[Federal Register Volume 80, Number 47 (Wednesday, March 11, 2015)]
[Notices]
[Pages 12832-12843]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-05514]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74448; File No. SR-NASDAQ-2015-012]


Self-Regulatory Organizations; The NASDAQ Stock Market, LLC; 
Notice of Filing of Proposed Rule Change Relating to the Listing and 
Trading of the Shares of the WisdomTree Western Unconstrained Bond Fund 
of the WisdomTree Trust

March 5, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 18, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in in Items I 
and II below, which Items have been prepared by NASDAQ. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ proposes to list and trade shares of the WisdomTree Western 
Unconstrained Bond Fund (the ``Fund'') of the WisdomTree Trust (the 
``Trust'') under NASDAQ Rule 5735 (``Managed Fund Shares'').\3\ The 
shares of the Fund are collectively referred to herein as the 
``Shares.''
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    \3\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1)(the ``1940 Act'') organized as 
an open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Index Fund Shares, listed 
and traded on the Exchange under NASDAQ Rule 5705, seeks to provide 
investment results that correspond generally to the price and yield 
performance of a specific foreign or domestic stock index, fixed 
income securities index or combination thereof.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

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

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

1. Purpose
    The Exchange proposes to list and trade Shares of the Fund under 
NASDAQ Rule 5735, which governs the listing and trading of Managed Fund 
Shares on the Exchange.\4\ The Fund will be an actively managed 
exchange traded fund (``ETF''). The Shares will be offered by the 
Trust, which was established as a Delaware statutory trust on December 
15, 2005. The Trust is registered with the Commission as an investment 
company and has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission on behalf of the 
Fund.\5\
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    \4\ The Commission approved NASDAQ Rule 5735 in Securities 
Exchange Act Release No. 57962 (June 13, 2008) 73 FR 35175 (June 20, 
2008) (SR-NASDAQ-2008-039). The Fund would not be the first 
actively-managed fund listed on the Exchange; see Securities 
Exchange Act Release No. 66175 (February 29, 2012), 77 FR 13379 
(March 6, 2012) (SR-NASDAQ-2012-004) (order approving listing and 
trading of WisdomTree Emerging Markets Corporate Bond Fund). 
Additionally, the Commission has previously approved the listing and 
trading of a number of actively managed WisdomTree funds on NYSE 
Arca, Inc. pursuant to Rule 8.600 of that exchange. See, e.g., 
Securities Exchange Act Release No. 64643 (June 10, 2011), 76 FR 
35062 (June 15, 2011) (SR-NYSEArca-2011-21) (order approving listing 
and trading of WisdomTree Global Real Return Fund). The Exchange 
believes the proposed rule change raises no significant issues not 
previously addressed in those prior Commission orders.
    \5\ The Trust has filed an amendment to its Registration 
Statement on Form N-1A for the Fund, dated December 19, 2014, under 
the Securities Act of 1933 (15 U.S.C. 77a) (``Securities Act'') and 
the 1940 Act (File Nos. 333-132380 and 811-21864). The descriptions 
of the Fund and the Shares contained herein are based, in part, on 
information in the Registration Statement. The Commission has issued 
an order granting certain exemptive relief to the Trust under the 
1940 Act. See Investment Company Act Release No. 28171 (October 27, 
2008) (File No. 812-13458) (the ``Exemptive Relief''). In compliance 
with NASDAQ Rule 5735(b)(5), which applies to Managed Fund Shares 
based on an international or global portfolio, the Trust's 
application for exemptive relief under the 1940 Act states that the 
Fund will comply with the federal securities laws in accepting 
securities for deposits and satisfying redemptions with redemption 
securities, including that the securities accepted for deposits and 
the securities used to satisfy redemption requests are sold in 
transactions that would be exempt from registration under the 
Securities Act.
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Description of the Shares and the Fund
    WisdomTree Asset Management, Inc. (``WisdomTree Asset Management'') 
will be the investment adviser (``Adviser'') to the Fund.\6\ Western 
Asset Management Company will serve as sub-adviser for the Fund (``Sub-
Adviser'').\7\ State Street Bank and Trust Company will serve as the 
administrator, custodian and transfer agent for the Trust 
(``Custodian'' or ``Transfer Agent,'' as applicable). ALPS 
Distributors, Inc. (``Distributor'') will serve as the distributor for 
the Trust.
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    \6\ WisdomTree Investments, Inc. (``WisdomTree Investments'') is 
the parent company of WisdomTree Asset Management.
    \7\ The Sub-Adviser is responsible for day-to-day management of 
the Fund and, as such, typically makes all decisions with respect to 
portfolio holdings. The Adviser has ongoing oversight 
responsibility.
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    Paragraph (g) of Rule 5735 provides that, if the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser shall erect a ``fire 
wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\8\ In addition, paragraph 
(g) further requires that personnel who make decisions on the open-end 
fund's portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the open-end fund's portfolio. Rule 5735(g) is similar to 
NASDAQ Rule 5705(b)(5)(A)(i), however, paragraph (g) in connection with 
the establishment of a ``fire wall'' between the investment adviser and 
the broker-dealer reflects the open-end fund's portfolio, not an 
underlying benchmark index, as is the case with index-based funds. 
Neither

[[Page 12833]]

WisdomTree Asset Management nor Western Asset Management Company is 
registered as, or affiliated with any broker-dealer. In the event (a) 
the Adviser or the Sub-Adviser becomes newly registered as, or 
affiliated with, a broker-dealer or (b) any new adviser or sub-adviser 
is registered as or becomes affiliated with a broker-dealer, as 
applicable, it will implement a fire wall with respect to its relevant 
personnel or such affiliated broker-dealer regarding access to 
information concerning the composition and/or changes to a 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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    \8\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (15 U.S.C. 80b-
1) (the ``Advisers Act''). As a result, the Adviser and Sub-Adviser 
and their related personnel are subject to the provisions of Rule 
204A-1 under the Advisers Act relating to codes of ethics. This Rule 
requires investment advisers to adopt a code of ethics that reflects 
the fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act (17 CFR 275.204A-1). In addition, 
Rule 206(4)-7 under the Advisers Act (17 CFR 275.206(4)-7) makes it 
unlawful for an investment adviser to provide investment advice to 
clients unless such investment adviser has (i) adopted and 
implemented written policies and procedures reasonably designed to 
prevent violation, by the investment adviser and its supervised 
persons, of the Advisers Act and the Commission rules adopted 
thereunder; (ii) implemented, at a minimum, an annual review 
regarding the adequacy of the policies and procedures established 
pursuant to subparagraph (i) above and the effectiveness of their 
implementation; and (iii) designated an individual (who is a 
supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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WisdomTree Western Unconstrained Bond Fund
Principal Investments
    The Fund seeks to provide a high level of total return consisting 
of both income and capital appreciation. The Fund intends to achieve 
its investment objective through direct and indirect investments in 
Debt Instruments (as defined below). For these purposes, Debt 
Instruments will include: (i) Fixed income securities,\9\ such as bonds 
and notes; and (ii) other debt obligations and certain derivatives and 
other instruments based on Debt Instruments or currency, each as 
described below. Under normal market conditions,\10\ the Fund intends 
to invest at least 80% of its net assets in Debt Instruments (but not 
more than 35% of Fund assets in derivatives that are Debt Instruments). 
The Fund intends to invest in the following Debt Instruments:
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    \9\ Fixed income securities generally represent obligations of 
issuers to re-pay money borrowed. The issuer of the fixed income 
security usually pays a fixed, variable or floating rate of interest 
and repays the amount borrowed, usually at the maturity of the 
instrument. Some fixed income securities, such as zero coupon bonds, 
do not pay current interest, but are issued at a discount from their 
face values. The Fund may invest in fixed income securities that 
have variable or floating interest rates which are readjusted on set 
dates (such as the last day of the month or calendar quarter) in the 
case of variable rates or whenever a specified interest rate change 
occurs in the case of a floating rate instrument. Variable or 
floating interest rates generally reduce changes in the market price 
of securities from their original purchase price because, upon 
readjustment, such rates approximate market rates. Accordingly, as 
interest rates decrease or increase, the potential for capital 
appreciation or depreciation is less for variable or floating rate 
securities than for fixed rate obligations.
    \10\ The term ``under normal market conditions'' 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 systems 
failure, natural or man-made disaster, act of God, armed conflict, 
act of terrorism, riot or labor disruption or any similar 
intervening circumstance. In response to adverse market, economic, 
political, or other conditions the Fund reserves the right to invest 
in U.S. government securities, other Money Market Securities (as 
defined below), and cash, without limitation, as determined by the 
Adviser or Sub-Adviser. ``Money Market Securities'' shall include: 
Short-term, high quality securities issued or guaranteed by the U.S. 
government or non-U.S. governments, their agencies and 
instrumentalities; repurchase agreements backed by U.S. government 
securities and non-U.S. government securities; money market mutual 
funds; and deposit and other obligations of U.S. and non-U.S. banks 
and financial institutions. In the event the Fund engages in these 
temporary defensive strategies that are inconsistent with its 
investment strategies, the Fund's ability to achieve its investment 
objectives may be limited.
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     Instruments denominated in U.S. dollars or local 
currencies.
     Securities or other debt obligations issued by 
corporations or agencies that may receive financial support or backing 
from local government.
     Securities or other debt obligations issued by 
supranational organizations, such as the European Investment Bank, 
International Bank for Reconstructions and Development, the 
International Finance Corporation or other regional development banks.
     ``Government securities'' as defined in Section 3(a)(42) 
of the Act (``Government Securities'').\11\
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    \11\ Government Securities include securities issued or 
guaranteed by the U.S. Treasury, agencies or instrumentalities of 
the U.S. government or government sponsored enterprises (``GSEs''). 
The Treasury securities in which the Fund may invest will include 
variable rate Treasury securities, whose rates are adjusted daily 
(or at such other increment as may later be determined by the 
Department of the Treasury) to correspond with the rate paid on one-
month or three-month Treasury securities, as applicable.
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     Securities issued or guaranteed by non-U.S. governments, 
agencies and instrumentalities.
     Municipal securities (including taxable and tax-exempt 
municipal securities), as defined in Section 3(a)(29) of the Act.
     ``Putable'' bonds (bonds that give the holder the right to 
sell the bond to the issuer prior to the bond's maturity), when the put 
date is within a 24 month period; and ``busted'' convertible securities 
(a convertible security that is trading well below its conversion value 
minimizing the likelihood that it will ever reach its convertible price 
prior to maturity).
     Loan participation notes (``LPNs'').\12\
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    \12\ The Fund may invest in LPNs with a minimum outstanding 
principal amount of $200 million that the Adviser or Sub-Adviser 
deems to be liquid.
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     Zero-coupon securities and interest-only securities.\13\
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    \13\ A zero coupon bond is a debt security that is sold without 
interest and is therefore priced at a discount to the principal 
amount paid at maturity. An interest-only security is an investment 
in the interest portion only of that security (i.e., it does not 
include repayment of principal, which is separated and typically 
sold separately).
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     Debt securities linked to inflation rates of the U.S. and 
non-U.S. countries.
     Repurchase agreements backed by Government Securities and 
non-U.S. government securities.\14\
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    \14\ The Fund may enter into repurchase agreements with 
counterparties that are deemed to present acceptable credit risks, 
and may enter into reverse repurchase agreements, which involve the 
sale of securities held by the Fund subject to its agreement to 
repurchase the securities at an agreed upon date or upon demand and 
at a price reflecting a market rate of interest.
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     Bank loans (including senior loans).\15\
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    \15\ A senior loan is an advance commitment of funds made by one 
or more banks or financial institutions to one or more corporations, 
partnerships or other business entities and typically pays interest 
at a floating rate that is determined periodically at a designated 
premium above a base lending rate, most commonly the London-
Interbank Offered Rate (``LIBOR'').
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     Money Market Securities.\16\
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    \16\ See note 10, supra.
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     Money market mutual funds.
     Bank loans (including senior loans).
     Mortgage-backed securities,\17\ including commercial 
mortgage-backed securities (``CMBSs''),\18\ collateralized mortgage 
obligations (``CMOs''),\19\ and adjustable rate mortgage back 
securities (``ARMBSs''),\20\ and interest-only

[[Page 12834]]

mortgage-backed securities, \21\ including in each case, agency 
mortgage-backed securities,\22\ GSE issued or guaranteed mortgage-
backed securities,\23\ and privately issued mortgage-backed securities.
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    \17\ Mortgage-backed securities are interests in pools of 
residential or commercial mortgage loans, including mortgage loans, 
made by savings and loans institutions, mortgage bankers, commercial 
banks and others. Pools of mortgage loans are assembled as 
securities for sale to investors by various governmental, 
government-related and private organizations. Interests in pools of 
mortgage-backed securities differ from other forms of debt 
securities, which normally provide for periodic payment of interest 
in fixed amounts with principal payments at maturity or specified 
call dates. Instead, mortgage-backed securities provide a monthly 
payment which consists of both principal and interest payments. In 
effect, these payments are a ``pass-through'' of the monthly 
payments made by the individual borrowers on their residential or 
commercial mortgage loans, net of any fees paid to the issuer or 
guarantor of such securities. Additional payments are caused by 
repayments of principal resulting from the sale of the underlying 
property, refinancing or foreclosure, net of fees or costs which may 
be incurred.
    \18\ CMBSs include securities that reflect an interest in, and 
are secured by, mortgage loans on commercial real property.
    \19\ CMOs are debt obligations of a legal entity that are 
collateralized by mortgages and divided into classes. Similar to a 
bond, interest and prepaid principal is paid, in most cases on a 
monthly basis. CMOs may be collateralized by whole mortgage loans or 
private mortgage bonds, but are more typically collateralized by 
portfolios of mortgage pass-through securities guaranteed by Ginnie 
Mae, Fannie Mae, Freddie Mac, and their income streams.
    \20\ ARMBSs have interest rates that reset at periodic 
intervals. Acquiring ARMBSs permits the Fund to participate in 
increases in prevailing current interest rates through periodic 
adjustments in the coupons of mortgages underlying the pool on which 
ARMBSs are based. Such ARMBSs generally have higher current yield 
and lower price fluctuations than is the case with more traditional 
Debt Instruments of comparable rating and quality.
    \21\ In an interest-only mortgage backed security, the cash 
flows to investors are provided from the cash flows from the 
underlying mortgage loans.
    \22\ The principal U.S. government guarantor of mortgage-backed 
securities is Ginnie Mae, a wholly-owned corporation within the 
United States Department of Housing and Urban Development.
    \23\ GSE's are private corporations created by the United States 
government, often to enhance the flow of credit to targeted sectors 
of the economy. The two largest GSEs for mortgage-backed securities 
are Fannie Mae and Freddie Mac.
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     Asset-backed securities (``ABSs'').\24\
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    \24\ ABSs are bonds backed by pools of loans or other 
receivables. ABSs are created from many types of assets, including 
auto loans, credit card receivables, home equity loans, and student 
loans. ABSs are issued through special purpose vehicles that are 
bankruptcy remote from the issuer or the collateral. The credit 
quality of an ABS transaction depends on the performance of the 
underlying assets. To protect ABS investors from the possibility 
that some borrowers could miss payments or even default on their 
loans, ABSs include various forms of credit enhancement.
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    The Fund may invest up to 20% of its net assets, in the aggregate, 
in privately issued mortgage backed securities and privately-issued 
ABSs. Debt Instruments will also include debt securities which are 
secured with collateral consisting of mortgage-backed securities or 
ABSs.
    The Fund may invest in the aggregate up to 35% of its assets in the 
following derivatives which are also Debt Instruments:
     Credit-linked notes.\25\
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    \25\ A credit-linked note is a type of structured note whose 
value is linked to an underling reference asset or entity. Credit-
linked notes typically provide periodic payments of interest as well 
as payment of principal upon maturity. The Fund will invest not more 
than 25% of its net assets in credit-linked notes.
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     Listed futures contracts on Debt Instruments.\26\
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    \26\ The Adviser has registered with the Commodity Futures 
Trading Commission (``CFTC'') as a commodity pool operator (``CPO'') 
under the Commodity Exchange Act with regard to the Fund. The 
exchange-listed futures contracts in which the Fund may invest will 
be listed on exchanges in the United States, Brazil, Chile, Germany, 
Hong Kong, Mexico, Singapore, South Korea, or the United Kingdom. 
Each of the futures exchange's primary financial markets regulators 
are signatories to the International Organization of Securities 
Commissions (``IOSCO'') Multilateral Memorandum of Understanding 
(``MMOU''), which is a multi-party information sharing arrangement 
among financial regulators. Both the Commission and the Commodity 
Futures Trading Commission are signatories to the IOSCO MMOU. The 
exchange-listed futures contracts in which the Fund may invest in 
the United States, Germany, Hong Kong, Singapore, South Korea, or 
the United Kingdom will be listed on exchanges that are members of 
the Intermarket Surveillance Group (``ISG'') which include 
affiliates of LIFFE Administration and Management, Eurex Frankfurt, 
A.G., the Hong Kong Exchanges & Clearing Ltd., the Korea Exchange, 
the Singapore Exchange, Ltd., NASDAQ OMX BX and NASDAQ OMX PHLX LLC. 
At least 90% of Fund assets that are invested in exchange-traded 
derivative instruments will be invested in instruments that trade in 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
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     Non-deliverable forward currency contracts.\27\
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    \27\ A forward currency contract is an agreement to buy or sell 
a specific currency on a future date at a price set at the time of 
the contract. The Fund will invest only in currencies, and 
instruments that provide exposure to such currencies, that have 
significant foreign exchange turnover and are included in the Bank 
for International Settlements Triennial Central Bank Survey, 
December 2013 (the ``BIS Survey''). The Fund may invest in 
currencies, and instruments that provide exposure to such 
currencies, selected from the top 40 currencies (as measured by 
percentage share of average daily turnover for the applicable month 
and year) included in the BIS Survey.
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     Currency swaps.\28\
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    \28\ A currency swap is a foreign exchange agreement between two 
parties to exchange aspects of a loan (i.e., the principal and 
interest payments) of a loan in one currency for equivalent aspects 
of an equal in net present value of a loan in another currency. See 
also note 27, supra, regarding foreign currencies in which the Fund 
may invest.
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     Interest rate swaps.\29\
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    \29\ An interest rate swap involves the exchange of a floating 
interest rate payment for a fixed interest rate payment.
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     Listed currency options.
     Listed options on futures contracts on Debt instruments.
    The Fund may invest in combinations of investments that provide 
similar exposure to local currency debt, such as investment in U.S. 
dollar denominated bonds combined with forward currency positions or 
swaps.\30\ Forward currency contracts and swap positions can be 
incorporated with bonds denominated in non-U.S. currencies to hedge 
bond exposures back into U.S. dollars. Conversely, forward currency 
contracts and swap positions can be implemented in combination with 
U.S. dollar denominated bonds to create local currency bond exposures. 
Additionally, the Fund's use of forward contracts and swaps may be 
combined with investments in short-term, high quality U.S. Money Market 
Securities in a manner designed to provide exposure to similar 
investments in local currency deposits.\31\
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    \30\ To the extent practicable, the Fund will invest in swaps 
cleared through the facilities of a centralized clearing house. The 
Fund may also invest in Money Market Securities that would serve as 
collateral for the futures contracts and swap agreements.
    \31\ The Fund will seek, where possible, to use counterparties, 
as applicable, whose financial status is such that the risk of 
default is reduced; however, the risk of losses resulting from 
default is still possible. The Adviser or the Sub-Adviser will 
evaluate the creditworthiness of counterparties on an ongoing basis. 
In addition to information provided by credit agencies, the 
Adviser's or the Sub-Adviser's analysis will evaluate each approved 
counterparty using various methods of analysis and may consider such 
factors as the counterparty's liquidity, its reputation, the 
Adviser's or the Sub-Adviser's past experience with the 
counterparty, its known disciplinary history, and its share of 
market participation. The Adviser or Sub-Adviser will also attempt 
to mitigate the Fund's respective credit risk by transacting only 
with large, well-capitalized institutions using measures designed to 
determine the creditworthiness of the counterparty. The Adviser or 
Sub-Adviser will take various steps to limit counterparty credit 
risk. The Fund will enter into over-the-counter non-centrally 
cleared instruments only with financial institutions that meet 
certain credit quality standards and monitoring policies. The Fund 
may also use various techniques to minimize credit risk, including 
early termination or reset and payment, using different 
counterparties, and limiting the net amount due from any individual 
counterparty. The Fund generally will collateralize over-the-counter 
non-centrally cleared instruments with cash and/or certain 
securities. Such collateral will generally be held for the benefit 
of the counterparty in a segregated tri-party account at the 
custodian to protect the counterparty against non-payment by the 
Fund. In the event of a default by the counterparty, and the Fund is 
owed money in the over-the-counter non-centrally cleared instruments 
transaction, the Fund will seek withdrawal of the collateral from 
the segregated account and may incur certain costs exercising its 
right with respect to the collateral.
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    The Fund will use derivative instruments primarily to hedge 
interest rate risk and actively manage interest rate exposure and, as 
described below, to hedge foreign currency risk and actively manage 
foreign currency exposure. The Fund may also use derivative instruments 
to enhance returns, as a substitute for, or to gain exposure to, a 
position in an underlying asset, to reduce transaction costs, to 
maintain full market exposure (which means to adjust the 
characteristics of its investments to more closely approximate those of 
the markets in which it invests), to manage cash flows or to preserve 
capital. The Fund's use of derivative instruments will be 
collateralized by investments in Money Market Securities and other 
liquid Debt Instruments.\32\ Such investments will be consistent with 
the Fund's investment objective and will not be used to enhance 
leverage. For example, the Fund may engage in swap transactions that 
provide exposure to Debt Instruments or to interest rates. All Money 
Market Securities acquired by the Fund will be rated investment 
grade,\33\ except that the Fund may invest in unrated Money Market 
Securities that are deemed by the Adviser or Sub-Adviser to be of 
comparable quality to

[[Page 12835]]

Money Market Securities rated investment grade.\34\
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    \32\ See note 10, supra.
    \33\ The term ``investment grade,'' for purposes of Money Market 
Securities only, is intended to mean securities rated A1 or A2 by 
one or more Nationally Recognized Statistical Rating Organizations 
(``NRSROs'').
    \34\ The determination that an unrated security is of comparable 
quality to a rated security (including, as applicable, an investment 
grade security) by the Adviser or Sub-Adviser will be based on, 
among other factors, a comparison between the unrated security and 
securities issued by similarly situated companies to determine where 
in the spectrum of credit quality the unrated security would fall. 
The Adviser or Sub-Adviser would also perform an analysis of the 
unrated security and its issuer similar, to the extent possible, to 
that performed by a NRSRO in rating similar securities and issuers. 
See Credit Analysis of Portfolio Securities, Commission No-Action 
Letter (May 8, 1990).
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    The Fund will comply with the regulatory requirements of the 
Commission to maintain assets as ``cover,'' maintain segregate 
accounts, and make margin payments when it takes positions in 
derivative instruments involving obligations to third parties (i.e., 
instruments other than purchase options). With respect to certain kinds 
of derivative transactions entered into by the Fund that involve 
obligations to make future payments to third parties, including, but 
not limited to, futures and forward contracts, swap contracts, the 
purchase of securities on a when-issued or delayed delivery basis, or 
reverse repurchase agreements, the Fund, in accordance with applicable 
federal securities laws, rules, and interpretations thereof, will ``set 
aside'' liquid assets, or engage in other measures to ``cover'' open 
positions with respect to such transactions.\35\
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    \35\ See 15 U.S.C. 80a-18; Investment Company Act Release No. 
10666 (April 18, 1979), 44 FR 25128 (April 27, 1979); Dreyfus 
Strategic Investing, Commission No-Action Letter (June 22, 1987); 
Merrill Lynch Asset Management, L.P., Commission No-Action Letter 
(July 2, 1996).
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    The Fund intends to provide exposure across geographic regions and 
countries, world-wide. The Fund intends to invest in Debt Instruments 
originating in the following regions/countries: North America, South 
America, Asia, Australia and New Zealand, Latin America, Europe, Africa 
and the Middle East. The Fund intends to invest primarily in developed 
and emerging markets countries.\36\ The Fund's credit exposure will be 
monitored on an ongoing basis from a risk perspective, and may be 
modified, reduced, or eliminated. The Fund's exposure to any single 
corporate issuer generally will be limited to 10% of the Fund's assets. 
The Fund's exposure to any single sovereign issuer generally will be 
limited to 25% of the Fund's assets (excluding exempted securities as 
defined in Section 3(a)(12) of the Act). The percentage of the Fund's 
assets in a specific region, country or issuer will change from time to 
time. The Fund's exposure to any one country (other than the United 
States) generally will be limited to 30% of the Fund's assets though 
this percentage may change from time to time in response to economic 
events and changes to the respective credit ratings of the Debt 
Instruments in such country.
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    \36\ The Fund may invest up to 50% of Fund assets in securities 
issued by issuers that are organized in or maintain their principal 
place of business in emerging market countries. According to the 
Adviser, while there is no universally accepted definition of what 
constitutes an ``emerging market,'' in general, emerging market 
countries are characterized by developing commercial and financial 
infrastructure with significant potential for economic growth and 
increased capital market participation by foreign investors. The 
Adviser and Sub-Adviser look at a variety of commonly-used factors 
when determining whether a country is an ``emerging'' market. In 
general, the Adviser and Sub-Adviser consider a country to be an 
emerging market if: (1) It is either (a) classified by the World 
Bank in the lower middle or upper middle income designation for one 
of the past 5 years (i.e., per capita gross national product of less 
than U.S. $9,385), (b) has not been a member of the Organization for 
Economic Co-operation and Development (``OECD'') for the past five 
years or (c) classified by the World Bank as high income and a 
member in OECD in each of the last five years, but with a currency 
that has been primarily traded on a non-delivered basis by offshore 
investors (e.g., Korea and Taiwan); and (2) the country's debt 
market is considered relatively accessible by foreign investors in 
terms of capital flow and settlement considerations. This definition 
could be expanded or exceptions made depending on the evolution of 
market and economic conditions.
---------------------------------------------------------------------------

    The universe of Debt Instruments will include securities that are 
rated ``investment grade'' as well as ``non-investment grade'' 
(commonly referred to as `junk bonds').\37\ The Fund may invest in Debt 
Instruments of any credit quality, including unrated securities, and 
with effective or final maturities of any length.
---------------------------------------------------------------------------

    \37\ According to the Adviser, ``investment grade'' (other than 
with respect to Money Market Securities) means securities rated in 
the Baa/BBB categories or above by one or more NRSROs. If a security 
is rated by multiple NRSROs and receives different ratings, the Fund 
will treat the security as being rated in the highest rating 
category received from an NRSRO. Rating categories may include sub-
categories or gradations indicating relative standing.
---------------------------------------------------------------------------

    Liquidity will be an important factor in the Fund's security 
selection process.\38\ Under normal market conditions, at least 80% of 
the Fund's net assets that are invested in Debt Instruments will be 
invested in Debt Instruments that are issued by issuers with 
outstanding debt of at least $200 million (or the foreign currency 
equivalent thereof).
---------------------------------------------------------------------------

    \38\ In reaching liquidity decisions, the Adviser or Sub-Adviser 
may consider the following factors: The frequency of trades and 
quotes for the security; the number of dealers wishing to purchase 
or sell the security and the number of other potential purchasers; 
dealer undertakings to make a market in the security; and the nature 
of the security and the nature of the marketplace in which it trades 
(e.g., the time needed to dispose of the security, the method of 
soliciting offers and the mechanics of transfer).
---------------------------------------------------------------------------

    The Fund will be actively-managed and will not be tied to an index. 
The Exchange notes, however, that the Fund's investment portfolio will 
meet the criteria for non-actively managed, index-based, fixed income 
ETFs contained in NASDAQ Rule 5705(a)(4)(A).\39\
---------------------------------------------------------------------------

    \39\ See Exchange Rule 5705(a)(4)(A). The Fund will meet the 
following requirements of Rule 5705(a)(4)(A): (i) The index or 
portfolio must consist of fixed income securities (which are 
generally defined to include Debt Instruments) (Rule 
5705(a)(4)(A)(i)); (ii) components that in the aggregate account for 
at least 75% of the weight of the index or portfolio must each have 
a minimum original principal amount outstanding of $100 million or 
more (Rule 5705(a)(4)(A)(ii)); (iii) a component may be a 
convertible security, however, once the convertible security 
converts to an underlying equity security, the component is removed 
from the index or portfolio (Rule 5705(a)(4)(A)(iii)); (iv) no 
component fixed-income security (excluding Treasury Securities) will 
represent more than 30% of the weight of the index or portfolio, and 
the five highest weighted component fixed-income securities do not 
in the aggregate account for more than 65% of the weight of the 
index or portfolio (Rule 5705(a)(4)(A)(iv)); (v) an underlying index 
or portfolio (excluding exempted securities) must include securities 
from a minimum of 13 non-affiliated issuers (Rule 5705(a)(4)(A)(v)); 
and (vi) component securities that in the aggregate account for at 
least 90% of the weight of the index or portfolio must be from 
issuers that have a worldwide market value of its outstanding common 
equity held by non-affiliates of $700 million or more (Rule 
5705(a)(4)(A)(vi)(c)).
---------------------------------------------------------------------------

Secondary Investments in Derivatives and Foreign Currencies
    The Fund's investments in derivative instruments will be made in 
accordance with the 1940 Act and consistent with the Fund's investment 
objectives and policies. Derivative instruments are financial contracts 
whose values depend upon, or are derived from, the value of any 
underlying asset, reference rate or index, and may relate to, among 
other things, interest rates, currencies or currency exchange rates. 
Under normal market conditions, no more than 35% of the Fund's 
investments will be in derivative instruments (with no more than 20% of 
the Fund's investments in derivative instruments that are not within 
the definition of ``Debt Instruments''). The Fund may invest in the 
following derivative instruments (in addition to Debt Instruments that 
are derivatives): listed futures contracts (other than on Debt 
Instruments),\40\ total return swaps,\41\ credit default swaps,\42\

[[Page 12836]]

and listed options on futures contracts (other than on Debt 
Instruments).\43\
---------------------------------------------------------------------------

    \40\ See note 26, supra.
    \41\ A total return swap is an agreement between two parties in 
which one party agrees to make payments of the total return of a 
reference asset in return for payments equal to a rate of interest 
on another reference asset.
    \42\ A credit default swap is a financial swap agreement that 
the seller of the credit default swap will compensate the buyer in 
the event of a loan default or other credit event.
    \43\ See note 30, supra.
---------------------------------------------------------------------------

    As discussed above, the Fund's use of derivative instruments will 
be collateralized by investments in Money Market Securities and other 
liquid Debt Instruments.\44\ Such investments will be consistent with 
the Fund's investment objective and will not be used to enhance 
leverage.
---------------------------------------------------------------------------

    \44\ See note 10, supra.
---------------------------------------------------------------------------

    The Fund may engage in foreign currency transactions, and may 
invest directly in foreign currencies in the form of bank and financial 
institution deposits, and certificates of deposit denominated in a 
specified non-U.S. currency. The Fund may enter into forward currency 
contracts in order to ``lock in'' the exchange rate between the 
currency it will deliver and the currency it will receive for the 
duration of the contract.\45\
---------------------------------------------------------------------------

    \45\ See note 30, supra.
---------------------------------------------------------------------------

Other Fund Investments
    The Fund may invest up to 20% of its net assets in one or more of 
the following instruments. The Fund may invest in the securities of 
other investment companies (including exchange-traded products 
(``ETPs''), such as other ETFs.\46\ The Fund may invest in debt 
instruments that do not fall within the meaning of ``Debt Instruments'' 
above, including bank loans; banker's acceptances, which are short-term 
credit instruments used to finance commercial transactions; bank time 
deposits, which are monies kept on deposit with banks or savings and 
loan associations for a stated period of time at a fixed rate of 
interest; commercial paper, which is short-term unsecured promissory 
notes,\47\ and certificates of deposit issued against funds deposited 
in a bank or savings and loan association. The Fund may invest in U.S. 
and non-U.S. equity securities.\48\ The Fund may also hold cash.
---------------------------------------------------------------------------

    \46\ When used herein, ETPs may include, without limitation: 
Portfolio Depository Receipts and Index Fund Shares (as described in 
NASDAQ Rule 5705); Securities Linked to the Performance of Indexes 
and Commodities (as described in NASDAQ Rule 5710); Index-Linked 
Exchangeable Notes; Equity Gold Shares; Trust Certificates; 
Commodity-Based Trust Shares; Currency Trust Shares; Commodity Index 
Trust Shares; Commodity Futures Trust Shares; Partnership Units; 
Trust Units; Managed Trust Securities; and Currency Warrants (as 
described in NASDAQ Rule 5711); Alpha-Index Linked Securities (as 
described in NASDAQ Rule 5712); Equity-Linked Debt Securities (as 
described in NASDAQ Rule 5715); Trust Issued Receipts (as described 
in NASDAQ Rule 5720); Index Warrants (as described in NASDAQ Rule 
5725); Securities Not Otherwise Specified (as described in NASDAQ 
Rule 5730); Managed Fund Shares (as described in NASDAQ Rule 5735); 
and closed-end funds. The ETPs in which the Fund may invest all will 
be listed and traded on U.S. registered exchanges. The Fund will 
invest in the securities of registered investment company ETPs 
consistent with the requirements of Section 12(d)(1) of the 1940 Act 
or any rule, regulation or order of the Commission or interpretation 
thereof. The Fund will only make such investments in conformity with 
the requirements of Section 817 of the Internal Revenue Code of 
1986. The ETPs in which the Fund may invest will primarily be 
indexed-based ETFs that hold substantially all of their assets in 
securities representing a specific index. While the Fund may invest 
in ETPs, the Fund will not invest in leveraged or inverse leveraged 
(e.g., 2X, -2X, 3X, or -3X) ETPs.
    \47\ Except for commercial paper that is included within the 
meaning of ``Debt Instruments,'' the Fund will only invest in 
commercial paper rated A-1 or higher by an NRSRO.
    \48\ The equity securities in which the Fund may invest will be 
limited to securities that trade on markets that are members of the 
ISG. See note 26, supra. The Fund may invest in non-U.S. equity 
securities by means of American Depository Receipts (``ADRs''), 
European Depository Receipts (``EDRs''), and Global Depository 
Receipts (``GDRs''). ADRs are receipts typically issued by an 
American Bank or trust company that evidence ownership of underlying 
securities issued by a foreign corporation. EDRs are receipts issued 
in Europe that evidence a similar ownership arrangement. GDRs are 
receipts issued throughout the world that evidence a similar 
ownership arrangement.
---------------------------------------------------------------------------

Investment Restrictions
    The Fund will invest only in corporate bonds that the Adviser or 
Sub-Adviser deems to be sufficiently liquid.\49\ The Fund will only buy 
performing debt securities and not distressed debt. Generally, a 
corporate bond will be required to have $150 million or more par amount 
outstanding and significant par value traded to be considered as an 
eligible investment. Economic and other conditions may, from time to 
time, lead to a decrease in the average par amount outstanding of bond 
issuances. Therefore, although the Fund does not intend to do so, it 
may invest up to 5% of its net assets in corporate bonds with less than 
$150 million par amount outstanding if (1) the Adviser or Sub-Adviser 
deems such security to be sufficiently liquid based on its analysis of 
the market for such security (based on, for example, broker-dealer 
quotations or its analysis of the trading history of the security or 
the trading history of other securities issued by the issuer), (2) such 
investment is deemed by the Adviser or Sub-Adviser to be in the best 
interest of the Fund, and (3) such investment is deemed consistent with 
the Fund's goal of providing exposure to a broad range of countries and 
issuers.\50\
---------------------------------------------------------------------------

    \49\ See note 38, supra, regarding the method by which the 
Adviser or the Sub-Adviser, as applicable, will determine liquidity 
of an instrument.
    \50\ See note 39, supra.
---------------------------------------------------------------------------

    The Fund may hold up to an aggregate of 15% of its net assets in 
illiquid assets (calculated at the time of investment), including Rule 
144A securities deemed illiquid by the Adviser or Sub-Adviser.\51\ The 
Fund will monitor its portfolio liquidity on an ongoing basis to 
determine whether, in light of current circumstances, an adequate level 
of liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.\52\ The Fund's investments 
will be consistent with the Fund's investment objectives and will not 
be used to enhance leverage. \53\
---------------------------------------------------------------------------

    \51\ The Fund's Sub-Adviser is responsible for complying with 
the Fund's restrictions on investing in illiquid assets. See note 
38, supra.
    \52\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act of 1933 (15 U.S.C. 
77a).
    \53\ The Fund will include appropriate risk disclosure in its 
offering documents, including leveraging risk. Leveraging risk is 
the risk that certain transactions of a fund, including a fund's use 
of derivatives, may give rise to leverage, causing a fund to be more 
volatile than if it had not been leveraged. To mitigate leveraging 
risk, the Adviser will segregate or earmark liquid assets or 
otherwise cover the transactions that give rise to such risk. See 15 
U.S.C. 80a-18; Investment Company Act Release No. 10666 (April 18, 
1979), 44 FR 25128 (April 27, 1979); Dreyfus Strategic Investing, 
Commission No-Action Letter (June 22, 1987); Merrill Lynch Asset 
Management, L.P., Commission No-Action Letter (July 2, 1996).
---------------------------------------------------------------------------

    The Fund may invest in Debt Instruments with effective or final 
maturities of any length. The Fund will seek to keep the average 
effective duration of its portfolio between -5 and 10 years under 
normal market conditions. Effective duration is an indication of an 
investment's interest rate risk or how sensitive an investment or a 
fund is to changes in interest rates.

[[Page 12837]]

Generally, a fund or instrument with a longer effective duration is 
more sensitive to interest rate fluctuations, and, therefore, more 
volatile, than a similar fund with a shorter effective duration. To 
potentially protect the Fund against the impact of rising rates, the 
Adviser or Sub-Adviser may take the duration of the Fund below zero 
through strategic short positions in instruments such as U.S. Treasury 
futures (subject to the Fund's limits on investments in derivative 
instruments as described below). A negative duration suggests that the 
Fund may benefit from a rise in rates.\54\ The Fund's actual portfolio 
duration may be longer or shorter depending on market conditions.
---------------------------------------------------------------------------

    \54\ Negative duration would occur when the total duration of 
the Fund's liabilities (e.g., through short positions in U.S. 
government securities or related futures positions) is less than the 
total duration of the Fund's assets.
---------------------------------------------------------------------------

    The Fund intends to invest in Debt Instruments of at least 13 non-
affiliated issuers. The Fund will not concentrate 25% or more of the 
value of its total assets (taken at market value at the time of each 
investment) in any one industry, as that term is used in the 1940 Act 
(except that this restriction does not apply to obligations issued by 
the U.S. government or its respective agencies and instrumentalities or 
government-sponsored enterprises).\55\
---------------------------------------------------------------------------

    \55\ 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).
---------------------------------------------------------------------------

    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.\56\ In addition to satisfying the above referenced 
RIC diversification requirements, no portfolio security held by the 
Fund (other than U.S. government securities) will represent more than 
30% of the weight of the Fund's portfolio and the five highest weighted 
portfolio securities of the Fund (other than U.S. government 
securities) will not in the aggregate account for more than 65% of the 
weight of the Fund's portfolio. For these purposes, the Fund may treat 
repurchase agreements collateralized by U.S. government securities as 
U.S. government securities.\57\
---------------------------------------------------------------------------

    \56\ 26 U.S.C. 851.
    \57\ Repurchase agreements will not be used by the Fund to 
enhance leverage.
---------------------------------------------------------------------------

Creation and Redemption of Shares
    The Fund will issue and redeem Shares on a continuous basis at net 
asset value (``NAV'') \58\ only in large blocks of Shares (``Creation 
Units'') in transactions with Authorized Participants (as defined 
below). Creation Units generally will consist of 100,000 Shares, though 
this may change from time to time. Creation Units are not expected to 
consist of less than 50,000 Shares. According to the Registration 
Statement and consistent with the Exemptive Relief, the Fund will issue 
and redeem Creation Units in exchange for a portfolio of Debt 
Instruments and other instruments (``Deposit Securities'') and/or an 
amount of U.S. cash representing one or more Deposit Securities 
(``Deposit Cash'') providing exposure to the holdings of the Fund and 
cash.
---------------------------------------------------------------------------

    \58\ The NAV of the Fund's Shares generally is calculated once 
daily Monday through Friday as of the close of regular trading on 
the New York Stock Exchange, generally 4:00 p.m. Eastern time (the 
``NAV Calculation Time''). NAV per Share is calculated by dividing 
the Fund's net assets by the number of Fund Shares outstanding. For 
more information regarding the valuation of the Fund's investments 
in calculating the Fund's NAV, see the Registration Statement.
---------------------------------------------------------------------------

    Together, the Deposit Securities and/or Deposit Cash and the Cash 
Component (defined below) will constitute the ``Fund Deposit,'' which 
represents the minimum initial and subsequent investment amount for a 
Creation Unit of the Fund. The ``Cash Component'' will be an amount 
equal to the difference between the NAV of the Shares (per Creation 
Unit) and the market value of the Deposit Securities (e.g., if the NAV 
per Creation Unit is less than the market value of the Deposit 
Securities), the Cash Component will be a corresponding negative amount 
and the creator will be entitled to receive cash in an amount equal to 
the Cash Component. The Cash Component will serve the function of 
compensating for any differences between the NAV per Creation Unit and 
the market value of the Deposit Securities and/or Deposit Cash, as 
applicable.
    To be eligible to place orders with respect to creations and 
redemptions of Creation Units, an entity must be (i) a ``Participating 
Party,'' i.e., a broker-dealer or other participant in the clearing 
process through the Continuous Net Settlement System of the National 
Securities Clearing Corporation (``NSCC''); or (ii) a Depository Trust 
Company (``DTC'') participant. In addition, each Participating Party or 
DTC participant (each, an ``Authorized Participant'') must execute an 
agreement that has been agreed to by the Distributor and the Transfer 
Agent, and that has been accepted by the Trust, with respect to 
purchases and redemptions of Creation Units. All standard orders to 
create Creation Units must be received by the Transfer Agent no later 
than the closing time of the regular trading session of the New York 
Stock Exchange (ordinarily 4:00 p.m., Eastern Time) (the ``Closing 
Time'') in each case on the date such order is placed in order for the 
creation of Creation Units to be effected based on the NAV of Shares as 
next determined on such date after receipt of the order in proper form. 
Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt not later than the Closing Time of a 
redemption request in proper form by the Fund through the Transfer 
Agent only on a business day.
    The Custodian, through the NSCC, will make available on each 
business day, immediately prior to the opening of business on the 
Exchange's Core Trading Session (currently 9:30 a.m. E.T.), the list of 
names and the required number or amount of each Deposit Security and/or 
the amount of the Deposit Cash, to be included in the current Fund 
Deposit (based on information at the end of the previous business day) 
for the Fund. The Fund Deposit is subject to any applicable 
adjustments, in order to effect purchases of Creation Units of the Fund 
until such time as the next-announced composition of the Deposit 
Securities is made available.
    With respect to the Fund, the Custodian, through the NSCC, will 
make available immediately prior to the opening of business on the 
Exchange (9:30 a.m. E.T.) on each business day, the list of the names 
and quantities of the Fund's portfolio securities (``Fund Securities'') 
that will be applicable (subject to possible amendment or correction) 
to redemption requests received in proper form on that day. Fund 
Securities on redemption may not be identical to Deposit Securities. 
Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Fund through the Transfer Agent and only on a business day.
    Redemption proceeds for a Creation Unit will be paid either in-kind 
or in cash or a combination thereof, as determined by the Trust. With 
respect to in-kind redemptions of the Fund, redemption proceeds will 
consist of Fund Securities as announced by the Custodian on the 
business day of the request for redemption received in proper form plus 
cash in an amount equal to the difference between the NAV of the Shares 
being redeemed, as next determined after receipt of a request in proper 
form, and the value of the Fund

[[Page 12838]]

Securities (the ``Cash Redemption Amount''), less a fixed redemption 
transaction fee and any applicable variable charge as set forth in the 
Registration Statement. In the event the Fund Securities have a value 
greater than the NAV of the Shares, a compensating cash payment equal 
to the differential will be required to be made by or through an 
Authorized Participant by the redeeming shareholder. Notwithstanding 
the foregoing, at the Trust's discretion, an Authorized Participant may 
receive the corresponding cash value of the securities in lieu of the 
in-kind securities value representing one or more Fund Securities. Once 
created, Shares of the Fund will trade on the secondary market in 
amounts less than a Creation Unit.
Net Asset Value
    The NAV of the Fund will be calculated by the Custodian and 
determined at the close of the regular trading session on the NASDAQ 
Stock Market (ordinarily 4:00 p.m. E.T.) on each day that the Exchange 
is open, provided that fixed-income assets may be valued as of the 
announced closing time for trading in fixed-income instruments on any 
day that the Securities Industry and Financial Markets Association (or 
the applicable exchange or market on which the Fund's investments are 
traded) announces an early closing time. The NAV per Share for the Fund 
will be computed by dividing the value of the net assets of the Fund 
(i.e., the value of its total assets less total liabilities) by the 
total number of Shares outstanding, rounded to the nearest cent. 
Expenses and fees, including the management fees, are accrued daily and 
taken into account for purposes of determining NAV.\59\ Creation/
redemption order cut-off times may also be earlier on such days.
---------------------------------------------------------------------------

    \59\ International Data Corporation (``IDC'') is expected to be 
the primary price source for the Fund's assets. The Fund may also 
rely, however, on other recognized third-party pricing sources, 
including without limitation Bloomberg, WM Reuters, JP Morgan, 
Markit and JJ Kenney, to provide prices for certain asset 
categories, including among others, currency swaps, forward currency 
contracts, spot currencies, and corporate securities, in each case 
as determined, from time to time, by the Fund's Board, as defined 
below. Each of these pricing sources is a ``Pricing Service'' for 
purposes of this proposed rule change.
---------------------------------------------------------------------------

    In calculating the Fund's NAV per Share, the Fund's investment will 
generally be valued using market valuations. A market valuation 
generally means a valuation (i) obtained from an exchange, a pricing 
service, or a major market maker (or dealer), (ii) based on a price 
quotation or other equivalent indication of value supplied by an 
exchange, a pricing service, or a major market maker or dealer, or 
(iii) based on amortized cost, for securities with remaining maturities 
of 60 days or less. The Adviser may use various Pricing Services or 
discontinue the use of any Pricing Service, as approved by the Fund's 
board of trustees (``Board'') from time to time. A price obtained from 
a Pricing Service based on such Pricing Service's valuation matrix may 
be considered a market valuation. Any assets or liabilities denominated 
in currencies other than the U.S. dollar will be converted into U.S. 
dollars at the current market rates on the date of valuation as quoted 
by one or more Pricing Service. Bank deposits held in U.S. dollars will 
be valued at their actual dollar amount; bank deposits held in foreign 
currencies will be converted into U.S. dollars and valued at their 
actual amounts in U.S. dollars.
    According to the Adviser, debt instruments (including Money Market 
Securities), including without limitation, Debt Instruments, will 
generally be valued using prices received from independent Pricing 
Services as of the announced closing time for trading in fixed-income 
instruments in the respective market or exchange. In determining the 
value of a fixed-income investment, Pricing Services determine 
valuations for normal institutional-size trading units of such 
securities using valuation models or matrix pricing, which incorporates 
yield and/or price with respect to bonds that are considered comparable 
in characteristics such as rating, interest rate and maturity date and 
quotations from securities dealers to determine current value.
    Exchange traded assets (including without limitation, equity 
securities, listed futures contracts, listed currency options, listed 
options on futures, and ETPs) will be valued at the last reported sale 
price or the official closing price on that exchange where the security 
or other instrument is primarily traded on the day that the valuation 
is made. Shares of money market funds (including Money Market 
Securities that are money market funds) will be valued at their net 
asset values as reported on the applicable fund's Web site or to major 
market vendors.
    With respect to derivative instruments, if, however, neither the 
last sales price nor the official closing price is available, each of 
these derivative instruments will be valued at either the last reported 
sale price or official closing price as of the close of regular trading 
of the principal market on which the instrument is listed consistent 
with the primary benchmark.
    Spot currencies and non-exchange-traded derivatives, including non-
deliverable forward currency contracts, currency swaps, interest rate 
swaps, total return swaps, credit default swaps, and credit-linked 
notes will normally be valued on the basis of quotes obtained from 
brokers and dealers or Pricing Services using data reflecting the 
earlier closing of the principal markets for those assets. Prices from 
independent Pricing Services will also include prices based on 
valuation models or matrix pricing to determine current value. Prices 
obtained from independent Pricing Services typically use information 
provided by market makers or bond dealers or estimates of market values 
obtained by reference to yield data relating to investments or 
securities with similar characteristics, including rating, interest 
rate, maturity date, option adjusted spread models, prepayment 
projections, interest rate spreads and yield surveys. Matrix pricing is 
an estimated price or value for a fixed income security. Matrix pricing 
is considered a form of fair value pricing, discussed below. In the 
event that current market valuations are not readily available or such 
valuations do not reflect current market value, the Trust's procedures 
require the Pricing Committee to determine an asset's fair value if a 
market price is not readily available in accordance with the 1940 
Act.\60\ In determining such value, the Trust's Pricing Committee may 
consider, among other things, (i) price comparisons among multiple 
sources, (ii) a review of corporate actions and news events, and (iii) 
a review of relevant financial indicators (e.g., movement in interest 
rates and market indices). In these cases a Fund's NAV may reflect 
certain portfolio assets' fair values rather than their market prices. 
Fair value pricing involves subjective judgments and it is possible 
that the fair value determination for a security is materially 
different than the value that could be realized upon the sale of the 
security.
---------------------------------------------------------------------------

    \60\ The Trust's Board has established a Pricing Committee that 
is composed of officers of the Trust and investment management 
personnel of the Adviser. The Pricing Committee is responsible for 
the valuation and revaluation of any portfolio investments for which 
market quotations are not readily available. The Pricing Committee 
has implemented procedures designed to prevent the use and 
dissemination of material, non-public information regarding 
valuation and revaluation of any portfolio investment.
---------------------------------------------------------------------------

    Because foreign securities exchanges may be open on different days 
than the days during which an investor may purchase or sell Shares, the 
value of the

[[Page 12839]]

Fund's securities may change on days when investors are not able to 
purchase or sell Shares. Assets denominated in foreign currencies will 
be converted into U.S. dollars at the exchange rate of such currencies 
against the U.S. dollar as provided by a Pricing Service. The value of 
assets denominated in foreign currencies will be converted into U.S. 
dollars at the exchange rates at the time of valuation.
    The pre-established pricing methods and valuation policies and 
procedures outlined above may change, subject to review and approval of 
the Pricing Committee and the Board, as necessary.
Availability of Information
    The Fund's Web site (www.wisdomtree.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Web site 
will include additional quantitative information updated on a daily 
basis, including, for the Fund: (1) the prior business day's reported 
NAV, mid-point of the bid/ask spread at the time of calculation of such 
NAV (the ``Bid/Ask Price''),\61\ and a calculation of the premium and 
discount of the Bid/Ask Price against the NAV; and (2) data in chart 
format displaying the frequency distribution of discounts and premiums 
of the daily Bid/Ask Price against the NAV, within appropriate ranges, 
for each of the four previous calendar quarters. On each business day, 
before commencement of trading in Shares in the Regular Market Session 
\62\ on the Exchange, the Trust will disclose on its Web site 
(www.wisdomtree.com) the identities and quantities of the portfolio of 
securities and other assets (the ``Disclosed Portfolio'' as defined in 
Nasdaq Rule 5732(c)(2)) held by the Fund that will form the basis for 
the Fund's calculation of NAV at the end of the business day.\63\ The 
Disclosed Portfolio will include, as applicable, the names, quantity, 
ticker symbol (if applicable), percentage weighting and market value of 
Debt Instruments, and other assets held by the Fund and the 
characteristics of such assets, as discussed below. The Fund's 
disclosure of forward positions will include information regarding the 
underlying instruments for such positions that market participants can 
use to value these positions intraday, and this information may include 
ticker symbols or other identifiers, or the underlying index. The Web 
site and information will be publicly available at no charge.
---------------------------------------------------------------------------

    \61\ The Bid/Ask Price of the Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of such Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \62\ See NASDAQ Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30 
a.m. Eastern time; (2) Regular Market Session from 9:30 a.m. to 4 
p.m. or 4:15 p.m. Eastern time; and (3) Post-Market Session from 4 
p.m. or 4:15 p.m. to 8 p.m. Eastern time).
    \63\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). 
Notwithstanding the foregoing, portfolio trades that are executed 
prior to the opening of the Exchange on any business day may be 
booked and reflected in NAV on such business day. Accordingly, the 
Fund will be able to disclose at the beginning of the business day 
the portfolio that will form the basis for the NAV calculation at 
the end of the business day.
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    A basket composition file, which will include the security names 
and quantities of securities and other assets required to be delivered 
in exchange for Fund Shares, together with estimates and actual cash 
components, will be publicly disseminated prior to the opening of the 
Exchange via the NSCC. The basket will represent one Creation Unit of 
the Fund. The NAV of the Fund will normally be determined as of the 
close of the regular trading session on the Exchange (ordinarily 4:00 
p.m. ET) on each business day. Authorized Participants may refer to the 
basket composition file for information regarding Debt Instruments and 
any other instrument that may comprise the Fund's basket on a given 
day.
    In addition, an estimated value, defined in Rule 5735 as the 
``Intraday Indicative Value'' (as defined in Nasdaq Rule 5753(c)(3)), 
that reflects an estimated intraday value of the Fund's portfolio, will 
be disseminated. Moreover, the Intraday Indicative Value, available on 
the NASDAQ OMX Information LLC proprietary index data service,\64\ will 
be based upon the current value for the components of the Disclosed 
Portfolio and will be updated and widely disseminated by one or more 
major market data vendors at least every 15 seconds during the Regular 
Market Session. In addition, during hours when the markets for local 
debt and other assets in the Fund's portfolio are closed, the Intraday 
Indicative Value will be updated at least every 15 seconds during the 
Regular Market Session to reflect currency exchange fluctuations.
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    \64\ Currently, the NASDAQ OMX Global Index Data Service 
(``GIDS'') is the NASDAQ OMX global index data feed service, 
offering real-time updates, daily summary messages, and access to 
widely followed indexes and ETFs. GIDS provides investment 
professionals with the daily and historical information needed to 
track or trade NASDAQ OMX indexes, listed ETFs or third-party 
partner indexes and ETFs.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of the Fund on a daily basis and to provide a 
close estimate of that value throughout the trading day.
    Investors can also obtain Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports will be available free upon request from the Trust, and those 
documents and the Form N-CSR may be viewed on screen or downloaded from 
the Commission's Web site at www.sec.gov.
    Information regarding market price and volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. The previous 
day's closing price and trading volume information for the Shares will 
be published daily in the financial section of newspapers. Quotation 
and last sale information will be available via NASDAQ proprietary 
quote and trade services, as well as in accordance with the Unlisted 
Trading Privileges and the Consolidated Tape Association (``CTA'') 
plans for the Shares and any underlying ETPs.
    Intra-day, executable price quotations on Debt Instruments, 
including fixed rate, variable rate and zero coupon securities, Money 
Market Securities that are Debt Instruments (i.e., other than money 
market mutual funds), LPNs, senior loans, ABSs, mortgage backed 
securities (including CMBSs, ARMBSs, CMOs and interest only 
securities), putable bonds, busted convertible bonds, credit-linked 
notes, inflation-linked securities, Government Securities, foreign 
sovereign debt securities, supranational debt securities, corporate 
debt securities, and municipal securities, as well as on other debt 
securities, and non-exchange traded derivative instruments, such as 
non-deliverable forward currency contracts, currency swaps, total 
return swaps, and credit default swaps, are available from major 
broker-dealer firms. Intra-day price information is available through 
subscription services, such as Bloomberg and Thomson Reuters, which can 
be accessed by Authorized Participants and other investors. Intra-day 
and closing price information regarding equity securities, ETPs and 
listed currency options traded on a national securities exchange, and 
regarding non-securities derivative instruments traded on an exchange, 
including futures contracts and listed options on futures contracts 
will be

[[Page 12840]]

available from the exchange on which such securities or other 
instruments are traded. Price information regarding non-exchange listed 
derivative instruments, including swap agreements, credit-linked notes, 
and forward currency contracts and regarding spot currencies is 
available from major market vendors. Money market funds are typically 
priced once each business day and their prices are available through 
the applicable fund's Web site or from major market vendors. Intra-day 
and closing price information is available for bank deposits held in 
foreign currencies (i.e., non-U.S. dollar accounts).
    Additional information regarding the Fund and the Shares, including 
investment strategies, risks, creation and redemption procedures, fees, 
Fund holdings disclosure policies, distribution and taxes will be 
included in the Registration Statement.
Disclosed Portfolio
    The Fund's disclosure of derivative positions in the Disclosed 
Portfolio will include information that market participants can use to 
value these positions intraday. On a daily basis, the Fund will 
disclose on the Fund's Web site the following information regarding 
each portfolio holding, as applicable to the type of holding: Ticker 
symbol, CUSIP number or other identifier, if any; a description of the 
holding (including the type of holding); the identity of the security 
or other asset or instrument underlying the holding, if any; for 
options, the option strike price; quantity held (as measured by, for 
example, par value, notional value or number of shares, contracts or 
units); maturity date, if any; coupon rate, if any; effective date, if 
any; market value of the holding; and the percentage weighting of the 
holding in the Fund's portfolio.
Initial and Continued Listing
    The Shares will be subject to Rule 5735, which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares. The Exchange represents that, for initial and/or continued 
listing, the Fund must be in compliance with Rule 10A-3 \65\ under the 
Act. A minimum of 100,000 Shares for the Fund will be outstanding at 
the commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares 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.
---------------------------------------------------------------------------

    \65\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. NASDAQ will halt trading in the 
Shares under the conditions specified in NASDAQ Rules 4120 and 4121, 
including the trading pauses under NASDAQ Rules 4120(a)(11) and (12). 
Trading may be halted because of market conditions or for reasons that, 
in the view of the Exchange, make trading in the Shares inadvisable. 
These may include: (1) The extent to which trading is not occurring in 
the securities and/or the financial instruments comprising the 
Disclosed Portfolio of the Fund; or (2) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present. Trading in the Shares also will be 
subject to Rule 5735(d)(2)(D), which sets forth circumstances under 
which Shares of the Fund may be halted.
Trading Rules
    NASDAQ deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to NASDAQ's existing rules governing the 
trading of equity securities. NASDAQ will allow trading in the Shares 
from 4:00 a.m. until 8:00 p.m. Eastern time. The Exchange has 
appropriate rules to facilitate transactions in the Shares during all 
trading sessions. As provided in NASDAQ Rule 5735(b)(3), the minimum 
price variation for quoting and entry of orders in Managed Fund Shares 
traded on the Exchange is $0.01.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by both NASDAQ and 
also FINRA on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities 
laws.\66\ The Exchange represents that these procedures are adequate to 
properly monitor Exchange trading of the Shares in all trading sessions 
and to deter and detect violations of Exchange rules and applicable 
federal securities laws.
---------------------------------------------------------------------------

    \66\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and the U.S and non-U.S. equity 
securities, ETPs, listed options, and listed futures contracts and 
other instruments held by the Fund with other markets and other 
entities that are members of the ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.\67\ FINRA may 
obtain trading information regarding trading in the Shares and the U.S. 
and non-U.S. equity securities, ETPs, listed options, listed futures 
contracts and other instruments held by the Fund from such markets and 
other entities. The Exchange also will communicate as needed regarding 
trading in the Shares and the U.S and non-U.S. equity securities, ETPs, 
listed options, and listed futures contracts and other instruments held 
by the Fund with other markets and other entities that are members of 
the ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. In addition, the Exchange may obtain 
information regarding trading in the Shares and the exchange-traded 
securities and instruments held by the Fund from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. Moreover, FINRA, 
on behalf of the Exchange, is able to obtain trading information 
regarding certain Debt Instruments held by the Fund reported to FINRA's 
Trade Reporting and Compliance Engine (``TRACE''). At least 90% of the 
Fund's assets that are invested in exchange-traded derivative 
instruments will be invested in instruments that trade in markets that 
are members of ISG or are parties to a comprehensive surveillance 
sharing agreement with the Exchange. The ETPs and other equity 
securities in which the Fund will invest will be traded solely on ISG 
member exchanges.\68\
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    \67\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
    \68\ See notes 26, 46, and 48, supra.
---------------------------------------------------------------------------

    The Exchange also has a general policy prohibiting the distribution 
of material, non-public information by its employees.

[[Page 12841]]

Information Circular
    Prior to the commencement of trading of the Shares, the Exchange 
will inform its members in an Information Circular of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Circular will discuss the following: (1) 
The procedures for purchases and redemptions of Shares in Creation 
Units (and that Shares are not individually redeemable); (2) NASDAQ 
Rule 2310, which imposes suitability obligations on NASDAQ members with 
respect to recommending transactions in the Shares to customers; (3) 
how and by whom information regarding the Intraday Indicative Value and 
Disclosed Portfolio are disseminated; (4) the risks involved in trading 
the Shares during the Pre-Market and Post-Market Sessions when an 
updated Intraday Indicative Value will not be calculated or publicly 
disseminated; (5) the requirement that members deliver a prospectus to 
investors purchasing newly issued Shares prior to or concurrently with 
the confirmation of a transaction; and (6) trading information.
    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    Additionally, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the NAV Calculation Time for the 
Shares. The Information Circular will disclose that information about 
the Shares of the Fund will be publicly available on the Fund's Web 
site.
2. Statutory Basis
    NASDAQ believes that the proposal is consistent with Section 6(b) 
of the Act \69\ in general and Section 6(b)(5) of the Act \70\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \69\ 15 U.S.C. 78f.
    \70\ 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 NASDAQ Rule 5735. The 
Exchange represents that trading in the Shares will be subject to the 
existing trading surveillances administered by both NASDAQ and FINRA on 
behalf of the Exchange, which are designed to detect violations of the 
Exchange rules and applicable federal securities laws. Neither the 
Adviser nor the Sub-Adviser is a broker-dealer or is affiliated with 
any broker-dealer. In the event (a) the Adviser or the Sub-Adviser 
becomes newly registered as a broker-dealer or affiliated with a 
broker-dealer, or (b) any new adviser or sub-adviser is a broker-dealer 
or becomes newly affiliated with a broker-dealer, as applicable, they 
will implement a fire wall with respect to its relevant personnel or 
such broker-dealer regarding access to information concerning the 
composition and/or changes to a portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio as required by 
paragraph (g) of NASDAQ Rule 5735. The Exchange may obtain information 
regarding trading in the Shares and the other exchange traded 
securities and other instruments held by the Fund via ISG from other 
exchanges that are members of ISG or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement. FINRA, on 
behalf of the Exchange, will communicate as needed regarding trading in 
the Shares and the exchange-traded securities and other instruments 
held by the Fund with other markets and other entities that are members 
of the ISG.\71\ FINRA may obtain trading information regarding trading 
in the Shares and the exchange-traded securities and other instruments 
held by the Fund from markets and other entities that are members of 
ISG, which includes securities and futures exchanges, or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
In addition, FINRA, on behalf of the Exchange, is able to obtain 
trading information regarding certain Debt Instruments through its 
TRACE serve [sic]. At least 90% of the Fund's net assets that are 
invested in exchange-traded derivative instruments will be invested in 
instruments that trade in markets that are members of ISG or are 
parties to a comprehensive surveillance sharing agreement with the 
Exchange. The Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
---------------------------------------------------------------------------

    \71\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
---------------------------------------------------------------------------

    The Fund's investments will be consistent with the Fund's 
investment objectives and will not be used to enhance leverage.\72\ 
Under normal circumstances, the Fund will invest at least 80% of its 
assets in Debt Instruments. The Fund's exposure to any single corporate 
issuer generally will be limited to 10% of the Fund's assets. The 
Fund's exposure to any single sovereign issuer (other than the United 
States government) will typically be limited to 25% of the Fund's 
assets. The Fund's exposure to any single country (other than the 
United States) generally will be limited to 30% of the Fund's assets. 
There is no limit on the amount of the Fund's assets that may be 
invested in non-investment grade and unrated securities. The Fund will 
invest only in corporate bonds that the Adviser or Sub-Adviser deems to 
be sufficiently liquid and, generally, a corporate bond will be 
required to have $150 million or more par amount outstanding and 
significant par value traded to be considered as an eligible 
investment. The Fund intends to invest in Debt Instruments of at least 
13 non-affiliated issuers. The Fund's investments in derivative 
instruments will be made in accordance with the 1940 Act and the Fund's 
investment objectives and policies. Under normal market conditions, no 
more than 35% of the value of the Fund's net assets will be invested in 
derivative instruments (and no more than 20% of the Fund's net assets 
will be invested in derivative instruments that are not Debt 
Instruments). Such investments will be consistent with the Fund's 
investment objective. The Fund will comply with the regulatory 
requirements of the Commission to maintain assets as ``cover,'' 
maintain segregated accounts, and/or make margin payments when it takes 
positions in derivative instruments involving obligations to third 
parties (i.e., instruments other than purchase options). The Fund's 
investments in derivative instruments will not be used to seek to 
achieve a multiple or inverse multiple of an index or other benchmark. 
The Fund will

[[Page 12842]]

seek, where possible, to use counterparties, as applicable, whose 
financial status is such that the risk of default is reduced; however, 
the risk of losses resulting from default is still possible. The 
Adviser or Sub-Adviser will also attempt to mitigate the Fund's 
respective credit risk by transacting only with large, well-capitalized 
institutions using measures designed to determine the creditworthiness 
of the counterparty.
---------------------------------------------------------------------------

    \72\ See note 53, supra.
---------------------------------------------------------------------------

    The Fund may invest up to 20% of its net assets, in the aggregate, 
in privately issued ABSs and privately issued mortgage-backed 
securities. The Fund may invest up to 25% of its net assets in credit-
linked notes. The Fund may invest up to 20% of its net assets in both 
U.S. and non-U.S. equity securities, including ETPs. The Fund may also 
invest up to 20% of its net assets in debt instruments that do not fall 
within the meaning of ``Debt Instrument.''
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser or the 
Sub-Adviser. Prior to the commencement of trading in the Shares of the 
Fund, the Exchange will inform its members in an Information Circular 
of the special characteristics and risks associated with trading the 
Shares.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. Moreover, the Intraday 
Indicative Value, available on the NASDAQ OMX Information LLC 
proprietary index data service will be widely disseminated by one or 
more major market data vendors at least every 15 seconds during the 
Regular Market Session. On each business day, before commencement of 
trading in Shares in the Regular Market Session on the Exchange, the 
Fund will disclose on its Web site the Disclosed Portfolio that will 
form the basis for the Fund's calculation of NAV at the end of the 
business day. Information regarding market price and trading volume of 
the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services, and quotation and last sale information will be available via 
NASDAQ proprietary quote and trade services, as well as in accordance 
with the Unlisted Trading Privileges and the Consolidated Tape 
Association plans for the Shares and any underlying exchange-traded 
products. Intra-day, executable price quotations on Debt Instruments as 
well as derivative instruments are available from major broker-dealer 
firms. Intra-day price information is available through subscription 
services, such as Bloomberg and Thomson Reuters, which can be accessed 
by Authorized Participants and other investors.
    Quotation and last sale information for ETFs will be available via 
the CTA high-speed line, and will be available from the national 
securities exchange on which they are listed. Pricing information for 
ETFs and exchange-traded derivatives and other instruments will be 
available from the exchanges on which they trade and from major market 
vendors. Pricing information for Debt Instruments, forward currency 
contracts, spot currencies, and debt instruments that do not fall 
within the meaning of ``Debt Instruments,'' in which the Fund may 
invest that are described under ``Other Investments'' will be available 
from major broker-dealer firms, major market data vendors or Pricing 
Services, as applicable. Money market funds are typically priced once 
each business day and their prices will be available through the 
applicable fund's Web site or major market vendors.
    The Fund's Web site will include a form of prospectus for the fund 
and additional data relating to NAV and other applicable quantitative 
information. Trading in Shares of the Fund will be halted under the 
condition specified in Nasdaq Rules 4120 and 4121 or because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable, and trading in the Shares will be 
subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances 
under which Shares of the Fund may be halted. In addition, as noted 
above, investors will have ready access to information regarding the 
Fund's holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. The Exchange may obtain information 
regarding trading in the Shares and the other exchange traded 
securities and other instruments held by the Fund via ISG from other 
exchanges that are members of ISG or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement. FINRA, on 
behalf of the Exchange, will communicate as needed regarding trading in 
the Shares and the exchange-traded securities and other instruments 
held by the Fund with other markets and other entities that are members 
of the ISG.\73\ FINRA may obtain trading information regarding trading 
in the Shares and the exchange-traded securities and other instruments 
held by the Fund from markets and other entities that are members of 
ISG, which includes securities and futures exchanges, or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
In addition, FINRA, on behalf of the Exchange, is able to obtain 
trading information regarding certain Debt Instruments through its 
TRACE serve [sic]. In addition, as noted above, investors will have 
ready access to information regarding the Fund's holdings, the Intraday 
Indicative Value, the Disclosed Portfolio, and quotation and last sale 
information for the Shares.
---------------------------------------------------------------------------

    \73\ See note 71, supra.
---------------------------------------------------------------------------

    For the above reasons, NASDAQ believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.

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

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

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

    Written comments were neither solicited nor received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period

[[Page 12843]]

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2015-012 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2015-012. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of 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-NASDAQ-2015-012 and should 
be submitted on or before April 1, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\74\
---------------------------------------------------------------------------

    \74\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-05514 Filed 3-10-15; 8:45 am]
 BILLING CODE 8011-01-P