[Federal Register Volume 79, Number 98 (Wednesday, May 21, 2014)]
[Notices]
[Pages 29247-29259]
[FR Doc No: 2014-11740]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72169; File No. SR-NASDAQ-2014-050]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change Relating to the Listing and
Trading of the Shares of the First Trust Strategic Income ETF of First
Trust Exchange-Traded Fund IV

May 15, 2014.
    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 May 5, 2014, The NASDAQ Stock Market LLC (``Nasdaq'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in in Items I,
II, and III below, which Items have been prepared by Nasdaq. 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

    Nasdaq proposes to list and trade the shares of the First Trust
Strategic Income ETF (the ``Fund'') of First Trust Exchange-Traded Fund
IV (the ``Trust'') under Nasdaq Rule 5735 (``Managed Fund Shares'').\3\
The shares of the Fund are collectively referred to herein as the
``Shares.''
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    \3\ The Commission approved Nasdaq Rule 5735 in Securities
Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June
20, 2008) (SR-NASDAQ-2008-039). There are already multiple actively-
managed funds listed on the Exchange; see, e.g., Securities Exchange
Act Release Nos. 69464 (April 26, 2013), 78 FR 25774 (May 2, 2013)
(SR-NASDAQ-2013-036) (order approving listing and trading of First
Trust Senior Loan Fund); 68972 (February 22, 2013), 78 FR 13721
(February 28, 2013) (SR-NASDAQ-2012-147) (order approving listing
and trading of First Trust High Yield Long/Short ETF); 66489
(February 29, 2012), 77 FR 13379 (March 6, 2012) (SR-NASDAQ-2012-
004) (order approving listing and trading of WisdomTree Emerging
Markets Corporate Bond Fund). The Exchange believes the proposed
rule change raises no significant issues not previously addressed in
those prior Commission orders.
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    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at Nasdaq's principal office, 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, Nasdaq included statements
concerning the purpose of, and basis for, the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. Nasdaq has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.

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

1. Purpose
    The Exchange proposes to list and trade the Shares of the Fund
under Nasdaq Rule 5735, which governs the listing and trading of
Managed Fund Shares \4\ on the Exchange. The Fund will be an actively-
managed exchange-traded fund (``ETF''). The Shares will be offered by
the Trust, which was established as a Massachusetts business trust on
September 15, 2010.\5\ The Trust is registered with the Commission as
an investment company and has filed a registration statement on Form N-
1A (``Registration Statement'') with the Commission.\6\ The Fund will
be a series of the Trust. The Fund intends to qualify each year as a
regulated investment company (``RIC'') under Subchapter M of the
Internal Revenue Code of 1986, as amended.
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    \4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized
as an open-end investment company or similar entity that invests in
a portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Index Fund Shares, listed
and traded on the Exchange under Nasdaq Rule 5705, 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 issued an order, upon which the Trust may
rely, granting certain exemptive relief under the 1940 Act. See
Investment Company Act Release No. 30029 (April 10, 2012) (File No.
812-13795) (the ``Exemptive Relief''). In addition, the Commission
has issued no-action relief, upon which the Trust may rely,
pertaining to the Fund's ability to invest in derivatives
notwithstanding certain representations in the application for the
Exemptive Relief. See Commission No-Action Letter (December 6,
2012).
    \6\ See Post-Effective Amendment No. 67 to Registration
Statement on Form N-1A for the Trust, dated May 2, 2014 (File Nos.
333-174332 and 811-22559). The descriptions of the Fund and the
Shares contained herein are based, in part, on information in the
Registration Statement.
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    First Trust Advisors L.P. will be the investment adviser
(``Adviser'') to the Fund. The following will serve as investment sub-
advisers (each a ``Sub-Adviser'') to the Fund: First Trust Global
Portfolios Ltd (``First Trust Global''); Energy Income Partners, LLC
(``EIP''); Stonebridge Advisors LLC (``Stonebridge''); and Richard
Bernstein Advisors LLC (``RBA''). First Trust Portfolios L.P. (the
``Distributor'') will be the principal underwriter and distributor of
the Fund's Shares. The Bank of New York Mellon Corporation (``BNY'')
will act as the administrator, accounting agent, custodian and transfer
agent to the Fund.
    Paragraph (g) of Rule 5735 provides that if the investment adviser
to the investment company issuing Managed Fund Shares is affiliated
with a broker-dealer, such investment adviser shall erect a ``fire
wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\7\ In addition, paragraph
(g) further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding the open-end fund's portfolio. Rule 5735(g) is similar to
Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) 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 any Sub-Adviser is a broker-dealer,
although the Adviser, First Trust Global, EIP and Stonebridge are each
affiliated with a broker-dealer.\8\ The Adviser and the foregoing Sub-
Advisers have each implemented a fire wall with respect to their
respective broker-dealer affiliate regarding access to information
concerning the composition and/or changes to the portfolio. In
addition, personnel who make decisions on the Fund's portfolio
composition will be subject to procedures designed to prevent the use
and dissemination of material non-public information regarding the
Fund's portfolio. In the event (a) the Adviser or a Sub-Adviser
becomes, or becomes newly affiliated with, a broker-dealer, or (b) any
new adviser or sub-adviser is a registered broker-dealer or becomes
affiliated with a broker-dealer, it will implement a fire wall with
respect to its relevant personnel and/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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    \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, the Sub-Advisers and their related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
    \8\ RBA is currently not affiliated with a broker-dealer.
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First Trust Strategic Income ETF
General Investment Approach and Parameters
    The primary investment objective of the Fund will be to seek risk-
adjusted income and its secondary objective will be capital
appreciation. Under normal market conditions,\9\ the Fund will seek to
achieve its investment objectives by following a strategic and tactical
asset allocation process that will provide diversified exposure to
income-producing asset classes.
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    \9\ The term ``under normal market conditions'' as used herein
includes, but is not limited to, the absence of adverse market,
economic, political or other conditions, including extreme
volatility or trading halts in the securities 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.
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    The Fund will be a multi-manager, multi-strategy actively-managed
exchange-traded fund. The Adviser will determine the Fund's strategic
allocation among various general investment categories and allocate the
Fund's assets to portfolio management teams comprised of personnel of
the Adviser and/or a Sub-Adviser (each a ``Management Team'') which
will employ their respective investment strategies. The Fund's
investment categories will be: (i) High yield corporate bonds and first
lien senior secured floating rate bank loans (referred to as ``senior
loans''); (ii) mortgage-related investments; (iii) preferred
securities; (iv) international sovereign bonds; (v) equity securities
of Energy Infrastructure Companies (as defined herein); and (vi)
dividend paying domestic equity securities and Depositary Receipts (as
defined herein), together with a related option overlay strategy. (The
foregoing investment categories and related investment strategies are
described in more detail below under ``Investment Categories and
Related Investment Strategies.'') In addition to the option overlay
strategy referenced in investment category (vi), the Management Teams
may utilize derivative instruments in implementing their respective
investment strategies for the Fund. See ``Derivative Instruments''
below.
    The Fund may add or remove investment categories or Management
Teams at the Adviser's discretion. The Fund will seek to provide income
and total return by having each Management Team focus on those
securities within its respective investment category. The Fund may
invest in securities directly or, alternatively, may invest in other
ETFs that generally provide exposure to the various investment
categories.\10\ The Adviser expects that the Fund may at times invest
significantly (and, potentially, may invest up to 50% of its net
assets) in other ETFs, including but not limited to, other ETFs that
are advised by the Adviser; however, the Fund does not intend to
operate principally as a ``fund of funds.'' Any other ETFs in which the
Fund invests to gain exposure to an investment category may be subject
to investment parameters that differ in certain respects from those
that have been established for such investment category which are
described below under ``Investment Categories and Related Investment
Strategies.''
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    \10\ An ETF is an investment company registered under the 1940
Act that holds a portfolio of securities. Many ETFs are designed to
track the performance of a securities index, including industry,
sector, country and region indexes. ETFs included in the Fund will
be listed and traded in the U.S. on registered exchanges. The Fund
may invest in the securities of ETFs in excess of the limits imposed
under the 1940 Act pursuant to exemptive orders obtained by other
ETFs and their sponsors from the Commission. In addition, the Fund
may invest in the securities of certain other investment companies,
including ETFs, in excess of the limits imposed under the 1940 Act
pursuant to an exemptive order obtained by the Trust and the Adviser
from the Commission. See Investment Company Act Release No. 30377
(February 5, 2013) (File No. 812-13895). The ETFs in which the Fund
may invest include Index Fund Shares (as described in Nasdaq Rule
5705), Portfolio Depository Receipts (as described in Nasdaq Rule
5705), and Managed Fund Shares (as described in Nasdaq Rule 5735).
While the Fund may invest in inverse ETFs, the Fund will not invest
in leveraged or inverse leveraged (e.g., 2X or -3X) ETFs.
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    To enhance expected return, the Adviser's investment committee
will, on a generally periodic basis, tactically adjust investment
category weights. Security selection will be performed for the Fund by
the Adviser and/or a Sub-Adviser.
    With respect to each investment category, the liquidity of a
security will be a substantial factor in the Fund's security selection
process. The Fund will not purchase any securities or other assets
that, in the opinion of the applicable Management Team, are illiquid
if, as a result, more than 15% of the value of the Fund's net assets
will be invested in illiquid assets (the ``15% Limitation'').\11\
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.\12\ The Adviser will communicate with the various Management
Teams regarding the Fund's ongoing compliance with the 15% Limitation.
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    \11\ In reaching liquidity decisions, the Adviser and/or
Management Team may consider the following factors: The frequency of
trades and quotes for the security; the number of dealers wishing to
purchase or sell the security and the number of other potential
purchasers; dealer undertakings to make a market in the security;
and the nature of the security and the nature of the marketplace in
which it trades (e.g., the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer).
    \12\ 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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    Except as specifically provided below under ``Investment Categories
and Related Investment Strategies,'' the fixed income and equity
securities in which the Fund will invest may be issued by U.S. and non-
U.S. issuers of all kinds and of any capitalization range and credit
quality. The Fund represents that its portfolio will include a minimum
of 13 non-affiliated issuers of fixed income securities. In addition,
the fixed income securities in which the Fund will invest may have
effective or final maturities of any length. At least 90% of the Fund's
net assets that are invested in exchange-traded equity securities of
both domestic and foreign issuers, exchange-traded products and
exchange-traded derivatives (in the aggregate) will be invested in
investments that trade in markets that are members of the Intermarket
Surveillance Group (``ISG''), which includes all U.S. national
securities exchanges and certain foreign exchanges, or are parties to a
comprehensive surveillance sharing agreement with the Exchange.\13\
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    \13\ For a list of the current members of ISG, see
www.isgportal.org.
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    The Fund may invest in the equity securities (including without
limitation preferred securities) of foreign issuers, either directly or
through investments that are in the form of American Depositary
Receipts (``ADRs'') or Global Depositary Receipts (``GDRs'' and,
together with ADRs, ``Depositary

Receipts'').\14\ The Depositary Receipts in which the Fund invests will
be exchange-traded and will not include unsponsored Depositary
Receipts.
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    \14\ 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. GDRs are receipts
issued throughout the world that evidence a similar arrangement.
ADRs and GDRs may trade in currencies that differ from the currency
in which the underlying security trades. Generally, ADRs, in
registered form, are designed for use in the U.S. securities
markets. GDRs, in registered form, are traded both in the United
States and in Europe and are designed for use throughout the world.
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    The Fund's exposure to any single country (outside of the U.S.)
will generally be limited to 20% of the Fund's net assets. The portion
of the Fund's net assets that may be denominated in currencies other
than the U.S. dollar is not expected to exceed 30%. To the extent the
Fund invests in such assets, the value of the assets of the Fund as
measured in U.S. dollars will be affected by changes in exchange rates.
    The Fund may from time to time purchase securities on a ``when-
issued'' or other delayed-delivery basis. To the extent required under
applicable federal securities laws (including the 1940 Act), rules, and
interpretations thereof, the Fund will ``set aside'' liquid assets or
engage in other measures to ``cover'' open positions held in connection
with the foregoing types of transactions.\15\
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    \15\ With respect to guidance under the 1940 Act, see 15 U.S.C.
80a-18; Investment Company Act Release No. 10666 (April 18, 1979),
44 FR 25128 (April 27, 1979); Dreyfus Strategic Investing,
Commission No-Action Letter (June 22, 1987); Merrill Lynch Asset
Management, L.P., Commission No-Action Letter (July 2, 1996).
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Investment Categories and Related Investment Strategies
    The investment categories in which the Fund intends to invest and
the investment strategies that the applicable Management Teams are
expected to pursue are described below:
     High Yield Corporate Bonds and Senior Loans. The Fund
intends to invest between 0% and 30%, but may invest up to 50%, of its
net assets in a combination of high yield corporate bonds and senior
loans.\16\ Such bonds and loans in which the Fund invests directly will
be issued by entities domiciled in the United States. Under normal
market conditions, the Fund will seek to invest at least 75% of its net
assets that are invested in such bonds and loans (in the aggregate) in
bonds and loans that, at the time of original issuance, have at least
$100 million par amount outstanding.
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    \16\ For the avoidance of doubt, this investment category and
these percentages will not include so-called baby bonds, which are
included in ``Preferred Securities'' (described below).
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    The high yield corporate bonds in which the Fund will invest will
be rated below investment grade \17\ at the time of purchase or unrated
and deemed by the Adviser and/or the applicable Management Team to be
of comparable quality,\18\ commonly referred to as ``junk'' bonds. For
purposes of determining whether a security is below investment grade,
the lowest available rating will be considered. High yield debt may be
issued, for example, by companies without long track records of sales
and earnings or by issuers that have questionable credit strength.
Corporate bonds may carry fixed or floating rates of interest.
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    \17\ Securities rated below investment grade include securities
that are rated Ba1/BB+/BB+ or below by Moody's Investors Service,
Inc. (``Moody's''), Fitch Ratings (``Fitch''), or Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc.
(``S&P Ratings''), respectively, or another nationally recognized
statistical rating organization (``NRSRO'').
    \18\ Comparable quality of unrated securities will be determined
by the Adviser and/or the applicable Management Team based on
fundamental credit analysis of the unrated security and comparable
NRSRO-rated securities. On a best efforts basis, the Adviser and/or
the applicable Management Team will attempt to make a rating
determination based on publicly available data. In making a
``comparable quality'' determination, the Adviser and/or the
applicable Management Team may consider, for example, whether the
issuer of the security has issued other rated securities, the nature
and provisions of the relevant security, whether the obligations
under the relevant security are guaranteed by another entity and the
rating of such guarantor (if any), relevant cash flows,
macroeconomic analysis, and/or sector or industry analysis.
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    The senior loans in which the Fund will invest will represent
amounts borrowed by companies or other entities from banks and other
lenders. In many cases, senior loans are issued in connection with
recapitalizations, acquisitions, leveraged buyouts, and refinancings. A
significant portion of the senior loans in which the Fund will invest
are expected to be rated below investment grade or unrated.
    A senior loan is considered senior to all other unsecured claims
against the borrower, and senior to or pari passu with all other
secured claims, meaning that in the event of a bankruptcy, the senior
loan, together with all other first lien claims, is entitled to be the
first to be repaid out of the proceeds of the assets securing the
loans, before other existing unsecured claims or interests receive
repayment. However, in bankruptcy proceedings, there may be other
claims, such as taxes or additional advances, which take precedence.
    Senior loans have interest rates that reset periodically. The
interest rates on senior loans are generally based on a percentage
above the London Interbank Offered Rate (LIBOR), a U.S bank's prime or
base rate, the overnight federal funds rate, or another rate. Senior
loans may be structured and administered by a financial institution
that acts as the agent of the lenders participating in the senior loan.
The Fund may acquire senior loans directly from a lender or through the
agent, as an assignment from another lender who holds a senior loan, or
as a participation interest in another lender's senior loan or portion
thereof.
    The Fund will generally invest in senior loans that the Adviser
and/or the applicable Management Team deems to be liquid with readily
available prices.
    The Management Team does not intend to purchase senior loans that
are in default; however, the Fund may hold a senior loan that has
defaulted subsequent to the purchase by the Fund.
     Mortgage-Related Investments. The Fund intends to invest
between 0% and 30%, but may invest up to 50%, of its net assets in the
mortgage-related debt securities and other mortgage-related instruments
described below (collectively, ``Mortgage-Related Investments'').
    The Mortgage-Related Investments in which the Fund invests will
primarily consist of investment grade securities (i.e., securities with
credit ratings within the four highest rating categories of an NRSRO at
the time of purchase or securities that are unrated and deemed by the
Adviser and/or the applicable Management Team to be of comparable
quality \19\ at the time of purchase). If a security is rated by
multiple NRSROs and receives different ratings, the Fund will treat the
security as being rated in the highest rating category received from an
NRSRO. In addition, if a security experiences a decline in credit
quality and falls below investment grade, the Fund may continue to hold
the security.
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    \19\ See note 18.
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    The types of Mortgage-Related Investments in which the Fund will
invest are described in the following three paragraphs:
    The Fund will invest in mortgage-backed securities (such as
residential mortgage-backed securities (RMBS) and commercial mortgage-
backed securities (CMBS)). Mortgage-backed securities represent an
interest in a pool of mortgage loans made by banks and other financial
institutions to finance purchases of homes, commercial buildings and
other real estate. The individual mortgage loans are packaged or
``pooled'' together for sale to investors. As the underlying mortgage

loans are paid off, investors receive principal and interest
payments.\20\
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    \20\ Mortgage-backed securities may be fixed rate or adjustable
rate mortgage-backed securities (ARMS). Certain mortgage-backed
securities (including RMBS and CMBS), where mortgage payments are
divided up between paying the loan's principal and paying the loan's
interest, are referred to as stripped mortgage-backed securities
(SMBS). Further, mortgage-backed securities can also be categorized
as collateralized mortgage obligations (CMOs) or real estate
mortgage investment conduits (REMICs) where they are divided into
multiple classes with each class being entitled to a different share
of the principal and/or interest payments received from the pool of
underlying assets.
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    The mortgage-backed securities in which the Fund will invest may
be, but are not required to be, issued or guaranteed by the U.S.
government, its agencies or instrumentalities, such as Ginnie Mae and
U.S. government-sponsored entities, such as Fannie Mae and Freddie Mac
(the U.S. government, its agencies and instrumentalities, and U.S.
government-sponsored entities are referred to collectively as
``Government Entities'').\21\ The Fund, however, will limit its
investments in mortgage-backed securities that are not issued or
guaranteed by Government Entities to 20% of its net assets. Many
mortgage-backed securities are pass-through securities, which means
they provide investors with monthly payments consisting of a pro rata
share of both regular interest and principal payments as well as
unscheduled prepayments on the underlying mortgage loans. Because
prepayment rates of individual mortgage pools vary widely, the average
life of a particular pool cannot be predicted accurately. Adjustable
rate mortgage-backed securities include ARMS and other mortgage-backed
securities with interest rates that adjust periodically to reflect
prevailing market rates.
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    \21\ Securities issued or guaranteed by Government Entities have
different levels of credit support. For example, Ginnie Mae
securities carry a guarantee as to the timely repayment of principal
and interest that is backed by the full faith and credit of the U.S.
government. However, the full faith and credit guarantee does not
apply to the market prices and yields of the Ginnie Mae securities
or to the net asset value, trading price or performance of the Fund,
which will vary with changes in interest rates and other market
conditions. Fannie Mae and Freddie Mac pass-through mortgage
certificates are backed by the credit of the respective Government
Entity and are not guaranteed by the U.S. government. Other
securities issued by Government Entities (other than the U.S.
government) may only be backed by the creditworthiness of the
issuing institution, not the U.S. government, or the issuers may
have the right to borrow from the U.S. Treasury to meet their
obligations.
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    Additionally, the Fund may invest in mortgage dollar rolls.\22\ The
Fund intends to enter into mortgage dollar rolls only with high quality
securities dealers and banks, as determined by the Adviser. The Fund
may also invest in to-be-announced transactions (``TBA
Transactions'').\23\ Further, the Fund may enter into short sales as
part of its overall portfolio management strategies or to offset a
potential decline in the value of a security; however, the Fund does
not expect, under normal market conditions, to engage in short sales
with respect to more than 30% of the value of its net assets that are
invested in Mortgage-Related Investments. To the extent required under
applicable federal securities laws, rules, and interpretations thereof,
the Fund will ``set aside'' liquid assets or engage in other measures
to ``cover'' open positions and short positions held in connection with
the foregoing types of transactions.\24\
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    \22\ In a mortgage dollar roll, the Fund will sell (or buy)
mortgage-backed securities for delivery on a specified date and
simultaneously contract to repurchase (or sell) substantially
similar (same type, coupon and maturity) securities on a future
date. During the period between a sale and repurchase, the Fund will
forgo principal and interest paid on the mortgage-backed securities.
The Fund will earn or lose money on a mortgage dollar roll from any
difference between the sale price and the future purchase price. In
a sale and repurchase, the Fund will also earn money on the interest
earned on the cash proceeds of the initial sale.
    \23\ A TBA Transaction is a method of trading mortgage-backed
securities. TBA Transactions generally are conducted in accordance
with widely-accepted guidelines which establish commonly observed
terms and conditions for execution, settlement and delivery. In a
TBA Transaction, the buyer and the seller agree on general trade
parameters such as agency, settlement date, par amount and price.
The actual pools delivered generally are determined two days prior
to the settlement date. The mortgage TBA market is liquid and
positions can be easily added, rolled or closed. According to the
Financial Industry Regulatory Authority (``FINRA'') Trade Reporting
and Compliance Engine (``TRACE'') data, TBA Transactions represented
approximately 93% of total trading volume for agency mortgage-backed
securities in the month of January 2014.
    \24\ See note 15 regarding guidance under the 1940 Act.
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     Preferred Securities. The Fund intends to invest between
0% and 30%, but may invest up to 50%, of its net assets in preferred
securities issued by U.S. and non-U.S. issuers.\25\ Under normal market
conditions, the Fund will seek to invest at least 75% of its net assets
that are invested in preferred securities in preferred securities that
have a minimum initial issuance amount of at least $100 million.
Initially, at least 50% of the Fund's net assets that are invested in
preferred securities will be invested in exchange-listed preferred
securities, although this percentage may decrease in the future.
Preferred securities held by the Fund will generally pay fixed or
adjustable rate distributions to investors and will have preference
over common stock in the payment of distributions and the liquidation
of a company's assets, which means that a company typically must pay
dividends or interest on its preferred securities before paying any
dividends on its common stock. Preferred securities are generally
junior to all forms of the company's debt, including both senior and
subordinated debt.
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    \25\ For the avoidance of doubt, this investment category and
these percentages will not include those investments in preferred
securities that are included in ``Equity Securities of Energy
Infrastructure Companies'' (described below). Certain of the
preferred securities in which the Fund will invest will be
traditional preferred stocks that issue dividends that qualify for
the dividends received deduction under which ``qualified'' domestic
corporations are able to exclude a percentage of the dividends
received from their taxable income. Other preferred securities in
which the Fund will invest will be preferred stocks that do not
issue dividends that qualify for the dividends received deduction or
generate qualified dividend income. Additionally, certain of the
preferred securities in which the Fund will invest may be so-called
baby bonds (i.e., small denomination, typically $25 par value, bonds
that often have certain characteristics associated with fixed income
securities sold to retail investors (for example, they typically pay
a quarterly coupon and are typically investment grade)). Hybrid
preferred securities, another type of preferred securities, are
typically junior and fully subordinated liabilities of an issuer or
the beneficiary of a guarantee that is junior and fully subordinated
to the other liabilities of the guarantor.
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     International Sovereign Bonds. The Fund intends to invest
between 0% and 30%, but may invest up to 50%, of its net assets in debt
securities, including inflation-linked bonds,\26\ issued by foreign
governments or their subdivisions, agencies and government-sponsored
enterprises (``Sovereign Debt'').\27\ At least 50% of the Fund's net

assets that are invested in Sovereign Debt will be invested in
securities of issuers rated investment grade (BBB-/Baa3 or higher) at
the time of purchase by at least one NRSRO and unrated securities
judged to be of comparable quality \28\ by the Adviser and/or the
applicable Management Team. Up to 50% of its net assets invested in
Sovereign Debt may be invested in securities of issuers rated below
investment grade at the time of purchase (i.e., ``junk'' bonds). If a
security or issuer is rated by multiple NRSROs and receives different
ratings, the Fund will treat the security or issuer (as applicable) as
being rated in the highest rating category received from an NRSRO. In
addition, if a security or issuer (as applicable) experiences a decline
in credit quality and falls below investment grade, the Fund may
continue to hold the security and it will not count toward the
investment limit; however, the security will be taken into account for
purposes of determining whether purchases of additional securities will
cause the Fund to violate such limit.
---------------------------------------------------------------------------

    \26\ Inflation-linked bonds are fixed income securities that are
structured to provide protection against inflation. The value of the
inflation-linked bond's principal or the interest income paid on the
bond is adjusted to track changes in an official inflation measure.
The value of inflation-linked bonds is expected to change in
response to changes in real interest rates. Real interest rates are
tied to the relationship between nominal interest rates and the rate
of inflation. If nominal interest rates increase at a faster rate
than inflation, real interest rates may rise, leading to a decrease
in the value of inflation-linked bonds.
    \27\ For the avoidance of doubt, Sovereign Debt includes debt
obligations denominated in local currencies or U.S. dollars.
Moreover, given that it includes debt issued by subdivisions,
agencies and government-sponsored enterprises, Sovereign Debt may
include debt commonly referred to as ``quasi-sovereign debt.''
Sovereign Debt may also include issues denominated in emerging
market local currencies that are issued by ``supranational
issuers,'' such as the International Bank for Reconstruction and
Development and the International Finance Corporation, as well as
development agencies supported by other national governments.
According to the Adviser and the applicable Management Team, while
there is no universally accepted definition of what constitutes an
``emerging market,'' in general, emerging market countries are
characterized by developing commercial and financial infrastructure
with significant potential for economic growth and increased capital
market participation by foreign investors.
    \28\ See note 18.
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    The Fund intends to invest in Sovereign Debt of issuers in both
developed and emerging markets.\29\ In addition, the Fund expects that,
under normal market conditions, at least 80% of the Sovereign Debt in
which it invests will be issued by issuers with outstanding debt of at
least $200 million (or the foreign currency equivalent thereof).
---------------------------------------------------------------------------

    \29\ The Fund intends, initially, to invest in Sovereign Debt of
the following issuers: Argentina; Brazil; Chile; Colombia; Costa
Rica; Dubai (United Arab Emirates); Hungary; Indonesia; Malaysia;
Mexico; Nigeria; Peru; Philippines; Poland; Qatar; Romania; Russia;
South Africa; South Korea; Sri Lanka; Thailand; Turkey; Venezuela;
and Vietnam, although this list may change based on market
developments. The percentage of Fund assets invested in a specific
region, country or issuer will change from time to time.
---------------------------------------------------------------------------

     Equity Securities of Energy Infrastructure Companies. The
Fund intends to invest between 0% and 50% of its net assets in
exchange-traded equity securities of companies deemed by the applicable
Management Team to be engaged in the energy infrastructure sector.
These companies principally include publicly-traded master limited
partnerships and limited liability companies taxed as partnerships
(``MLPs'') (described below), MLP affiliates (described below),
``Canadian Income Equities,'' which are successor companies to Canadian
income trusts,\30\ pipeline companies, utilities, and other companies
that derive at least 50% of their revenues from operating or providing
services in support of infrastructure assets such as pipelines, power
transmission and petroleum and natural gas storage in the petroleum,
natural gas and power generation industries (collectively, ``Energy
Infrastructure Companies'').
---------------------------------------------------------------------------

    \30\ The term ``Canadian income trusts'' refers to qualified
income trusts designated by the Canada Revenue Agency that derive
income and gains from the exploration, development, mining or
production, processing, refining, transportation (including
pipelines transporting gas, oil or products thereof), or the
marketing of any mineral or natural resources.
---------------------------------------------------------------------------

    As indicated above, the Fund may invest in the equity securities of
MLPs. MLPs are limited partnerships whose shares (or units) are listed
and traded on a U.S. securities exchange. MLP units may be common or
subordinated.\31\ In addition, the Fund may invest in I-Shares,\32\
which represent an ownership interest issued by an affiliated party of
an MLP. The MLP affiliate uses the proceeds from the sale of I-Shares
to purchase limited partnership interests in the MLP in the form of i-
units. I-units have similar features as MLP common units in terms of
voting rights, liquidation preference and distributions. However,
rather than receiving cash, the MLP affiliate receives additional i-
units in an amount equal to the cash distributions received by MLP
common units. Similarly, holders of I-Shares will receive additional I-
Shares, in the same proportion as the MLP affiliates' receipt of i-
units, rather than cash distributions. I-Shares themselves have limited
voting rights which are similar to those applicable to MLP common
units. I-Shares are listed and traded on a U.S. national securities
exchange.
---------------------------------------------------------------------------

    \31\ MLPs generally have two classes of owners, the general
partner and limited partners. The general partner, which is
generally a major energy company, investment fund or the management
of the MLP, typically controls the MLP through a 2% general partner
equity interest in the MLP plus common units and subordinated units.
Limited partners own the remainder of the partnership, through
ownership of common units, and have a limited role in the
partnership's operations and management.
    \32\ As a matter of clarification, the ``I-Shares'' referred to
herein are not ``iShares'' ETFs.
---------------------------------------------------------------------------

     Dividend Paying Domestic Equity Securities and Depositary
Receipts and Related Option Overlay Strategy. The Fund intends to
invest between 0% and 30%, but may invest up to 50%, of its net assets
in dividend paying U.S. exchange-traded equity securities (including
common stock) of companies domiciled in the United States and
Depositary Receipts.\33\ In connection with its investments in dividend
paying domestic equity securities, the Fund may use an option overlay
strategy (the ``Option Overlay Strategy'').\34\ To implement this
strategy, the Fund will write (sell) covered U.S. exchange-traded call
options in order to seek additional cash flow in the form of premiums
on the options. The market value of the Option Overlay Strategy may be
up to 30% of the Fund's overall net asset value and the notional value
of the calls written may be up to 30% of the overall Fund. The maturity
of the options utilized will generally be between one week and three
months. The options written may be in-the-money, at-the-money or out-
of-the-money.
---------------------------------------------------------------------------

    \33\ For the avoidance of doubt, this investment category and
these percentages will not include investments in preferred
securities (described above under ``Preferred Securities''),
investments in those equity securities that are included in ``Equity
Securities of Energy Infrastructure Companies'' (described above),
or investments in ETFs that are intended to provide exposure to any
of the other five investment categories (see ``General Investment
Approach and Parameters'' above).
    \34\ The Fund's investments in options in connection with the
Option Overlay Strategy will not be included for purposes of
determining compliance with the 20% Limitation (defined below).
---------------------------------------------------------------------------

Derivative Instruments

    As described below, the Fund may invest in derivative
instruments.\35\ Not including the Option Overlay Strategy, no more
than 20% of the value of the Fund's net assets will be invested in
derivative instruments (the ``20% Limitation'').\36\ In general, the
Fund may invest in exchange-listed futures contracts, exchange-listed
options,

exchange-listed options on futures contracts, and exchange-listed stock
index options.\37\
---------------------------------------------------------------------------

    \35\ The Fund may invest in derivative instruments for various
purposes, such as to seek to enhance return, to hedge some of the
risks of its investments in securities, as a substitute for a
position in the underlying asset, to reduce transaction costs, to
maintain full market exposure (which means to adjust the
characteristics of its investments to more closely approximate those
of the markets in which it invests), to manage cash flows, to limit
exposure to losses due to changes to non-U.S. currency exchange
rates or to preserve capital.
    \36\ Because the Option Overlay Strategy will be excluded from
the 20% Limitation, the Fund's total investments in derivative
instruments may exceed 20% of the value of its net assets. The Fund
will limit its direct investments in futures and options on futures
to the extent necessary for the Adviser to claim the exclusion from
regulation as a ``commodity pool operator'' with respect to the Fund
under Rule 4.5 promulgated by the Commodity Futures Trading
Commission (``CFTC''), as such rule may be amended from time to
time. Under Rule 4.5 as currently in effect, the Fund will limit its
trading activity in futures and options on futures (excluding
activity for ``bona fide hedging purposes,'' as defined by the CFTC)
such that it will meet one of the following tests: (i) Aggregate
initial margin and premiums required to establish its futures and
options on futures positions will not exceed 5% of the liquidation
value of the Fund's portfolio, after taking into account unrealized
profits and losses on such positions; or (ii) aggregate net notional
value of its futures and options on futures positions will not
exceed 100% of the liquidation value of the Fund's portfolio, after
taking into account unrealized profits and losses on such positions.
    \37\ Any exchange-traded derivatives in which the Fund invests
will trade in markets that are members of ISG or are parties to a
comprehensive surveillance sharing agreement with the Exchange. The
exchange-listed futures and options contracts in which the Fund may
invest will be listed on exchanges in the U.S., Europe, London, Hong
Kong, Singapore, Australia or Canada. The United Kingdom's primary
financial markets regulator (the Financial Conduct Authority), Hong
Kong's primary financial markets regulator (the Securities and
Futures Commission), Singapore's primary financial markets regulator
(the Monetary Authority of Singapore), Australia's primary financial
markets regulator (the Australian Securities and Investments
Commission), and certain Canadian financial markets regulators
(including the Alberta Securities Commission, the British Columbia
Securities Commission, the Ontario Securities Commission, and
Autorite des marches financiers (Quebec)) are signatories to the
International Organization of Securities Commissions (``IOSCO'')
Multilateral Memorandum of Understanding (``MMOU''), which is a
multi-party information sharing arrangement among financial
regulators. Both the Commission and the Commodity Futures Trading
Commission are signatories to the IOSCO MMOU.
---------------------------------------------------------------------------

    Primarily in connection with its investments in Sovereign Debt
(but, to the extent applicable, in connection with other investments),
the Fund may actively manage its foreign currency exposures, including
through the use of forward currency contracts, non-deliverable forward
currency contracts, exchange-listed currency futures and exchange-
listed currency options; such derivatives use will be included for
purposes of determining compliance with the 20% Limitation. The Fund
may, for instance, enter into forward currency contracts in order to
``lock in'' the exchange rate between the currency it will deliver and
the currency it will receive for the duration of the contract \38\ and
may buy or sell exchange-listed futures contracts on U.S. Treasury
securities, non-U.S. government securities and major non-U.S.
currencies.
---------------------------------------------------------------------------

    \38\ The Fund will invest only in currencies, and instruments
that provide exposure to such currencies, that have significant
foreign exchange turnover and are included in the Bank for
International Settlements, Triennial Central Bank Survey, Global
Foreign Exchange Market Turnover in 2013 (``BIS Survey''). The Fund
may invest in currencies, and instruments that provide exposure to
such currencies, selected from the top 40 currencies (as measured by
percentage share of average daily turnover for the applicable month
and year) included in the BIS Survey.
---------------------------------------------------------------------------

    The Fund will comply with the regulatory requirements of the
Commission to maintain assets as ``cover,'' maintain segregated
accounts, and/or make margin payments when it takes positions in
derivative instruments involving obligations to third parties (i.e.,
instruments other than purchase options). If the applicable guidelines
prescribed under the 1940 Act so require, the Fund will earmark or set
aside cash, U.S. government securities, high grade liquid debt
securities and/or other liquid assets permitted by the Commission in a
segregated custodial account in the amount prescribed.\39\
---------------------------------------------------------------------------

    \39\ See note 15 regarding related guidance under the 1940 Act.
---------------------------------------------------------------------------

    The Fund will only enter into transactions in derivative
instruments with counterparties that the Adviser and/or the applicable
Management Team reasonably believes are capable of performing under the
applicable contract.\40\
---------------------------------------------------------------------------

    \40\ The Fund will seek, where possible, to use counterparties,
as applicable, whose financial status is such that the risk of
default is reduced; however, the risk of losses resulting from
default is still possible. The Adviser and/or the applicable
Management Team will evaluate the creditworthiness of counterparties
on an ongoing basis. In addition to information provided by credit
agencies, the Adviser's and/or Management Team's analysis will
evaluate each approved counterparty using various methods of
analysis and may consider the Adviser's and/or Management Team's
past experience with the counterparty, its known disciplinary
history and its share of market participation.
---------------------------------------------------------------------------

    The Fund's investments in derivative instruments will be consistent
with the Fund's investment objectives and the 1940 Act and will not be
used to seek to achieve a multiple or inverse multiple of an index.

Other Investments

    Under normal market conditions, the Fund will invest substantially
all of its assets to meet its investment objectives and, as described
above, the Fund may invest in derivative instruments. In addition, the
Fund may invest its remaining assets in other securities and financial
instruments, as generally described below.
    The Fund may invest up to 20% of its net assets in short-term debt
securities, money market funds and other cash equivalents, or it may
hold cash. The percentage of the Fund invested in such holdings will
vary and will depend on several factors, including market conditions.
For temporary defensive purposes, during the initial invest-up period
and during periods of high cash inflows or outflows, the Fund (as a
whole or with respect to one or more investment categories) may depart
from its principal investment strategies and invest part or all of its
assets in these securities or it may hold cash. During such periods,
the Fund may not be able to achieve its investment objectives. The Fund
(as a whole or with respect to one or more investment categories) may
adopt a defensive strategy when the Adviser and/or a Management Team
believe securities in which the Fund normally invests have elevated
risks due to political or economic factors and in other extraordinary
circumstances.
    Short-term debt securities are securities from issuers having a
long-term debt rating of at least A by S&P Ratings, Moody's or Fitch
and having a maturity of one year or less. The use of temporary
investments will not be a part of a principal investment strategy of
the Fund.
    Short-term debt securities are the following: (1) Fixed rate and
floating rate U.S. government securities, including bills, notes and
bonds differing as to maturity and rates of interest, which are either
issued or guaranteed by the U.S. Treasury or by U.S. government
agencies or instrumentalities; (2) short-term securities issued or
guaranteed by non-U.S. governments or by their agencies or
instrumentalities; \41\ (3) certificates of deposit issued against
funds deposited in a bank or savings and loan association; (4) bankers'
acceptances, which are short-term credit instruments used to finance
commercial transactions; (5) repurchase agreements,\42\ which involve
purchases of debt securities; (6) bank time deposits, which are monies
kept on deposit with banks or savings and loan associations for a
stated period of time at a fixed rate of interest; (7) commercial
paper, which is short-term unsecured promissory notes; and (8) other
securities that are similar to the foregoing. The Fund may only invest
in commercial paper rated A-1 or higher by S&P Ratings, Prime-1 or
higher by Moody's or F1 or higher by Fitch.
---------------------------------------------------------------------------

    \41\ The relevant non-U.S. government, agency or instrumentality
must have a long-term debt rating of at least A by S&P Ratings,
Moody's or Fitch.
    \42\ The Fund intends to enter into repurchase agreements only
with financial institutions and dealers believed by the Adviser and/
or the applicable Management Team to present minimal credit risks in
accordance with criteria approved by the Board of Trustees of the
Trust (``Trust Board''). The Adviser and/or the Management Team will
review and monitor the creditworthiness of such institutions. The
Adviser and/or the Management Team will monitor the value of the
collateral at the time the transaction is entered into and at all
times during the term of the repurchase agreement.
---------------------------------------------------------------------------

    In addition, to manage foreign currency exposures, the Fund may
invest directly in foreign currencies, including without limitation in
the form of bank and financial institution deposits, certificates of
deposit, and bankers' acceptances denominated in a specified non-U.S.
currency.
    The Fund may invest in the securities of money market funds. The
Fund may also invest in the securities of other ETFs that invest
primarily in short-term debt securities, in addition to any

investments in other ETFs described above under ``General Investment
Approach and Parameters.'' \43\
---------------------------------------------------------------------------

    \43\ See note 10.
---------------------------------------------------------------------------

    The Fund may invest up to 15% of its net assets in secured loans
that are not first lien loans or loans that are unsecured (collectively
referred to as ``junior loans''). Junior loans have the same
characteristics as senior loans except that junior loans are not first
in priority of repayment and/or may not be secured by collateral.
Accordingly, the risks associated with junior loans are higher than the
risks for loans with first priority over the collateral. Because junior
loans are lower in priority and/or unsecured, they are subject to the
additional risk that the cash flow of the borrower may be insufficient
to meet scheduled payments after giving effect to the secured
obligations of the borrower or in the case of a default, recoveries may
be lower for unsecured loans than for secured loans.\44\
---------------------------------------------------------------------------

    \44\ Junior loans generally have greater price volatility than
senior loans and may be less liquid. There is also a possibility
that originators will not be able to sell participations in junior
loans, which would create greater credit risk exposure for the
holders of such loans. Junior loans share the same risks as other
below investment grade instruments.
---------------------------------------------------------------------------

    In accordance with the 15% Limitation described above, the Fund may
hold up to an aggregate amount of 15% of its net assets in illiquid
assets (calculated at the time of investment), including Rule 144A
securities deemed illiquid by the Adviser and/or the applicable
Management Team.\45\ 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.
---------------------------------------------------------------------------

    \45\ See notes 11 and 12 and accompanying text.
---------------------------------------------------------------------------

    The Fund will not concentrate in any one industry.\46\ For the
avoidance of any doubt, however, this will not limit the Fund's
investments in (a) obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities or (b) securities of
other investment companies.
---------------------------------------------------------------------------

    \46\ 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).
---------------------------------------------------------------------------

Creation and Redemption of Shares

    The Fund will issue and redeem Shares on a continuous basis at net
asset value (``NAV'') \47\ only in large blocks of Shares (``Creation
Units'') in transactions with authorized participants, generally
including broker-dealers and large institutional investors
(``Authorized Participants''). Creation Units generally will consist of
50,000 Shares, although this may change from time to time. Creation
Units, however, are not expected to consist of less than 50,000 Shares.
As described in the Registration Statement and consistent with the
Exemptive Relief, the Fund will issue and redeem Creation Units in
exchange for an in-kind portfolio of instruments and/or cash in lieu of
such instruments (the ``Creation Basket''). In addition, if there is a
difference between the NAV attributable to a Creation Unit and the
market value of the Creation Basket exchanged for the Creation Unit,
the party conveying instruments with the lower value will pay to the
other an amount in cash equal to the difference (referred to as the
``Cash Component'').
---------------------------------------------------------------------------

    \47\ The NAV of the Fund's Shares generally will be calculated
once daily Monday through Friday as of the close of regular trading
on the New York Stock Exchange, generally 4:00 p.m., Eastern time
(the ``NAV Calculation Time''). NAV per Share will be calculated by
dividing the Fund's net assets by the number of Fund Shares
outstanding. For more information regarding the valuation of Fund
investments in calculating the Fund's NAV, see the Registration
Statement.
---------------------------------------------------------------------------

    Creations and redemptions must be made by an Authorized Participant
or through a firm that is either a member of the National Securities
Clearing Corporation (``NSCC'') or a Depository Trust Company
participant that, in each case, must have executed an agreement that
has been agreed to by the Distributor and BNY with respect to creations
and redemptions of Creation Units. All standard orders to create
Creation Units must be received by the transfer agent no later than the
closing time of the regular trading session on the New York Stock
Exchange (ordinarily 4:00 p.m., Eastern time) (the ``Closing Time'') in
each case on the date such order is placed in order for the creation of
Creation Units to be effected based on the NAV of Shares as next
determined on such date after receipt of the order in proper form.
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt not later than the Closing Time of a
redemption request in proper form by the Fund through the transfer
agent and only on a business day.
    The Fund's custodian, through the NSCC, will make available on each
business day, prior to the opening of business of the Exchange, the
list of the names and quantities of the instruments comprising the
Creation Basket, as well as the estimated Cash Component (if any), for
that day. The published Creation Basket will apply until a new Creation
Basket is announced on the following business day.

Net Asset Value

    The Fund's NAV will be determined as of the close of trading
(normally 4:00 p.m., Eastern time) on each day the New York Stock
Exchange is open for business. NAV will be calculated for the Fund by
taking the market price of the Fund's total assets, including interest
or dividends accrued but not yet collected, less all liabilities, and
dividing such amount by the total number of Shares outstanding. The
result, rounded to the nearest cent, will be the NAV per Share. All
valuations will be subject to review by the Trust Board or its
delegate.
    The Fund's investments will be valued daily at market value or, in
the absence of market value with respect to any investment, at fair
value, in each case in accordance with valuation procedures (which may
be revised from time to time) adopted by the Trust Board (the
``Valuation Procedures'') and in accordance with the 1940 Act. A market
valuation generally means a valuation (i) obtained from an exchange, an
independent pricing service (``Pricing Service''), or a major market
maker (or dealer) or (ii) based on a price quotation or other
equivalent indication of value supplied by an exchange, a Pricing
Service, or a major market maker (or dealer). The information
summarized below is based on the Valuation Procedures as currently in
effect; however, as noted above, the Valuation Procedures are amended
from time to time and, therefore, such information is subject to
change.
    Common stocks and other equity securities listed on any exchange
other than the Exchange and the London Stock Exchange Alternative
Investment Market (``AIM'') will be valued at the last sale price on
the exchange on which they are principally traded on the business day
as of which such value is being determined. Equity securities listed on
the Exchange or the AIM will be valued at the official closing price on
the business day as of which such value is being determined. If there
has been no sale on such day, or no official closing price in the case
of securities traded on the Exchange or the AIM, the securities will be
valued using fair value pricing, as described below. Equity securities
traded on more than one securities exchange will be valued at the last
sale price or official closing price, as applicable, on the business
day as of which such value is being determined at

the close of the exchange representing the principal market for such
securities.
    Shares of money market funds will be valued at their net asset
values as reported by such funds to Pricing Services. Exchange-traded
options and futures contracts will be valued at the closing price in
the market where such contracts are principally traded. Forward
currency contracts and non-deliverable forward currency contracts will
be valued at the current day's interpolated foreign exchange rate, as
calculated using the current day's spot rate, and the thirty, sixty,
ninety, and one-hundred-eighty day forward rates provided by a Pricing
Service or by certain independent dealers in such contracts.
    Certain securities in which the Fund may invest that are not listed
on any securities exchange or board of trade will typically be bought
and sold by institutional investors in individually negotiated private
transactions that function in many respects like an over-the-counter
secondary market, although typically no formal market makers will
exist. Certain securities, particularly debt securities, will have few
or no trades, or trade infrequently, and information regarding a
specific security may not be widely available or may be incomplete.
Accordingly, determinations of the fair value of debt securities may be
based on infrequent and dated information. Because there is less
reliable, objective data available, elements of judgment may play a
greater role in valuation of debt securities than for other types of
securities. Typically (other than as described below), corporate bonds,
senior loans, Sovereign Debt, preferred securities that are treated as
fixed income securities, and other debt securities in which the Fund
may invest (as described under ``Other Investments'') will be valued
using information provided by a Pricing Service. To the extent the
foregoing securities have a remaining maturity of 60 days or less when
purchased, they will be valued at cost adjusted for amortization of
premiums and accretion of discounts. Overnight repurchase agreements
will be valued at cost. Term repurchase agreements (i.e., those whose
maturity exceeds seven days) will be valued at the average of the bid
quotations obtained daily from at least two recognized dealers.
    In connection with valuation of the securities described in the
preceding paragraph, the Fund's accounting agent will obtain all
pricing data from a Pricing Service, or, if no price is available from
a Pricing Service, then the accounting agent will contact the Adviser's
pricing committee (``Pricing Committee''), which will attempt to obtain
one or more broker quotes from the selling dealer or financial
institution for the security daily and will value the security
accordingly. In addition, with respect to the valuation of senior
loans, as part of its review, the Pricing Committee may, in certain
limited circumstances, override a value provided by the Pricing
Service. If the Pricing Service does not provide a valuation for a
particular senior loan, or if the Pricing Committee overrides a value
of the senior loan, the senior loan will be valued using fair value
pricing, as described below.
    Preferred securities that are treated as equity securities but that
are not traded on an exchange will be valued at the mean of the bid and
the ask price, if available, and otherwise at their last bid price.
Exchange-traded preferred securities will be valued as described in the
third paragraph of this ``Net Asset Value'' section.
    Mortgage-Related Investments will generally be valued by using a
Pricing Service. If a Pricing Service does not cover a particular
Mortgage-Related Investment, or discontinues covering a particular
Mortgage-Related Investment, the Mortgage-Related Investment will be
priced using broker quotes generally provided by brokers that make or
participate in markets in the Mortgage-Related Investment. To derive
values, Pricing Services and broker-dealers may use matrix pricing and
valuation models, as well as recent market transactions for the same or
similar assets. Occasionally, the Pricing Committee may determine that
a Pricing Service price does not represent an accurate value of a
Mortgage-Related Investment, based on broker quotes it receives, a
recent trade in the Mortgage-Related Investment by the Fund,
information from a portfolio manager, or other market information. In
the event that the Pricing Committee determines that the Pricing
Service price is unreliable or inaccurate based on such other
information, broker quotes may be used. Additionally, if the Pricing
Committee determines that the price of a Mortgage-Related Investment
obtained from a Pricing Service and available broker quotes are
unreliable or inaccurate due to market conditions or other reasons, or
if a Pricing Service price or broker quote is unavailable, the security
will be valued using fair value pricing, as described below.
    Certain securities may not be able to be priced by pre-established
pricing methods. Such securities may be valued by the Trust Board or
its delegate at fair value. The use of fair value pricing by the Fund
will be governed by the Valuation Procedures and conducted in
accordance with the provisions of the 1940 Act. Valuing the Fund's
securities using fair value pricing will result in using prices for
those securities that may differ from current market valuations or
official closing prices on the applicable exchange.
    Because foreign securities exchanges may be open on different days
than the days during which an investor may purchase or sell Shares, the
value of the Fund's securities may change on days when investors are
not able to purchase or sell Shares. Assets denominated in foreign
currencies will be translated into U.S. dollars at the exchange rate of
such currencies against the U.S. dollar as provided by a Pricing
Service. The value of assets denominated in foreign currencies will be
converted into U.S. dollars at the exchange rates in effect at the time
of valuation.

Availability of Information

    The Fund's Web site (www.ftportfolios.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 Web site
will include the Shares' ticker, Cusip and exchange information along
with additional quantitative information updated on a daily basis,
including, for the Fund: (1) Daily trading volume, the prior business
day's reported NAV and closing price, midpoint of the bid/ask spread at
the time of calculation of such NAV (the ``Bid/Ask Price''),\48\ 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 Regular Market Session \49\ on the
Exchange, the Fund will disclose on its Web site the identities and
quantities of the portfolio of securities and other assets (the
``Disclosed Portfolio'' as defined in Nasdaq Rule 5735(c)(2)) held by
the Fund that will form the basis for the

Fund's calculation of NAV at the end of the business day.\50\ The
Disclosed Portfolio will include, as applicable, the names, quantities,
percentage weightings and market values of the portfolio securities,
financial instruments, and other assets held by the Fund. The Web site
information will be publicly available at no charge.
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    \48\ The Bid/Ask Price of the Fund will be determined using the
midpoint 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.
    \49\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30
a.m., Eastern time; (2) Regular Market Session from 9:30 a.m. to 4
p.m. or 4:15 p.m., Eastern time; and (3) Post-Market Session from 4
p.m. or 4:15 p.m. to 8 p.m., Eastern time).
    \50\ Under accounting procedures to be followed by the Fund,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1''). Accordingly,
the Fund will be able to disclose at the beginning of the business
day the portfolio that will form the basis for the NAV calculation
at the end of the business day.
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    In addition, for the Fund, an estimated value, defined in Rule
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an
estimated intraday value of the Fund's Disclosed Portfolio, will be
disseminated. Moreover, the Intraday Indicative Value, available on the
NASDAQ OMX Information LLC proprietary index data service,\51\ 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 and broadly displayed at least every 15
seconds during the Regular Market Session. The Intraday Indicative
Value will be based on quotes and closing prices from the securities'
local market and may not reflect events that occur subsequent to the
local market's close. Premiums and discounts between the Intraday
Indicative Value and the market price may occur. This should not be
viewed as a ``real time'' update of the NAV per Share of the Fund,
which is calculated only once a day.
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    \51\ Currently, the NASDAQ OMX Global Index Data Service
(``GIDS'') is the NASDAQ OMX global index data feed service,
offering real-time updates, daily summary messages, and access to
widely followed indexes and Intraday Indicative Values for ETFs.
GIDS provides investment professionals with the daily information
needed to track or trade NASDAQ OMX indexes, listed ETFs, or third-
party partner indexes and ETFs.
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    The dissemination of the Intraday 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.
    Investors will also be able to obtain the Fund's Statement of
Additional Information (``SAI''), the Fund's annual and semi-annual
reports (together, ``Shareholder Reports''), and its Form N-CSR and
Form N-SAR, filed twice a year. The Fund's SAI and Shareholder Reports
will be available free upon request from the Fund, 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 will be available
via Nasdaq proprietary quote and trade services, as well as in
accordance with the Unlisted Trading Privileges and the Consolidated
Tape Association (``CTA'') plans for the Shares. Quotation and last
sale information for U.S. exchange-listed equity securities will be
available via the CTA high-speed line, and will be available from the
national securities exchange on which they are listed. Pricing
information for exchange-traded equity securities (including ETFs,
exchange-traded preferred securities, and the exchange-traded equity
securities described under ``Dividend Paying Domestic Equity Securities
and Depositary Receipts and Related Option Overlay Strategy'' and
``Equity Securities of Energy Infrastructure Companies''), exchange-
traded derivative instruments and Depositary Receipts will be available
from the exchanges on which they trade and from major market data
vendors. Pricing information for corporate bonds, senior loans, non-
exchange traded preferred securities, Sovereign Debt, Mortgage-Related
Investments, forward currency contracts, non-deliverable forward
currency contracts, and debt securities in which the Fund may invest
that are described under ``Other Investments'' will be available from
major broker-dealer firms and/or major market data vendors and/or
Pricing Services. An additional source of price information for certain
fixed income securities is FINRA's TRACE. Information relating to U.S.
exchange-listed options will be available via the Options Price
Reporting Authority.
    Additional information regarding the Fund and the Shares, including
investment strategies, risks, creation and redemption procedures, fees,
Fund holdings disclosure policies, distributions and taxes will be
included in the Registration Statement. All terms relating to the Fund
that are referred to, but not defined in, this proposed rule change
will be defined in the Registration Statement.

Initial and Continued Listing

    The Shares will be subject to Rule 5735, which sets forth the
initial and continued listing criteria applicable to Managed Fund
Shares. The Exchange represents that, for initial and/or continued
listing, the Fund must be in compliance with Rule 10A-3 \52\ under the
Act. 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
will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \52\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

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. Nasdaq will halt trading in the
Shares under the conditions specified in Nasdaq Rules 4120 and 4121,
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12).
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 other assets constituting 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
5735(d)(2)(D), which sets forth circumstances under which Shares of the
Fund may be halted.

Trading Rules

    Nasdaq deems the Shares to be equity securities, thus rendering
trading in the Shares subject to Nasdaq's existing rules governing the
trading of equity securities. Nasdaq will allow trading in the Shares
from 4:00 a.m. until 8:00 p.m., Eastern time. The Exchange has
appropriate rules to facilitate transactions in the Shares during all
trading sessions. As provided in Nasdaq Rule 5735(b)(3), the minimum
price variation for quoting and entry of orders in Managed Fund Shares
traded on the Exchange is $0.01.

Surveillance

    The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by both Nasdaq and
also

FINRA, on behalf of the Exchange, which are designed to detect
violations of Exchange rules and applicable federal securities
laws.\53\ 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.
---------------------------------------------------------------------------

    \53\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and the exchange-traded securities and
instruments held by the Fund with other markets and other entities that
are members of ISG \54\ and FINRA may obtain trading information
regarding trading in the Shares and the exchange-traded securities and
instruments held by the Fund from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in the
Shares and the exchange-traded securities and instruments held by the
Fund from markets and other entities that are members of ISG, which
includes securities and futures exchanges, or with which the Exchange
has in place a comprehensive surveillance sharing agreement. Moreover,
FINRA, on behalf of the Exchange, will be able to access, as needed,
trade information for certain fixed income securities held by the Fund
reported to FINRA's TRACE.
---------------------------------------------------------------------------

    \54\ 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.
---------------------------------------------------------------------------

    At least 90% of the Fund's net assets that are invested in
exchange-traded equity securities of both domestic and foreign issuers,
exchange-traded products and exchange-traded derivatives (in the
aggregate) will be invested in investments that trade in markets that
are members of ISG or are parties to a comprehensive surveillance
sharing agreement with the Exchange.
    In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.

Information Circular

    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) Nasdaq Rule 2111A, which imposes
suitability obligations on Nasdaq 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-Market and Post-Market Sessions
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. The Information Circular will also discuss any exemptive,
no-action and interpretive relief granted by the Commission from any
rules under the Act.
    Additionally, the Information Circular will reference that the 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 Fund and the applicable NAV Calculation Time
for the Shares. The Information Circular will disclose that information
about the Shares of the Fund will be publicly available on the Fund's
Web site.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b)
of the Act in general and Section 6(b)(5) of the Act 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, and to remove impediments to and perfect
the mechanism of a free and open market and, in general, to protect
investors and the public interest.
    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in Nasdaq Rule 5735. The
Exchange represents that trading in the Shares will be subject to the
existing trading surveillances, administered by both Nasdaq and also
FINRA on behalf of the Exchange, which are designed to detect
violations of Exchange rules and applicable federal securities laws.
    Neither the Adviser nor any Sub-Adviser is a broker-dealer,
although the Adviser, First Trust Global, EIP and Stonebridge are each
affiliated with a broker-dealer and each is required to implement a
``fire wall'' with respect to such broker-dealer affiliate regarding
access to information concerning the composition and/or changes to the
Fund's portfolio. RBA is not currently affiliated with a broker-dealer.
In addition, paragraph (g) of Nasdaq Rule 5735 further requires that
personnel who make decisions on the open-end fund's portfolio
composition must be subject to procedures designed to prevent the use
and dissemination of material non-public information regarding the
open-end fund's portfolio.
    FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and the exchange-traded securities and
instruments held by the Fund with other markets and other entities that
are members of ISG and FINRA may obtain trading information regarding
trading in the Shares and the exchange-traded securities and
instruments held by the Fund from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in the
Shares and the exchange-traded securities and instruments held by the
Fund from markets and other entities that are members of ISG, which
includes securities and futures exchanges, or with which the Exchange
has in place a comprehensive surveillance sharing agreement. Moreover,
FINRA, on behalf of the Exchange, will be able to access, as needed,
trade information for certain fixed income securities held by the Fund
reported to FINRA's TRACE. At least 90% of the Fund's net assets that
are invested in exchange-traded equity securities of both domestic and
foreign issuers, exchange-traded products and exchange-traded
derivatives (in the aggregate) will be invested in investments that
trade in markets that are members of ISG or are parties to a
comprehensive surveillance sharing agreement with the Exchange.
    The primary investment objective of the Fund will be to seek risk-
adjusted income and its secondary objective will be capital
appreciation. Under normal market conditions, the Fund will seek to
achieve its objectives by following a strategic and tactical asset
allocation process that will provide diversified

exposure to income-producing asset classes. The Adviser will determine
the Fund's strategic allocation among various general investment
categories and allocate the Fund's assets to Management Teams which
will employ their respective management strategies. In general, except
as applicable to any specific investment category, the fixed income and
equity securities in which the Fund will invest may be issued by U.S.
and non-U.S. issuers of all kinds and of any capitalization range and
credit quality. The Fund's exposure to any single country (outside of
the U.S.) will generally be limited to 20% of the Fund's net assets and
the portion of the Fund's net assets that may be denominated in
currencies other than the U.S. dollar is not expected to exceed 30%. In
connection with its investments in high yield corporate bonds and
senior loans, under normal market conditions, the Fund will seek to
invest at least 75% of its net assets that are invested in such bonds
and loans (in the aggregate) in bonds and loans that, at the time of
original issuance, have at least $100 million par amount outstanding.
The Fund will limit its investments in mortgage-backed securities that
are not issued or guaranteed by Government Entities to 20% of its net
assets. The Mortgage-Related Investments in which the Fund invests will
primarily consist of investment grade securities (i.e., securities with
credit ratings within the four highest rating categories of an NRSRO at
the time of purchase or securities that are unrated and deemed by the
Adviser and/or the applicable Management Team to be of comparable
quality at the time of purchase). Under normal market conditions, the
Fund will seek to invest at least 75% of its net assets that are
invested in preferred securities in preferred securities that have a
minimum initial issuance amount of at least $100 million. In addition,
initially, at least 50% of the Fund's net assets that are invested in
preferred securities will be invested in exchange-listed preferred
securities, although this percentage may decrease in the future. At
least 50% of the Fund's net assets that are invested in Sovereign Debt
will be invested in securities of issuers rated investment grade at the
time of purchase by at least one NRSRO and unrated securities judged to
be of comparable quality by the Adviser and/or the applicable
Management Team. In addition, the Fund expects that, under normal
market conditions, at least 80% of the Sovereign Debt in which it
invests will be issued by issuers with outstanding debt of at least
$200 million (or the foreign currency equivalent thereof). The Fund may
invest in derivative instruments. Not including the Option Overlay
Strategy, no more than 20% of the value of the Fund's net assets will
be invested in derivative instruments. Because the Option Overlay
Strategy will be excluded from the foregoing 20% limitation, the Fund's
total investments in derivative instruments may exceed 20% of the value
of its net assets. The Fund will comply with the regulatory
requirements of the Commission to maintain assets as ``cover,''
maintain segregated accounts, and/or make margin payments when it takes
positions in derivative instruments involving obligations to third
parties (i.e., instruments other than purchase options). The Fund's
investments in derivative instruments will be consistent with the
Fund's investment objectives and the 1940 Act and will not be used to
seek to achieve a multiple or inverse multiple of an index. Also, the
Fund may hold up to an aggregate amount of 15% of its net assets in
illiquid assets (calculated at the time of investment), including Rule
144A securities deemed illiquid by the Adviser and/or the applicable
Management Team. 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 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 will be publicly available regarding the Fund and the
Shares, thereby promoting market transparency. Moreover, the Intraday
Indicative Value, available on the NASDAQ OMX Information LLC
proprietary index data service, will be widely disseminated by one or
more major market data vendors and broadly displayed at least every 15
seconds during the Regular Market Session. On each business day, before
commencement of trading in Shares in the Regular Market Session on the
Exchange, the Fund will disclose on its Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of NAV at
the end of the business day. Information regarding market price and
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other
electronic services, and quotation and last sale information for the
Shares will be available via Nasdaq proprietary quote and trade
services, as well as in accordance with the Unlisted Trading Privileges
and the CTA plans for the Shares. Quotation and last sale information
for U.S. exchange-listed equity securities will be available via the
CTA high-speed line, and will be available from the national securities
exchange on which they are listed. Pricing information for exchange-
traded equity securities (including ETFs, exchange-traded preferred
securities, and the exchange-traded equity securities described under
``Dividend Paying Domestic Equity Securities and Depositary Receipts
and Related Option Overlay Strategy'' and ``Equity Securities of Energy
Infrastructure Companies''), exchange-traded derivative instruments and
Depositary Receipts will be available from the exchanges on which they
trade and from major market data vendors. Pricing information for
corporate bonds, senior loans, non-exchange traded preferred
securities, Sovereign Debt, Mortgage-Related Investments, forward
currency contracts, non-deliverable forward currency contracts, and
debt securities in which the Fund may invest that are described under
``Other Investments'' will be available from major broker-dealer firms
and/or major market data vendors and/or Pricing Services. An additional
source of price information for certain fixed income securities is
FINRA's TRACE. Information relating to U.S. exchange-listed options
will be available via the Options Price Reporting Authority.
    The Fund's Web site 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 the Fund will be halted
under the conditions specified in Nasdaq Rules 4120 and 4121 or because
of market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable, and trading in the Shares will
be subject to Nasdaq

Rule 5735(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
Intraday Indicative Value, the Disclosed Portfolio, and quotation and
last sale information for the Shares.
    The Fund's investments will be valued daily at market value or, in
the absence of market value with respect to any investment, at fair
value, in each case in accordance with the Valuation Procedures and the
1940 Act.
    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, FINRA, on behalf of the
Exchange, will communicate as needed regarding trading in the Shares
and the exchange-traded securities and instruments held by the Fund
with other markets and other entities that are members of ISG and FINRA
may obtain trading information regarding trading in the Shares and the
exchange-traded securities and instruments held by the Fund from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares and in the exchange-traded
securities and instruments held by the Fund from markets and other
entities that are members of ISG, which includes securities and futures
exchanges, or with which the Exchange has in place a comprehensive
surveillance sharing agreement. Furthermore, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Intraday Indicative Value, the Disclosed Portfolio, and quotation
and last sale information for the Shares.
    For the above reasons, Nasdaq believes 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 purposes of the Act. The Exchange believes that
the proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded fund 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

    Written comments were neither solicited nor received.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such 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-NASDAQ-2014-050 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-NASDAQ-2014-050. 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 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 Nasdaq. 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-NASDAQ-2014-050 and should be submitted
on or before June 11, 2014.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\55\
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    \55\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11740 Filed 5-20-14; 8:45 am]
BILLING CODE 8011-01-P