[Federal Register Volume 79, Number 148 (Friday, August 1, 2014)]
[Notices]
[Pages 44878-44889]
[FR Doc No: 2014-18114]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72679; File No. SR-NYSEArca-2014-71]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Proposing To List and Trade Shares of Treesdale
Rising Rates ETF Under NYSE Arca Equities Rule 8.600

July 28, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on July 14, 2014, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to proposes to list and trade the following
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''):
Treesdale Rising Rates ETF. The text of the proposed rule change is
available on the Exchange's Web site at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares:\4\ Treesdale Rising Rates
ETF (``Fund'').\5\ The Shares

will be offered by AdvisorShares Trust (the ``Trust''), a statutory
trust organized under the laws of the State of Delaware and registered
with the Securities and Exchange Commission (the ``Commission'') as an
open-end management investment company.\6\ The investment adviser to
the Fund is AdvisorShares Investments, LLC (the ``Adviser''). The sub-
adviser to the Fund is Treesdale Partners, LLC (``Sub-Adviser''), which
will provide day-to-day portfolio management of the Fund. Foreside Fund
Services, LLC (the ``Distributor'') is the principal underwriter and
distributor of the Fund's Shares. The Bank of New York Mellon (the
``Administrator'') serves as the administrator, custodian, transfer
agent and fund accounting agent for the Fund.
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    \4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that correspond
generally to the price and yield performance of a specific foreign
or domestic stock index, fixed income securities index or
combination thereof.
    \5\ The Commission has approved listing and trading on the
Exchange of a number of actively managed funds under Rule 8.600.
See, e.g., Securities Exchange Act Release Nos. 69591 (May 16,
2013), 78 FR 30372 (May 22, 2013) (SR-NYSEArca-2013-33) (order
approving Exchange listing and trading of International Bear ETF);
69061 (March 7, 2013), 78 FR 15990 (March 13, 2013) (SR-NYSEArca-
2013-01) (order approving Exchange listing and trading of Newfleet
Multi-Sector Income ETF); and 67277 (June 27, 2012), 77 FR 39554
(July 3, 2012) (SR-NYSEArca-2012-39) (order approving Exchange
listing and trading of the Global Alpha & Beta ETF).
    \6\ The Trust is registered under the 1940 Act. On September 4,
2013, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A under the Securities Act of 1933
(15 U.S.C. 77a) and under the 1940 Act relating to the Fund (File
Nos. 333-157876 and 811-22110) (``Registration Statement''). The
description of the operation of the Trust and the Fund herein is
based, in part, on the Registration Statement. In addition, the
Commission has issued an order granting certain exemptive relief to
the Trust under the 1940 Act. See Investment Company Act Release No.
29291 (May 28, 2010) (File No. 812-13677) (``Exemptive Order'').
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    Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio. In addition, Commentary
.06 further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding the open-end fund's portfolio.\7\ Commentary .06 to Rule
8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the
establishment of a ``fire wall'' between the investment adviser and the
broker-dealer reflects the applicable open-end fund's portfolio, not an
underlying benchmark index, as is the case with index-based funds.
Neither the Adviser nor the Sub-Adviser is a broker-dealer or is
affiliated with a broker-dealer. In the event (a) the Adviser or Sub-
Adviser becomes, or becomes newly affiliated with, a broker-dealer, or
(b) any new adviser or sub-adviser is, or becomes affiliated with, a
broker-dealer, it will implement a fire wall with respect to its
relevant personnel or 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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    \7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and Sub-Adviser and their related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
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Description of the Fund
    According to the Registration Statement, the Fund will seek to
generate current income while providing protection for investors
against loss of principal in a rising interest rate environment.
    According to the Registration Statement, the Fund will be actively
managed and thus will not seek to replicate the performance of a
specified passive index of securities. Instead, it will use an active
investment strategy to seek to meet its investment objectives. The Sub-
Adviser, subject to the oversight of the Adviser and the Board of
Trustees, will have discretion on a daily basis to manage the Fund's
portfolio in accordance with the Fund's investment objectives and
investment policies.
    According to the Registration Statement, the Fund will seek to
achieve its investment objectives by investing, under normal
circumstances,\8\ at least 80% of its net assets in positions in agency
interest-only collateralized mortgage obligations (``CMOs''), interest-
only swaps (``IOS'') that reference interest only cash flows from
agency mortgage-backed securities (``MBS'') pools with certain coupons
and specified origination periods (``Agency MBS IOS''), interest rate
swaps, U.S. Treasury obligations, including U.S. Treasury zero-coupon
bonds, and U.S. Treasury futures.\9\ Under normal circumstances, the
Sub-Adviser will seek to generate enhanced returns in an environment of
rising interest rates by investing in agency interest-only CMOs and
Agency MBS IOS to maintain a negative portfolio duration with a
generally positive current yield. Under normal circumstances, the Fund
will utilize the U.S. Treasury obligations, U.S. Treasury futures and
interest rate swaps, which are liquid interest rate products, to manage
duration risks. Aside from Treasury futures, which will be exchange
traded,\10\ all the Fund's principal investments will be U.S. dollar-
denominated and traded over the counter (``OTC'').
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    \8\ 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 equity markets or the financial markets generally; operational
issues causing dissemination of inaccurate market information; or
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or
labor disruption or any similar intervening circumstance.
    \9\ According to the Registration Statement, CMOs are debt
obligations of a legal entity that are collateralized by mortgages
and divided into classes. Futures contracts provide for the future
sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a
specified price. The Fund will only use futures contracts that have
U.S. Treasury securities and interest rate swaps as their underlying
reference assets.
    \10\ The futures in which the Fund may invest will trade on
markets that are members of the Intermarket Surveillance Group
(``ISG'') or that have entered into a comprehensive surveillance
agreement with the Exchange.
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    According to the Adviser, the mortgage-backed securities market,
which includes interest-only CMOs, is the largest sector of the U.S.
fixed income markets. It is diverse, with both highly liquid
instruments as well as less liquid products. The primary focus of the
Fund will be on the Agency MBS IOS sector, where liquidity is provided
by multiple market makers that actively make two-sided markets.
Additionally, Markit publishes daily closing prices based on dealer
marks. Pricing in this market is transparent and provided by major
market makers. The Agency MBS IOS are analogous to interest-only CMOs
in swap form with differences in the composition of underlying MBS
collateral. IOS are total rate of return swaps.
    According to the Registration Statement, the Agency MBS IOS and

agency interest-only CMOs in which the Fund will invest are intended to
provide significant negative duration exposure and will generally
benefit from rising interest rates.\11\ The overall duration of the
Fund's portfolio will generally range from -5 to -15 years. Duration is
a measure used to determine the sensitivity of a security's price to
changes in interest rates. The longer a security's duration, the more
sensitive it will be to changes in interest rates. A portfolio with
negative duration generally incurs a loss when interest rates and
yields fall. To counter the impact of such potential losses, the Fund's
negative duration may be partly offset with long positions in U.S.
Treasury obligations, interest rate swaps and other positive duration
products.
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    \11\ According to the Adviser, negative duration reflects price
sensitivity to interest rate changes that is the inverse of how
standard bond instruments behave. Specifically, negative duration
instruments generally appreciate in price as interest rates rise.
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    According to the Registration Statement, in determining the Fund's
investment allocations, the Sub-Adviser will perform both top-down and
security specific analysis. The overall negative duration target and
allocation to specific subsectors of the mortgage interest-only market
will be based on high-level macro and relative value analysis across
fixed income markets. Using these targets, allocations to individual
positions will be made based on detailed value analysis. Liquid U.S.
Treasury obligations and interest rate swaps will be used to adjust the
portfolio to certain negative duration targets. While such U.S.
Treasury and interest rate swap hedges may be rebalanced daily, the
portfolio of Agency MBS IOS and agency interest-only CMOs will be less
frequently rebalanced.
    According to the Registration Statement, agency CMOs, including
agency interest-only CMOs, are typically collateralized by portfolios
of mortgage pass-through securities guaranteed by the Government
National Mortgage Association (``Ginnie Mae''), the Federal Home Loan
Mortgage Corporation (``Freddie Mac''), or Federal National Mortgage
Association (``Fannie Mae''), and the income payments on such
securities.\12\ CMOs, including agency interest-only CMOs, are
structured into multiple classes, often referred to as ``tranches,''
with each class bearing a different stated maturity and entitled to a
different schedule for payments of principal and interest, including
pre-payments.
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    \12\ According to the Registration Statement, Ginnie Mae, a
wholly owned United States Government corporation, is one of the
principal governmental guarantor [sic] of mortgage-related
securities, such as agency CMOs. Ginnie Mae is authorized to
guarantee, with the full faith and credit of the United States
Government, the timely payment of principal and interest on
securities issued by institutions approved by Ginnie Mae and backed
by pools of mortgages insured by the Federal Housing Administration
(the ``FHA''), or guaranteed by the Department of Veterans Affairs
(the ``VA''). Government-related guarantors (i.e., not backed by the
full faith and credit of the United States Government) include the
government-sponsored corporations Fannie Mae and Freddie Mac. Pass-
through securities issued by Fannie Mae are guaranteed as to timely
payment of principal and interest by Fannie Mae, but are not backed
by the full faith and credit of the United States Government.
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    The agency interest-only CMOs that the Fund may invest in include
agency stripped mortgage-backed securities (``SMBS'').\13\ According to
the Registration Statement, as CMOs have evolved, some classes of CMO
bonds have become more common. For example, the Fund may invest in
agency interest-only parallel-pay and planned amortization class
(``PAC'') CMOs and agency interest-only multi-class pass through
certificates.\14\ Any CMO or multi-class pass through structure that
includes PAC securities must also have support tranches--known as
support bonds, companion bonds or non-PAC bonds--which lend or absorb
principal cash flows to allow the PAC securities to maintain their
stated maturities and final distribution dates within a range of actual
prepayment experience. Consistent with the Fund's investment objectives
and policies, the Sub-Adviser may invest in various tranches of agency
interest-only CMO bonds, including support bonds.
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    \13\ According to the Registration Statement SMBS are derivative
multi-class mortgage securities. SMBSs may be issued by agencies or
instrumentalities of the U.S. government, or by private originators
of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and
special purpose entities of the foregoing. SMBSs are usually
structured with two classes that receive different proportions of
the interest and principal distributions on a pool of mortgage
assets.
    \14\ According to the Registration Statement, parallel-pay CMOs
and multi-class pass-through certificates are structured to provide
payments of principal on each payment date to more than one class.
PACs generally require payments of a specified amount of principal
on each payment date. PACs are parallel-pay CMOs with the required
principal amount on such securities having the highest priority
after interest has been paid to all classes.
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    According to the Registration Statement, the Fund may enter into
interest rate swaps. The Fund may utilize swap agreements in an attempt
to gain exposure to the securities in a market without actually
purchasing those securities, or to hedge a position. Swap agreements
are two-party contracts entered into primarily by institutional
investors for periods ranging from a day to more than one-year. In a
standard ``swap'' transaction, two parties agree to exchange the
returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments. The gross returns
to be exchanged or ``swapped'' between the parties are calculated with
respect to a ``notional amount,'' i.e., the return on or increase in
value of a particular dollar amount invested in a ``basket'' of
securities representing a particular index.
    According to the Registration Statement, the Fund's obligations
under a swap agreement will be accrued daily (offset against any
amounts owing to the Fund) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by segregating assets determined
to be liquid. The Fund will not enter into any swap agreement unless
the Adviser believes that the other party to the transaction is
creditworthy.\15\
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    \15\ The Fund will seek, where possible, to use counterparties,
as applicable, whose financial status is such that the risk of
default is reduced. The Adviser's Execution Committee will evaluate
the creditworthiness of counterparties on an ongoing basis. In
addition to information provided by credit agencies, the Adviser's
analysts will evaluate each approved counterparty using various
methods of analysis, including the counterparty's liquidity in the
event of default, the broker-dealer's reputation, the Adviser's past
experience with the broker-dealer, the Financial Industry Regulatory
Authority's (``FINRA'') BrokerCheck and disciplinary history and its
share of market participation.
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    According to the Registration Statement, the Fund may enter into
swap agreements to invest in a market without owning or taking physical
custody of the underlying securities in circumstances in which direct
investment is restricted for legal reasons or is otherwise
impracticable.
    According to the Registration Statement, the Fund intends to invest
in U.S. Treasury securities and U.S. Treasury futures. U.S. Treasury
securities are backed by the full faith and credit of the U.S. Treasury
and differ only in their interest rates, maturities, and times of
issuance. The Fund may invest in U.S. Treasury zero-coupon bonds. These
securities are U.S. Treasury bonds which have been stripped of their
unmatured interest coupons, the coupons themselves, and receipts or
certificates representing interests in such stripped debt obligations
and coupons. Interest is not paid in cash during the term of these
securities, but is accrued and paid at maturity.

Other Investments
    While the Fund's principal investments, under normal
circumstances,\16\ will be as described above, the Fund may invest the
balance of its assets in the investments described below.
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    \16\ See note 8, supra. According to the Registration Statement,
in the absence of normal circumstances the Fund may invest 100% of
its total assets, without limitation, in debt securities and money
market instruments, either directly or through exchange traded funds
(``ETFs''). Debt securities and money market instruments include
shares of other mutual funds, commercial paper, U.S. government
securities, repurchase agreements and bonds that are rated BBB or
higher. The Fund may be invested in this manner for extended
periods, depending on the Sub-Adviser's assessment of market
conditions. While the Fund is in a defensive position, the
opportunity to achieve its investment objectives will be limited.
Furthermore, to the extent that the Fund invests in money market
mutual funds the Fund would bear its pro rata portion of each such
money market fund's advisory fees and operational expenses.
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    According to the Registration Statement, the Fund may invest in
other mortgage-related securities in addition to the agency interest-
only CMOs described above. Such mortgage-related securities are
securities that directly or indirectly represent a participation in, or
are secured by and payable from, mortgage loans on real property. More
specifically, the Fund may hold MBS, mortgage dollar rolls,\17\ CMO
residuals,\18\ and equity or debt securities issued by agencies or
instrumentalities of the U.S. government or by private originators of,
or investors in, mortgage loans, including savings and loan
associations homebuilders, mortgage banks, commercial banks, investment
banks, partnerships, trusts, and special purpose entities of the
foregoing. In addition to the agency interest-only CMOs described
above, the MBS that the Fund will invest in are other agency CMOs, non-
agency CMOs (including non-agency SMBS) and Adjustable Rate Mortgage
Backed Securities (``ARMBS'').
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    \17\ Dollar rolls are a type of repurchase transaction in the
mortgage pass-through securities market in which the buy side trade
counterparty of a ``to be announced'' (``TBA'') trade agrees to sell
off the same TBA trade in the current month and to buy back the same
trade in a future month at a lower price, constituting a forward
contract.
    \18\ According to the Registration Statement, CMO residuals are
mortgage securities issued by agencies or instrumentalities of the
U.S. government or by private originators of, or investors in,
mortgage loans. The cash flow generated by the mortgage assets
underlying a series of CMOs is applied first to make required
payments of principal and interest on the CMOs and second to pay the
related administrative expenses and any management fee of the
issuer. The residual in a CMO structure generally represents the
interest in any excess cash flow remaining after making the
foregoing payments. Transactions in CMO residuals will generally be
completed only after careful review of the characteristics of the
securities in question.
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    According to the Registration Statement, such mortgage-related
securities include privately issued mortgage-related securities, where
issuers create pass-through pools of conventional residential mortgage
loans.\19\ Timely payment of interest and principal of these pools may
be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of
credit, which may be issued by governmental entities or private
insurers. The Fund may buy mortgage-related securities without
insurance or guarantees if, through an examination of the loan
experience and practices of the originators/servicers and poolers, the
Sub-Adviser determines that the securities meet the Trust's investment
quality standards. Privately issued mortgage-related securities are not
traded on an exchange. The Fund may purchase privately issued mortgage-
related securities that are originated, packaged and serviced by third
party entities.
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    \19\ According to the Registration Statement, in determining
whether and how much to invest in privately issued mortgage-related
securities, and how to allocate those assets, the Sub-Adviser will
consider a number of factors. These include, but are not limited to:
(1) The nature of the borrowers (e.g., residential vs. commercial);
(2) the collateral loan type (e.g., for residential: First Lien--
Jumbo/Prime, First Lien--Alt-A, First Lien--Subprime, First Lien--
Pay-Option or Second Lien; for commercial: Conduit, Large Loan or
Single Asset/Single Borrower); and (3) in the case of residential
loans, whether they are fixed rate or adjustable mortgages.
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    According to the Registration Statement, the Fund may invest in
asset-backed securities (``ABSs''), which are bonds backed by pools of
loans or other receivables. ABSs are created from many types of assets,
including auto loans, credit card receivables, home equity loans, and
student loans. ABSs are issued through special purpose vehicles that
are bankruptcy remote from the issuer of the collateral. According to
the Registration Statement, the Fund may invest in each of
collateralized bond obligations (``CBOs''), collateralized loan
obligations (``CLOs''), other collateralized debt obligations
(``CDOs'') and other similarly structured securities. CBOs, CLOs and
other CDOs are types of ABS. A CBO is a trust which is often backed by
a diversified pool of high risk, below investment grade fixed income
securities. The collateral can be from many different types of fixed
income securities such as high yield debt, residential privately issued
mortgage-related securities, commercial privately issued mortgage-
related securities, trust preferred securities and emerging market
debt. A CLO is a trust typically collateralized by a pool of loans,
which may include, among others, domestic and foreign senior secured
loans, senior unsecured loans, and subordinate corporate loans,
including loans that may be rated below investment grade or equivalent
unrated loans. Other CDOs are trusts backed by other types of assets
representing obligations of various parties. Normally, CBOs, CLOs and
other CDOs are privately offered and sold, and thus, are not registered
under the securities laws.
    According to the Adviser, the Fund will limit investments in ABS
and MBS that are issued or guaranteed by non-government entities to 15%
of the Fund's net assets.
    According to the Registration Statement, in addition to interest-
only swaps and interest rate swaps, which are primary investments, the
Fund may enter into other types of swap agreements. The swap agreements
will have MBS as reference assets, including CMOs.
    According to the Registration Statement, the Fund may invest
directly and indirectly in foreign currencies. The Fund may conduct
foreign currency transactions on a spot (i.e., cash) or forward basis
(i.e., by entering into forward contracts to purchase or sell foreign
currencies). Forward contracts are generally traded in an interbank
market directly between currency traders (usually large commercial
banks) and their customers. At the discretion of the Adviser, the Fund
may, but is not obligated to, enter into forward currency exchange
contracts for hedging purposes to help reduce the risks and volatility
caused by changes in foreign currency exchange rates, or to gain
exposure to certain currencies in an effort to achieve the Fund's
investment objective.
    According to the Registration Statement, the Fund may invest in
equity securities. The Fund may invest in common stock, preferred
stock, warrants, convertible securities, master limited partnerships
(``MLPs'') and rights. Convertible securities are bonds, debentures,
notes, preferred stocks or other securities that may be converted or
exchanged (by the holder or by the issuer) into shares of the
underlying common stock (or cash or securities of equivalent value) at
a stated exchange ratio. A convertible security may also be called for
redemption or conversion by the issuer after a particular date and
under certain circumstances (including a specified price) established
upon issue. MLPs are limited partnerships in which the ownership units
are publicly traded.
    According to the Registration Statement, the Fund may invest in
shares of exchange traded real estate investment trusts (``REITs'').
REITs are

pooled investment vehicles which invest primarily in real estate or
real estate related loans. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs.
    According to the Registration Statement, the Fund may invest in
exchange-traded notes (``ETNs'').\20\ It is expected that the ETN
issuer's credit rating will be investment grade at the time of
investment.
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    \20\ ETNs are securities listed and traded on the Exchange under
NYSE Arca Equities Rule 5.2(j)(6) (``Index-Linked Securities'').
ETNs are senior, unsecured unsubordinated debt securities issued by
an underwriting bank that are designed to provide returns that are
linked to a particular benchmark less investor fees. ETNs have a
maturity date and, generally, are backed only by the
creditworthiness of the issuer.
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    According to the Registration Statement, in addition to the U.S.
Treasury debt securities described above, the Fund intends to invest in
other fixed income securities. The fixed income securities the Fund may
invest in are variable and floating rate instruments; bank obligations,
including certificates of deposit, bankers' acceptances, and fixed time
deposits; commercial paper; U.S. government securities other than U.S.
Treasuries; \21\ municipal securities; repurchase agreements; reverse
repurchase agreements; corporate debt securities; convertible
securities; and MBS. Some debt securities, such as zero coupon bonds,
do not make regular interest payments but are issued at a discount to
their principal or maturity value. Except as discussed herein, the Fund
may invest in investment-grade debt securities, non-investment-grade
debt securities, and unrated debt securities.\22\ The Fund may invest
assets in obligations of foreign banks which meet the conditions set
forth herein.
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    \21\ According to the Registration Statement, some obligations
issued or guaranteed by U.S. government agencies and
instrumentalities, including, for example, Ginnie Mae pass-through
certificates, are supported by the full faith and credit of the U.S.
Treasury. Other obligations issued by or guaranteed by federal
agencies, such as those securities issued by Fannie Mae, are
supported by the discretionary authority of the U.S. government to
purchase certain obligations of the federal agency, while other
obligations issued by or guaranteed by federal agencies, such as
those of the Federal Home Loan Banks, are supported by the right of
the issuer to borrow from the U.S. Treasury.
    \22\ According to the Registration Statement, non-investment-
grade securities, also referred to as ``high yield securities'' or
``junk bonds,'' are debt securities that are rated lower than the
four highest rating categories by a nationally recognized
statistical rating organization (for example, lower than Baa3 by
Moody's Investors Service, Inc. (``Moody's'') or lower than BBB- by
Standard and Poor's Ratings Services (``S&P'')) or are determined to
be of comparable quality by the Fund's Sub-Adviser. The
creditworthiness of the issuer, as well as any financial institution
or other party responsible for payments on the security, will be
analyzed by the Sub-Adviser to determine whether to purchase unrated
bonds.
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    According to the Registration Statement, the Fund may seek to
invest in corporate debt securities representative of one or more high
yield bond or credit derivative indices, which may change from time to
time. Selection will generally be dependent on independent credit
analysis or fundamental analysis performed by the Sub-Adviser.
    According to the Registration Statement, the Fund may enter into
repurchase agreements with financial institutions, which may be deemed
to be loans. The Fund will effect repurchase transactions only with
large, well-capitalized and well-established financial institutions
whose condition will be continually monitored by the Sub-Adviser.
    According to the Registration Statement, the Fund may enter into
reverse repurchase agreements. Reverse repurchase agreements involve
sales by the Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed
price.
    According to the Registration Statement, the Fund will only invest
in commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by
Moody's.
    According to the Registration Statement, the Fund may invest in
inflation-indexed bonds, which are fixed income securities whose
principal value is periodically adjusted according to the rate of
inflation.
    According to the Registration Statement, the Fund may invest in
securities that are indirectly linked to the performance of foreign
issuers, specifically: American Depositary Receipts (``ADRs''), Global
Depositary Receipts (``GDRs''), European Depositary Receipts
(``EDRs''), International Depository Receipts (``IDRs''), ``ordinary
shares,'' ``New York shares'' issued and traded in the U.S.\23\ and
exchange traded products (``ETPs'').
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    \23\ ADRs are U.S. dollar denominated receipts typically issued
by U.S. banks and trust companies that evidence ownership of
underlying securities issued by a foreign issuer. The underlying
securities may not necessarily be denominated in the same currency
as the securities into which they may be converted. Generally, ADRs
are designed for use in domestic securities markets and are traded
on exchanges or OTC in the U.S. GDRs, EDRs, and IDRs are similar to
ADRs in that they are certificates evidencing ownership of shares of
a foreign issuer; however, GDRs, EDRs, and IDRs may be issued in
bearer form and denominated in other currencies, and are generally
designed for use in specific or multiple securities markets outside
the U.S. EDRs, for example, are designed for use in European
securities markets while GDRs are designed for use throughout the
world. Ordinary shares are shares of foreign issuers that are traded
abroad and on a U.S. exchange. New York shares are shares that a
foreign issuer has allocated for trading in the U.S. ADRs, ordinary
shares, and New York shares all may be purchased with and sold for
U.S. dollars. With the exception of ADRs traded OTC, which will
comprise no more than 10% of the Fund's net assets, all equity
securities, including, without limitation, exchange-traded ADRs,
GDRs, EDRs, IDRs, New York shares and ordinary shares, that the Fund
may invest in will trade on markets that are members of the ISG or
that have entered into a comprehensive surveillance agreement with
the Exchange.
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    According to the Registration Statement, the Fund may invest in the
securities of other investment companies to the extent that such an
investment would be consistent with the requirements of Section
12(d)(1) of the 1940 Act, or any rule, regulation or order of the SEC
or interpretation thereof. Consistent with such restrictions, the Fund
may invest in several different types of investment companies from time
to time, including mutual funds, ETFs, closed-end funds, and business
development companies (``BDCs''), when the Adviser or the Sub-Adviser
believes such an investment is in the best interests of the Fund and
its shareholders. Closed-end funds are pooled investment vehicles that
are registered under the 1940 Act and whose shares are listed and
traded on U.S. national securities exchanges. A BDC is a less common
type of closed-end investment company that more closely resembles an
operating company than a typical investment company. Investment
companies may include index-based investments, such as ETFs that hold
substantially all of their assets in securities representing a specific
index.
    According to the Registration Statement, in addition to the U.S.
Treasury Futures, Agency MBS IOS and interest rate swaps discussed
above, the Fund intends to invest in other derivatives. The derivatives
in which the Fund may invest are other futures contracts, forward
contracts,\24\ options, options on futures, other swaps, hybrid
instruments and structured notes. The Fund typically will use
derivatives as a substitute for taking a position directly in the
underlying asset and/or as part of a strategy designed to reduce
exposure to other risks, such as currency risk. Not more than 10% of
the net assets of the Fund in the aggregate shall consist of options
whose principal market is not a member of ISG or is a market with which
the Exchange does not have a comprehensive surveillance sharing
agreement.
---------------------------------------------------------------------------

    \24\ Specifically, in addition to the forward currency exchange
contracts discussed above, the Fund may invest in mortgage dollar
rolls, which constitute forward contracts.

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

    According to the Registration Statement, the Fund will only enter
into futures contracts that are traded on a national futures exchange
regulated by the Commodities Futures Trading Commission (``CFTC'') and
whose principal market is a member of ISG or is a market with which the
Exchange has a comprehensive surveillance sharing agreement.\25\ The
Fund will only use futures contracts that have U.S. Treasury securities
and interest rate swaps as their underlying reference assets. The Fund
may use futures contracts and options on futures for bona fide hedging;
attempting to offset changes in the value of securities held or
expected to be acquired or be disposed of; attempting to gain exposure
to a particular market, index or instrument; or other risk management
purposes. An option on a futures contract gives the purchaser the
right, in exchange for a premium, to assume a position in a futures
contract at a specified exercise price during the term of the option.
---------------------------------------------------------------------------

    \25\ To the extent the Fund invests in futures, options on
futures or other instruments subject to regulation by the CFTC, it
will do so in reliance on and in compliance with CFTC regulations in
effect from time to time and in accordance with the Fund's policies.
The Trust, on behalf of certain of its series, has filed a notice of
eligibility for exclusion from the definition of the term
``commodity pool operator'' in accordance with CFTC Regulation 4.5.
Therefore, neither the Trust nor the Fund is deemed to be a
``commodity pool'' or ``commodity pool operator'' with respect to
the Fund under the Commodity Exchange Act (``CEA''), and they are
not subject to registration or regulation as such under the CEA. In
addition, as of the date of this filing, the Adviser is not deemed
to be a ``commodity pool operator'' or ``commodity trading adviser''
with respect to the advisory services it provides to the Fund. The
CFTC recently adopted amendments to CFTC Regulation 4.5 and has
proposed additional regulatory requirements that may affect the
extent to which the Fund invests in instruments that are subject to
regulation by the CFTC and impose additional regulatory obligations
on the Fund and the Adviser. The Fund reserves the right to engage
in transactions involving futures, options thereon and swaps to the
extent allowed by CFTC regulations in effect from time to time and
in accordance with the Fund's policies.
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund may write (sell)
and purchase put and call options on indices and enter into related
closing transactions. According to the Registration Statement, the Fund
may trade put and call options on securities, securities indices and
currencies, as the Sub-Adviser determines is appropriate in seeking the
Fund's investment objective, and except as restricted by the Fund's
investment limitations. The Fund may purchase put and call options on
securities to protect against a decline in the market value of the
securities in its portfolio or to anticipate an increase in the market
value of securities that the Fund may seek to purchase in the future.
The Fund may write covered call options on securities as a means of
increasing the yield on its assets and as a means of providing limited
protection against decreases in its market value. The Fund may purchase
and write options on an exchange or OTC.
    According to the Registration Statement, the Fund may invest in
hybrid instruments. A hybrid instrument is a type of potentially high-
risk derivative that combines a traditional stock, bond, or commodity
with an option or forward contract. Generally, the principal amount,
amount payable upon maturity or redemption, or interest rate of a
hybrid is tied (positively or negatively) to the price of some
security, commodity, currency or securities index or another interest
rate or some other economic factor (each a ``benchmark''). The interest
rate or (unlike most fixed income securities) the principal amount
payable at maturity of a hybrid security may be increased or decreased,
depending on changes in the value of the benchmark.
    According to the Registration Statement, certain hybrid instruments
may provide exposure to the commodities markets. These are derivative
securities with one or more commodity-linked components that have
payment features similar to commodity futures contracts, commodity
options, or similar instruments. Commodity-linked hybrid instruments
may be either equity or debt securities, and are considered hybrid
instruments because they have both security and commodity-like
characteristics. A portion of the value of these instruments may be
derived from the value of a commodity, futures contract, index or other
economic variable. The Fund will only invest in commodity-linked hybrid
instruments that qualify, under applicable rules of the CFTC, for an
exemption from the provisions of the CEA.
    According to the Registration Statement, the Fund may invest in
structured notes, which are debt obligations that also contain an
embedded derivative component with characteristics that adjust the
obligation's risk/return profile. Generally, the performance of a
structured note will track that of the underlying debt obligation and
the derivative embedded within it. The Fund have the right to receive
periodic interest payments from the issuer of the structured notes at
an agreed-upon interest rate and a return of the principal at the
maturity date.
    According to the Registration Statement, the Fund, from time to
time, in the ordinary course of business, may purchase securities on a
when-issued, delayed-delivery or forward commitment basis (i.e.,
delivery and payment can take place between a month and 120 days after
the date of the transaction). The Fund will not purchase securities on
a when-issued, delayed-delivery or forward commitment basis if, as a
result, more than 15% of the Fund's net assets would be so invested.
Investment Restrictions
    According to the Registration Statement, the Fund may not purchase
or sell commodities or commodity contracts unless acquired as a result
of ownership of securities or other instruments issued by persons that
purchase or sell commodities or commodities contracts; but this shall
not prevent the Fund from purchasing, selling and entering into futures
contracts, options on financial futures contracts, warrants, swaps,
forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities.
The Fund will only use futures contracts that have U.S. Treasury
securities and interest rate swaps as their underlying assets.
    According to the Registration Statement, the Fund may not, with
respect to 75% of its total assets, purchase securities of any issuer
(except securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities or shares of investment companies) if, as
a result, more than 5% of its total assets would be invested in the
securities of such issuer; or acquire more than 10% of the outstanding
voting securities of any one issuer.\26\
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    \26\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act. According to the Registration Statement, in
the case of privately issued mortgage-related securities, the Fund
takes the position that mortgage-related securities do not represent
interests in any particular ``industry'' or group of industries.
Therefore, the Fund may invest more or less than 25% of its total
assets in privately issued mortgage-related securities.
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund may not invest
25% or more of its total assets in the securities of one or more
issuers conducting their principal business activities in the same
industry or group of industries. This limitation does not apply to
investments in securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, or shares of investment companies.
The Fund will

not invest 25% or more of its total assets in any investment company
that so concentrates.\27\
---------------------------------------------------------------------------

    \27\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund may hold up to an
aggregate amount of 15% of its net assets in illiquid assets
(calculated at the time of investment), including securities deemed
illiquid by the Adviser consistent with Commission guidance. The Fund
will monitor its portfolio liquidity on an ongoing basis to determine
whether, in light of current circumstances, an adequate level of
liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid assets. Illiquid assets include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets as determined in
accordance with Commission staff guidance.\28\
---------------------------------------------------------------------------

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

    According to the Registration Statement, the Fund will seek to
qualify for treatment as a Regulated Investment Company under the
Internal Revenue Code.\29\
---------------------------------------------------------------------------

    \29\ 26 U.S.C. 851.
---------------------------------------------------------------------------

    The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage.
    According to the Registration Statement, while the Fund does not
anticipate doing so, the Fund may borrow money for investment purposes.
The Fund may also borrow money to facilitate management of the Fund's
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments would be inconvenient or
disadvantageous. Such borrowing is not for investment purposes, will be
repaid by the Fund promptly and will be consistent with the
requirements of the 1940 Act and the rules thereunder.
    According to the Registration Statement, the Fund may lend
portfolio securities to brokers, dealers and other financial
organizations that meet capital and other credit requirements or other
criteria established by the Fund's Board of Trustees. These loans, if
and when made, may not exceed 33\1/3\% of the total asset value of the
Fund (including the loan collateral). The Fund will not lend portfolio
securities to the Adviser, Sub-Adviser, or their affiliates, unless it
has applied for and received specific authority to do so from the
Commission. Loans of portfolio securities will be fully collateralized
by cash, letters of credit or U.S. government securities, and the
collateral will be maintained in an amount equal to at least 100% of
the current market value of the loaned securities by marking to market
daily.
Net Asset Value
    According to the Registration Statement, the Fund will calculate
its NAV by: (i) Taking the current market value of its total assets;
(ii) subtracting any liabilities; and (iii) dividing that amount by the
total number of Shares owned by shareholders. The Fund will calculate
NAV once each business day as of the regularly scheduled close of
trading on the Exchange (normally, 4:00 p.m., Eastern Time).
    In calculating NAV, the Fund's securities holdings will be valued
based on their last readily available market price.
    Futures contracts, exchange-traded options, and options on futures,
will be valued at the closing settlement price determined by the
applicable exchange. Other exchange-traded securities, including equity
securities (including ETPs such as exchange-traded ADRs, GDRs, EDRs,
IDRs, ordinary shares, New York shares, ETNs, and ETFs), and exchange-
traded REITs, will be valued at market value, which will generally be
determined using the last reported official closing or last trading
price on the exchange or market on which the security is primarily
traded at the time of valuation or, if no sale has occurred, at the
last quoted bid price on the primary market or exchange on which they
are traded. If market prices are unavailable or the Fund believes that
they are unreliable, or when the value of a security has been
materially affected by events occurring after the relevant market
closes, the Fund will price those securities at fair value as
determined in good faith using methods approved by the Trust's Board of
Trustees.
    ADRs traded OTC will be valued on the basis of the market closing
price on the exchange where the stock of the foreign issuer that
underlies the ADR is listed. Investment company securities (other than
ETFs), including mutual funds, closed end funds, and BDCs, will be
valued at net asset value.
    Non-exchange-traded derivatives, including forward contracts,
swaps, options traded OTC, options on futures traded OTC, hybrid
instruments and structured notes, will normally be valued on the basis
of quotes obtained from brokers and dealers or pricing services using
data reflecting the earlier closing of the principal markets for those
assets. Prices obtained from independent pricing services use
information provided by market makers or estimates of market values
obtained from yield data relating to investments or securities with
similar characteristics.
    Fixed income securities, including CMOs (including agency interest-
only CMOs), CMO residuals, mortgage dollar rolls, U.S. Treasury
securities, other obligations issued or guaranteed by U.S. government
agencies and instrumentalities, bonds, bank obligations, ABS, MBS,
shares of other mutual funds, commercial paper, repurchase agreements,
reverse repurchase agreements, corporate debt securities, municipal
securities, convertible securities, certificates of deposits and
bankers' acceptances generally trade in the OTC market rather than on a
securities exchange. The Fund will generally value these portfolio
assets by relying on independent pricing services. The Fund's pricing
services will use valuation models or matrix pricing to determine
current value. In general, pricing services use information with
respect to comparable bond and note transactions, quotations from bond
dealers or by reference to other assets that are considered comparable
in such characteristics as rating, interest rate, maturity date, option
adjusted spread models, prepayment projections, interest rate spreads
and yield curves. Matrix price is an estimated price or value for a
fixed-income security. Matrix pricing is considered a form of fair
value pricing. The Fund's debt securities will generally be valued at
bid prices. In certain cases, some of the Fund's debt securities may be
valued at the mean between the last available bid and ask prices.
    Foreign exchange rates will be priced using 4:00 p.m. (Eastern
Time) mean prices from major market data vendors.

Creation and Redemption of Shares
    According to the Registration Statement, the Fund will issue and
redeem Shares on a continuous basis at NAV in aggregated lots which
shall initially be of 25,000 Shares (each, a ``Creation Unit'').
    All orders to create or redeem Creation Units must be received by
the Distributor no later than 3:00 p.m., Eastern Time in order for the
creation or redemption of Creation Units to be effected based on the
NAV of Shares of the Fund as next determined on such date.
    The Trust reserves the right to offer an ``all cash'' option for
creations and redemptions of Creation Units for the Fund.\30\
---------------------------------------------------------------------------

    \30\ The Adviser represents that, to the extent the Trust
effects the creation of Shares in cash, such transactions will be
effected in the same manner for all authorized participants.
---------------------------------------------------------------------------

    The consideration for purchase of a Creation Unit of each Fund
generally will consist of an in-kind deposit of a designated portfolio
of securities--the ``Deposit Securities''--per each Creation Unit
constituting a substantial replication, or a representation, of the
securities included in the Fund's portfolio and an amount of cash--the
``Cash Component.'' Together, the Deposit Securities and the Cash
Component will constitute the ``Fund Deposit,'' which represents the
minimum initial and subsequent investment amount for a Creation Unit of
the Fund. The Cash Component is an amount equal to the difference
between the NAV of the Shares of the Fund (per Creation Unit) and the
market value of the Deposit Securities.
    In addition, the Trust reserves the right to permit or require the
substitution of an amount of cash--i.e., a ``cash in lieu'' amount--to
be added to the Cash Component to replace any Deposit Security which
may not be available in sufficient quantity for delivery or which may
not be eligible for transfer through the clearing process, or which may
not be eligible for trading by an authorized participant or the
investor for which it is acting.
    Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Fund through the Administrator and only on a business day. The Trust
will not redeem Shares of the Fund in amounts less than Creation Units.
Unless cash redemptions are available or specified, the redemption
proceeds for a Creation Unit generally will consist of ``the Fund
Securities''--as announced by the Administrator on the business day of
the request for redemption received in proper form--plus cash in an
amount equal to the difference between the NAV of the Shares being
redeemed, as next determined after a receipt of a request in proper
form, and the value of the Fund Securities, less a redemption
transaction fee. The Administrator, through the National Securities
Clearing Corporation (``NSCC''), will make available immediately prior
to the opening of business on the Exchange (currently 9:30 a.m.,
Eastern Time) on each business day, the Fund Securities that will be
applicable to redemption requests received in proper form on that day
as well as the estimated Cash Component.
    According to the Registration Statement, if it is not possible to
effect deliveries of the Fund Securities, for example if the investor
is not able to accept delivery, the Trust may in its discretion
exercise its option to redeem Shares of the Fund in cash, and the
redeeming beneficial owner will be required to receive its redemption
proceeds in cash. In addition, an investor may request a redemption in
cash which the Fund may, in its sole discretion, permit.\31\ In either
case, the investor will receive a cash payment equal to the NAV of its
Shares based on the NAV of Shares of the Fund next determined after the
redemption request is received in proper form (minus a redemption
transaction fee and additional charge for requested cash redemptions,
as described in the Registration Statement). The Fund may also, in its
sole discretion, upon request of a shareholder, provide such redeemer a
portfolio of securities which differs from the exact composition of the
applicable Fund Securities but does not differ in NAV.
---------------------------------------------------------------------------

    \31\ The Adviser represents that, to the extent the Trust
effects the redemption of Shares in cash, such transactions will be
effected in the same manner for all authorized participants.
---------------------------------------------------------------------------

    Redemptions of Shares for Fund Securities will be subject to
compliance with applicable federal and state securities laws and the
Fund (whether or not it otherwise permits cash redemptions) reserves
the right to redeem Creation Units for cash to the extent that the Fund
could not lawfully deliver specific Fund Securities upon redemptions or
could not do so without first registering the Fund Securities under
such laws. An authorized participant or an investor for which it is
acting subject to a legal restriction with respect to a particular
stock included in the Fund Securities applicable to the redemption of a
Creation Unit may be paid an equivalent amount of cash.
Availability of Information
    The Fund's Web site (www.advisorshares.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Fund's Web
site will include additional quantitative information updated on a
daily basis, including, for the Fund, (1) daily trading volume, the
prior business day's reported closing price, NAV and mid-point of the
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask
Price''),\32\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid/Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, the
Fund's Web site will disclose the Disclosed Portfolio that will form
the basis for the Fund's calculation of NAV at the end of the business
day.\33\
---------------------------------------------------------------------------

    \32\ The Bid/Ask Price of the Fund is determined using the mid-
point of the highest bid and the lowest offer on the Exchange as of
the time of calculation of the Fund's NAV. The records relating to
Bid/Ask Prices will be retained by the Fund and its service
providers.
    \33\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the business day.
---------------------------------------------------------------------------

    On a daily basis, the Adviser, on behalf of the Fund, will disclose
on the Fund's Web site the following information regarding each
portfolio holding of the Fund, as applicable to the type of holding:
Ticker symbol, CUSIP number or other identifier, if any; a description
of the holding (including the type of holding, such as the type of
swap); the identity of the security, commodity, index, or other asset
or instrument underlying the holding, if any; for options, the option
strike price; quantity held (as measured by, for example, par value,
notional value or number of shares, contracts or units); maturity date,
if any; coupon rate, if any; effective date, if any; market value of
the holding; and the percentage weighting of the holding in the Fund's
portfolio. The Web site information will be publicly available at no
charge.
    Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports will be

available free upon request from the Trust, and those documents and the
Form N-CSR and Form N-SAR may be viewed on-screen or downloaded from
the Commission's Web site at www.sec.gov. Information regarding market
price and trading volume of the Shares will be continually available on
a real-time basis throughout the day on brokers' computer screens and
other electronic services. Information regarding the previous day's
closing price and trading volume information for the Shares will be
published daily in the financial section of newspapers.
    Quotation and last sale information for the Shares and the
underlying U.S. exchange-traded equity securities will be available via
the Consolidated Tape Association (``CTA'') high-speed line, and from
the national securities exchange on which they are listed. Quotation
and last sale information for exchange-listed options will be available
via the Options Price Reporting Authority. Price information regarding
the futures contracts, exchange-traded options, options on futures,
equity securities (including ETPs such as exchange-listed ADRs, GDRs,
EDRs, IDRs, ordinary shares and New York shares as well as ETNs, and
ETFs), and exchange-traded REITs, held by the Fund will be available
from the U.S. and non-U.S. exchanges trading such assets.
    Quotation information from brokers and dealers or pricing services
will be available for ADRs traded OTC; investment company securities
other than ETFs; non-exchange-traded derivatives, including forward
contracts, IOS and other swaps, options traded OTC, options on futures,
hybrid instruments and structured notes; fixed income securities,
including CMOs (including agency interest-only CMOs), CMO residuals,
mortgage dollar rolls, U.S. Treasury securities, other obligations
issued or guaranteed by U.S. government agencies and instrumentalities,
bonds, bank obligations, ABS, MBS, shares of other mutual funds,
commercial paper, repurchase agreements, reverse repurchase agreements,
corporate debt securities, municipal securities, convertible
securities, certificates of deposit and bankers' acceptances. Pricing
information regarding each asset class in which the Fund will invest is
generally available through nationally recognized data service
providers through subscription agreements. Foreign exchange prices are
available from major market data vendors.
    In addition, the Portfolio Indicative Value, as defined in NYSE
Arca Equities Rule 8.600(c)(3), will be widely disseminated at least
every 15 seconds during the Core Trading Session by one or more major
market data vendors.\34\ The dissemination of the Portfolio Indicative
Value, together with the Disclosed Portfolio, will allow investors to
determine the value of the underlying portfolio of the Fund on a daily
basis and will provide a close estimate of that value throughout the
trading day.
---------------------------------------------------------------------------

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

    Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies, distributions
and taxes is included in the Registration Statement. All terms relating
to the Fund that are referred to, but not defined in, this proposed
rule change are defined in the Registration Statement.
Trading Halts
    With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\35\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. These may include: (1) The
extent to which trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Fund;
or (2) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present. Trading in
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D),
which sets forth circumstances under which Shares of the Fund may be
halted.
---------------------------------------------------------------------------

    \35\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------

Trading Rules
    The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. Eastern Time in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca
Equities Rule 8.600(d)(2)(B)(ii), the Adviser will implement and
maintain, or be subject to, procedures designed to prevent the use and
dissemination of material non-public information regarding the actual
components of the Fund's portfolio. The Exchange represents that, for
initial and/or continued listing, the Fund will be in compliance with
Rule 10A-3 \36\ under the Exchange Act, as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares will be outstanding at
the commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
as defined in NYSE Arca Equities Rule 8.600(c)(2) will be made
available to all market participants at the same time.
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    \36\ 17 CFR 240.10A-3.
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Surveillance
    The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by FINRA on behalf
of the Exchange, which are designed to detect violations of Exchange
rules and applicable federal securities laws. The Exchange represents
that these procedures are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities
laws.\37\
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    \37\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
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    The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.\38\
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    \38\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.

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    FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares, exchange-listed equity securities,
futures contracts and exchange-listed options contracts with other
markets and other entities that are members of the ISG and FINRA, on
behalf of the Exchange, may obtain trading information regarding
trading in the Shares, exchange-listed equity securities, futures
contracts and exchange-listed options contracts from such markets and
other entities. In addition, the Exchange may obtain information
regarding trading in the Shares, exchange-listed equity securities,
futures contracts and exchange-listed options contracts from markets
and other entities that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement. As noted
above, with the exception of ADRs traded OTC, which will comprise no
more than 10% of the Fund's net assets, all equity securities,
including, without limitation, exchange-traded ADRs, GDRs, EDRs, IDRs,
New York shares and ordinary shares, that the Fund may invest in will
trade on markets that are members of ISG or that have entered into a
comprehensive surveillance agreement with the Exchange. In addition,
FINRA, on behalf of the Exchange, is able to access, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
    In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit Holders in an Information Bulletin (``Bulletin'')
of the special characteristics and risks associated with trading the
Shares. Specifically, the Bulletin will discuss the following: (1) The
procedures for purchases and redemptions of Shares in Creation Unit
aggregations (and that Shares are not individually redeemable); (2)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its Equity Trading Permit Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated Portfolio Indicative Value will not be
calculated or publicly disseminated; (4) how information regarding the
Portfolio Indicative Value is disseminated; (5) the requirement that
Equity Trading Permit Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (6) trading information.
    In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Exchange Act.
The Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. Eastern Time each trading day.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is
the requirement under Section 6(b)(5) \39\ that an exchange have rules
that are designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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    \39\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. FINRA, on behalf of the Exchange,
will communicate as needed regarding trading in the Shares, exchange-
listed equity securities, futures contracts and exchange-listed options
contracts with other markets and other entities that are members of the
ISG and FINRA, on behalf of the Exchange, may obtain trading
information regarding trading in the Shares, exchange-listed equity
securities, futures contracts and exchange-listed options contracts
from such markets and other entities. In addition, the Exchange may
obtain information regarding trading in the Shares, exchange-listed
equity securities, futures contracts and exchange-listed options
contracts from markets and other entities that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement. As noted above, with the exception of ADRs traded
OTC, which will comprise no more than 10% of the Fund's net assets, all
equity securities, including, without limitation, exchange-traded ADRs,
GDRs, EDRs, IDRs, New York shares and ordinary shares, and Treasury
futures that the Fund may invest in will trade on markets that are
members of ISG or that have entered into a comprehensive surveillance
agreement with the Exchange. In addition, FINRA, on behalf of the
Exchange, is able to access, as needed, trade information for certain
fixed income securities held by the Fund reported to TRACE. Not more
than 10% of the net assets of the Fund in the aggregate shall consist
of options whose principal market is not a member of ISG or is a market
with which the Exchange does not have a comprehensive surveillance
sharing agreement. The Fund will limit investments in ABS and MBS that
are issued or guaranteed by non-government entities to 15% of the
Fund's net assets. The Fund may not purchase or hold illiquid assets
if, in the aggregate, more than 15% of its net assets would be invested
in illiquid securities. The Exchange may obtain information via ISG
from other exchanges that are members of ISG or with which the Exchange
has entered into a comprehensive surveillance sharing agreement.
Neither the Adviser nor the Sub-Adviser is a broker-dealer or is
affiliated with a broker-dealer. In the event (a) the Adviser becomes
newly affiliated with a broker-dealer, (b) the Sub-Adviser becomes
newly affiliated with a broker-dealer, or (c) any new adviser or sub-
adviser becomes affiliated with a broker-dealer, it will implement a
fire wall with respect to such broker-dealer regarding access to
information concerning the composition and/or changes to the portfolio,
and will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio. The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage.
    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. Quotation and last sale
information for the Shares and the

underlying U.S. exchange-traded equity securities will be available via
the CTA high-speed line, and from the national securities exchange on
which they are listed. Quotation and last sale information for
exchange-listed options will be available via the Options Price
Reporting Authority. Price information regarding the futures contracts,
exchange-traded options, options on futures, equity (including ETPs
such as ADRs traded OTC, GDRs, EDRs, IDRs, ordinary shares and New York
shares as well as ETNs, and ETFs), and exchange-traded REITs, held by
the Fund will be available from the U.S. and non-U.S. exchanges trading
such assets. Quotation information from brokers and dealers or pricing
services will be available for ADRs traded OTC; investment company
securities other than ETFs; non-exchange-traded derivatives, including
forward contracts, IOS and other swaps, options traded OTC, options on
futures, hybrid instruments and structured notes; fixed income
securities, including CMOs (including agency interest-only CMOs), CMO
residuals, mortgage dollar rolls, U.S. Treasury securities, other
obligations issued or guaranteed by U.S. government agencies and
instrumentalities, bonds, bank obligations, ABS, MBS, shares of other
mutual funds, commercial paper, repurchase agreements, reverse
repurchase agreements, corporate debt securities, municipal securities,
convertible securities, certificates of deposit and bankers'
acceptances. Pricing information regarding each asset class in which
the Fund will invest is generally available through nationally
recognized data service providers through subscription agreements.
Foreign exchange prices are available from major market data vendors.
In addition, the Portfolio Indicative Value will be widely disseminated
by the Exchange at least every 15 seconds during the Core Trading
Session. The Fund's Web site will include a form of the prospectus for
the Fund that may be downloaded, as well as additional quantitative
information updated on a daily basis. On each business day, before
commencement of trading in Shares in the Core Trading Session on the
Exchange, the Fund's Web site will disclose the Disclosed Portfolio
that will form the basis for the Fund's calculation of NAV at the end
of the business day. On a daily basis, the Adviser, on behalf of the
Fund, will disclose on the Fund's Web site the following information
regarding each portfolio holding of the Fund, as applicable to the type
of holding: ticker symbol, CUSIP number or other identifier, if any; a
description of the holding (including the type of holding, such as the
type of swap); the identity of the security, commodity, index, or other
asset or instrument underlying the holding, if any; for options, the
option strike price; quantity held (as measured by, for example, par
value, notional value or number of shares, contracts or units);
maturity date, if any; coupon rate, if any; effective date, if any;
market value of the holding; and the percentage weighting of the
holding in the Fund's portfolio. Moreover, prior to the commencement of
trading, the Exchange will inform its Equity Trading Permit Holders in
an Information Bulletin of the special characteristics and risks
associated with trading the Shares. Trading in Shares of the Fund will
be halted if the circuit breaker parameters in NYSE Arca Equities Rule
7.12 have been reached or because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable. Trading in the Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under
which Shares of the Fund may be halted. In addition, as noted above,
investors will have ready access to information regarding the Fund's
holdings, the Portfolio Indicative Value, the Disclosed Portfolio, and
quotation and last sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation
and last sale information for the Shares.

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

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

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

    No written comments were solicited or received with respect to the
proposed rule change.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NYSEArca-2014-71 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2014-71. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the

Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for Web site viewing and printing in
the Commission's Public Reference Section, 100 F Street NE.,
Washington, DC 20549 on official business days between 10 a.m. and 3
p.m. Copies of the filing will also be available for inspection and
copying at the Exchange's principal office and on its Internet Web site
at www.nyse.com. All comments received will be posted without change;
the Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NYSEArca-2014-71 and should be submitted on or before August 22, 2014.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18114 Filed 7-31-14; 8:45 am]
BILLING CODE 8011-01-P