
[Federal Register Volume 80, Number 183 (Tuesday, September 22, 2015)]
[Notices]
[Pages 57251-57261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-23973]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75930; File No. SR-NYSEArca-2015-73]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 1, Relating to 
Listing and Trading of Shares of the Guggenheim Total Return Bond ETF 
Under NYSE Arca Equities Rule 8.600

September 16, 2015.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on September 1, 2015, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. On September 15, 2015, the Exchange filed Amendment No. 1 
to the proposed rule change.\4\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as modified by 
Amendment No. 1, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ Amendment No. 1 replaces and supersedes the original filing 
in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

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

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

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

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
Guggenheim Total Return Bond ETF (the ``Fund'') under NYSE Arca 
Equities Rule 8.600, which governs the listing and trading of Managed 
Fund Shares.\5\ The Shares will be offered by the Claymore Exchange-
Traded Fund Trust 2 (the ``Trust''),\6\ a statutory trust organized 
under the laws of the State of Delaware and registered with the 
Commission as an open-end management investment company.\7\
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    \5\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Equities Rule 
5.2(j)(3), seeks to provide investment results that correspond 
generally to the price and yield performance of a specific foreign 
or domestic stock index, fixed income securities index or 
combination thereof.
    \6\ The Trust is registered under the 1940 Act. On November 25, 
2014, the Trust filed with the Commission an amendment to its 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a) (``Securities Act'') and the 1940 Act relating to 
the Fund (File Nos. 333-135105 and 811-21910) (the ``Registration 
Statement''). The description of the operation of the Trust and the 
Fund herein is based, in part, on the Registration Statement. In 
addition, the Commission has issued an order granting certain 
exemptive relief to the Trust under the 1940 Act. See Investment 
Company Act Release No. 29271 (May 18, 2010) (File No. 812-13534) 
(``Exemptive Order'').
    \7\ The Commission previously approved listing and trading on 
the Exchange of the following actively managed funds under Rule 
8.600. See Securities Exchange Act Release Nos. 57801 (May 8, 2008), 
73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving 
Exchange listing and trading of twelve actively-managed funds of the 
WisdomTree Trust); 60981 (November 10, 2009), 74 FR 59594 (November 
18, 2009) (SR-NYSEArca-2009-79) (order approving listing of five 
fixed income funds of the PIMCO ETF Trust); 63329 (November 17, 
2010), 75 FR 71760 (November 24, 2010) (SR-NYSEArca-2010-86) (order 
approving listing of Peritus High Yield ETF) ; 64550 (May 26, 2011), 
76 FR 32005 (June 2, 2011) (SR-NYSEArca-2011-11) (order approving 
listing of Guggenheim Enhanced Core Bond ETF and Guggenheim Enhanced 
Ultra-Short Bond ETF).

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[[Page 57252]]

    The investment adviser for the Fund is Guggenheim Partners 
Investment Management, LLC (``Adviser''). The Bank of New York Mellon 
is the custodian and transfer agent for the Fund. Guggenheim Funds 
Distributors, LLC is the distributor for the Fund.\8\
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    \8\ The Commission has previously approved a proposed rule 
change relating to listing and trading of shares of the Guggenheim 
Enhanced Total Return ETF under NYSE Arca Equities Rule 8.600. See 
Securities Exchange Act Release Nos. 68488 (December 20, 2012), 77 
FR 76326 (December 27, 2012) (SR-NYSEArca-2012-142) (notice of 
filing of proposed rule change regarding listing and trading of 
shares of the Guggenheim Enhanced Total Return ETF under NYSE Arca 
Equities Rule 8.600) (the ``Prior Notice''); 68863 (February 7, 
2013), 78 FR 10222 (February 13, 2013) (SR-NYSEArca-2012-142) (order 
approving proposed rule change relating to listing and trading of 
shares of the Guggenheim Enhanced Total Return ETF under NYSE Arca 
Equities Rule 8.600) (the ``Prior Order'' and, together with the 
Prior Notice, the ``Prior Release'')). Shares of the Guggenheim 
Enhanced Total Return ETF have not commenced Exchange listing and 
trading. The Guggenheim Total Return Bond ETF would replace the 
Guggenheim Enhanced Total Return ETF as approved in the Prior 
Release. As set forth in the Registration Statement, the Fund's 
investments will differ from those described in the Prior Release. 
This proposed rule change supersedes the Prior Release in its 
entirety. In addition, prior to commencement of trading of Shares of 
the Fund, the Trust will file an amendment to its Registration 
Statement to change the name of the Guggenheim Enhanced Total Return 
ETF to the Guggenheim Total Return Bond ETF.
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    Commentary .06 to Rule 8.600 provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\9\ In addition, 
Commentary .06 further requires that personnel who make decisions on 
the open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the open-end fund's portfolio. The Adviser is 
affiliated with a broker-dealer and has represented that it has 
implemented a fire wall with respect to its broker-dealer affiliate 
regarding access to information concerning the composition and/or 
changes to the portfolio. In the event (a) the Adviser or any sub-
adviser becomes newly affiliated with a broker-dealer, or (b) any new 
adviser or sub-adviser becomes affiliated with a broker-dealer, it will 
implement a fire wall with respect to such broker-dealer regarding 
access to information concerning the composition and/or changes to the 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding such 
portfolio.
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    \9\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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Principal Investment Strategies
    According to the Registration Statement, the Fund's investment 
objective is to seek maximum total return, comprised of income and 
capital appreciation. The Fund will normally \10\ invest at least 80% 
of its assets in ``Fixed-Income Instruments'' (as defined below) of 
varying maturities and of any credit quality, which may be represented 
by certain derivative instruments as discussed below,\11\ and exchange-
traded funds (``ETFs'') \12\ and exchange-traded and over-the-counter 
(``OTC'') closed-end funds (``CEFs'') (which may include ETFs and CEFs 
affiliated with the Fund) that invest substantially all of their assets 
in Fixed-Income Instruments (the ``80% Policy''). The Fixed-Income 
Instruments in which the Fund will invest, as described further below, 
are the following. bonds, including corporate bonds; \13\ other debt 
securities \14\ of U.S. and non-U.S. issuers; securities issued by the 
U.S. government or its agencies, instrumentalities or sponsored 
corporations (including those not backed by the full faith and credit 
of the U.S. government); agency and non-agency mortgage-backed 
securities (``MBS'') and asset-backed securities (``ABS''); \15\ U.S. 
agency mortgage pass-through securities; \16\ repurchase agreements; 
reverse repurchase agreements; convertible securities; \17\

[[Page 57253]]

commercial instruments; \18\ variable or floating rate instruments and 
variable rate demand instruments; \19\ zero-coupon and pay-in-kind 
securities; \20\ bank instruments, including certificates of deposit 
(``CDs''), time deposits and bankers' acceptances from U.S. banks; \21\ 
and participations in and assignments of bank loans or corporate loans, 
which loans include senior loans, syndicated bank loans, junior loans, 
bridge loans,\22\ unfunded commitments,\23\ revolving credit facilities 
(``revolvers''),\24\ and participation interests.\25\
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    \10\ The term ``normally'' includes, but is not limited to, the 
absence of extreme volatility or trading halts in the securities 
markets or the financial markets generally; circumstances under 
which the Fund's investments are made for temporary defensive 
purposes; 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.
    \11\ See ``The Fund's Use of Derivatives,'' infra. The Fund will 
invest in the following derivative instruments on Fixed-Income 
Securities: Foreign exchange forward contracts, exchange-traded 
futures on securities, indices, currencies and other investments; 
exchange-traded and OTC options; exchange-traded and OTC options on 
futures contracts; exchange-traded and OTC interest rate swaps, 
cross-currency swaps, total return swaps, inflation swaps, and 
credit default swaps; and options on such swaps.
    \12\ For purposes of this filing, ETFs consist of Investment 
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)), 
Portfolio Depositary Receipts (as described in NYSE Arca Equities 
Rule 8.100; and Managed Fund Shares (as described in NYSE Arca 
Equities Rule 8.600). All ETFs will be listed and traded in the U.S. 
on a national securities exchange. While the Fund may invest in 
inverse ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 
3X or -3X) ETFs.
    \13\ The Adviser expects that normally the Fund generally will 
seek to invest at least 75% of its corporate bond assets in 
issuances that have at least $100,000,000 par amount outstanding in 
developed countries or at least $200,000,000 par amount outstanding 
in emerging market countries.
    \14\ Debt securities and other similar instruments may be of 
varying maturities and of any credit quality rating.
    \15\ The MBS in which the Fund may invest may also include 
residential mortgage-backed securities (``RMBS''), collateralized 
mortgage obligations (``CMOs'') and commercial mortgage-backed 
securities (``CMBS''). The ABS in which the Fund may invest include 
collateralized debt obligations (``CDOs''). CDOs include 
collateralized bond obligations (``CBOs''), collateralized loan 
obligations (``CLOs'') and other similarly structured securities. A 
CBO is a trust which is backed by a diversified pool of high risk, 
below investment grade fixed income securities. A CLO is a trust 
typically collateralized by a pool of loans, which may include 
domestic and foreign senior secured loans, senior unsecured loans, 
and subordinate corporate loans, including loans that may be rated 
below investment grade or equivalent unrated loans.
    \16\ The Fund will seek to obtain exposure to U.S. agency 
mortgage pass-through securities primarily through the use of ``to-
be-announced'' or ``TBA transactions.'' ``TBA'' refers to a commonly 
used mechanism for the forward settlement of U.S. agency mortgage 
pass-through securities, and not to a separate type of mortgage-
backed security. Most transactions in mortgage pass-through 
securities occur through the use of TBA transactions. TBA 
transactions generally are conducted in accordance with widely-
accepted guidelines which establish commonly observed terms and 
conditions for execution, settlement and delivery.
    \17\ According to the Registration Statement, convertible 
securities include bonds, debentures, notes, preferred stocks and 
other securities that may be converted into a prescribed amount of 
common stock or other equity securities at a specified price and 
time.
    \18\ Commercial instruments include commercial paper, master 
notes, asset-backed commercial paper and other short-term corporate 
instruments. Commercial paper normally represents short-term 
unsecured promissory notes issued in bearer form by banks or bank 
holding companies, corporations, finance companies and other 
issuers. Commercial paper may be traded in the secondary market 
after its issuance. Master notes are demand notes that permit the 
investment of fluctuating amounts of money at varying rates of 
interest pursuant to arrangements with issuers who meet the quality 
criteria of the Fund. Master notes are generally illiquid and 
therefore subject to the Fund's percentage limitations for 
investments in illiquid securities. Asset-backed commercial paper is 
issued by a special purpose entity that is organized to issue the 
commercial paper and to purchase trade receivables or other 
financial assets.
    \19\ Variable or floating rate instruments and variable rate 
demand instruments, including variable amount master demand notes, 
will normally involve industrial development or revenue bonds that 
provide that the rate of interest is set as a specific percentage of 
a designated base rate (such as the prime rate) at a major 
commercial bank. In addition, the interest rate on these securities 
may be reset daily, weekly or on some other reset period and may 
have a floor or ceiling on interest rate changes. The Adviser will 
monitor the pricing, quality and liquidity of the variable or 
floating rate securities held by the Fund.
    \20\ Zero-coupon and pay-in-kind securities are debt securities 
that do not make regular cash interest payments. Zero-coupon 
securities are sold at a deep discount to their face value. Pay-in-
kind securities pay interest through the issuance of additional 
securities.
    \21\ A bankers' acceptance is a bill of exchange or time draft 
drawn on and accepted by a commercial bank. A CD is a negotiable 
interest-bearing instrument with a specific maturity.
    \22\ Bridge loans are short-term loan arrangements (e.g., 
maturities that are generally less than one year) typically made by 
a borrower following the failure of the borrower to secure other 
intermediate-term or long-term permanent financing. A bridge loan 
remains outstanding until more permanent financing, often in the 
form of high yield notes, can be obtained. Most bridge loans have a 
step-up provision under which the interest rate increases 
incrementally the longer the loan remains outstanding so as to 
incentivize the borrower to refinance as quickly as possible. In 
exchange for entering into a bridge loan, the Fund typically will 
receive a commitment fee and interest payable under the bridge loan 
and may also have other expenses reimbursed by the borrower. Bridge 
loans may be subordinate to other debt and generally are unsecured.
    \23\ Unfunded commitments are contractual obligations pursuant 
to which the Fund agrees in writing to make one or more loans up to 
a specified amount at one or more future dates. The underlying loan 
documentation sets out the terms and conditions of the lender's 
obligation to make the loans as well as the economic terms of such 
loans. The portion of the amount committed by a lender that the 
borrower has not drawn down is referred to as ``unfunded.'' Loan 
commitments may be traded in the secondary market through dealer 
desks at large commercial and investment banks although these 
markets are generally not considered liquid.
    \24\ Revolving credit facilities (``revolvers'') are borrowing 
arrangements in which the lender agrees to make loans up to a 
maximum amount upon demand by the borrower during a specified term. 
As the borrower repays the loan, an amount equal to the repayment 
may be borrowed again during the term of the revolver. Revolvers 
usually provide for floating or variable rates of interest.
    \25\ All or a significant portion of the loans in which the Fund 
will invest may be below investment grade quality. There will be no 
minimum par amount outstanding with respect to loans in which the 
Fund may invest.
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    With respect to Fixed Income Instrument investments, the Fund may 
invest in restricted securities (Rule 144A securities), which are 
subject to legal restrictions on their sale. The Fund has no target 
duration for its investment portfolio.
    In addition, with respect to Fixed Income Instrument investments, 
the Fund may, without limitation, seek to obtain market exposure to the 
securities in which it primarily invests by entering into a series of 
purchase and sale contracts or by using other investment techniques 
(such as buy backs or dollar rolls).
    The Fund may also use leverage to the extent permitted under the 
1940 Act by entering into reverse repurchase agreements and borrowing 
transactions (principally lines of credit) for investment purposes. The 
Fund's exposure to reverse repurchase agreements will be covered by 
securities having a value equal to or greater than such commitments. 
Under the 1940 Act, reverse repurchase agreements are considered 
borrowings. Although there is no limit on the percentage of Fund assets 
that can be used in connection with reverse repurchase agreements, the 
Portfolio does not expect to engage, under normal circumstances, in 
reverse repurchase agreements with respect to more than 331/3% of its 
assets.
Other Investments
    While the Fund normally will invest at least 80% of its assets in 
the securities and financial instruments described above, the Fund may 
invest its remaining assets in the securities and financial instruments 
described below.
    According to the Registration Statement, the Fund may invest in 
exchange-traded and OTC hybrid instruments, which combine a traditional 
stock, bond, or commodity with an option or forward contract. 
Generally, the principal amount, amount payable upon maturity or 
redemption, or interest rate of a hybrid is tied (positively or 
negatively) to the price of some commodity, currency or securities 
index or another interest rate or some other economic factor 
(``underlying benchmark'').\26\
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    \26\ According to the Registration Statement, certain hybrid 
instruments may provide exposure to the commodities markets. These 
are derivative securities with one or more commodity-linked 
components that have payment features similar to commodity futures 
contracts, commodity options, or similar instruments. Commodity-
linked hybrid instruments may be either equity or debt securities, 
and are considered hybrid instruments because they have both 
security and commodity-like characteristics. A portion of the value 
of these instruments may be derived from the value of a commodity, 
futures contract, index or other economic variable. The Fund would 
only invest in commodity-linked hybrid instruments that qualify, 
under applicable rules of the Commodity Futures Trading Commission, 
for an exemption from the provisions of the Commodity Exchange Act 
(7 U.S.C. 1).
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    According to the Registration Statement, the Fund is permitted to 
invest in structured notes, which are debt obligations that also 
contain an embedded derivative component with characteristics that 
adjust the obligation's risk/return profile. Generally, the performance 
of a structured note will track that of the underlying debt obligation 
and the derivative embedded within it.
    According to the Registration Statement, the Fund may invest in 
credit-linked notes, which are a type of structured note. The 
difference between a credit default swap and a credit-linked note is 
that the seller of a credit-linked note receives the principal payment 
from the buyer at the time the contract is originated. Through the 
purchase of a credit-linked note, the buyer assumes the risk of the 
reference asset and funds this exposure through the purchase of the 
note. The buyer takes on the exposure to the seller to the full amount 
of the funding it has provided. The seller has hedged its risk on the 
reference asset without acquiring any additional credit exposure. The 
Fund has the right to receive periodic interest payments from the 
issuer of the credit-linked note at an agreed-upon interest rate and a 
return of principal at the maturity date.
    According to the Registration Statement, the Fund may invest in 
risk-linked securities (``RLS''), which are a form of derivative issued 
by insurance companies and insurance-related special purpose vehicles 
that apply securitization techniques to catastrophic property and 
casualty damages.\27\
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    \27\ RLS are typically debt obligations for which the return of 
principal and the payment of interest are contingent on the non-
occurrence of a pre-defined ``trigger event.'' Depending on the 
specific terms and structure of the RLS, this trigger could be the 
result of a hurricane, earthquake or some other catastrophic event. 
Insurance companies securitize this risk to transfer to the capital 
markets the truly catastrophic part of the risk exposure. A typical 
RLS provides for income and return of capital similar to other 
fixed-income investments, but would involve full or partial default 
if losses resulting from a certain catastrophe exceeded a 
predetermined amount.

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[[Page 57254]]

    The Fund may invest a portion of its assets in high-quality money 
market instruments on an ongoing basis to provide liquidity.
    The Fund may invest in U.S. and foreign common stocks, both 
exchange-listed and OTC.
    The Fund may gain exposure to commodities through the use of 
investments in exchange-traded products (``ETPs'') \28\ and exchange-
traded notes (``ETNs'').\29\
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    \28\ Such ETPs include Trust Issued Receipts (as described in 
NYSE Arca Equities Rule 8.200); Commodity-Based Trust Shares (as 
described in NYSE Arca Equities Rule 8.201); Currency Trust Shares 
(as described in NYSE Arca Equities Rule 8.202); Commodity Index 
Trust Shares (as described in NYSE Arca Equities Rule 8.203); and 
Trust Units (as described in NYSE Arca Equities Rule 8.500).
    \29\ ETNs include Index-Linked Securities (as described in NYSE 
Arca Equities Rule 5.2(j)(6)).
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    The Fund may invest in the securities of exchange-traded and OTC 
real estate investment trusts (``REITs'').
Investment Restrictions
    The Fund may invest up to 20% of its total assets in the aggregate 
in MBS and ABS that are privately issued, non-agency and non-government 
sponsored entity (``Private MBS/ABS''), and in asset-backed commercial 
paper.\30\ Such holdings would be subject to the respective limitations 
on the Fund's investments in illiquid assets and high yield securities. 
The liquidity of a security, especially in the case of Private MBS/ABS, 
will be a substantial factor in the Fund's security selection process.
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    \30\ See note 18, supra.
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    The Fund may invest up to 20% of its total assets in the aggregate 
in junior loans, bridge loans, unfunded commitments, and revolvers. 
Such holdings would be subject to the respective limitations on the 
Fund's investments in illiquid assets and high yield securities. The 
liquidity of such securities will be a substantial factor in the Fund's 
security selection process.
    The Fund may invest in debt securities and instruments that are 
economically tied to emerging market countries.\31\
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    \31\ See note 13, supra. Generally, the Fund considers an 
instrument to be economically tied to an emerging market country 
through consideration of some or all of the following factors: (i) 
Whether the issuer is the government of the emerging market country 
(or any political subdivision, agency, authority or instrumentality 
of such government), or is organized under the laws of the emerging 
market country; (ii) amount of the issuer's revenues that are 
attributable to the emerging market country; (iii) the location of 
the issuer's management; (iv) if the security is secured or 
collateralized, the country in which the security or collateral is 
located; and/or (v) the currency in which the instrument is 
denominated or currency fluctuations to which the issuer is exposed.
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    The Fund may invest without limitation in securities denominated in 
foreign currencies and in U.S. dollar-denominated securities of foreign 
issuers.
    The Fund may invest up to 33\1/3\% of its total assets in high 
yield debt securities (``junk bonds''), which are debt securities that 
are rated below investment grade by nationally recognized statistical 
rating organizations, or are unrated securities that the Adviser 
believes are of comparable below investment grade quality. The Fund may 
invest in defaulted or distressed Private MBS/ABS.
    The Fund will be considered non-diversified and can invest a 
greater portion of assets in securities of individual issuers than a 
diversified fund.\32\
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    \32\ A ``non-diversified company,'' as defined in Section 
5(b)(2) of the 1940 Act, means any management company other than a 
diversified company (as defined in Section 5(b)(1) of the 1940 Act).
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    The Fund may not invest more than 25% of the value of its net 
assets in securities of issuers in any one industry or group of 
industries. This restriction does not apply to obligations issued or 
guaranteed by the U.S. Government, its agencies or 
instrumentalities.\33\
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    \33\ 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).
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    The Fund's investments, including investments in derivative 
instruments, are subject to all of the restrictions under the 1940 Act, 
including restrictions with respect to illiquid assets. The Fund may 
hold up to an aggregate amount of 15% of its net assets in illiquid 
assets (calculated at the time of investment), including Rule 144A 
securities, Private MBS/ABS, master notes, loans and loan commitments 
deemed illiquid by the Adviser,\34\ consistent with Commission 
guidance.\35\ 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.\36\
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    \34\ In reaching liquidity decisions with respect to Rule 144A 
securities, the Adviser may consider the following factors: The 
frequency of trades and quotes for the security; the number of 
dealers willing to purchase or sell the security and the number of 
other potential purchasers; dealer undertakings to make a market in 
the security; and the nature of the security and the nature of the 
marketplace in which it trades (e.g., the time needed to dispose of 
the security, the method of soliciting offers, and the mechanics of 
transfer).
    \35\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the 1933 Act).
    \36\ See id.
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    The Fund intends to qualify for and to elect to be treated as a 
separate regulated investment company (``RIC'') under Subchapter M of 
the Internal Revenue Code.\37\
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    \37\ 26 U.S.C. 851.
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    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage. That is, 
while the Fund will be permitted to borrow as permitted under the 1940 
Act, the Fund's investments will not be used to seek performance that 
is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's 
primary broad-based securities benchmark index (as defined in Form N-
1A).\38\
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    \38\ The Fund's broad-based securities benchmark index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
---------------------------------------------------------------------------

The Fund's Use of Derivatives
    The Fund proposes to seek certain exposures through derivative 
transactions as described below. The Fund may invest in the following 
derivative instruments: Foreign exchange forward contracts; exchange-
traded futures on securities, indices, currencies and other 
investments; exchange-traded and OTC options; exchange-traded and OTC 
options on

[[Page 57255]]

futures contracts; exchange-traded and OTC interest rate swaps, cross-
currency swaps, total return swaps, inflation swaps and credit default 
swaps; and options on such swaps (``swaptions'').\39\ Generally, 
derivatives are financial contracts whose value depends upon, or is 
derived from, the value of an underlying asset, reference rate or 
index, and may relate to stocks, bonds, interest rates, currencies or 
currency exchange rates, commodities, and related indexes. The Fund 
may, but is not required to, use derivative instruments for risk 
management purposes or as part of its investment strategies.\40\ The 
Fund may also engage in derivative transactions for speculative 
purposes to enhance total return, to seek to hedge against fluctuations 
in securities prices, interest rates or currency rates, to change the 
effective duration of its portfolio, to manage certain investment risks 
and/or as a substitute for the purchase or sale of securities or 
currencies.
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    \39\ Options on swaps are traded OTC. In the future, in the 
event that there are exchange-traded options on swaps, the Fund may 
invest in these instruments.
    \40\ The Fund will seek, where possible, to use counterparties 
whose financial status is such that the risk of default is reduced; 
however, the risk of losses resulting from default is still 
possible. The Adviser will monitor the financial standing of 
counterparties on an ongoing basis. This monitoring may include 
information provided by credit agencies, as well as the Adviser's 
credit analysts and other team members who evaluate approved 
counterparties using various methods of analysis, including but not 
limited to earnings updates, the counterparty's reputation, the 
Adviser's past experience with the broker-dealer, market levels for 
the counterparty's debt and equity, the counterparty's liquidity and 
its share of market participation.
---------------------------------------------------------------------------

    Investments in derivative instruments will be made in accordance 
with the 1940 Act and consistent with the Fund's investment objective 
and policies. As described further below, the Fund will typically use 
derivative instruments as a substitute for taking a position in the 
underlying asset and/or as part of a strategy designed to reduce 
exposure to other risks, such as interest rate or currency risk. The 
Fund may also use derivative instruments to enhance returns. To limit 
the potential risk associated with such transactions, the Fund will 
segregate or ``earmark'' assets determined to be liquid by the Adviser 
in accordance with procedures established by the Trust's Board of 
Trustees (the ``Board'') and in accordance with the 1940 Act (or, as 
permitted by applicable regulation, enter into certain offsetting 
positions) to cover its obligations under derivative instruments. These 
procedures have been adopted consistent with Section 18 of the 1940 Act 
and related Commission guidance. In addition, the Fund will include 
appropriate risk disclosure in its offering documents, including 
leveraging risk. Leveraging risk is the risk that certain transactions 
of the Fund, including the Fund's use of derivatives, may give rise to 
leverage, causing the Fund to be more volatile than if it had not been 
leveraged.\41\ Because the markets for certain securities, or the 
securities themselves, may be unavailable or cost prohibitive as 
compared to derivative instruments, suitable derivative transactions 
may be an efficient alternative for the Fund to obtain the desired 
asset exposure.
---------------------------------------------------------------------------

    \41\ To mitigate leveraging risk, the Adviser will segregate or 
``earmark'' liquid assets or otherwise cover the transactions that 
may give rise to such risk.
---------------------------------------------------------------------------

    The Adviser believes that derivatives can be an economically 
attractive substitute for an underlying physical security that the Fund 
would otherwise purchase. For example, the Fund could purchase Treasury 
futures contracts instead of physical Treasuries or could sell credit 
default protection on a corporate bond instead of buying a physical 
bond. Economic benefits include potentially lower transaction costs or 
attractive relative valuation of a derivative versus a physical bond 
(e.g., differences in yields).
    The Adviser further believes that derivatives can be used as a more 
liquid means of adjusting portfolio duration as well as targeting 
specific areas of yield curve exposure, with potentially lower 
transaction costs than the underlying securities (e.g., interest rate 
swaps may have lower transaction costs than physical bonds). Similarly, 
money market futures can be used to gain exposure to short-term 
interest rates in order to express views on anticipated changes in 
central bank policy rates. In addition, derivatives can be used to 
protect client assets through selectively hedging downside (or ``tail 
risks'') in the Fund.
    The Fund also can use derivatives to increase or decrease credit 
exposure. Index credit default swaps (CDX) can be used to gain exposure 
to a basket of credit risk by ``selling protection'' against default or 
other credit events, or to hedge broad market credit risk by ``buying 
protection''. Single name credit default swaps (CDS) can be used to 
allow the Fund to increase or decrease exposure to specific issuers, 
saving investor capital through lower trading costs. The Fund can use 
total return swap contracts to obtain the total return of a reference 
asset or index in exchange for paying a financing cost. A total return 
swap may be more efficient than buying underlying securities of an 
index, potentially lowering transaction costs.
    The Fund may attempt to reduce foreign currency exchange rate risk 
by entering into contracts with banks, brokers or dealers to purchase 
or sell foreign currencies at a future date (``forward 
contracts'').\42\
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    \42\ A foreign currency forward contract is a negotiated 
agreement between the contracting parties to exchange a specified 
amount of currency at a specified future time at a specified rate. 
The rate can be higher or lower than the spot rate between the 
currencies that are the subject of the contract.
---------------------------------------------------------------------------

    The Adviser believes that the use of derivatives will allow the 
Fund to selectively add diversifying sources of return from selling 
options. Option purchases and sales can also be used to hedge specific 
exposures in the portfolio, and can provide access to return streams 
available to long-term investors such as the persistent difference 
between implied and realized volatility. Option strategies can generate 
income or improve execution prices (i.e., covered calls).
    In addition to the Fund's use of derivatives in connection with its 
80% Policy, under the proposal the Fund would seek to invest in 
derivative instruments not based on Fixed-Income Instruments, 
consistent with the Fund's investment restrictions relating to exposure 
to those asset classes.
Valuation Methodology for Purposes of Determining Net Asset Value
    According to the Registration Statement, the net asset value 
(``NAV'') of the Fund's Shares will be determined by dividing the total 
value of the Fund's portfolio investments and other assets, less any 
liabilities, by the total number of Shares outstanding. Fund Shares 
will be valued as of the close of regular trading (normally 4:00 p.m., 
Eastern time (``E.T.'')) (the ``NYSE Close'') on each day NYSE Arca is 
open (``Business Day''). Information that becomes known to the Fund or 
its agents after the NAV has been calculated on a particular day will 
not generally be used to retroactively adjust the price of a portfolio 
asset or the NAV determined earlier that day. The Fund reserves the 
right to change the time its NAV is calculated if the Fund closes 
earlier, or as permitted by the Commission.
    For purposes of calculating NAV, portfolio securities and other 
assets for which market quotes are readily available will be valued at 
market value. Market value will generally be determined on the basis of 
last reported sales prices, or if no sales are reported,

[[Page 57256]]

based on quotes obtained from a quotation reporting system, established 
market makers, or pricing services. Domestic and foreign fixed income 
securities and non-exchange-traded derivatives will normally be valued 
on the basis of quotes obtained from brokers and dealers or pricing 
services using data reflecting the earlier closing of the principal 
markets for those assets. Prices obtained from independent pricing 
services use information provided by market makers or estimates of 
market values obtained from yield data relating to investments or 
securities with similar characteristics. Exchange-traded options and 
options on futures will generally be valued at the settlement price 
determined by the applicable exchange.
    Derivatives for which market quotes are readily available will be 
valued at market value. Local closing prices will be used for all 
instrument valuation purposes. Futures will be valued at the last 
reported sale or settlement price on the day of valuation. Swaps traded 
on exchanges such as the Chicago Mercantile Exchange (``CME'') or the 
Intercontinental Exchange (``ICE-US'') will use the applicable exchange 
closing price where available.
    Foreign currency-denominated derivatives will generally be valued 
as of the respective local region's market close.
    With respect to specific derivatives:
     Currency spot and forward rates from major market data 
vendors \43\ will generally be determined as of the NYSE Close.
---------------------------------------------------------------------------

    \43\ Major market data vendors may include, but are not limited 
to: Thomson Reuters, JPMorgan Chase PricingDirect Inc., Markit Group 
Limited, Bloomberg, Interactive Data Corporation or other major data 
vendors.
---------------------------------------------------------------------------

     Exchange-traded futures will generally be valued at the 
settlement price of the relevant exchange.
     A total return swap on an index will be valued at the 
publicly available index price. The index price, in turn, is determined 
by the applicable index calculation agent, which generally values the 
securities underlying the index at the last reported sale price.
     Equity total return swaps will generally be valued using 
the actual underlying equity at local market closing, while bank loan 
total return swaps will generally be valued using the evaluated 
underlying bank loan price minus the strike price of the loan.
     Exchange-traded non-equity options, (for example, options 
on bonds, Eurodollar options and U.S. Treasury options), index options, 
and options on futures will generally be valued at the official 
settlement price determined by the relevant exchange, if available.
     OTC and exchange-traded equity options will generally be 
valued on a basis of quotes obtained from a quotation reporting system, 
established market makers, or pricing services or at the settlement 
price of the applicable exchange.
     OTC foreign currency (FX) options will generally be valued 
by pricing vendors.
     All other swaps such as interest rate swaps, inflation 
swaps, swaptions, credit default swaps, and CDX/CDS will generally be 
valued by pricing services.
    Exchange-traded equity securities (including common stocks, ETPs, 
ETFs, ETNs, CEFs, exchange-traded convertible securities, REITs and 
preferred securities) will be valued at the official closing price or 
the last trading price on the exchange or market on which the security 
is primarily traded at the time of valuation. If no sales or closing 
prices are reported during the day, exchange-traded equity securities 
will generally be valued at the mean of the last available bid and ask 
quotation on the exchange or market on which the security is primarily 
traded, or using other market information obtained from quotation 
reporting systems, established market makers, or pricing services. 
Investment company securities that are not exchange-traded will be 
valued at NAV. Equity securities traded OTC will be valued based on 
price quotations obtained from a broker-dealer who makes markets in 
such securities or other equivalent indications of value provided by a 
third-party pricing service. Structured notes, exchange-traded and OTC 
hybrids and RLS will be valued based on prices obtained from an 
independent pricing vendor such as IDC or Reuters or on the basis of 
prices obtained from brokers and dealers. Fixed Income Instruments will 
generally be valued on the basis of independent pricing services or 
quotes obtained from brokers and dealers.
    If a foreign security's value has materially changed after the 
close of the security's primary exchange or principal market but before 
the NYSE Close, the security will be valued at fair value based on 
procedures established and approved by the Board. Foreign securities 
that do not trade when the NYSE is open will also be valued at fair 
value.
    The Board has adopted policies and procedures for the valuation of 
the Fund's investments (the ``Valuation Procedures''). Pursuant to the 
Valuation Procedures, the Board has delegated to a valuation committee, 
consisting of representatives from Guggenheim's investment management, 
fund administration, legal and compliance departments (the ``Valuation 
Committee''), the day-to-day responsibility for implementing the 
Valuation Procedures, including, under most circumstances, the 
responsibility for determining the fair value of the Fund's securities 
or other assets. Valuations of the Fund's securities are supplied 
primarily by pricing services appointed pursuant to the processes set 
forth in the Valuation Procedures. The Valuation Committee convenes 
monthly, or more frequently as needed and will review the valuation of 
all assets which have been fair valued for reasonableness. The Fund's 
officers, through the Valuation Committee and consistent with the 
monitoring and review responsibilities set forth in the Valuation 
Procedures, regularly review procedures used by, and valuations 
provided by, the pricing services.
    Debt securities with a maturity of greater than 60 days at 
acquisition will be valued at prices that reflect broker/dealer 
supplied valuations or are obtained from independent pricing services, 
which may consider the trade activity, treasury spreads, yields or 
price of bonds of comparable quality, coupon, maturity, and type, as 
well as prices quoted by dealers who make markets in such securities. 
Short-term securities with remaining maturities of 60 days or less will 
be valued at market price, or if a market price is not available, at 
amortized cost, provided such amount approximates market value. Money 
market instruments will be valued at net asset value.
    Generally, trading in foreign securities markets is substantially 
completed each day at various times prior to the close of the NYSE. The 
values of foreign securities are determined as of the close of such 
foreign markets or the close of the NYSE, if earlier. All investments 
quoted in foreign currency will be valued in U.S. dollars on the basis 
of the foreign currency exchange rates prevailing at the close of U.S. 
business at 4:00 p.m. E.T. The Valuation Committee will determine the 
current value of such foreign securities by taking into consideration 
certain factors which may include those discussed above, as well as the 
following factors, among others: The value of the securities traded on 
other foreign markets, closed-end fund trading, foreign currency 
exchange activity, and the trading prices of financial products that 
are tied to foreign securities. In addition, under the Valuation 
Procedures, the Valuation Committee and the Adviser are authorized to 
use prices and other information supplied

[[Page 57257]]

by a third party pricing vendor in valuing foreign securities.
    Investments for which market quotations are not readily available 
will be fair valued as determined in good faith by the Adviser, subject 
to review by the Valuation Committee, pursuant to methods established 
or ratified by the Board. Valuations in accordance with these methods 
are intended to reflect each security's (or asset's) ``fair value.'' 
Each such determination will be based on a consideration of all 
relevant factors, which are likely to vary from one pricing context to 
another. Examples of such factors may include, but are not limited to: 
(i) The type of security, (ii) the initial cost of the security, (iii) 
the existence of any contractual restrictions on the security's 
disposition, (iv) the price and extent of public trading in similar 
securities of the issuer or of comparable companies, (v) quotations or 
evaluated prices from broker-dealers and/or pricing services, (vi) 
information obtained from the issuer, analysts, and/or the appropriate 
stock exchange (for exchange traded securities), (vii) an analysis of 
the company's financial statements, and (viii) an evaluation of the 
forces that influence the issuer and the market(s) in which the 
security is purchased and sold (e.g., the existence of pending merger 
activity, public offerings or tender offers that might affect the value 
of the security).
    Investments initially valued in currencies other than the U.S. 
dollar will be converted to the U.S. dollar using exchange rates 
obtained from pricing services. As a result, the NAV of the Fund's 
Shares may be affected by changes in the value of currencies in 
relation to the U.S. dollar. The value of securities traded in markets 
outside the United States or denominated in currencies other than the 
U.S. dollar may be affected significantly on a day that the NYSE is 
closed. As a result, to the extent that the Fund holds foreign (non-
U.S.) securities, the NAV of the Fund's Shares may change when an 
investor cannot purchase, redeem or exchange shares.
Derivatives Valuation Methodology for Purposes of Determining Intra-Day 
Indicative Value
    On each Business Day, before commencement of trading in Fund Shares 
on NYSE Arca, the Fund will disclose on its Web site the identities and 
quantities of the portfolio instruments and other assets held by the 
Fund that will form the basis for the Fund's calculation of NAV at the 
end of the Business Day.
    In order to provide additional information regarding the intra-day 
value of Shares of the Fund, the NYSE Arca or a market data vendor will 
disseminate every 15 seconds through the facilities of the Consolidated 
Tape Association or other widely disseminated means an updated Intra-
day Indicative Value (``IIV'') for the Fund as calculated by a third 
party market data provider.
    A third party market data provider will calculate the IIV for the 
Fund. For the purposes of determining the IIV, the third party market 
data provider's valuation of derivatives is expected to be similar to 
their valuation of all securities. The third party market data provider 
may use market quotes if available or may fair value securities against 
proxies (such as swap or yield curves).
    With respect to specific derivatives:
     Foreign currency derivatives may be valued intraday using 
market quotes, or another proxy as determined to be appropriate by the 
third party market data provider.
     Futures may be valued intraday using the relevant futures 
exchange data, or another proxy as determined to be appropriate by the 
third party market data provider.
     Interest rate swaps and cross-currency swaps may be mapped 
to a swap curve and valued intraday based on changes of the swap curve, 
or another proxy as determined to be appropriate by the third party 
market data provider.
     Index credit default swaps (such as, CDX/CDS) may be 
valued using intraday data from market vendors, or based on underlying 
asset price, or another proxy as determined to be appropriate by the 
third party market data provider.
     Total return swaps may be valued intraday using the 
underlying asset price, or another proxy as determined to be 
appropriate by the third party market data provider.
     Exchange listed options may be valued intraday using the 
relevant exchange data, or another proxy as determined to be 
appropriate by the third party market data provider.
     OTC options and swaptions may be valued intraday through 
option valuation models (e.g., Black-Scholes) or using exchange traded 
options as a proxy, or another proxy as determined to be appropriate by 
the third party market data provider.
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 Adviser 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, such as the type of swap); the 
identity of the security, commodity, index or other asset or instrument 
underlying the holding, if any; for options, the option strike price; 
quantity held (as measured by, for example, par value, notional value 
or number of shares, contracts or units); maturity date, if any; coupon 
rate, if any; effective date, if any; market value of the holding; and 
the percentage weighting of the holding in the Fund's portfolio. The 
Web site information will be publicly available at no charge.
Impact on Arbitrage Mechanism
    The Adviser believes there will be minimal, if any, impact to the 
arbitrage mechanism as a result of the use of derivatives. Market 
makers and participants should be able to value derivatives as long as 
the positions are disclosed with relevant information. The Adviser 
believes that the price at which Shares trade will continue to be 
disciplined by arbitrage opportunities created by the ability to 
purchase or redeem creation Shares at their NAV, which should ensure 
that Shares will not trade at a material discount or premium in 
relation to their NAV.
    The Adviser does not believe there will be any significant impacts 
to the settlement or operational aspects of the Fund's arbitrage 
mechanism due to the use of derivatives. Because derivatives generally 
are not eligible for in-kind transfer, they will typically be 
substituted with a ``cash in lieu'' amount when the Fund processes 
purchases or redemptions of creation units in-kind.
Creations and Redemptions of Shares
    Investors may create or redeem in Creation Unit size of 100,000 
Shares or aggregations thereof (``Creation Unit'') through an 
Authorized Participant, as described in the Registration Statement. The 
size of a Creation Unit is subject to change. In order to purchase 
Creation Units of the Fund, an investor must generally deposit a 
designated portfolio of securities (the ``Deposit Securities'') (and/or 
an amount in cash in lieu of some or all of the Deposit Securities) per 
each Creation Unit constituting a substantial replication, or 
representation, of the securities included in the Fund's portfolio as 
selected by the Adviser (``Fund Securities'') and generally make a cash

[[Page 57258]]

payment referred to as the ``Cash Component.'' The list of the names 
and the amounts of the Deposit Securities will be made available by the 
Fund's custodian through the facilities of the National Securities 
Clearing Corporation (``NSCC'') immediately prior to the opening of the 
NYSE Arca Core Trading Session (9:30 a.m. to 4:00 p.m. E.T. The Cash 
Component will represent the difference between the NAV of a Creation 
Unit and the market value of the Deposit Securities.
    Shares may be redeemed only in Creation Unit size at their NAV on a 
day the NYSE Arca is open for business. The Fund's custodian will make 
available immediately prior to the opening of the NYSE Arca Core 
Trading Session, through the facilities of NSCC, the list of the names 
and the amounts of the Fund Securities that will be applicable that day 
to redemption requests in proper form. Fund Securities received on 
redemption may not be identical to Deposit Securities which are 
applicable to purchases of Creation Units. The creation/redemption 
order cut-off time for the Fund will be 4:00 p.m. E.T.
Availability of Information
    The Fund's Web site (www.guggenheiminvestments.com), which will be 
publicly available prior to the public offering of Shares, will include 
a form of the prospectus for the Fund that may be downloaded. The 
Fund's Web site will include additional quantitative information 
updated on a daily basis, including, for the Fund, (1) daily trading 
volume, the prior Business Day's reported closing price, NAV and mid-
point of the bid/ask spread at the time of calculation of such NAV (the 
``Bid/Ask Price''),\44\ and a calculation of the premium and discount 
of the Bid/Ask Price against the NAV, and (2) data in chart format 
displaying the frequency distribution of discounts and premiums of the 
daily Bid/Ask Price against the NAV, within appropriate ranges, for 
each of the four previous calendar quarters. On each Business Day, 
before commencement of trading in Shares in the Core Trading Session on 
the Exchange, the Fund will disclose on its Web site the Disclosed 
Portfolio as defined in NYSE Arca Equities Rule 8.600(c)(2) that will 
form the basis for the Fund's calculation of NAV at the end of the 
Business Day.\45\
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    \44\ The Bid/Ask Price of Shares of the Fund will be determined 
using the mid-point of the highest bid and the lowest offer on the 
Exchange as of the time of calculation of the Fund's NAV. The 
records relating to Bid/Ask Prices will be retained by the Fund and 
its service providers.
    \45\ Under accounting procedures to be followed by the Fund, 
trades made on the prior Business Day (``T'') will be booked and 
reflected in NAV on the current Business Day (``T+1''). Accordingly, 
the Fund will be able to disclose at the beginning of the Business 
Day the portfolio that will form the basis for the NAV calculation 
at the end of the Business Day.
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    In addition, a basket composition file, which will include the 
security names and share quantities required to be delivered in 
exchange for Fund Shares, together with estimates and actual cash 
components, will be publicly disseminated daily prior to the opening of 
the NYSE via NSCC. The basket represents one Creation Unit of the Fund.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and Form N-CSR 
and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports are available free upon request from the Trust, and those 
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or 
downloaded from the Commission's Web site at www.sec.gov. Information 
regarding market price and trading volume for the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares, U.S. exchange-traded common stocks, hybrid instruments, REITs, 
CEFs, ETFs, ETPs and ETNs will be available via the Consolidated Tape 
Association (``CTA'') high-speed line. Price information for OTC REITs, 
OTC common stocks, OTC CEFs, OTC options, money market instruments, 
forwards, structured notes, RLS, OTC derivative instruments and OTC 
hybrid instruments will be available from major market data vendors. 
Intra-day and closing price information for exchange-traded options and 
futures will be available from the applicable exchange and from major 
market data vendors. In addition, price information for U.S. exchange-
traded options is available from the Options Price Reporting Authority. 
Quotation information from brokers and dealers or independent pricing 
services will be available for Fixed Income Instruments. In addition, 
the Portfolio Indicative Value, as defined in NYSE Arca Equities Rule 
8.600(c)(3), will be widely disseminated by one or more major market 
data vendors at least every 15 seconds during the Core Trading 
Session.\46\ The dissemination of the Portfolio Indicative Value, 
together with the Disclosed Portfolio, will allow investors to 
determine the value of the underlying portfolio of the Fund on a daily 
basis and provide a close estimate of that value throughout the trading 
day.
---------------------------------------------------------------------------

    \46\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Portfolio Indicative Values taken from CTA or other data feeds.
---------------------------------------------------------------------------

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.\47\ Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 have been reached. Trading also may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. These may include: (1) The 
extent to which trading is not occurring in the securities and/or the 
financial instruments comprising the Disclosed Portfolio of the Fund; 
or (2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. Trading in 
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), 
which sets forth circumstances under which Shares of the Fund may be 
halted.
---------------------------------------------------------------------------

    \47\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------

Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with 
NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading 
Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price 
variation (``MPV'') for quoting and entry of orders in equity 
securities traded on the NYSE Arca Marketplace is $0.01, with the 
exception of securities that are priced less than $1.00 for which the 
MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents 
that, for initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 \48\ under the Act, as provided by NYSE Arca 
Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be 
outstanding at the commencement of

[[Page 57259]]

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.
---------------------------------------------------------------------------

    \48\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws. The Exchange represents that these 
procedures are adequate to properly monitor Exchange trading of the 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules and federal securities laws applicable to trading on the 
Exchange.\49\
---------------------------------------------------------------------------

    \49\ 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, certain exchange-traded options and 
futures, certain exchange-traded equities (including ETFs, ETPs. ETNs, 
CEFs, certain common stocks and certain REITs) with other markets or 
other entities that are members of the Intermarket Surveillance Group 
(``ISG''),\50\ and FINRA may obtain trading information regarding 
trading in the Shares, certain exchange-traded options and futures, 
certain exchange-traded equities (including ETFs, ETPs. ETNs, CEFs, 
certain common stocks and certain REITs) from such markets or entities. 
In addition, the Exchange may obtain information regarding trading in 
the Shares, certain exchange-traded options and futures, certain 
exchange-traded equities (including ETFs, ETPs. ETNs, CEFs, certain 
common stocks and certain REITs) from markets or other entities that 
are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.\51\ FINRA, on behalf of 
the Exchange, is able to access, as needed, trade information for 
certain fixed income securities held by the Fund reported to FINRA's 
Trade Reporting and Compliance Engine (``TRACE'').
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    \50\ 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.
    \51\ Certain of the exchange-traded equity securities in which 
the Fund may invest may trade in markets that are not members of 
ISG.
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    Not more than 10% of the net assets of the Fund in the aggregate 
invested in equity securities (other than non-exchange-traded 
investment company securities) shall consist of equity securities whose 
principal market is not a member of the ISG or is a market with which 
the Exchange does not have a comprehensive surveillance sharing 
agreement. Furthermore, not more than 10% of the net assets of the Fund 
in the aggregate invested in futures contracts or exchange-traded 
options contracts shall consist of futures contracts or exchange-traded 
options contracts whose principal market is not a member of ISG or is a 
market with which the Exchange does not have a comprehensive 
surveillance sharing agreement.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the Bulletin will discuss the 
following: (1) The procedures for purchases and redemptions of Shares 
in Creation Units (and that Shares are not individually redeemable); 
(2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due 
diligence on its ETP Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (3) the risks involved in 
trading the Shares during the Opening and Late Trading Sessions when an 
updated Portfolio Indicative Value will not be calculated or publicly 
disseminated; (4) how information regarding the Portfolio Indicative 
Value and the Disclosed Portfolio is disseminated; (5) the requirement 
that ETP Holders deliver a prospectus to investors purchasing newly 
issued Shares prior to or concurrently with the confirmation of a 
transaction; and (6) trading information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \52\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
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    \52\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600. The Exchange has in place surveillance procedures that are 
adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
federal securities laws applicable to trading on the Exchange.
    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 Adviser is affiliated with a broker-dealer and has represented 
that it has implemented a fire wall with respect to its broker-dealer 
affiliate regarding access to information concerning the composition 
and/or changes to the portfolio. 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. 
FINRA, on behalf of the Exchange, will communicate as needed regarding 
trading in the Shares, certain exchange-traded options and futures, 
certain exchange-traded equities (including ETFs, ETPs. ETNs, CEFs, 
certain common stocks and certain REITs) with other markets or other 
entities that are members of the ISG, and FINRA may obtain trading 
information regarding trading in the Shares, certain exchange-traded 
options and futures, certain exchange-traded equities (including

[[Page 57260]]

ETFs, ETPs. ETNs, CEFs, certain common stocks and certain REITs) from 
such markets or entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, certain exchange-traded 
options and futures, certain exchange-traded equities (including ETFs, 
ETPs. ETNs, CEFs, certain common stocks and certain REITs) from markets 
or other entities that are members of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement. FINRA, on 
behalf of the Exchange, is able to access, as needed, trade information 
for certain fixed income securities held by the Fund reported to 
FINRA's TRACE.
    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, such as the type of swap); the 
identity of the security, commodity, index or other asset or instrument 
underlying the holding, if any; for options, the option strike price; 
quantity held (as measured by, for example, par value, notional value 
or number of shares, contracts or units); maturity date, if any; coupon 
rate, if any; effective date, if any; market value of the holding; and 
the percentage weighting of the holding in the Fund's portfolio. Price 
information for the debt and equity securities held by the Fund will be 
available through major market data vendors and on the applicable 
securities exchanges on which such securities are listed and traded. In 
addition, a large amount of information will be publicly available 
regarding the Fund and the Shares, thereby promoting market 
transparency. Moreover, the Portfolio Indicative Value will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Exchange's Core Trading Session. On each Business 
Day, before commencement of trading in Shares in the Core Trading 
Session on the Exchange, 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 the CTA high-speed line. The Web site for the Fund 
will include a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information. 
Moreover, prior to the commencement of trading, the Exchange will 
inform its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. Trading 
in Shares of the Fund will be halted if the circuit breaker parameters 
in NYSE Arca Equities Rule 7.12 have been reached or because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable, and trading in the Shares will be 
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth 
circumstances under which Shares of the Fund may be halted. In 
addition, as noted above, investors will have ready access to 
information regarding the Fund's holdings, the Portfolio Indicative 
Value, the Disclosed Portfolio, and quotation and last sale information 
for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. Not more than 10% of the net assets of 
the Fund in the aggregate invested in equity securities (other than 
non-exchange-traded investment company securities) shall consist of 
equity securities whose principal market is not a member of the ISG or 
is a market with which the Exchange does not have a comprehensive 
surveillance sharing agreement. Furthermore, not more than 10% of the 
net assets of the Fund in the aggregate invested in futures contracts 
or exchange-traded options contracts shall consist of futures contracts 
or exchange-traded options contracts whose principal market is not a 
member of ISG or is a market with which the Exchange does not have a 
comprehensive surveillance sharing agreement. In addition, as noted 
above, investors will have ready access to information regarding the 
Fund's holdings, the Portfolio Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional type of actively-managed exchange-traded product that 
primarily holds fixed income securities, which may be represented by 
certain derivative instruments as discussed above, which will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or 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, as modified by Amendment No. 1, 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 rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2015-73 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities

[[Page 57261]]

and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2015-73. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Section, 100 F Street 
NE., Washington, DC 20549 on official business days between 10 a.m. and 
3 p.m. Copies of the filing will also be available for inspection and 
copying at the principal office of the Exchange. All comments received 
will be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2015-73 and should be submitted 
on or before October 13, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\53\
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    \53\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-23973 Filed 9-21-15; 8:45 am]
BILLING CODE 8011-01-P


