Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of Shares of Principal EDGE Active Income ETF Under NYSE Arca Equities Rule 8.600, 16477-16485 [2015-06991]

Download as PDF Federal Register / Vol. 80, No. 59 / Friday, March 27, 2015 / Notices Exchange notes that this functionality is already available on other exchanges. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because it will allow the Exchange’s Clearing Members to monitor and manage potential risks in a timely manner. Therefore, the Commission hereby waives the 30-day operative delay and designates the proposed rule change to be operative upon filing with the Commission.21 At any time within 60 days of the filing of the proposed rule change, the Commission may summarily temporarily suspend such rule change if it appears to the Commission that such action is: (1) Necessary or appropriate in the public interest; (2) for the protection of investors; or (3) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Comments may be submitted by any of the following methods: mstockstill on DSK4VPTVN1PROD with NOTICES 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– BATS–2015–22 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BATS–2015–22. 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 21 For purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Sep<11>2014 20:59 Mar 26, 2015 Jkt 235001 communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BATS– 2015–22 and should be submitted on or before April 17, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Brent J. Fields, Secretary. [FR Doc. 2015–06994 Filed 3–26–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74562; File No. SR– NYSEArca–2015–15] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of Shares of Principal EDGE Active Income ETF Under NYSE Arca Equities Rule 8.600 March 23, 2015. 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 March 12, 2015, 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. 22 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 00119 Fmt 4703 Sfmt 4703 16477 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade shares of the following under NYSE Arca Equities Rule 8.600 (‘‘Managed Fund Shares’’): Principal EDGE Active Income 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 the 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 on the Exchange: 5 Principal EDGE Active Income ETF (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 Commission has previously approved listing and trading on the Exchange of actively managed funds under Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73 FR 27878 (May 14, 2008) (SR– NYSEArca–2008–31) (order approving Exchange listing and trading of twelve actively-managed funds of the WisdomTree Trust); 66321 (February 3, 2012), 77 FR 6850 (February 9, 2012) (SR– NYSEArca–2011–95) (order approving listing and trading of PIMCO Total Return Exchange Traded Fund); 66670 (March 28, 2012), 77 FR 20087 (April 3, 2012) (SR–NYSEArca–2012–09) (order approving Continued E:\FR\FM\27MRN1.SGM 27MRN1 16478 Federal Register / Vol. 80, No. 59 / Friday, March 27, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES The Fund is a series of the Principal Exchange-Traded Funds (‘‘Trust’’), 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 manager for the Fund will be Principal Management Corporation (the ‘‘Adviser’’ or ‘‘PMC’’). Principal Global Investors, LLC and Edge Asset Management, LLC will each serve as a sub-adviser and portfolio manager. Principal Global Investors, LLC and Edge Asset Management, LLC are each referred to as a ‘‘Sub-Adviser’’ and collectively as the ‘‘Sub-Advisers’’. Commentary .06 to Rule 8.600 provides that, if the investment adviser to the investment company issuing Managed Fund Shares is affiliated with a brokerdealer, 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.7 In addition, Commentary .06 further requires that personnel who make decisions on the listing and trading of PIMCO Global Advantage Inflation-Linked Bond Strategy Fund). 6 The Trust is registered under the 1940 Act. On February 6, 2015, the Trust filed with the Commission a registration statement on Form N–1A under the Securities Act of 1933 (15 U.S.C. 77a) (‘‘Securities Act’’) and the 1940 Act relating to the Fund (File Nos. 333–201935 and 811–23029) (the ‘‘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 Adviser (as defined herein) under the 1940 Act. See Investment Company Act Release No. (30742) [sic] (File No. 812–14136) (‘‘Exemptive Order’’). The Fund will be offered in reliance upon the Exemptive Order issued to the Adviser. 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-Advisers 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 Sep<11>2014 20:59 Mar 26, 2015 Jkt 235001 open-end fund’s portfolio composition must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the open-end fund’s portfolio. The Adviser and Sub-Advisers are not registered as broker-dealers but are affiliated with three broker-dealers and have implemented and will maintain a fire wall with respect to each such broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolios. In the event (a) the Adviser or Sub-Advisers become registered broker-dealers or newly affiliated with one or more broker-dealers, 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 portfolios, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolios. Principal EDGE Active Income ETF Principal Investments According to the Registration Statement, the Fund will seek to provide current income. The Fund will invest in a manner designed to provide shareholders with regular cash flow from their investment in the Fund. With regard to each investment category, the Fund will carry out its investment strategy by investing in the securities listed in each investment category below and/or through the purchase of shares issued by U.S. exchange-traded funds (‘‘ETFs’’) 8 or other investment companies, including shares in unit investment trusts and open-end investment companies, that invest a majority of their assets in the securities listed in the Principal Investment categories below. The Fund under normal market circumstances 9 will 8 For purposes of this filing, ETFs consist of 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; Managed Fund Shares (as described in NYSE Arca Equities Rule 8.600); and closed-end funds. All ETFs will be listed and traded in the U.S. on a national securities exchange. While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged (e.g., 2X, ¥2X, 3X or ¥3X) ETFs. 9 With respect to the Fund, the term ‘‘under normal market circumstances’’ includes, but is not limited to, the absence of extreme volatility or trading halts in the equity and fixed income markets or the financial markets generally; events or circumstances causing a disruption in market liquidity or orderly markets; operational issues causing dissemination of inaccurate market PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 invest a majority of its net assets in the following financial instruments listed in (1) and (2), below: 1. Investment Grade and NonInvestment Grade U.S. and Non-U.S. Fixed Income Securities Under normal market circumstances, at least 20% but no more than 90% of the Fund’s net assets will be invested in investment grade and non-investment grade fixed income securities 10 which will consist of the following: U.S. Treasuries; agency securities; 11 assetbacked securities; 12 residential mortgage-backed securities; 13 commercial mortgage-backed securities; 14 zero-coupon securities; variable and floating rate instruments including inverse floaters; 15 covered securities; 16 sinking fund securities; 17 equipment trust certificates; 18 sovereign bonds; 19 convertible bonds; 20 pay-inkind securities; 21 step-coupon 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. 10 The Fund will limit its investments in noninvestment grade fixed income securities to 75% or less of the Fund’s net assets. 11 Agency securities are debt instruments issued by U.S. government-sponsored entities and other federally related entities such as the Federal National Mortgage Association (FNMA), Federal Home Loan Bank and the Federal Home Loan Bank (FHLB). 12 Asset-backed securities are debt instruments secured by a loan, lease or receivables against assets. 13 Residential mortgage-backed securities are debt instruments secured by a residential mortgage or a collection of mortgages. 14 Commercial mortgage-backed securities are debt instruments secured by a loan on a commercial property. 15 Inverse floaters are bonds or other types of debt instruments whose coupon rate has an inverse relationship to a benchmark rate. 16 Covered securities are secured debt instruments generally issued by credit institutions and backed by a pool of assets, usually mortgages or public sector loans. 17 Sinking fund securities are bonds or other types of debt instruments that are subject to periodic payments by the issuer to a trustee. The trustee uses the payments to retire part of the bond issuance by purchasing the bonds in the open market. 18 Equipment trust certificates are debt instruments secured by equipment or other physical assets, with the title of the equipment or other physical assets held in trust for the holders of the debt instruments. 19 Sovereign bonds are debt instruments issued by national governments. 20 Convertible bonds are debt instruments that can be converted into common stock of the issuing company. Convertible bonds may trade over-thecounter (‘‘OTC’’) or on an exchange. 21 Pay-in-kind securities are debt instruments that pay investors in the form of additional securities rather than cash. E:\FR\FM\27MRN1.SGM 27MRN1 Federal Register / Vol. 80, No. 59 / Friday, March 27, 2015 / Notices securities; 22 stripped securities; 23 inflation-indexed bonds; inflation protected debt securities; bank loans; municipal bonds; and corporate bonds issued by U.S., supranational and nonU.S. issuers (including issuers located in emerging markets) and denominated in U.S. dollars.24 ‘‘Investment grade’’ securities are rated BBB- or higher by S&P or Baa3 or higher by Moody’s Investors Service, Inc. (‘‘Moody’s’’) or, if unrated, of comparable quality in the opinion of the Sub-Advisers.25 ‘‘Noninvestment grade’’ securities are rated Ba1 or lower by Moody’s and BB+ or lower by Standard & Poor’s Rating Services (‘‘S&P’’). If the security has been rated by only one of those agencies, that rating will determine whether the security is below investment grade. If the security has not been rated by either of those agencies, the Sub-Advisers will determine whether the security is of a quality comparable to those rated below investment grade. 2. Equity Securities Including U.S. and Non-U.S. Issues mstockstill on DSK4VPTVN1PROD with NOTICES Under normal market circumstances, at least 20% but no more than 90% of the Fund’s net assets will be invested in a diversified portfolio of equity securities issued by companies located in the U.S. and/or foreign countries, including emerging markets, which trade on a U.S. or foreign exchange. The Fund may carry out its investment in foreign securities by purchasing American Depositary Receipts (‘‘ADRs’’), European Depositary Receipts (‘‘EDRs’’) and Global Depositary Receipts (‘‘GDRs’’, together with EDRs and ADRs, ‘‘Depositary 22 Step coupon securities are debt instruments that pay interest at predetermined rates which increase or decrease over time. 23 Stripped Securities are securities composed of the separate income of principal components of a debt security. For example, stripped mortgage securities are created when the interest and principal components of a mortgage security are separated and sold as individual securities. 24 Under normal market circumstances, the Fund will generally seek to invest in corporate bond issuances that have at least $100,000,000 par amount outstanding in developed countries and at least $200,000,000 par amount outstanding in emerging market countries. 25 In determining whether a security is of ‘‘comparable quality’’, the Sub-Advisers 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. VerDate Sep<11>2014 20:59 Mar 26, 2015 Jkt 235001 Receipts’’).26 The equity securities will be common stocks and preferred stocks as well as master limited partnerships (‘‘MLPs’’) and real estate investment trusts (‘‘REITs’’). The Fund may engage in short sales.27 Non-Principal Investments While the Fund, under normal market circumstances, will invest a majority of its assets in the securities and financial instruments described above, the Fund may invest in other securities and financial instruments, as described below. With regard to each nonprincipal investment category, the Fund may carry out its investment strategy by investing in the securities listed in each investment category below and/or through the purchase of shares issued by ETFs or other investment companies that invest a majority of their assets in the securities listed in the investment categories below. The Fund may invest in the following money market instruments: Commercial paper issued by U.S. and foreign corporations; bank obligations; certificates of deposit; time deposits and bankers’ acceptances of U.S. commercial banks and overseas branches of U.S. commercial banks and foreign banks; and short-term corporate debt, all of which have, at the time of purchase, 397 26 ADRs are receipts issued by an American bank or trust company evidencing ownership of underlying securities issued by a foreign issuer, and are designed for use in U.S. Securities markets. EDRs are receipts issued by European banks evidencing ownership of underlying securities traded outside of the bank’s home country. GDRs are receipts issued by foreign banks evidencing ownership of underlying securities traded outside of the bank’s home country. Depositary Receipts may be issued by sponsored or unsponsored programs. In sponsored programs, an issuer has made arrangements to have its securities traded in the form of Depositary Receipts. In unsponsored programs, the issuer may not be directly involved in the creation of the program. Although regulatory requirements with respect to sponsored and unsponsored programs are generally similar, in some cases it may be easier to obtain financial information from an issuer that has participated in the creation of a sponsored program. Accordingly, there may be less information available regarding issuers of securities of underlying unsponsored programs, and there may not be a correlation between the availability of such information and the market value of the Depositary Receipts. The Fund may invest in sponsored or unsponsored ADRs; however, not more than 10% of the net assets of the Fund will be invested in nonexchange-listed ADRs. Not more than 10% of the net assets of the Fund in the aggregate invested in exchange-traded equity securities shall consist of equity securities whose principal market is not a member of the Intermarket Surveillance Group (‘‘ISG’’) or party to a comprehensive surveillance sharing agreement (‘‘CSSA’’) with the Exchange. See note 47, infra. 27 The Fund may make short sales of securities: (i) To offset potential declines in long positions in similar securities, (ii) to increase the flexibility of the Fund; (iii) for investment return; and (iv) as part of a risk arbitrage strategy. PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 16479 days or less remaining to maturity issued by U.S. and foreign issuers. A portion of the Fund’s assets may be invested in cross currency positions of the currencies of developed and emerging markets through spot foreign exchange currency contracts, forward foreign exchange currency contracts, and foreign exchange currency options that trade on U.S. exchanges. The Fund may invest in the following derivative instruments: Futures contracts (consisting of futures contracts based on equity or fixed income securities and/or equity or fixed income indices, commodities, interest rates and currencies); swap agreements on any of the following asset classes: Equity, fixed income, currency and interest rates (such swaps may be based on the price return or total return of the referenced asset); credit default swaps (consisting of credit default swaps in which the referenced asset is a single fixed income security or a group of fixed income securities); options (consisting of long and short positions in call options and put options on indices based on equities, fixed income securities, interest rates, currencies or commodities, individual securities or currencies, swaptions and options on futures contracts); and forward contracts (consisting of forward contracts based on equity or fixed income securities and/or equity or fixed income indices, currencies, interest rates, swap forwards and non-deliverable forwards). Futures contracts and options on futures contracts in which the Fund may invest will be traded on U.S. exchanges regulated by the Commodity Futures Trading Commission (‘‘CFTC’’),28 all of which will be members of the ISG or exchanges with which the Exchange has in place a CSSA. All other options contracts will be listed on a U.S. national securities exchange or a non-U.S. securities exchange that is a member of ISG or a party to a CSSA with the Exchange. The Fund may use repurchase agreements, reverse repurchase 28 The Fund has claimed an exclusion from the definition of a ‘‘commodity pool operator’’ under the Commodity Exchange Act (‘‘CEA’’) (7 U.S.C. 1) and is not subject to registration or regulation as a commodity pool operator under the CEA. The CFTC recently amended Rule 4.5 (‘‘Exclusion for certain otherwise regulated persons from the definition of the term ‘‘commodity pool operator’’). Rule 4.5 provides that a mutual fund does not meet the definition of ‘‘commodity pool operator’’ if its use of futures contracts, options on futures contracts and swaps is sufficiently limited that the fund can fall within one of two exclusions set out in Rule 4.5. The Fund intends to limit its use of futures contracts, options on futures contracts and swaps to the degree necessary to fall within one of the two exclusions. If the Fund is unable to do so, it may incur expenses that are necessary to comply with the CEA and rules the CFTC has adopted under it. E:\FR\FM\27MRN1.SGM 27MRN1 16480 Federal Register / Vol. 80, No. 59 / Friday, March 27, 2015 / Notices agreements, and mortgage dollar rolls for temporary or emergency purposes or to earn additional income on portfolio securities, such as Treasury bills or notes. In a reverse repurchase agreement, the Fund sells a portfolio security to another party, such as a bank or broker-dealer, in return for cash and agrees to repurchase the instrument at a particular price and time. While a reverse repurchase agreement is outstanding, the Fund will maintain cash or appropriate liquid assets to cover its obligation under the agreement. The Fund will enter into reverse repurchase agreements only with parties that the Sub-Advisers deems creditworthy. The Fund may invest in restricted securities (Rule 144A securities), which are subject to legal restrictions on their sale. Restricted securities generally can be sold in privately negotiated transactions, pursuant to an exemption from registration under the Securities Act, or in a registered public offering. mstockstill on DSK4VPTVN1PROD with NOTICES Other Restrictions The Fund will limit its investment in non-government sponsored residential mortgage-backed securities, commercial mortgage-backed securities and assetbacked securities (including equipment trust certificates) as well as bank loans and illiquid restricted securities, in the aggregate, to 20% or less of the Fund’s net assets. The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), including Rule 144A securities deemed illiquid by the Adviser, consistent with Commission guidance. 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 assets. Illiquid assets 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 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, VerDate Sep<11>2014 20:59 Mar 26, 2015 Jkt 235001 The Fund will be classified as a ‘‘diversified’’ investment company under the 1940 Act.30 The Fund intends to qualify for and to elect treatment as a separate regulated investment company (‘‘RIC’’) under subchapter M of the Internal Revenue Code.31 Furthermore, the Fund may not concentrate investments in a particular industry or group of industries, as concentration is defined under the 1940 Act, the rules or regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to time.32 The Fund’s investments will be consistent with its investment objective and will not be used to enhance leverage. Net Asset Value According to the Registration Statement, the Fund’s net asset value per Share (‘‘NAV’’) will be the value of a single Share. The NAV of Shares of the Fund will be computed by adding the value of the Fund’s investments, cash, and other assets, subtracting its liabilities, and dividing the result by the number of Shares outstanding. According to the Registration Statement, the Fund’s Board of Trustees has delegated day-to-day valuation oversight responsibilities to PMC. PMC has established a Valuation Committee (‘‘Valuation Committee’’) to fulfill these oversight responsibilities. Generally, the Fund will value its portfolio securities and assets as follows: In computing the Fund’s NAV, the Fund’s fixed income securities (including defaulted debt,33 and 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). 30 The diversification standard is set forth in section 5(b)(1) of the 1940 Act. 31 26 U.S.C. 851 et seq. 32 The Commission has defined concentration as investing more than 25% of an investment company’s total assets in an industry or group of industries, with certain exceptions such as with respect to investments in obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities, or tax-exempt obligations of state or municipal governments and their political subdivisions. See, e.g., Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 54241 (November 21, 1975). 33 According to PMC, when a bond defaults and the issuer enters into bankruptcy, a market often continues to exist for the bond (normally at a steep discount to its face value). Buyers typically value PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 restricted securities) (collectively, ‘‘OTC-Traded Securities’’) will be valued based on price quotations obtained from a third-party pricing service or from a broker-dealer who makes markets in such securities. Any such third-party pricing service may use a variety of methodologies to value some or all such securities to determine the market price. For example, the prices of securities with characteristics similar to those held by the Fund may be used to assist with the pricing process. In addition, the pricing service may use proprietary pricing models. The Fund’s OTC-Traded Securities will generally be valued at bid prices. Debt securities with remaining maturities of sixty days or less for which market quotations and information furnished by a third party pricing service are not readily available will be valued at amortized cost, which approximates current value. Exchange traded equity securities, including ETFs, certain Depositary Receipts, exchange-traded REITs, exchange-traded preferred stock, and exchange-traded convertible bonds, will be valued at market value, which will generally be determined using the last reported official closing or last trading price on the exchange or market on which the security is primarily traded at the time of valuation or, if no sale has occurred, at the last quoted bid price on the primary market or exchange on which they are traded. Unsponsored ADRs will be valued at the last reported sale price from the OTC Bulletin Board or OTC Link LLC on the valuation date. Investment company securities (other than ETFs) will be valued at NAV. Exchange-traded futures contracts will be valued at the settlement or closing price determined by the applicable exchange. Exchange-traded option contracts, including options on futures, will be valued at their most recent sale price. If no such sales are reported, these contracts will be valued at their most recent bid price. Except as discussed below, nonexchange-traded derivatives, including swaps and swaptions, will normally be valued on the basis of quotes obtained from a third party broker-dealer who makes markets in such securities or on the basis of quotes obtained from an independent third-party pricing service. The Fund’s OTC-traded derivative instruments will generally be valued at bid prices. Certain OTC-traded the defaulted bond based on expected restructuring outcomes or liquidation distributions. Market quotations provided by broker-dealers or pricing services reflect these market indicators. E:\FR\FM\27MRN1.SGM 27MRN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 80, No. 59 / Friday, March 27, 2015 / Notices derivative instruments, such as interest rate swaps and credit default swaps, will be valued at the mean price. Prices described above will be obtained from pricing services that have been approved by the Fund’s Board of Trustees. A number of independent third party pricing services are available and the Fund may use more than one of these services. The Fund may also discontinue the use of any pricing service at any time. PMC will engage in oversight activities with respect to the Fund’s pricing services, which includes, among other things, testing the prices provided by pricing services prior to calculation of the Fund’s NAV, conducting periodic due diligence meetings, and periodically reviewing the methodologies and inputs used by these services. Foreign securities and instruments will be valued in their local currency following the methodologies described above. Typically, foreign securities, instruments and currencies will be translated to U.S. dollars, based on foreign currency exchange rate quotations supplied by a pricing service as of the close of the New York Stock Exchange (‘‘NYSE’’), which will use a proprietary model to determine the exchange rate. Forward foreign currency exchange contracts will be valued at an interpolated rate based on days to maturity between the closest preceding and subsequent settlement period. Such interpolated rates are derived from foreign currency exchange rate quotations reported by an independent third-party pricing service. Other portfolio securities and assets for which market quotations, official closing prices, or information furnished by a pricing service are not readily available or, in the opinion of the Valuation Committee, are deemed unreliable will be fair valued in good faith by the Valuation Committee in accordance with applicable fair value pricing policies. For example, if, in the opinion of the Valuation Committee, a security’s value has been materially affected by events occurring before the Fund’s pricing time but after the close of the exchange or market on which the security is principally traded, that security will be fair valued in good faith by the Valuation Committee in accordance with applicable fair value pricing policies. In fair valuing a security, the Valuation Committee may consider factors including price movements in futures contracts and ADRs, market and trading trends, the bid/ask quotes of brokers, and off-exchange institutional trading. VerDate Sep<11>2014 20:59 Mar 26, 2015 Jkt 235001 Creation and Redemption of Shares According to the Registration Statement, the Fund will issue and redeem Shares on a continuous basis at NAV per Share in aggregations of a specified number of Shares called ‘‘Creation Units.’’ Creation Units generally will be issued in exchange for portfolio securities and/or cash. Shares are not individually redeemable, but are redeemable only in Creation Unit aggregations, and in exchange for portfolio securities and/or cash. A Creation Unit of the Fund will consist of a block of 50,000 Shares. The size of a Creation Unit is subject to change. Shareholders who are not ‘‘Authorized Participants’’ (as defined below) will not be able to purchase or redeem Shares directly with or from the Fund. All orders to purchase Creation Units must be placed with a Distributor by or through a party (the ‘‘Authorized Participant’’) that has entered into a participant agreement with the Distributor (‘‘Participant Agreement’’) with respect to the creation and redemption of Creation Units. An Authorized Participant is either: (a) A broker or dealer registered under the Act or other participant in the Continuous Net Settlement System of the National Securities Clearing Corporation (‘‘NSCC’’), a clearing agency registered with the Commission and affiliated with the Depository Trust Company (‘‘DTC’’); or (b) a participant in the DTC (such participant, a ‘‘DTC Participant’’). Shares of the Fund will be purchased and redeemed in Creation Units and generally on an ‘‘in- kind’’ basis. Except where the purchase or redemption will include cash under the limited circumstances specified below, purchasers will be required to purchase Creation Units by making an in-kind deposit of specified instruments (‘‘Deposit Instruments’’), and shareholders redeeming their Shares will receive an in-kind transfer of specified instruments (‘‘Redemption Instruments’’). On any given business day, the names and quantities of the instruments that constitute the Deposit Instruments and the names and quantities of the instruments that constitute the Redemption Instruments will be identical, and these instruments may be referred to, in the case of either a purchase or a redemption, as the ‘‘Creation Basket’’. In addition, the Creation Basket will correspond pro rata to the positions in the Fund’s portfolio (including cash positions),34 except: (a) In the case of bonds, for minor 34 The portfolio used for this purpose will be the same portfolio used to calculate the Fund’s NAV for that business day. PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 16481 differences when it is impossible to break up bonds beyond certain minimum sizes needed for transfer and settlement; (b) for minor differences when rounding is necessary to eliminate fractional shares or lots that are not tradeable round lots; 35 or (c) To-BeAnnounced (‘‘TBA’’) transactions,36 short positions and other positions that cannot be transferred in kind 37 will be excluded from the Creation Basket.38 If there is a difference between the NAV attributable to a Creation Unit and the aggregate market value of the Creation Basket exchanged for the Creation Unit, the party conveying instruments with the lower value will pay to the other an amount in cash equal to that difference (the ‘‘Balancing Amount’’). Purchases and redemptions of Creation Units may be made in whole or in part on a cash basis, rather than in kind, solely under specified circumstances.39 The Adviser represents that, to the extent the Trust effects the creation and redemption of Shares in cash, such transactions will be effected in the same manner for all Authorized Participants. An investor purchasing or redeeming a Creation Unit from the Fund may be charged a Transaction Fee to protect existing shareholders of the Fund from the dilutive costs associated with the purchase and redemption of Creation Units.40 35 A tradeable round lot for a security will be the standard unit of trading in that particular type of security in its primary market. 36 A TBA Transaction is a method of trading mortgage-backed securities. In a TBA Transaction, the buyer and seller agree upon general trade parameters such as agency, settlement date, par amount and price. The actual pools delivered generally are determined two days prior to the settlement date. 37 This includes instruments that can be transferred in kind only with the consent of the counterparty to the extent the Fund does not intend to seek such consents. 38 Because these instruments will be excluded from the Creation Basket, their value will be reflected in the determination of the Balancing Amount (defined below). 39 In determining whether the Fund will sell or redeem Creation Units entirely on a cash or in-kind basis (whether for a given day or a given order), the key consideration will be the benefit that would accrue to the Fund and its investors. Purchases of Creation Units either on an all cash basis or in-kind are expected to be neutral to the Fund from a tax perspective. In contrast, cash redemptions typically require selling portfolio positions, which may result in adverse tax consequences for the remaining Fund shareholders that would not occur with an in-kind redemption. As a result, tax considerations may warrant in-kind redemptions. 40 Where the Fund permits an in-kind purchaser or redeemer to deposit or receive cash in lieu of one or more Deposit or Redemption Instruments, the purchaser or redeemer may be assessed a higher Transaction Fee to offset the transaction cost to the Fund of buying or selling those particular Deposit or Redemption Instruments. E:\FR\FM\27MRN1.SGM 27MRN1 16482 Federal Register / Vol. 80, No. 59 / Friday, March 27, 2015 / Notices The Fund will make available, prior to the opening of trading on the NYSE (currently 9:30 a.m. Eastern Time), through the NSCC the names and quantities of the instruments comprising the Creation Basket, as well as the estimated Balancing Amount (if any), for that day. The published Creation Basket will apply with respect to purchases or redemptions until a new Creation Basket is announced on the following business day, and there will be no intra-day changes to the Creation Basket, except to correct errors in the published Creation Basket. mstockstill on DSK4VPTVN1PROD with NOTICES Availability of Information The Funds’ [sic] Web site (www.principalfunds.com), which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for the Fund that may be downloaded. The Fund’s Web site will include additional quantitative information updated on a daily basis, including, for the Fund, (1) daily trading volume, the prior business day’s reported closing price, NAV and midpoint of the bid/ask spread at the time of calculation of such NAV (the ‘‘Bid/ Ask Price’’),41 and a calculation of the premium and discount of the Bid/Ask Price against the NAV, and (2) data in chart format displaying the frequency distribution of discounts and premiums of the daily Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters. On each business day, before commencement of trading in Shares in the Core Trading Session on the Exchange, the Adviser will disclose on the Fund’s Web site the Disclosed Portfolio for the Fund as defined in NYSE Arca Equities Rule 8.600(c)(2) that will form the basis for the Fund’s calculation of NAV at the end of the business day.42 The Fund’s portfolio holdings will be disclosed on its Web site daily after the close of trading on the Exchange and prior to the opening of trading on the Exchange the following day. The Fund’s disclosure of derivative positions in the Disclosed Portfolio will include information that market 41 The Bid/Ask Price of the Fund’s Shares 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 each Fund and its service providers. 42 Under accounting procedures to be followed by the Fund, trades made on the prior business day (‘‘T’’) will be booked and reflected in NAV on the current business day (‘‘T+1’’). 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. VerDate Sep<11>2014 20:59 Mar 26, 2015 Jkt 235001 participants can use to value these positions intraday. On a daily basis, the Fund will disclose on the Fund’s Web site the following information regarding each portfolio holding, as applicable to the type of holding: Ticker symbol, CUSIP number or other identifier, if any; a description of the holding (including the type of holding, such as the type of swap); the identity of the security, commodity, index or other asset or instrument underlying the holding, if any; for options, the option strike price; quantity held (as measured by, for example, par value, notional value or number of shares, contracts or units); maturity date, if any; coupon rate, if any; effective date, if any; market value of the holding; and the percentage weighting of the holding in the Fund’s portfolio. The Web site information will be publicly available at no charge. Investors can also obtain the Trust’s Statement of Additional Information (‘‘SAI’’), the Fund’s Shareholder Reports, and its Form N–CSR and Form N–SAR, filed twice a year. The Trust’s SAI and Shareholder Reports are available free upon request from the Trust, and those documents and the Form N–CSR and Form N–SAR may be viewed on-screen or downloaded from the Commission’s Web site at www.sec.gov. Quotation and last sale information for the portfolio holdings of the Fund that are U.S. exchange listed, including ETFs and U.S. exchange-traded ADRs and exchange-traded REITs, exchangetraded preferred stock, and exchangetraded convertible securities, and exchange-traded MLPs will be available via the Consolidated Tape Association (‘‘CTA’’) high speed line. Quotation and last sale information for such U.S. exchange-listed securities, as well as futures will be available from the exchange on which they are listed. Quotation and last sale information for exchange-listed options cleared via the Options Clearing Corporation will be available via the Options Price Reporting Authority. Quotation information for OTCTraded Securities, OTC-traded derivative instruments (including swaps, swaptions, forwards and currency-related derivatives), investment company securities (excluding ETFs), Rule 144A securities, U.S. Treasuries, agency securities, assetbacked securities, residential mortgagebacked securities, commercial mortgagebacked securities, zero-coupon securities, variable and floating rate instruments including inverse floaters, covered securities, sinking fund securities, equipment trust certificates, sovereign bonds, convertible bonds, PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 pay-in-kind securities, step-coupon securities, stripped securities, inflationindexed bonds, inflation protected debt securities, bank loans, municipal bonds, corporate bonds, and money market instruments may be obtained from brokers and dealers who make markets in such securities or through nationally recognized pricing services through subscription agreements. The U.S. dollar value of foreign securities, instruments and currencies can be derived by using foreign currency exchange rate quotations obtained from nationally recognized pricing services. In addition, the Portfolio Indicative Value (‘‘PIV’’), as defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session.43 The dissemination of the PIV, together with the Disclosed Portfolio, will allow investors to determine the approximate 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. Trading Halts With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund.44 Trading in Shares of the Fund will be halted if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been reached. Trading also may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares of the Fund inadvisable. These may include: (1) The extent to which trading is not occurring in the securities and/or the financial instruments comprising the Disclosed Portfolio of the Fund; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. Trading in the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances under which Shares of the Fund may be halted. Trading Rules The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. Shares will trade on the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. Eastern Time in 43 Currently, it is the Exchange’s understanding that several major market data vendors display and/ or make widely available PIVs taken from the CTA or other data feeds. 44 See NYSE Arca Equities Rule 7.12. E:\FR\FM\27MRN1.SGM 27MRN1 Federal Register / Vol. 80, No. 59 / Friday, March 27, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES 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 of the Fund will conform to the initial and continued listing criteria under NYSE Arca Equities Rule 8.600. The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 45 under the Act, as provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares of the Fund that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time. Surveillance The Exchange represents that trading in the Shares of the Fund 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.46 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 federal securities laws applicable to trading on the Exchange. 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, ETFs, other exchange-traded equity securities 45 17 CFR 240 10A–3. 46 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. VerDate Sep<11>2014 20:59 Mar 26, 2015 Jkt 235001 (including exchange-listed Depositary Receipts), options, futures, and options on futures 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 such financial instruments, as applicable, from such markets and other entities. In addition, the Exchange may obtain information regarding trading in such financial instruments, as applicable, from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.47 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’’). Not more than 10% of the net assets of the Fund in the aggregate invested in exchange-traded equity securities shall consist of equity securities whose principal market is not a member of the ISG or party to a CSSA 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 of the Fund. Specifically, the Bulletin will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (3) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated PIV will not be calculated or publicly disseminated; (4) how information regarding the PIV and the Disclosed Portfolio 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. 47 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. PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 16483 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 of the Fund 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) 48 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 Adviser and SubAdvisers are not registered as brokerdealers but are affiliated with three broker-dealers and have implemented and will maintain a fire wall with respect to each such broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolios. The Exchange has in place surveillance procedures that are adequate to properly monitor trading in the Shares of the Fund in all trading sessions and to deter and detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares, ETFs, other exchange-traded equity securities (including exchange-listed Depositary Receipts), options, futures, and options on futures 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 such financial instruments, as applicable, from such markets and other entities. In addition, the Exchange may obtain information regarding trading in such financial instruments, as applicable, from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. FINRA, on behalf of the Exchange, is able to access, as needed, 48 15 E:\FR\FM\27MRN1.SGM U.S.C. 78f(b)(5). 27MRN1 mstockstill on DSK4VPTVN1PROD with NOTICES 16484 Federal Register / Vol. 80, No. 59 / Friday, March 27, 2015 / Notices trade information for certain fixed income securities held by the Fund reported to FINRA’s TRACE. Not more than 10% of the net assets of the Fund in the aggregate invested in exchangetraded equity securities shall consist of equity securities whose principal market is not a member of the ISG or party to a CSSA with the Exchange. While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs. The Fund’s investments will be consistent with its investment objective and will not be used to enhance leverage. The Fund will limit its investment in non-government sponsored residential mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities, in the aggregate, to 20% or less of the Fund’s net assets. The PIV, as defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session. The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), including Rule 144A securities deemed illiquid by the Adviser, consistent with Commission guidance. The Shares of the Fund will conform to the initial and continued listing criteria under NYSE Arca Equities Rule 8.600. The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 under the Act, as provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares of the Fund 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 respective Shares, thereby promoting market transparency. The Fund’s portfolio holdings will be disclosed on its Web site daily after the close of trading on the Exchange and prior to the opening of trading on the Exchange the following day. On a daily basis, the Fund will disclose on its Web site the following information regarding each portfolio holding, as applicable to the type of holding: Ticker symbol, CUSIP number or other identifier, if any; a description of the holding (including the type of holding); the identity of the security, commodity, VerDate Sep<11>2014 20:59 Mar 26, 2015 Jkt 235001 index or other asset or instrument underlying the holding, if any; quantity held (as measured by, for example, par value, notional value or number of shares, contracts or units); maturity date, if any; coupon rate, if any; effective date, if any; market value of the holding; and the percentage weighting of the holding in the Fund’s portfolio. The Web site information will be publicly available at no charge. Investors can also obtain the Trust’s Statement of Additional Information (‘‘SAI’’), the Fund’s Shareholder Reports, and its Form N–CSR and Form N–SAR, filed twice a year. The Trust’s SAI and Shareholder Reports are available free upon request from the Trust, and those documents and the Form N–CSR and Form N–SAR may be viewed on-screen or downloaded from the Commission’s Web site at www.sec.gov. Quotation and last sale information for the portfolio holdings of the Fund that are U.S. exchange listed, including ETFs and U.S. exchangetraded ADRs and exchange-traded REITs, exchange-traded preferred stock, exchange-traded convertible securities, and exchange-traded MLPs will be available via the CTA high speed line. Quotation and last sale information for such U.S. exchange-listed securities, as well as futures will be available from the exchange on which they are listed. Quotation and last sale information for exchange-listed options cleared via the Options Clearing Corporation will be available via the Options Price Reporting Authority. The Web site for the Fund will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information. Moreover, prior to the commencement of trading, the Exchange will inform its ETP Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares of the Funds [sic]. Trading in Shares of the Fund will be halted if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been reached or because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable, and trading in the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances under which Shares of the Fund may be halted. In addition, as noted above, investors will have ready access to information regarding the Fund’s holdings, the PIV, the Disclosed Portfolio, and quotation and last sale information for the Shares. The Fund’s investments will be consistent with the Fund’s investment objective PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 and will not be used to enhance leverage. The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of an additional type of activelymanaged exchange-traded product that will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, the Exchange has in place surveillance procedures relating to trading in the Shares of the Fund and may obtain information via ISG from other exchanges that are members of ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement. In addition, as noted above, investors will have ready access to information regarding each Fund’s holdings, the PIV, the Disclosed Portfolio for the Fund, and quotation and last sale information for the Shares of the Fund. 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 holds fixed income and equity 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 (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. E:\FR\FM\27MRN1.SGM 27MRN1 Federal Register / Vol. 80, No. 59 / Friday, March 27, 2015 / 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: 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–2015–15 on the subject line. Paper Comments mstockstill on DSK4VPTVN1PROD with NOTICES • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2015–15. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2015–15 and should be submitted on or before April 17, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.49 Brent J. Fields, Secretary. [FR Doc. 2015–06991 Filed 3–26–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74561; File No. SR–MSRB– 2015–01] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Consisting of Amendments to MSRB Rule A–16, on Examination Fees March 23, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 17, 2015, the Municipal Securities Rulemaking Board (the ‘‘MSRB’’ or ‘‘Board’’) filed with the Securities and Exchange Commission (the ‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the MSRB. 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 MSRB filed with the Commission a proposed rule change consisting of amendments to MSRB Rule A–16, on examination fees (‘‘proposed rule change’’). The MSRB designated the proposed rule change as ‘‘establishing or changing a due, fee or other charge’’ under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b–4(f)(2) 4 thereunder, which renders the proposal effective upon filing with the Commission. The implementation date of the proposed rule change is April 1, 2015. The text of the proposed rule change is available on the MSRB’s Web site at https://www.msrb.org/Rules-andInterpretations/SEC-Filings/2015Filings.aspx, at the MSRB’s principal office, and at the Commission’s Public Reference Room. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 2 17 49 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 20:59 Mar 26, 2015 Jkt 235001 PO 00000 Frm 00127 Fmt 4703 Sfmt 4703 16485 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 MSRB included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The MSRB has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to establish a test development fee for the MSRB’s new municipal advisor representative qualification examination (‘‘Series 50 examination’’) and to better align the MSRB’s existing test development fees (which have not been adjusted since 2009) with the costs of developing, implementing and maintaining the tests (hereinafter, the ‘‘program costs’’). Under the proposed rule change, the MSRB will institute a test development fee of $150 for the Series 50 examination and change the test development fee for each of the three existing MSRB-owned examinations from $60 to $150. The development fee of $150 will, on April 1, 2015, be assessed on brokers, dealers and municipal securities dealers (‘‘dealers’’) and municipal advisors based on the number of their associated persons that take an MSRB-owned professional qualification examination. Any person associated with a dealer who is engaged in or supervises municipal securities activities and any person associated with a municipal advisor who is engaged in or supervises municipal advisory activities must be qualified in accordance with MSRB Rule G–3.5 As a prerequisite to qualification, each individual must pass the applicable examination to demonstrate a basic competence in the subject matter related to the professional qualification classification. The 5 The SEC recently approved MSRB rule amendments, effective April 27, 2015, that establish professional qualification standards for municipal advisors. The amendments to MSRB Rule G–3 establish two professional qualification classifications for municipal advisors—municipal advisor representative and municipal advisor principal. See Exchange Act Release No. 74384 (Feb. 26, 2015), 80 FR 11706 (Mar. 4, 2015), File No. SR–MSRB–2014–08 (Nov. 18, 2014). E:\FR\FM\27MRN1.SGM 27MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 80, Number 59 (Friday, March 27, 2015)]
[Notices]
[Pages 16477-16485]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-06991]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74562; File No. SR-NYSEArca-2015-15]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading of Shares of
Principal EDGE Active Income ETF Under NYSE Arca Equities Rule 8.600

March 23, 2015.
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 March 12, 2015, 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 shares of the following
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''):
Principal EDGE Active Income 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 the
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\ on the Exchange: \5\
Principal EDGE Active Income ETF (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 Commission has previously approved listing and trading
on the Exchange of actively managed funds under Rule 8.600. See,
e.g., Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73
FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving
Exchange listing and trading of twelve actively-managed funds of the
WisdomTree Trust); 66321 (February 3, 2012), 77 FR 6850 (February 9,
2012) (SR-NYSEArca-2011-95) (order approving listing and trading of
PIMCO Total Return Exchange Traded Fund); 66670 (March 28, 2012), 77
FR 20087 (April 3, 2012) (SR-NYSEArca-2012-09) (order approving
listing and trading of PIMCO Global Advantage Inflation-Linked Bond
Strategy Fund).

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

[[Page 16478]]

The Fund is a series of the Principal Exchange-Traded Funds
(``Trust''), 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 manager for the Fund will be
Principal Management Corporation (the ``Adviser'' or ``PMC'').
Principal Global Investors, LLC and Edge Asset Management, LLC will
each serve as a sub-adviser and portfolio manager. Principal Global
Investors, LLC and Edge Asset Management, LLC are each referred to as a
``Sub-Adviser'' and collectively as the ``Sub-Advisers''. 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.\7\ In addition, Commentary .06 further
requires that personnel who make decisions on the open-end fund's
portfolio composition must be subject to procedures designed to prevent
the use and dissemination of material nonpublic information regarding
the open-end fund's portfolio. The Adviser and Sub-Advisers are not
registered as broker-dealers but are affiliated with three broker-
dealers and have implemented and will maintain a fire wall with respect
to each such broker-dealer affiliate regarding access to information
concerning the composition and/or changes to the portfolios. In the
event (a) the Adviser or Sub-Advisers become registered broker-dealers
or newly affiliated with one or more broker-dealers, 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 portfolios, and will be subject to procedures designed
to prevent the use and dissemination of material non-public information
regarding such portfolios.
---------------------------------------------------------------------------

\6\ The Trust is registered under the 1940 Act. On February 6,
2015, the Trust filed with the Commission a registration statement
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a)
(``Securities Act'') and the 1940 Act relating to the Fund (File
Nos. 333-201935 and 811-23029) (the ``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 Adviser (as defined herein) under the 1940 Act. See Investment
Company Act Release No. (30742) [sic] (File No. 812-14136)
(``Exemptive Order''). The Fund will be offered in reliance upon the
Exemptive Order issued to the Adviser.
\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-Advisers 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 EDGE Active Income ETF
Principal Investments
According to the Registration Statement, the Fund will seek to
provide current income.
The Fund will invest in a manner designed to provide shareholders
with regular cash flow from their investment in the Fund. With regard
to each investment category, the Fund will carry out its investment
strategy by investing in the securities listed in each investment
category below and/or through the purchase of shares issued by U.S.
exchange-traded funds (``ETFs'') \8\ or other investment companies,
including shares in unit investment trusts and open-end investment
companies, that invest a majority of their assets in the securities
listed in the Principal Investment categories below. The Fund under
normal market circumstances \9\ will invest a majority of its net
assets in the following financial instruments listed in (1) and (2),
below:
---------------------------------------------------------------------------

\8\ For purposes of this filing, ETFs consist of 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; Managed Fund Shares (as described in NYSE Arca Equities
Rule 8.600); and closed-end funds. All ETFs will be listed and
traded in the U.S. on a national securities exchange. While the Fund
may invest in inverse ETFs, the Fund will not invest in leveraged
(e.g., 2X, -2X, 3X or -3X) ETFs.
\9\ With respect to the Fund, the term ``under normal market
circumstances'' includes, but is not limited to, the absence of
extreme volatility or trading halts in the equity and fixed income
markets or the financial markets generally; events or circumstances
causing a disruption in market liquidity or orderly markets;
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.
---------------------------------------------------------------------------

1. Investment Grade and Non-Investment Grade U.S. and Non-U.S. Fixed
Income Securities
Under normal market circumstances, at least 20% but no more than
90% of the Fund's net assets will be invested in investment grade and
non-investment grade fixed income securities \10\ which will consist of
the following: U.S. Treasuries; agency securities; \11\ asset-backed
securities; \12\ residential mortgage-backed securities; \13\
commercial mortgage-backed securities; \14\ zero-coupon securities;
variable and floating rate instruments including inverse floaters; \15\
covered securities; \16\ sinking fund securities; \17\ equipment trust
certificates; \18\ sovereign bonds; \19\ convertible bonds; \20\ pay-
in-kind securities; \21\ step-coupon

[[Page 16479]]

securities; \22\ stripped securities; \23\ inflation-indexed bonds;
inflation protected debt securities; bank loans; municipal bonds; and
corporate bonds issued by U.S., supranational and non-U.S. issuers
(including issuers located in emerging markets) and denominated in U.S.
dollars.\24\ ``Investment grade'' securities are rated BBB- or higher
by S&P or Baa3 or higher by Moody's Investors Service, Inc.
(``Moody's'') or, if unrated, of comparable quality in the opinion of
the Sub-Advisers.\25\ ``Non-investment grade'' securities are rated Ba1
or lower by Moody's and BB+ or lower by Standard & Poor's Rating
Services (``S&P''). If the security has been rated by only one of those
agencies, that rating will determine whether the security is below
investment grade. If the security has not been rated by either of those
agencies, the Sub-Advisers will determine whether the security is of a
quality comparable to those rated below investment grade.
---------------------------------------------------------------------------

\10\ The Fund will limit its investments in non-investment grade
fixed income securities to 75% or less of the Fund's net assets.
\11\ Agency securities are debt instruments issued by U.S.
government-sponsored entities and other federally related entities
such as the Federal National Mortgage Association (FNMA), Federal
Home Loan Bank and the Federal Home Loan Bank (FHLB).
\12\ Asset-backed securities are debt instruments secured by a
loan, lease or receivables against assets.
\13\ Residential mortgage-backed securities are debt instruments
secured by a residential mortgage or a collection of mortgages.
\14\ Commercial mortgage-backed securities are debt instruments
secured by a loan on a commercial property.
\15\ Inverse floaters are bonds or other types of debt
instruments whose coupon rate has an inverse relationship to a
benchmark rate.
\16\ Covered securities are secured debt instruments generally
issued by credit institutions and backed by a pool of assets,
usually mortgages or public sector loans.
\17\ Sinking fund securities are bonds or other types of debt
instruments that are subject to periodic payments by the issuer to a
trustee. The trustee uses the payments to retire part of the bond
issuance by purchasing the bonds in the open market.
\18\ Equipment trust certificates are debt instruments secured
by equipment or other physical assets, with the title of the
equipment or other physical assets held in trust for the holders of
the debt instruments.
\19\ Sovereign bonds are debt instruments issued by national
governments.
\20\ Convertible bonds are debt instruments that can be
converted into common stock of the issuing company. Convertible
bonds may trade over-the-counter (``OTC'') or on an exchange.
\21\ Pay-in-kind securities are debt instruments that pay
investors in the form of additional securities rather than cash.
\22\ Step coupon securities are debt instruments that pay
interest at predetermined rates which increase or decrease over
time.
\23\ Stripped Securities are securities composed of the separate
income of principal components of a debt security. For example,
stripped mortgage securities are created when the interest and
principal components of a mortgage security are separated and sold
as individual securities.
\24\ Under normal market circumstances, the Fund will generally
seek to invest in corporate bond issuances that have at least
$100,000,000 par amount outstanding in developed countries and at
least $200,000,000 par amount outstanding in emerging market
countries.
\25\ In determining whether a security is of ``comparable
quality'', the Sub-Advisers 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.
---------------------------------------------------------------------------

2. Equity Securities Including U.S. and Non-U.S. Issues
Under normal market circumstances, at least 20% but no more than
90% of the Fund's net assets will be invested in a diversified
portfolio of equity securities issued by companies located in the U.S.
and/or foreign countries, including emerging markets, which trade on a
U.S. or foreign exchange. The Fund may carry out its investment in
foreign securities by purchasing American Depositary Receipts
(``ADRs''), European Depositary Receipts (``EDRs'') and Global
Depositary Receipts (``GDRs'', together with EDRs and ADRs,
``Depositary Receipts'').\26\ The equity securities will be common
stocks and preferred stocks as well as master limited partnerships
(``MLPs'') and real estate investment trusts (``REITs'').
---------------------------------------------------------------------------

\26\ ADRs are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a
foreign issuer, and are designed for use in U.S. Securities markets.
EDRs are receipts issued by European banks evidencing ownership of
underlying securities traded outside of the bank's home country.
GDRs are receipts issued by foreign banks evidencing ownership of
underlying securities traded outside of the bank's home country.
Depositary Receipts may be issued by sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to
have its securities traded in the form of Depositary Receipts. In
unsponsored programs, the issuer may not be directly involved in the
creation of the program. Although regulatory requirements with
respect to sponsored and unsponsored programs are generally similar,
in some cases it may be easier to obtain financial information from
an issuer that has participated in the creation of a sponsored
program. Accordingly, there may be less information available
regarding issuers of securities of underlying unsponsored programs,
and there may not be a correlation between the availability of such
information and the market value of the Depositary Receipts. The
Fund may invest in sponsored or unsponsored ADRs; however, not more
than 10% of the net assets of the Fund will be invested in non-
exchange-listed ADRs. Not more than 10% of the net assets of the
Fund in the aggregate invested in exchange-traded equity securities
shall consist of equity securities whose principal market is not a
member of the Intermarket Surveillance Group (``ISG'') or party to a
comprehensive surveillance sharing agreement (``CSSA'') with the
Exchange. See note 47, infra.
---------------------------------------------------------------------------

The Fund may engage in short sales.\27\
---------------------------------------------------------------------------

\27\ The Fund may make short sales of securities: (i) To offset
potential declines in long positions in similar securities, (ii) to
increase the flexibility of the Fund; (iii) for investment return;
and (iv) as part of a risk arbitrage strategy.
---------------------------------------------------------------------------

Non-Principal Investments
While the Fund, under normal market circumstances, will invest a
majority of its assets in the securities and financial instruments
described above, the Fund may invest in other securities and financial
instruments, as described below. With regard to each non-principal
investment category, the Fund may carry out its investment strategy by
investing in the securities listed in each investment category below
and/or through the purchase of shares issued by ETFs or other
investment companies that invest a majority of their assets in the
securities listed in the investment categories below.
The Fund may invest in the following money market instruments:
Commercial paper issued by U.S. and foreign corporations; bank
obligations; certificates of deposit; time deposits and bankers'
acceptances of U.S. commercial banks and overseas branches of U.S.
commercial banks and foreign banks; and short-term corporate debt, all
of which have, at the time of purchase, 397 days or less remaining to
maturity issued by U.S. and foreign issuers.
A portion of the Fund's assets may be invested in cross currency
positions of the currencies of developed and emerging markets through
spot foreign exchange currency contracts, forward foreign exchange
currency contracts, and foreign exchange currency options that trade on
U.S. exchanges.
The Fund may invest in the following derivative instruments:
Futures contracts (consisting of futures contracts based on equity or
fixed income securities and/or equity or fixed income indices,
commodities, interest rates and currencies); swap agreements on any of
the following asset classes: Equity, fixed income, currency and
interest rates (such swaps may be based on the price return or total
return of the referenced asset); credit default swaps (consisting of
credit default swaps in which the referenced asset is a single fixed
income security or a group of fixed income securities); options
(consisting of long and short positions in call options and put options
on indices based on equities, fixed income securities, interest rates,
currencies or commodities, individual securities or currencies,
swaptions and options on futures contracts); and forward contracts
(consisting of forward contracts based on equity or fixed income
securities and/or equity or fixed income indices, currencies, interest
rates, swap forwards and non-deliverable forwards).
Futures contracts and options on futures contracts in which the
Fund may invest will be traded on U.S. exchanges regulated by the
Commodity Futures Trading Commission (``CFTC''),\28\ all of which will
be members of the ISG or exchanges with which the Exchange has in place
a CSSA. All other options contracts will be listed on a U.S. national
securities exchange or a non-U.S. securities exchange that is a member
of ISG or a party to a CSSA with the Exchange.
---------------------------------------------------------------------------

\28\ The Fund has claimed an exclusion from the definition of a
``commodity pool operator'' under the Commodity Exchange Act
(``CEA'') (7 U.S.C. 1) and is not subject to registration or
regulation as a commodity pool operator under the CEA. The CFTC
recently amended Rule 4.5 (``Exclusion for certain otherwise
regulated persons from the definition of the term ``commodity pool
operator''). Rule 4.5 provides that a mutual fund does not meet the
definition of ``commodity pool operator'' if its use of futures
contracts, options on futures contracts and swaps is sufficiently
limited that the fund can fall within one of two exclusions set out
in Rule 4.5. The Fund intends to limit its use of futures contracts,
options on futures contracts and swaps to the degree necessary to
fall within one of the two exclusions. If the Fund is unable to do
so, it may incur expenses that are necessary to comply with the CEA
and rules the CFTC has adopted under it.
---------------------------------------------------------------------------

The Fund may use repurchase agreements, reverse repurchase

[[Page 16480]]

agreements, and mortgage dollar rolls for temporary or emergency
purposes or to earn additional income on portfolio securities, such as
Treasury bills or notes. In a reverse repurchase agreement, the Fund
sells a portfolio security to another party, such as a bank or broker-
dealer, in return for cash and agrees to repurchase the instrument at a
particular price and time. While a reverse repurchase agreement is
outstanding, the Fund will maintain cash or appropriate liquid assets
to cover its obligation under the agreement. The Fund will enter into
reverse repurchase agreements only with parties that the Sub-Advisers
deems creditworthy.
The Fund may invest in restricted securities (Rule 144A
securities), which are subject to legal restrictions on their sale.
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act, or in a registered public offering.
Other Restrictions
The Fund will limit its investment in non-government sponsored
residential mortgage-backed securities, commercial mortgage-backed
securities and asset-backed securities (including equipment trust
certificates) as well as bank loans and illiquid restricted securities,
in the aggregate, to 20% or less of the Fund's net assets.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser,
consistent with Commission guidance. 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 assets. Illiquid assets 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\
---------------------------------------------------------------------------

\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 will be classified as a ``diversified'' investment company
under the 1940 Act.\30\
---------------------------------------------------------------------------

\30\ The diversification standard is set forth in section
5(b)(1) of the 1940 Act.
---------------------------------------------------------------------------

The Fund intends to qualify for and to elect treatment as a
separate regulated investment company (``RIC'') under subchapter M of
the Internal Revenue Code.\31\ Furthermore, the Fund may not
concentrate investments in a particular industry or group of
industries, as concentration is defined under the 1940 Act, the rules
or regulations thereunder or any exemption therefrom, as such statute,
rules or regulations may be amended or interpreted from time to
time.\32\
---------------------------------------------------------------------------

\31\ 26 U.S.C. 851 et seq.
\32\ The Commission has defined concentration as investing more
than 25% of an investment company's total assets in an industry or
group of industries, with certain exceptions such as with respect to
investments in obligations issued or guaranteed by the U.S.
Government or its agencies and instrumentalities, or tax-exempt
obligations of state or municipal governments and their political
subdivisions. See, e.g., Investment Company Act Release No. 9011
(October 30, 1975), 40 FR 54241 (November 21, 1975).
---------------------------------------------------------------------------

The Fund's investments will be consistent with its investment
objective and will not be used to enhance leverage.
Net Asset Value
According to the Registration Statement, the Fund's net asset value
per Share (``NAV'') will be the value of a single Share. The NAV of
Shares of the Fund will be computed by adding the value of the Fund's
investments, cash, and other assets, subtracting its liabilities, and
dividing the result by the number of Shares outstanding.
According to the Registration Statement, the Fund's Board of
Trustees has delegated day-to-day valuation oversight responsibilities
to PMC. PMC has established a Valuation Committee (``Valuation
Committee'') to fulfill these oversight responsibilities.
Generally, the Fund will value its portfolio securities and assets
as follows:
In computing the Fund's NAV, the Fund's fixed income securities
(including defaulted debt,\33\ and restricted securities)
(collectively, ``OTC-Traded Securities'') will be valued based on price
quotations obtained from a third-party pricing service or from a
broker-dealer who makes markets in such securities. Any such third-
party pricing service may use a variety of methodologies to value some
or all such securities to determine the market price. For example, the
prices of securities with characteristics similar to those held by the
Fund may be used to assist with the pricing process. In addition, the
pricing service may use proprietary pricing models. The Fund's OTC-
Traded Securities will generally be valued at bid prices.
---------------------------------------------------------------------------

\33\ According to PMC, when a bond defaults and the issuer
enters into bankruptcy, a market often continues to exist for the
bond (normally at a steep discount to its face value). Buyers
typically value the defaulted bond based on expected restructuring
outcomes or liquidation distributions. Market quotations provided by
broker-dealers or pricing services reflect these market indicators.
---------------------------------------------------------------------------

Debt securities with remaining maturities of sixty days or less for
which market quotations and information furnished by a third party
pricing service are not readily available will be valued at amortized
cost, which approximates current value.
Exchange traded equity securities, including ETFs, certain
Depositary Receipts, exchange-traded REITs, exchange-traded preferred
stock, and exchange-traded convertible bonds, will be valued at market
value, which will generally be determined using the last reported
official closing or last trading price on the exchange or market on
which the security is primarily traded at the time of valuation or, if
no sale has occurred, at the last quoted bid price on the primary
market or exchange on which they are traded. Unsponsored ADRs will be
valued at the last reported sale price from the OTC Bulletin Board or
OTC Link LLC on the valuation date.
Investment company securities (other than ETFs) will be valued at
NAV.
Exchange-traded futures contracts will be valued at the settlement
or closing price determined by the applicable exchange.
Exchange-traded option contracts, including options on futures,
will be valued at their most recent sale price. If no such sales are
reported, these contracts will be valued at their most recent bid
price.
Except as discussed below, non-exchange-traded derivatives,
including swaps and swaptions, will normally be valued on the basis of
quotes obtained from a third party broker-dealer who makes markets in
such securities or on the basis of quotes obtained from an independent
third-party pricing service. The Fund's OTC-traded derivative
instruments will generally be valued at bid prices. Certain OTC-traded

[[Page 16481]]

derivative instruments, such as interest rate swaps and credit default
swaps, will be valued at the mean price.
Prices described above will be obtained from pricing services that
have been approved by the Fund's Board of Trustees. A number of
independent third party pricing services are available and the Fund may
use more than one of these services. The Fund may also discontinue the
use of any pricing service at any time. PMC will engage in oversight
activities with respect to the Fund's pricing services, which includes,
among other things, testing the prices provided by pricing services
prior to calculation of the Fund's NAV, conducting periodic due
diligence meetings, and periodically reviewing the methodologies and
inputs used by these services.
Foreign securities and instruments will be valued in their local
currency following the methodologies described above. Typically,
foreign securities, instruments and currencies will be translated to
U.S. dollars, based on foreign currency exchange rate quotations
supplied by a pricing service as of the close of the New York Stock
Exchange (``NYSE''), which will use a proprietary model to determine
the exchange rate.
Forward foreign currency exchange contracts will be valued at an
interpolated rate based on days to maturity between the closest
preceding and subsequent settlement period. Such interpolated rates are
derived from foreign currency exchange rate quotations reported by an
independent third-party pricing service.
Other portfolio securities and assets for which market quotations,
official closing prices, or information furnished by a pricing service
are not readily available or, in the opinion of the Valuation
Committee, are deemed unreliable will be fair valued in good faith by
the Valuation Committee in accordance with applicable fair value
pricing policies. For example, if, in the opinion of the Valuation
Committee, a security's value has been materially affected by events
occurring before the Fund's pricing time but after the close of the
exchange or market on which the security is principally traded, that
security will be fair valued in good faith by the Valuation Committee
in accordance with applicable fair value pricing policies.
In fair valuing a security, the Valuation Committee may consider
factors including price movements in futures contracts and ADRs, market
and trading trends, the bid/ask quotes of brokers, and off-exchange
institutional trading.
Creation and Redemption of Shares
According to the Registration Statement, the Fund will issue and
redeem Shares on a continuous basis at NAV per Share in aggregations of
a specified number of Shares called ``Creation Units.'' Creation Units
generally will be issued in exchange for portfolio securities and/or
cash. Shares are not individually redeemable, but are redeemable only
in Creation Unit aggregations, and in exchange for portfolio securities
and/or cash. A Creation Unit of the Fund will consist of a block of
50,000 Shares. The size of a Creation Unit is subject to change.
Shareholders who are not ``Authorized Participants'' (as defined below)
will not be able to purchase or redeem Shares directly with or from the
Fund.
All orders to purchase Creation Units must be placed with a
Distributor by or through a party (the ``Authorized Participant'') that
has entered into a participant agreement with the Distributor
(``Participant Agreement'') with respect to the creation and redemption
of Creation Units. An Authorized Participant is either: (a) A broker or
dealer registered under the Act or other participant in the Continuous
Net Settlement System of the National Securities Clearing Corporation
(``NSCC''), a clearing agency registered with the Commission and
affiliated with the Depository Trust Company (``DTC''); or (b) a
participant in the DTC (such participant, a ``DTC Participant'').
Shares of the Fund will be purchased and redeemed in Creation Units
and generally on an ``in- kind'' basis. Except where the purchase or
redemption will include cash under the limited circumstances specified
below, purchasers will be required to purchase Creation Units by making
an in-kind deposit of specified instruments (``Deposit Instruments''),
and shareholders redeeming their Shares will receive an in-kind
transfer of specified instruments (``Redemption Instruments''). On any
given business day, the names and quantities of the instruments that
constitute the Deposit Instruments and the names and quantities of the
instruments that constitute the Redemption Instruments will be
identical, and these instruments may be referred to, in the case of
either a purchase or a redemption, as the ``Creation Basket''. In
addition, the Creation Basket will correspond pro rata to the positions
in the Fund's portfolio (including cash positions),\34\ except: (a) In
the case of bonds, for minor differences when it is impossible to break
up bonds beyond certain minimum sizes needed for transfer and
settlement; (b) for minor differences when rounding is necessary to
eliminate fractional shares or lots that are not tradeable round lots;
\35\ or (c) To-Be-Announced (``TBA'') transactions,\36\ short positions
and other positions that cannot be transferred in kind \37\ will be
excluded from the Creation Basket.\38\ If there is a difference between
the NAV attributable to a Creation Unit and the aggregate market value
of the Creation Basket exchanged for the Creation Unit, the party
conveying instruments with the lower value will pay to the other an
amount in cash equal to that difference (the ``Balancing Amount'').
---------------------------------------------------------------------------

\34\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's NAV for that business day.
\35\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
\36\ A TBA Transaction is a method of trading mortgage-backed
securities. In a TBA Transaction, the buyer and seller agree upon
general trade parameters such as agency, settlement date, par amount
and price. The actual pools delivered generally are determined two
days prior to the settlement date.
\37\ This includes instruments that can be transferred in kind
only with the consent of the counterparty to the extent the Fund
does not intend to seek such consents.
\38\ Because these instruments will be excluded from the
Creation Basket, their value will be reflected in the determination
of the Balancing Amount (defined below).
---------------------------------------------------------------------------

Purchases and redemptions of Creation Units may be made in whole or
in part on a cash basis, rather than in kind, solely under specified
circumstances.\39\ The Adviser represents that, to the extent the Trust
effects the creation and redemption of Shares in cash, such
transactions will be effected in the same manner for all Authorized
Participants.
---------------------------------------------------------------------------

\39\ In determining whether the Fund will sell or redeem
Creation Units entirely on a cash or in-kind basis (whether for a
given day or a given order), the key consideration will be the
benefit that would accrue to the Fund and its investors. Purchases
of Creation Units either on an all cash basis or in-kind are
expected to be neutral to the Fund from a tax perspective. In
contrast, cash redemptions typically require selling portfolio
positions, which may result in adverse tax consequences for the
remaining Fund shareholders that would not occur with an in-kind
redemption. As a result, tax considerations may warrant in-kind
redemptions.
---------------------------------------------------------------------------

An investor purchasing or redeeming a Creation Unit from the Fund
may be charged a Transaction Fee to protect existing shareholders of
the Fund from the dilutive costs associated with the purchase and
redemption of Creation Units.\40\
---------------------------------------------------------------------------

\40\ Where the Fund permits an in-kind purchaser or redeemer to
deposit or receive cash in lieu of one or more Deposit or Redemption
Instruments, the purchaser or redeemer may be assessed a higher
Transaction Fee to offset the transaction cost to the Fund of buying
or selling those particular Deposit or Redemption Instruments.

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

[[Page 16482]]

The Fund will make available, prior to the opening of trading on
the NYSE (currently 9:30 a.m. Eastern Time), through the NSCC the names
and quantities of the instruments comprising the Creation Basket, as
well as the estimated Balancing Amount (if any), for that day. The
published Creation Basket will apply with respect to purchases or
redemptions until a new Creation Basket is announced on the following
business day, and there will be no intra-day changes to the Creation
Basket, except to correct errors in the published Creation Basket.
Availability of Information
The Funds' [sic] Web site (www.principalfunds.com), which will be
publicly available prior to the public offering of Shares, will include
a form of the prospectus for the Fund that may be downloaded. The
Fund's Web site will include additional quantitative information
updated on a daily basis, including, for the Fund, (1) daily trading
volume, the prior business day's reported closing price, NAV and mid-
point of the bid/ask spread at the time of calculation of such NAV (the
``Bid/Ask Price''),\41\ and a calculation of the premium and discount
of the Bid/Ask Price against the NAV, and (2) data in chart format
displaying the frequency distribution of discounts and premiums of the
daily Bid/Ask Price against the NAV, within appropriate ranges, for
each of the four previous calendar quarters. On each business day,
before commencement of trading in Shares in the Core Trading Session on
the Exchange, the Adviser will disclose on the Fund's Web site the
Disclosed Portfolio for the Fund as defined in NYSE Arca Equities Rule
8.600(c)(2) that will form the basis for the Fund's calculation of NAV
at the end of the business day.\42\
---------------------------------------------------------------------------

\41\ The Bid/Ask Price of the Fund's Shares 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 each Fund and
its service providers.
\42\ Under accounting procedures to be followed by the Fund,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1''). 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.
---------------------------------------------------------------------------

The Fund's portfolio holdings will be disclosed on its Web site
daily after the close of trading on the Exchange and prior to the
opening of trading on the Exchange the following day.
The Fund's disclosure of derivative positions in the Disclosed
Portfolio will include information that market participants can use to
value these positions intraday. On a daily basis, the Fund will
disclose on the Fund's Web site the following information regarding
each portfolio holding, as applicable to the type of holding: Ticker
symbol, CUSIP number or other identifier, if any; a description of the
holding (including the type of holding, such as the type of swap); the
identity of the security, commodity, index or other asset or instrument
underlying the holding, if any; for options, the option strike price;
quantity held (as measured by, for example, par value, notional value
or number of shares, contracts or units); maturity date, if any; coupon
rate, if any; effective date, if any; market value of the holding; and
the percentage weighting of the holding in the Fund's portfolio. The
Web site information will be publicly available at no charge.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports are available free upon request from the Trust, and those
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or
downloaded from the Commission's Web site at www.sec.gov.
Quotation and last sale information for the portfolio holdings of
the Fund that are U.S. exchange listed, including ETFs and U.S.
exchange-traded ADRs and exchange-traded REITs, exchange-traded
preferred stock, and exchange-traded convertible securities, and
exchange-traded MLPs will be available via the Consolidated Tape
Association (``CTA'') high speed line. Quotation and last sale
information for such U.S. exchange-listed securities, as well as
futures will be available from the exchange on which they are listed.
Quotation and last sale information for exchange-listed options cleared
via the Options Clearing Corporation will be available via the Options
Price Reporting Authority.
Quotation information for OTC-Traded Securities, OTC-traded
derivative instruments (including swaps, swaptions, forwards and
currency-related derivatives), investment company securities (excluding
ETFs), Rule 144A securities, U.S. Treasuries, agency securities, asset-
backed securities, residential mortgage-backed securities, commercial
mortgage-backed securities, zero-coupon securities, variable and
floating rate instruments including inverse floaters, covered
securities, sinking fund securities, equipment trust certificates,
sovereign bonds, convertible bonds, pay-in-kind securities, step-coupon
securities, stripped securities, inflation-indexed bonds, inflation
protected debt securities, bank loans, municipal bonds, corporate
bonds, and money market instruments may be obtained from brokers and
dealers who make markets in such securities or through nationally
recognized pricing services through subscription agreements. The U.S.
dollar value of foreign securities, instruments and currencies can be
derived by using foreign currency exchange rate quotations obtained
from nationally recognized pricing services.
In addition, the Portfolio Indicative Value (``PIV''), as defined
in NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated by
one or more major market data vendors at least every 15 seconds during
the Core Trading Session.\43\ The dissemination of the PIV, together
with the Disclosed Portfolio, will allow investors to determine the
approximate 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.
---------------------------------------------------------------------------

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

Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\44\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares of the Fund inadvisable. These may include:
(1) The extent to which trading is not occurring in the securities and/
or the financial instruments comprising the Disclosed Portfolio of the
Fund; or (2) whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present. Trading in the Shares will be subject to NYSE Arca Equities
Rule 8.600(d)(2)(D), which sets forth circumstances under which Shares
of the Fund may be halted.
---------------------------------------------------------------------------

\44\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. Eastern Time in

[[Page 16483]]

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 of the Fund will conform to the initial and continued
listing criteria under NYSE Arca Equities Rule 8.600. The Exchange
represents that, for initial and/or continued listing, the Fund will be
in compliance with Rule 10A-3 \45\ under the Act, as provided by NYSE
Arca Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be
outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares of
the Fund that the NAV and the Disclosed Portfolio will be made
available to all market participants at the same time.
---------------------------------------------------------------------------

\45\ 17 CFR 240 10A-3.
---------------------------------------------------------------------------

Surveillance
The Exchange represents that trading in the Shares of the Fund 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.\46\ 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 federal securities laws applicable to trading on
the Exchange.
---------------------------------------------------------------------------

\46\ 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, ETFs, other exchange-traded equity
securities (including exchange-listed Depositary Receipts), options,
futures, and options on futures 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 such financial
instruments, as applicable, from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in such
financial instruments, as applicable, from markets and other entities
that are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.\47\ 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'').
---------------------------------------------------------------------------

\47\ 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.
---------------------------------------------------------------------------

Not more than 10% of the net assets of the Fund in the aggregate
invested in exchange-traded equity securities shall consist of equity
securities whose principal market is not a member of the ISG or party
to a CSSA 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 of the Fund. Specifically, the Bulletin will discuss
the following: (1) The procedures for purchases and redemptions of
Shares in Creation Units (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated PIV will not be calculated or publicly
disseminated; (4) how information regarding the PIV and the Disclosed
Portfolio 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 of the Fund
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) \48\ 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.
---------------------------------------------------------------------------

\48\ 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 Adviser and Sub-Advisers are not registered as broker-
dealers but are affiliated with three broker-dealers and have
implemented and will maintain a fire wall with respect to each such
broker-dealer affiliate regarding access to information concerning the
composition and/or changes to the portfolios. The Exchange has in place
surveillance procedures that are adequate to properly monitor trading
in the Shares of the Fund in all trading sessions and to deter and
detect violations of Exchange rules and federal securities laws
applicable to trading on the Exchange. FINRA, on behalf of the
Exchange, will communicate as needed regarding trading in the Shares,
ETFs, other exchange-traded equity securities (including exchange-
listed Depositary Receipts), options, futures, and options on futures
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 such financial instruments, as applicable, from
such markets and other entities. In addition, the Exchange may obtain
information regarding trading in such financial instruments, as
applicable, from markets and other entities that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement. FINRA, on behalf of the Exchange, is able to access,
as needed,

[[Page 16484]]

trade information for certain fixed income securities held by the Fund
reported to FINRA's TRACE. Not more than 10% of the net assets of the
Fund in the aggregate invested in exchange-traded equity securities
shall consist of equity securities whose principal market is not a
member of the ISG or party to a CSSA with the Exchange. While the Fund
may invest in inverse ETFs, the Fund will not invest in leveraged
(e.g., 2X, -2X, 3X or -3X) ETFs. The Fund's investments will be
consistent with its investment objective and will not be used to
enhance leverage. The Fund will limit its investment in non-government
sponsored residential mortgage-backed securities, commercial mortgage-
backed securities and asset-backed securities, in the aggregate, to 20%
or less of the Fund's net assets. The PIV, as defined in NYSE Arca
Equities Rule 8.600(c)(3), will be widely disseminated by one or more
major market data vendors at least every 15 seconds during the Core
Trading Session. The Fund may hold up to an aggregate amount of 15% of
its net assets in illiquid assets (calculated at the time of
investment), including Rule 144A securities deemed illiquid by the
Adviser, consistent with Commission guidance.
The Shares of the Fund will conform to the initial and continued
listing criteria under NYSE Arca Equities Rule 8.600. The Exchange
represents that, for initial and/or continued listing, the Fund will be
in compliance with Rule 10A-3 under the Act, as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be
outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares of
the Fund 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 respective
Shares, thereby promoting market transparency. The Fund's portfolio
holdings will be disclosed on its Web site daily after the close of
trading on the Exchange and prior to the opening of trading on the
Exchange the following day. On a daily basis, the Fund will disclose on
its Web site the following information regarding each portfolio
holding, as applicable to the type of holding: Ticker symbol, CUSIP
number or other identifier, if any; a description of the holding
(including the type of holding); the identity of the security,
commodity, index or other asset or instrument underlying the holding,
if any; quantity held (as measured by, for example, par value, notional
value or number of shares, contracts or units); maturity date, if any;
coupon rate, if any; effective date, if any; market value of the
holding; and the percentage weighting of the holding in the Fund's
portfolio. The Web site information will be publicly available at no
charge.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports are available free upon request from the Trust, and those
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or
downloaded from the Commission's Web site at www.sec.gov. Quotation and
last sale information for the portfolio holdings of the Fund that are
U.S. exchange listed, including ETFs and U.S. exchange-traded ADRs and
exchange-traded REITs, exchange-traded preferred stock, exchange-traded
convertible securities, and exchange-traded MLPs will be available via
the CTA high speed line. Quotation and last sale information for such
U.S. exchange-listed securities, as well as futures will be available
from the exchange on which they are listed. Quotation and last sale
information for exchange-listed options cleared via the Options
Clearing Corporation will be available via the Options Price Reporting
Authority.
The Web site for the Fund will include a form of the prospectus for
the Fund and additional data relating to NAV and other applicable
quantitative information. Moreover, prior to the commencement of
trading, the Exchange will inform its ETP Holders in an Information
Bulletin of the special characteristics and risks associated with
trading the Shares of the Funds [sic]. Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached or because of market conditions or for
reasons that, in the view of the Exchange, make trading in the Shares
inadvisable, and trading in the Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under
which Shares of the Fund may be halted. In addition, as noted above,
investors will have ready access to information regarding the Fund's
holdings, the PIV, the Disclosed Portfolio, and quotation and last sale
information for the Shares. The 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 perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares of the
Fund and may obtain information via ISG from other exchanges that are
members of ISG or with which the Exchange has entered into a
comprehensive surveillance sharing agreement. In addition, as noted
above, investors will have ready access to information regarding each
Fund's holdings, the PIV, the Disclosed Portfolio for the Fund, and
quotation and last sale information for the Shares of the Fund.

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 holds
fixed income and equity 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 (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.

[[Page 16485]]

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-2015-15 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2015-15. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2015-15 and should
be submitted on or before April 17, 2015.
---------------------------------------------------------------------------

\49\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
Brent J. Fields,
Secretary.
[FR Doc. 2015-06991 Filed 3-26-15; 8:45 am]
BILLING CODE 8011-01-P

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