Justia Agencies And Commissions Securities And Exchange Commission Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of a Proposed Rule Change to Rule 14.11(i), Managed Fund Shares, to List and Trade Shares of the iShares iBonds Dec 2023 AMT-Free Muni Bond ETF, iShares iBonds Dec 2024 AMT-Free Muni Bond ETF, iShares iBonds Dec 2025 AMT-Free Muni Bond ETF, and iShares iBonds Dec 2026 AMT-Free Muni Bond ETF of the iShares U.S. ETF Trust, 4695-4708 [2016-01535]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of a Proposed Rule Change to Rule 14.11(i), Managed Fund Shares, to List and Trade Shares of the iShares iBonds Dec 2023 AMT-Free Muni Bond ETF, iShares iBonds Dec 2024 AMT-Free Muni Bond ETF, iShares iBonds Dec 2025 AMT-Free Muni Bond ETF, and iShares iBonds Dec 2026 AMT-Free Muni Bond ETF of the iShares U.S. ETF Trust, 4695-4708 [2016-01535]

Download as PDF Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BX– 2016–004 and should be submitted on or before February 17, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Brent J. Fields, Secretary. [FR Doc. 2016–01531 Filed 1–26–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION asabaliauskas on DSK5VPTVN1PROD with NOTICES [Release No. 34–76954; File No. SR–BATS– 2016–02] Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of a Proposed Rule Change to Rule 14.11(i), Managed Fund Shares, to List and Trade Shares of the iShares iBonds Dec 2023 AMT-Free Muni Bond ETF, iShares iBonds Dec 2024 AMT-Free Muni Bond ETF, iShares iBonds Dec 2025 AMT-Free Muni Bond ETF, and iShares iBonds Dec 2026 AMT-Free Muni Bond ETF of the iShares U.S. ETF Trust January 21, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 12 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on January 12, 2016, BATS Exchange, Inc. (‘‘Exchange’’ or ‘‘BATS’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is proposing to a rule change to list and trade shares of the iShares iBonds Dec 2023 AMT-Free Muni Bond ETF, iShares iBonds Dec 2024 AMT-Free Muni Bond ETF, iShares iBonds Dec 2025 AMT-Free Muni Bond ETF, and iShares iBonds Dec 2026 AMT-Free Muni Bond ETF (each a ‘‘Fund’’ or, collectively, the ‘‘Funds’’) of the iShares U.S. ETF Trust (the ‘‘Trust’’) under BATS Rule 14.11(i) (‘‘Managed Fund Shares’’). The shares of the Funds are referred to herein as the ‘‘Shares.’’ The text of the proposed rule change is available at the Exchange’s Web site at www.batstrading.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to list and trade the Shares under BATS Rule 14.11(i), which governs the listing and trading of Managed Fund Shares on the Exchange.3 The Funds will be actively 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 The Commission approved BATS Rule 14.11(i) in Securities Exchange Act Release No. 65225 2 17 PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 4695 managed funds. The Shares will be offered by the Trust, which was established as a Delaware statutory trust on June 21, 2011. The Trust is registered with the Commission as an open-end investment company and has filed a registration statement on behalf of the Funds on Form N–1A (‘‘Registration Statement’’) with the Commission.4 Description of the Shares and the Funds BlackRock Fund Advisors is the investment adviser (‘‘BFA’’ or ‘‘Adviser’’) to the Funds.5 State Street Bank and Trust Company is the administrator, custodian, and transfer agent (‘‘Administrator,’’ ‘‘Custodian,’’ and ‘‘Transfer Agent,’’ respectively) for the Trust. BlackRock Investments, LLC serves as the distributor (‘‘Distributor’’) for the Trust. BATS Rule 14.11(i)(7) 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.6 In addition, Rule (August 30, 2011), 76 FR 55148 (September 6, 2011) (SR–BATS–2011–018). 4 See Registration Statement on Form N–1A for the Trust, dated November 2, 2015 (File Nos. 333– 179904 and 811–22649). The descriptions of the Funds and the Shares contained herein are based, in part, on information in the Registration Statement. The Commission has issued an order granting certain exemptive relief to the Trust under the Investment Company Act of 1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) (the ‘‘Exemptive Order’’). See Investment Company Act Release No. 29571 (January 24, 2011) (File No. 812–13601). 5 BFA is an indirect wholly owned subsidiary of BlackRock, Inc. 6 An investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’). As a result, the Adviser and its related personnel are subject to the provisions of Rule 204A–1 under the Advisers Act relating to codes of ethics. This Rule requires investment advisers to adopt a code of ethics that reflects the fiduciary nature of the relationship to clients as well as compliance with other applicable securities laws. Accordingly, procedures designed to prevent the communication and misuse of non-public information by an investment adviser must be consistent with 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 E:\FR\FM\27JAN1.SGM Continued 27JAN1 4696 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices 14.11(i)(7) further requires that personnel who make decisions on the investment company’s portfolio composition must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the applicable investment company portfolio. Rule 14.11(i)(7) is similar to BATS Rule 14.11(b)(5)(A)(i), however, Rule 14.11(i)(7) in connection with the establishment of a ‘‘fire wall’’ between the investment adviser and the brokerdealer reflects the applicable open-end fund’s portfolio, not an underlying benchmark index, as is the case with index-based funds. The Adviser is not a registered broker-dealer, but is affiliated with multiple broker-dealers and has implemented ‘‘fire walls’’ with respect to such broker-dealers regarding access to information concerning the composition and/or changes to a Fund’s portfolio. In addition, Adviser personnel who make decisions regarding a Fund’s portfolio are subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the Fund’s portfolio. In the event that (a) the Adviser becomes registered as a brokerdealer or newly affiliated with another broker-dealer, or (b) any new adviser or sub-adviser is a registered broker-dealer or becomes affiliated with a brokerdealer, it will implement a fire wall with respect to its relevant personnel or such broker-dealer affiliate, as applicable, regarding access to information concerning the composition and/or changes to the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolio. asabaliauskas on DSK5VPTVN1PROD with NOTICES iShares iBonds Dec 2023 AMT-Free Muni Bond ETF According to the Registration Statement, the Fund will seek to maximize tax-free current income and terminate on or around December 2023. To achieve its objective, the Fund will invest, under normal circumstances,7 at least 80% of its net assets in Municipal Securities, as defined below, such that the interest on each security is exempt administering the policies and procedures adopted under subparagraph (i) above. 7 The term ‘‘under normal circumstances’’ includes, but is not limited to, the absence of adverse market, economic, political, or other conditions, including extreme volatility or trading halts in the financial 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. VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 from U.S. federal income taxes and the federal alternative minimum tax (the ‘‘AMT’’). The Fund is not a money market fund and does not seek to maintain a stable net asset value of $1.00 per share. The Fund will be classified as a ‘‘non-diversified’’ investment company under the 1940 Act.8 The Fund intends to qualify each year as a regulated investment company (a ‘‘RIC’’) under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund will invest its assets, and otherwise conduct its operations, in a manner that is intended to satisfy the qualifying income, diversification and distribution requirements necessary to establish and maintain RIC qualification under Subchapter M. Principal Holdings—Municipal Securities To achieve its objective, the Fund will invest, under normal circumstances, in U.S.-dollar denominated investmentgrade fixed-rate Municipal Securities, as defined below. The Fund will invest in both callable and non-callable municipal bonds. Investment-grade securities are rated a minimum of BBBor higher by Standard & Poor’s Ratings Services and/or Fitch, or Baa3 or higher by Moody’s, or if unrated, determined by the Adviser to be of equivalent quality.9 Under normal circumstances, the Fund’s effective duration will vary within one year (plus or minus) of the effective duration of the securities comprising the S&P AMT-Free Municipal Series Dec 2023 Index, which, as of December 15, 2015, was 6.51 years.10 Municipal securities (‘‘Municipal Securities’’) are fixed and variable rate securities issued in the U.S. by U.S. states and territories, municipalities and other political subdivisions, agencies, authorities, and instrumentalities of states and multi-state agencies and authorities and will include only the following instruments: General 8 The diversification standard is set forth in Section 5(b)(1) of the 1940 Act. 9 According to the Adviser, BFA may determine that unrated securities are of ‘‘equivalent quality’’ based on such credit quality factors that it deems appropriate, which may include among other things, performing an analysis similar, to the extent possible, to that performed by a nationally recognized statistical ratings organization when rating similar securities and issuers. In making such a determination, BFA may consider internal analyses and risk ratings, third party research and analysis, and other sources of information, as deemed appropriate by the Adviser. 10 Effective duration is a measure of the Fund’s price sensitivity to changes in yields or interest rates. PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 obligation bonds,11 limited obligation bonds (or revenue bonds),12 municipal notes,13 municipal commercial paper,14 tender option bonds,15 variable rate demand obligations (‘‘VRDOs’’),16 municipal lease obligations,17 stripped securities,18 structured securities,19 when issued securities,20 zero coupon securities,21 and exchange traded and 11 General obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from such issuer’s general revenues and not from any particular source. 12 Limited obligation bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source, and also include industrial development bonds issued pursuant to former U.S. federal tax law. Industrial development bonds generally are also revenue bonds and thus are not payable from the issuer’s general revenues. The credit and quality of industrial development bonds are usually related to the credit of the corporate user of the facilities. Payment of interest on and repayment of principal of such bonds is the responsibility of the corporate user (and/or any guarantor). 13 Municipal notes are shorter-term municipal debt obligations that may provide interim financing in anticipation of tax collection, receipt of grants, bond sales, or revenue receipts. 14 Municipal commercial paper is generally unsecured debt that is issued to meet short-term financing needs. 15 Tender option bonds are synthetic floating-rate or variable-rate securities issued when long-term bonds are purchased in the primary or secondary market and then deposited into a trust. Custodial receipts are then issued to investors, such as the Fund, evidencing ownership interests in the trust. 16 VRDOs are tax-exempt obligations that contain a floating or variable interest rate adjustment formula and a right of demand on the part of the holder thereof to receive payment of the unpaid principal balance plus accrued interest upon a short notice period not to exceed seven days. 17 Municipal lease obligations include certificates of participation issued by government authorities or entities to finance the acquisition or construction of equipment, land, and/or facilities. 18 Stripped securities are created when an issuer separates the interest and principal components of an instrument and sells them as separate securities. In general, one security is entitled to receive the interest payments on the underlying assets and the other to receive the principal payments. 19 Structured securities are privately negotiated debt obligations where the principal and/or interest is determined by reference to the performance of an underlying investment, index, or reference obligation, and may be issued by governmental agencies. While structured securities are part of the principal holdings of the Fund, the Issuer represents that such securities, when combined with those instruments held as part of the other portfolio holdings described below, will not exceed 20% of the Fund’s net assets. 20 The Fund may purchase or sell securities that it is entitled to receive on a when issued or delayed delivery basis as well as through a forward commitment. 21 Zero coupon securities are securities that are sold at a discount to par value and do not pay interest during the life of the security. The discount approximates the total amount of interest the security will accrue and compound over the period until maturity at a rate of interest reflecting the market rate of the security at the time of issuance. Upon maturity, the holder of a zero coupon security is entitled to receive the par value of the security. E:\FR\FM\27JAN1.SGM 27JAN1 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices non-exchange traded investment companies (including investment companies advised by BFA or its affiliates) that invest in such Municipal Securities.22 In the last year of operation, as the bonds held by the Fund mature, the proceeds will not be reinvested in bonds but instead will be held in cash and cash equivalents, including, without limitation, shares of affiliated money market funds, AMT-free tax-exempt municipal notes, VRDOs, tender option bonds and municipal commercial paper. In or around December 2023, the Fund will wind up and terminate, and its net assets will be distributed to then current shareholders. In the absence of normal circumstances, the Fund may temporarily depart from its normal investment process, provided that such departure is, in the opinion of the Adviser, consistent with the Fund’s investment objective and in the best interest of the Fund. For example, the Fund may hold a higher than normal proportion of its assets in cash in response to adverse market, economic or political conditions. The Fund intends to qualify each year as a regulated investment company (a ‘‘RIC’’) under Subchapter M of the Internal Revenue Code of 1986, as amended.23 The Fund will invest its assets, and otherwise conduct its operations, in a manner that is intended to satisfy the qualifying income, diversification and distribution requirements necessary to establish and maintain RIC qualification under Subchapter M. asabaliauskas on DSK5VPTVN1PROD with NOTICES Other Portfolio Holdings The Fund may also, to a limited extent (under normal circumstances, less than 20% of the Fund’s net assets), engage in transactions in futures contracts, options, or swaps in order to facilitate trading or to reduce transaction costs.24 The Fund’s investments will be consistent with its investment objective and will not be used to achieve leveraged returns (i.e. two times or three times the Fund’s 22 The Fund currently anticipates investing in only registered open-end investment companies, including mutual funds and the open-end investment company funds described in BATS Rule 14.11. The Fund may invest in the securities of other investment companies to the extent permitted by law. 23 26 U.S.C. 851. 24 Derivatives might be included in the Fund’s investments to serve the investment objectives of the Fund. Such derivatives include only the following: Interest rate futures, interest rate options, interest rate swaps, and swaps on Municipal Securities indexes. The derivatives will be centrally cleared and they will be collateralized. Derivatives are not a principal investment strategy of the Fund. VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 benchmark, as described in the Registration Statement). The Fund may also enter into repurchase and reverse repurchase agreements for Municipal Securities (collectively, ‘‘Repurchase Agreements’’). Repurchase Agreements involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of borrowing as part of the Fund’s principal holdings.25 The Fund may also invest in shortterm instruments (‘‘Short-Term Instruments’’),26 which includes exchange traded and non-exchange traded investment companies (including investment companies advised by BFA or its affiliates) that invest in money market instruments. Investment Restrictions The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), as deemed illiquid by the 25 The Fund’s exposure to reverse repurchase agreements will be covered by liquid assets having a value equal to or greater than such commitments. The use of reverse repurchase agreements is a form of leverage because the proceeds derived from reverse repurchase agreements may be invested in additional securities. As further stated below, the Fund’s investments will be consistent with its investment objective and will not be used to achieve leveraged returns. 26 The Fund may invest in Short-Term Instruments, including money market instruments, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term investments that include only the following: (i) Shares of money market funds (including those advised by BFA or otherwise affiliated with BFA); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit (‘‘CDs’’), bankers’ acceptances, fixed-time deposits and other obligations of U.S. and non-U.S. banks (including non-U.S. branches) and similar institutions; (iv) commercial paper, including assetbacked commercial paper; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that satisfy the rating requirements set forth in Rule 2a– 7 under the 1940 Act; and (vi) short-term U.S. dollar-denominated obligations of non-U.S. banks (including U.S. branches) that, in the opinion of BFA, are of comparable quality to obligations of U.S. banks which may be purchased by the Fund. All money market securities acquired by the Fund will be rated investment grade. The Fund does not intend to invest in any unrated money market securities. However, it may do so, to a limited extent, such as where a rated money market security becomes unrated, if such money market security is determined by the Adviser to be of comparable quality. BFA may determine that unrated securities are of comparable quality based on such credit quality factors that it deems appropriate, which may include, among other things, performing an analysis similar, to the extent possible, to that performed by a nationally recognized statistical rating organization rating similar securities and issuers. PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 4697 Adviser 27 under the 1940 Act.28 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. The Fund may also invest up to 20% of its net assets in Municipal Securities that pay interest that is subject to the AMT. The Fund will not purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after the purchase and as a result thereof, the value of the Fund’s investments in that industry would equal or exceed 25% of the current value of the Fund’s total assets, provided that this restriction does not limit the Fund’s: (i) Investments in securities of other investment companies, (ii) investments in securities issued or guaranteed by the U.S. government, its agencies or 27 In reaching liquidity decisions, the Adviser may consider factors including: The frequency of trades and quotes for the security; the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; dealer undertakings to make a market in the security; the nature of the security and the nature of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer); any legal or contractual restrictions on the ability to transfer the security or asset; significant developments involving the issuer or counterparty specifically (e.g., default, bankruptcy, etc.) or the securities markets generally; and settlement practices, registration procedures, limitations on currency conversion or repatriation, and transfer limitations (for foreign securities or other assets). 28 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 of 1933). E:\FR\FM\27JAN1.SGM 27JAN1 4698 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices instrumentalities, (iii) investments in securities of state, territory, possession or municipal governments and their authorities, agencies, instrumentalities or political subdivisions or (iv) investments in repurchase agreements collateralized by any such obligations.29 iShares iBonds Dec 2024 AMT-Free Muni Bond ETF According to the Registration Statement, the Fund will seek to maximize tax-free current income and terminate on or around December 2024. To achieve its objective, the Fund will invest, under normal circumstances,30 at least 80% of its net assets in Municipal Securities, as defined below, such that the interest on each security is exempt from U.S. federal income taxes and the federal alternative minimum tax (the ‘‘AMT’’). The Fund is not a money market fund and does not seek to maintain a stable net asset value of $1.00 per share. The Fund will be classified as a ‘‘non-diversified’’ investment company under the 1940 Act.31 The Fund intends to qualify each year as a regulated investment company (a ‘‘RIC’’) under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund will invest its assets, and otherwise conduct its operations, in a manner that is intended to satisfy the qualifying income, diversification and distribution requirements necessary to establish and maintain RIC qualification under Subchapter M. asabaliauskas on DSK5VPTVN1PROD with NOTICES Principal Holdings—Municipal Securities To achieve its objective, the Fund will invest, under normal circumstances, in U.S.-dollar denominated investmentgrade fixed-rate Municipal Securities, as defined below. The Fund will invest in both callable and non-callable municipal bonds. Investment-grade securities are rated a minimum of BBBor higher by Standard & Poor’s Ratings 29 See Form N–1A, Item 9. The Commission has taken the position that a fund is concentrated if it invests in more than 25% of the value of its total assets in any one industry. See, e.g., Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 54241 (November 21, 1975). 30 The term ‘‘under normal circumstances’’ includes, but is not limited to, the absence of adverse market, economic, political, or other conditions, including extreme volatility or trading halts in the financial 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. 31 The diversification standard is set forth in Section 5(b)(1) of the 1940 Act. VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 Services and/or Fitch, or Baa3 or higher by Moody’s, or if unrated, determined by the Adviser to be of equivalent quality.32 Under normal circumstances, the Fund’s effective duration will vary within one year (plus or minus) of the effective duration of the securities comprising the S&P AMT-Free Municipal Series Dec 2024 Index, which, as of December 15, 2015, was 7.24 years.33 Municipal securities (‘‘Municipal Securities’’) are fixed and variable rate securities issued in the U.S. by U.S. states and territories, municipalities and other political subdivisions, agencies, authorities, and instrumentalities of states and multi-state agencies and authorities and will include only the following instruments: General obligation bonds,34 limited obligation bonds (or revenue bonds),35, municipal notes,36 municipal commercial paper,37 tender option bonds,38 variable rate demand obligations (‘‘VRDOs’’),39 32 According to the Adviser, BFA may determine that unrated securities are of ‘‘equivalent quality’’ based on such credit quality factors that it deems appropriate, which may include among other things, performing an analysis similar, to the extent possible, to that performed by a nationally recognized statistical ratings organization when rating similar securities and issuers. In making such a determination, BFA may consider internal analyses and risk ratings, third party research and analysis, and other sources of information, as deemed appropriate by the Adviser. 33 Effective duration is a measure of the Fund’s price sensitivity to changes in yields or interest rates. 34 General obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from such issuer’s general revenues and not from any particular source. 35 Limited obligation bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source, and also include industrial development bonds issued pursuant to former U.S. federal tax law. Industrial development bonds generally are also revenue bonds and thus are not payable from the issuer’s general revenues. The credit and quality of industrial development bonds are usually related to the credit of the corporate user of the facilities. Payment of interest on and repayment of principal of such bonds is the responsibility of the corporate user (and/or any guarantor). 36 Municipal notes are shorter-term municipal debt obligations that may provide interim financing in anticipation of tax collection, receipt of grants, bond sales, or revenue receipts. 37 Municipal commercial paper is generally unsecured debt that is issued to meet short-term financing needs. 38 Tender option bonds are synthetic floating-rate or variable-rate securities issued when long-term bonds are purchased in the primary or secondary market and then deposited into a trust. Custodial receipts are then issued to investors, such as the Fund, evidencing ownership interests in the trust. 39 VRDOs are tax-exempt obligations that contain a floating or variable interest rate adjustment formula and a right of demand on the part of the holder thereof to receive payment of the unpaid principal balance plus accrued interest upon a short notice period not to exceed seven days. PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 municipal lease obligations,40 stripped securities,41 structured securities,42 when issued securities,43 zero coupon securities,44 and exchange traded and non-exchange traded investment companies (including investment companies advised by BFA or its affiliates) that invest in such Municipal Securities.45 In the last year of operation, as the bonds held by the Fund mature, the proceeds will not be reinvested in bonds but instead will be held in cash and cash equivalents, including, without limitation, shares of affiliated money market funds, AMT-free tax-exempt municipal notes, VRDOs, tender option bonds and municipal commercial paper. In or around December 2024, the Fund will wind up and terminate, and its net assets will be distributed to then current shareholders. In the absence of normal circumstances, the Fund may temporarily depart from its normal investment process, provided that such departure is, in the opinion of the Adviser, consistent with the Fund’s investment objective and in the best interest of the Fund. For example, the Fund may hold a higher than normal proportion of its assets in cash in response to adverse market, economic or political conditions. 40 Municipal lease obligations include certificates of participation issued by government authorities or entities to finance the acquisition or construction of equipment, land, and/or facilities. 41 Stripped securities are created when an issuer separates the interest and principal components of an instrument and sells them as separate securities. In general, one security is entitled to receive the interest payments on the underlying assets and the other to receive the principal payments. 42 Structured securities are privately negotiated debt obligations where the principal and/or interest is determined by reference to the performance of an underlying investment, index, or reference obligation, and may be issued by governmental agencies. While structured securities are part of the principal holdings of the Fund, the Issuer represents that such securities, when combined with those instruments held as part of the other portfolio holdings described below, will not exceed 20% of the Fund’s net assets. 43 The Fund may purchase or sell securities that it is entitled to receive on a when issued or delayed delivery basis as well as through a forward commitment. 44 Zero coupon securities are securities that are sold at a discount to par value and do not pay interest during the life of the security. The discount approximates the total amount of interest the security will accrue and compound over the period until maturity at a rate of interest reflecting the market rate of the security at the time of issuance. Upon maturity, the holder of a zero coupon security is entitled to receive the par value of the security. 45 The Fund currently anticipates investing in only registered open-end investment companies, including mutual funds and the open-end investment company funds described in BATS Rule 14.11. The Fund may invest in the securities of other investment companies to the extent permitted by law. E:\FR\FM\27JAN1.SGM 27JAN1 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices The Fund intends to qualify each year as a regulated investment company (a ‘‘RIC’’) under Subchapter M of the Internal Revenue Code of 1986, as amended.46 The Fund will invest its assets, and otherwise conduct its operations, in a manner that is intended to satisfy the qualifying income, diversification and distribution requirements necessary to establish and maintain RIC qualification under Subchapter M. Other Portfolio Holdings The Fund may also, to a limited extent (under normal circumstances, less than 20% of the Fund’s net assets), engage in transactions in futures contracts, options, or swaps in order to facilitate trading or to reduce transaction costs.47 The Fund’s investments will be consistent with its investment objective and will not be used to achieve leveraged returns (i.e. two times or three times the Fund’s benchmark, as described in the Registration Statement). The Fund may also enter into repurchase and reverse repurchase agreements for Municipal Securities (collectively, ‘‘Repurchase Agreements’’). Repurchase Agreements involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of borrowing as part of the Fund’s principal holdings.48 The Fund may also invest in shortterm instruments (‘‘Short-Term Instruments’’),49 which includes 46 26 U.S.C. 851. might be included in the Fund’s investments to serve the investment objectives of the Fund. Such derivatives include only the following: Interest rate futures, interest rate options, interest rate swaps, and swaps on Municipal Securities indexes. The derivatives will be centrally cleared and they will be collateralized. Derivatives are not a principal investment strategy of the Fund. 48 The Fund’s exposure to reverse repurchase agreements will be covered by liquid assets having a value equal to or greater than such commitments. The use of reverse repurchase agreements is a form of leverage because the proceeds derived from reverse repurchase agreements may be invested in additional securities. As further stated below, the Fund’s investments will be consistent with its investment objective and will not be used to achieve leveraged returns. 49 The Fund may invest in Short-Term Instruments, including money market instruments, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term investments that include only the following: (i) Shares of money market funds (including those advised by BFA or otherwise affiliated with BFA); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit (‘‘CDs’’), bankers’ acceptances, fixed-time deposits and other obligations of U.S. and non-U.S. banks (including non-U.S. branches) and similar asabaliauskas on DSK5VPTVN1PROD with NOTICES 47 Derivatives VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 exchange traded and non-exchange traded investment companies (including investment companies advised by BFA or its affiliates) that invest in money market instruments. Investment Restrictions The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), as deemed illiquid by the Adviser 50 under the 1940 Act.51 The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current institutions; (iv) commercial paper, including assetbacked commercial paper; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that satisfy the rating requirements set forth in Rule 2a– 7 under the 1940 Act; and (vi) short-term U.S. dollar-denominated obligations of non-U.S. banks (including U.S. branches) that, in the opinion of BFA, are of comparable quality to obligations of U.S. banks which may be purchased by the Fund. All money market securities acquired by the Fund will be rated investment grade. The Fund does not intend to invest in any unrated money market securities. However, it may do so, to a limited extent, such as where a rated money market security becomes unrated, if such money market security is determined by the Adviser to be of comparable quality. BFA may determine that unrated securities are of comparable quality based on such credit quality factors that it deems appropriate, which may include, among other things, performing an analysis similar, to the extent possible, to that performed by a nationally recognized statistical rating organization rating similar securities and issuers. 50 In reaching liquidity decisions, the Adviser may consider factors including: The frequency of trades and quotes for the security; the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; dealer undertakings to make a market in the security; the nature of the security and the nature of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer); any legal or contractual restrictions on the ability to transfer the security or asset; significant developments involving the issuer or counterparty specifically (e.g., default, bankruptcy, etc.) or the securities markets generally; and settlement practices, registration procedures, limitations on currency conversion or repatriation, and transfer limitations (for foreign securities or other assets). 51 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 of 1933). PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 4699 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. The Fund may also invest up to 20% of its net assets in Municipal Securities that pay interest that is subject to the AMT. The Fund will not purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after the purchase and as a result thereof, the value of the Fund’s investments in that industry would equal or exceed 25% of the current value of the Fund’s total assets, provided that this restriction does not limit the Fund’s: (i) Investments in securities of other investment companies, (ii) investments in securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, (iii) investments in securities of state, territory, possession or municipal governments and their authorities, agencies, instrumentalities or political subdivisions or (iv) investments in repurchase agreements collateralized by any such obligations.52 iShares iBonds Dec 2025 AMT-Free Muni Bond ETF According to the Registration Statement, the Fund will seek to maximize tax-free current income and terminate on or around December 2025. To achieve its objective, the Fund will invest, under normal circumstances,53 at least 80% of its net assets in Municipal Securities, as defined below, such that the interest on each security is exempt from U.S. federal income taxes and the federal alternative minimum tax (the ‘‘AMT’’). The Fund is not a money market fund and does not 52 See Form N–1A, Item 9. The Commission has taken the position that a fund is concentrated if it invests in more than 25% of the value of its total assets in any one industry. See, e.g., Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 54241 (November 21, 1975). 53 The term ‘‘under normal circumstances’’ includes, but is not limited to, the absence of adverse market, economic, political, or other conditions, including extreme volatility or trading halts in the financial 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. E:\FR\FM\27JAN1.SGM 27JAN1 4700 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices seek to maintain a stable net asset value of $1.00 per share. The Fund will be classified as a ‘‘non-diversified’’ investment company under the 1940 Act.54 The Fund intends to qualify each year as a regulated investment company (a ‘‘RIC’’) under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund will invest its assets, and otherwise conduct its operations, in a manner that is intended to satisfy the qualifying income, diversification and distribution requirements necessary to establish and maintain RIC qualification under Subchapter M. Principal Holdings—Municipal Securities asabaliauskas on DSK5VPTVN1PROD with NOTICES To achieve its objective, the Fund will invest, under normal circumstances, in U.S.-dollar denominated investmentgrade fixed-rate Municipal Securities, as defined below. The Fund will invest in both callable and non-callable municipal bonds. Investment-grade securities are rated a minimum of BBBor higher by Standard & Poor’s Ratings Services and/or Fitch, or Baa3 or higher by Moody’s, or if unrated, determined by the Adviser to be of equivalent quality.55 Under normal circumstances, the Fund’s effective duration will vary within one year (plus or minus) of the effective duration of the securities comprising the S&P AMT-Free Municipal Series Dec 2025 Index, which, as of December 15, 2015, was 8.26 years.56 Municipal securities (‘‘Municipal Securities’’) are fixed and variable rate securities issued in the U.S. by U.S. states and territories, municipalities and other political subdivisions, agencies, authorities, and instrumentalities of states and multi-state agencies and authorities and will include only the following instruments: General obligation bonds,57 limited obligation 54 The diversification standard is set forth in Section 5(b)(1) of the 1940 Act. 55 According to the Adviser, BFA may determine that unrated securities are of ‘‘equivalent quality’’ based on such credit quality factors that it deems appropriate, which may include among other things, performing an analysis similar, to the extent possible, to that performed by a nationally recognized statistical ratings organization when rating similar securities and issuers. In making such a determination, BFA may consider internal analyses and risk ratings, third party research and analysis, and other sources of information, as deemed appropriate by the Adviser. 56 Effective duration is a measure of the Fund’s price sensitivity to changes in yields or interest rates. 57 General obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from such issuer’s general revenues and not from any particular source. VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 bonds (or revenue bonds),58 municipal notes,59 municipal commercial paper,60 tender option bonds,61 variable rate demand obligations (‘‘VRDOs’’),62 municipal lease obligations,63 stripped securities,64 structured securities,65 when issued securities,66 zero coupon securities,67 and exchange traded and non-exchange traded investment companies (including investment companies advised by BFA or its 58 Limited obligation bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source, and also include industrial development bonds issued pursuant to former U.S. federal tax law. Industrial development bonds generally are also revenue bonds and thus are not payable from the issuer’s general revenues. The credit and quality of industrial development bonds are usually related to the credit of the corporate user of the facilities. Payment of interest on and repayment of principal of such bonds is the responsibility of the corporate user (and/or any guarantor). 59 Municipal notes are shorter-term municipal debt obligations that may provide interim financing in anticipation of tax collection, receipt of grants, bond sales, or revenue receipts. 60 Municipal commercial paper is generally unsecured debt that is issued to meet short-term financing needs. 61 Tender option bonds are synthetic floating-rate or variable-rate securities issued when long-term bonds are purchased in the primary or secondary market and then deposited into a trust. Custodial receipts are then issued to investors, such as the Fund, evidencing ownership interests in the trust. 62 VRDOs are tax-exempt obligations that contain a floating or variable interest rate adjustment formula and a right of demand on the part of the holder thereof to receive payment of the unpaid principal balance plus accrued interest upon a short notice period not to exceed seven days. 63 Municipal lease obligations include certificates of participation issued by government authorities or entities to finance the acquisition or construction of equipment, land, and/or facilities. 64 Stripped securities are created when an issuer separates the interest and principal components of an instrument and sells them as separate securities. In general, one security is entitled to receive the interest payments on the underlying assets and the other to receive the principal payments. 65 Structured securities are privately negotiated debt obligations where the principal and/or interest is determined by reference to the performance of an underlying investment, index, or reference obligation, and may be issued by governmental agencies. While structured securities are part of the principal holdings of the Fund, the Issuer represents that such securities, when combined with those instruments held as part of the other portfolio holdings described below, will not exceed 20% of the Fund’s net assets. 66 The Fund may purchase or sell securities that it is entitled to receive on a when issued or delayed delivery basis as well as through a forward commitment. 67 Zero coupon securities are securities that are sold at a discount to par value and do not pay interest during the life of the security. The discount approximates the total amount of interest the security will accrue and compound over the period until maturity at a rate of interest reflecting the market rate of the security at the time of issuance. Upon maturity, the holder of a zero coupon security is entitled to receive the par value of the security. PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 affiliates) that invest in such Municipal Securities.68 In the last year of operation, as the bonds held by the Fund mature, the proceeds will not be reinvested in bonds but instead will be held in cash and cash equivalents, including, without limitation, shares of affiliated money market funds, AMT-free tax-exempt municipal notes, VRDOs, tender option bonds and municipal commercial paper. In or around December 2025, the Fund will wind up and terminate, and its net assets will be distributed to then current shareholders. In the absence of normal circumstances, the Fund may temporarily depart from its normal investment process, provided that such departure is, in the opinion of the Adviser, consistent with the Fund’s investment objective and in the best interest of the Fund. For example, the Fund may hold a higher than normal proportion of its assets in cash in response to adverse market, economic or political conditions. The Fund intends to qualify each year as a regulated investment company (a ‘‘RIC’’) under Subchapter M of the Internal Revenue Code of 1986, as amended.69 The Fund will invest its assets, and otherwise conduct its operations, in a manner that is intended to satisfy the qualifying income, diversification and distribution requirements necessary to establish and maintain RIC qualification under Subchapter M. Other Portfolio Holdings The Fund may also, to a limited extent (under normal circumstances, less than 20% of the Fund’s net assets), engage in transactions in futures contracts, options, or swaps in order to facilitate trading or to reduce transaction costs.70 The Fund’s investments will be consistent with its investment objective and will not be used to achieve leveraged returns (i.e. two times or three times the Fund’s benchmark, as described in the Registration Statement). 68 The Fund currently anticipates investing in only registered open-end investment companies, including mutual funds and the open-end investment company funds described in BATS Rule 14.11. The Fund may invest in the securities of other investment companies to the extent permitted by law. 69 26 U.S.C. 851. 70 Derivatives might be included in the Fund’s investments to serve the investment objectives of the Fund. Such derivatives include only the following: Interest rate futures, interest rate options, interest rate swaps, and swaps on Municipal Securities indexes. The derivatives will be centrally cleared and they will be collateralized. Derivatives are not a principal investment strategy of the Fund. E:\FR\FM\27JAN1.SGM 27JAN1 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices The Fund may also enter into repurchase and reverse repurchase agreements for Municipal Securities (collectively, ‘‘Repurchase Agreements’’). Repurchase Agreements involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of borrowing as part of the Fund’s principal holdings.71 The Fund may also invest in shortterm instruments (‘‘Short-Term Instruments’’),72 which includes exchange traded and non-exchange traded investment companies (including investment companies advised by BFA or its affiliates) that invest in money market instruments. Investment Restrictions asabaliauskas on DSK5VPTVN1PROD with NOTICES The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), as deemed illiquid by the 71 The Fund’s exposure to reverse repurchase agreements will be covered by liquid assets having a value equal to or greater than such commitments. The use of reverse repurchase agreements is a form of leverage because the proceeds derived from reverse repurchase agreements may be invested in additional securities. As further stated below, the Fund’s investments will be consistent with its investment objective and will not be used to achieve leveraged returns. 72 The Fund may invest in Short-Term Instruments, including money market instruments, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term investments that include only the following: (i) Shares of money market funds (including those advised by BFA or otherwise affiliated with BFA); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit (‘‘CDs’’), bankers’ acceptances, fixed-time deposits and other obligations of U.S. and non-U.S. banks (including non-U.S. branches) and similar institutions; (iv) commercial paper, including assetbacked commercial paper; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that satisfy the rating requirements set forth in Rule 2a– 7 under the 1940 Act; and (vi) short-term U.S. dollar-denominated obligations of non-U.S. banks (including U.S. branches) that, in the opinion of BFA, are of comparable quality to obligations of U.S. banks which may be purchased by the Fund. All money market securities acquired by the Fund will be rated investment grade. The Fund does not intend to invest in any unrated money market securities. However, it may do so, to a limited extent, such as where a rated money market security becomes unrated, if such money market security is determined by the Adviser to be of comparable quality. BFA may determine that unrated securities are of comparable quality based on such credit quality factors that it deems appropriate, which may include, among other things, performing an analysis similar, to the extent possible, to that performed by a nationally recognized statistical rating organization rating similar securities and issuers. VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 Adviser 73 under the 1940 Act.74 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. The Fund may also invest up to 20% of its net assets in Municipal Securities that pay interest that is subject to the AMT. The Fund will not purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after the purchase and as a result thereof, the value of the Fund’s investments in that industry would equal or exceed 25% of the current value of the Fund’s total assets, provided that this restriction does not limit the Fund’s: (i) Investments in securities of other investment companies, (ii) investments in securities issued or guaranteed by the U.S. government, its agencies or 73 In reaching liquidity decisions, the Adviser may consider factors including: The frequency of trades and quotes for the security; the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; dealer undertakings to make a market in the security; the nature of the security and the nature of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer); any legal or contractual restrictions on the ability to transfer the security or asset; significant developments involving the issuer or counterparty specifically (e.g., default, bankruptcy, etc.) or the securities markets generally; and settlement practices, registration procedures, limitations on currency conversion or repatriation, and transfer limitations (for foreign securities or other assets). 74 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 of 1933). PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 4701 instrumentalities, (iii) investments in securities of state, territory, possession or municipal governments and their authorities, agencies, instrumentalities or political subdivisions or (iv) investments in repurchase agreements collateralized by any such obligations.75 iShares iBonds Dec 2026 AMT-Free Muni Bond ETF According to the Registration Statement, the Fund will seek to maximize tax-free current income and terminate on or around December 2026. To achieve its objective, the Fund will invest, under normal circumstances,76 at least 80% of its net assets in Municipal Securities, as defined below, such that the interest on each security is exempt from U.S. federal income taxes and the federal alternative minimum tax (the ‘‘AMT’’). The Fund is not a money market fund and does not seek to maintain a stable net asset value of $1.00 per share. The Fund will be classified as a ‘‘non-diversified’’ investment company under the 1940 Act.77 The Fund intends to qualify each year as a regulated investment company (a ‘‘RIC’’) under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund will invest its assets, and otherwise conduct its operations, in a manner that is intended to satisfy the qualifying income, diversification and distribution requirements necessary to establish and maintain RIC qualification under Subchapter M. Principal Holdings—Municipal Securities To achieve its objective, the Fund will invest, under normal circumstances, in U.S.-dollar denominated investmentgrade fixed-rate Municipal Securities, as defined below. The Fund will invest in both callable and non-callable municipal bonds. Investment-grade securities are rated a minimum of BBBor higher by Standard & Poor’s Ratings 75 See Form N–1A, Item 9. The Commission has taken the position that a fund is concentrated if it invests in more than 25% of the value of its total assets in any one industry. See, e.g., Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 54241 (November 21, 1975). 76 The term ‘‘under normal circumstances’’ includes, but is not limited to, the absence of adverse market, economic, political, or other conditions, including extreme volatility or trading halts in the financial 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. 77 The diversification standard is set forth in Section 5(b)(1) of the 1940 Act. E:\FR\FM\27JAN1.SGM 27JAN1 4702 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices asabaliauskas on DSK5VPTVN1PROD with NOTICES Services and/or Fitch, or Baa3 or higher by Moody’s, or if unrated, determined by the Adviser to be of equivalent quality.78 Under normal circumstances, the Fund’s effective duration will vary within one year (plus or minus) of the effective duration of the securities comprising the S&P AMT-Free Municipal Series Dec 2026 Index, which, as of December 15, 2015, was 9.22 years.79 Municipal securities (‘‘Municipal Securities’’) are fixed and variable rate securities issued in the U.S. by U.S. states and territories, municipalities and other political subdivisions, agencies, authorities, and instrumentalities of states and multi-state agencies and authorities and will include only the following instruments: General obligation bonds,80 limited obligation bonds (or revenue bonds),81 municipal notes,82 municipal commercial paper,83 tender option bonds,84 variable rate demand obligations (‘‘VRDOs’’),85 78 According to the Adviser, BFA may determine that unrated securities are of ‘‘equivalent quality’’ based on such credit quality factors that it deems appropriate, which may include among other things, performing an analysis similar, to the extent possible, to that performed by a nationally recognized statistical ratings organization when rating similar securities and issuers. In making such a determination, BFA may consider internal analyses and risk ratings, third party research and analysis, and other sources of information, as deemed appropriate by the Adviser. 79 Effective duration is a measure of the Fund’s price sensitivity to changes in yields or interest rates. 80 General obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from such issuer’s general revenues and not from any particular source. 81 Limited obligation bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source, and also include industrial development bonds issued pursuant to former U.S. federal tax law. Industrial development bonds generally are also revenue bonds and thus are not payable from the issuer’s general revenues. The credit and quality of industrial development bonds are usually related to the credit of the corporate user of the facilities. Payment of interest on and repayment of principal of such bonds is the responsibility of the corporate user (and/or any guarantor). 82 Municipal notes are shorter-term municipal debt obligations that may provide interim financing in anticipation of tax collection, receipt of grants, bond sales, or revenue receipts. 83 Municipal commercial paper is generally unsecured debt that is issued to meet short-term financing needs. 84 Tender option bonds are synthetic floating-rate or variable-rate securities issued when long-term bonds are purchased in the primary or secondary market and then deposited into a trust. Custodial receipts are then issued to investors, such as the Fund, evidencing ownership interests in the trust. 85 VRDOs are tax-exempt obligations that contain a floating or variable interest rate adjustment formula and a right of demand on the part of the holder thereof to receive payment of the unpaid principal balance plus accrued interest upon a short notice period not to exceed seven days. VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 municipal lease obligations,86 stripped securities,87 structured securities,88 when issued securities,89 zero coupon securities,90 and exchange traded and non-exchange traded investment companies (including investment companies advised by BFA or its affiliates) that invest in such Municipal Securities.91 In the last year of operation, as the bonds held by the Fund mature, the proceeds will not be reinvested in bonds but instead will be held in cash and cash equivalents, including, without limitation, shares of affiliated money market funds, AMT-free tax-exempt municipal notes, VRDOs, tender option bonds and municipal commercial paper. In or around December 2026, the Fund will wind up and terminate, and its net assets will be distributed to then current shareholders. In the absence of normal circumstances, the Fund may temporarily depart from its normal investment process, provided that such departure is, in the opinion of the Adviser, consistent with the Fund’s investment objective and in the best interest of the Fund. For example, the Fund may hold a higher than normal proportion of its assets in cash in response to adverse market, economic or political conditions. 86 Municipal lease obligations include certificates of participation issued by government authorities or entities to finance the acquisition or construction of equipment, land, and/or facilities. 87 Stripped securities are created when an issuer separates the interest and principal components of an instrument and sells them as separate securities. In general, one security is entitled to receive the interest payments on the underlying assets and the other to receive the principal payments. 88 Structured securities are privately negotiated debt obligations where the principal and/or interest is determined by reference to the performance of an underlying investment, index, or reference obligation, and may be issued by governmental agencies. While structured securities are part of the principal holdings of the Fund, the Issuer represents that such securities, when combined with those instruments held as part of the other portfolio holdings described below, will not exceed 20% of the Fund’s net assets. 89 The Fund may purchase or sell securities that it is entitled to receive on a when issued or delayed delivery basis as well as through a forward commitment. 90 Zero coupon securities are securities that are sold at a discount to par value and do not pay interest during the life of the security. The discount approximates the total amount of interest the security will accrue and compound over the period until maturity at a rate of interest reflecting the market rate of the security at the time of issuance. Upon maturity, the holder of a zero coupon security is entitled to receive the par value of the security. 91 The Fund currently anticipates investing in only registered open-end investment companies, including mutual funds and the open-end investment company funds described in BATS Rule 14.11. The Fund may invest in the securities of other investment companies to the extent permitted by law. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 The Fund intends to qualify each year as a regulated investment company (a ‘‘RIC’’) under Subchapter M of the Internal Revenue Code of 1986, as amended.92 The Fund will invest its assets, and otherwise conduct its operations, in a manner that is intended to satisfy the qualifying income, diversification and distribution requirements necessary to establish and maintain RIC qualification under Subchapter M. Other Portfolio Holdings The Fund may also, to a limited extent (under normal circumstances, less than 20% of the Fund’s net assets), engage in transactions in futures contracts, options, or swaps in order to facilitate trading or to reduce transaction costs.93 The Fund’s investments will be consistent with its investment objective and will not be used to achieve leveraged returns (i.e. two times or three times the Fund’s benchmark, as described in the Registration Statement). The Fund may also enter into repurchase and reverse repurchase agreements for Municipal Securities (collectively, ‘‘Repurchase Agreements’’). Repurchase Agreements involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of borrowing as part of the Fund’s principal holdings.94 The Fund may also invest in shortterm instruments (‘‘Short-Term Instruments’’),95 which includes 92 26 U.S.C. 851. might be included in the Fund’s investments to serve the investment objectives of the Fund. Such derivatives include only the following: Interest rate futures, interest rate options, interest rate swaps, and swaps on Municipal Securities indexes. The derivatives will be centrally cleared and they will be collateralized. Derivatives are not a principal investment strategy of the Fund. 94 The Fund’s exposure to reverse repurchase agreements will be covered by liquid assets having a value equal to or greater than such commitments. The use of reverse repurchase agreements is a form of leverage because the proceeds derived from reverse repurchase agreements may be invested in additional securities. As further stated below, the Fund’s investments will be consistent with its investment objective and will not be used to achieve leveraged returns. 95 The Fund may invest in Short-Term Instruments, including money market instruments, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term investments that include only the following: (i) Shares of money market funds (including those advised by BFA or otherwise affiliated with BFA); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit (‘‘CDs’’), bankers’ acceptances, fixed-time deposits and other obligations of U.S. and non-U.S. banks (including non-U.S. branches) and similar 93 Derivatives E:\FR\FM\27JAN1.SGM 27JAN1 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices exchange traded and non-exchange traded investment companies (including investment companies advised by BFA or its affiliates) that invest in money market instruments. asabaliauskas on DSK5VPTVN1PROD with NOTICES Investment Restrictions The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), as deemed illiquid by the Adviser 96 under the 1940 Act.97 The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current institutions; (iv) commercial paper, including assetbacked commercial paper; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that satisfy the rating requirements set forth in Rule 2a– 7 under the 1940 Act; and (vi) short-term U.S. dollar-denominated obligations of non-U.S. banks (including U.S. branches) that, in the opinion of BFA, are of comparable quality to obligations of U.S. banks which may be purchased by the Fund. All money market securities acquired by the Fund will be rated investment grade. The Fund does not intend to invest in any unrated money market securities. However, it may do so, to a limited extent, such as where a rated money market security becomes unrated, if such money market security is determined by the Adviser to be of comparable quality. BFA may determine that unrated securities are of comparable quality based on such credit quality factors that it deems appropriate, which may include, among other things, performing an analysis similar, to the extent possible, to that performed by a nationally recognized statistical rating organization rating similar securities and issuers. 96 In reaching liquidity decisions, the Adviser may consider factors including: The frequency of trades and quotes for the security; the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; dealer undertakings to make a market in the security; the nature of the security and the nature of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer); any legal or contractual restrictions on the ability to transfer the security or asset; significant developments involving the issuer or counterparty specifically (e.g., default, bankruptcy, etc.) or the securities markets generally; and settlement practices, registration procedures, limitations on currency conversion or repatriation, and transfer limitations (for foreign securities or other assets). 97 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 of 1933). VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 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. The Fund may also invest up to 20% of its net assets in Municipal Securities that pay interest that is subject to the AMT. The Fund will not purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after the purchase and as a result thereof, the value of the Fund’s investments in that industry would equal or exceed 25% of the current value of the Fund’s total assets, provided that this restriction does not limit the Fund’s: (i) Investments in securities of other investment companies, (ii) investments in securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, (iii) investments in securities of state, territory, possession or municipal governments and their authorities, agencies, instrumentalities or political subdivisions or (iv) investments in repurchase agreements collateralized by any such obligations.98 Net Asset Value According to the Registration Statement, the net asset value (‘‘NAV’’) of the Funds will be calculated each business day as of the close of regular trading on the New York Stock Exchange (‘‘NYSE’’), generally 4:00 p.m. Eastern Time (the ‘‘NAV Calculation Time’’), on each day that the NYSE is open for trading, based on prices at the NAV Calculation Time. NAV per Share is calculated by dividing each Fund’s net assets by the number of Shares outstanding. According to the Registration Statement, unless otherwise described below, the Funds will value Municipal Securities using prices provided directly from one or more broker-dealers, market makers, or independent third-party pricing services which may use matrix pricing and valuation models, as well as recent market transactions for the same or similar assets, to derive values. 98 See Form N–1A, Item 9. The Commission has taken the position that a fund is concentrated if it invests in more than 25% of the value of its total assets in any one industry. See, e.g., Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 54241 (November 21, 1975). PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 4703 Exchange traded investment companies will be valued at market closing price or, if no closing price is available, at the last traded price on the primary exchange on which they are traded. Price information for such securities will be taken from the exchange where the security is primarily traded. Investment companies not listed on an exchange are valued at their net asset value. Futures and options contracts will be valued at their last sale price or settle price as of the close of the applicable exchange. Repurchase Agreements will generally be valued at par. In certain circumstances, Short-Term Instruments may be valued on the basis of amortized cost. According to the Registration Statement, generally, trading in money market instruments, and certain Municipal Securities is substantially completed each day at various times prior to the close of business on the Exchange. Additionally, trading in certain derivatives is substantially completed each day at various times prior to the close of business on the Exchange. The values of such securities and derivatives used in computing the NAV of the Funds are determined at such times. According to the Registration Statement, when market quotations are not readily available or are believed by BFA to be unreliable, the Funds’ investments are valued at fair value. Fair value determinations are made by BFA in accordance with policies and procedures approved by the Trust’s board of trustees and in accordance with the 1940 Act. BFA may conclude that a market quotation is not readily available or is unreliable if a security or other asset or liability is thinly traded, or where there is a significant event 99 subsequent to the most recent market quotation. According to the Registration Statement, fair value represents a good faith approximation of the value of an asset or liability. The fair value of an asset or liability held by a Fund is the amount that the Fund might reasonably expect to receive from the current sale of that asset or the cost to extinguish that liability in an arm’s-length transaction. Valuing a Fund’s investments using fair value pricing will result in prices that may differ from current valuations and that may not be the prices at which those investments 99 A ‘‘significant event’’ is an event that, in the judgment of BFA, is likely to cause a material change to the closing market price of the asset or liability held by the Fund. E:\FR\FM\27JAN1.SGM 27JAN1 4704 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices asabaliauskas on DSK5VPTVN1PROD with NOTICES could have been sold during the period in which the particular fair values were used. The Shares Each Fund will issue and redeem Shares on a continuous basis at the NAV per Share only in large blocks of a specified number of Shares or multiples thereof (‘‘Creation Units’’) in transactions with authorized participants who have entered into agreements with the Distributor. Each Fund currently anticipates that a Creation Unit will consist of 50,000 Shares, though this number may change from time to time, including prior to listing of the Funds. The exact number of Shares that will constitute a Creation Unit will be disclosed in the respective Registration Statement of each Fund. Once created, Shares of each Fund trade on the secondary market in amounts less than a Creation Unit. The consideration for purchase of Creation Units of a Fund generally will consist of the in-kind deposit of a designated portfolio of securities (including any portion of such securities for which cash may be substituted) (i.e., the ‘‘Deposit Securities’’), and the ‘‘Cash Component’’ computed as described below. Together, the Deposit Securities and the Cash Component constitute the ‘‘Fund Deposit,’’ which represents the minimum initial and subsequent investment amount for a Creation Unit of a Fund. The portfolio of securities required for purchase of a Creation Unit may not be identical to the portfolio of securities a Fund will deliver upon redemption of Shares. The Deposit Securities and Fund Securities (as defined below), as the case may be, in connection with a purchase or redemption of a Creation Unit, generally will correspond pro rata to the securities held by the Fund. The Cash Component will be an amount equal to the difference between the NAV of the Shares (per Creation Unit) and the ‘‘Deposit Amount,’’ which will be an amount equal to the market value of the Deposit Securities, and serve to compensate for any differences between the NAV per Creation Unit and the Deposit Amount. Each Fund generally offers Creation Units partially for cash. BFA will make available through the National Securities Clearing Corporation (‘‘NSCC’’) on each business day, prior to the opening of business on the Exchange, the list of names and the required number or par value of each Deposit Security and the amount of the Cash Component to be included in the current Fund Deposit (based on information as of the end of the previous business day) for the Fund. VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 The identity and number or par value of the Deposit Securities may change pursuant to changes in the composition of a Fund’s portfolio as rebalancing adjustments and corporate action events occur from time to time. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the holdings of a Fund. Each Fund reserves the right to permit or require the substitution of a ‘‘cash in lieu’’ amount to be added to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be eligible for transfer through the Depository Trust Company (‘‘DTC’’) or the clearing process through the NSCC.100 Except as noted below, all creation orders must be placed for one or more Creation Units and must be received by the Distributor in proper form no later than 4:00 p.m., Eastern Time, in each case on the date such order is placed in order for creation of Creation Units to be effected based on the NAV of Shares of the Fund as next determined on such date after receipt of the order in proper form. Orders requesting substitution of a ‘‘cash in lieu’’ amount generally must be received by the Distributor no later than 2:00 p.m., Eastern Time on the Settlement Date. The ‘‘Settlement Date’’ is generally the third business day after the transmittal date. On days when the Exchange or the bond markets close earlier than normal, a Fund may require orders to create or to redeem Creation Units to be placed earlier in the day. Fund Deposits must be delivered through the Federal Reserve System (for cash and government securities), through DTC (for corporate and municipal securities), or through a central depository account, such as with Euroclear or DTC, maintained by State Street or a sub-custodian (a ‘‘Central Depository Account’’) by an authorized participant. Any portion of a Fund Deposit that may not be delivered through the Federal Reserve System or DTC must be delivered through a Central Depository Account. The Fund Deposit transfer must be ordered by the authorized participant in a timely fashion so as to ensure the delivery of the requisite number of Deposit Securities to the account of the Fund by no later than 3:00 p.m., Eastern Time, on the Settlement Date. A standard creation transaction fee will be imposed to offset the transfer 100 The Adviser represents that, to the extent the Trust permits or requires a ‘‘cash in lieu’’ amount, such transactions will be effected in the same manner or in an equitable manner for all authorized participants. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 and other transaction costs associated with the issuance of Creation Units. Shares of a Fund may be redeemed only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Distributor and only on a business day. BFA will make available through the NSCC, prior to the opening of business on the Exchange on each business day, the designated portfolio of securities (including any portion of such securities for which cash may be substituted) that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form on that day (‘‘Fund Securities’’). Fund Securities received on redemption may not be identical to Deposit Securities that are applicable to creations of Creation Units. Unless cash redemptions are available or specified for a Fund, the redemption proceeds for a Creation Unit generally will consist of a specified amount of cash, Fund Securities, plus additional cash in an amount equal to the difference between the NAV of the Shares being redeemed, as next determined after the receipt of a request in proper form, and the value of the specified amount of cash and Fund Securities, less a redemption transaction fee. Each Fund generally redeems Creation Units partially for cash. A standard redemption transaction fee will be imposed to offset transfer and other transaction costs that may be incurred by the Fund. Redemption requests for Creation Units of a Fund must be submitted to the Distributor by or through an authorized participant no later than 4:00 p.m. Eastern Time on any business day, in order to receive that day’s NAV. The authorized participant must transmit the request for redemption in the form required by the Fund to the Distributor in accordance with procedures set forth in the authorized participant agreement. Additional information regarding the Shares and each Fund, including investment strategies, risks, creation and redemption procedures, fees and expenses, portfolio holdings disclosure policies, distributions, taxes and reports to be distributed to beneficial owners of the Shares can be found in the Registration Statement or on the Web site for the Funds (www.iShares.com), as applicable. Availability of Information The Funds’ Web site, which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for each Fund that may be downloaded. The Web site will include additional quantitative E:\FR\FM\27JAN1.SGM 27JAN1 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices asabaliauskas on DSK5VPTVN1PROD with NOTICES information updated on a daily basis, including, for each Fund: (1) The prior business day’s NAV and the market closing price or mid-point of the bid/ask spread at the time of calculation of such NAV (the ‘‘Bid/Ask Price’’),101 and a calculation of the premium or discount of the market closing price or 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. Daily trading volume information will be available in the financial section of newspapers, through subscription services such as Bloomberg, Thomson Reuters, and International Data Corporation, which can be accessed by authorized participants and other investors, as well as through other electronic services, including major public Web sites. On each business day, before commencement of trading in Shares during Regular Trading Hours on the Exchange, each Fund will disclose on its Web site the identities and quantities of the portfolio of securities and other assets (the ‘‘Disclosed Portfolio’’) held by the Fund that will form the basis for the Fund’s calculation of NAV at the end of the business day.102 The Disclosed Portfolio will include, as applicable, the names, quantity, percentage weighting and market value of securities and other assets held by the Fund and the characteristics of such assets. The Web site and information will be publicly available at no charge. In addition, for each Fund, an estimated value, defined in BATS Rule 14.11(i)(3)(C) as the ‘‘Intraday Indicative Value,’’ that reflects an estimated intraday value of the Fund’s portfolio, will be disseminated. Moreover, the Intraday Indicative Value will be based upon the current value for the components of the Disclosed Portfolio and will be updated and widely disseminated by one or more major market data vendors at least every 15 seconds during the Exchange’s Regular Trading Hours.103 101 The Bid/Ask Price of the Fund will be determined using the highest bid and the lowest offer on the Exchange as of the time of calculation of the Fund’s NAV. The records relating to Bid/Ask Prices will be retained by the Fund or its service providers. 102 Under accounting procedures to be followed by each Fund, trades made on the prior business day (‘‘T’’) will be booked and reflected in NAV on the current business day (‘‘T+1’’). Accordingly, each 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. 103 Currently, it is the Exchange’s understanding that several major market data vendors display and/ VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 The dissemination of the Intraday Indicative Value, together with the Disclosed Portfolio, will allow investors to determine the value of the underlying portfolio of each Fund on a daily basis and provide a close estimate of that value throughout the trading day. Intraday, executable price quotations on assets held by each Fund are available from major broker-dealer firms and for exchange-traded assets, including investment companies, such intraday information is available directly from the applicable listing exchange. All such intraday price information is available through subscription services, such as Bloomberg, Thomson Reuters and International Data Corporation, which can be accessed by authorized participants and other investors. Pricing information for Repurchase Agreements and securities not listed on an exchange or national securities market will be available from major broker-dealer firms and/or subscription services, such as Bloomberg, Thomson Reuters and International Data Corporation. Information regarding market price and volume of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services. The previous day’s closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. Quotation and last sale information for the Shares will be available on the facilities of the CTA. Price information relating to all other securities held by the Funds will be available from major market data vendors. Quotations and last sale information for the underlying exchange traded investment companies will be available through CTA. Initial and Continued Listing or make widely available Intraday Indicative Values published via the Consolidated Tape Association (‘‘CTA’’) or other data feeds. 104 See 17 CFR 240.10A–3. Frm 00098 Fmt 4703 Sfmt 4703 available to all market participants at the same time. 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 each Fund. The Exchange will halt trading in the Shares under the conditions specified in BATS Rule 11.18. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) The extent to which trading is not occurring in the securities and/or the financial instruments composing the Disclosed Portfolio of the Fund; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. Trading in the Shares also will be subject to Rule 14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares of a 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. BATS will allow trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern Time. The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. As provided in BATS Rule 11.11(a), the minimum price variation for quoting and entry of orders in Managed Fund Shares traded on the Exchange is $0.01, with the exception of securities that are priced less than $1.00, for which the minimum price variation for order entry is $0.0001. Surveillance The Shares will be subject to BATS Rule 14.11(i), which sets forth the initial and continued listing criteria applicable to Managed Fund Shares. The Exchange represents that, for initial and/or continued listing, each Fund must be in compliance with Rule 10A–3 under the Act.104 A minimum of 100,000 Shares of each Fund will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio will be made PO 00000 4705 The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of the Shares on the Exchange during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. Trading of the Shares through the Exchange will be subject to the Exchange’s surveillance procedures for derivative products, including Managed Fund Shares. The Exchange may obtain information regarding trading in the Shares and the underlying shares in exchange traded equity securities via the ISG, from other exchanges that are members or affiliates of the ISG, or with which the Exchange has entered into a comprehensive surveillance sharing E:\FR\FM\27JAN1.SGM 27JAN1 4706 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices agreement.105 In addition, the Exchange is able to access, as needed, trade information for certain fixed income instruments reported to FINRA’s Trade Reporting and Compliance Engine (‘‘TRACE’’). As it relates to exchange traded investment companies, the Funds will only invest in investment companies that trade on markets that are a member of the ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. The Exchange prohibits the distribution of material non-public information by its employees. In addition, the Information Circular will reference that each Fund is subject to various fees and expenses described in the Registration Statement. The Information Circular will also disclose the trading hours of the Shares of the Funds and the applicable NAV Calculation Time for the Shares. The Information Circular will disclose that information about the Shares of the Funds will be publicly available on the Funds’ Web site. In addition, the Information Circular will reference that the Trust is subject to various fees and expenses described in each Fund’s Registration Statement. Information Circular 2. Statutory Basis The Exchange believes that the proposal is consistent with Section 6(b) of the Act 108 in general and Section 6(b)(5) of the Act 109 in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system 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 BATS Rule 14.11(i). The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of the Shares on the Exchange during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. BATS Rule 14.11(i)(7) 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. The Adviser is not a registered broker-dealer, but is affiliated with multiple brokerdealers and has implemented ‘‘fire walls’’ with respect to such brokerdealers regarding access to information concerning the composition and/or changes to a Fund’s portfolio. In addition, Adviser personnel who make decisions regarding a Fund’s portfolio asabaliauskas on DSK5VPTVN1PROD with NOTICES Prior to the commencement of trading, the Exchange will inform its members in an Information Circular of the special characteristics and risks associated with trading the Shares. Specifically, the Information Circular will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (2) BATS Rule 3.7, which imposes suitability obligations on Exchange members with respect to recommending transactions in the Shares to customers; (3) how information regarding the Intraday Indicative Value is disseminated; (4) the risks involved in trading the Shares during the Pre-Opening 106 and After Hours Trading Sessions 107 when an updated Intraday Indicative Value will not be calculated or publicly disseminated; (5) the requirement that members deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (6) trading information. In addition, the Information Circular will advise members, prior to the commencement of trading, of the prospectus delivery requirements applicable to the Funds. Members purchasing Shares from the Funds for resale to investors will deliver a prospectus to such investors. The Information Circular will also discuss any exemptive, no-action, and interpretive relief granted by the Commission from any rules under the Act. 105 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. 106 The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. Eastern Time. 107 The After Hours Trading Session is from 4:00 p.m. to 5:00 p.m. Eastern Time. VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 108 15 109 15 PO 00000 U.S.C. 78f. U.S.C. 78f(b)(5). Frm 00099 Fmt 4703 Sfmt 4703 are subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the Fund’s portfolio. The Exchange may obtain information regarding trading in the Shares and the underlying shares in exchange traded equity securities via the ISG, from other exchanges that are members or affiliates of the ISG, or with which the Exchange has entered into a comprehensive surveillance sharing agreement. In addition, the Exchange is able to access, as needed, trade information for certain fixed income instruments reported to TRACE. According to the Registration Statement, each Fund will invest, under normal circumstances,110 at least 80% of its net assets in Municipal Securities such that the interest on each security is exempt from U.S. federal income taxes and the federal AMT. Additionally, each Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), as deemed illiquid by the Adviser 111 under the 1940 Act.112 Each 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. The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest in that the Exchange will 110 See supra note 7. supra note 27. 112 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 of 1933). 111 See E:\FR\FM\27JAN1.SGM 27JAN1 asabaliauskas on DSK5VPTVN1PROD with NOTICES Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time. In addition, a large amount of information is publicly available regarding the Funds and the Shares, thereby promoting market transparency. Moreover, the Intraday Indicative Value will be disseminated by one or more major market data vendors at least every 15 seconds during Regular Trading Hours. On each business day, before commencement of trading in Shares during Regular Trading Hours, each Fund will disclose on its Web site the Disclosed Portfolio that will form the basis for the Fund’s calculation of NAV at the end of the business day. Pricing information will include additional quantitative information updated on a daily basis, including, for the Fund: (1) The prior business day’s NAV and the market closing price or mid-point of the Bid/Ask Price,113 and a calculation of the premium or discount of the market closing price or Bid/Ask Price against the NAV; and (2) data in chart format displaying the frequency distribution of discounts and premiums of the daily market closing price or Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters. Additionally, information regarding market price and trading of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services, and quotation and last sale information for the Shares will be available on the facilities of the CTA. The Web site for each Fund will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information. Trading in Shares of a Fund will be halted under the conditions specified in BATS Rule 11.18. Trading may also be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. Finally, trading in the Shares will be subject to BATS Rule 14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares may be halted. In addition, as noted above, investors will have ready access to information regarding the Fund’s holdings, the Intraday Indicative Value, 113 The Bid/Ask Price of a Fund will be determined using the highest bid and the lowest offer on the Exchange as of the time of calculation of the Fund’s NAV. The records relating to Bid/Ask Prices will be retained by the Fund or its service providers. VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 the Disclosed Portfolio, and quotation and last sale information for the Shares. Intraday, executable price quotations on assets held by the Funds are available from major broker-dealer firms and for exchange-traded assets, including investment companies, such intraday information is available directly from the applicable listing exchange. All such intraday price information is available through subscription services, such as Bloomberg, Thomson Reuters and International Data Corporation, which can be accessed by authorized participants and other investors. The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of an additional type of activelymanaged exchange traded product that will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, the Exchange has in place surveillance procedures relating to trading in the Shares and may obtain information via ISG, from other exchanges that are members of ISG, or with which the Exchange has entered into a comprehensive surveillance sharing agreement. In addition, the Exchange is able to access, as needed, trade information for certain fixed income instruments reported to TRACE. As noted above, investors will also have ready access to information regarding each Fund’s holdings, the Intraday Indicative Value, the Disclosed Portfolio, and quotation and last sale information for the Shares. For the above reasons, the Exchange believes that the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Act. The Exchange notes that the proposed rule change will facilitate the listing and trading of an additional actively-managed exchangetraded product that will enhance competition among market participants, to the benefit of investors and the marketplace. PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 4707 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received written comments on 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. 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– BATS–2016–02 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–2016–02. 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 E:\FR\FM\27JAN1.SGM 27JAN1 4708 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices 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– 2016–02 and should be submitted on or before February 17, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.114 Brent J. Fields, Secretary. [FR Doc. 2016–01535 Filed 1–26–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–76959; File No. SR–C2– 2015–033] Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 Thereto, Relating to Price Protection Mechanisms for Quotes and Orders January 21, 2016. asabaliauskas on DSK5VPTVN1PROD with NOTICES I. Introduction C2 Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘C2’’) filed on November 25, 2015, with the Securities and Exchange Commission (the ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposal to enhance its current price protection mechanisms and adopt certain new price protection functionality for orders and quotes. On December 4, 2015, the Exchange filed Amendment No. 1 to the proposed rule change. The proposed rule change, as modified by Amendment No. 1, was published for comment in the Federal Register on December 11, 2015.3 On 114 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 76584 (December 8, 2015), 80 FR 77047 (December 11, 2015) (‘‘Notice’’). 1 15 VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 December 29, 2015, the Exchange filed Amendment No. 2 to the proposed rule change.4 The Commission received no substantive comment letters on the proposal. This order approves the proposed rule change, as modified by Amendment Nos. 1 and 2, on an accelerated basis. The Exchange may determine not to apply this proposed price protection mechanism if a senior official at the Exchange’s Help Desk determines the applicable check should not apply in the interest of maintaining a fair and orderly market.7 II. Description of the Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 The Exchange proposes to adopt new Exchange Rules 6.17(d) and (e) and to amend Exchange Rule 6.13, Interpretation and Policy .04, to enhance its current price protection mechanisms for orders and quotes in order to help prevent potentially erroneous executions.5 Proposed Exchange Rule 6.17(e) will apply new a price reasonability check to Market Maker quotes based on the national best bid or offer (‘‘NBBO’’) or the Exchange’s best bid or offer if the NBBO is unavailable.8 Specifically, if C2 is at the NBBO, the System will reject a quote back to a Market Maker if the quote bid or offer crosses the opposite side of the NBBO by more than a number of ticks specified by the Exchange.9 If C2 is not at the NBBO, the System will reject a quote back to a Market-Maker if the quote bid or offer locks or crosses the opposite side of the NBBO.10 The Exchange may determine not to apply this check to quotes entered during the pre-opening, a trading rotation, or a trading halt, and would announce to Participants any such determination thorough a Regulatory Circular.11 A. Put Strike Price and Call Underlying Value Checks Proposed Exchange Rule 6.17(d) will provide a new price protection functionality pursuant to which the Exchange’s automated trading system (‘‘System’’) will reject back to the Participant a quote or buy limit order for (i) a put if the price of the quote bid or order is equal to or greater than the strike price of the option or (ii) a call if the price of the quote bid or order is equal to or greater than the consolidated last sale price of the underlying security, with respect to equity and exchange-traded fund options, or the last disseminated underlying index value, with respect to index options.6 4 In Amendment No. 2, the Exchange amended the proposed rule language to (i) clarify that it will notify Trading Permit Holders by electronic message if the Exchange determines that the put strike price or call underlying value check should not apply in the interest of maintaining a fair and orderly market under proposed Exchange Rule 6.17(d)(ii) and (ii) limit the potential range of the percentage amount used to calculate the maximum value acceptable price range check in proposed Exchange Rule 6.13, Interpretation and Policy .04(h)(1)(iii). In Amendment No. 2, C2 also represented that it will document, retain, and periodically review any Exchange decision to not apply the put check or call check under proposed Exchange Rule 6.17(d)(ii), including the reason for the decision. See Amendment No. 2 to File No. SR– C2–2015–033, dated December 29, 2015 (‘‘Amendment No. 2’’). To promote transparency of its proposed amendment, when C2 filed Amendment No. 2 with the Commission, it also submitted Amendment No. 2 as a comment letter to the file, which the Commission posted on its Web site and placed in the public comment file for SR–C2–2015–033. The Exchange also posted a copy of its Amendment No. 2 on its Web site (https:// www.c2exchange.com/legal/rulefilings.aspx) when it filed the amendment with the Commission. 5 For a more detailed description of each proposed price protection mechanism, see Notice, supra note 3. 6 If the System rejects a Market Maker’s quote pursuant to either proposed price check, the Exchange will cancel any resting quote of the Market Maker in the same series. See proposed Exchange Rule 6.17(d); see also Notice, supra note PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 B. Quote Inverting NBBO Check C. Debit/Credit Price Reasonability Checks The Exchange proposes to amend its price check parameters applicable to complex orders that are contained in current Exchange Rule 6.13, 3, at 77048. These proposed checks also will apply to buy auction responses in the same manner as it does to orders and quotes, as well as pairs of orders submitted to the Exchange’s Automated Improvement Mechanism (‘‘AIM’’) or Solicitation Auction Mechanism (‘‘SAM’’). See id. 7 See proposed Exchange Rule 6.17(d)(ii); see also Notice, supra note 3, at 77048. The Exchange represented that it will document, retain, and periodically review any decision to not apply the put check or call check, including the reason for the decision. See Amendment No. 2, supra note 4. 8 See proposed Exchange Rule 6.17(e); see also Notice, supra note 3, at 77049–50. 9 The Exchange states that the number of ticks will be no less than three minimum increment ticks and announced to Participants by Regulatory Circular. See proposed Exchange Rule 6.17(e); see also Notice, supra note 3, at 77049. In addition, proposed Exchange Rule 6.17(e)(iii) addresses situations where C2 accepts a quote that locks or crosses the NBBO. 10 See proposed Exchange Rule 6.17(e)(i); see also Notice, supra note 3, at 77050. As an additional risk control feature, if a Market Maker submits a quote in a series in which the Market Maker already has a resting quote and the Exchange rejects that quote pursuant to this proposed check, the Exchange will cancel the Market Maker’s resting quote in the series. See Notice, supra note 3, at 77049. 11 See proposed Exchange Rule 6.17(e)(ii); see also Notice, supra note 3, at 77049–50. Additionally, this proposed check will not apply if a senior official at the Exchange’s Help Desk determines it should not apply in the interest of maintaining a fair and orderly market. See id. E:\FR\FM\27JAN1.SGM 27JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 81, Number 17 (Wednesday, January 27, 2016)]
[Notices]
[Pages 4695-4708]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01535]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76954; File No. SR-BATS-2016-02]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change to Rule 14.11(i), Managed Fund Shares, 
to List and Trade Shares of the iShares iBonds Dec 2023 AMT-Free Muni 
Bond ETF, iShares iBonds Dec 2024 AMT-Free Muni Bond ETF, iShares 
iBonds Dec 2025 AMT-Free Muni Bond ETF, and iShares iBonds Dec 2026 
AMT-Free Muni Bond ETF of the iShares U.S. ETF Trust

January 21, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 12, 2016, BATS Exchange, Inc. (``Exchange'' or ``BATS'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to a rule change to list and trade shares 
of the iShares iBonds Dec 2023 AMT-Free Muni Bond ETF, iShares iBonds 
Dec 2024 AMT-Free Muni Bond ETF, iShares iBonds Dec 2025 AMT-Free Muni 
Bond ETF, and iShares iBonds Dec 2026 AMT-Free Muni Bond ETF (each a 
``Fund'' or, collectively, the ``Funds'') of the iShares U.S. ETF Trust 
(the ``Trust'') under BATS Rule 14.11(i) (``Managed Fund Shares''). The 
shares of the Funds are referred to herein as the ``Shares.''
    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade the Shares under BATS Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange.\3\ The Funds will be actively managed funds. The 
Shares will be offered by the Trust, which was established as a 
Delaware statutory trust on June 21, 2011. The Trust is registered with 
the Commission as an open-end investment company and has filed a 
registration statement on behalf of the Funds on Form N-1A 
(``Registration Statement'') with the Commission.\4\
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    \3\ The Commission approved BATS Rule 14.11(i) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \4\ See Registration Statement on Form N-1A for the Trust, dated 
November 2, 2015 (File Nos. 333-179904 and 811-22649). The 
descriptions of the Funds and the Shares contained herein are based, 
in part, on information in the Registration Statement. The 
Commission has issued an order granting certain exemptive relief to 
the Trust under the Investment Company Act of 1940 (15 U.S.C. 80a-1) 
(``1940 Act'') (the ``Exemptive Order''). See Investment Company Act 
Release No. 29571 (January 24, 2011) (File No. 812-13601).
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Description of the Shares and the Funds
    BlackRock Fund Advisors is the investment adviser (``BFA'' or 
``Adviser'') to the Funds.\5\ State Street Bank and Trust Company is 
the administrator, custodian, and transfer agent (``Administrator,'' 
``Custodian,'' and ``Transfer Agent,'' respectively) for the Trust. 
BlackRock Investments, LLC serves as the distributor (``Distributor'') 
for the Trust.
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    \5\ BFA is an indirect wholly owned subsidiary of BlackRock, 
Inc.
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    BATS Rule 14.11(i)(7) 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.\6\ In addition, Rule

[[Page 4696]]

14.11(i)(7) further requires that personnel who make decisions on the 
investment company's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable investment company 
portfolio. Rule 14.11(i)(7) is similar to BATS Rule 14.11(b)(5)(A)(i), 
however, Rule 14.11(i)(7) in connection with the establishment of a 
``fire wall'' between the investment adviser and the broker-dealer 
reflects the applicable open-end fund's portfolio, not an underlying 
benchmark index, as is the case with index-based funds. The Adviser is 
not a registered broker-dealer, but is affiliated with multiple broker-
dealers and has implemented ``fire walls'' with respect to such broker-
dealers regarding access to information concerning the composition and/
or changes to a Fund's portfolio. In addition, Adviser personnel who 
make decisions regarding a Fund's portfolio are subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the Fund's portfolio. In the event that (a) the 
Adviser becomes registered as a broker-dealer or newly affiliated with 
another broker-dealer, or (b) any new adviser or sub-adviser is a 
registered broker-dealer or becomes affiliated with a broker-dealer, it 
will implement a fire wall with respect to its relevant personnel or 
such broker-dealer affiliate, as applicable, regarding access to 
information concerning the composition and/or changes to the portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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iShares iBonds Dec 2023 AMT-Free Muni Bond ETF
    According to the Registration Statement, the Fund will seek to 
maximize tax-free current income and terminate on or around December 
2023. To achieve its objective, the Fund will invest, under normal 
circumstances,\7\ at least 80% of its net assets in Municipal 
Securities, as defined below, such that the interest on each security 
is exempt from U.S. federal income taxes and the federal alternative 
minimum tax (the ``AMT''). The Fund is not a money market fund and does 
not seek to maintain a stable net asset value of $1.00 per share. The 
Fund will be classified as a ``non-diversified'' investment company 
under the 1940 Act.\8\
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    \7\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of adverse market, economic, political, or 
other conditions, including extreme volatility or trading halts in 
the financial 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.
    \8\ The diversification standard is set forth in Section 5(b)(1) 
of the 1940 Act.
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    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended. The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M.
Principal Holdings--Municipal Securities
    To achieve its objective, the Fund will invest, under normal 
circumstances, in U.S.-dollar denominated investment-grade fixed-rate 
Municipal Securities, as defined below. The Fund will invest in both 
callable and non-callable municipal bonds. Investment-grade securities 
are rated a minimum of BBB- or higher by Standard & Poor's Ratings 
Services and/or Fitch, or Baa3 or higher by Moody's, or if unrated, 
determined by the Adviser to be of equivalent quality.\9\ Under normal 
circumstances, the Fund's effective duration will vary within one year 
(plus or minus) of the effective duration of the securities comprising 
the S&P AMT-Free Municipal Series Dec 2023 Index, which, as of December 
15, 2015, was 6.51 years.\10\
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    \9\ According to the Adviser, BFA may determine that unrated 
securities are of ``equivalent quality'' based on such credit 
quality factors that it deems appropriate, which may include among 
other things, performing an analysis similar, to the extent 
possible, to that performed by a nationally recognized statistical 
ratings organization when rating similar securities and issuers. In 
making such a determination, BFA may consider internal analyses and 
risk ratings, third party research and analysis, and other sources 
of information, as deemed appropriate by the Adviser.
    \10\ Effective duration is a measure of the Fund's price 
sensitivity to changes in yields or interest rates.
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    Municipal securities (``Municipal Securities'') are fixed and 
variable rate securities issued in the U.S. by U.S. states and 
territories, municipalities and other political subdivisions, agencies, 
authorities, and instrumentalities of states and multi-state agencies 
and authorities and will include only the following instruments: 
General obligation bonds,\11\ limited obligation bonds (or revenue 
bonds),\12\ municipal notes,\13\ municipal commercial paper,\14\ tender 
option bonds,\15\ variable rate demand obligations (``VRDOs''),\16\ 
municipal lease obligations,\17\ stripped securities,\18\ structured 
securities,\19\ when issued securities,\20\ zero coupon securities,\21\ 
and exchange traded and

[[Page 4697]]

non-exchange traded investment companies (including investment 
companies advised by BFA or its affiliates) that invest in such 
Municipal Securities.\22\
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    \11\ General obligation bonds are obligations involving the 
credit of an issuer possessing taxing power and are payable from 
such issuer's general revenues and not from any particular source.
    \12\ Limited obligation bonds are payable only from the revenues 
derived from a particular facility or class of facilities or, in 
some cases, from the proceeds of a special excise or other specific 
revenue source, and also include industrial development bonds issued 
pursuant to former U.S. federal tax law. Industrial development 
bonds generally are also revenue bonds and thus are not payable from 
the issuer's general revenues. The credit and quality of industrial 
development bonds are usually related to the credit of the corporate 
user of the facilities. Payment of interest on and repayment of 
principal of such bonds is the responsibility of the corporate user 
(and/or any guarantor).
    \13\ Municipal notes are shorter-term municipal debt obligations 
that may provide interim financing in anticipation of tax 
collection, receipt of grants, bond sales, or revenue receipts.
    \14\ Municipal commercial paper is generally unsecured debt that 
is issued to meet short-term financing needs.
    \15\ Tender option bonds are synthetic floating-rate or 
variable-rate securities issued when long-term bonds are purchased 
in the primary or secondary market and then deposited into a trust. 
Custodial receipts are then issued to investors, such as the Fund, 
evidencing ownership interests in the trust.
    \16\ VRDOs are tax-exempt obligations that contain a floating or 
variable interest rate adjustment formula and a right of demand on 
the part of the holder thereof to receive payment of the unpaid 
principal balance plus accrued interest upon a short notice period 
not to exceed seven days.
    \17\ Municipal lease obligations include certificates of 
participation issued by government authorities or entities to 
finance the acquisition or construction of equipment, land, and/or 
facilities.
    \18\ Stripped securities are created when an issuer separates 
the interest and principal components of an instrument and sells 
them as separate securities. In general, one security is entitled to 
receive the interest payments on the underlying assets and the other 
to receive the principal payments.
    \19\ Structured securities are privately negotiated debt 
obligations where the principal and/or interest is determined by 
reference to the performance of an underlying investment, index, or 
reference obligation, and may be issued by governmental agencies. 
While structured securities are part of the principal holdings of 
the Fund, the Issuer represents that such securities, when combined 
with those instruments held as part of the other portfolio holdings 
described below, will not exceed 20% of the Fund's net assets.
    \20\ The Fund may purchase or sell securities that it is 
entitled to receive on a when issued or delayed delivery basis as 
well as through a forward commitment.
    \21\ Zero coupon securities are securities that are sold at a 
discount to par value and do not pay interest during the life of the 
security. The discount approximates the total amount of interest the 
security will accrue and compound over the period until maturity at 
a rate of interest reflecting the market rate of the security at the 
time of issuance. Upon maturity, the holder of a zero coupon 
security is entitled to receive the par value of the security.
    \22\ The Fund currently anticipates investing in only registered 
open-end investment companies, including mutual funds and the open-
end investment company funds described in BATS Rule 14.11. The Fund 
may invest in the securities of other investment companies to the 
extent permitted by law.
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    In the last year of operation, as the bonds held by the Fund 
mature, the proceeds will not be reinvested in bonds but instead will 
be held in cash and cash equivalents, including, without limitation, 
shares of affiliated money market funds, AMT-free tax-exempt municipal 
notes, VRDOs, tender option bonds and municipal commercial paper. In or 
around December 2023, the Fund will wind up and terminate, and its net 
assets will be distributed to then current shareholders.
    In the absence of normal circumstances, the Fund may temporarily 
depart from its normal investment process, provided that such departure 
is, in the opinion of the Adviser, consistent with the Fund's 
investment objective and in the best interest of the Fund. For example, 
the Fund may hold a higher than normal proportion of its assets in cash 
in response to adverse market, economic or political conditions.
    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.\23\ The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M.
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    \23\ 26 U.S.C. 851.
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Other Portfolio Holdings
    The Fund may also, to a limited extent (under normal circumstances, 
less than 20% of the Fund's net assets), engage in transactions in 
futures contracts, options, or swaps in order to facilitate trading or 
to reduce transaction costs.\24\ The Fund's investments will be 
consistent with its investment objective and will not be used to 
achieve leveraged returns (i.e. two times or three times the Fund's 
benchmark, as described in the Registration Statement).
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    \24\ Derivatives might be included in the Fund's investments to 
serve the investment objectives of the Fund. Such derivatives 
include only the following: Interest rate futures, interest rate 
options, interest rate swaps, and swaps on Municipal Securities 
indexes. The derivatives will be centrally cleared and they will be 
collateralized. Derivatives are not a principal investment strategy 
of the Fund.
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    The Fund may also enter into repurchase and reverse repurchase 
agreements for Municipal Securities (collectively, ``Repurchase 
Agreements''). Repurchase Agreements involve the sale of securities 
with an agreement to repurchase the securities at an agreed-upon price, 
date and interest payment and have the characteristics of borrowing as 
part of the Fund's principal holdings.\25\
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    \25\ The Fund's exposure to reverse repurchase agreements will 
be covered by liquid assets having a value equal to or greater than 
such commitments. The use of reverse repurchase agreements is a form 
of leverage because the proceeds derived from reverse repurchase 
agreements may be invested in additional securities. As further 
stated below, the Fund's investments will be consistent with its 
investment objective and will not be used to achieve leveraged 
returns.
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    The Fund may also invest in short-term instruments (``Short-Term 
Instruments''),\26\ which includes exchange traded and non-exchange 
traded investment companies (including investment companies advised by 
BFA or its affiliates) that invest in money market instruments.
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    \26\ The Fund may invest in Short-Term Instruments, including 
money market instruments, on an ongoing basis to provide liquidity 
or for other reasons. Money market instruments are generally short-
term investments that include only the following: (i) Shares of 
money market funds (including those advised by BFA or otherwise 
affiliated with BFA); (ii) obligations issued or guaranteed by the 
U.S. government, its agencies or instrumentalities (including 
government-sponsored enterprises); (iii) negotiable certificates of 
deposit (``CDs''), bankers' acceptances, fixed-time deposits and 
other obligations of U.S. and non-U.S. banks (including non-U.S. 
branches) and similar institutions; (iv) commercial paper, including 
asset-backed commercial paper; (v) non-convertible corporate debt 
securities (e.g., bonds and debentures) with remaining maturities at 
the date of purchase of not more than 397 days and that satisfy the 
rating requirements set forth in Rule 2a-7 under the 1940 Act; and 
(vi) short-term U.S. dollar-denominated obligations of non-U.S. 
banks (including U.S. branches) that, in the opinion of BFA, are of 
comparable quality to obligations of U.S. banks which may be 
purchased by the Fund. All money market securities acquired by the 
Fund will be rated investment grade. The Fund does not intend to 
invest in any unrated money market securities. However, it may do 
so, to a limited extent, such as where a rated money market security 
becomes unrated, if such money market security is determined by the 
Adviser to be of comparable quality. BFA may determine that unrated 
securities are of comparable quality based on such credit quality 
factors that it deems appropriate, which may include, among other 
things, performing an analysis similar, to the extent possible, to 
that performed by a nationally recognized statistical rating 
organization rating similar securities and issuers.
---------------------------------------------------------------------------

Investment Restrictions
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), as 
deemed illiquid by the Adviser \27\ under the 1940 Act.\28\ 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.
---------------------------------------------------------------------------

    \27\ In reaching liquidity decisions, the Adviser may consider 
factors including: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer); any legal or contractual 
restrictions on the ability to transfer the security or asset; 
significant developments involving the issuer or counterparty 
specifically (e.g., default, bankruptcy, etc.) or the securities 
markets generally; and settlement practices, registration 
procedures, limitations on currency conversion or repatriation, and 
transfer limitations (for foreign securities or other assets).
    \28\ 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 of 1933).
---------------------------------------------------------------------------

    The Fund may also invest up to 20% of its net assets in Municipal 
Securities that pay interest that is subject to the AMT.
    The Fund will not purchase the securities of issuers conducting 
their principal business activity in the same industry if, immediately 
after the purchase and as a result thereof, the value of the Fund's 
investments in that industry would equal or exceed 25% of the current 
value of the Fund's total assets, provided that this restriction does 
not limit the Fund's: (i) Investments in securities of other investment 
companies, (ii) investments in securities issued or guaranteed by the 
U.S. government, its agencies or

[[Page 4698]]

instrumentalities, (iii) investments in securities of state, territory, 
possession or municipal governments and their authorities, agencies, 
instrumentalities or political subdivisions or (iv) investments in 
repurchase agreements collateralized by any such obligations.\29\
---------------------------------------------------------------------------

    \29\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests in more than 25% 
of the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
---------------------------------------------------------------------------

iShares iBonds Dec 2024 AMT-Free Muni Bond ETF
    According to the Registration Statement, the Fund will seek to 
maximize tax-free current income and terminate on or around December 
2024. To achieve its objective, the Fund will invest, under normal 
circumstances,\30\ at least 80% of its net assets in Municipal 
Securities, as defined below, such that the interest on each security 
is exempt from U.S. federal income taxes and the federal alternative 
minimum tax (the ``AMT''). The Fund is not a money market fund and does 
not seek to maintain a stable net asset value of $1.00 per share. The 
Fund will be classified as a ``non-diversified'' investment company 
under the 1940 Act.\31\
---------------------------------------------------------------------------

    \30\ The term ``under normal circumstances'' includes, but is 
not limited to, the absence of adverse market, economic, political, 
or other conditions, including extreme volatility or trading halts 
in the financial 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.
    \31\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
---------------------------------------------------------------------------

    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended. The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M.
Principal Holdings--Municipal Securities
    To achieve its objective, the Fund will invest, under normal 
circumstances, in U.S.-dollar denominated investment-grade fixed-rate 
Municipal Securities, as defined below. The Fund will invest in both 
callable and non-callable municipal bonds. Investment-grade securities 
are rated a minimum of BBB- or higher by Standard & Poor's Ratings 
Services and/or Fitch, or Baa3 or higher by Moody's, or if unrated, 
determined by the Adviser to be of equivalent quality.\32\ Under normal 
circumstances, the Fund's effective duration will vary within one year 
(plus or minus) of the effective duration of the securities comprising 
the S&P AMT-Free Municipal Series Dec 2024 Index, which, as of December 
15, 2015, was 7.24 years.\33\
---------------------------------------------------------------------------

    \32\ According to the Adviser, BFA may determine that unrated 
securities are of ``equivalent quality'' based on such credit 
quality factors that it deems appropriate, which may include among 
other things, performing an analysis similar, to the extent 
possible, to that performed by a nationally recognized statistical 
ratings organization when rating similar securities and issuers. In 
making such a determination, BFA may consider internal analyses and 
risk ratings, third party research and analysis, and other sources 
of information, as deemed appropriate by the Adviser.
    \33\ Effective duration is a measure of the Fund's price 
sensitivity to changes in yields or interest rates.
---------------------------------------------------------------------------

    Municipal securities (``Municipal Securities'') are fixed and 
variable rate securities issued in the U.S. by U.S. states and 
territories, municipalities and other political subdivisions, agencies, 
authorities, and instrumentalities of states and multi-state agencies 
and authorities and will include only the following instruments: 
General obligation bonds,\34\ limited obligation bonds (or revenue 
bonds),\35\, municipal notes,\36\ municipal commercial paper,\37\ 
tender option bonds,\38\ variable rate demand obligations 
(``VRDOs''),\39\ municipal lease obligations,\40\ stripped 
securities,\41\ structured securities,\42\ when issued securities,\43\ 
zero coupon securities,\44\ and exchange traded and non-exchange traded 
investment companies (including investment companies advised by BFA or 
its affiliates) that invest in such Municipal Securities.\45\
---------------------------------------------------------------------------

    \34\ General obligation bonds are obligations involving the 
credit of an issuer possessing taxing power and are payable from 
such issuer's general revenues and not from any particular source.
    \35\ Limited obligation bonds are payable only from the revenues 
derived from a particular facility or class of facilities or, in 
some cases, from the proceeds of a special excise or other specific 
revenue source, and also include industrial development bonds issued 
pursuant to former U.S. federal tax law. Industrial development 
bonds generally are also revenue bonds and thus are not payable from 
the issuer's general revenues. The credit and quality of industrial 
development bonds are usually related to the credit of the corporate 
user of the facilities. Payment of interest on and repayment of 
principal of such bonds is the responsibility of the corporate user 
(and/or any guarantor).
    \36\ Municipal notes are shorter-term municipal debt obligations 
that may provide interim financing in anticipation of tax 
collection, receipt of grants, bond sales, or revenue receipts.
    \37\ Municipal commercial paper is generally unsecured debt that 
is issued to meet short-term financing needs.
    \38\ Tender option bonds are synthetic floating-rate or 
variable-rate securities issued when long-term bonds are purchased 
in the primary or secondary market and then deposited into a trust. 
Custodial receipts are then issued to investors, such as the Fund, 
evidencing ownership interests in the trust.
    \39\ VRDOs are tax-exempt obligations that contain a floating or 
variable interest rate adjustment formula and a right of demand on 
the part of the holder thereof to receive payment of the unpaid 
principal balance plus accrued interest upon a short notice period 
not to exceed seven days.
    \40\ Municipal lease obligations include certificates of 
participation issued by government authorities or entities to 
finance the acquisition or construction of equipment, land, and/or 
facilities.
    \41\ Stripped securities are created when an issuer separates 
the interest and principal components of an instrument and sells 
them as separate securities. In general, one security is entitled to 
receive the interest payments on the underlying assets and the other 
to receive the principal payments.
    \42\ Structured securities are privately negotiated debt 
obligations where the principal and/or interest is determined by 
reference to the performance of an underlying investment, index, or 
reference obligation, and may be issued by governmental agencies. 
While structured securities are part of the principal holdings of 
the Fund, the Issuer represents that such securities, when combined 
with those instruments held as part of the other portfolio holdings 
described below, will not exceed 20% of the Fund's net assets.
    \43\ The Fund may purchase or sell securities that it is 
entitled to receive on a when issued or delayed delivery basis as 
well as through a forward commitment.
    \44\ Zero coupon securities are securities that are sold at a 
discount to par value and do not pay interest during the life of the 
security. The discount approximates the total amount of interest the 
security will accrue and compound over the period until maturity at 
a rate of interest reflecting the market rate of the security at the 
time of issuance. Upon maturity, the holder of a zero coupon 
security is entitled to receive the par value of the security.
    \45\ The Fund currently anticipates investing in only registered 
open-end investment companies, including mutual funds and the open-
end investment company funds described in BATS Rule 14.11. The Fund 
may invest in the securities of other investment companies to the 
extent permitted by law.
---------------------------------------------------------------------------

    In the last year of operation, as the bonds held by the Fund 
mature, the proceeds will not be reinvested in bonds but instead will 
be held in cash and cash equivalents, including, without limitation, 
shares of affiliated money market funds, AMT-free tax-exempt municipal 
notes, VRDOs, tender option bonds and municipal commercial paper. In or 
around December 2024, the Fund will wind up and terminate, and its net 
assets will be distributed to then current shareholders.
    In the absence of normal circumstances, the Fund may temporarily 
depart from its normal investment process, provided that such departure 
is, in the opinion of the Adviser, consistent with the Fund's 
investment objective and in the best interest of the Fund. For example, 
the Fund may hold a higher than normal proportion of its assets in cash 
in response to adverse market, economic or political conditions.

[[Page 4699]]

    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.\46\ The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M.
---------------------------------------------------------------------------

    \46\ 26 U.S.C. 851.
---------------------------------------------------------------------------

Other Portfolio Holdings
    The Fund may also, to a limited extent (under normal circumstances, 
less than 20% of the Fund's net assets), engage in transactions in 
futures contracts, options, or swaps in order to facilitate trading or 
to reduce transaction costs.\47\ The Fund's investments will be 
consistent with its investment objective and will not be used to 
achieve leveraged returns (i.e. two times or three times the Fund's 
benchmark, as described in the Registration Statement).
---------------------------------------------------------------------------

    \47\ Derivatives might be included in the Fund's investments to 
serve the investment objectives of the Fund. Such derivatives 
include only the following: Interest rate futures, interest rate 
options, interest rate swaps, and swaps on Municipal Securities 
indexes. The derivatives will be centrally cleared and they will be 
collateralized. Derivatives are not a principal investment strategy 
of the Fund.
---------------------------------------------------------------------------

    The Fund may also enter into repurchase and reverse repurchase 
agreements for Municipal Securities (collectively, ``Repurchase 
Agreements''). Repurchase Agreements involve the sale of securities 
with an agreement to repurchase the securities at an agreed-upon price, 
date and interest payment and have the characteristics of borrowing as 
part of the Fund's principal holdings.\48\
---------------------------------------------------------------------------

    \48\ The Fund's exposure to reverse repurchase agreements will 
be covered by liquid assets having a value equal to or greater than 
such commitments. The use of reverse repurchase agreements is a form 
of leverage because the proceeds derived from reverse repurchase 
agreements may be invested in additional securities. As further 
stated below, the Fund's investments will be consistent with its 
investment objective and will not be used to achieve leveraged 
returns.
---------------------------------------------------------------------------

    The Fund may also invest in short-term instruments (``Short-Term 
Instruments''),\49\ which includes exchange traded and non-exchange 
traded investment companies (including investment companies advised by 
BFA or its affiliates) that invest in money market instruments.
---------------------------------------------------------------------------

    \49\ The Fund may invest in Short-Term Instruments, including 
money market instruments, on an ongoing basis to provide liquidity 
or for other reasons. Money market instruments are generally short-
term investments that include only the following: (i) Shares of 
money market funds (including those advised by BFA or otherwise 
affiliated with BFA); (ii) obligations issued or guaranteed by the 
U.S. government, its agencies or instrumentalities (including 
government-sponsored enterprises); (iii) negotiable certificates of 
deposit (``CDs''), bankers' acceptances, fixed-time deposits and 
other obligations of U.S. and non-U.S. banks (including non-U.S. 
branches) and similar institutions; (iv) commercial paper, including 
asset-backed commercial paper; (v) non-convertible corporate debt 
securities (e.g., bonds and debentures) with remaining maturities at 
the date of purchase of not more than 397 days and that satisfy the 
rating requirements set forth in Rule 2a-7 under the 1940 Act; and 
(vi) short-term U.S. dollar-denominated obligations of non-U.S. 
banks (including U.S. branches) that, in the opinion of BFA, are of 
comparable quality to obligations of U.S. banks which may be 
purchased by the Fund. All money market securities acquired by the 
Fund will be rated investment grade. The Fund does not intend to 
invest in any unrated money market securities. However, it may do 
so, to a limited extent, such as where a rated money market security 
becomes unrated, if such money market security is determined by the 
Adviser to be of comparable quality. BFA may determine that unrated 
securities are of comparable quality based on such credit quality 
factors that it deems appropriate, which may include, among other 
things, performing an analysis similar, to the extent possible, to 
that performed by a nationally recognized statistical rating 
organization rating similar securities and issuers.
---------------------------------------------------------------------------

Investment Restrictions
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), as 
deemed illiquid by the Adviser \50\ under the 1940 Act.\51\ 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.
---------------------------------------------------------------------------

    \50\ In reaching liquidity decisions, the Adviser may consider 
factors including: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer); any legal or contractual 
restrictions on the ability to transfer the security or asset; 
significant developments involving the issuer or counterparty 
specifically (e.g., default, bankruptcy, etc.) or the securities 
markets generally; and settlement practices, registration 
procedures, limitations on currency conversion or repatriation, and 
transfer limitations (for foreign securities or other assets).
    \51\ 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 of 1933).
---------------------------------------------------------------------------

    The Fund may also invest up to 20% of its net assets in Municipal 
Securities that pay interest that is subject to the AMT.
    The Fund will not purchase the securities of issuers conducting 
their principal business activity in the same industry if, immediately 
after the purchase and as a result thereof, the value of the Fund's 
investments in that industry would equal or exceed 25% of the current 
value of the Fund's total assets, provided that this restriction does 
not limit the Fund's: (i) Investments in securities of other investment 
companies, (ii) investments in securities issued or guaranteed by the 
U.S. government, its agencies or instrumentalities, (iii) investments 
in securities of state, territory, possession or municipal governments 
and their authorities, agencies, instrumentalities or political 
subdivisions or (iv) investments in repurchase agreements 
collateralized by any such obligations.\52\
---------------------------------------------------------------------------

    \52\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests in more than 25% 
of the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
---------------------------------------------------------------------------

iShares iBonds Dec 2025 AMT-Free Muni Bond ETF
    According to the Registration Statement, the Fund will seek to 
maximize tax-free current income and terminate on or around December 
2025. To achieve its objective, the Fund will invest, under normal 
circumstances,\53\ at least 80% of its net assets in Municipal 
Securities, as defined below, such that the interest on each security 
is exempt from U.S. federal income taxes and the federal alternative 
minimum tax (the ``AMT''). The Fund is not a money market fund and does 
not

[[Page 4700]]

seek to maintain a stable net asset value of $1.00 per share. The Fund 
will be classified as a ``non-diversified'' investment company under 
the 1940 Act.\54\
---------------------------------------------------------------------------

    \53\ The term ``under normal circumstances'' includes, but is 
not limited to, the absence of adverse market, economic, political, 
or other conditions, including extreme volatility or trading halts 
in the financial 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.
    \54\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
---------------------------------------------------------------------------

    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended. The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M.
Principal Holdings--Municipal Securities
    To achieve its objective, the Fund will invest, under normal 
circumstances, in U.S.-dollar denominated investment-grade fixed-rate 
Municipal Securities, as defined below. The Fund will invest in both 
callable and non-callable municipal bonds. Investment-grade securities 
are rated a minimum of BBB- or higher by Standard & Poor's Ratings 
Services and/or Fitch, or Baa3 or higher by Moody's, or if unrated, 
determined by the Adviser to be of equivalent quality.\55\ Under normal 
circumstances, the Fund's effective duration will vary within one year 
(plus or minus) of the effective duration of the securities comprising 
the S&P AMT-Free Municipal Series Dec 2025 Index, which, as of December 
15, 2015, was 8.26 years.\56\
---------------------------------------------------------------------------

    \55\ According to the Adviser, BFA may determine that unrated 
securities are of ``equivalent quality'' based on such credit 
quality factors that it deems appropriate, which may include among 
other things, performing an analysis similar, to the extent 
possible, to that performed by a nationally recognized statistical 
ratings organization when rating similar securities and issuers. In 
making such a determination, BFA may consider internal analyses and 
risk ratings, third party research and analysis, and other sources 
of information, as deemed appropriate by the Adviser.
    \56\ Effective duration is a measure of the Fund's price 
sensitivity to changes in yields or interest rates.
---------------------------------------------------------------------------

    Municipal securities (``Municipal Securities'') are fixed and 
variable rate securities issued in the U.S. by U.S. states and 
territories, municipalities and other political subdivisions, agencies, 
authorities, and instrumentalities of states and multi-state agencies 
and authorities and will include only the following instruments: 
General obligation bonds,\57\ limited obligation bonds (or revenue 
bonds),\58\ municipal notes,\59\ municipal commercial paper,\60\ tender 
option bonds,\61\ variable rate demand obligations (``VRDOs''),\62\ 
municipal lease obligations,\63\ stripped securities,\64\ structured 
securities,\65\ when issued securities,\66\ zero coupon securities,\67\ 
and exchange traded and non-exchange traded investment companies 
(including investment companies advised by BFA or its affiliates) that 
invest in such Municipal Securities.\68\
---------------------------------------------------------------------------

    \57\ General obligation bonds are obligations involving the 
credit of an issuer possessing taxing power and are payable from 
such issuer's general revenues and not from any particular source.
    \58\ Limited obligation bonds are payable only from the revenues 
derived from a particular facility or class of facilities or, in 
some cases, from the proceeds of a special excise or other specific 
revenue source, and also include industrial development bonds issued 
pursuant to former U.S. federal tax law. Industrial development 
bonds generally are also revenue bonds and thus are not payable from 
the issuer's general revenues. The credit and quality of industrial 
development bonds are usually related to the credit of the corporate 
user of the facilities. Payment of interest on and repayment of 
principal of such bonds is the responsibility of the corporate user 
(and/or any guarantor).
    \59\ Municipal notes are shorter-term municipal debt obligations 
that may provide interim financing in anticipation of tax 
collection, receipt of grants, bond sales, or revenue receipts.
    \60\ Municipal commercial paper is generally unsecured debt that 
is issued to meet short-term financing needs.
    \61\ Tender option bonds are synthetic floating-rate or 
variable-rate securities issued when long-term bonds are purchased 
in the primary or secondary market and then deposited into a trust. 
Custodial receipts are then issued to investors, such as the Fund, 
evidencing ownership interests in the trust.
    \62\ VRDOs are tax-exempt obligations that contain a floating or 
variable interest rate adjustment formula and a right of demand on 
the part of the holder thereof to receive payment of the unpaid 
principal balance plus accrued interest upon a short notice period 
not to exceed seven days.
    \63\ Municipal lease obligations include certificates of 
participation issued by government authorities or entities to 
finance the acquisition or construction of equipment, land, and/or 
facilities.
    \64\ Stripped securities are created when an issuer separates 
the interest and principal components of an instrument and sells 
them as separate securities. In general, one security is entitled to 
receive the interest payments on the underlying assets and the other 
to receive the principal payments.
    \65\ Structured securities are privately negotiated debt 
obligations where the principal and/or interest is determined by 
reference to the performance of an underlying investment, index, or 
reference obligation, and may be issued by governmental agencies. 
While structured securities are part of the principal holdings of 
the Fund, the Issuer represents that such securities, when combined 
with those instruments held as part of the other portfolio holdings 
described below, will not exceed 20% of the Fund's net assets.
    \66\ The Fund may purchase or sell securities that it is 
entitled to receive on a when issued or delayed delivery basis as 
well as through a forward commitment.
    \67\ Zero coupon securities are securities that are sold at a 
discount to par value and do not pay interest during the life of the 
security. The discount approximates the total amount of interest the 
security will accrue and compound over the period until maturity at 
a rate of interest reflecting the market rate of the security at the 
time of issuance. Upon maturity, the holder of a zero coupon 
security is entitled to receive the par value of the security.
    \68\ The Fund currently anticipates investing in only registered 
open-end investment companies, including mutual funds and the open-
end investment company funds described in BATS Rule 14.11. The Fund 
may invest in the securities of other investment companies to the 
extent permitted by law.
---------------------------------------------------------------------------

    In the last year of operation, as the bonds held by the Fund 
mature, the proceeds will not be reinvested in bonds but instead will 
be held in cash and cash equivalents, including, without limitation, 
shares of affiliated money market funds, AMT-free tax-exempt municipal 
notes, VRDOs, tender option bonds and municipal commercial paper. In or 
around December 2025, the Fund will wind up and terminate, and its net 
assets will be distributed to then current shareholders.
    In the absence of normal circumstances, the Fund may temporarily 
depart from its normal investment process, provided that such departure 
is, in the opinion of the Adviser, consistent with the Fund's 
investment objective and in the best interest of the Fund. For example, 
the Fund may hold a higher than normal proportion of its assets in cash 
in response to adverse market, economic or political conditions.
    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.\69\ The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M.
---------------------------------------------------------------------------

    \69\ 26 U.S.C. 851.
---------------------------------------------------------------------------

Other Portfolio Holdings
    The Fund may also, to a limited extent (under normal circumstances, 
less than 20% of the Fund's net assets), engage in transactions in 
futures contracts, options, or swaps in order to facilitate trading or 
to reduce transaction costs.\70\ The Fund's investments will be 
consistent with its investment objective and will not be used to 
achieve leveraged returns (i.e. two times or three times the Fund's 
benchmark, as described in the Registration Statement).
---------------------------------------------------------------------------

    \70\ Derivatives might be included in the Fund's investments to 
serve the investment objectives of the Fund. Such derivatives 
include only the following: Interest rate futures, interest rate 
options, interest rate swaps, and swaps on Municipal Securities 
indexes. The derivatives will be centrally cleared and they will be 
collateralized. Derivatives are not a principal investment strategy 
of the Fund.

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

[[Page 4701]]

    The Fund may also enter into repurchase and reverse repurchase 
agreements for Municipal Securities (collectively, ``Repurchase 
Agreements''). Repurchase Agreements involve the sale of securities 
with an agreement to repurchase the securities at an agreed-upon price, 
date and interest payment and have the characteristics of borrowing as 
part of the Fund's principal holdings.\71\
---------------------------------------------------------------------------

    \71\ The Fund's exposure to reverse repurchase agreements will 
be covered by liquid assets having a value equal to or greater than 
such commitments. The use of reverse repurchase agreements is a form 
of leverage because the proceeds derived from reverse repurchase 
agreements may be invested in additional securities. As further 
stated below, the Fund's investments will be consistent with its 
investment objective and will not be used to achieve leveraged 
returns.
---------------------------------------------------------------------------

    The Fund may also invest in short-term instruments (``Short-Term 
Instruments''),\72\ which includes exchange traded and non-exchange 
traded investment companies (including investment companies advised by 
BFA or its affiliates) that invest in money market instruments.
---------------------------------------------------------------------------

    \72\ The Fund may invest in Short-Term Instruments, including 
money market instruments, on an ongoing basis to provide liquidity 
or for other reasons. Money market instruments are generally short-
term investments that include only the following: (i) Shares of 
money market funds (including those advised by BFA or otherwise 
affiliated with BFA); (ii) obligations issued or guaranteed by the 
U.S. government, its agencies or instrumentalities (including 
government-sponsored enterprises); (iii) negotiable certificates of 
deposit (``CDs''), bankers' acceptances, fixed-time deposits and 
other obligations of U.S. and non-U.S. banks (including non-U.S. 
branches) and similar institutions; (iv) commercial paper, including 
asset-backed commercial paper; (v) non-convertible corporate debt 
securities (e.g., bonds and debentures) with remaining maturities at 
the date of purchase of not more than 397 days and that satisfy the 
rating requirements set forth in Rule 2a-7 under the 1940 Act; and 
(vi) short-term U.S. dollar-denominated obligations of non-U.S. 
banks (including U.S. branches) that, in the opinion of BFA, are of 
comparable quality to obligations of U.S. banks which may be 
purchased by the Fund. All money market securities acquired by the 
Fund will be rated investment grade. The Fund does not intend to 
invest in any unrated money market securities. However, it may do 
so, to a limited extent, such as where a rated money market security 
becomes unrated, if such money market security is determined by the 
Adviser to be of comparable quality. BFA may determine that unrated 
securities are of comparable quality based on such credit quality 
factors that it deems appropriate, which may include, among other 
things, performing an analysis similar, to the extent possible, to 
that performed by a nationally recognized statistical rating 
organization rating similar securities and issuers.
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Investment Restrictions
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), as 
deemed illiquid by the Adviser \73\ under the 1940 Act.\74\ 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.
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    \73\ In reaching liquidity decisions, the Adviser may consider 
factors including: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer); any legal or contractual 
restrictions on the ability to transfer the security or asset; 
significant developments involving the issuer or counterparty 
specifically (e.g., default, bankruptcy, etc.) or the securities 
markets generally; and settlement practices, registration 
procedures, limitations on currency conversion or repatriation, and 
transfer limitations (for foreign securities or other assets).
    \74\ 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 of 1933).
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    The Fund may also invest up to 20% of its net assets in Municipal 
Securities that pay interest that is subject to the AMT.
    The Fund will not purchase the securities of issuers conducting 
their principal business activity in the same industry if, immediately 
after the purchase and as a result thereof, the value of the Fund's 
investments in that industry would equal or exceed 25% of the current 
value of the Fund's total assets, provided that this restriction does 
not limit the Fund's: (i) Investments in securities of other investment 
companies, (ii) investments in securities issued or guaranteed by the 
U.S. government, its agencies or instrumentalities, (iii) investments 
in securities of state, territory, possession or municipal governments 
and their authorities, agencies, instrumentalities or political 
subdivisions or (iv) investments in repurchase agreements 
collateralized by any such obligations.\75\
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    \75\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests in more than 25% 
of the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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iShares iBonds Dec 2026 AMT-Free Muni Bond ETF
    According to the Registration Statement, the Fund will seek to 
maximize tax-free current income and terminate on or around December 
2026. To achieve its objective, the Fund will invest, under normal 
circumstances,\76\ at least 80% of its net assets in Municipal 
Securities, as defined below, such that the interest on each security 
is exempt from U.S. federal income taxes and the federal alternative 
minimum tax (the ``AMT''). The Fund is not a money market fund and does 
not seek to maintain a stable net asset value of $1.00 per share. The 
Fund will be classified as a ``non-diversified'' investment company 
under the 1940 Act.\77\
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    \76\ The term ``under normal circumstances

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