[Federal Register Volume 79, Number 99 (Thursday, May 22, 2014)]
[Notices]
[Pages 29461-29473]
[FR Doc No: 2014-11831]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72180; File No. SR-NYSEArca-2014-57]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading of Shares of
the following Under NYSE Arca Equities Rule 8.600: PIMCO Foreign Bond
Exchange-Traded Fund (U.S. Dollar-Hedged), PIMCO Foreign Bond Exchange-
Traded Fund (Unhedged), PIMCO Global Advantage Bond Exchange-Traded
Fund, and PIMCO International Advantage Bond Exchange-Traded Fund

May 16, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on May 1, 2014, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the following
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''): PIMCO
Foreign Bond Exchange-Traded Fund (U.S. Dollar-Hedged), PIMCO Foreign
Bond Exchange-Traded Fund (Unhedged), PIMCO Global Advantage Bond
Exchange-Traded Fund, and PIMCO International Advantage Bond Exchange-
Traded Fund. The text of the proposed rule change is available on the
Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Equities Rule 8.600,\4\ which governs the
listing and trading of Managed Fund Shares.\5\ PIMCO Foreign Bond
Exchange-Traded Fund (U.S. Dollar-Hedged) (``Hedged Foreign Bond
Fund''), PIMCO Foreign Bond Exchange-Traded Fund (Unhedged) (``Unhedged
Foreign Bond Fund''), PIMCO Global Advantage Bond Exchange-Traded Fund
(``Global Advantage Bond Fund''), and PIMCO International Advantage
Bond Exchange-Traded Fund (``International Advantage Bond Fund''), each
also referred to as a ``Fund,'' and collectively referred to as the
``Funds.'' The Shares will be offered by PIMCO ETF Trust (the
``Trust''), a statutory trust organized under the laws of the State of
Delaware and registered with the Commission as an open-end management
investment company.\6\
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    \4\ The Commission has previously approved the listing and
trading on the Exchange of other actively managed funds under Rule
8.600. See, e.g., Securities Exchange Act Release Nos. 60981
(November 10, 2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-
2009-79) (order approving Exchange listing and trading of five fixed
income funds of the PIMCO ETF Trust); 66321 (February 3, 2012), 77
FR 6850 (February 9, 2012) (SR-NYSEArca-2011-95) (order approving
listing and trading of PIMCO Total Return Exchange Traded Fund);
66670 (March 28, 2012), 77 FR 20087 (April 3, 2012) (SR-NYSEArca-
2012-09) (order approving listing and trading of PIMCO Global
Advantage Inflation-Linked Bond Strategy Fund).
    \5\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that correspond
generally to the price and yield performance of a specific foreign
or domestic stock index, fixed income securities index or
combination thereof.
    \6\ The Trust is registered under the 1940 Act. On January 27,
2014, the Trust filed an amendment to its registration statement on
Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a) (``1933
Act'') and the 1940 Act relating to the Funds (File Nos. 333-155395
and 811-22250) (the ``Registration Statement''). The description of
the operation of the Trust and the Funds herein is based, in part,
on the Registration Statement. In addition, the Commission has
issued an order granting certain exemptive relief to the Trust under
the 1940 Act. See Investment Company Act Release No. 28993 (November
10, 2009) (File No. 812-13571) (``Exemptive Order'').
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    The investment manager to the Funds will be Pacific Investment
Management Company LLC (``PIMCO'' or the ``Adviser''). PIMCO
Investments LLC will serve as the distributor for the Funds
(``Distributor''). State Street Bank & Trust Co. will serve as the
custodian and transfer agent for the Funds (``Custodian'' or ``Transfer
Agent'').
    Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment

company portfolio.\7\ In addition, Commentary .06 further requires that
personnel who make decisions on the open-end fund's portfolio
composition must be subject to procedures designed to prevent the use
and dissemination of material nonpublic information regarding the open-
end fund's portfolio. The Adviser is not registered as a broker-dealer,
but is affiliated with a broker-dealer, and will implement a ``fire
wall'' with respect to such broker-dealer regarding access to
information concerning the composition and/or changes to a Fund's
portfolio. If PIMCO elects to hire a sub-adviser for the Funds that is
also affiliated with a broker-dealer, such sub-adviser will implement a
fire wall with respect to such broker-dealer affiliate regarding access
to information concerning the composition and/or changes to the
applicable portfolio, and will be subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding such portfolio.
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    \7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violations, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
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    In the event (a) the Adviser becomes registered as a broker-dealer
or newly affiliated with a broker-dealer, or (b) any new adviser or
sub-adviser is a registered broker-dealer or becomes affiliated with a
broker-dealer, it will implement a fire wall with respect to its
relevant personnel or its broker-dealer affiliate regarding access to
information concerning the composition and/or changes to the applicable
[sic], and will be subject to procedures designed to prevent the use
and dissemination of material non-public information regarding such
portfolio.
Characteristics of the Funds \8\
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    \8\ Many of the investment strategies of the Funds are
discretionary, which means that PIMCO can decide from time to time
whether to use them or not.
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    According to the Registration Statement, in selecting investments
for each Fund, PIMCO will develop an outlook for interest rates,
currency exchange rates and the economy, analyze credit and call risks
and use other investment selection techniques. The proportion of each
Fund's assets committed to investment in securities with particular
characteristics (such as quality, sector, interest rate or maturity)
will vary based on PIMCO's outlook for the U.S. economy and the
economies of other countries in the world, the financial markets and
other factors.
    With respect to each Fund, in seeking to identify undervalued
currencies, PIMCO may consider many factors, including but not limited
to, longer-term analysis of relative interest rates, inflation rates,
real exchange rates, purchasing power parity, trade account balances
and current account balances, as well as other factors that influence
exchange rates such as flows, market technical trends and government
policies. With respect to fixed income investing, PIMCO will attempt to
identify areas of the bond market that are undervalued relative to the
rest of the market. PIMCO will identify these areas by grouping fixed
income investments into sectors such as money markets, governments,
corporates, mortgages, asset-backed and international. Sophisticated
proprietary software will then assist in evaluating sectors and pricing
specific investments. Once investment opportunities are identified,
PIMCO will shift assets among sectors depending upon changes in
relative valuations, credit spreads and other factors.
Fixed Income Instruments
     Among other investments described in more detail herein,
each Fund may invest in Fixed Income Instruments, which include:
     Securities issued or guaranteed by the U.S. Government,
its agencies or government-sponsored enterprises (``U.S. Government
Securities'');
     corporate debt securities of U.S. and non-U.S. issuers,
including convertible securities and corporate commercial paper; \9\
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    \9\ With respect to each of the Funds, while non-emerging
markets corporate debt securities (excluding commercial paper)
generally must have $100 million or more par amount outstanding and
significant par value traded to be considered as an eligible
investment for each of the Funds, at least 80% of issues of such
securities held by a Fund must have $100 million or more par amount
outstanding at the time of investment. See also note 24, infra,
regarding emerging market corporate debt securities.
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     mortgage-backed and other asset-backed securities; \10\
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    \10\ Mortgage-related and other asset-backed securities include
collateralized mortgage obligations (``CMO''s), commercial mortgage-
backed securities, mortgage dollar rolls, CMO residuals, stripped
mortgage-backed securities and other securities that directly or
indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. A to-be-announced
(``TBA'') transaction is a method of trading mortgage-backed
securities. In a TBA transaction, the buyer and seller agree upon
general trade parameters such as agency, settlement date, par amount
and price. The actual pools delivered generally are determined two
days prior to the settlement date.
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     inflation-indexed bonds issued both by governments and
corporations; \11\
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    \11\ Inflation-indexed bonds (other than municipal inflation-
indexed bonds and certain corporate inflation-indexed bonds) are
fixed income securities whose principal value is periodically
adjusted according to the rate of inflation (e.g., Treasury
Inflation Protected Securities (``TIPS'')). Municipal inflation-
indexed securities are municipal bonds that pay coupons based on a
fixed rate plus the Consumer Price Index for All Urban Consumers
(``CPI''). With regard to municipal inflation-indexed bonds and
certain corporate inflation-indexed bonds, the inflation adjustment
is reflected in the semi-annual coupon payment.
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     structured notes, including hybrid or ``indexed''
securities and event-linked bonds; \12\
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    \12\ The Funds may obtain event-linked exposure by investing in
``event-linked bonds'' or ``event-linked swaps'' or by implementing
``event-linked strategies.'' Event-linked exposure results in gains
or losses that typically are contingent, or formulaically related to
defined trigger events. Examples of trigger events include
hurricanes, earthquakes, weather-related phenomena, or statistics
relating to such events. Some event-linked bonds are commonly
referred to as ``catastrophe bonds.'' If a trigger event occurs, the
Fund may lose a portion or its entire principal invested in the bond
or notional amount on a swap.
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     bank capital and trust preferred securities; \13\
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    \13\ There are two common types of bank capital: Tier I and Tier
II. Bank capital is generally, but not always, of investment grade
quality. According to the Registration Statement, Tier I securities
often take the form of trust preferred securities. Tier II
securities are commonly thought of as hybrids of debt and preferred
stock, are often perpetual (with no maturity date), callable and,
under certain conditions, allow for the issuer bank to withhold
payment of interest until a later date. However, such deferred
interest payments generally earn interest.
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     loan participations and assignments; \14\
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    \14\ The Funds may invest in fixed- and floating-rate loans,
which investments generally will be in the form of loan
participations and assignments of portions of such loans.
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     delayed funding loans and revolving credit facilities;
     bank certificates of deposit, fixed time deposits and
bankers' acceptances;
     repurchase agreements on Fixed Income Instruments and
reverse repurchase agreements on Fixed Income Instruments;

     debt securities issued by states or local governments and
their agencies, authorities and other government-sponsored enterprises
(``Municipal Bonds'');
     obligations of non-U.S. governments or their subdivisions,
agencies and government-sponsored enterprises; and obligations of
international agencies or supranational entities.
Use of Derivatives by the Funds
    A Fund's investments in derivative instruments will be made in
accordance with the 1940 Act and consistent with the Fund's investment
objective and policies. With respect to each Fund, derivative
instruments primarily will include forwards,\15\ exchange-traded and
over-the-counter (``OTC'') options contracts, exchange-traded futures
contracts, swap agreements and options on futures contracts and swap
agreements. Generally, derivatives are financial contracts whose value
depends upon, or is derived from, the value of an underlying asset,
reference rate or index, and may relate to stocks, bonds, interest
rates, currencies or currency exchange rates, commodities, and related
indexes. A Fund may, but is not required to, use derivative instruments
for risk management purposes or as part of its investment
strategies.\16\
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    \15\ Forwards are contracts to purchase or sell securities for a
fixed price at a future date beyond normal settlement time (forward
commitments).
    \16\ Each Fund will seek, where possible, to use counterparties
whose financial status is such that the risk of default is reduced;
however, the risk of losses resulting from default is still
possible. PIMCO's Counterparty Risk Committee evaluates the
creditworthiness of counterparties on an ongoing basis. In addition
to information provided by credit agencies, PIMCO credit analysts
evaluate each approved counterparty using various methods of
analysis, including company visits, earnings updates, the broker-
dealer's reputation, PIMCO's past experience with the broker-dealer,
market levels for the counterparty's debt and equity, the
counterparty's liquidity and its share of market participation.
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    As described further below, each Fund will typically use derivative
instruments as a substitute for taking a position in the underlying
asset and/or as part of a strategy designed to reduce exposure to other
risks, such as interest rate or currency risk. A Fund may also use
derivative instruments to enhance returns. To limit the potential risk
associated with such transactions, a Fund will segregate or ``earmark''
assets determined to be liquid by PIMCO in accordance with procedures
established by the Trust's Board of Trustees (``Board'') and in
accordance with the 1940 Act (or, as permitted by applicable
regulation, enter into certain offsetting positions) to cover its
obligations under derivative instruments. These procedures have been
adopted consistent with Section 18 of the 1940 Act and related
Commission guidance. In addition, each Fund will include appropriate
risk disclosure in its offering documents, including leveraging risk.
Leveraging risk is the risk that certain transactions of the Fund,
including the Fund's use of derivatives, may give rise to leverage,
causing the Fund to be more volatile than if it had not been
leveraged.\17\ Because the markets for certain securities, or the
securities themselves, may be unavailable or cost prohibitive as
compared to derivative instruments, suitable derivative transactions
may be an efficient alternative for a Fund to obtain the desired asset
exposure.
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    \17\ To mitigate leveraging risk, the Adviser will segregate or
``earmark'' liquid assets or otherwise cover the transactions that
may give rise to such risk.
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    The Adviser believes that derivatives can be an economically
attractive substitute for an underlying physical security that each
Fund would otherwise purchase. For example, a Fund could purchase
Treasury futures contracts instead of physical Treasuries or could sell
credit default protection on a corporate bond instead of buying a
physical bond. Economic benefits include potentially lower transaction
costs or attractive relative valuation of a derivative versus a
physical bond (e.g., differences in yields).
    The Adviser further believes that derivatives can be used as a more
liquid means of adjusting portfolio duration as well as targeting
specific areas of yield curve exposure, with potentially lower
transaction costs than the underlying securities (e.g., interest rate
swaps may have lower transaction costs than physical bonds). Similarly,
money market futures can be used to gain exposure to short-term
interest rates in order to express views on anticipated changes in
central bank policy rates. In addition, derivatives can be used to
protect client assets through selectively hedging downside (or ``tail
risks'') in each Fund.\18\ Each Fund also can use derivatives to
increase or decrease credit exposure. Index credit default swaps (CDX)
can be used to gain exposure to a basket of credit risk by ``selling
protection'' against default or other credit events, or to hedge broad
market credit risk by ``buying protection.'' Single name credit default
swaps (CDS) can be used to allow a Fund to increase or decrease
exposure to specific issuers, saving investor capital through lower
trading costs. A Fund can use total return swap contracts to obtain the
total return of a reference asset or index in exchange for paying a
financing cost. A total return swap may be much more efficient than
buying underlying securities of an index, potentially lowering
transaction costs.
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    \18\ Each Fund will seek, where possible, to use counterparties
whose financial status is such that the risk of default is reduced;
however, the risk of losses resulting from default is still
possible. PIMCO's Counterparty Risk Committee evaluates the
creditworthiness of counterparties on an ongoing basis. In addition
to information provided by credit agencies, PIMCO credit analysts
evaluate each approved counterparty using various methods of
analysis, including company visits, earnings updates, the broker-
dealer's reputation, PIMCO's past experience with the broker-dealer,
market levels for the counterparty's debt and equity, the
counterparty's liquidity and its share of market participation.
According to the Registration Statement, the Funds have adopted
procedures that are consistent with Section 18 of the 1940 Act and
related Commission guidance, which require that a fund's derivative
instruments be fully collateralized bv [sic] liquid assets of the
fund.
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    The Adviser believes that the use of derivatives will allow each
Fund to selectively add diversifying sources of return from selling
options. Option purchases and sales can also be used to hedge specific
exposures in the portfolio, and can provide access to return streams
available to long-term investors such as the persistent difference
between implied and realized volatility. Option strategies can generate
income or improve execution prices (i.e., covered calls).
Hedged Foreign Bond Fund--Principal Investments
    According to the Registration Statement, the Hedged Foreign Bond
Fund will seek maximum total return,\19\ consistent with preservation
of capital and prudent investment management. The Fund will seek to
achieve its investment objective by investing, under normal
circumstances,\20\ at least 80% of its assets in Fixed Income
Instruments and derivatives based on Fixed Income Instruments that are
economically tied to foreign (non-U.S.) countries,\21\

representing at least three foreign countries (the ``Hedged Foreign
Bond Fund 80% policy''). The average portfolio duration \22\ of the
Fund will normally vary within three years (plus or minus) of the
portfolio duration of the securities comprising the Fund's broad-based
securities market index, as calculated by PIMCO, which as of December
31, 2013 was 7.7 years.
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    \19\ With respect to each Fund, the term ``total return'' sought
by the Fund will consist of both income and capital appreciation, if
any, which generally arises from decreases in interest rates,
foreign currency appreciation, or improving credit fundamentals for
a particular sector or security.
    \20\ With respect to each Fund, the term ``under normal
circumstances'' includes, but is not limited to, the absence of
extreme volatility or trading halts in the fixed income markets or
the financial markets generally; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as a systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
    \21\ PIMCO generally considers an instrument to be economically
tied to a non-U.S. country if the issuer is a foreign government (or
any political subdivision, agency, authority or instrumentality of
such government), or if the issuer is organized under the laws of a
non-U.S. country. In the case of certain money market instruments,
such instruments will be considered economically tied to a non-U.S.
country if either the issuer or the guarantor of such money market
instruments is organized under the laws of a non-U.S. country. With
respect to derivative instruments, PIMCO will generally consider
such instruments to be economically tied to non-U.S. countries if
the underlying assets are foreign currencies (or baskets or indices
of such currencies), or instruments or securities that are issued by
foreign governments or issuers organized under the laws of a non-
U.S. country (or if the underlying assets are certain money market
instruments, if either the issuer or the guarantor of such money
market instruments is organized under the laws of a non-U.S.
country).
    \22\ Duration is a measure used to determine the sensitivity of
a security's price to changes in interest rates. The longer a
security's duration, the more sensitive it will be to changes in
interest rates.
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    The Hedged Foreign Bond Fund will invest primarily in investment
grade debt securities, but may invest up to 10% of its total assets in
high yield securities (``junk bonds'') rated B or higher by Moody's
Investors Service, Inc. (``Moody's''), or equivalently rated by
Standard & Poor's Ratings Services (``S&P'') or Fitch, Inc.
(``Fitch''), or, if unrated, determined by PIMCO to be of comparable
quality,\23\ except that, within such limitation, the Fund may invest
in mortgage-backed securities rated below B.
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    \23\ In determining whether a security is of comparable quality
the Adviser will consider, for example, whether the issuer of the
security has issued other rated securities; whether the obligations
under the security are guaranteed by another entity and the rating
of such guarantor (if any); whether and (if applicable) how the
security is collateralized; other forms of credit enhancement (if
any); the security's maturity date; liquidity features (if any);
relevant cash flow(s); valuation features; other structural
analysis; macroeconomic analysis; and sector or industry analysis.
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    The Fund's portfolio will include a minimum of 13 non-affiliated
issuers.
    The Hedged Foreign Bond Fund may invest in securities and
instruments that are economically tied to emerging market countries
subject to applicable limitations set forth herein.\24\
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    \24\ PIMCO will generally consider an instrument to be
economically tied to an emerging market country if the security's
``country of exposure'' is an emerging market country, as determined
by the criteria set forth in the Registration Statement.
Alternatively, such as when a ``country of exposure'' is not
available or when PIMCO believes the following tests more accurately
reflect which country the security is economically tied to, PIMCO
may consider an instrument to be economically tied to an emerging
market country if the issuer or guarantor is a government of an
emerging market country (or any political subdivision, agency,
authority or instrumentality of such government), if the issuer or
guarantor is organized under the laws of an emerging market country,
or if the currency of settlement of the security is a currency of an
emerging market country. With respect to derivative instruments,
PIMCO will generally consider such instruments to be economically
tied to emerging market countries if the underlying assets are
currencies of emerging market countries (or baskets or indices of
such currencies), or instruments or securities that are issued or
guaranteed by governments of emerging market countries or by
entities organized under the laws of emerging market countries.
While emerging markets corporate debt securities (excluding
commercial paper) generally must have $200 million or more par
amount outstanding and significant par value traded to be considered
as an eligible investment for each of the Funds, at least 80% of
issues of such securities held by a Fund must have $200 million or
more par amount outstanding at the time of investment.
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    In furtherance of the Hedged Foreign Bond Fund 80% policy, or with
respect to the Fund's other investments, the Hedged Foreign Bond Fund
may invest, without limitation, in derivative instruments, subject to
applicable law and any other restrictions described herein.\25\
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    \25\ With respect to each Fund, derivatives are generally
financial contracts whose value depends upon, or is derived from,
the value of an underlying asset, reference rate or index, and may
relate to stocks, bonds, interest rates, spreads between different
interest rates, currencies or currency exchange rates, commodities,
and related indices. Examples of derivative instruments include
forwards, options contracts, futures contracts, options on futures
contracts and swap agreements.
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    The Hedged Foreign Bond Fund may invest up to 20% of its assets in
mortgage-related and other asset-backed securities, although this 20%
limitation does not apply to securities issued or guaranteed by Federal
agencies and/or U.S. government sponsored instrumentalities.\26\
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    \26\ With respect to each Fund, mortgage-related and asset-
backed securities include mortgage pass-through securities,
collateralized mortgage obligations (``CMO''s), commercial mortgage-
backed securities, mortgage dollar rolls, CMO residuals, stripped
mortgage-backed securities and other securities that directly or
indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. A to-be-announced
(``TBA'') transaction is a method of trading mortgage-backed
securities. In a TBA transaction, the buyer and seller agree upon
general trade parameters such as agency, settlement date, par amount
and price. The actual pools delivered generally are determined two
days prior to the settlement date.
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    According to the Registration Statement, the Hedged Foreign Bond
Fund will normally limit its foreign currency exposure (from non-U.S.
dollar-denominated securities or currencies) to 20% of its total
assets. The Fund may engage in foreign currency transactions on a spot
(cash) basis and forward basis \27\ and invest in foreign currency
futures and options contracts. The Fund may enter into these contracts
to hedge against foreign exchange risk, to increase exposure to a
foreign currency or to shift exposure to foreign currency fluctuations
from one currency to another. Suitable hedging transactions may not be
available in all circumstances and there can be no assurance that the
Fund will engage in such transactions at any given time or from time to
time.
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    \27\ A forward foreign currency exchange contract, which
involves an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract, would reduce
a Fund's exposure to changes in the value of the currency it will
deliver and increases its exposure to changes in the value of the
currency it will receive for the duration of the contract. Certain
foreign currency transactions may also be settled in cash rather
than the actual delivery of the relevant currency. The effect on the
value of a Fund would be similar to selling securities denominated
in one currency and purchasing securities denominated in another
currency. A contract to sell a foreign currency would limit any
potential gain which might be realized if the value of the hedged
currency increases. Each Fund will limit its investments in
currencies to those currencies with a minimum average daily foreign
exchange turnover of USD $1 billion as determined by the Bank for
International Settlements (``BIS'') Triennial Central Bank Survey.
As of the most recent BIS Triennial Central Bank Survey, at least 52
separate currencies had minimum average daily foreign exchange
turnover of USD $1 billion. For a list of eligible BIS currencies,
see www.bis.org.
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    The Hedged Foreign Bond Fund may, without limitation, seek to
obtain market exposure to the securities in which it primarily invests
by entering into a series of purchase and sale contracts or by using
other investment techniques (such as buy backs or dollar rolls).
Hedged Foreign Bond Fund--Other (Non-Principal) Investments
    The Hedged Foreign Bond Fund may invest up to 10% of its total
assets in preferred stock, convertible securities and other equity-
related securities.\28\ The Fund may invest in variable and floating
rate securities, which are securities that pay interest at rates that
adjust whenever a specified interest rate

changes and/or that reset on predetermined dates (such as the last day
of a month or calendar quarter). The Fund may invest in floating rate
debt instruments (``floaters''), inverse floating rate debt instruments
(``inverse floaters'') and may engage in credit spread trades.
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    \28\ Convertible securities are generally preferred stocks and
other securities, including fixed income securities and warrants,
that are convertible into or exercisable for common stock at a
stated price or rate. Equity-related investments may include
investments in small-capitalization (``small-cap''), mid-
capitalization (``mid-cap'') and large-capitalization (``large-
cap'') companies. With respect to each Fund, a small-cap company
will be defined as a company with a market capitalization of up to
$1.5 billion, a mid-cap company will be defined as a company with a
market capitalization of between $1.5 billion and $10 billion and a
large-cap company will be defined as a company with a market
capitalization above $10 billion. Not more than 10% of the net
assets of a Fund in the aggregate shall consist of non-U.S. equity
securities, including non-U.S. stocks into which a convertible
security is converted, whose principal market is not a member of the
Intermarket Surveillance Group (``ISG'') or is a market with which
the Exchange does not have a comprehensive surveillance sharing
agreement.
---------------------------------------------------------------------------

    As disclosed in the Registration Statement, the Hedged Foreign Bond
Fund may also invest in trade claims,\29\ privately placed and
unregistered securities, and exchange-traded and OTC-traded structured
products, including credit-linked securities, commodity-linked notes,
and structured notes. The Fund may invest in Brady Bonds, which are
securities created through the exchange of existing commercial bank
loans to sovereign entities for new obligations in connection with a
debt restructuring.
---------------------------------------------------------------------------

    \29\ Trade claims are non-securitized rights of payment arising
from obligations that typically arise when vendors and suppliers
extend credit to a company by offering payment terms for products
and services. If the company files for bankruptcy, payments on these
trade claims stop and the claims are subject to compromise along
with the other debts of the company. Trade claims may be purchased
directly from the creditor or through brokers.
---------------------------------------------------------------------------

    The Hedged Foreign Bond Fund may purchase or sell securities which
it is eligible to purchase or sell on a when-issued basis, may purchase
and sell such securities for delayed delivery and may make contracts to
purchase or sell such securities for a fixed price at a future date
beyond normal settlement time (forward commitments). The Fund may make
short sales as part of its overall portfolio management strategies or
to offset a potential decline in value of a security.
    The Hedged Foreign Bond Fund may enter into repurchase agreements,
in which the Fund purchases a security from a bank or broker-dealer,
which agrees to repurchase the security at the Fund's cost plus
interest within a specified time. Repurchase agreements maturing in
more than seven days and which may not be terminated within seven days
at approximately the amount at which the Fund has valued the agreements
will be considered illiquid securities. The Fund may enter into reverse
repurchase agreements and dollar rolls subject to the Fund's
limitations on borrowings.\30\ The Fund will segregate or ``earmark''
assets determined to be liquid by PIMCO in accordance with procedures
established by the Fund's Board to cover its obligations under reverse
repurchase agreements and dollar rolls.
---------------------------------------------------------------------------

    \30\ With respect to each Fund, a reverse repurchase agreement
involves the sale of a security by a Fund and its agreement to
repurchase the instrument at a specified time and price. A dollar
roll is similar except that the counterparty is not obligated to
return the same securities as those originally sold by a Fund but
only securities that are ``substantially identical.''
---------------------------------------------------------------------------

Unhedged Foreign Bond Fund--Principal Investments
    According to the Registration Statement, the Unhedged Foreign Bond
Fund will seek maximum total return, consistent with preservation of
capital and prudent investment management. The Fund will seek to
achieve its investment objective by investing, under normal
circumstances, at least 80% of its assets in Fixed Income Instruments
and derivatives based on Fixed Income Instruments that are economically
tied to foreign (non-U.S.) countries \31\ representing at least three
foreign countries (the ``Unhedged Foreign Bond Fund 80% policy''). The
average portfolio duration of the Fund will vary within approximately
three years (plus or minus) of the portfolio duration of the securities
comprising the Fund's broad-based securities market index, as
calculated by PIMCO, which as of December 31, 2013 was 7.7 years.
---------------------------------------------------------------------------

    \31\ See supra, note 21.
---------------------------------------------------------------------------

    The Unhedged Foreign Bond Fund will invest primarily in investment
grade debt securities, but may invest up to 10% of its total assets in
high yield securities (junk bonds) rated B or higher by Moody's, or
equivalently rated by S&P or Fitch, or, if unrated, determined by PIMCO
to be of comparable quality,\32\ except that, within such limitation,
the Fund may invest in mortgage-backed securities rated below B.
---------------------------------------------------------------------------

    \32\ See supra, note 23.
---------------------------------------------------------------------------

    The Fund's portfolio will include a minimum of 13 non-affiliated
issuers.
    The Unhedged Foreign Bond Fund may invest in fixed income and
equity securities and instruments that are economically tied to
emerging market countries, subject to applicable limitations set forth
herein.\33\
---------------------------------------------------------------------------

    \33\ See supra, note 24.
---------------------------------------------------------------------------

    In furtherance of the Unhedged Foreign Bond Fund 80% policy, or
with respect to the Fund's other investments, the Unhedged Foreign Bond
Fund may invest, without limitation, in derivative instruments, subject
to applicable law and any other restrictions described in the
Registration Statement.\34\
---------------------------------------------------------------------------

    \34\ See supra, note 25.
---------------------------------------------------------------------------

    The Unhedged Foreign Bond Fund may invest up to 20% of its assets
in mortgage-related and other asset-backed securities, although this
20% limitation does not apply to securities issued or guaranteed by
Federal agencies and/or U.S. government sponsored
instrumentalities.\35\
---------------------------------------------------------------------------

    \35\ See supra, note 26.
---------------------------------------------------------------------------

    According to the Registration Statement, the Unhedged Foreign Bond
Fund may invest in fixed income and equity securities denominated in
foreign (non-U.S.) currencies, engage in foreign currency transactions
on a spot (cash) basis and forward basis \36\ and invest in foreign
currency futures and options contracts. The Fund may enter into these
contracts to hedge against foreign exchange risk, to increase exposure
to a foreign currency or to shift exposure to foreign currency
fluctuations from one currency to another. Suitable hedging
transactions may not be available in all circumstances and there can be
no assurance that the Fund will engage in such transactions at any
given time or from time to time.
---------------------------------------------------------------------------

    \36\ See supra, note 27.
---------------------------------------------------------------------------

    The Unhedged Foreign Bond Fund may, without limitation, seek to
obtain market exposure to the securities in which it primarily invests
by entering into a series of purchase and sale contracts or by using
other investment techniques (such as buy backs or dollar rolls).
Unhedged Foreign Bond Fund--Other (Non-Principal) Investments
    The Unhedged Foreign Bond Fund may invest up to 10% of its total
assets in preferred stock, convertible securities and other equity-
related securities.\37\ The Fund may invest in variable and floating
rate securities. The Fund may invest in floaters, inverse floaters and
may engage in credit spread trades.
---------------------------------------------------------------------------

    \37\ See supra, note 28.
---------------------------------------------------------------------------

    The Unhedged Foreign Bond Fund may invest in trade claims,
privately placed and unregistered securities, and exchange-traded and
OTC-traded structured products, including credit-linked securities,
commodity-linked notes, and structured notes. The Fund may invest in
Brady Bonds.
    The Unhedged Foreign Bond Fund may purchase or sell securities
which it is eligible to purchase or sell on a when-issued basis, may
purchase and sell such securities for delayed delivery and may make
contracts to purchase or sell such securities for a fixed price at a
future date beyond normal settlement time (forward commitments). The
Fund may make short sales as part of its overall portfolio management
strategies or to offset a potential decline in value of a security.
    The Unhedged Foreign Bond Fund may enter into repurchase
agreements, in which the Fund purchases a security from a bank or
broker-dealer, which

agrees to repurchase the security at the Fund's cost plus interest
within a specified time. Repurchase agreements maturing in more than
seven days and which may not be terminated within seven days at
approximately the amount at which the Fund has valued the agreements
will be considered illiquid securities. The Fund may enter into reverse
repurchase agreements and dollar rolls subject to the Fund's
limitations on borrowings.
Global Advantage Bond Fund--Principal Investments
    According to the Registration Statement, the Global Advantage Bond
Fund will seek total return exceeding that of its benchmarks,
consistent with prudent investment management. The Fund will seek to
achieve its investment objective by investing, under normal
circumstances, at least 80% of its assets in Fixed Income Instruments
and derivatives based on Fixed Income Instruments that are economically
tied to at least three countries, which may include foreign (non-U.S.)
countries and may also include the U.S. (the ``Global Advantage Bond
Fund 80% policy''). The average portfolio duration of the Fund will
vary based on PIMCO's forecast for interest rates and, under normal
circumstances, will not be expected to exceed eight years.\38\
---------------------------------------------------------------------------

    \38\ The Global Advantage Bond Fund will utilize the PIMCO
Global Advantage[supreg] (``PIMCO Index'') as a secondary benchmark.
PIMCO owns the intellectual property rights to the PIMCO Index, and
has filed a patent application with respect to certain features of
the PIMCO Index. PIMCO has retained an unaffiliated leading
financial information services company and global index provider to
independently administer and calculate the PIMCO Index (the
``Calculation Agent''). The Calculation Agent, using a publicly
available rules-based methodology, will calculate, maintain and
disseminate the PIMCO Index.
---------------------------------------------------------------------------

    The Global Advantage Bond Fund may invest in both investment-grade
debt securities and high-yield securities (junk bonds) subject to a
maximum of 15% of its total assets in securities rated below B by
Moody's, S&P or Fitch, or, if unrated, determined by PIMCO to be of
comparable quality.
    The Fund's portfolio will include a minimum of 13 non-affiliated
issuers.
    The Fund may invest, without limitation, in securities and
instruments that are economically tied to emerging market
countries.\39\
---------------------------------------------------------------------------

    \39\ See supra, note 24.
---------------------------------------------------------------------------

    In furtherance of the Global Advantage Bond Fund 80% policy, or
with respect to the Fund's other investments, the Global Advantage Bond
Fund may invest, without limitation, in derivative instruments, subject
to applicable law and any other restrictions described herein.\40\
---------------------------------------------------------------------------

    \40\ See supra, note 25.
---------------------------------------------------------------------------

    The Global Advantage Bond Fund may invest up to 20% of its assets
in mortgage-related and other asset-backed securities, although this
20% limitation does not apply to securities issued or guaranteed by
Federal agencies and/or U.S. government sponsored
instrumentalities.\41\
---------------------------------------------------------------------------

    \41\ See supra, note 26.
---------------------------------------------------------------------------

    The Global Advantage Bond Fund may invest, without limitation, in
securities denominated in foreign currencies and in U.S. dollar-
denominated securities of foreign issuers. The Fund may engage in
foreign currency transactions on a spot (cash) basis and forward basis
and invest in foreign currency futures and options contracts.\42\ The
Fund may enter into these contracts to hedge against foreign exchange
risk, to increase exposure to a foreign currency or to shift exposure
to foreign currency fluctuations from one currency to another.
---------------------------------------------------------------------------

    \42\ See supra, note 27.
---------------------------------------------------------------------------

    The Global Advantage Bond Fund may, without limitation, seek to
obtain market exposure to the securities in which it primarily invests
by entering into a series of purchase and sale contracts or by using
other investment techniques (such as buy backs or dollar rolls).
Global Advantage Bond Fund--Other (Non-Principal) Investments
    The Global Advantage Bond Fund may invest up to 10% of its total
assets in preferred stock, convertible securities and other equity-
related securities.\43\ The Fund may invest in variable and floating
rate securities. The Fund may invest in floaters, inverse floaters and
may engage in credit spread trades.
---------------------------------------------------------------------------

    \43\ See supra, note 28.
---------------------------------------------------------------------------

    The Global Advantage Bond Fund may invest in trade claims,
privately placed and unregistered securities, and exchange-traded and
OTC-traded structured products, including credit-linked securities,
commodity-linked notes, and structured notes. The Fund may invest in
Brady Bonds.
    The Global Advantage Bond Fund may purchase or sell securities
which it is eligible to purchase or sell on a when-issued basis, may
purchase and sell such securities for delayed delivery and may make
contracts to purchase or sell such securities for a fixed price at a
future date beyond normal settlement time (forward commitments). The
Fund may make short sales as part of its overall portfolio management
strategies or to offset a potential decline in value of a security.
    The Global Advantage Bond Fund may enter into repurchase
agreements, in which the Fund purchases a security from a bank or
broker-dealer, which agrees to repurchase the security at the Fund's
cost plus interest within a specified time. Repurchase agreements
maturing in more than seven days and which may not be terminated within
seven days at approximately the amount at which the Fund has valued the
agreements will be considered illiquid securities. The Fund may enter
into reverse repurchase agreements and dollar rolls subject to the
Fund's limitations on borrowings.
International Advantage Bond Fund--Principal Investments
    According to the Registration Statement, the International
Advantage Bond Fund will seek total return exceeding that of its
benchmarks, consistent with prudent investment management. The Fund
will seek to achieve its investment objective by investing, under
normal circumstances, at least 80% of its assets in Fixed Income
Instruments and derivatives based on Fixed Income Instruments that are
economically tied to foreign (non-U.S.) countries,\44\ representing at
least three foreign countries (the ``International Advantage Bond Fund
80% policy''). The average portfolio duration of the Fund will vary
based on PIMCO's forecast for interest rates and, under normal
circumstances, will not be expected to exceed eight years.
---------------------------------------------------------------------------

    \44\ See supra, note 21.
---------------------------------------------------------------------------

    The International Advantage Bond Fund may invest in both
investment-grade debt securities and high-yield securities (junk bonds)
subject to a maximum of 15% of its total assets in securities rated
below B by Moody's, S&P or Fitch, or, if unrated, determined by PIMCO
to be of comparable quality.
    The Fund's portfolio will include a minimum of 13 non-affiliated
issuers.
    The Fund may invest, without limitation, in securities and
instruments that are economically tied to emerging market
countries.\45\
---------------------------------------------------------------------------

    \45\ See supra, note 24.
---------------------------------------------------------------------------

    In furtherance of the International Advantage Bond Fund 80% policy,
or with respect to the Fund's other investments, the International
Advantage Bond Fund may invest, without limitation, in derivative
instruments, subject to applicable law and any other restrictions
described in its prospectus or Statement of Additional Information
(``SAI'').\46\
---------------------------------------------------------------------------

    \46\ See supra, note 25.

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

    The International Advantage Bond Fund may invest up to 20% of its
assets in mortgage-related and other asset-backed securities, although
this 20% limitation does not apply to securities issued or guaranteed
by Federal agencies and/or U.S. government sponsored
instrumentalities.\47\
---------------------------------------------------------------------------

    \47\ See supra, note 26.
---------------------------------------------------------------------------

    The International Advantage Bond Fund may invest, without
limitation, in securities denominated in foreign currencies and in U.S.
dollar-denominated securities of foreign issuers. The Fund may engage
in foreign currency transactions on a spot (cash) basis and forward
basis and invest in foreign currency futures and options contracts.\48\
The Fund may enter into these contracts to hedge against foreign
exchange risk, to increase exposure to a foreign currency or to shift
exposure to foreign currency fluctuations from one currency to another.
---------------------------------------------------------------------------

    \48\ See supra, note 27.
---------------------------------------------------------------------------

    The International Advantage Bond Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or by
using other investment techniques (such as buy backs or dollar rolls).
International Advantage Bond Fund--Other (Non-Principal) Investments
    The International Advantage Bond Fund may invest up to 10% of its
total assets in preferred stock, convertible securities and other
equity-related securities.\49\
---------------------------------------------------------------------------

    \49\ See supra, note 28.
---------------------------------------------------------------------------

    The International Advantage Bond Fund may invest in variable and
floating rate securities. The Fund may invest in floaters, inverse
floaters and may engage in credit spread trades.
    The International Advantage Bond Fund may invest in trade claims,
privately placed and unregistered securities, and exchange-traded and
OTC-traded structured products, including credit-linked securities,
commodity-linked notes and structured notes. The Fund may invest in
Brady Bonds.
    The International Advantage Bond Fund may purchase or sell
securities which it is eligible to purchase or sell on a when-issued
basis, may purchase and sell such securities for delayed delivery and
may make contracts to purchase or sell such secure ties for a fixed
price at a future date beyond normal settlement time (forward
commitments). The Fund may make short sales as part of its overall
portfolio management strategies or to offset a potential decline in
value of a security.
    The International Advantage Bond Fund may enter into repurchase
agreements, in which the Fund purchases a security from a bank or
broker-dealer, which agrees to repurchase the security at the Fund's
cost plus interest within a specified time. Repurchase agreements
maturing in more than seven days and which may not be terminated within
seven days at approximately the amount at which the Fund has valued the
agreements will be considered illiquid securities. The Fund may enter
into reverse repurchase agreements and dollar rolls subject to the
Fund's limitations on borrowings.
All Funds--Other Restrictions
    Each Fund may invest in, to the extent permitted by Section
12(d)(1)(A) of the 1940 Act, other affiliated and unaffiliated funds,
such as open-end or closed-end management investment companies,
including other exchange-traded funds, provided that each Fund's
investment in units or shares of investment companies and other open-
end collective investment vehicles will not exceed 10% of that Fund's
total assets. Each Fund may invest in securities lending collateral in
one or more money market funds to the extent permitted by Rule 12d1-1
under the 1940 Act, including series of PIMCO Funds.
    Each Fund's investments, including investments in derivative
instruments, will be subject to all of the restrictions under the 1940
Act, including restrictions with respect to illiquid assets; that is,
the limitation that a Fund may hold up to an aggregate amount of 15% of
its net assets in illiquid assets (calculated at the time of
investment), including Rule 144A securities deemed illiquid by the
Adviser, consistent with Commission guidance.\50\ Each Fund will
monitor its portfolio liquidity on an ongoing basis to determine
whether, in light of current circumstances, an adequate level of
liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of such
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.\51\
---------------------------------------------------------------------------

    \50\ In reaching liquidity decisions, the Adviser may consider
the following factors: the frequency of trades and quotes for the
security; the number of dealers willing 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 trades (e.g., the time
needed to dispose of the security, the method of soliciting offers,
and the mechanics of transfer).
    \51\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the 1933 Act).
---------------------------------------------------------------------------

    The Funds will be non-diversified, which means that each Fund may
invest its assets in a smaller number of issuers than a diversified
fund.\52\
---------------------------------------------------------------------------

    \52\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act (15 U.S.C. 80e).
---------------------------------------------------------------------------

    The Funds intend to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue
Code.\53\ None of the Funds will concentrate its investments in a
particular industry, as that term is used in the 1940 Act, and as
interpreted, modified, or otherwise permitted by regulatory authority
having jurisdiction from time to time.\54\
---------------------------------------------------------------------------

    \53\ 26 U.S.C. 851.
    \54\ 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).
---------------------------------------------------------------------------

    Each Fund may invest without limit, for temporary or defensive
purposes, in U.S. debt securities, including taxable securities and
short-term money market securities, if PIMCO deems it appropriate to do
so. If PIMCO believes that economic or market conditions are
unfavorable to investors, PIMCO may temporarily invest up to 100% of
each Fund's assets in certain defensive strategies, including holding a
substantial portion of the Fund's assets in cash, cash equivalents or
other highly rated short-term securities, including securities issued
or guaranteed by the U.S. government, its agencies or
instrumentalities.
    Each Fund's investments, including derivatives, will be consistent
with that Fund's investment objective and each Fund's use of
derivatives may be used to enhance leverage. However, each Fund's
investments will not be used to

seek performance that is the multiple or inverse multiple (i.e., 2Xs
and 3Xs) of the Fund's broad-based securities market index (as defined
in Form N-1A).\55\
---------------------------------------------------------------------------

    \55\ Each Fund's broad-based securities market index will be
identified in a future amendment to the Registration Statement
following each Fund's first full calendar year of performance.
---------------------------------------------------------------------------

Net Asset Value and Derivatives Valuation Methodology for Purposes of
Determining Net Asset Value
    The NAV of each Fund's Shares will be determined by dividing the
total value of a Fund's portfolio investments and other assets, less
any liabilities, by the total number of Shares outstanding.
    Each Fund's Shares will be valued as of the close of regular
trading of the New York Stock Exchange (``NYSE'') (normally 4:00 p.m.
Eastern time (``E.T.'') (the ``NYSE Close'') on each day NYSE Arca is
open (``Business Day''). Information that becomes known to each of the
Funds or its agents after the NAV has been calculated on a particular
day will not generally be used to retroactively adjust the price of a
portfolio asset or the NAV determined earlier that day.
    For purposes of calculating NAV, portfolio securities and other
assets for which market quotes are readily available will be valued at
market value. Market value will generally be determined on the basis of
last reported sales prices, or if no sales are reported, based on
quotes obtained from a quotation reporting system, established market
makers, or pricing services.
    Fixed Income Instruments, including those to be purchased under
firm commitment agreements/delayed delivery basis, will generally be
valued on the basis of quotes obtained from brokers and dealers or
independent pricing services. Foreign fixed income securities will
generally be valued on the basis of quotes obtained from brokers and
dealers or pricing services using data reflecting the earlier closing
of the principal markets for those assets. Short-term debt instruments
having a remaining maturity of 60 days or less will generally be valued
at amortized cost, which approximates market value.
    As discussed in more detail below, derivatives will generally be
valued on the basis of quotes obtained from brokers and dealers or
pricing services using data reflecting the earlier closing of the
principal markets for those assets. Local closing prices will be used
for all instrument valuation purposes. Foreign currency-denominated
derivatives will generally be valued using market inputs as of the
respective local region's market close.
    With respect to specific derivatives:
     Currency spot and forward rates will generally be
determined as of the NYSE Close.
     Exchange traded futures will generally be valued at the
settlement price of the exchange.
     A total return swap on an index will be valued at the
publicly available index price. The index price, in turn, is determined
by the applicable index calculation agent, which generally values the
securities underlying the index at the last reported sale price.
     Equity total return swaps will generally be valued using
the actual underlying equity at local market closing, while bank loan
total return swaps will generally be valued using the evaluated
underlying bank loan price minus the strike price of the loan.
     Exchange traded non-equity options, (for example, options
on bonds, Eurodollar options and U.S. Treasury options), index options,
and options on futures will generally be valued at the official
settlement price determined by the relevant exchange, if available.
     OTC and exchange traded equity options will generally be
valued on a basis of quotes obtained from a quotation reporting system,
established market makers, or pricing services.
     OTC FX options will generally be valued by pricing
vendors.
     All other swaps such as interest rate swaps, inflation
swaps, swaptions, credit default swaps, CDX/CDS will generally be
valued by pricing services.
    Exchange-traded equity securities will be valued at the official
closing price or the last trading price on the exchange or market on
which the security is primarily traded at the time of valuation. If no
sales or closing prices are reported during the day, exchange-traded
equity securities will generally be valued at the mean of the last
available bid and ask quotation on the exchange or market on which the
security is primarily traded, or using other market information
obtained from quotation reporting systems, established market makers,
or pricing services.
    If a foreign security's value has materially changed after the
close of the security's primary exchange or principal market but before
the NYSE Close, the security will be valued at fair value based on
procedures established and approved by the Board. Foreign securities
that do not trade when the NYSE is open are also valued at fair value.
    Securities and other assets for which market quotes are not readily
available are valued at fair value as determined in good faith by the
Board or persons acting at their direction. The Board has adopted
methods for valuing securities and other assets in circumstances where
market quotes are not readily available, and has delegated to PIMCO the
responsibility for applying the valuation methods. In the event that
market quotes are not readily available, and the security or asset
cannot be valued pursuant to one of the valuation methods, the value of
the security or asset will be determined in good faith by the Valuation
Committee of the Board generally based upon recommendations provided by
PIMCO.
    Market quotes are considered not readily available in circumstances
where there is an absence of current or reliable market-based data
(e.g., trade information, bid/ask information, broker quotes),
including where events occur after the close of the relevant market,
but prior to the NYSE Close, that materially affect the values of a
Fund's securities or assets. In addition, market quotes are considered
not readily available when, due to extraordinary circumstances, the
exchanges or markets on which the securities trade do not open for
trading for the entire day and no other market prices are available.
The Board has delegated to PIMCO the responsibility for monitoring
significant events that may materially affect the values of the Fund's
securities or assets and for determining whether the value of the
applicable securities or assets should be re-evaluated in light of such
significant events.
    When a Fund uses fair value pricing to determine its NAV,
securities will not be priced on the basis of quotes from the primary
market in which they are traded, but rather may be priced by another
method that the Board or persons acting at their direction believe
reflects fair value. Fair value pricing may require subjective
determinations about the value of a security. While the Trust's policy
is intended to result in a calculation of the Fund's NAV that fairly
reflects security values as of the time of pricing, the Trust cannot
ensure that fair values determined by the Board or persons acting at
their direction would accurately reflect the price that a Fund could
obtain for a security if it were to dispose of that security as of the
time of pricing (for instance, in a forced or distressed sale). The
prices used by a Fund may differ from the value that would be realized
if the securities were sold.
    For a Fund's 4:00 p.m. E.T. futures holdings, estimated prices from
Reuters will be used if any cumulative futures margin impact is greater
than $0.005 to the NAV due to futures movement after the fixed income
futures market closes (3:00 p.m. E.T.) and up to the NYSE

Close (generally 4:00 p.m. E.T.). Swaps traded on exchanges such as the
Chicago Mercantile Exchange (``CME'') or the Intercontinental Exchange
(``ICE-US'') will use the applicable exchange closing price where
available.
    Investments initially valued in currencies other than the U.S.
dollar are converted to the U.S. dollar using exchange rates obtained
from pricing services. As a result, the NAV of a Fund's Shares may be
affected by changes in the value of currencies in relation to the U.S.
dollar. The value of securities traded in markets outside the United
States or denominated in currencies other than the U.S. dollar may be
affected significantly on a day that the NYSE is closed. As a result,
to the extent that a Fund holds foreign (non-U.S.) securities, the NAV
of a Fund's Shares may change when an investor cannot purchase, redeem
or exchange shares.
Derivatives Valuation Methodology for Purposes of Determining Portfolio
Indicative Value
    On each Business Day, before commencement of trading in Fund Shares
on NYSE Arca, each Fund will disclose on its Web site the identities
and quantities of the portfolio instruments and other assets held by a
Fund that will form the basis for a Fund's calculation of NAV at the
end of the Business Day.
    In order to provide additional information regarding the intra-day
value of Shares of a Fund, the NYSE Arca or a market data vendor will
disseminate every 15 seconds through the facilities of the Consolidated
Tape Association (``CTA'') or other widely disseminated means an
updated Portfolio Indicative Value (``PIV'') for each Fund as
calculated by an information provider or market data vendor.
    A third party market data provider will calculate the PIV for each
Fund. For the purposes of determining the PIV, the third party market
data provider's valuation of derivatives is expected to be similar to
their valuation of all securities. The third party market data provider
may use market quotes if available or may fair value securities against
proxies (such as swap or yield curves).
    With respect to specific derivatives:
     Foreign currency derivatives may be valued intraday using
market quotes, or another proxy as determined to be appropriate by the
third party market data provider.
     Futures may be valued intraday using the relevant futures
exchange data, or another proxy as determined to be appropriate by the
third party market data provider.
     Interest rate swaps may be mapped to a swap curve and
valued intraday based on the swap curve, or another proxy as determined
to be appropriate by the third party market data provider.
     CDX/CDS may be valued using intraday data from market
vendors, or based on underlying asset price, or another proxy as
determined to be appropriate by the third party market data provider.
     Total return swaps may be valued intraday using the
underlying asset price, or another proxy as determined to be
appropriate by the third party market data provider.
     Exchange listed options may be valued intraday using the
relevant exchange data, or another proxy as determined to be
appropriate by the third party market data provider.
     OTC options may be valued intraday through option
valuation models (e.g., Black-Scholes) or using exchange traded options
as a proxy, or another proxy as determined to be appropriate by the
third party market data provider.
    A third party market data provider's valuation of forwards will be
similar to their valuation of the underlying securities, or another
proxy as determined to be appropriate by the third party market data
provider. The third party market data provider will generally use
market quotes if available. Where market quotes are not available, they
may fair value securities against proxies (such as swap or yield
curves). Each Fund's disclosure of forward positions will include
information that market participants can use to value these positions
intraday.
Disclosed Portfolio
    Each Fund's disclosure of derivative positions in the applicable
Disclosed Portfolio will include information that market participants
can use to value these positions intraday. On a daily basis, the Funds
will disclose on the Funds' Web site the following information
regarding each portfolio holding, as applicable to the type of holding:
Ticker symbol, CUSIP number or other identifier, if any; a description
of the holding (including the type of holding, such as the type of
swap); the identity of the security, commodity, index or other asset or
instrument underlying the holding, if any; for options, the option
strike price; quantity held (as measured by, for example, par value,
notional value or number of shares, contracts or units); maturity date,
if any; coupon rate, if any; effective date, if any; market value of
the holding; and the percentage weighting of the holding in a Fund's
portfolio.
Impact on Arbitrage Mechanism
    For each Fund, the Adviser believes there will be minimal, if any,
impact to the arbitrage mechanism as a result of the use of
derivatives. Market makers and participants should be able to value
derivatives as long as the positions are disclosed with relevant
information. The Adviser believes that the price at which Shares trade
will continue to be disciplined by arbitrage opportunities created by
the ability to purchase or redeem creation Shares at their NAV, which
should ensure that Shares will not trade at a material discount or
premium in relation to their NAV.
    The Adviser does not believe there will be any significant impacts
to the settlement or operational aspects of a Fund's arbitrage
mechanism due to the use of derivatives. Because derivatives generally
are not eligible for in-kind transfer, they will typically be
substituted with a ``cash in lieu'' amount when each Fund processes
purchases or redemptions of ``Creation Units'' (as described below) in-
kind.
Creations and Redemptions of Shares
    According to the Registration Statement, Shares of each of the
Funds that trade in the secondary market will be ``created'' at NAV
\56\ by Authorized Participants \57\ only in block-size creation units
(``Creation Units'') of 100,000 Shares or multiples thereof. Each Fund
will offer and issue Shares at their NAV per Share generally in
exchange for a basket of debt securities held by that Fund (the
``Deposit Securities'') together with a deposit of a specified cash
payment (the ``Cash Component''), or in lieu of Deposit Securities, a
Fund may permit a ``cash-in-lieu'' amount for any reason at the Fund's
sole discretion. Alternatively, each Fund may issue Creation Units in
exchange for a specified all-cash payment (``Cash Deposit'').
Similarly,

Shares can be redeemed only in Creation Units, generally in-kind for a
portfolio of debt securities held by each Fund and/or for a specified
amount of cash.
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    \56\ The NAV of each of the Fund's Shares generally will be
calculated once daily Monday through Friday as of the close of
trading on the Exchange, generally 4:00 p.m. E.T. (the ``NAV
Calculation Time'') on any Business Day. NAV per Share will be
calculated by dividing a Fund's net assets by the number of that
Fund's Shares outstanding. For more information regarding the
valuation of each Fund's investments in calculating a Fund's NAV,
see the Registration Statement.
    \57\ An ``Authorized Participant'' refers to a Participating
Party (a broker-dealer or other participant in the clearing process
through the Continuous Net Settlement System of the National
Securities Clearing Corporation (``NSCC''); or a Depository Trust
Company (``DTC'') Participant who has executed a Participant
Agreement (an agreement with the Distributor and Transfer Agent with
respect to creations and redemptions of Creation Unit aggregations).
---------------------------------------------------------------------------

    Except when aggregated in Creation Units, Shares will not be
redeemable by the Funds. The prices at which creations and redemptions
occur will be based on the next calculation of NAV after an order is
received. Requirements as to the timing and form of orders are
described in the Authorized Participant agreement. PIMCO will make
available on each business day via the NSCC, prior to the opening of
business (subject to amendments) on the Exchange (currently 9:30 a.m.,
E.T.), the identity and the required amount of each Deposit Security
and the amount of the Cash Component (or Cash Deposit) to be included
in the current Fund Deposit \58\ (based on information at the end of
the previous Business Day). Creations and redemptions must be made by
an Authorized Participant.
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    \58\ The Deposit Securities and Cash Component or,
alternatively, the Cash Deposit, will constitute the ``Fund
Deposit,'' which will represent the investment amount for a Creation
Unit of each of the Funds.
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    Additional information regarding the Trust, the Funds and the
Shares, including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings, disclosure policies,
distributions and taxes is included in the Registration Statement. All
terms relating to the Funds that are referred to but not defined in
this proposed rule change are defined in the Registration Statement.
Availability of Information
    The Trust's Web site (www.pimcoetfs.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for each of the Funds that may be downloaded. The
Trust's Web site will include additional quantitative information
updated on a daily basis, including, for each of the Funds, (1) daily
trading volume, the prior business day's reported closing price, NAV
and mid-point of the bid/ask \59\ spread at the time of calculation of
such NAV (the ``Bid/Ask Price''), and a calculation of the premium and
discount of the Bid/Ask Price against the NAV, and (2) data in chart
format displaying the frequency distribution of discounts and premiums
of the daily Bid/Ask Price against the NAV, within appropriate ranges,
for each of the four previous calendar quarters. On each Business Day,
before commencement of trading in Shares in the Core Trading Session
(9:30 a.m. E.T. to 4:00 p.m. E.T.) on the Exchange, each of the Funds
will disclose on the Trust's Web site the Disclosed Portfolio as
defined in NYSE Arca Equities Rule 8.600(c)(2) that will form the basis
for the [sic] each of the Fund's [sic] calculation of NAV at the end of
the Business Day.\60\
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    \59\ The Bid/Ask Price of each of the Funds will be determined
using the mid-point of the highest bid and the lowest offer on the
Exchange as of the time of calculation of that Fund's NAV. The
records relating to Bid/Ask Prices will be retained by each of the
Funds and their service providers.
    \60\ Under accounting procedures followed by the Funds, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Funds
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the Business Day.
---------------------------------------------------------------------------

    On a daily basis, for each of the Funds, the Adviser, Funds or
Trust will disclose for each portfolio security and other financial
instrument of each of the Funds the following information: Ticker
symbol (if applicable), name of security or financial instrument,
number of shares (if applicable) or dollar value of securities and
financial instruments held in the portfolio, and percentage weighting
of the security and financial instrument in the portfolio. In addition,
price information for the debt securities and other financial
instruments held by each of the Funds will be available through major
market data vendors.\61\ As noted above, each Fund's disclosure of
derivative positions in the applicable Disclosed Portfolio will include
information that market participants can use to value these positions
intraday. On a daily basis, the Funds will disclose on the Funds' Web
site the following information regarding each portfolio holding, as
applicable to the type of holding: ticker symbol, CUSIP number or other
identifier, if any; a description of the holding (including the type of
holding, such as the type of swap); the identity of the security,
commodity, index or other asset or instrument underlying the holding,
if any; for options, the option strike price; quantity held (as
measured by, for example, par value, notional value or number of
shares, contracts or units); maturity date, if any; coupon rate, if
any; effective date, if any; market value of the holding; and the
percentage weighting of the holding in a Fund's portfolio.
---------------------------------------------------------------------------

    \61\ Supplementally, major market data vendors may include, but
are not limited to: Thomson Reuters, JPMorgan Chase Pricing Direct
Inc., Markit Group Limited, Bloomberg, Interactive Data Corporation
or other major data vendors.
---------------------------------------------------------------------------

    The Web site information will be publicly available at no charge.
    In addition, a basket composition file, which includes the security
names and share quantities, if applicable, required to be delivered in
exchange for a Funds' Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the Exchange via the NSCC. The basket represents one Creation Unit of
each of the Funds. The NAV of each of the Funds will normally be
determined as of the close of the regular trading session on the
Exchange (ordinarily 4:00 p.m. E.T.) on each Business Day. Authorized
participants may refer to the basket composition file for information
regarding Fixed Income Instruments, and any other instrument that may
comprise a Fund's basket on a given day.
    Investors can also obtain the Trust's SAI, the Funds' Shareholder
Reports, and the Funds' Forms N-CSR and Forms N-SAR, filed twice a
year. The Trust's SAI and Shareholder Reports are available free upon
request from the Trust, and those documents and the Form N-CSR, Form N-
PX and Form N-SAR may be viewed on-screen or downloaded from the
Commission's Web site at www.sec.gov. Intra-day and closing price
information regarding equity securities traded on a national securities
exchange, including common stocks, preferred stocks, securities
convertible into stocks, closed-end funds, exchange traded funds and
other equity-related securities, will be available from the exchange on
which such securities are traded. Intra-day and closing price
information regarding Fixed Income Instruments also will be available
from major market data vendors. Price information relating to forwards
will be available from major market data vendors. 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 the CTA high-speed line. In addition, the PIV, as defined in NYSE
Arca Equities Rule 8.600(c)(3), will be widely disseminated by one or
more major market data vendors at least every 15 seconds during the
Core Trading Session.\62\ The dissemination of the PIV, together with
the Disclosed Portfolio, may allow investors to determine an
approximate value of the underlying portfolio of each of the Funds on a
daily

basis and to provide an estimate of that value throughout the trading
day.
---------------------------------------------------------------------------

    \62\ Currently, the Exchange understands that several major
market data vendors display and/or make widely available PIVs taken
from the CTA or other data feeds.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of any of the Funds.\63\ Trading in Shares of any
of the Funds will be halted if the circuit breaker parameters in NYSE
Arca Equities Rule 7.12 have been reached. Trading also may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. These may include:
(1) The extent to which trading is not occurring in the securities and/
or the financial instruments comprising the Disclosed Portfolio of any
of the Funds; or (2) whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present. Trading in the Shares will be subject to NYSE Arca Equities
Rule 8.600(d)(2)(D), which sets forth circumstances under which Shares
of any of the Funds may be halted.
---------------------------------------------------------------------------

    \63\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

Trading Rules
    The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with
NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading
Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
    Each Fund's Shares will conform to the initial and continued
listing criteria under NYSE Arca Equities Rule 8.600. Consistent with
NYSE Arca Equities Rule 8.600(d)(2)(B)(ii), the Funds' Reporting
Authority will implement and maintain, or be subject to, procedures
designed to prevent the use and dissemination of material non-public
information regarding the actual components of each Fund's portfolio.
The Exchange represents that, for initial and/or continued listing,
each Fund will be in compliance with Rule 10A-3 \64\ under the Act, as
provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares
for each Fund will be outstanding at the commencement of trading on the
Exchange. The Exchange will obtain a representation from the issuer of
the Shares that the net asset value (``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.
---------------------------------------------------------------------------

    \64\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\65\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to deter and detect violations
of Exchange rules and federal securities laws applicable to trading on
the Exchange.
---------------------------------------------------------------------------

    \65\ 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. 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, exchange-traded options, exchange-
traded equities, futures and options on futures with other markets or
other entities that are members of the ISG, and FINRA may obtain
trading information regarding trading in the Shares, exchange-trade
options, exchange-traded equities, futures and options on futures from
such markets or entities. In addition, the Exchange may obtain
information regarding trading in the Shares, exchange-traded options,
exchange-traded equities, futures and options on futures from markets
or other entities that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement.\66\ FINRA,
on behalf of the Exchange, is able to access, as needed, trade
information for certain fixed income securities held by the Funds
reported to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \66\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for a Fund may trade on markets that are members
of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.
---------------------------------------------------------------------------

    Not more than 10% of the net assets of a Fund in the aggregate
shall consist of equity securities, including stocks into which a
convertible security is converted, whose principal market is not a
member of the ISG or is a market with which the Exchange does not have
a comprehensive surveillance sharing agreement. Furthermore, not more
than 10% of the net assets of a Fund in the aggregate shall consist of
futures contracts or exchange-traded options contracts whose principal
market is not a member of ISG or is a market with which the Exchange
does not have a comprehensive surveillance sharing agreement.
    In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares
in Creation Unit aggregations (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated PIV will not be calculated or publicly
disseminated; (4) how information regarding the PIV is disseminated;
(5) the requirement that ETP Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (6) trading information.
    In addition, the Bulletin will reference that each of the Funds is
subject to various fees and expenses described in the Registration
Statement. The Bulletin will discuss any exemptive, no-action, and
interpretive relief granted by the Commission from any rules under the
Act. The Bulletin will also disclose that the NAV for the Shares will
be calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the
requirement

under Section 6(b)(5) \67\ that an exchange have rules that are
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to, and perfect the mechanism of a free and open market and, in
general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \67\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
federal securities laws applicable to trading on the Exchange. FINRA,
on behalf of the Exchange, will communicate as needed regarding trading
in the Shares, exchange-traded options, exchange-traded equities,
futures and options on futures with other markets or other entities
that are members of the ISG, and FINRA may obtain trading information
regarding trading in the Shares, exchange-trade options, exchange-
traded equities, futures and options on futures from such markets or
entities. In addition, the Exchange may obtain information regarding
trading in the Shares, exchange-traded options, exchange-traded
equities, futures and options on futures from markets or other entities
that are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. FINRA, on behalf of the
Exchange, is able to access, as needed, trade information for certain
fixed income securities held by the Funds reported to FINRA's TRACE.
Not more than 10% of the net assets of a Fund in the aggregate shall
consist of equity securities, including stocks into which a convertible
security is converted, whose principal market is not a member of the
ISG or is a market with which the Exchange does not have a
comprehensive surveillance sharing agreement. Furthermore, not more
than 10% of the net assets of a Fund in the aggregate shall consist of
futures contracts or exchange-traded options contracts whose principal
market is not a member of ISG or is a market with which the Exchange
does not have a comprehensive surveillance sharing agreement. The
Hedged Foreign Bond Fund will normally limit its foreign currency
exposure (from non-U.S. dollar-denominated securities or currencies) to
20% of the Fund's total assets. Each of the Funds will limit its
investments in currencies to those currencies with a minimum average
daily foreign exchange turnover of USD $1 billion as determined by the
BIS Triennial Central Bank Survey. Each Fund's investments, including
derivatives, will be consistent with that Fund's investment objective
and each Fund's use of derivatives may be used to enhance leverage.
However, each Fund's investments will not be used to seek performance
that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the
Fund's broad-based securities market index (as defined in Form N-1A).
Each of the Fund's investment in illiquid assets will not exceed 15% of
that Fund's net assets. The Hedged and Unhedged Foreign Bond Funds will
invest primarily in investment grade debt securities and will not
invest more than 10% of its total assets in high yield securities rated
B or higher by Moody's, S&P or Fitch, or if unrated, determined by
PIMCO to be of comparable quality. The Global and International
Advantage Bond Funds will each primarily invest in investment-grade
debt securities and will not invest more than 15% of its total assets
in high yield securities rated below B (as described above). Each
Fund's portfolio will include a minimum of 13 non-affiliated issuers.
With respect to each of the Funds, while non-emerging markets corporate
debt securities (excluding commercial paper) generally must have $100
million or more par amount outstanding and significant par value traded
to be considered as an eligible investment for each of the Funds, at
least 80% of issues of such securities held by a Fund must have $100
million or more par amount outstanding at the time of investment. The
PIMCO's Counterparty Risk Committee will evaluate the creditworthiness
of swaps counterparties on an ongoing basis.
    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding each of the Funds and the
Shares, thereby promoting market transparency. Moreover, the PIV will
be widely disseminated by one or more major market data vendors at
least every 15 seconds during the Exchange's Core Trading Session. On
each Business Day, before commencement of trading in Shares in the Core
Trading Session on the Exchange, each of the Funds will disclose on the
Trust's Web site the Disclosed Portfolio that will form the basis for
each 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 will be available via the CTA high-
speed line. Exchange-traded options quotation and last sale information
is available via the Options Price Reporting Authority. The Trust's Web
site will include a form of the prospectus for each of the Funds and
additional data relating to NAV and other applicable quantitative
information. Moreover, prior to the commencement of trading, the
Exchange will inform its ETP Holders in an Information Bulletin of the
special characteristics and risks associated with trading the Shares.
Trading in Shares of the any of the Funds will be halted if the circuit
breaker parameters in NYSE Arca Equities Rule 7.12 have been reached or
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable, and trading in the
Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which
sets forth circumstances under which Shares of any of the Funds may be
halted. In addition, as noted above, investors will have ready access
to information regarding each of the Funds' holdings, the PIV, the
Disclosed Portfolio, and quotation and last sale information for the
Shares.
    The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that will
enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. The Adviser is not a broker-dealer but
is affiliated with a broker-dealer and has implemented a ``fire wall''
with respect to such broker-dealer

regarding access to information concerning the composition and/or
changes to each Fund's portfolio. In addition, the Funds' Reporting
Authority will implement and maintain, or be subject to, procedures
designed to prevent the use and dissemination of material non-public
information regarding the actual components of each Fund's portfolio.

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

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

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NYSEArca-2014-57 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2014-57. 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 such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2014-57, and should
be submitted on or before June 12, 2014.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\68\
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    \68\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11831 Filed 5-21-14; 8:45 am]
BILLING CODE 8011-01-P