBOs, CLOs and other CDOs are types of ABSs. A CBO is a trust which is often backed by a diversified pool of high risk, below investment grade fixed income securities. The collateral can be from many different types of fixed income securities such as high yield debt, residential privately issued mortgage-related securities, commercial privately issued mortgagerelated securities, trust preferred PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 securities and emerging market debt. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. Other CDOs are trusts backed by other types of assets representing obligations of various parties.23 The Fund may invest in hybrid instruments. A hybrid instrument is a type of potentially high-risk derivative that combines a traditional stock, bond, or commodity with an option or forward contract. Generally, the principal amount, amount payable upon maturity or redemption, or interest rate of a hybrid is tied (positively or negatively) to the price of some security, commodity, currency or securities index or another interest rate or some other economic factor (each a ‘‘benchmark’’). The interest rate or (unlike most fixed income securities) the principal amount payable at maturity of a hybrid security may be increased or decreased, depending on changes in the value of the benchmark. An example of a hybrid instrument could be a bond issued by an oil company that pays a small base level of interest with additional interest that accrues in correlation with the extent to which oil prices exceed a certain predetermined level. Such a hybrid instrument would be a combination of a bond and a call option on oil. The Fund may invest in structured notes, which are debt obligations that also contain an embedded derivative component with characteristics that adjust the obligation’s risk/return profile. Generally, the performance of a structured note will track that of the underlying debt obligation and the derivative embedded within it.24 The Fund would have the right to receive periodic interest payments from the issuer of the structured notes at an 23 According to the Registration Statement, the risks of an investment in a CBO, CLO or other CDO depend largely on the type of the collateral securities and the class of the instrument in which the Fund invests. Normally, CBOs, CLOs and other CDOs are privately offered and sold, and thus are not registered under the securities laws. As a result, investments in CBOs, CLOs and other CDOs may be characterized by the Fund as illiquid securities; however, an active dealer market may exist for CBOs, CLOs and other CDOs allowing them to qualify for Rule 144A transactions. 24 Structured notes are typically privately negotiated transactions between two or more parties. The Fund bears the risk that the issuer of the structured note will default or become bankrupt which may result in the loss of principal investment and periodic interest payments expected to be received for the duration of its investment in the structured notes. E:\FR\FM\25NON1.SGM 25NON1 sroberts on DSK5SPTVN1PROD with NOTICES Federal Register / Vol. 78, No. 227 / Monday, November 25, 2013 / Notices agreed-upon interest rate and a return of the principal at the maturity date. The Fund may invest in shares of exchange-traded real estate investment trusts (‘‘REITs’’). REITs are pooled investment vehicles which invest primarily in real estate or real estate related loans. REITs are generally classified as equity REITs, mortgage REITs, or a combination of equity and mortgage REITs. The Fund may enter into repurchase agreements with financial institutions, which may be deemed to be loans. The Fund follows certain procedures designed to minimize the risks inherent in such agreements. These procedures include effecting repurchase transactions only with large, wellcapitalized and well-established financial institutions whose condition will be continually monitored by the Sub-Adviser. In addition, the value of the collateral underlying the repurchase agreement will always be at least equal to the repurchase price, including any accrued interest earned on the repurchase agreement. It is the current policy of the Fund not to invest in repurchase agreements that do not mature within seven days if any such investment, together with any other illiquid assets held by the Fund, amount to more than 15% of the Fund’s net assets. The Fund may enter into reverse repurchase agreements as part of the Fund’s investment strategy. Reverse repurchase agreements involve sales by the Fund of portfolio assets concurrently with an agreement by the Fund to repurchase the same assets at a later date at a fixed price. Generally, the effect of such a transaction is that the Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while the Fund will be able to keep the interest income associated with those portfolio securities. The Fund may engage in short sales transactions in which the Fund sells a security it does not own. The Fund may invest in mortgagerelated securities that are equity securities issued by agencies or instrumentalities of the U.S. government or by private originators of, or investors in, mortgage loans, including savings and loan associations, homebuilders, mortgage banks, commercial banks, investment banks, partnerships, trusts, and special purpose entities of the foregoing.25 25 With respect to its mortgage-related securities holdings that are equity securities, the Fund will invest only in such securities that trade in markets VerDate Mar<15>2010 17:53 Nov 22, 2013 Jkt 232001 The Fund, from time to time, in the ordinary course of business, may purchase securities on a when-issued, delayed-delivery or forward commitment basis (i.e., delivery and payment can take place between a month and 120 days after the date of the transaction). The Fund may invest in U.S. Treasury zero-coupon bonds. These securities are U.S. Treasury bonds which have been stripped of their unmatured interest coupons, the coupons themselves, and receipts or certificates representing interests in such stripped debt obligations and coupons. Interest is not paid in cash during the term of these securities, but is accrued and paid at maturity. Investment Restrictions According to the Registration Statement, the Fund may not (i) With respect to 75% of its total assets, purchase securities of any issuer (except securities issued or guaranteed by the U. S. government, its agencies or instrumentalities or shares of investment companies) if, as a result, more than 5% of its total assets would be invested in the securities of such issuer; or (ii) acquire more than 10% of the outstanding voting securities of any one issuer. For purposes of this policy, the issuer of the underlying security will be deemed to be the issuer of any respective depositary receipt.26 (ii) Invest 25% or more of its total assets in the securities of one or more issuers conducting their principal business activities in the same industry or group of industries. This limitation does not apply to investments in securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or shares of investment companies. The Fund will not invest 25% or more of its total assets in any investment company that so concentrates.27 that are members of the ISG or are parties to a comprehensive surveillance sharing agreement with the Exchange. 26 The diversification standard is set forth in Section 5(b)(1) of the 1940 Act. See note 20, supra, regarding depositary receipts that the Fund may hold. 27 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). According to the Registration Statement, mortgage-related securities that are issued or guaranteed by the U.S. government, its agencies or instrumentalities, are not subject to the Fund’s industry concentration restrictions by virtue of the exclusion from that test available to all U.S. government securities. The assets underlying such securities may be represented by a portfolio of residential or commercial mortgages (including both whole PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 70375 The Fund 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 or Sub-Adviser,28 in accordance with Commission guidance, CMO residuals and demand instruments with a demand notice exceeding seven days. The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current circumstances, an adequate level of liquidity is being maintained, and will consider taking appropriate steps in order to maintain adequate liquidity if, through a change in values, net assets, or other circumstances, more than 15% of the Fund’s net assets are held in illiquid securities. 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.29 The Fund may invest in the securities of other investment companies to the extent that such an investment would be consistent with the requirements of Section 12(d)(1) of the 1940 Act, or any rule, regulation or order of the Commission or interpretation thereof. The Trust has entered into agreements with several unaffiliated ETFs that permit, pursuant to a Commission order, mortgage loans and mortgage participation interests that may be senior or junior in terms of priority of repayment) or portfolios of mortgage pass-through securities issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac. Mortgage loans underlying a mortgage-related security may in turn be insured or guaranteed by the FHA or the VA. 28 In reaching liquidity decisions, the Adviser or Sub-Adviser may consider the following factors: The frequency of trades and quotes for the security; the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; dealer undertakings to make a market in the security; and the nature of the security and the nature of the marketplace in which it trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). 29 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 Securities Act). E:\FR\FM\25NON1.SGM 25NON1 70376 Federal Register / Vol. 78, No. 227 / Monday, November 25, 2013 / Notices sroberts on DSK5SPTVN1PROD with NOTICES the Fund to purchase shares of those ETFs beyond the Section 12(d)(1) limits described above. The Fund will only make such investments in conformity with the requirements of Subchapter M of the Internal Revenue Code of 1986 (the ‘‘Internal Revenue Code’’).30 According to the Registration Statement, the Fund will seek to qualify for treatment as a Regulated Investment Company (‘‘RIC’’) under the Internal Revenue Code.31 The Fund’s investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage. Creation and Redemption of Shares The Trust will issue and sell Shares of the Fund in Creation Unit size aggregations of 25,000 Shares or more on a continuous basis through the Distributor, at their NAV next determined after receipt, on any business day. The consideration for purchase of a Creation Unit of the Fund generally will consist of an in-kind deposit of a designated portfolio of securities—the ‘‘Deposit Securities’’— per each Creation Unit constituting a substantial replication, or a representation, of the securities included in the Fund’s portfolio and an amount of cash—the Cash Component— computed as described below. Together, the Deposit Securities and the Cash Component constitute the ‘‘Fund Deposit,’’ which represents the minimum initial and subsequent investment amount for a Creation Unit of the Fund. The Cash Component is an amount equal to the difference between the NAV of the shares (per Creation Unit) and the market value of the Deposit Securities. If the Cash Component is a positive number (i.e., the NAV per Creation Unit exceeds the market value of the Deposit Securities), the Cash Component shall 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), the Cash Component shall be such negative amount and the creator will be entitled to receive cash from the Fund in an amount equal to the Cash Component. The Cash Component serves the function of compensating for any differences between the NAV per Creation Unit and the market value of the Deposit Securities. The Administrator, through the National Securities Clearing Corporation (‘‘NSCC’’), will make available on each business day, immediately prior to the 30 26 U.S.C. 851. 31 Id. VerDate Mar<15>2010 17:53 Nov 22, 2013 Jkt 232001 opening of business on the Exchange (currently 9:30 a.m., Eastern Time), the list of the names and the required quantity or number of shares of each Deposit Security 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 will be applicable, subject to any adjustments as described below, in order to effect creations of Creation Units of the Fund until such time as the next-announced composition of the Deposit Securities is made available. The identity and number of shares or quantity of the Deposit Securities required for a Fund Deposit for the Fund may change as rebalancing adjustments and corporate action events occur from time to time. In addition, the Trust reserves the right to permit or require the substitution of an amount of cash—i.e., a ‘‘cash in lieu’’ amount—to be added to the Cash Component to replace any Deposit Security which may not be available in sufficient quantity for delivery or which may not be eligible for transfer (as discussed in the Registration Statement), or which may not be eligible for trading by an Authorized Participant or the investor for which it is acting. The Trust also reserves the right to offer an ‘‘all cash’’ option for creations of Creation Units for the Fund. In addition to the list of names and numbers of securities constituting the current Deposit Securities of a Fund Deposit, the Administrator, through the NSCC, also will make available on each business day, the estimated Cash Component, effective through and including the previous business day, per outstanding Creation Unit of the Fund. 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 Administrator and only on a business day. The Trust will not redeem Shares in amounts less than Creation Units. Beneficial owners must accumulate enough Shares in the secondary market to constitute a Creation Unit in order to have such Shares redeemed by the Trust. With respect to the Fund, the Administrator, through the NSCC, will make available immediately prior to the opening of business on the Exchange (currently 9:30 a.m., Eastern Time) on each business day, the ‘‘Fund Securities’’ that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form on that day. Fund Securities received on redemption may not be identical to Deposit PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 Securities which are applicable to creations of Creation Units. For the Fund, unless cash redemptions are available or specified for the Fund, the redemption proceeds for a Creation Unit generally will consist of Fund Securities—as announced by the Administrator 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 receipt of a request in proper form, and the value of the Fund Securities (the ‘‘Cash Redemption Amount’’), less a redemption transaction fee described 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 is required to be made by or through an Authorized Participant by the redeeming shareholder. If it is not possible to effect deliveries of the Fund Securities, the Trust may in its discretion exercise its option to redeem such Shares in cash, and the redeeming beneficial owner will be required to receive its redemption proceeds in cash. In addition, an investor may request a redemption in cash which the Fund may, in its sole discretion, permit. In either case, the investor will receive a cash payment equal to the NAV of its Shares based on the NAV of Shares of the Fund next determined after the redemption request is received in proper form (minus a redemption transaction fee and additional charge for requested cash redemptions specified above, to offset the Trust’s brokerage and other transaction costs associated with the disposition of Fund Securities). The Fund may also, in its sole discretion, upon request of a shareholder, provide such redeemer a portfolio of securities which differs from the exact composition of the Fund Securities but does not differ in NAV. The Trust also reserves the right to offer an ‘‘all cash’’ option for redemptions of Creation Units for the Fund. The Adviser represents that, to the extent the Trust effects the redemption of Shares in cash, such transactions will be effected in the same manner for all Authorized Participants. Net Asset Value The net asset value (‘‘NAV’’) per Share of 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 of the Fund outstanding, rounded to the nearest cent. Expenses and fees, including E:\FR\FM\25NON1.SGM 25NON1 sroberts on DSK5SPTVN1PROD with NOTICES Federal Register / Vol. 78, No. 227 / Monday, November 25, 2013 / Notices without limitation, the management, administration and distribution fees, are accrued daily and taken into account for purposes of determining NAV per Share. In calculating NAV, the Fund will generally value its portfolio investments at market prices. In computing the Fund’s NAV, the Fund’s securities holdings will be valued based on their last readily available market price. Price information on listed securities, including ETFs, ETNs, exchange-traded pooled vehicles, ADRs, equity-related financial instruments and other exchange-traded products, REITs and mortgage-related securities, will be taken from the exchange where the security is primarily traded. Other portfolio securities and assets for which market quotations are not readily available or determined to not represent the current fair value will be valued based on fair value as determined in good faith in accordance with procedures adopted by the Trust’s Board of Trustees and in accordance with the 1940 Act. The Fund will have an approved pricing matrix at the time of launch. The matrix will be based on pre-determined rules for pricing logic (such as mean) and valuation point (such as market close). Third party pricing sources will be used. For assets such as options, futures, swaps, in general, Bloomberg will be the primary source and Reuters the secondary source. Spot currency transactions and nonexchange-traded derivatives, including forwards, swaps, and certain options will normally be valued on the basis of quotes obtained from brokers and dealers or pricing services using data reflecting the earlier closing of the principal markets for those assets. Prices obtained from independent pricing services use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Exchange-traded options will be valued at market closing price. Futures and options on futures will be valued at the settlement price determined by the applicable exchange. Unsponsored ADRs will be valued on the basis of the market closing price on the exchange where the stock of the foreign issuer that underlies the ADR is listed. Domestic and foreign fixed income securities generally trade in the overthe-counter market rather than on a securities exchange. The Fund will generally value these portfolio securities by relying on independent pricing services. The Fund’s pricing services will use valuation models or matrix VerDate Mar<15>2010 17:53 Nov 22, 2013 Jkt 232001 pricing to determine current value. In general, pricing services use information with respect to comparable bond and note transactions, quotations from bond dealers or by reference to other securities that are considered comparable in such characteristics as rating, interest rate, maturity date, option adjusted spread models, prepayment projections, interest rate spreads and yield curves. Matrix price is an estimated price or value for a fixed-income security. Matrix pricing is considered a form of fair value pricing. The Administrator will calculate NAV and NAV per Share once each business day as of the regularly scheduled close of normal trading on the New York Stock Exchange, LLC (the ‘‘NYSE’’) (normally, 4:00 p.m., Eastern Time). Availability of Information The Fund’s Web site (www.advisorshares.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’’),32 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.33 On a daily basis, the Fund’s Web site will disclose for each portfolio security and other financial instrument of the Fund the following information: Ticker symbol (if applicable); name and, when available, the individual identifier 32 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. 33 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. PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 70377 (CUSIP) of the security and/or financial instrument; number of shares (if applicable) and dollar value of securities 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. In addition, a basket composition file, which includes the security names and share quantities (as applicable) required to be delivered in exchange for Fund Shares, together with estimates and actual cash components, will be publicly disseminated daily prior to the opening of the NYSE via the NSCC. The basket will represent one Creation Unit of the Fund. 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 will be available free upon request from the Trust, and those documents and the Form N–CSR and Form N–SAR may be viewed on-screen or downloaded from the Commission’s Web site at www.sec.gov. 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 for the Shares will be published daily in the financial section of newspapers. Quotation and last-sale information for the Shares and U.S. exchange-listed equity securities, including ETFs, ETNs, exchange-traded pooled vehicles, ADRs, equity-related financial instruments and other exchange-traded products, REITs and mortgage-related securities, will be available via the Consolidated Tape Association (‘‘CTA’’) high-speed line, and will be available from the national securities exchange on which they are listed. Information regarding unsponsored ADRs will be available from major market data vendors. Intraday and closing price information relating to the fixed income and equities investments of the Fund, as well as Fund investments in spot currencies and derivatives, including futures, forwards, options, options on futures and swaps, will be available from major market data vendors and from securities and futures exchanges, as applicable. Information relating to U.S. exchangelisted options will be available via the Options Price Reporting Authority. In addition, the Portfolio Indicative Value, as defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated E:\FR\FM\25NON1.SGM 25NON1 70378 Federal Register / Vol. 78, No. 227 / Monday, November 25, 2013 / Notices at least every 15 seconds during the Core Trading Session by one or more major market data vendors.34 The dissemination of the Portfolio Indicative Value, together with the Disclosed Portfolio, will allow investors to determine the value of the underlying portfolio of the Fund on a daily basis and will provide a close estimate of that value throughout the trading day. 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. sroberts on DSK5SPTVN1PROD with NOTICES 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.35 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. 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 a.m. to 8 p.m. Eastern Time 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’’) 34 Currently, it is the Exchange’s understanding that several major market data vendors display and/ or make widely available Portfolio Indicative Values taken from CTA or other data feeds. 35 See NYSE Arca Equities Rule 7.12. VerDate Mar<15>2010 17:53 Nov 22, 2013 Jkt 232001 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. The Shares will conform to the initial and continued listing criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca Equities Rule 8.600(d)(2)(B)(ii), the Adviser, as the Reporting Authority, will implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material nonpublic information regarding the actual components of the Fund’s portfolio. The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 under the Act,36 as provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio as defined in NYSE Arca Equities Rule 8.600(c)(2) will be made available to all market participants at the same time. Surveillance The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by the Financial Industry Regulatory Authority (‘‘FINRA’’) on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.37 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, underlying exchange-traded equity securities 36 17 CFR 240.10A–3. 37 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 00122 Fmt 4703 Sfmt 4703 (including, without limitation, ETFs, ETNs, exchange-traded pooled vehicles, ADRs, equity-related financial instruments and other exchange-traded products, REITs, and mortgage-related securities), futures, options on futures, and exchange-traded options with other markets and other entities that are members of the ISG, and FINRA, on behalf of the Exchange, may obtain trading information regarding trading in the Shares, underlying exchange-traded equity securities, futures, options on futures, and exchange-traded options from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares, underlying exchange-traded equity securities (including, without limitation, ETFs, ETNs, exchange-traded pooled vehicles, ADRs, equity-related financial instruments and other exchange-traded products, REITs, and mortgage-related securities), futures, options on futures, and exchange-traded options from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.38 In addition, FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain fixed income securities held by the Fund reported to FINRA’s Trade Reporting and Compliance Engine (‘‘TRACE’’). With respect to its investments in equity securities (including Equity Financial Instruments), each Fund will invest at least 90% of its assets invested in such securities that trade in markets that are members of the ISG or are parties to a comprehensive surveillance sharing agreement with the Exchange. 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 38 For a list of the current members of ISG, see www.isgportal.org. The Exchange notes that not all components of the Disclosed Portfolio for the Fund may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. E:\FR\FM\25NON1.SGM 25NON1 Federal Register / Vol. 78, No. 227 / Monday, November 25, 2013 / Notices sroberts on DSK5SPTVN1PROD with NOTICES 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 Portfolio Indicative Value will not be calculated or publicly disseminated; (4) how information regarding the Portfolio Indicative Value 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. Eastern Time each trading day. 2. Statutory Basis The basis under the Act for this proposed rule change is the requirement under Section 6(b)(5) 39 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. 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. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares, underlying exchange-traded equity securities (including, without limitation, ETFs, ETNs, exchange-traded pooled vehicles, ADRs, equity-related financial instruments and other exchange-traded products, REITs, and mortgage-related securities), futures, options on futures, and exchange-traded options with other markets and other entities that are members of the ISG, and FINRA, on behalf of the Exchange, may obtain trading information regarding trading in 39 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 17:53 Nov 22, 2013 Jkt 232001 the Shares, underlying exchange-traded equity securities, futures, options on futures, and exchange-traded options from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares, underlying exchange-traded equity securities (including, without limitation, ETFs, ETNs, exchange-traded pooled vehicles, ADRs, equity-related financial instruments and other exchange-traded products, REITs, and mortgage-related securities), futures, options on futures, and exchange-traded options with other markets and other entities that are members of the ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. In addition, FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain fixed income securities held by the Fund reported to FINRA’s TRACE. With respect to its investments in equity securities (including Equity Financial Instruments), each Fund will invest at least 90% of its assets invested in such securities that trade in markets that are members of the ISG or are parties to a comprehensive surveillance sharing agreement with the Exchange. The Fund will utilize cleared swaps if available, to the extent practicable, and not enter into any swap agreement unless the Adviser believes that the other party to the transaction is creditworthy. Swaps utilized by the Fund will be backed by collateral of the Fund’s assets, as required. Neither the Adviser nor the Sub-Adviser is registered as a brokerdealer or is affiliated with a brokerdealer. The Fund may invest up to 10% of the net assets in privately issued (non-GSE mortgage-related securities, including commercial mortgage-backed securities, CMOs, and ARMBSs). The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities, including Rule 144A securities deemed illiquid by the Adviser or Sub-Adviser, CMO residuals, and demand instruments with a demand notice exceeding seven days. The Fund will not invest in leveraged or inverse leveraged (e.g., 2X, –2X, 3X, or –3X) ETFs. The Fund’s investment portfolio will meet certain criteria for indexbased, fixed income ETFs contained in NYSEArca Equities Rule 5.2(j)(3), Commentary .02, as described above. The Fund’s investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage. 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 PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 70379 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. Quotation and last-sale information for the Shares will be available via the CTA high-speed line. In addition, the Portfolio Indicative Value will be widely disseminated by the Exchange at least every 15 seconds during the Core Trading Session. The Fund’s Web site will include a form of the prospectus for the Fund that may be downloaded, as well as additional quantitative information updated on a daily basis. 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. On a daily basis, the Fund will disclose for each portfolio security or other financial instrument of the Fund the following information: ticker symbol, name and, when available, the individual identifier (CUSIP) of the security and/or financial instrument; number of shares or dollar value of securities and financial instruments held in the portfolio; and percentage weighting of the security and/or financial instrument in the portfolio. 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. 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 Portfolio Indicative Value, 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 E:\FR\FM\25NON1.SGM 25NON1 70380 Federal Register / Vol. 78, No. 227 / Monday, November 25, 2013 / Notices will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, 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. In addition, as noted above, investors will have ready access to information regarding the Fund’s holdings, the Portfolio Indicative Value, 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 purpose of the Act. The Exchange notes that the proposed rule change will facilitate the listing and trading of an additional type of actively-managed exchange-traded product that primarily holds fixed income securities and 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 up to 90 days after publication (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory 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. sroberts on DSK5SPTVN1PROD 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: VerDate Mar<15>2010 17:53 Nov 22, 2013 Jkt 232001 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–2013–121 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–2013–121. 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 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– NYSEArca-2013–121 and should be submitted on or before December 16, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.40 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–28162 Filed 11–22–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70899; File No. SR–NYSEMKT–2013–94] Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Revising Rule 61(a)(iii)— Equities To Harmonize the Existing Rule Text With the Recent Amendment to the CTA Plan, and Concordant Change to the Nasdaq UTP Plan, Which Provides That Odd-Lot Transactions Are To Be Reported On the Consolidated Tape November 19, 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 November 12, 2013, NYSE MKT LLC (the ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. 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 revise Rule 61(a)(iii)—Equities to harmonize the existing rule text with the recent amendment to the CTA Plan (and concordant change to the Nasdaq UTP Plan) which provides that odd-lot transactions are to be reported on the Consolidated Tape. 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, on the Commission’s Web site at https://www.sec.gov, 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, 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 40 17 PO 00000 CFR 200.30–3(a)(12). Frm 00124 Fmt 4703 Sfmt 4703 E:\FR\FM\25NON1.SGM 25NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 227 (Monday, November 25, 2013)]
[Notices]
[Pages 70370-70380]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28162]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70902; File No. SR-NYSEArca-2013-121]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing and Trading of Shares
of AdvisorShares Sage Core Reserves ETF Under NYSE Arca Equities Rule
8.600

November 19, 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 November 5, 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 and II
below, which Items have been prepared by the self-regulatory
organization. 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 the shares of the following
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''):
AdvisorShares Sage Core Reserves ETF. 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 shares (``Shares'') of the
following under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares: \4\ AdvisorShares Sage Core
Reserves ETF(``Fund''). The Shares will be offered by AdvisorShares
Trust (the ``Trust''),\5\ a statutory trust organized under the laws of
the State of Delaware and registered with the Commission as an open-end
management investment company.\6\ The investment adviser to the Fund
will be AdvisorShares Investments, LLC (the ``Adviser''). Sage Advisory
Services Ltd. Co. (``Sub-Adviser'') will be the Fund's sub-adviser and
will provide day-to-day portfolio management of the Fund.

[[Page 70371]]

Foreside Fund Services, LLC (the ``Distributor'') will be the principal
underwriter and distributor of the Fund's Shares. The Bank of New York
Mellon (the ``Administrator'') will serve as the administrator,
custodian, transfer agent, and accounting agent for the Fund.
---------------------------------------------------------------------------

\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) (``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 Trust is registered under the 1940 Act. On August 13,
2013, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A under the Securities Act of 1933
(15 U.S.C. 77a) (``Securities Act''), and under the 1940 Act
relating to the Fund (File Nos. 333-157876 and 811-22110)
(``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. 29291 (May 28, 2010) (File No.
812-13677) (``Exemptive Order'').
\6\ The Commission has 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. 63076 (October 12,
2010), 75 FR 63874 (October 18, 2010) (SR-NYSEArca-2010-79) (order
approving Exchange listing and trading of Cambria Global Tactical
ETF); 63802 (January 31, 2011), 76 FR 6503 (February 4, 2011) (SR-
NYSEArca-2010-118) (order approving Exchange listing and trading of
the SiM Dynamic Allocation Diversified Income ETF and SiM Dynamic
Allocation Growth Income ETF); and 65468 (October 3, 2011), 76 FR
62873 (October 11, 2011) (SR-NYSEArca-2011-51) (order approving
Exchange listing and trading of TrimTabs Float Shrink ETF).
---------------------------------------------------------------------------

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 non-public 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.
Neither the Adviser nor the Sub-Adviser is registered as a broker-
dealer or is affiliated with a broker-dealer. In the event (a) the
Adviser or the Sub-Adviser becomes a registered broker-dealer or
becomes newly affiliated with a broker-dealer, or (b) any new adviser
or sub-adviser is a registered broker-dealer or becomes affiliated with
a broker-dealer, it will implement a fire wall with respect to its
relevant personnel or its broker-dealer affiliate 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.
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

Principal Investments
According to the Registration Statement, the Fund will seek to
preserve capital while maximizing income. Under normal market
conditions,\8\ the Sub-Adviser will seek to achieve the Fund's
investment objective by investing at least 80% of the Fund's net assets
in a variety of fixed income securities issued by U.S. and foreign
issuers. Such fixed income securities will be U.S. dollar-denominated
investment grade debt securities rated Baa or higher by Moody's
Investors Service, Inc. (``Moody's''), or equivalently rated by
Standard & Poor's Ratings Services (``S&P'') or Fitch, Inc.
(``Fitch''), or, if unrated, determined by the Sub-Adviser to be of
comparable quality. The Fund may retain a security if its rating falls
below investment grade and the Sub-Adviser determines that retention of
the security is in the Fund's best interest.\9\
---------------------------------------------------------------------------

\8\ The term ``under normal market conditions'' means, without
limitation, 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.
\9\ In determining whether a security is of ``comparable
quality'', the Sub-Adviser will consider, for example, whether the
issuer of the security has issued other rated securities; whether
the obligations under the security are guaranteed by another entity
and the rating of such guarantor (if any); whether and (if
applicable) how the security is collateralized; other forms of
credit enhancement (if any); the security's maturity date; liquidity
features (if any); relevant cash flow(s); valuation features; other
structural analysis; macroeconomic analysis and sector or industry
analysis.
---------------------------------------------------------------------------

The Exchange notes that the Fund's investment portfolio of fixed
income securities will meet certain criteria for index-based, fixed
income exchange-traded funds (``ETFs'') contained in NYSE Arca Equities
Rule 5.2(j)(3), Commentary .02.\10\
---------------------------------------------------------------------------

\10\ See NYSE Arca Equities Rule 5.2(j)(3), Commentary .02
governing fixed income based Investment Company Units. The
requirements of Rule 5.2(j)(3), Commentary .02(a) that will be met
include the following: (i) The index or portfolio must consist of
Fixed Income Securities (as defined in Rule 5.2(j)(3),
Commentary.02) (Commentary .02(a)(1)); (ii) components that in the
aggregate account for at least 75% of the weight of the index or
portfolio each must have a minimum original principal amount
outstanding of $100 million or more (Rule 5.2(j)(3),
Commentary.02(a)(2)); (iii) a component may be a convertible
security; however, once the convertible security converts to an
underlying equity security, the component is removed from the index
or portfolio (Rule 5.2(j)(3), Commentary.02(a)(3)); (iv) no
component fixed-income security (excluding Treasury Securities) will
represent more than 30% of the weight of the index or portfolio, and
the five highest weighted component fixed-income securities do not
in the aggregate account for more than 65% of the weight of the
index or portfolio (Rule 5.2(j)(3), Commentary.02(a)(4)); and (v) an
underlying index or portfolio (excluding exempted securities) must
include securities from a minimum of 13 non-affiliated issuers (Rule
5.2(j)(3), Commentary.02(a)(5)).
---------------------------------------------------------------------------

The average duration of the Fund will vary based on the Sub-
Adviser's forecast for interest rates and will normally not exceed one
year.\11\ The dollar-weighted average portfolio maturity of the Fund
will normally not be expected to exceed three years.
---------------------------------------------------------------------------

\11\ Duration is a measure used to determine the sensitivity of
a security's price to changes in interest rates. The longer a
security's duration, the more sensitive it will be to changes in
interest rates.
---------------------------------------------------------------------------

The Fund may invest in debt securities, which are securities
consisting of a certificate or other evidence of a debt (secured or
unsecured) on which the issuing company or governmental body promises
to pay the holder thereof a fixed, variable, or floating rate of
interest for a specified length of time, and to repay the debt on the
specified maturity date. Some debt securities, such as zero coupon
bonds, do not make regular interest payments but are issued at a
discount to their principal or maturity value. The debt securities that
the Fund will invest in will include a variety of fixed income
obligations, including, but not limited to, corporate debt securities,
government securities, municipal securities, convertible securities,
and mortgage-backed securities.
The Fund may invest in variable and floating rate instruments,
which involve certain obligations that may carry variable or floating
rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not
fixed, but which vary with changes in specified market rates or
indices. The interest rates on these securities may be reset daily,
weekly, quarterly, or some other reset period, and may have a set floor
or ceiling on interest rate changes. There is a risk that the current
interest rate on such obligations may not accurately reflect existing
market interest rates. A demand instrument with a demand notice
exceeding seven days may be

[[Page 70372]]

considered illiquid if there is no secondary market for such security.
The Fund may invest in bank obligations, including certificates of
deposit, bankers' acceptances, and fixed time deposits. Certificates of
deposit are negotiable certificates issued against funds deposited in a
commercial bank for a definite period of time and earning a specified
return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are ``accepted'' by a bank, meaning, in effect, that
the bank unconditionally agrees to pay the face value of the instrument
on maturity. Fixed time deposits are bank obligations payable at a
stated maturity date and bearing interest at a fixed rate. Fixed time
deposits may be withdrawn on demand by the investor, but may be subject
to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation.
The Fund may invest in commercial paper. Commercial paper is a
short-term obligation with a maturity ranging from one to 270 days
issued by banks, corporations, and other borrowers. Such investments
are unsecured and usually discounted. To the extent the Fund invests in
commercial paper, the Fund will invest in commercial paper rated A-1 or
A-2 by S&P or Prime-1 or Prime-2 by Moody's.
The Fund may invest in U.S. government securities. Securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities include U.S. Treasury securities, which are backed by
the full faith and credit of the U.S. Treasury and which differ only in
their interest rates, maturities, and times of issuance. U.S. Treasury
bills have initial maturities of one year or less; U.S. Treasury notes
have initial maturities of one to ten years; and U.S. Treasury bonds
generally have initial maturities of greater than ten years. Certain
U.S. government securities are issued or guaranteed by agencies or
instrumentalities of the U.S. government including, but not limited to,
obligations of U.S. government agencies or instrumentalities such as
Fannie Mae, Freddie Mac, the Government National Mortgage Association
(``Ginnie Mae''), the Small Business Administration, the Federal Farm
Credit Administration, the Federal Home Loan Banks, Banks for
Cooperatives (including the Central Bank for Cooperatives), the Federal
Land Banks, the Federal Intermediate Credit Banks, the Tennessee Valley
Authority, the Export-Import Bank of the United States, the Commodity
Credit Corporation, the Federal Financing Bank, the National Credit
Union Administration, and the Federal Agricultural Mortgage Corporation
(``Farmer Mac'').
The Fund may invest in inflation-indexed bonds, which are fixed
income securities whose principal value is periodically adjusted
according to the rate of inflation. Two structures are common. The U.S.
Treasury and some other issuers use a structure that accrues inflation
into the principal value of the bond. Most other issuers pay out the
Consumer Price Index (``CPI'') accruals as part of a semiannual coupon.
Inflation-indexed securities issued by the U.S. Treasury have
maturities of five, ten or thirty years, although it is possible that
securities with other maturities will be issued in the future. The U.S.
Treasury securities pay interest on a semi-annual basis, equal to a
fixed percentage of the inflation-adjusted principal amount.
The Fund may invest in mortgage-related securities and asset-backed
securities (``ABSs'').\12\ Mortgage-related securities are interests in
pools of residential or commercial mortgage loans, including mortgage
loans made by savings and loan institutions, mortgage bankers,
commercial banks, and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-
related and private organizations. The Fund also may invest in debt
securities which are secured with collateral consisting of mortgage-
related securities. Interests in pools of mortgage-related securities
differ from other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal payments
at maturity or specified call dates. Instead, these securities provide
a monthly payment which consists of both interest and principal
payments. In effect, these payments are a ``pass-through'' of the
monthly payments made by the individual borrowers on their residential
or commercial mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Additional payments are caused by
repayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued
by Ginnie Mae) are described as ``modified pass-through''. These
securities entitle the holder to receive all interest and principal
payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.
---------------------------------------------------------------------------

\12\ ABSs are bonds backed by pools of loans or other
receivables. ABSs are created from many types of assets, including
auto loans, credit card receivables, home equity loans, and student
loans. ABSs are issued through special purpose vehicles that are
bankruptcy remote from the issuer of the collateral. The credit
quality of an ABS transaction depends on the performance of the
underlying assets. To protect ABS investors from the possibility
that some borrowers could miss payments or even default on their
loans, ABSs include various forms of credit enhancement.
---------------------------------------------------------------------------

The Fund may invest in agency mortgage-related securities. The
principal governmental guarantor of mortgage-related securities is
Ginnie Mae. Ginnie Mae is a wholly owned United States Government
corporation within the Department of Housing and Urban Development.
Ginnie Mae is authorized to guarantee, with the full faith and credit
of the United States Government, the timely payment of principal and
interest on securities issued by institutions approved by Ginnie Mae
(such as savings and loan institutions, commercial banks, and mortgage
bankers) and backed by pools of mortgages insured by the Federal
Housing Administration (the ``FHA''), or guaranteed by the Department
of Veterans Affairs (the ``VA'').
The Fund may invest up to 10% of its net assets in privately issued
(non-government-sponsored entity (``GSE'')) mortgage-related
securities, including commercial mortgage-backed securities,\13\
collateralized mortgage obligations (``CMOs''),\14\ and adjustable rate
mortgage-backed securities (``ARMBSs'').\15\ Commercial banks, savings
and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers also create pass-through
pools of conventional residential mortgage loans. Such issuers may be
the originators and/or servicers of the

[[Page 70373]]

underlying mortgage loans as well as the guarantors of the mortgage-
related securities. The Fund will not purchase mortgage-related
securities (including non-GSE mortgage-related securities) or any other
assets which in the Sub-Adviser's opinion are illiquid if, as a result,
more than 15% of the Fund's net assets will be invested in illiquid
securities.\16\
---------------------------------------------------------------------------

\13\ Commercial mortgage-backed securities include securities
that reflect an interest in, and are secured by, mortgage loans on
commercial real property.
\14\ CMOs are debt obligations of a legal entity that are
collateralized by mortgages and divided into classes. Similar to a
bond, interest and prepaid principal is paid, in most cases, on a
monthly basis. CMOs may be collateralized by whole mortgage loans or
private mortgage bonds, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by Ginnie
Mae, Freddie Mac, or Fannie Mae, and their income streams.
\15\ ARMBSs have interest rates that reset at periodic
intervals. Acquiring ARMBSs permits the Fund to participate in
increases in prevailing current interest rates through periodic
adjustments in the coupons of mortgages underlying the pool on which
ARMBSs are based. Such ARMBSs generally have higher current yield
and lower price fluctuations than is the case with more traditional
fixed income debt securities of comparable rating and maturity.
\16\ See note 29 and accompanying text, infra.
---------------------------------------------------------------------------

The Sub-Adviser will seek to manage the portion of the Fund's
assets committed to privately issued mortgage-related securities in a
manner consistent with the Fund's investment objective, policies and
overall portfolio risk profile. In determining whether and how much to
invest in privately issued mortgage-related securities, and how to
allocate those assets, the Sub-Adviser will consider a number of
factors. These include, but are not limited to: (1) The nature of the
borrowers (e.g., residential vs. commercial); (2) the collateral loan
type (e.g., for residential: First Lien--Jumbo/Prime, First Lien--Alt-
A, First Lien--Subprime, First Lien--Pay-Option or Second Lien; for
commercial: Conduit, Large Loan or Single Asset/Single Borrower); and
(3) in the case of residential loans, whether they are fixed rate or
adjustable mortgages. Each of these criteria can cause privately issued
mortgage-related securities to have differing primary economic
characteristics and distinguishable risk factors and performance
characteristics.
Other Fund Investments
According to the Registration Statement, to respond to adverse
market, economic, political or other conditions, the Fund may invest
100% of its total assets, without limitation, in investment grade debt
securities and money market instruments, either directly or through
ETFs.\17\ The Fund may be invested in this manner for extended periods,
depending on the Sub-Adviser's assessment of market conditions. Such
debt securities and money market instruments include shares of other
fixed income mutual funds, commercial paper, certificates of deposit,
bankers' acceptances, U.S. government securities, repurchase
agreements, and bonds that are rated BBB or higher. While the Fund is
in a defensive position, the opportunity to achieve its investment
objective will be limited.
---------------------------------------------------------------------------

\17\ The ETFs in which the Fund may invest will be registered
under the 1940 Act and include Investment Company Units (as
described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100);
and Managed Fund Shares (as described in NYSE Arca Equities Rule
8.600). Such ETFs all will be listed and traded in the U.S. on
registered exchanges. While the Fund may invest in inverse ETFs, the
Fund will not invest in leveraged or inverse leveraged (e.g., 2X, -
2X, 3X or -3X) ETFs.
---------------------------------------------------------------------------

While the Fund, under normal market conditions, will invest at
least 80% of its net assets in investment grade fixed income
securities, as described above, the Fund may invest its remaining
assets in the following.
The Fund may invest in non-investment-grade securities. Non-
investment-grade securities, also referred to as ``high yield
securities'' or ``junk bonds,'' are debt securities that are rated
lower than the four highest rating categories by a nationally
recognized statistical rating organization (for example, lower than
Baa3 by Moody's or lower than BBB- by S&P) or are determined to be of
comparable quality by the Fund's Sub-Adviser. These securities are
generally considered to be, on balance, predominantly speculative with
respect to capacity to pay interest and repay principal in accordance
with the terms of the obligation and will generally involve more credit
risk than securities in the investment-grade categories. Investment in
these securities generally provides greater income and increased
opportunity for capital appreciation than investments in higher quality
securities, but they also typically entail greater price volatility and
principal and income risk.
The Fund may invest in equity securities, including common stocks,
preferred stocks, warrants to acquire common stock, securities
convertible into common stock, investments in master limited
partnerships and rights. With respect to its equity securities
investments, the Fund will invest only in equity securities that trade
in markets that are members of the Intermarket Surveillance Group
(``ISG'') or are parties to a comprehensive surveillance sharing
agreement with the Exchange.\18\
---------------------------------------------------------------------------

\18\ See note 38, infra.
---------------------------------------------------------------------------

The Fund may invest in exchange-traded notes (``ETNS''). ETNs (also
called ``index-linked securities'' as would be listed, for example,
under NYSE Arca Equities Rule 5.2(j)(6)), are senior, unsecured
unsubordinated debt securities issued by an underwriting bank that are
designed to provide returns that are linked to a particular benchmark
less investor fees. ETNs have a maturity date and, generally, are
backed only by the creditworthiness of the issuer.
The Fund may invest in CMO residuals, which are mortgage securities
issued by agencies or instrumentalities of the U.S. government or by
private originators of, or investors in, mortgage loans, including
savings and loan associations, homebuilders, mortgage banks, commercial
banks, investment banks, and special purpose entities of the foregoing.
CMO residuals, whether or not registered under the 1933 Act, may be
subject to certain restrictions on transferability, and may be deemed
``illiquid'' and subject to the Fund's limitations on investment in
illiquid securities.
The Fund may invest in the securities of exchange-traded pooled
vehicles that are not investment companies and, thus, not required to
comply with the provisions of the 1940 Act.\19\ As a result, as a
shareholder of such pooled vehicles, the Fund will not have all of the
investor protections afforded by the 1940 Act. Such pooled vehicles
may, however, be required to comply with the provisions of other
federal securities laws, such as the Securities Act. These pooled
vehicles typically hold currency or commodities, such as gold or oil,
or other property that is itself not a security. If the Fund invests
in, and, thus, is a shareholder of, a pooled vehicle, the Fund's
shareholders will indirectly bear the Fund's proportionate share of the
fees and expenses paid by the pooled vehicle, including any applicable
management fees, in addition to both the management fees payable
directly by the Fund to the Adviser and the other expenses that the
Fund bears directly in connection with its own operations.
---------------------------------------------------------------------------

\19\ Such securities include Trust Issued Receipts (as described
in NYSE Arca Equities Rule 8.200); Commodity-Based Trust Shares (as
described in NYSE Arca Equities Rule 8.201); Currency Trust Shares
(as described in NYSE Arca Equities Rule 8.202); Commodity Index
Trust Shares (as described in NYSE Arca Equities Rule 8.203); and
Trust Units (as described in NYSE Arca Equities Rule 8.500).
---------------------------------------------------------------------------

The Fund may invest in equities issuers located outside the United
States directly,\20\ or in financial instruments,

[[Page 70374]]

ETFs, ETNs and exchange-traded pooled vehicles that are indirectly
linked to the performance of foreign issuers.
---------------------------------------------------------------------------

\20\ Securities of such equities issuers may be any one of the
following: American Depositary Receipts (``ADRs''), Global
Depositary Receipts (``GDRs''), European Depositary Receipts
(``EDRs''), International Depository Receipts (``IDRs''), ``ordinary
shares,'' and ``New York shares'' issued and traded in the U.S.
(collectively, ``Equity Financial Instruments''). ADRs are U.S.
dollar denominated receipts typically issued by U.S. banks and trust
companies that evidence ownership of underlying securities issued by
a foreign issuer. Generally, ADRs in registered form are designed
for use in domestic securities markets and are traded on exchanges
or over-the-counter in the U.S. GDRs, EDRs, and IDRs are similar to
ADRs in that they are certificates evidencing ownership of shares of
a foreign issuer; however, GDRs, EDRs, and IDRs may be issued in
bearer form and denominated in other currencies, and are generally
designed for use in specific or multiple securities markets outside
the U.S. EDRs, for example, are designed for use in European
securities markets while GDRs are designed for use throughout the
world. Ordinary shares are shares of foreign issuers that are traded
abroad and on a U.S. exchange. New York shares are shares that a
foreign issuer has allocated for trading in the U.S. ADRs may be
sponsored or unsponsored, but unsponsored ADRs will not exceed 10%
of the Fund's net assets. With respect to its investments in equity
securities (including Equity Financial Instruments), the Fund will
invest at least 90% of its assets invested in such securities that
trade in markets that are members of the ISG or are parties to a
comprehensive surveillance sharing agreement with the Exchange. See
note 38, infra.
---------------------------------------------------------------------------

The Fund may invest directly and indirectly in foreign currencies.
The Fund may conduct foreign currency transactions on a spot (i.e.,
cash) or forward basis (i.e., by entering into forward contracts to
purchase or sell foreign currencies). At the discretion of the Adviser,
the Fund may, but is not obligated to, enter into forward currency
exchange contracts for hedging purposes to help reduce the risks and
volatility caused by changes in foreign currency exchange rates. When
used for hedging purposes, forward currency contracts tend to limit any
potential gain that may be realized if the value of the Fund's foreign
holdings increases because of currency fluctuations.
The Fund may invest in other mortgage-related securities, which
include securities other than those described above that directly or
indirectly represent a participation in, or are secured by and payable
from, mortgage loans on real property, including mortgage dollar rolls
(that is, a series of purchase and sale contracts),\21\ or stripped
mortgage-backed securities (``SMBS''), which are derivative multi-class
mortgage securities.\22\ Such other mortgage-related securities may be
debt securities issued by agencies or instrumentalities of the U.S.
government or by private originators of, or investors in, mortgage
loans, including savings and loan associations, homebuilders, mortgage
banks, commercial banks, investment banks, partnerships, trusts, and
special purpose entities of the foregoing.
---------------------------------------------------------------------------

\21\ A mortgage dollar roll involves the sale of mortgage-backed
securities by the Fund and its agreement to repurchase the
instrument (or one which is substantially similar) at a specified
time and price.
\22\ SMBSs are usually structured with two classes that receive
different proportions of the interest and principal distributions on
a pool of mortgage assets. A common type of SMBS will have one class
receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the
interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the ``IO'' class),
while the other class will receive all of the principal (the
principal-only or ``PO'' class). The yield to maturity on an IO
class is extremely sensitive to the rate of principal payments
(including pre-payments) on the related underlying mortgage assets,
and a rapid rate of principal payments may have a material adverse
effect on the Fund's yield to maturity from these securities. If the
underlying mortgage assets experience greater than anticipated pre-
payments of principal, the Fund may fail to recoup some or all of
its initial investment in these securities even if the security is
in one of the highest rating categories.
---------------------------------------------------------------------------

The Fund may invest in closed-end funds. Closed-end funds are
pooled investment vehicles that are registered under the 1940 Act and
whose shares are listed and traded on U.S. national securities
exchanges.
The Fund may invest in U.S. exchange-traded futures contracts,
options on futures contracts, including stock index futures, U.S.
Treasury futures, and options on such futures. The Fund also may invest
in U.S. exchange and over-the-counter traded options, which will
generally be based on U.S. Treasuries.
The Fund may enter into swap agreements generally based on fixed
income securities, including, but not limited to, total return swaps,
index swaps, and interest rate swaps. The Fund may utilize swap
agreements in an attempt to gain exposure to the securities in a market
without actually purchasing those securities, or to hedge a position.
The Fund will utilize cleared swaps if available, to the extend [sic]
practicable and not enter into any swap agreement unless the Adviser
believed that the other party to the transaction is creditworthy. Swaps
utilized by the Fund will be backed by collateral of the Fund's assets,
as required. The Sub-Adviser will evaluate the creditworthiness of
counterparties on an ongoing basis. In addition to information provided
by credit agencies, the Sub-Adviser's credit analysts will evaluate
each approved counterparty using various methods of analysis, including
company visits, earnings updates, the broker-dealer's reputation, past
experience with the broker-dealer, market levels for the counterparty's
debt and equity, the counterparty's liquidity and its share of market
participation.
The Fund may invest in each of collateralized bond obligations
(``CBOs''), collateralized loan obligations (``CLOs''), other
collateralized debt obligations (``CDOs'') and other similarly
structured securities. CBOs, CLOs and other CDOs are types of ABSs. A
CBO is a trust which is often backed by a diversified pool of high
risk, below investment grade fixed income securities. The collateral
can be from many different types of fixed income securities such as
high yield debt, residential privately issued mortgage-related
securities, commercial privately issued mortgage-related securities,
trust preferred securities and emerging market debt. A CLO is a trust
typically collateralized by a pool of loans, which may include, among
others, domestic and foreign senior secured loans, senior unsecured
loans, and subordinate corporate loans, including loans that may be
rated below investment grade or equivalent unrated loans. Other CDOs
are trusts backed by other types of assets representing obligations of
various parties.\23\
---------------------------------------------------------------------------

\23\ According to the Registration Statement, the risks of an
investment in a CBO, CLO or other CDO depend largely on the type of
the collateral securities and the class of the instrument in which
the Fund invests. Normally, CBOs, CLOs and other CDOs are privately
offered and sold, and thus are not registered under the securities
laws. As a result, investments in CBOs, CLOs and other CDOs may be
characterized by the Fund as illiquid securities; however, an active
dealer market may exist for CBOs, CLOs and other CDOs allowing them
to qualify for Rule 144A transactions.
---------------------------------------------------------------------------

The Fund may invest in hybrid instruments. A hybrid instrument is a
type of potentially high-risk derivative that combines a traditional
stock, bond, or commodity with an option or forward contract.
Generally, the principal amount, amount payable upon maturity or
redemption, or interest rate of a hybrid is tied (positively or
negatively) to the price of some security, commodity, currency or
securities index or another interest rate or some other economic factor
(each a ``benchmark''). The interest rate or (unlike most fixed income
securities) the principal amount payable at maturity of a hybrid
security may be increased or decreased, depending on changes in the
value of the benchmark. An example of a hybrid instrument could be a
bond issued by an oil company that pays a small base level of interest
with additional interest that accrues in correlation with the extent to
which oil prices exceed a certain predetermined level. Such a hybrid
instrument would be a combination of a bond and a call option on oil.
The Fund may invest in structured notes, which are debt obligations
that also contain an embedded derivative component with characteristics
that adjust the obligation's risk/return profile. Generally, the
performance of a structured note will track that of the underlying debt
obligation and the derivative embedded within it.\24\ The Fund would
have the right to receive periodic interest payments from the issuer of
the structured notes at an

[[Page 70375]]

agreed-upon interest rate and a return of the principal at the maturity
date.
---------------------------------------------------------------------------

\24\ Structured notes are typically privately negotiated
transactions between two or more parties. The Fund bears the risk
that the issuer of the structured note will default or become
bankrupt which may result in the loss of principal investment and
periodic interest payments expected to be received for the duration
of its investment in the structured notes.
---------------------------------------------------------------------------

The Fund may invest in shares of exchange-traded real estate
investment trusts (``REITs''). REITs are pooled investment vehicles
which invest primarily in real estate or real estate related loans.
REITs are generally classified as equity REITs, mortgage REITs, or a
combination of equity and mortgage REITs.
The Fund may enter into repurchase agreements with financial
institutions, which may be deemed to be loans. The Fund follows certain
procedures designed to minimize the risks inherent in such agreements.
These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions
whose condition will be continually monitored by the Sub-Adviser. In
addition, the value of the collateral underlying the repurchase
agreement will always be at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement. It
is the current policy of the Fund not to invest in repurchase
agreements that do not mature within seven days if any such investment,
together with any other illiquid assets held by the Fund, amount to
more than 15% of the Fund's net assets.
The Fund may enter into reverse repurchase agreements as part of
the Fund's investment strategy. Reverse repurchase agreements involve
sales by the Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed
price. Generally, the effect of such a transaction is that the Fund can
recover all or most of the cash invested in the portfolio securities
involved during the term of the reverse repurchase agreement, while the
Fund will be able to keep the interest income associated with those
portfolio securities.
The Fund may engage in short sales transactions in which the Fund
sells a security it does not own.
The Fund may invest in mortgage-related securities that are equity
securities issued by agencies or instrumentalities of the U.S.
government or by private originators of, or investors in, mortgage
loans, including savings and loan associations, homebuilders, mortgage
banks, commercial banks, investment banks, partnerships, trusts, and
special purpose entities of the foregoing.\25\
---------------------------------------------------------------------------

\25\ With respect to its mortgage-related securities holdings
that are equity securities, the Fund will invest only in such
securities that trade in markets that are members of the ISG or are
parties to a comprehensive surveillance sharing agreement with the
Exchange.
---------------------------------------------------------------------------

The Fund, from time to time, in the ordinary course of business,
may purchase securities on a when-issued, delayed-delivery or forward
commitment basis (i.e., delivery and payment can take place between a
month and 120 days after the date of the transaction).
The Fund may invest in U.S. Treasury zero-coupon bonds. These
securities are U.S. Treasury bonds which have been stripped of their
unmatured interest coupons, the coupons themselves, and receipts or
certificates representing interests in such stripped debt obligations
and coupons. Interest is not paid in cash during the term of these
securities, but is accrued and paid at maturity.
Investment Restrictions
According to the Registration Statement, the Fund may not
(i) With respect to 75% of its total assets, purchase securities of
any issuer (except securities issued or guaranteed by the U. S.
government, its agencies or instrumentalities or shares of investment
companies) if, as a result, more than 5% of its total assets would be
invested in the securities of such issuer; or (ii) acquire more than
10% of the outstanding voting securities of any one issuer. For
purposes of this policy, the issuer of the underlying security will be
deemed to be the issuer of any respective depositary receipt.\26\
---------------------------------------------------------------------------

\26\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act. See note 20, supra, regarding depositary
receipts that the Fund may hold.
---------------------------------------------------------------------------

(ii) Invest 25% or more of its total assets in the securities of
one or more issuers conducting their principal business activities in
the same industry or group of industries. This limitation does not
apply to investments in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or shares of investment
companies. The Fund will not invest 25% or more of its total assets in
any investment company that so concentrates.\27\
---------------------------------------------------------------------------

\27\ 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). According to the Registration Statement,
mortgage-related securities that are issued or guaranteed by the
U.S. government, its agencies or instrumentalities, are not subject
to the Fund's industry concentration restrictions by virtue of the
exclusion from that test available to all U.S. government
securities. The assets underlying such securities may be represented
by a portfolio of residential or commercial mortgages (including
both whole mortgage loans and mortgage participation interests that
may be senior or junior in terms of priority of repayment) or
portfolios of mortgage pass-through securities issued or guaranteed
by Ginnie Mae, Fannie Mae or Freddie Mac. Mortgage loans underlying
a mortgage-related security may in turn be insured or guaranteed by
the FHA or the VA.
---------------------------------------------------------------------------

The Fund 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 or Sub-
Adviser,\28\ in accordance with Commission guidance, CMO residuals and
demand instruments with a demand notice exceeding seven days. The Fund
will monitor its portfolio liquidity on an ongoing basis to determine
whether, in light of current circumstances, an adequate level of
liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid securities. 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.\29\
---------------------------------------------------------------------------

\28\ In reaching liquidity decisions, the Adviser or Sub-Adviser
may consider the following factors: The frequency of trades and
quotes for the security; the number of dealers wishing to purchase
or sell the security and the number of other potential purchasers;
dealer undertakings to make a market in the security; and the nature
of the security and the nature of the marketplace in which it trades
(e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer).
\29\ 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 Securities Act).
---------------------------------------------------------------------------

The Fund may invest in the securities of other investment companies
to the extent that such an investment would be consistent with the
requirements of Section 12(d)(1) of the 1940 Act, or any rule,
regulation or order of the Commission or interpretation thereof. The
Trust has entered into agreements with several unaffiliated ETFs that
permit, pursuant to a Commission order,

[[Page 70376]]

the Fund to purchase shares of those ETFs beyond the Section 12(d)(1)
limits described above. The Fund will only make such investments in
conformity with the requirements of Subchapter M of the Internal
Revenue Code of 1986 (the ``Internal Revenue Code'').\30\
---------------------------------------------------------------------------

\30\ 26 U.S.C. 851.
---------------------------------------------------------------------------

According to the Registration Statement, the Fund will seek to
qualify for treatment as a Regulated Investment Company (``RIC'') under
the Internal Revenue Code.\31\
---------------------------------------------------------------------------

\31\ Id.
---------------------------------------------------------------------------

The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage.
Creation and Redemption of Shares
The Trust will issue and sell Shares of the Fund in Creation Unit
size aggregations of 25,000 Shares or more on a continuous basis
through the Distributor, at their NAV next determined after receipt, on
any business day. The consideration for purchase of a Creation Unit of
the Fund generally will consist of an in-kind deposit of a designated
portfolio of securities--the ``Deposit Securities''--per each Creation
Unit constituting a substantial replication, or a representation, of
the securities included in the Fund's portfolio and an amount of cash--
the Cash Component--computed as described below. Together, the Deposit
Securities and the Cash Component constitute the ``Fund Deposit,''
which represents the minimum initial and subsequent investment amount
for a Creation Unit of the Fund. The Cash Component is an amount equal
to the difference between the NAV of the shares (per Creation Unit) and
the market value of the Deposit Securities. If the Cash Component is a
positive number (i.e., the NAV per Creation Unit exceeds the market
value of the Deposit Securities), the Cash Component shall 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), the Cash Component shall be such negative amount and the
creator will be entitled to receive cash from the Fund in an amount
equal to the Cash Component. The Cash Component serves the function of
compensating for any differences between the NAV per Creation Unit and
the market value of the Deposit Securities.
The Administrator, through the National Securities Clearing
Corporation (``NSCC''), will make available on each business day,
immediately prior to the opening of business on the Exchange (currently
9:30 a.m., Eastern Time), the list of the names and the required
quantity or number of shares of each Deposit Security 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 will be
applicable, subject to any adjustments as described below, in order to
effect creations of Creation Units of the Fund until such time as the
next-announced composition of the Deposit Securities is made available.
The identity and number of shares or quantity of the Deposit
Securities required for a Fund Deposit for the Fund may change as
rebalancing adjustments and corporate action events occur from time to
time. In addition, the Trust reserves the right to permit or require
the substitution of an amount of cash--i.e., a ``cash in lieu''
amount--to be added to the Cash Component to replace any Deposit
Security which may not be available in sufficient quantity for delivery
or which may not be eligible for transfer (as discussed in the
Registration Statement), or which may not be eligible for trading by an
Authorized Participant or the investor for which it is acting. The
Trust also reserves the right to offer an ``all cash'' option for
creations of Creation Units for the Fund.
In addition to the list of names and numbers of securities
constituting the current Deposit Securities of a Fund Deposit, the
Administrator, through the NSCC, also will make available on each
business day, the estimated Cash Component, effective through and
including the previous business day, per outstanding Creation Unit of
the Fund.
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 Administrator and only on a business day. The Trust
will not redeem Shares in amounts less than Creation Units. Beneficial
owners must accumulate enough Shares in the secondary market to
constitute a Creation Unit in order to have such Shares redeemed by the
Trust.
With respect to the Fund, the Administrator, through the NSCC, will
make available immediately prior to the opening of business on the
Exchange (currently 9:30 a.m., Eastern Time) on each business day, the
``Fund Securities'' that will be applicable (subject to possible
amendment or correction) to redemption requests received in proper form
on that day. Fund Securities received on redemption may not be
identical to Deposit Securities which are applicable to creations of
Creation Units.
For the Fund, unless cash redemptions are available or specified
for the Fund, the redemption proceeds for a Creation Unit generally
will consist of Fund Securities--as announced by the Administrator 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 receipt of a
request in proper form, and the value of the Fund Securities (the
``Cash Redemption Amount''), less a redemption transaction fee
described 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 is required to be
made by or through an Authorized Participant by the redeeming
shareholder.
If it is not possible to effect deliveries of the Fund Securities,
the Trust may in its discretion exercise its option to redeem such
Shares in cash, and the redeeming beneficial owner will be required to
receive its redemption proceeds in cash. In addition, an investor may
request a redemption in cash which the Fund may, in its sole
discretion, permit. In either case, the investor will receive a cash
payment equal to the NAV of its Shares based on the NAV of Shares of
the Fund next determined after the redemption request is received in
proper form (minus a redemption transaction fee and additional charge
for requested cash redemptions specified above, to offset the Trust's
brokerage and other transaction costs associated with the disposition
of Fund Securities). The Fund may also, in its sole discretion, upon
request of a shareholder, provide such redeemer a portfolio of
securities which differs from the exact composition of the Fund
Securities but does not differ in NAV.
The Trust also reserves the right to offer an ``all cash'' option
for redemptions of Creation Units for the Fund. The Adviser represents
that, to the extent the Trust effects the redemption of Shares in cash,
such transactions will be effected in the same manner for all
Authorized Participants.
Net Asset Value
The net asset value (``NAV'') per Share of 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 of the Fund outstanding, rounded to the nearest cent.
Expenses and fees, including

[[Page 70377]]

without limitation, the management, administration and distribution
fees, are accrued daily and taken into account for purposes of
determining NAV per Share.
In calculating NAV, the Fund will generally value its portfolio
investments at market prices. In computing the Fund's NAV, the Fund's
securities holdings will be valued based on their last readily
available market price. Price information on listed securities,
including ETFs, ETNs, exchange-traded pooled vehicles, ADRs, equity-
related financial instruments and other exchange-traded products, REITs
and mortgage-related securities, will be taken from the exchange where
the security is primarily traded. Other portfolio securities and assets
for which market quotations are not readily available or determined to
not represent the current fair value will be valued based on fair value
as determined in good faith in accordance with procedures adopted by
the Trust's Board of Trustees and in accordance with the 1940 Act.
The Fund will have an approved pricing matrix at the time of
launch. The matrix will be based on pre-determined rules for pricing
logic (such as mean) and valuation point (such as market close). Third
party pricing sources will be used. For assets such as options,
futures, swaps, in general, Bloomberg will be the primary source and
Reuters the secondary source.
Spot currency transactions and non-exchange-traded derivatives,
including forwards, swaps, and certain options will normally be valued
on the basis of quotes obtained from brokers and dealers or pricing
services using data reflecting the earlier closing of the principal
markets for those assets. Prices obtained from independent pricing
services use information provided by market makers or estimates of
market values obtained from yield data relating to investments or
securities with similar characteristics. Exchange-traded options will
be valued at market closing price.
Futures and options on futures will be valued at the settlement
price determined by the applicable exchange.
Unsponsored ADRs will be valued on the basis of the market closing
price on the exchange where the stock of the foreign issuer that
underlies the ADR is listed.
Domestic and foreign fixed income securities generally trade in the
over-the-counter market rather than on a securities exchange. The Fund
will generally value these portfolio securities by relying on
independent pricing services. The Fund's pricing services will use
valuation models or matrix pricing to determine current value. In
general, pricing services use information with respect to comparable
bond and note transactions, quotations from bond dealers or by
reference to other securities that are considered comparable in such
characteristics as rating, interest rate, maturity date, option
adjusted spread models, prepayment projections, interest rate spreads
and yield curves. Matrix price is an estimated price or value for a
fixed-income security. Matrix pricing is considered a form of fair
value pricing.
The Administrator will calculate NAV and NAV per Share once each
business day as of the regularly scheduled close of normal trading on
the New York Stock Exchange, LLC (the ``NYSE'') (normally, 4:00 p.m.,
Eastern Time).
Availability of Information
The Fund's Web site (www.advisorshares.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''),\32\ 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.\33\
---------------------------------------------------------------------------

\32\ 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.
\33\ 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 Fund's Web site will disclose for each
portfolio security and other financial instrument of the Fund the
following information: Ticker symbol (if applicable); name and, when
available, the individual identifier (CUSIP) of the security and/or
financial instrument; number of shares (if applicable) and dollar value
of securities 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.
In addition, a basket composition file, which includes the security
names and share quantities (as applicable) required to be delivered in
exchange for Fund Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the NYSE via the NSCC. The basket will represent one Creation Unit of
the Fund.
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 will be available free upon request from the Trust, and those
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or
downloaded from the Commission's Web site at www.sec.gov. 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 for the Shares will be published daily in the financial
section of newspapers. Quotation and last-sale information for the
Shares and U.S. exchange-listed equity securities, including ETFs,
ETNs, exchange-traded pooled vehicles, ADRs, equity-related financial
instruments and other exchange-traded products, REITs and mortgage-
related securities, will be available via the Consolidated Tape
Association (``CTA'') high-speed line, and will be available from the
national securities exchange on which they are listed. Information
regarding unsponsored ADRs will be available from major market data
vendors. Intra-day and closing price information relating to the fixed
income and equities investments of the Fund, as well as Fund
investments in spot currencies and derivatives, including futures,
forwards, options, options on futures and swaps, will be available from
major market data vendors and from securities and futures exchanges, as
applicable. Information relating to U.S. exchange-listed options will
be available via the Options Price Reporting Authority. In addition,
the Portfolio Indicative Value, as defined in NYSE Arca Equities Rule
8.600(c)(3), will be widely disseminated

[[Page 70378]]

at least every 15 seconds during the Core Trading Session by one or
more major market data vendors.\34\ The dissemination of the Portfolio
Indicative Value, together with the Disclosed Portfolio, will allow
investors to determine the value of the underlying portfolio of the
Fund on a daily basis and will provide a close estimate of that value
throughout the trading day.
---------------------------------------------------------------------------

\34\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values taken from CTA or other data feeds.
---------------------------------------------------------------------------

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.\35\ 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.
---------------------------------------------------------------------------

\35\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

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 a.m. to 8 p.m. Eastern Time 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.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca
Equities Rule 8.600(d)(2)(B)(ii), the Adviser, as the Reporting
Authority, will implement and maintain, or be subject to, procedures
designed to prevent the use and dissemination of material non-public
information regarding the actual components of the Fund's portfolio.
The Exchange represents that, for initial and/or continued listing, the
Fund will be in compliance with Rule 10A-3 under the Act,\36\ as
provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares
will be outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares
that the NAV per Share will be calculated daily and that the NAV and
the Disclosed Portfolio as defined in NYSE Arca Equities Rule
8.600(c)(2) will be made available to all market participants at the
same time.
---------------------------------------------------------------------------

\36\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance

The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\37\ 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.
---------------------------------------------------------------------------

\37\ 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, underlying exchange-traded equity
securities (including, without limitation, ETFs, ETNs, exchange-traded
pooled vehicles, ADRs, equity-related financial instruments and other
exchange-traded products, REITs, and mortgage-related securities),
futures, options on futures, and exchange-traded options with other
markets and other entities that are members of the ISG, and FINRA, on
behalf of the Exchange, may obtain trading information regarding
trading in the Shares, underlying exchange-traded equity securities,
futures, options on futures, and exchange-traded options from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, underlying exchange-traded
equity securities (including, without limitation, ETFs, ETNs, exchange-
traded pooled vehicles, ADRs, equity-related financial instruments and
other exchange-traded products, REITs, and mortgage-related
securities), futures, options on futures, and exchange-traded options
from markets and other entities that are members of ISG or with which
the Exchange has in place a comprehensive surveillance sharing
agreement.\38\ In addition, FINRA, on behalf of the Exchange, is able
to access, as needed, trade information for certain fixed income
securities held by the Fund reported to FINRA's Trade Reporting and
Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

\38\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

With respect to its investments in equity securities (including
Equity Financial Instruments), each Fund will invest at least 90% of
its assets invested in such securities that trade in markets that are
members of the ISG or are parties to a comprehensive surveillance
sharing agreement with the Exchange. 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

[[Page 70379]]

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
Portfolio Indicative Value will not be calculated or publicly
disseminated; (4) how information regarding the Portfolio Indicative
Value 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. Eastern Time each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \39\ 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.
---------------------------------------------------------------------------

\39\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. FINRA, on behalf of the Exchange,
will communicate as needed regarding trading in the Shares, underlying
exchange-traded equity securities (including, without limitation, ETFs,
ETNs, exchange-traded pooled vehicles, ADRs, equity-related financial
instruments and other exchange-traded products, REITs, and mortgage-
related securities), futures, options on futures, and exchange-traded
options with other markets and other entities that are members of the
ISG, and FINRA, on behalf of the Exchange, may obtain trading
information regarding trading in the Shares, underlying exchange-traded
equity securities, futures, options on futures, and exchange-traded
options from such markets and other entities. In addition, the Exchange
may obtain information regarding trading in the Shares, underlying
exchange-traded equity securities (including, without limitation, ETFs,
ETNs, exchange-traded pooled vehicles, ADRs, equity-related financial
instruments and other exchange-traded products, REITs, and mortgage-
related securities), futures, options on futures, and exchange-traded
options with other markets and other entities that are members of the
ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement. In addition, FINRA, on behalf of the
Exchange, is able to access, as needed, trade information for certain
fixed income securities held by the Fund reported to FINRA's TRACE.
With respect to its investments in equity securities (including Equity
Financial Instruments), each Fund will invest at least 90% of its
assets invested in such securities that trade in markets that are
members of the ISG or are parties to a comprehensive surveillance
sharing agreement with the Exchange. The Fund will utilize cleared
swaps if available, to the extent practicable, and not enter into any
swap agreement unless the Adviser believes that the other party to the
transaction is creditworthy. Swaps utilized by the Fund will be backed
by collateral of the Fund's assets, as required. Neither the Adviser
nor the Sub-Adviser is registered as a broker-dealer or is affiliated
with a broker-dealer. The Fund may invest up to 10% of the net assets
in privately issued (non-GSE mortgage-related securities, including
commercial mortgage-backed securities, CMOs, and ARMBSs). The Fund may
hold up to an aggregate amount of 15% of its net assets in illiquid
securities, including Rule 144A securities deemed illiquid by the
Adviser or Sub-Adviser, CMO residuals, and demand instruments with a
demand notice exceeding seven days. The Fund will not invest in
leveraged or inverse leveraged (e.g., 2X, -2X, 3X, or -3X) ETFs. The
Fund's investment portfolio will meet certain criteria for index-based,
fixed income ETFs contained in NYSEArca Equities Rule 5.2(j)(3),
Commentary .02, as described above. The Fund's investments will be
consistent with the Fund's investment objective and will not be used to
enhance leverage.
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. Quotation and last-sale
information for the Shares will be available via the CTA high-speed
line. In addition, the Portfolio Indicative Value will be widely
disseminated by the Exchange at least every 15 seconds during the Core
Trading Session. The Fund's Web site will include a form of the
prospectus for the Fund that may be downloaded, as well as additional
quantitative information updated on a daily basis. 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. On a daily basis, the Fund will
disclose for each portfolio security or other financial instrument of
the Fund the following information: ticker symbol, name and, when
available, the individual identifier (CUSIP) of the security and/or
financial instrument; number of shares or dollar value of securities
and financial instruments held in the portfolio; and percentage
weighting of the security and/or financial instrument in the portfolio.
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. 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 Portfolio Indicative
Value, 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

[[Page 70380]]

will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, 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. In
addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the Portfolio Indicative
Value, 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 purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded product that
primarily holds fixed income securities and 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 up to 90 days after
publication (i) as the Commission may designate if it finds such longer
period to be appropriate and publishes its reasons for so finding or
(ii) as to which the self-regulatory 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-2013-121 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-2013-121. 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 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-NYSEArca-2013-121 and should
be submitted on or before December 16, 2013.
---------------------------------------------------------------------------

\40\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28162 Filed 11-22-13; 8:45 am]
BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.