
[Federal Register Volume 81, Number 37 (Thursday, February 25, 2016)]
[Notices]
[Pages 9521-9531]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03940]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77179; File No. SR-NYSEArca-2016-17]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Listing and Trading of Shares of 
the JPMorgan Diversified Alternative ETF Under NYSE Arca Equities Rule 
8.600

February 19, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on February 5, 2016, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

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

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

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

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
following under NYSE Arca Equities Rule 8.600, which governs the 
listing and trading of Managed Fund Shares \4\ on the Exchange\5\: 
JPMorgan Diversified Alternative ETF (the ``Fund'').\6\
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    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Equities Rule 
5.2(j)(3), seeks to provide investment results that correspond 
generally to the price and yield performance of a specific foreign 
or domestic stock index, fixed income securities index or 
combination thereof.
    \5\ The Commission has previously approved listing and trading 
on the Exchange of actively managed funds under Rule 8.600. See, 
e.g., 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); 66321 (February 3, 2012), 77 FR 6850 (February 9, 
2012) (SR-NYSEArca-2011-95) (order approving listing and trading of 
PIMCO Total Return Exchange Traded Fund); 66670 (March 28, 2012), 77 
FR 20087 (April 3, 2012) (SR-NYSEArca-2012-09) (order approving 
listing and trading of PIMCO Global Advantage Inflation-Linked Bond 
Strategy Fund).
    \6\ The Trust is registered under the 1940 Act. On December 14, 
2015, the Trust filed with the Commission a 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. 333-191837 and 811-22903) (the ``Registration Statement''). The 
Trust filed an Application for an Order under Section 6(c) of the 
1940 Act for exemptions from various provisions of the 1940 Act and 
rules thereunder (File No. 812-13761), initially filed March 10, 
2010 and most recently amended on December 23, 2015 (``Exemptive 
Application''); the Exemptive Application was published for notice 
in IC Release No. 31956 on January 14, 2016. The Shares will not be 
listed on the Exchange until an order (``Exemptive Order'') under 
the 1940 Act has been issued by the Commission with respect to the 
Exemptive Application. Investments made by the Fund will comply with 
the conditions set forth in the Exemptive Order. The description of 
the operation of the Trust and the Fund herein is based, in part, on 
the Registration Statement and the Exemptive Application.
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    The Fund is a series of J.P. Morgan Exchange-Traded Fund Trust 
(``Trust''), a Delaware statutory trust. J.P. Morgan Investment 
Management Inc. (``Adviser'') will be the investment adviser to the 
Fund. The Adviser is a wholly-owned subsidiary of JPMorgan Asset 
Management Holdings Inc., which is a wholly-owned subsidiary of 
JPMorgan Chase & Co. (``JPMorgan Chase''), a bank holding company. 
JPMorgan Funds Management, Inc. (``Administrator'') will provide 
administrative services for and will oversee the other service 
providers of the Fund. SEI Investments Distribution Co. 
(``Distributor'') will be the distributor of the Fund's Shares.
    Commentary .06 to Rule 8.600 provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\7\ In addition,

[[Page 9522]]

Commentary .06 further requires that personnel who make decisions on 
the open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the open-end fund's portfolio. The Adviser is not 
registered as a broker-dealer but is affiliated with a broker-dealer 
and has implemented and will maintain a fire wall with respect to such 
broker-dealer affiliate regarding access to information concerning the 
composition and/or changes to the portfolio. In the event (a) the 
Adviser becomes registered as a broker-dealer or newly affiliated with 
one or more broker-dealers, or (b) any new adviser or sub-adviser is a 
registered broker-dealer or becomes affiliated with a broker-dealer, it 
will implement a fire wall with respect to its relevant personnel or 
its broker-dealer affiliate regarding access to information concerning 
the composition and/or changes to the portfolios, and will be subject 
to procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolios.
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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
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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    According to the Registration Statement, the Fund will seek to 
provide long term, total return. The Fund will seek to achieve its 
investment objective by allocating assets across several different 
investment strategies, including traditional and alternative investment 
strategies, such as those utilized by certain hedged funds.
    The strategies identified by the Adviser for the Fund fall into the 
following broad categories: ``Equity Long/Short'', ``Event Driven'' and 
``Global Macro Based'' (including equities, fixed income, currency and 
commodities) strategies, as described below. Within these broad 
strategies, the Adviser believes that it has identified a set of return 
sources present in markets that result from, among other things, 
assuming a particular risk or taking advantage of a behavioral bias 
(each a ``return factor'').
    According to the Registration Statement, under normal market 
conditions,\8\ the Fund will seek to achieve its investment objective 
by employing the above-referenced investment strategies to access 
certain of these return factors. Return factors utilized by the Fund 
will fall into the following broad categories depending on the 
strategy: Equity, fixed income, currency and commodities. Each 
represents a potential source of investment return that results from, 
among other things, assuming a particular risk or taking advantage of a 
behavioral bias. For example, the Adviser may gain exposure to a 
``momentum return factor'' by employing a strategy that buys securities 
with strong positive price momentum and shorts securities with strong 
negative price momentum. This strategy would seek to exploit a 
behavioral bias present in the market, in which investors tend to 
purchase securities that have recently performed well, thereby helping 
to contribute to continued positive price movement, and sell securities 
that have recently performed poorly, thereby helping to contribute to 
continued negative price movement. The Adviser believes that, in 
general, the Fund's investment returns are attributable to the 
individual contributions of the various return factors. By employing 
this return factor based approach, the Fund will seek to provide 
positive total returns over time while maintaining a relatively low 
correlation with traditional markets. The exposure to individual return 
factors may vary based on the market opportunity of the individual 
return factors.
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    \8\ The term ``under normal market conditions'' 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, cyber attacks, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance.
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    The Fund may employ the following investment strategies:
     Equity Long/Short: \9\ Equity Long/Short strategies 
involve simultaneous investing in equities (investing long) that the 
Adviser expects to increase in value and selling equities (i.e., 
selling short) that the adviser expects to decrease in value. Equity 
Long/Short seeks to profit by exploiting pricing inefficiencies between 
related equity securities by maintaining long and short positions.
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    \9\ In the Equity Long/Short strategies, the Fund may hold 
equity securities, primarily common stock, long and sell equity 
securities short or achieve the long and short positions through the 
use of a swap. The Fund may also utilize futures in these 
strategies.
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     Event Driven: \10\ Event Driven strategies seek to profit 
from investing in securities of companies on the basis that a specific 
event or catalyst will affect future pricing. For example, merger 
arbitrage strategies seek to capitalize on price discrepancies and 
returns generated by a corporate transaction. For example, the Fund may 
purchase the common stock of the company being acquired and short the 
common stock of the acquirer in expectation of profiting from the price 
differential between the purchase price of the securities and the value 
received for the securities as a result of or in expectation of the 
consummation of the merger.
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    \10\ In the Event Driven strategies, the Fund may hold equity 
securities, primarily common stock, long and sell equity securities 
short or achieve the long and short positions through the use of a 
swap. The Fund may also utilize futures in these strategies. In the 
future, the Fund may utilize long and short positions in debt 
securities (as described below) through the use of both physical 
securities or swaps.
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     Global Macro Based Strategies: \11\ Macro based strategies 
aim to exploit macro economic imbalances across the globe. The macro 
based strategies may be implemented through a broad range of asset 
classes including, but not limited to, equities, fixed income, currency 
and commodities. For example, this strategy will invest in the long-end 
of the government bond markets with the highest inflation adjusted 
yields and sell short the long-end of the government bond markets with 
the lowest inflation adjusted yields. As an alternative example, the 
strategy will seek to exploit supply and demand imbalances that occur 
in a given commodity market by utilizing long and short exposures 
achieved through different derivative instruments.
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    \11\ The Global Macro Based strategies may be implemented 
through equity securities, debt securities (including through 
investment in another fund), currency futures and forward contracts 
and commodities (through its investment in its Subsidiary, as 
described below).
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    See ``Principal Investments'' and ``Other Investments'' below for a 
description of all the investments that may be used within the Fund.
    According to the Registration Statement, the Fund will invest its 
assets globally (including in emerging

[[Page 9523]]

markets) to gain exposure to equity securities (across market 
capitalizations), debt securities,\12\ commodities (through its 
subsidiary as described below) and currencies. The Fund may use both 
long and short positions (achieved primarily through the use of 
derivative instruments, as described below). At all times, the Fund 
will maintain a total net long market exposure. However, the Fund may 
have net long or net short exposure to one or more industry sectors, 
individual markets and/or currencies.
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    \12\ For purposes of this filing, the term ``debt securities'' 
shall mean the following, as described further below: Corporate 
debt, bank obligations, commercial paper, repurchase agreements and 
short-term funding agreements, U.S. Government obligations, 
inflation-linked debt securities, U.S. government sponsored 
mortgage-backed securities, Brady Bonds, convertible securities, 
obligations of supranational agencies, reverse repurchase 
agreements, sovereign obligations, U.S. government agency 
securities, and restricted securities (144A securities).
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    According to the Registration Statement, the Adviser will make use 
of derivatives as described below,\13\ in implementing its strategies. 
Under normal market conditions, the Adviser currently expects that a 
significant portion of the Fund's exposure will be attained through the 
use of derivatives in addition to its exposure through direct 
investment. The derivatives usage will occur in both the Fund and in 
the Diversified Alternative Fund CS Ltd., a wholly owned subsidiary of 
the Fund organized under the laws of the Cayman Islands (the 
``Subsidiary'').\14\ For example, in implementing Equity Long/Short 
strategies and Global Macro Based strategies, the Fund may use a total 
return swap to establish both long and short positions in order to gain 
the desired exposure rather than physically purchasing and selling 
short each instrument. Derivatives may also be used to increase gain, 
to effectively gain targeted equity exposure from its cash positions, 
to hedge various investments and/or for risk management. As a result of 
the Fund's and the Subsidiary's use of derivatives and to serve as 
collateral, the Fund or the Subsidiary may hold significant amounts of 
U.S. Treasury obligations, including Treasury bills, bonds and notes 
and other obligations issued or guaranteed by the U.S. Treasury, and 
other short-term investments, including money market funds and foreign 
currencies in which certain derivatives are denominated.
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    \13\ See the description of derivatives in ``Principal 
Investments'' and ``The Fund's and the Subsidiary's, Use of 
Derivatives'', infra.
    \14\ As described below, the Subsidiary will invest only in 
commodity futures.
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    According to the Registration Statement, the amount that may be 
invested in any one instrument will vary and generally depend on the 
investment strategies and return factors employed by the Adviser at 
that time. However, with the exception of specified investment 
limitations for certain assets described below, there are no stated 
percentage limitations on the amount that can be invested in any one 
type of instrument, and the Adviser may, at times, invest in a smaller 
number of instruments. Moreover, the Fund will generally be 
unconstrained by any particular capitalization, style or sector and may 
invest in any region or country, including emerging markets.
    The Fund will purchase a particular instrument when the Adviser 
believes that such instrument will allow the Fund to gain the desired 
exposure to a return factor. Conversely, the Fund will consider selling 
a particular instrument when it no longer provides the desired exposure 
to a return factor. In addition, investment decisions will take into 
account a return factor's contribution to the Fund's overall 
volatility.

Principal Investments

    According to the Registration Statement, under normal market 
conditions, the Fund will invest principally (i.e., more than 50% of 
the Fund's assets) in the securities and financial instruments 
described below, which may be represented by derivatives, as discussed 
below.
    The Fund may invest in exchange-listed-and-traded common stocks, 
preferred stocks,\15\ warrants and rights \16\ of U.S. and foreign 
corporations,\17\ (including emerging market securities); and U.S. and 
non-U.S. REITs.\18\ Exchange-listed-and-traded common stocks, preferred 
stocks, warrants and rights of U.S. corporations and U.S. REITs will be 
traded on U.S. national securities exchanges.
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    \15\ Preferred stock is a class of stock that generally pays a 
dividend at a specified rate and has preference over common stock in 
the payment of dividends and in liquidation (U.S. and non-U.S., 
including emerging markets).
    \16\ Rights are securities, typically issued with preferred 
stock or bonds, that give the holder the right to buy a 
proportionate amount of common stock at a specified price (U.S. and 
non-U.S., including emerging markets).
    \17\ For purposes of this filing, common stocks, preferred 
stocks, warrants and rights of foreign corporations; non-U.S. real 
estate investment trusts (``REITs'') (as referenced below); and 
Depositary Receipts (as described below) (excluding Depositary 
Receipts that are registered under the Act) are referred to 
collectively as ``non-U.S. equity securities''. Under normal 
circumstances, the non-U.S. equity securities in the Fund's 
portfolio will meet the following criteria at time of purchase: (1) 
Non-U.S. equity securities each shall have a minimum market value of 
at least $100 million; (2) non-U.S. equity securities each shall 
have a minimum global monthly trading volume of 250,000 shares, or 
minimum global notional volume traded per month of $25,000,000, 
averaged over the last six months; (3) the most heavily weighted 
non-U.S. equity security shall not exceed 25% of the weight of the 
Fund's entire portfolio, and, to the extent applicable, the five 
most heavily weighted non-U.S. equity securities shall not exceed 
60% of the weight of the Fund's entire portfolio; and (4) each non-
U.S. equity security shall be listed and traded on an exchange that 
has last-sale reporting.
    \18\ REITs are pooled investment vehicles which invest primarily 
in income producing real estate or real estate related loans or 
interest.
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    The Fund may invest in exchange-listed and over-the-counter 
(``OTC'') Depositary Receipts.\19\
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    \19\ Depositary Receipts include American Depositary Receipts 
(``ADRs''), Global Depositary Receipts (``GDRs'') and European 
Depositary Receipts (``EDRs''). 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 by a European bank or trust company evidencing 
ownership of securities issued by a foreign corporation. GDRs are 
receipts issued throughout the world that evidence a similar 
arrangement. ADRs, EDRs and GDRs may trade in foreign currencies 
that differ from the currency the underlying security for each ADR, 
EDR or GDR principally trades in. Generally, ADRs, in registered 
form, are designed for use in the U.S. securities markets. EDRs, in 
registered form, are used to access European markets. GDRs, in 
registered form, are tradable both in the United States and in 
Europe and are designed for use throughout the world. No more than 
10% of the net assets of the Fund will be invested in ADRs that are 
not exchange-listed.
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    The Fund may invest in the following cash and cash equivalents: 
investments in money market funds (for which the Adviser and/or its 
affiliates serve as investment adviser or administrator), bank 
obligations,\20\ commercial paper,\21\ repurchase agreements and short-
term funding agreements.\22\
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    \20\ Bank obligations include the following: Bankers' 
acceptances, certificates of deposit and time deposits. Bankers' 
acceptances are bills of exchange or time drafts drawn on and 
accepted by a commercial bank. Maturities are generally six months 
or less. Certificates of deposit are negotiable certificates issued 
by a bank for a specified period of time and earning a specified 
return. Time deposits are non-negotiable receipts issued by a bank 
in exchange for the deposit of funds.
    \21\ Commercial paper consists of secured and unsecured short-
term promissory notes issued by corporations and other entities. 
Maturities generally vary from a few days to nine months.
    \22\ Short-term funding agreements are agreements issued by 
banks and highly rated U.S. insurance companies such as Guaranteed 
Investment Contracts (``GICs'') and Bank Investment Contracts 
(``BICs'').
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    The Fund may invest in corporate debt.\23\ These could include 
emerging market securities.
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    \23\ The Adviser expects that, under normal market conditions, 
the Fund generally will seek to invest at least 75% of its corporate 
debt 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.
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    The Fund may purchase and sell futures contracts on currencies and 
fixed income securities, and futures contracts on indexes of 
securities.
    The Fund may invest in OTC and exchange-traded call and put options 
on

[[Page 9524]]

equities, fixed income securities and currencies or options on indexes 
of equities, fixed income securities and currencies.
    In addition to money market funds referenced above, the Fund may 
invest in shares of non-exchange-traded investment company securities 
including investment company securities for which the Adviser and/or 
its affiliates may serve as investment adviser or administrator, to the 
extent permitted by Section 12(d)(1) \24\ of the 1940 Act and the rules 
thereunder.
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    \24\ 15 U.S.C. 80a-12(d)(1).
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    The Fund may invest in exchange traded funds (``ETFs'').\25\
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    \25\ The ETFs in which the Fund may invest will be registered 
under the 1940 Act and include 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). Such ETFs all will be listed and traded in the U.S. on 
registered exchanges. While the Fund may invest in inverse ETFs, the 
Fund will not invest in leveraged or inverse leveraged (e.g., 2X, -
2X, 3X or -3X) ETFs.
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    The Fund may invest in swaps as follows: credit default swaps 
(``CDSs''), interest rate swaps, currency swaps, total return swaps on 
equity securities and equity index swaps.
    The Fund may invest in forward and spot currency transactions. Such 
investments consist of non-deliverable forwards (``NDFs''), foreign 
forward currency contracts,\26\ and spot currency transactions.
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    \26\ 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.
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    The Fund may invest in U.S. Government obligations, which may 
include direct obligations of the U.S. Treasury, including Treasury 
bills, notes and bonds, all of which are backed as to principal and 
interest payments by the full faith and credit of the United States, 
and separately traded principal and interest component parts of such 
obligations that are transferable through the Federal book-entry system 
known as Separate Trading of Registered Interest and Principal of 
Securities (STRIPS) and Coupons Under Book Entry Safekeeping 
(``CUBES'').
    The Fund may invest in U.S. government sponsored mortgage-backed 
securities.

Other Investments

    While the Fund, under normal market conditions, will invest at 
least fifty percent (50%) of its assets in the securities and financial 
instruments described above, the Fund may invest its remaining assets 
in other assets and financial instruments, as described below.
    The Fund will gain exposure to commodity markets indirectly by 
investing up to 15% of its total assets in the Subsidiary. The 
Subsidiary also will be advised by the Adviser. The Subsidiary will 
only invest in commodity futures contracts and will also hold any 
necessary cash or other short-term investments as collateral. The Fund 
will not invest in such commodity futures contracts directly.
    The Fund may invest in Brady Bonds, which are securities created 
through the exchange of existing commercial bank loans to public and 
private entities in certain emerging markets for new bonds in 
connection with debt restructurings.
    The Fund may invest in U.S. and non-U.S. convertible securities, 
which are bonds or preferred stock that can convert to common stock. 
The Fund may invest in inflation-linked debt securities, which include 
fixed and floating rate debt securities of varying maturities issued by 
the U.S. government and foreign governments.
    The Fund may invest in obligations of supranational agencies, which 
are chartered to promote economic development and are supported by 
various governments and governmental agencies.
    The Fund may invest in reverse repurchase agreements.
    The Fund may invest in sovereign obligations, which are investments 
in debt obligations issued or guaranteed by a foreign sovereign 
government or its agencies, authorities or political subdivisions.
    The Fund may invest in U.S. Government agency securities (excluding 
U.S. government sponsored mortgage-backed securities, referenced 
above), which are securities issued or guaranteed by agencies and 
instrumentalities of the U.S. government. These include all types of 
securities issued by the Government National Mortgage Association 
(``Ginnie Mae''), the Federal National Mortgage Association (``Fannie 
Mae'') and the Federal Home Loan Mortgage Corporation (``Freddie 
Mac''), including funding notes, subordinated benchmark notes, 
collateralized mortgage obligations (``CMOs'') and real estate mortgage 
investment conduits (``REMICs'').
    The Fund may invest in equity and debt securities that are 
restricted securities (Rule 144A securities).
    Under normal market conditions, the Fund may invest no more than 5% 
of its assets in OTC common stocks, preferred stocks, warrants, rights 
and contingent value rights (``CVRs'') of U.S. and foreign corporations 
(including emerging market securities).

Other Restrictions

    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser, 
consistent with Commission guidance. The Fund will monitor its 
portfolio liquidity on an ongoing basis to determine whether, in light 
of current circumstances, an adequate level of liquidity is being 
maintained, and will consider taking appropriate steps in order to 
maintain adequate liquidity if, through a change in values, net assets, 
or other circumstances, more than 15% of the Fund's net assets are held 
in illiquid assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.\27\
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    \27\ 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).
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    The Fund may invest in other investment companies to the extent 
permitted by Section12(d)(1) of the 1940 Act and rules thereunder and/
or any applicable exemption or exemptive order under the 1940 Act with 
respect to such investments.
    The Fund may invest in securities denominated in U.S. dollars, 
major reserve currencies, and currencies of other countries in which 
the Fund may invest.
    The Fund may investment in both investment grade and high yield 
debt securities.
    The Fund intends to qualify for and to elect treatment as a 
separate regulated investment company (``RIC'') under Subchapter M of 
the Internal Revenue Code.\28\ Furthermore, the Fund may not 
concentrate investments in a particular industry or group of 
industries, as

[[Page 9525]]

concentration is defined under the 1940 Act, the rules or regulations 
thereunder or any exemption therefrom, as such statute, rules or 
regulations may be amended or interpreted from time to time.\29\
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    \28\ 26 U.S.C. 851 et seq.
    \29\ The Registration Statement states that, for purposes of the 
Fund's fundamental investment policy regarding industry 
concentration, ``to concentrate'' generally means to invest more 
than 25% of the Fund's total assets, taken at market value at the 
time of investment. For the Fund this restriction does not apply to 
securities issued or guaranteed by the U.S. government, any state or 
territory of the U.S., its agencies, instrumentalities, or political 
subdivisions, or repurchase agreements secured thereby, and futures 
and options transactions issued or guaranteed by any of the 
foregoing. For purposes of fundamental investment policies involving 
industry concentration, ``group of industries'' means a group of 
related industries, as determined in good faith by the Adviser, 
based on published classifications or other sources. For purposes of 
fundamental investment policies regarding industry concentration, 
the Adviser may classify issuers by industry in accordance with 
classifications set forth in the Directory of Companies Filing 
Annual Reports with the SEC or other sources. In the absence of such 
classification or if the Adviser determines in good faith based on 
its own information that the economic characteristics affecting a 
particular issuer make it more appropriate to be considered engaged 
in a different industry, the Adviser may classify an issuer 
accordingly. Accordingly, the composition of an industry or group of 
industries may change from time to time. For purposes of fundamental 
investment policies involving industry concentration, ``group of 
industries'' means a group of related industries, as determined in 
good faith by the Adviser based on published classifications or 
other sources.
---------------------------------------------------------------------------

    The Fund is a diversified series of the Trust. The Fund intends to 
meet the diversification requirements of the 1940 Act.\30\
---------------------------------------------------------------------------

    \30\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
---------------------------------------------------------------------------

    The Fund's investments, including derivatives, will be consistent 
with the Fund's investment objective and will not be used to enhance 
leverage (although certain derivatives may result in leverage). That 
is, while the Fund will be permitted to borrow as permitted under the 
1940 Act, the Fund's (and the Subsidiary'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).\31\
---------------------------------------------------------------------------

    \31\ 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 and the Subsidiary's Use of Derivatives

    The Fund proposes to seek certain exposures through transactions in 
the specific derivative instruments described above. The derivatives 
usage may occur in the Fund or the Subsidiary (provided that the 
Subsidiary will invest only in commodity futures). The derivatives to 
be used are futures, swaps, NDFs, foreign forward currency contracts, 
and call and put options. Derivatives, which are instruments that have 
a value based on another instrument, exchange rate or index, may also 
be used as substitutes for securities in which the Fund can invest. The 
Fund may use these derivative instruments to increase gain, to 
effectively gain targeted exposure from its cash positions, to hedge 
various investments and/or for risk management.
    Investments in derivative instruments will be made in accordance 
with the 1940 Act and consistent with the Fund's investment objective 
and policies. 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.\32\ Because the markets for 
certain assets, or the assets 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.
---------------------------------------------------------------------------

    \32\ To mitigate leveraging risk, the Adviser will segregate or 
``earmark'' liquid assets or otherwise cover the transactions that 
may give rise to such risk.
---------------------------------------------------------------------------

Creation and Redemption of Shares

    According to the Registration Statement, the consideration for a 
purchase of Creation Units will generally be cash, but may consist of 
an in-kind deposit of a designated portfolio of equity securities and 
other investments (the ``Deposit Instruments'') and an amount of cash 
computed as described below (the ``Cash Amount'') under some 
circumstances. The Cash Amount together with the Deposit Instruments, 
as applicable, are referred to as the ``Portfolio Deposit,'' which 
represents the minimum initial and subsequent investment amount for a 
Creation Unit of the Fund.
    In the event the Fund requires Deposit Instruments and a Cash 
Amount in consideration for purchasing a Creation Unit, the function of 
the Cash Amount is to compensate for any differences between the NAV 
per Creation Unit and the Deposit Amount (as defined below). The Cash 
Amount would be an amount equal to the difference between the NAV of 
the Shares (per Creation Unit) and the ``Deposit Amount,'' which is an 
amount equal to the aggregate market value of the Deposit Instruments. 
If the Cash Amount is a positive number (the NAV per Creation Unit 
exceeds the Deposit Amount), the Authorized Participant will deliver 
the Cash Amount. If the Cash Amount is a negative number (the NAV per 
Creation Unit is less than the Deposit Amount), the Authorized 
Participant will receive the Cash Amount. The Administrator, through 
the National Securities Clearing Corporation (``NSCC''), will make 
available on each business day, immediately prior to the opening of 
business on the Exchange (currently 9:30 a.m. Eastern time (``E.T.'')), 
the list of the names and the required number of shares of each Deposit 
Instrument to be included in the current Portfolio Deposit (based on 
information at the end of the previous business day), as well as 
information regarding the Cash Amount for the Fund. Such Portfolio 
Deposit is applicable, subject to any adjustments as described below, 
in order to effect creations of Creation Units of the Fund until such 
time as the next-announced Portfolio Deposit composition is made 
available.
    The identity and number of the Deposit Instruments and Cash Amount 
required for the Portfolio Deposit for the Fund changes as rebalancing 
adjustments and corporate action events are reflected from time to time 
by the Adviser with a view to the investment objective of the Fund. In 
addition, the Trust reserves the right to accept a basket of securities 
or cash that differs from Deposit Instruments or to permit the 
substitution of an amount of cash (i.e., a ``cash in lieu'' amount) to 
be added to the Cash Amount to replace any Deposit Instrument which 
may, among other reasons, not be available in sufficient quantity for 
delivery, not be permitted to be re-registered in the name of the Trust 
as a result of an in-kind creation order pursuant to local law or 
market convention or for other reasons as described in the Registration 
Statement, or which may not be eligible for trading by a Participating 
Party (defined below). In light of the foregoing, in order to seek to 
replicate

[[Page 9526]]

the in-kind creation order process, the Trust expects to purchase the 
Deposit Instruments represented by the cash in lieu amount in the 
secondary market.
    In addition to the list of names and numbers of securities 
constituting the current Deposit Instruments of a Portfolio Deposit, 
the Administrator, through the NSCC, also will make available on each 
business day, the estimated Cash Component adjusted through the close 
of the trading day.

Procedures for Creation of Creation Units

    To be eligible to place orders with the Distributor to create 
Creation Units of the Fund, an entity or person either must be (1) a 
``Participating Party,'' i.e., a broker-dealer or other participant in 
the clearing process through the Continuous Net Settlement System of 
the NSCC; or (2) a Depositary Trust Company (``DTC'') Participant, 
which, in either case, must have executed an agreement with the 
Distributor (as it may be amended from time to time in accordance with 
its terms) (``Participant Agreement'') (discussed below). A 
Participating Party and DTC Participant are collectively referred to as 
an ``Authorized Participant.'' All orders to create Creation Units must 
be received by the Distributor no later than the closing time of the 
regular trading session on the Exchange (``Closing Time'') (ordinarily 
4:00 p.m. E.T.), in each case on the date such order is placed in order 
for creation of Creation Units to be effected based on the NAV of the 
Fund as determined on such date.

Redemption of Creation Units

    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Distributor, only on a business day and only through a Participating 
Party or DTC Participant who has executed a Participant Agreement. The 
Trust will not redeem Shares in amounts less than Creation Units.
    Although the Fund will generally pay redemption proceeds in cash, 
there may be instances when it will make redemptions in-kind. In these 
instances, the Administrator, through NSCC, makes available immediately 
prior to the opening of business on the Exchange (currently 9:30 a.m. 
E.T.) on each day that the Exchange is open for business, the identity 
of the Fund's assets and/or an amount of cash that will be applicable 
(subject to possible amendment or correction) to redemption requests 
received in proper form on that day. Unless cash redemptions are 
permitted or required for the Fund, the redemption proceeds for a 
Creation Unit generally consist of Redemption Instruments as announced 
by the Administrator on the business day of the request for redemption, 
plus cash in an amount equal to the difference between the NAV of the 
Shares being redeemed, as next determined after a receipt of a request 
in proper form, and the value of the Redemption Instruments, less the 
redemption transaction fee and variable fees described below.
    Should the Redemption Instruments have a value greater than the NAV 
of the Shares being redeemed, a compensating cash payment to the Trust 
equal to the differential plus the applicable redemption transaction 
fee will be required to be arranged for by or on behalf of the 
redeeming shareholder. The Fund reserves the right to honor a 
redemption request by delivering a basket of securities or cash that 
differs from the Redemption Instruments.\33\
---------------------------------------------------------------------------

    \33\ The Adviser represents that, to the extent the Trust 
effects the creation or redemption of Shares in cash, such 
transactions will be effected in the same manner for all Authorized 
Participants.
---------------------------------------------------------------------------

Valuation Methodology for Purposes of Determining Net Asset Value

    The NAV of Shares, under normal market conditions, will be 
calculated each business day as of the close of the Exchange, which is 
typically 4:00 p.m. E.T. On occasion, the Exchange will close before 
4:00 p.m. E.T. When that happens, NAV will be calculated as of the time 
the Exchange closes. The price at which a purchase of a Creation Unit 
is effected is based on the next calculation of NAV after the order is 
received in proper form.
    Securities for which market quotations are readily available will 
generally be valued at their current market value. Other securities and 
assets, including securities for which market quotations are not 
readily available or market quotations are determined not to be 
reliable; or, if their value has been materially affected by events 
occurring after the close of trading on the exchange or market on which 
the security is principally traded but before the Fund's NAV is 
calculated, may be valued at fair value in accordance with policies and 
procedures adopted by the Trust's Board of Trustees. Fair value 
represents a good faith determination of the value of a security or 
other asset based upon specifically applied procedures. Fair valuation 
may require subjective determinations.
    U.S. exchange-traded common stocks, preferred stocks, warrants, 
rights, REITs, and Depositary Receipts will be valued at the last sale 
price or official market closing price on the primary exchange on which 
such security trades. Exchange-traded non-U.S. equity securities will 
be valued at the last sale price or official market closing price on 
the primary exchange on which such security trades.
    OTC equity securities will be priced utilizing market quotations 
provided by approved pricing services or by broker quotation. For OTC 
warrants, rights and CVRs, if no pricing service or broker quotation is 
available, then the warrant, right or CVR will be valued intrinsically 
based on the terms of issuance.
    Shares of non-exchange-traded open-end investment companies will be 
valued at their current day NAV published by the relevant fund. ETFs 
will be valued at the last sale price or official market closing price 
on the primary exchange on which such ETF trades.
    CDS, interest rate swaps, currency swaps, total return swaps, index 
swaps, and commodity swaps will be priced utilizing market quotations 
provided by approved pricing services.
    Forward and spot currency transactions will be valued based on 
foreign exchange rates obtained from an approved pricing service, using 
spot and forward rates available at the time net asset value of the 
Fund is calculated.
    Commercial paper will be valued at prices supplied by approved 
pricing services which is generally based on bid-side quotations.
    Options traded on U.S. exchanges shall be valued at the composite 
mean price, using the National Best Bid and Offer quotes (``NBBO'') on 
the valuation date. NBBO consists of the highest bid price and lowest 
ask price across any of the exchanges on which an option is quoted.
    Options traded on foreign exchanges are valued at the settled price 
on the valuation date, or if no settled price is available, at the last 
sale price available prior to the calculation of the Fund's net asset 
value.
    Futures traded on U.S. and foreign exchanges are valued at the 
settled price, or if no settled price is available, at the last sale 
price as of the close of the exchanges on the valuation date.
    OTC derivatives are priced utilizing market quotations provided by 
approved pricing services.
    In addition, non-Western Hemisphere equity securities or 
derivatives involving non-Western Hemisphere equity reference 
obligations are normally subject to adjustment (fair value) each day by 
applying a fair value factor provided by approved pricing

[[Page 9527]]

services to the values obtained as described above.
    Convertible securities will be valued at prices supplied by 
approved pricing services which is generally based on bid-side 
quotations.
    Corporate debt securities will be valued at prices supplied by 
approved pricing services which is generally based on bid-side 
quotations.
    Inflation-linked debt securities, mortgage-backed securities, bank 
obligations, Brady Bonds, short-term funding agreements, repurchase 
agreements, reverse repurchase agreements, U.S. Government agency 
securities, U.S. Government obligations, sovereign obligations, 
obligations of supranational agencies and Rule 144A securities will be 
valued at prices supplied by approved pricing services which is 
generally based on bid-side quotations.

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. 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:
     NDFs and foreign forward currency contracts 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.
     Credit default swaps may be valued using intraday data 
from market vendors, or based on underlying asset price, or another 
proxy as determined to be appropriate by the third party market data 
provider.
     Total return swaps may be valued intraday using the 
underlying asset price, or another proxy as determined to be 
appropriate by the third party market data provider.
     Exchange listed options may be valued intraday using the 
relevant exchange data, or another proxy as determined to be 
appropriate by the third party market data provider.
     OTC options may be valued intraday through option 
valuation models (e.g., Black-Scholes) or using exchange traded options 
as a proxy, or another proxy as determined to be appropriate by the 
third party market data provider.

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 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.

Availability of Information

    The Fund's Web site (www.jpmorganfunds.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 or mid-point of the 
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask 
Price''),\34\ 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 
Adviser will disclose on the Fund's Web site the Disclosed Portfolio 
for the Fund 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.\35\
---------------------------------------------------------------------------

    \34\ The Bid/Ask Price of the Fund's Shares 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.
    \35\ 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.
---------------------------------------------------------------------------

    The Fund's portfolio holdings (including those of the Subsidiary) 
will be disclosed on its Web site daily after the close of trading on 
the Exchange and prior to the opening of trading on the Exchange the 
following day.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports are

[[Page 9528]]

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.
    Quotation and last sale information for the Shares and for 
portfolio holdings of the Fund that are U.S. exchange listed, including 
common stocks, preferred stocks, warrants, rights, ETFs, REITs, and 
U.S. exchange-traded ADRs will be available via the Consolidated Tape 
Association (``CTA'') high speed line. Quotation and last sale 
information for such U.S. exchange-listed securities, as well as 
futures will be available from the exchange on which they are listed. 
Quotation and last sale information for exchange-listed options cleared 
via the Options Clearing Corporation will be available via the Options 
Price Reporting Authority. Quotation and last sale information for non-
U.S. equity securities will be available from the exchanges on which 
they trade and from major market data vendors, as applicable. Price 
information for OTC common stocks, preferred stocks, warrants, rights 
and CVRs will be available from the Fund's Web site or from major 
market data vendors.
    Quotation information for OTC options, cash equivalents, swaps, 
Brady Bonds, inflation-linked debt instruments, obligations of 
supranational agencies, money market funds, non-exchange-listed 
investment company securities (other than money market funds), Rule 
144A securities, U.S. Government obligations, U.S. Government agency 
obligations, sovereign obligations, corporate debt, inflation-linked 
debt securities, and reverse repurchase agreements may be obtained from 
brokers and dealers who make markets in such securities or through 
nationally recognized pricing services through subscription agreements. 
The U.S. dollar value of foreign securities, instruments and currencies 
can be derived by using foreign currency exchange rate quotations 
obtained from nationally recognized pricing services. Forwards and spot 
currency price information will be available from major market data 
vendors.
    In addition, the Portfolio Indicative Value (``PIV''), as defined 
in NYSE Arca Equities Rule 8.600 (c)(3), will be widely disseminated by 
one or more major market data vendors at least every 15 seconds during 
the Core Trading Session.\36\ The dissemination of the PIV, together 
with the Disclosed Portfolio, will allow investors to determine the 
approximate value of the underlying portfolio of the Fund on a daily 
basis and will provide a close estimate of that value throughout the 
trading day.
---------------------------------------------------------------------------

    \36\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available PIVs 
taken from the CTA or other data feeds.
---------------------------------------------------------------------------

Trading Halts

    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund.\37\ 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 of the Fund 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.
---------------------------------------------------------------------------

    \37\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

Trading Rules

    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 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 of the Fund 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 \38\ 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 trading on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares of 
the Fund that the NAV and the Disclosed Portfolio will be made 
available to all market participants at the same time.
---------------------------------------------------------------------------

    \38\ 17 CFR 240 10A-3.
---------------------------------------------------------------------------

Surveillance

    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by regulatory staff 
of the Exchange, or 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.\39\ 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.
---------------------------------------------------------------------------

    \39\ FINRA surveils certain trading activity 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.
    The regulatory staff of the Exchange or FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares, 
certain exchange-listed equity securities, certain futures, and certain 
exchange-traded options with other markets and other entities that are 
members of the Intermarket Surveillance Group (``ISG''), and FINRA, on 
behalf of the Exchange, may obtain trading information regarding 
trading such securities and financial instruments from such markets and 
other entities. In addition, the regulatory staff of the Exchange may 
obtain information regarding trading in such securities and financial 
instruments from markets and other entities that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.\40\

[[Page 9529]]

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'').
---------------------------------------------------------------------------

    \40\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    Under normal circumstances, the non-U.S. equity securities in the 
Fund's portfolio will meet the following criteria at time of purchase: 
(1) Non-U.S. equity securities each shall have a minimum market value 
of at least $100 million; (2) non-U.S. equity securities each shall 
have a minimum global monthly trading volume of 250,000 shares, or 
minimum global notional volume traded per month of $25,000,000, 
averaged over the last six months; (3) the most heavily weighted non-
U.S. equity security shall not exceed 25% of the weight of the Fund's 
entire portfolio, and, to the extent applicable, the five most heavily 
weighted non-U.S. equity securities shall not exceed 60% of the weight 
of the Fund's entire portfolio; and (4) each non-U.S. equity security 
shall be listed and traded on an exchange that has last-sale reporting.
    Not more than 10% of the net assets of the Fund in the aggregate 
invested in futures contracts or exchange-traded options shall consist 
of futures contracts or options whose principal market is not a member 
of ISG or is a market with which the Exchange does not have a 
comprehensive surveillance sharing agreement.
    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 of the Fund. 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 PIV will not be calculated or publicly 
disseminated; (4) how information regarding the PIV 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 of the Fund 
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) \41\ 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.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600. The Adviser is not registered as a broker-dealer but is 
affiliated with a broker-dealer and has implemented and will maintain a 
fire wall with respect to such broker-dealer affiliate regarding access 
to information concerning the composition and/or changes to the 
portfolio. The Exchange represents that trading in the Shares will be 
subject to the existing trading surveillances, administered by 
regulatory staff of the Exchange or FINRA on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws. The Exchange represents that these 
procedures are adequate to properly monitor Exchange trading of the 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules and applicable federal securities laws. The regulatory 
staff of the Exchange or FINRA, on behalf of the Exchange, will 
communicate as needed regarding trading in the Shares, certain 
exchange-listed equity securities, certain futures, and certain 
exchange-traded options with other markets and other entities that are 
members of the ISG, and FINRA, on behalf of the Exchange, may obtain 
trading information regarding trading such securities and financial 
instruments from such markets and other entities. In addition, the 
regulatory staff of the Exchange may obtain information regarding 
trading in such securities and financial instruments from markets and 
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. Under normal circumstances, the non-U.S. equity 
securities in the Fund's portfolio will meet the following criteria at 
time of purchase: (1) Non-U.S. equity securities each shall have a 
minimum market value of at least $100 million; (2) non-U.S. equity 
securities each shall have a minimum global monthly trading volume of 
250,000 shares, or minimum global notional volume traded per month of 
$25,000,000, averaged over the last six months; (3) the most heavily 
weighted non-U.S. equity security shall not exceed 25% of the weight of 
the Fund's entire portfolio, and, to the extent applicable, the five 
most heavily weighted non-U.S. equity securities shall not exceed 60% 
of the weight of the Fund's entire portfolio; and (4) each non-U.S. 
equity security shall be listed and traded on an exchange that has 
last-sale reporting. Not more than 10% of the net assets of the Fund in 
the aggregate invested in futures contracts or exchange-traded options 
shall consist of futures contracts or options whose principal market is 
not a member of ISG or is a market with which the Exchange does not 
have a comprehensive surveillance sharing agreement.
    The PIV, as defined in NYSE Arca Equities Rule 8.600 (c)(3), will 
be widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Core Trading Session. The Fund may 
hold up to an aggregate amount of 15% of its net assets in illiquid 
assets (calculated at the time of investment), including Rule 144A 
securities deemed illiquid by the Adviser, consistent with Commission 
guidance.
    The Shares of the Fund 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 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 trading on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares of 
the Fund that the NAV per Share will be calculated daily and that

[[Page 9530]]

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 respective 
Shares, thereby promoting market transparency. The Fund's portfolio 
holdings will be disclosed on its Web site daily after the close of 
trading on the Exchange and prior to the opening of trading on the 
Exchange the following day. On a daily basis, the Fund will disclose on 
its 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, 
commodity, index or other asset or instrument underlying the holding, 
if any; quantity held (as measured by, for example, par value, notional 
value or number of shares, contracts or units); maturity date, if any; 
coupon rate, if any; effective date, if any; market value of the 
holding; and the percentage weighting of the holding in the Fund's 
portfolio. The Web site information will be publicly available at no 
charge.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports 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. Quotation and 
last sale information for the Shares and for portfolio holdings of the 
Fund that are U.S. exchange listed, including common stocks, preferred 
stocks, warrants, rights, ETFs, REITs, and U.S. exchange-traded ADRs 
will be available via the CTA high speed line. Quotation and last sale 
information for such U.S. exchange-listed securities, as well as 
futures will be available from the exchange on which they are listed. 
Quotation and last sale information for exchange-listed options cleared 
via the Options Clearing Corporation will be available via the Options 
Price Reporting Authority. Quotation and last sale information for non-
U.S. equity securities will be available from the exchanges on which 
they trade and from major market data vendors.
    Quotation information for OTC options, cash equivalents, swaps, 
Brady Bonds, inflation-linked debt instruments, obligations of 
supranational agencies, money market funds, Rule 144A securities, U.S. 
Government obligations, U.S. Government agency obligations, sovereign 
obligations, corporate debt, and reverse repurchase agreements may be 
obtained from brokers and dealers who make markets in such securities 
or through nationally recognized pricing services through subscription 
agreements. The U.S. dollar value of foreign securities, instruments 
and currencies can be derived by using foreign currency exchange rate 
quotations obtained from nationally recognized pricing services. 
Forwards and spot currency price information will be available from 
major market data vendors.
    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 of the Fund. 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 PIV, the Disclosed Portfolio, and quotation and last sale 
information for the Shares. The Fund's investments, including 
derivatives, will be consistent with the Fund's investment objective 
and will not be used to enhance leverage (although certain derivatives 
may result in 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).
    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 of the 
Fund and may obtain information via ISG from other exchanges that are 
members of ISG or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. In addition, as noted 
above, investors will have ready access to information regarding the 
Fund's holdings, the PIV, the Disclosed Portfolio for the Fund, and 
quotation and last sale information for the Shares of the Fund.

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 holds 
fixed income and equity securities and that will enhance competition 
among market participants, to the benefit of investors and the 
marketplace.

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or 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

[[Page 9531]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR- SR-NYSEArca-2016-17 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2016-17. 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-NYSEArca-2016-17 and should 
be submitted on or before March 17, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-03940 Filed 2-24-16; 8:45 am]
 BILLING CODE 8011-01-P


