As filed with the Securities and Exchange
Commission on April 15, 2020
Securities Act Registration No. 333-183489
Investment Company Act Reg. No. 811-22739
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 x
Post-Effective Amendment No. 26 x
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 ☒
Amendment No. 32 x
(Check appropriate box or boxes.)
INDEXIQ
ACTIVE ETF TRUST
(Exact Name of Registrant as Specified
in Charter)
51 Madison Avenue
New York, NY 10010
(Address of Principal
Executive Offices) (Zip Code)
Registrant’s
Telephone Number, including Area Code: (888) 474-7725
Matthew V. Curtin, Esq.
IndexIQ Advisors LLC
51 Madison Avenue
New York, NY 10010
It is proposed that this filing will become effective:
¨
immediately upon filing pursuant to paragraph (b)
¨
on [ ], pursuant to paragraph (b)(1) of Rule 485
¨
60 days after filing pursuant to paragraph (a)(1) of Rule 485
¨
on [ ], pursuant to paragraph (a)(1) of Rule 485
x 75 days after filing pursuant to paragraph
(a)(2) of Rule 485
¨
on [ ], pursuant to paragraph (a)(2) of Rule 485
IndexIQ
Active ETF Trust
PROSPECTUS | _____________, 2020
IQ m+ Preservation
[ ] ETF (____)
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Funds’ shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and
you need not take any action. If you hold accounts through a financial intermediary, you may contact your financial intermediary
to enroll in electronic delivery. Please note that not all financial intermediaries may offer this service.
You may elect to
receive all future reports in paper free of charge. If you hold accounts through a financial intermediary, you can contact
your financial intermediary to request that you continue to receive paper copies of your shareholder reports. Your election
to receive reports in paper will apply to all funds held with your financial intermediary.
Not FDIC Insured | May Lose Value
| No Bank Guarantee
IndexIQ Active ETF Trust (the “Trust”) is a registered
investment company that consists of separate investment portfolios called “Fund.” This Prospectus relates to the following
Fund:
Name
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CUSIP
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Symbol
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IQ m+ Preservation [ ] ETF
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[__________]
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[____]
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The
Fund is an exchange-traded fund (“ETF”). This means that shares of the Fund are listed on a national securities exchange,
such as the [ ] (“[ ]”)], and trade at market prices. The market price for the Fund’s shares may be different
from its net asset value per share (the “NAV”). The Fund has its own CUSIP number and exchange trading symbol.
The
information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it
is not soliciting an offer to buy these securities in any state where the offer of sale is not permitted.
Prospectus
IQ m+ Preservation
[ ] ETF
[Exchange]
[Date]
IQ m+ Preservation
[ ] ETF (the “Fund”)
is a series
of IndexIQ Active ETF Trust (the “Trust”) and is an actively managed ETF.
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The Fund will invest substantially
all of its net assets in exchange-traded FLexible EXchange® Options (“FLEX Options”) on the [ ] Index
(the “Reference Index”) and cash and/or cash equivalents. Through the use of FLEX Options on the Reference Index,
the Fund seeks to provide, for successive periods of approximately [__] months (each a “Defined Outcome Period”),
a return that is based upon the performance of the Reference Index over the duration of the Defined Outcome Period (the “Defined
Outcomes”). The first Defined Outcome Period begins on __________, 2020 and will end on _________, 2021. Following the conclusion
of a Defined Outcome Period, another Defined Outcome Period with an approximately [__]-month duration will begin. The
Fund will not terminate after the conclusion of a Defined Outcome Period. There is no guarantee that the Fund will successfully
provide the Defined Outcomes for any Defined Outcome Period.
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The Fund’s strategy has been specifically designed to produce the Defined Outcomes set
forth below based upon the return of the Reference Index over the duration of a Defined Outcome Period. The Defined Outcomes
are based on the Fund’s net asset value (“NAV”) at the time the Fund enters into the FLEX Option positions
corresponding to a Defined Outcome at the beginning of a Defined Outcome Period and will not be, and are not designed to be,
provided prior to the expiration of such FLEX Options at the end of the Defined Outcome Period. Accordingly, the
Defined Outcomes may only be realized by an investor who holds shares of the Fund (“Shares”) at the beginning of
a Defined Outcome Period (when the Fund enters into the corresponding FLEX Options) and continues to hold those Shares until
the end of the Defined Outcome Period (when the FLEX Options expire). An investor who purchases Shares after a Defined
Outcome Period has begun or sells their Shares prior to a Defined Outcome Period’s conclusion may experience investment
returns very different from those that the Fund seeks to provide.
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The Fund seeks to provide the following Defined Outcomes
for investors who hold Shares for the entire duration of a Defined Outcome Period. There is no guarantee that the Fund will
successfully provide the Defined Outcomes for any Defined Outcome Period. The Defined Outcomes set forth below do not take
into account any fees or expenses paid by the Fund or the market price at which a shareholder buys or sells their Shares.
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o
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If the Reference Index increases in value over the duration
of a Defined Outcome Period: the Fund seeks to have a return per Share that approximately equals the percentage increase
in the Reference Index (the “Equal Upside”), subject to a maximum total return (the
“Upside Cap”) (which is discussed in greater detail below and throughout this prospectus).
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§
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The Upside Cap for the current Defined Outcome Period is [___]%.
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o
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If the Reference Index decreases in value over the duration
of a Defined Outcome Period: the Fund seeks to have a return per Share that approximately equals the percentage decrease in
the Reference Index, subject to a maximum total loss of approximately [ ]% (the “Maximum Loss”). Therefore, while the
Fund will participate in the first [__]% of Reference Index price depreciation on a one-to-one basis, it seeks to
preserve approximately 95% of its value during a Defined Outcome Period.
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In the event that the Reference Index increases in value
over the duration of a Defined Outcome Period, the extent to which Fund shareholders will experience those gains is subject to
the Upside Cap that represents the maximum percentage return an investor can achieve from an investment in the Fund for a Defined
Outcome Period. Therefore, even though the Fund’s returns are based upon the Reference Index, if the Reference Index experiences
percentage returns for a Defined Outcome Period in excess of the Upside Cap, a shareholder will not experience those excess gains.
The Upside Cap is set at the beginning of a Defined Outcome Period. For the current Defined Outcome Period, the Upside Cap is
[ ]%, prior to taking into account any fees or expenses charged to shareholders. When the Fund’s “Total Annual Fund
Operating Expenses” are taken into account, the Upside Cap is [ ]%. The Upside Cap will be further reduced by any fees incurred
by any shareholder in purchasing or selling Shares (such as brokerage fees), and any extraordinary expenses incurred by the Fund.
For the purpose of this prospectus, “extraordinary expenses” are non-recurring expenses that may be incurred by
the Fund outside of the ordinary course of its business, including, without limitation, costs incurred in connection with any
claim, litigation, arbitration, mediation, government investigation or similar proceedings, indemnification expenses and expenses
in connection with holding and/or soliciting proxies for a meeting of Fund shareholders.
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(continued on next page)
(continued from previous
page)
The Upside
Cap is dependent on the pricing of FLEX Options at the outset of the Defined Outcome Period, which may be affected by market conditions.
Accordingly, the Upside Cap may rise or fall from one Defined Outcome Period to the next.
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During Defined Outcome Periods in which the Reference
Index decreases in value by greater than [__]%, the Fund seeks to provide partial protection by limiting losses to the Maximum
Loss. The Maximum Loss is based upon the value of the Reference Index at the time the Fund enters into the FLEX Options at the beginning of a Defined Outcome Period. Therefore, any partial protection provided via the Maximum Loss may only be available
to investors who hold Shares at the beginning of a Defined Outcome Period and continue to hold them until the FLEX Options expire
on the final day of the Defined Outcome Period. Investors who purchase Shares after the beginning of the Defined Outcome Period
may have little or no ability to benefit from the Maximum Loss. In the event the Reference Index decreases in value by [__]% or
less, investors will bear all such losses on a one-to-one basis. For example, regardless of whether the Reference Index decreases
in value by [__]% over the duration of a Defined Outcome Period, the Fund seeks to participate in [__]% of those losses up to
the Maximum Loss. Partial protection via the Maximum Loss is provided prior to taking into account annual Fund management fees,
transaction fees and any extraordinary expenses incurred by the Fund. While the Fund seeks to limit losses to [__]% for shareholders
who hold Shares for the entire Defined Outcome Period, there is no guarantee it will successfully do so.
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The Defined Outcomes sought by the Fund are based upon
the value of the Reference Index at time that the Fund enters into the FLEX Options positions corresponding to a Defined Outcome
at the beginning of a Defined Outcome Period. As such, an investor that purchases Shares after a Defined Outcome Period has begun
or sells Shares prior to the end of a Defined Outcome Period may experience returns different than those the Fund seeks to provide.
For each Defined Outcome Period, the Fund only provides partial protection via the Maximum Loss against losses experienced by
the Reference Index relative to the value of the Reference Index at the beginning of a Defined Outcome Period. For instance,
if an investor were to purchase Shares after a Defined Outcome Period has begun, and the Fund has increased in value, that investor
may suffer losses in excess of the Maximum Loss if the Reference Index were to subsequently decrease in value. An investment
in the Fund is only appropriate for shareholders willing to bear those losses. Similarly, an investor that sells Shares prior
to the end of Defined Outcome Period may miss out on some partial protection provided by the Maximum Loss. If an investor were
to purchase Shares after a Defined Outcome Period has begun, and the Fund has already increased in value to a level near to the
Upside Cap, that investor may have little potential upside available, while still remaining vulnerable to downside risk.
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The
Fund’s NAV will be principally based upon the value of its FLEX Options positions.
While the current value of the Reference Index is a significant factor in calculating
an option’s value prior to its expiration, it is not solely determinative, and
on any individual day or for periods of time, the NAV of the Fund may increase or decrease
by amounts greater or less than the corresponding increase or decrease in the value of
the Reference Index. An option’s value is also impacted by, among others, the
number of days remaining until its expiration, interest rate levels and changes in the implied volatility of the Reference Index. While it is anticipated that the Fund’s NAV will generally
increase in value on days when the Reference Index increases in value, and decrease in
value on days when the Reference Index decreases in value, the degree to which the Fund
participates in that increase or decrease will depend, among others, on the remaining time to expiration of the FLEX
Options and on the implied volatility of the Reference Index. Particularly at the beginning of each Defined
Outcome Period, when there are many days until the FLEX Options expire, the Fund’s
NAV can be expected not to increase or decrease at the same rate as the Reference
Index. The value of the FLEX Options also affects the impact of the Maximum Loss
on the Fund’s NAV as the Defined Outcome Period progresses. The Fund’s
strategy is designed to produce the Defined Outcomes upon the expiration of the FLEX
Options on the final day of the corresponding Defined Outcome Period. It should not be
expected that the Defined Outcomes will be provided at any point prior to that time.
There is no guarantee that the Fund will successfully provide the Defined Outcomes for
any Defined Outcome Period.
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The
Fund’s website, www.nylinvestments.com/etfs,
provides important Fund information (including Defined Outcome Period start and end dates,
and information regarding the Upside Cap and Maximum Loss), as well information relating
to potential investment outcomes of an investment in the Fund on a daily basis. If
you are contemplating purchasing Shares, please visit the website. Investors considering
purchasing Shares after a Defined Outcome Period has begun or selling Shares prior to
the end of a Defined Outcome Period should visit the website to fully understand potential
investment outcomes. The website contains important information that will assist
you in determining whether to buy Shares.
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Although the Shares are listed for trading on national
securities exchange, there can be no assurance that an active trading market for the Shares will develop or be maintained.
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There
is no guarantee that the Fund will achieve its investment objective. The returns that the Fund seeks to provide do not include
the costs associated with purchasing Shares and certain expenses incurred by the Fund. The Fund has characteristics unlike many
other traditional investment products and may not be suitable for all investors. The table below provides considerations for determining
whether an investment in the Fund is appropriate for you.
Investor
Suitability
You should only consider this investment if:
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You should not consider this investment if
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• you
fully understand the risks inherent in an investment in the Fund;
•
you desire to invest in a product with a return that depends upon the performance of the Reference Index over the duration
of the Defined Outcome Period;
•
you are willing to hold Shares for the duration of the Defined Outcome Period in order to achieve the outcomes that the
Fund seeks to provide;
•
you fully understand that investments made when the Fund is at or near to the Upside Cap may have limited to no upside;
•
you seek to have partial protection on your investment and are willing to have a loss equal to the Maximum Loss;
•
you are willing to forgo any gains in excess of the Upside Cap;
•
you have read and fully understand the disclosure set forth in the section entitled “Dividends, Distributions and
Taxes” and understand that the Fund’s investments do not provide for dividends to the Fund, and that the Fund may make
no, irregular or substantial distributions to shareholders;
•
you fully understand that investments made after the Defined Outcome Period has begun may not fully benefit from the Maximum
Loss and that the performance of the Fund over such period may not track the performance of the Reference Index;
•
you are willing to accept the risk of losing your entire investment; and
•
you have visited the Fund’s website and understand the investment outcomes available to you based upon the time of
your purchase.
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•
you do not fully understand the risks inherent in an investment in the Fund;
• you do not desire to invest in a product with a return that depends upon the performance of the Reference Index over the
duration of the Defined Outcome Period;
•
you are unwilling to hold Shares for the duration of the Defined Outcome Period in order to achieve the outcomes that the
Fund seeks to provide;
•
you do not fully understand that investments made when the Fund is at or near to the Upside Cap may have limited to no upside;
•
you are unwilling to forgo any gains in excess of the Upside Cap;
•
you are unwilling to have a loss equal to the Maximum Loss;
•
you have not read or do not fully understand the disclosure set forth in the section entitled “Dividends, Distributions
and Taxes” and understand that the Fund’s investments do not provide for dividends to the Fund, and that the Fund may
make no, irregular or substantial distributions to shareholders;
•
you do not fully understand that investments made after the Defined Outcome Period has begun may not fully benefit from
the Maximum Loss and that the performance of the Fund over such period may not track the performance of the Reference Index;
•
you are unwilling to accept the risk of losing your entire investment; and
•
you have not visited the Fund’s website and do not understand the investment outcomes available to you based upon
the timing of your purchase.
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For
more information regarding whether an investment in the Fund is right for you,
please
see “Investor Suitability” in the prospectus.
Table
of Contents
Summary Information
IQ m+ Preservation [ ]
ETF
Investment
Objective
The
IQ m+ Preservation [ ] ETF (the “Fund”) seeks to provide, for successive periods of approximately [__] months (each
a “Defined Outcome Period”), a percentage return equal to any positive return (the “Equal Upside”) in the
[ ] Index (the “Reference Index”) during such period, up to a maximum total return for any Defined Outcome Period (the
“Upside Cap”), while providing protection against decreases exceeding [__]% (the “Maximum Loss”) in the
value of the Reference Index.
Fees and Expenses
of the Fund
This
table describes the fees and expenses that you may pay if you buy and hold shares of the Fund (“Shares”). Most investors
will incur customary brokerage commissions when buying or selling Shares of the Fund, which are not reflected in the table set
forth below.
Shareholder Fees (fees
paid directly from your investment): None
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
Management Fee
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0.[ ]%
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Distribution and/or Service (12b-1) Fees
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0.00%
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Other Expenses(a)
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0.[ ]%
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Total Annual Fund Operating Expenses
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0.[ ]%
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Expense Waiver/Reimbursement(b)
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0. [ ]%
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Total Annual Fund Operating Expenses After Expense Waiver/Reimbursement
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0. [ ]%
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(a)
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“Other expenses” are based on estimated amounts for the current
fiscal year.
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(b)
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IndexIQ Advisors LLC (the “Advisor”) has contractually agreed
to waive or reduce its management fee and/or reimburse expenses of the Fund in an amount that limits “Total Annual Fund Operating
Expenses” (exclusive of interest, taxes, brokerage fees and commissions, dividends paid on short sales, acquired fund fees
and expenses, and extraordinary expenses), to not more than 0.[__]% of average daily net assets of the Fund. The agreement will
remain in effect until [___________] unless terminated by the Board of Trustees.
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Example.
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This
example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
The
example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end
of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses
remain at current levels. The return of 5% and estimated expenses are for illustration purposes only, and should not be considered
indicators of expected Fund expenses or performance, which may be greater or less than the estimates. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
Portfolio Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells securities or other instruments. A higher portfolio turnover
rate may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs,
which are not reflected in annual Fund operating expenses or in the example, affect the Fund’s performance. This rate excludes
the value of portfolio securities received or delivered as a result of in-kind creations or redemptions of the Shares.
Principal Investment
Strategies
Under normal circumstances, the Fund will
invest substantially all of its net assets in exchange-traded FLexible EXchange® options (“FLEX Options”)
on the [ ] Index and cash and/or cash equivalents. The value of the Reference Index reflects only the changes in the prices of
the underlying stocks and does not assume that any dividends paid out by index constituents have been reinvested in the index.
The Reference Index is composed of U.S.-listed large-capitalization equity securities representing over 25 separate industry groups.
Since 1968, the Reference Index has been a component of the U.S. Commerce Department’s list of Leading Indicators that track
key sectors of the U.S. economy. For more information about the Reference Index, please see the section of the prospectus entitled
“Description of the Principal Strategies of the Fund.”
For each Defined Outcome Period, the Fund
seeks to provide a return that has “Equal Upside” up to an “Upside Cap,” at certain values of the Reference
Index, subject to protection against losses exceeding [__]% via the “Maximum Loss,” as explained below:
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“Equal Upside” denotes that
for any percentage increase in the value of the Reference Index, the Fund seeks to have a return per Share that equals such percentage
increase.
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“Upside Cap” denotes that
the return per Share for any Defined Outcome Period may not exceed a specific maximum return that is based on the price of the
FLEX Options acquired by the Fund at the beginning of the Defined Outcome Period.
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o
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The Upside Cap for the current Defined Outcome Period is [___]%.
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“Maximum Loss” denotes that
for any percentage decrease in the value of the Reference Index, the Fund seeks to provide a percentage decrease that equals such
negative return but subject to a total loss of approximately [__]%, and consequently provide protection against losses in the Reference
Index exceeding [__]%. Therefore, while the Fund will participate in the first [__]% of Reference Index price depreciation on a
one-to-one basis, it seeks to preserve approximately 95% of its value during a Defined Outcome Period.
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The Defined Outcomes set forth above are
not inclusive of any fees or expenses charged to shareholders or the market price at which a shareholder purchases or sells their
Shares. When the Fund’s “Total Annual Fund Operating Expenses” are taken into account, the Upside Cap is [ ]%.
The Upside Cap will be further reduced by any fees incurred by any shareholder in purchasing or selling Shares (such as brokerage
fees), and any extraordinary expenses incurred by the Fund. For the purpose of this prospectus, “extraordinary expenses”
are non-recurring expenses that may be incurred by the Fund outside of the ordinary course of its business, including, without
limitation, costs incurred in connection with any claim, litigation, arbitration, mediation, government investigation or similar
proceedings, indemnification expenses and expenses in connection with holding and/or soliciting proxies for a meeting of Fund shareholders.
The initial Defined Outcome Period
will begin on [__________], 2020 and end on [__________], 2020. Subsequent Defined Outcome Periods will begin on the day the
prior Defined Outcome Period ends and will end approximately [__] months afterwards. At the beginning of each new Defined
Outcome Period, the Fund resets the Upside Cap and Maximum Loss for the new Defined Outcome Period by investing in a new set
of FLEX Options. The Fund intends to have a Maximum Loss for each Defined Outcome Period that will cap losses at
approximately [__]%. The Upside Cap and the Maximum Loss, and the Fund’s position relative to each, should be
considered before investing in the Fund. The Fund will be perpetually offered and will not terminate after the initial or any
subsequent Defined Outcome Periods.
For each Defined Outcome Period, the Fund
will invest in both purchased and written put and call FLEX Options on the Reference Index. FLEX Options are customizable exchange-traded
option contracts guaranteed for settlement by the Options Clearing Corporation (“OCC”). The OCC guarantees performance
by each of the counterparties to the FLEX Options, becoming the “buyer for every seller and the seller for every buyer,”
protecting clearing members and options traders from counterparty risk. The OCC may make adjustments to terms of the FLEX Options
for certain significant events. The FLEX Options that the Fund will hold on the Reference Index will give the Fund the right to
receive or make a payment based on the level of the Reference Index on the option expiration date compared to the FLEX
Option strike
price, depending on whether the option is a put or call option and whether the Fund purchases or sells the option. The FLEX Options
held by the Fund are European style options, which are exercisable at the strike price only on the FLEX Option expiration date.
The Fund intends to structure the FLEX
Options so that any amount owed by the Fund on the written FLEX Options will be covered by payouts at expiration from the purchased
FLEX Options. As a result, the FLEX Options will be fully covered and no additional collateral will be necessary during the life
of the Fund. The Fund receives premiums in exchange for the written FLEX Options and pays premiums in exchange for the purchased
FLEX Options. The OCC and securities exchanges on which the FLEX Options are listed do not charge ongoing fees to writers or purchasers
of the FLEX Options during their life for continuing to hold the option contracts, but may charge transaction fees. Each of the
FLEX Options purchased and sold throughout the Defined Outcome Period will have the same terms, such as strike price and expiration
date, as the FLEX Options purchased and sold at the beginning of the Defined Outcome Period. As the FLEX Options approach the expiration
date, the Fund may sell the FLEX Options prior to their expiration and use the resulting proceeds to purchase new FLEX Options
for the next Defined Outcome Period.
Unlike other investment products, an investor’s
potential upside return is subject to the Upside Cap, which represents the maximum percentage return an investor can achieve from
an investment in the Fund for a Defined Outcome Period, regardless of any percentage gain experienced by the Reference Index exceeding
the Upside Cap. Therefore, if the Reference Index experiences percentage gains for a Defined Outcome Period in excess of the Upside
Cap, a shareholder will not participate in any gains in excess of the Upside Cap. The Upside Cap is dependent on the pricing of
FLEX Options at the outset of the Defined Outcome Period, which may be affected by market conditions. Accordingly, the Upside Cap
may rise or fall from one Defined Outcome Period to the next. The Upside Cap, and the Fund’s position relative to it, should
be considered prior to purchasing Shares. If an investor is considering purchasing Shares after a Defined Outcome Period has begun,
and the Fund has already increased in value to a level near the Upside Cap, an investor purchasing Shares may have limited upside
available for the remainder of the Defined Outcome Period while remaining vulnerable to downside risks.
The Maximum Loss is only operative against
Reference Index losses for a Defined Outcome Period that exceed [__]%. The Fund will experience the first [__]% of Reference Index
losses on a one-to-one basis for the Defined Outcome Period. The Maximum Loss is based upon the value of the Reference Index at
time that the Fund enters into the FLEX Options positions for a Defined Outcome at the beginning of a Defined Outcome Period, and
assumes that the investor will hold Shares until the final day of the Defined Outcome Period. As such, an investor that purchases
Shares after a Defined Outcome Period has begun or sells their Shares prior to the end of a Defined Outcome Period may experience
returns different than those the Fund seeks to provide. For instance, if an investor were to purchase Shares after a Defined Outcome
Period has begun, and the Fund has increased in value, that investor may suffer losses in excess of the Maximum Loss if the Fund’s
NAV was to subsequently decrease in value. An investment in the Fund is only appropriate for shareholders willing to bear those
losses. Similarly, an investor that sells Shares prior to the end of Defined Outcome Period may miss out on some partial protection
provided by the Maximum Loss. There is no guarantee that the Fund will successfully provide the Maximum Loss. While the Fund
seeks to limit losses to [__]% for shareholders who hold Shares for the entirety of a Defined Outcome Period, there is no guarantee
it will successfully do so. The Maximum Loss that the Fund seeks to provide is not inclusive of any fees or expenses charged
to shareholders, including the Fund’s annual management fee.
The Fund’s net asset value (“NAV”)
will be principally based upon the value of its FLEX Options positions. While the current value of the underlying Reference Index
is a significant factor in calculating an option’s value prior to its expiration, it is not solely determinative, and on
any individual day, or for periods of time, the NAV of the Fund may increase or decrease by amounts greater or less than the corresponding
increase or decrease in the value of the Reference Index. An option’s value is also impacted by, among others, the
number of days remaining until its expiration, interest rate levels and changes in the implied volatility of the Reference Index. While it is anticipated that the
Fund’s NAV will generally increase in value on days when the Reference Index increases in value, and decrease in value on
days when the Reference Index decreases in value, the degree to which the Fund participates in that increase or decrease will depend
on the value of the FLEX Options. Particularly at the beginning of each
Defined Outcome Period, when there are many days until
the FLEX Options expire, the Fund’s NAV can be expected not to increase or decrease at the same rate as the Reference Index.
The value of the FLEX Options also affects the impact of the Maximum Loss on the Fund’s NAV as the Defined Outcome Period
progresses. For example, assuming other market variables that affect FLEX options are constant, at the midpoint of the Outcome
Period, if the Reference Index has decreased in value by [__]%, the Fund’s NAV can be expected to have decreased in value,
but by less than [__]%. The Fund’s strategy is designed to produce the Defined Outcomes upon the expiration of the FLEX
Options on the final day of the Defined Outcome Period. It should not be expected that the Defined Outcomes will be provided at
any point prior to that time. There is no guarantee that the Fund will successfully provide the Defined Outcomes.
The Fund’s website, www.nylinvestments.com/etfs,
provides important Fund information (including Defined Outcome Period start and end dates, and information regarding the Upside
Cap and Maximum Loss), as well information relating to potential investment outcomes of an investment in the Fund on a daily basis.
The Fund is classified as “non-diversified”
under the Investment Company Act of 1940, as amended (the “1940 Act”).
Principal Risks
As
with all investments, there are certain risks of investing in the Fund. The Shares will change in value and you could lose money
by investing in the Fund. An investment in the Fund does not represent a complete investment program. An investment in the Fund
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You should consider carefully
the following risks before investing in the Fund. A more complete discussion of Principal Risks is included under “Description
of the Principal Risks of the Fund.”
Authorized Participant Concentration
Risk. Only certain large institutions may engage in creation or redemption transactions directly with the Fund (each, an “Authorized
Participant”). The Fund has a limited number of institutions that may act as Authorized Participants on an agency basis (i.e.,
on behalf of other market participants). To the extent that those Authorized Participants exit the business or are unable to proceed
with creation and/or redemption orders with the Fund and no other Authorized Participant is able to step forward to engage in creation
and redemption transactions with the Fund, Shares may be more likely to trade at a premium or discount to NAV and possibly face
trading halts and/or delisting.
Cash Transactions Risk. The Fund
currently intends to effect creations and redemptions principally for cash, rather than for in-kind securities. For this reason,
the Fund may be required to sell portfolio securities in order to obtain the cash needed to distribute redemption proceeds. The
Fund may recognize a capital gain on these sales that might not have been incurred if the Fund had made a redemption in-kind. This
may decrease the tax efficiency of the Fund compared to ETFs that utilize an in-kind redemption process.
Counterparty Risk. A counterparty
(the other party to a transaction or an agreement or the party with whom the Fund executes transactions) to a transaction with
the Fund may be unable or unwilling to make timely principal, interest, settlement or margin payments, fulfill the delivery conditions
of the contract or transaction, or otherwise honor its obligations. If a counterparty fails to meet its contractual obligations
the Fund will have contractual remedies pursuant to the agreements related to the transaction but the Fund may be unable to terminate
or realize any gain on the investment or transaction, resulting in a loss to the Fund. The Fund may experience significant delays
in obtaining any recovery in an insolvency, bankruptcy, or other reorganization proceeding involving a counterparty (including
recovery of any collateral posted by it) and may obtain limited or no recovery in such circumstances. The OCC acts as guarantor
and central counterparty with respect to the FLEX Options. As a result, the ability of the Fund to meet its objective depends on
the OCC being able to meet its obligations. In the unlikely event that the OCC becomes insolvent or is otherwise unable to meet
its settlement obligations, the Fund could suffer significant losses. Because the Fund is not a clearing member of the OCC, and
only OCC clearing members can participate directly with the OCC, the Fund will hold FLEX Options through accounts at one or more
OCC clearing members. There is a risk that assets deposited by the Fund with an OCC clearing member may, in certain circumstances,
be used to satisfy
losses of other clients of the Fund’s clearing member. In addition, the Fund’s assets that it has
deposited with an OCC clearing member might not be fully protected in the event of the clearing member’s bankruptcy, as the
Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing member’s
customers for the relevant account class.
Cyber Security Risk. The Fund is
susceptible to operational risks through breaches in cyber security. Such events may cause the Fund to lose proprietary information,
suffer data corruption or lose operational capacity and could cause the Fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of
the securities issuers or the Fund’s third-party service providers can also subject the Fund to many of the same risks associated
with direct cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated
with cyber security, there is no guarantee that such efforts will succeed.
Defined Outcomes Risk. The
Defined Outcomes that the Fund seeks to provide (the Equal Upside, Maximum Loss and Upside Cap) are based upon the value of
the Reference Index and the Fund’s NAV at the time the Fund enters into the FLEX Options positions for a Defined
Outcome at the beginning of the Defined Outcome Period. Therefore, the Defined Outcomes may only be realized by an investor
who holds Shares at the beginning of a Defined Outcome Period and continues to hold those Shares until the end of the Defined
Outcome Period. An investor who purchases Shares after a Defined Outcome Period has begun or sells their Shares prior to a
Defined Outcome Period’s conclusion may experience investment returns very different from the Defined Outcomes that the
Fund seeks to provide. The Fund’s ability to provide the Defined Outcomes may be negatively affected by periods of
significant creation and redemption activity in the Fund’s Shares and/or disruptions to the secondary market for FLEX
Options, including any periods of reduced market liquidity or absences of readily available market quotations. There is no
guarantee that the Fund will successfully provide the Defined Outcomes, including the Maximum Loss and Equal Upside.
Equity Securities Risk. The Fund
has exposure to equity securities markets through its FLEX Options on the Reference Index. Investments in common stocks and other
equity securities are particularly subject to the risk of changes in investors’ perceptions of the financial condition of
an issuer, conditions affecting equity markets generally and political and/or economic events. Equity prices may also be particularly
sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Holders of an issuer’s common
stock may be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’
claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
FLEX Options Risk. As a derivative
instrument, FLEX Options are investments whose value depends on (or is derived from) the value of an underlying instrument, such
as a security, asset, reference rate or index and involve risks different from, and possibly greater than, the risks associated
with other investments. These risks include: (i) the risk that the counterparty to a derivatives transaction may not fulfill
its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the
derivative may not correlate perfectly with the underlying asset. In the case of the FLEX Options held by the Fund, their value
could be influenced by factors other than fluctuations in the value of the Reference Index, such as an increase in interest rates,
a change in the actual and perceived volatility of the Reference Index and the remaining time until the FLEX Options expire. The value of the FLEX Options does not increase or decrease
at the same rate as the level of the Reference Index (although they generally move in the same direction). As
with many types of derivatives instruments, the value of FLEX Options may be highly volatile and may fluctuate substantially during
a short period of time. The OCC acts as guarantor and central counterparty with respect to the FLEX Options. As a result, the ability
of the Fund to meet its objective depends on the OCC being able to meet its obligations. In the unlikely event that the OCC becomes
insolvent or is otherwise unable to meet its settlement obligations, the Fund could suffer significant losses. Additional risks
associated with FLEX Options are set forth below:
FLEX Options Liquidity Risk.
Due to their customized nature, the secondary market for FLEX Options may lack the depth and liquidity present in the secondary
market for certain other securities or non-customized options. As with any security, there can be no guarantee that a liquid secondary
trading market for FLEX Options will exist or be maintained. However, a less liquid market for FLEX Options may uniquely impact
the Fund, as it may inhibit the Fund’s ability to successfully provide the Defined Outcomes. In the event that the Fund wishes
to purchase,
sell or terminate FLEX Options positions at a time when the secondary market for FLEX Options lacks depth or liquidity,
the completion of the transaction may require the payment of a premium or acceptance of a discounted price and may take longer
to consummate. In such an environment, the purchase or liquidation of a large number of options may more significantly impact the
price and impair the Fund’s ability to meet its investment objective.
FLEX Options Valuation Risk.
The FLEX Options held by the Fund will be exercisable at the strike price only on their expiration date. Prior to the expiration
date, the value of the FLEX Options will be determined based upon market quotations or using other recognized pricing methods.
The value of the FLEX Options prior to the expiration date may vary because of related factors other than the value of the Reference
Index. During periods of reduced market liquidity or in the absence of readily available market quotations for the holdings of
the Fund, the ability of the Fund to value the FLEX Options becomes more difficult and the judgment of the Fund’s investment
advisor (employing the fair value procedures adopted by the Board of Trustees of the Trust) may play a greater role in the valuation
of the Fund’s holdings due to reduced availability of reliable objective pricing data.
Focused Investment Risk. To the
extent that the Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the same
country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory
development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different
asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of
outperformance and underperformance in comparison to each other and to the general financial markets.
Maximum
Loss Risk. There can be no guarantee that the Fund will successfully provide the Maximum Loss over a Defined Outcome Period.
The Maximum Loss is based upon the value of the Reference Index at time that the Fund enters into the FLEX Options positions at the beginning of a Defined Outcome Period. As such, an investor that purchases Shares after a Defined Outcome Period has begun,
or sells Shares prior to the conclusion of a Defined Outcome Period, may not benefit from the Maximum Loss.
Market Risk. Market risks include
political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries
or segments of the market, which may affect the Fund’s value. Turbulence in financial markets, tariffs and other protectionist
measures, political developments and uncertainty, central bank policy, and reduced liquidity in equity, credit and fixed income
markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. An investment in the Fund is not a deposit in a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. When you sell your
Shares, they could be worth less than what you paid for them.
New
Fund Risk. As a new fund, there can be no assurance that the Fund will grow to or maintain an economically viable size. Like
other new funds, large inflows and outflows may impact the Fund’s market exposure for limited periods of time. This impact
may be positive or negative, depending on the direction of market movement during the period affected.
Non-Diversified Risk. The Fund
is classified as a “non-diversified” investment company under the 1940 Act, which means it may invest a larger percentage
of its assets in a smaller number of issuers than a diversified fund. To the extent the Fund invests its assets in a smaller number
of issuers, the Fund will be more susceptible to negative events affecting those issuers than a diversified fund.
Operational Risk. The Fund is exposed
to operational risks arising from a number of factors, including, but not limited to, human error, processing and communication
errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and
technology or systems failures. The Fund and the Fund’s investment advisor seek to reduce these operational risks through
controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant
operational risks.
Portfolio Management Risk. The
Fund is subject to portfolio management risk because it is an actively managed portfolio. In managing the Fund’s investment
portfolio, the portfolio manager will apply investment techniques and risk analyses that may not produce the desired result. There
can be no guarantee that the Fund will meet its investment objective.
Reference
Index Correlation Risk. While the value of the Reference Index is a significant factor in calculating a FLEX Option’s
value prior to its expiration, it is not solely determinative. Other elements impacting an option’s value is the amount of
time remaining until its expiration, the implied volatility of the Reference Index and interest rate
levels. The change in the value of the FLEX Options will primarily determine how closely the performance of the Fund’s NAV correlates to
the performance of the Reference Index on a day-to-day basis. While it is anticipated that the Fund’s NAV will generally
increase in value on days when the Reference Index increases in value, and decrease in value on days when the Reference Index decreases
in value, the degree to which the Fund participates in that increase or decrease varies. On any individual day, and for periods of time, the Fund’s NAV may increase or decrease by amounts greater
or less than the corresponding change in the value of the Reference Index. At times, changes in the Fund’s NAV may not be
correlated with changes in the value of the Reference Index. The potential for deviation between changes in the value of the Reference
Index and changes in the value of the Fund’s NAVs are heightened at the beginning of each Defined Outcome Period when there
are many days until the FLEX Options expire, although there may be differences between the changes in value of the Reference Index
and the Fund’s NAV at any time during the Defined Outcome Period. The value of the FLEX Options also affects the impact
of the Maximum Loss on the Fund’s NAV as the Defined Outcome Period progresses.
Secondary
Market Trading Risk. Although the Fund’s Shares are listed for trading on one or more securities exchanges, there can
be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants.
In general, the trading of Shares on securities exchanges is subject to the risk of irregular trading activity and wide “bid/ask”
spreads (which may be especially pronounced for smaller funds). Additionally, market makers are under no obligation to make a market
in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units.
In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase
or redemption orders for Creation Units, the Fund’s Shares may trade at a larger premium or discount to its NAV.
Tax
Risk. The Fund intends to elect and to qualify each year to be treated as a regulated investment company (“RIC”)
under Subchapter M of the Code. As a RIC, the Fund will not be subject to U.S. federal income tax on the portion of its net investment
income and net capital gain that it distributes to Shareholders, provided that it satisfies certain requirements of the Code. If
the Fund does not qualify as a RIC for any taxable year and certain relief provisions are not available, the Fund’s taxable
income will be subject to tax at the Fund level and to a further tax at the shareholder level when such income is distributed.
Additionally, buying securities shortly before the record date for a taxable dividend or capital gain distribution is commonly
known as “buying the dividend.” In the event a shareholder purchases Shares shortly before such a distribution, the
entire distribution may be taxable to the shareholder even though a portion of the distribution effectively represents a return
of the purchase price.
Trading Price Risk. Shares of the
Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated
at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price
of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Shares
and the underlying value of the Fund’s portfolio holdings or NAV. As a result, the trading prices of the Fund’s Shares
may deviate significantly from NAV during periods of market volatility. Any of these factors, among others, may lead to the Fund’s
Shares trading at a premium or discount to NAV. Although it is generally expected that the market price of the Shares of the Fund
will approximate the Fund’s NAV, there may be times when the market price and the NAV vary significantly. Thus, an investor
may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares.
Upside
Cap Risk. Unlike other investment products, an investor’s potential upside return in the Fund is subject to the Upside
Cap, which represents the maximum percentage return an investor can achieve from an investment in the Fund for a Defined Outcome
Period, regardless of any percentage gain experienced by the Reference Index exceeding the Upside Cap. Therefore, if the Reference
Index experiences percentage gains for a Defined Outcome Period in excess of the Upside Cap, a shareholder will not participate
in any gains in excess of the Upside Cap. The Upside Cap for each Defined Outcome Period will be determined at the beginning of
such period based upon prevailing market conditions. The Upside Cap, and the Fund’s position relative to it, should be considered
prior to purchasing Shares. If an investor is considering purchasing Shares after a Defined Outcome Period has begun, and the Fund
has already increased in value to a level near to the Upside Cap, an investor purchasing Shares may have limited upside available
for the remainder of the Defined Outcome Period while remaining vulnerable to downside risks.
Performance Information
As
of the date of this Prospectus, the Fund has not yet completed a full calendar year of operations and therefore does not report
its performance information. The Fund’s performance current to the most recent month-end is available by calling 1-888-474-7725
or by visiting nylinvestments.com/etfs.
Investment Advisor
and Subadvisor
IndexIQ
Advisors LLC is the investment advisor to the Fund.
Alaia Capital, LLC is the Fund’s
Subadvisor and is responsible for the Fund’s day-to-day investment management.
Portfolio Management
Team
The
Portfolio Management Team at the Subadvisor is primarily responsible for the day-to-day management of the Fund. Oscar Loynaz, Brad
Berggren and Stephen Clancy have comprised the Fund’s Portfolio Management Team since the Fund’s inception in 2020.
Purchase and Sale
of Fund Shares
Unlike
conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in blocks of [___,000] Shares
or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally
in cash based on the then-current value of the securities included in the Fund. Retail investors may acquire Shares on the [ ]
through a broker-dealer. Shares of the Fund will trade at market price rather than NAV. As such, Shares may trade at a price greater
than NAV (premium) or less than NAV (discount).
Tax Information
The
Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless
you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent
withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about
your specific situation.
Financial Intermediary
Compensation
If
you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies
may pay the intermediary for marketing activities and presentations, educational training programs, conferences, the development
of technology platforms and reporting systems or other services related to the sale or promotion of the Fund. These payments may
create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund
over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
Overview
The
Trust is an investment company consisting of a number of separate investment portfolios (each, a “Fund”) that are exchange-traded
funds (“ETFs”). ETFs are funds whose shares are listed on a stock exchange and traded like equity securities at market
prices. ETFs, such as the Fund, allow you to buy or sell shares that represent the collective performance of a selected group of
securities. ETFs are designed to add the flexibility, ease and liquidity of stock-trading to the benefits of traditional fund investing.
This
Prospectus provides the information you need to make an informed decision about investing in the Fund. It contains important facts
about the Trust as a whole and the Fund in particular.
IndexIQ
Advisors LLC is the investment advisor to the Fund. Alaia Capital, LLC is the investment subadvisor to the Fund.
The
Fund may liquidate and terminate at any time without shareholder approval.
Premium/Discount
Information
Information
regarding the extent and frequency with which market prices of Shares have tracked the Fund’s NAV for the most recently completed
calendar year and the quarters since that year will be available without charge on the Fund’s website at nylinvestments.com/etfs.
Description
of the Principal Strategies of the Fund
Under normal circumstances, the Fund will
invest substantially all of its net assets in exchange-traded FLEX Options on the Reference Index and cash and/or cash equivalents.
The Reference Index is composed of U.S.-listed large-capitalization equity securities representing over 25 separate industry groups.
The Reference Index includes five hundred (500) selected companies, all of which are listed on national stock exchanges and spans
over 25 separate industry groups. As of [ ], 2020, the five largest industry groups represented in the Reference Index were: Software
& Services [ ]%; Pharmaceuticals, Biotechnology & Life Sciences [ ]%; Media & Entertainment [ ]%; Health Care Equipment
& Services [ ]%; and Capital Goods [ ]%. Since 1968, the Reference Index has been a component of the U.S. Commerce Department’s
list of Leading Indicators that track key sectors of the U.S. economy. Current information regarding the market value of the Reference
Index is available from market information services.
The Fund utilizes a defined outcome investing
strategy. Defined outcome investing allows investors to change the risk/reward return profile of a particular market exposure in
order to achieve a pre-determined outcome on a specified date in the future. Certain defined outcome strategies, like the one utilized
by the Fund, provide a level of capital preservation to help insulate shareholders from losses experienced by the particular market
segment.
The Fund seeks to provide the following
Defined Outcomes for investors who hold Shares for the entire duration of a Defined Outcome Period. There is no guarantee that
the Fund will successfully provide the Defined Outcomes for a Defined Outcome Period. The Defined Outcomes set forth below do not
take into account any fees or expenses paid by the Fund or the market price at which a shareholder buys or sells their Shares.
For each Defined Outcome Period, the Fund seeks to provide a return that has “Equal Upside” up to an “Upside
Cap,” at certain values of the Reference Index, subject protection against losses exceeding [__]% via the “Maximum
Loss,” as explained below:
|
·
|
“Equal Upside” denotes that
for any percentage increase in the value of the Reference Index, the Fund seeks to have a return per Share that equals such percentage
increase.
|
|
·
|
“Upside Cap” denotes that
the return per Share for any Defined Outcome Period may not exceed a specific maximum return that is based on the price of the
FLEX Options acquired by the Fund at the beginning of the Defined Outcome Period.
|
|
·
|
“Maximum Loss” denotes that
for any percentage decrease in the value of the Reference Index, the Fund seeks to provide a percentage decrease that equals such
negative return but subject to a total loss of approximately [__]%, and consequently provide protection against losses in the Reference
Index exceeding [__]%.
|
The following chart illustrates the hypothetical
returns that the Fund seeks to provide in certain illustrative scenarios for a shareholder that purchases Shares at the beginning
of a Defined Outcome Period and holds such Shares for the entirety of a Defined Outcome Period. This chart does not take into account
any fees or expenses paid by the Fund or the market price at which a shareholder buys or sells their Shares. There is no guarantee
that the Fund will be successful in providing these investment outcomes for any Defined Outcome Period.
[chart to be included in a subsequent
filing]
The following chart provides a general
illustration of how the Fund’s NAV may be expected to correlate to the Reference Index over the duration of a Defined Outcome
Period. This chart is in no way intended to represent anticipated returns, but merely to illustrate how the Fund’s NAV
and the value of the Reference Index will not directly correlate until the end of a Defined Outcome Period.
[chart to be included in a subsequent
filing]
The Fund’s website, www.nylinvestments.com/etfs,
provides important Fund information (including Defined Outcome Period start and end dates, and information regarding the Upside
Cap and Maximum Loss), as well information relating to potential investment outcomes of an investment in the Fund on a daily basis.
Additional
Investment Strategies
Each
of the policies described herein, including the investment objective of the Fund, constitutes a non-fundamental policy that may
be changed by the Board without shareholder approval. Certain fundamental policies of the Fund are set forth in the Fund’s
Statement of Additional Information (the “SAI”) under “Investment Restrictions.”
Reference Index Exposure
Prior
to the commencement of a Defined Outcome Period, the Subadvisor may elect to invest the Fund’s assets in FLEX Options that
reference an ETF that tracks the Reference Index, rather than FLEX Options on the Reference Index itself, if such a change was
determined to be in the interest of shareholders. Fund shareholders would be notified in advance of such a change.
Temporary Defensive
Positions
In
times of unusual or adverse market, economic or political conditions or abnormal circumstances (such as large cash inflows or anticipated
large redemptions), the Fund may, for temporary defensive purposes or for liquidity purposes (which may be for a prolonged period),
invest outside the scope of its principal investment strategies. Under such conditions, the Fund may not invest in accordance with
its investment objective or principal investment strategies and, as a result, there is no assurance that the Fund will achieve
its investment objective. Under such conditions, the Fund may also invest without limit in cash, money market securities or other
investments.
Description
of the Principal Risks of the Fund
Investors
in the Fund should carefully consider the risks of investing in the Fund as set forth in the Fund’s Summary Information section
under “Principal Risks.” To the extent such risks apply, they are discussed hereunder in greater detail. See also the
section on “Additional Risks” for other risk factors.
Authorized Participant
Concentration Risk
Only
an Authorized Participant may engage in creation or redemption transactions directly with the Fund. Each Fund has a limited number
of institutions that may act as Authorized Participants on an agency basis (i.e., on behalf of other market participants). To the
extent that Authorized Participants exit the business or are unable to proceed with creation and/or redemption orders with the
Fund and no other Authorized Participant is able to step forward to create or redeem Creation Units, Shares may be more likely
to trade at a premium or discount to NAV and possibly face trading halts and/or delisting. This risk may be heightened for ETFs
that invest in non-U.S. securities because such securities often involve greater settlement and operational issues for Authorized
Participants that may further limit the availability of Authorized Participants.
Cash Transactions
Risk
The
Fund currently intends to effect creation and redemptions principally for cash, rather than principally for in-kind securities.
As a result, investment in such a fund may be less tax efficient than investment in a conventional ETF. ETFs generally are able
to make in-kind redemptions and avoid being taxed on gains on the distributed portfolio securities at the fund level. Because the
Fund currently intends to effect redemptions principally for cash, the Fund may be required to sell portfolio securities in order
to obtain the cash needed to distribute redemption proceeds. The Fund may recognize a capital gain on these sales that might not
have been incurred if such Fund had made a redemption in-kind and this may decrease the tax efficiency of the Fund compared to
ETFs that utilize an in-kind redemption process. Moreover, cash transactions may have to be carried out over several days if the
securities market is relatively illiquid, and this may involve considerable brokerage fees and taxes. These brokerage fees and
taxes, which will be higher than if the Fund sold and redeemed its Shares principally in-kind, will be passed on to those purchasing
and redeeming Creation Units in the form of creation and redemption transaction fees. In addition, these factors may result in
wider spreads between the bid and the offered prices of the Fund’s Shares than for ETFs that distribute portfolio securities
in-kind.
Counterparty Risk
A
counterparty (the other party to a transaction or an agreement or the party with whom the Fund executes transactions) to a transaction
with the Fund may be unable or unwilling to make timely principal, interest, settlement or margin payments, fulfill the delivery
conditions of the contract or transaction, or otherwise honor its obligations. If a counterparty fails to meet its contractual
obligations the Fund will have contractual remedies pursuant to the agreements related to the transaction but the Fund may be unable
to terminate or realize any gain on the investment or transaction, resulting in a loss to the Fund. The Fund may experience significant
delays in obtaining any recovery in an insolvency, bankruptcy, or other reorganization proceeding involving a counterparty (including
recovery of any collateral posted by it) and may obtain limited or no recovery in such circumstances. The OCC acts as guarantor
and central counterparty with respect to the FLEX Options. As a result, the ability of the Fund to meet its objective depends on
the OCC being able to meet its obligations. In the unlikely event that the OCC becomes insolvent or is otherwise unable to meet
its settlement obligations, the Fund could suffer significant losses. Because the Fund is not a clearing member of the OCC, and
only OCC clearing members can participate directly with the OCC, the Fund will hold FLEX Options through accounts at one or more
OCC clearing members. There is a risk that assets deposited by the Fund with an OCC clearing member may, in certain circumstances,
be used to satisfy losses of other clients of the Fund’s clearing member. In addition, the Fund’s assets that it has
deposited with an OCC clearing member might not be fully protected in the event of the clearing member’s bankruptcy, as the
Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing member’s
customers for the relevant account class.
Cyber Security Risk
The
Fund is susceptible to operational risks through breaches in cyber security. A breach in cyber security refers to both intentional
and unintentional events that may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity.
Such events could cause the Fund to
incur regulatory penalties, reputational damage, additional compliance costs associated with
corrective measures and/or financial loss. These risks typically are not covered by insurance. In general, cyber incidents can
result from deliberate attacks or unintentional events. Cyber incidents include, but are not limited to, gaining unauthorized access
to digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or
sensitive information, corrupting data or causing operational disruption. Cyber attacks may also be carried out in a manner that
does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network
services unavailable to intended users). Cyber security failures by or breaches of the systems of security issuers, the Advisor,
distributor and other service providers (including, but not limited to, sub-advisors, index providers, fund accountants, custodians,
transfer agents and administrators), market makers, Authorized Participants or the issuers of securities in which the Fund invests,
have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with
the Fund’s ability to calculate its NAV, disclosure of confidential trading information, impediments to trading, submission
of erroneous trades or erroneous creation or redemption orders, the inability of the Fund or its service providers to transact
business, violations of applicable privacy and other laws, regulatory fines and other penalties, reputational damage, reimbursement
or other compensation costs, or additional compliance costs. Substantial costs may be incurred by the Fund in order to resolve
or prevent cyber incidents in the future. While the Fund has established business continuity plans in the event of, and risk management
systems to prevent, such cyber attacks, there are inherent limitations in such plans and systems, including the possibility that
certain risks have not been identified and that prevention and remediation efforts will not be successful. Furthermore, the Fund
cannot control the cyber security plans and systems put in place by service providers to the Fund, issuers in which the Fund invests,
Authorized Participants or market makers. There is no guarantee that such preventative efforts will succeed, and the Fund and its
shareholders could be negatively impacted as a result.
Defined Outcomes Risk.
The
Defined Outcomes that the Fund seeks to provide (the Equal Upside, Maximum Loss and Upside Cap) are based upon the value of the
Reference Index and the Fund’s NAV at the time the Fund enters into the FLEX Options positions for a Defined Outcome at the beginning of the Defined Outcome Period. Therefore, the Defined Outcomes may only be realized by an investor who holds Shares at the beginning of a Defined Outcome Period and continues to hold those Shares until the end of the Defined Outcome Period.
An investor who purchases Shares after a Defined Outcome Period has begun or sells their Shares prior to a Defined Outcome Period’s
conclusion may experience investment returns very different from the Defined Outcomes that the Fund seeks to provide. The Fund’s
ability to provide the Defined Outcomes may be negatively affected by periods of significant creation and redemption activity in
the Fund’s Shares and/or disruptions to the secondary market for FLEX Options, including any periods of reduced market liquidity
or absences of readily available market quotations. There is no guarantee that the Fund will successfully provide the Defined
Outcomes, including the Maximum Loss and Equal Upside.
Equity Securities
Risk.
The
Fund has exposure to equity securities markets through its FLEX Options on the Reference Index. The value of equity securities
held by the Fund may fall due to general market and economic conditions, perceptions regarding the industries in which the issuers
of securities held by the Fund participate or factors relating to specific companies in which the Fund invests. For example, an
adverse event, such as an unfavorable earnings report, may depress the value of equity securities of an issuer held by the Fund;
the price of common stock of an issuer may be particularly sensitive to general movements in the stock market; or a drop in the
stock market may depress the price of most or all of the common stocks and other equity securities held by the Fund. In addition,
common stock of an issuer in the Fund’s portfolio may decline in price if the issuer fails to make anticipated dividend payments
because, among other reasons, the issuer of the security experiences a decline in its financial condition. Holders of an issuer’s
common stock may also be subject to greater risks than holders of its preferred stock and debt securities because common stockholders’
claims are subordinated to those of holders of preferred stocks and debt securities upon the bankruptcy of an issuer.
FLEX Options Risk
As
a derivative instrument, FLEX Options are investments whose value depends on (or is derived from) the value of an underlying
instrument, such as a security, asset, reference rate or index and involve risks different from, and possibly greater than,
the risks associated with other investments. These risks include: (i) the risk that the counterparty to a derivatives
transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk
that changes in the value of the derivative may not correlate perfectly with the underlying asset. In the case of the FLEX
Options held by the Fund, their value could be influenced by factors other than fluctuations in the value of the Reference
Index, such as an increase in interest rates, a change in the actual and perceived volatility of the Reference Index and the
remaining time until the FLEX Options expire. The value of the FLEX Options does not increase or decrease at the same rate as
the level of the Reference Index (although they generally move in the same direction). As with many types of derivatives
instruments, the value of FLEX Options may be highly volatile and may fluctuate substantially during a short period of time.
The OCC acts as guarantor and central counterparty with respect to the FLEX Options. As a result, the ability of the Fund to
meet its objective depends on the OCC being able to meet its obligations. In the unlikely event that the OCC becomes
insolvent or is otherwise unable to meet its settlement obligations, the Fund could suffer significant losses. Additional
risks associated with FLEX Options are set forth below:
FLEX
Options Liquidity Risk. Due to their customized nature, the secondary market for FLEX Options may lack the depth and liquidity
present in the secondary market for certain other securities or non-customized options. As with any security, there can be no guarantee
that a liquid secondary trading market for FLEX Options will exist or be maintained. However, a less liquid market for FLEX Options
may uniquely impact the Fund, as it may inhibit the Fund’s ability to successfully provide the Defined Outcomes. In the event
that the Fund wishes to purchase, sell or terminate FLEX Options positions at a time when the secondary market for FLEX Options
lacks depth or liquidity, the completion of the transaction may require the payment of a premium or acceptance of a discounted
price and may take longer to consummate. In such an environment, the purchase or liquidation of a large number of options may more
significantly impact the price and impair the Fund’s ability to meet its investment objective.
FLEX
Options Valuation Risk. The FLEX Options held by the Fund will be exercisable at the strike price only on their expiration
date. Prior to the expiration date, the value of the FLEX Options will be determined based upon market quotations or using other
recognized pricing methods. The value of the FLEX Options prior to the expiration date may vary because of related factors other
than the value of the Reference Index. During periods of reduced market liquidity or in the absence of readily available market
quotations for the holdings of the Fund, the ability of the Fund to value the FLEX Options becomes more difficult and the judgment
of the Fund’s investment advisor (employing the fair value procedures adopted by the Board of Trustees of the Trust) may
play a greater role in the valuation of the Fund’s holdings due to reduced availability of reliable objective pricing data.
Focused Investment
Risk
To
the extent that the Fund invests a large percentage of its assets in a single asset class or the securities of issuers within the
same country, group of countries, region, industry, group of industries or sector, an adverse economic, market, political or regulatory
development may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. Different
asset classes, countries, groups of countries, regions, industries, groups of industries or sectors tend to go through cycles of
outperformance and underperformance in comparison to each other and to the general financial markets.
Maximum Loss Risk
There
can be no guarantee that the Fund will successfully provide the Maximum Loss over a Defined Outcome Period. The Maximum Loss is
based upon the value of the Reference Index at time that the Fund enters into the FLEX Options positions at the beginning of a
Defined Outcome Period. As such, an investor that purchases Shares after a Defined Outcome Period has begun, or sells Shares prior
to the conclusion of a Defined Outcome Period, may not benefit from the Maximum Loss.
Market Risk
The
value of a Fund’s investments may fluctuate and/or decline because of changes in the markets in which the Fund invests, which
could cause the Fund to underperform other funds with similar investment objectives and strategies. Security markets are volatile
and may decline significantly in response to adverse issuer, regulatory, political, or economic developments. Different sectors
of the market and different security types may react differently to such developments. Changes in these markets may be rapid and
unpredictable. Fluctuations in the markets generally or in a specific industry or sector may impact the securities in which a Fund
invests. From time to time, markets may experience periods of stress for potentially prolonged periods that may result in: (i)
increased market volatility; (ii) reduced market liquidity; and (iii) increased redemptions of Fund shares. Such conditions may
add significantly to the risk of volatility in the net asset value of a Fund’s shares and the market prices at which shares
of a Fund trade on a securities exchange. During periods of market stress shares of a Fund may also experience significantly wider
“bid/ask” spreads and premiums and discounts between a Fund’s net asset value and market price.
Market
changes may impact equity and fixed income securities in different and, at times, conflicting manners. A Fund potentially will
be prevented from executing investment decisions at an advantageous time or price as a result of any domestic or global market
disruptions, particularly disruptions causing heightened market volatility and reduced market liquidity, as well as increased or
changing regulations or market closures. Thus, investments that the Subadvisor believes represent an attractive opportunity or
in which a Fund seeks to obtain exposure may be unavailable entirely or in the specific quantities sought by the Subadvisor and
the Fund may need to obtain the exposure through less advantageous or indirect investments or forgo the investment at the time.
Securities and investments held by a Fund may be susceptible to declines in value, including declines in value that are not believed
to be representative of the issuer’s value or fundamentals, due to investor reactions to such events.
Political
and diplomatic events within the United States and abroad, such as the U.S. budget and deficit reduction plans, protectionist measures,
trade tensions central bank policy and government intervention in the economy, has in the past resulted, and may in the future
result, in developments that present additional risks to a Fund's investments and operations. Geopolitical and other events, such
as war, acts of terrorism, natural disasters, the spread of infectious illnesses, epidemics and pandemics, environmental and other
public health issues, recessions or other events, and governments’ reactions to such events, may lead to increased market
volatility and instability in world economies and markets generally and may have adverse effects on the performance of the Fund
and its investments. Additional and/or prolonged geopolitical or other events may affect investor and consumer confidence and may
adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. Any such market, economic
and other disruptions could also prevent a Fund from executing its investment strategies and processes in a timely manner.
An
investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. When you sell your Shares, they could be worth less than what you paid for them.
New Fund Risk
As
a new fund, there can be no assurance that the Fund will grow to or maintain an economically viable size, in which case it could
ultimately liquidate. Like other new funds, large inflows and outflows may impact the Fund’s market exposure for limited
periods of time. This impact may be positive or negative, depending on the direction of market movement during the period affected.
An Authorized Participant, the Advisor or an affiliate of the Advisor may invest in the Fund and hold its investments for a specific
period of time in order to facilitate commencement of the Fund’s operations or for the Fund to achieve size or scale. There
can be no assurance that any such entity would not redeem its investment or that the size of the Fund would be maintained at such
levels which could negatively impact the Fund.
Non-Diversified Risk
The
Fund is classified as a “non-diversified” investment company under the 1940 Act, which means it may invest a larger
percentage of its assets in a smaller number of issuers than a diversified fund. To the extent
the Fund invests its assets in a
smaller number of issuers, the Fund will be more susceptible to negative events affecting those issuers than a diversified fund.
Under the 1940 Act, the Fund may change its classification from non-diversified to diversified without shareholder approval.
Operational Risk
Each
Fund is exposed to operational risks arising from a number of factors, including, but not limited to, human error, processing and
communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate
processes and technology or systems failures. The Fund, Advisor [and Subadvisor] seek to reduce these operational risks through
controls and procedures. However, these measures do not address every possible risk and may be inadequate to address significant
operational risks.
Portfolio Management
Risk
Each
Fund is subject to portfolio management risk because it is an actively managed portfolio. In managing the Fund’s investment
portfolio, the portfolio manager will apply investment techniques and risk analyses that may not produce the desired result. There
can be no guarantee that the Fund will meet its investment objective(s). In addition, the Fund may not achieve its investment objective
if the portfolio manager takes temporary positions in response to unusual or adverse market, economic or political conditions,
or other unusual or abnormal circumstances. The investments selected by the Fund’s portfolio manager may underperform the
market or other investments.
Reference Index Correlation
Risk
While
the value of the Reference Index is a significant factor in calculating a FLEX Option’s value prior to its expiration,
it is not solely determinative. Other elements impacting an option’s value is the amount of time remaining until its
expiration, the implied volatility of the Reference Index and interest rate levels. The change in the value of the FLEX
Options will primarily determine how closely the performance of the Fund’s NAV correlates to the performance of the
Reference Index on a day-to-day basis. While it is anticipated that the Fund’s NAV will generally increase in value on
days when the Reference Index increases in value, and decrease in value on days when the Reference Index decreases in value,
the degree to which the Fund participates in that increase or decrease varies. On any individual day, and for periods of
time, the Fund’s NAV may increase or decrease by amounts greater or less than the corresponding change in the value of
the Reference Index. At times, changes in the Fund’s NAV may not be correlated with changes in the value of the
Reference Index. The potential for deviation between changes in the value of the Reference Index and changes in the value of
the Fund’s NAVs are heightened at the beginning of each Defined Outcome Period when there are many days until the FLEX
Options expire, although there may be differences between the changes in value of the Reference Index and the Fund’s
NAV at any time during the Defined Outcome Period. The value of the FLEX Options also affects the impact of the Maximum Loss
on the Fund’s NAV as the Defined Outcome Period progresses.
Secondary Market Trading
Risk
Although
the Fund’s Shares are listed for trading on one or more securities exchanges, there can be no assurance that an active trading
market for such Shares will develop or be maintained by market makers or Authorized Participants. The trading of Shares on securities
exchanges is subject to the risk of irregular trading activity. Additionally, market makers are under no obligation to make a market
in the Fund’s Shares and Authorized Participants are not obligated to submit purchase or redemption orders for Creation Units.
In the event market makers cease making a market in the Fund’s Shares or Authorized Participants stop submitting purchase
or redemption orders for Creation Units, such Fund’s Shares may trade at a larger premium or discount to its NAV.
Buying
or selling Shares on an exchange involves two types of costs that apply to all securities transactions. When buying or selling
Shares through a broker, you will likely incur a brokerage commission and other charges. In addition, you may incur the cost of
the “spread” – the difference between what investors are willing to pay for Shares (the “bid” price)
and the price at which they are willing to sell Fund shares (the “ask” price). The spread, which varies over time for
Shares based on trading volume and market liquidity, is generally narrower if the Fund has more trading volume and market liquidity
and wider
if the Fund has less trading volume and market liquidity. The risk of wide bid and ask spreads may be especially pronounced
for smaller funds. In addition, increased market volatility may cause wider spreads. There may also be regulatory and other charges
that are incurred as a result of trading activity. Because of the costs inherent in buying or selling Shares, frequent trading
may detract significantly from investment results and an investment in Shares may not be advisable for investors who anticipate
regularly making small investments through a brokerage account.
Securities
exchanges have requirements that must be met in order for Shares to be listed. There can be no assurance that the requirements
of an exchange necessary to maintain the listing of Shares will continue to be met. This risk is particularly acute for funds that
fail to attract a large number of shareholders. Pursuant to an exchange’s “circuit breaker” rules, trading in
the Fund’s Shares may be halted due to extraordinary market volatility.
Tax Risk
The
Fund intends to elect and to qualify each year to be treated as a RIC under Subchapter M of the Code. As a RIC, the Fund will not
be subject to U.S. federal income tax on the portion of its net investment income and net capital gain that it distributes to Shareholders,
provided that it satisfies certain requirements of the Code, including a requirement that the “issuers” of the Fund’s
assets be sufficiently diversified. There is limited published IRS guidance or case law on how to determine the “issuer”
of certain derivatives that the Fund will enter into. Therefore, there is a risk that the Fund will not meet the Code’s diversification
requirements and will not qualify, or will be disqualified, as a RIC. The Fund intends to treat FLEX Options referencing an index
as “issued” by the issuers of the securities underlying the index. This, in turn, would allow the Fund to count the
FLEX Options as automatically diversified investments under the Code’s diversification requirements. This position is consistent
with informal guidance from the IRS but has not been confirmed by published guidance or case law. If the FLEX Options are not treated
as issued by the issuers of the securities underlying the index for diversification test purposes, there is a risk that the Fund
could lose its RIC status.
The
Fund’s investments in offsetting positions with respect to the Reference Index may affect the character of gains or losses
realized by the Fund under the Code’s “straddle” rules and may increase the amount of short-term capital gain
realized by the Fund. Such short-term capital gain is taxed as ordinary income when distributed to U.S. shareholders in a non-liquidating
distribution. As a result, if the Fund makes a non-liquidating distribution of its short-term capital gain, the amount which must
be distributed to U.S. shareholders as ordinary income may be increased substantially as compared to the Fund that did not engage
in such transactions. Accordingly, Shareholders could have a lower after-tax return from investing in the Fund than investing directly
in the Reference Index.
If
the Fund did not qualify as a RIC for any taxable year and certain relief provisions were not available, the Fund’s taxable
income would be subject to tax at the Fund level and to a further tax at the shareholder level when such income is distributed.
In such event, in order to re-qualify for taxation as a RIC, the Fund might be required to recognize unrealized gains, pay substantial
taxes and interest and make certain distributions. This would cause investors to incur higher tax liabilities than they otherwise
would have incurred and would have a negative impact on Fund returns. In such event, the Fund may reorganize, close or materially
change its investment objective and strategies.
The
FLEX Options included in the Fund’s portfolio are exchange-traded options. Under Section 1256 of the Code, certain types
of exchange-traded options are treated as if they were sold (i.e., “marked to market”) at the end of each year. Gain
or loss is recognized on this deemed sale. Such treatment could cause the Fund to recognize taxable income without receiving cash.
In order to maintain its RIC qualification, the Fund must distribute at least 90% of its income annually. If the FLEX Options are
subject to Section 1256 of the Code, and the Fund is unable to distribute marked-to-market gains to its shareholders, the Fund
may lose its RIC qualification and be taxed as a regular corporation.
Trading Price Risk
Shares
of the Fund trade on securities exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is
calculated at the end of each business day and fluctuates with changes in
the market value of the Fund’s holdings. The trading
price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for
Shares and the Fund’s NAV. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV
during periods of market volatility. The market price of the Fund’s Shares during the trading day, like the price of any
exchange-traded security, includes a “bid/ask” spread charged by the exchange specialist, market makers or other participants
that trade the Shares. In times of severe market disruption, the bid/ask spread can increase significantly. At those times, Shares
are most likely to be traded at a discount to NAV, and the discount is likely to be greatest when the price of Shares is falling
fastest, which may be the time that an investor most wants to sell their Shares. Although it is generally expected that the market
price of the Fund’s Shares will approximate the Fund’s NAV, there may be times when the market price and the NAV vary
significantly. Thus, an investor may pay more than NAV when purchasing Shares and receive less than NAV when selling Shares. While
the creation/redemption feature is designed to make it more likely that the Fund’s Shares normally will trade on securities
exchanges at prices close to the Fund’s next calculated NAV, exchange prices are not expected to correlate exactly with the
Fund’s NAV due to timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and
redemptions, including disruptions at market makers, Authorized Participants, or other market participants, and during periods
of significant market volatility, may result in trading prices for Shares of the Fund that differ significantly from its NAV. Authorized
Participants may be less willing to create or redeem Shares if there is a lack of an active market for such Shares or its underlying
investments, which may contribute to the Fund’s Shares trading at a premium or discount to NAV. Additionally, similar to
shares of other issuers listed on a securities exchange, the Fund’s Shares may be sold short and are therefore subject to
the risk of increased volatility and price decreases associated with being sold short. Any of these factors, among others, may
lead to the Fund’s Shares trading at a premium or discount to NAV.
Upside Cap Risk
Unlike
other investment products, an investor’s potential upside return in the Fund is subject to the Upside Cap, which represents
the maximum percentage return an investor can achieve from an investment in the Fund for a Defined Outcome Period, regardless of
any percentage gain experienced by the Reference Index exceeding the Upside Cap. Therefore, if the Reference Index experiences
percentage gains for a Defined Outcome Period in excess of the Upside Cap, a shareholder will not participate in any gains in excess
of the Upside Cap. The Upside Cap for each Defined Outcome Period will be determined at the beginning of such period based upon
prevailing market conditions. The Upside Cap, and the Fund’s position relative to it, should be considered prior to purchasing
Shares. If an investor is considering purchasing Shares after a Defined Outcome Period has begun, and the Fund has already increased
in value to a level near to the Upside Cap, an investor purchasing Shares may have limited upside available for the remainder of
the Defined Outcome Period while remaining vulnerable to downside risks.
Additional
Risks
Large Investments
Risk
From
time to time, the Fund may receive large purchase or redemption orders from affiliated or unaffiliated funds or other investors.
In addition, any third-party investor, investment advisor affiliate, authorized participant, lead market maker or other entity
may make a large investment in the Fund and hold its investment for any number of reasons, including to facilitate such Fund’s
commencement of operations or to facilitate the Fund’s achieving a specified size or scale. There can be no assurance that
any large shareholder would not sell or redeem its investment at any given time, either in a single transaction or over time. These
large transactions, and particularly redemptions, could have adverse effects on the Fund, including: (i) negative impacts to performance
if the Fund were required to sell securities, invest cash or hold significant cash at times when it otherwise would not do so;
(ii) wider price spreads or greater premiums/discounts that could materialize as a result of lower secondary market
volume of shares;
and (iii) negative federal income tax consequences if this activity accelerated the realization of capital gains.
Additionally,
under the continuous listing standards adopted by the Fund’s listing exchange, the Fund will be required to confirm on an
ongoing basis that the components of its portfolio satisfy the applicable listing requirements. Failure to comply with the continuous
listing standards may result in the Fund being delisted by the listing exchange.
Underinvestment Risk
If
certain aggregate ownership thresholds are reached either through the actions of the Advisor and its affiliates or the Fund, or
as a result of third-party transactions, the ability of the Advisor on behalf of clients (including the Fund) to purchase or dispose
of investments, or exercise rights or undertake business transactions, may be restricted by regulation or otherwise impaired. The
capacity of the Fund to make investments in certain securities may be affected by the relevant limits, and such limitations may
have adverse effects on the liquidity and performance of the Fund’s portfolio holdings.
Investor
Suitability
An
investment in Shares may be suitable for you if:
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·
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you fully understand the risks inherent in an investment in the Fund;
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·
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you desire to invest in a product with a return that depends upon the performance
of the Reference Index over the duration of the Defined Outcome Period;
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·
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you are willing to hold Shares for the duration of the Defined Outcome Period
in order to achieve the outcomes that the Fund seeks to provide;
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·
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you fully understand that investments made when the Fund is at or near to
the Upside Cap may have limited to no upside;
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·
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you are willing to forgo any gains in excess of the Upside Cap;
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·
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you seek to have partial protection on your investment and are willing to
have a loss equal to the Maximum Loss;
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·
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you have read and fully understand the disclosure set forth in the section
entitled “Dividends, Distributions and Taxes” and understand that the Fund’s investments do not provide for dividends
to the Fund, and that the Fund may make no, irregular or substantial distributions to shareholders;
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·
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you fully understand that investments made after the Defined Outcome Period
has begun may not fully benefit from the Maximum Loss and that the performance of the Fund over such period may not track the performance
of the Reference Index;
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·
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you are willing to accept the risk of losing your entire investment; and
you have visited the Fund’s website and understand the investment outcomes available to you based upon the time of your purchase.
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An
investment in Shares may not be suitable for you if:
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·
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you do not fully understand the risks inherent in an investment in the Fund;
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·
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you do not desire to invest in a product with a return that depends upon
the performance of the Reference Index over the duration of the Defined Outcome Period;
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·
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you are unwilling to hold Shares for the duration of the Defined Outcome
Period in order to achieve the outcomes that the Fund seeks to provide;
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·
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you do not fully understand that investments made when the Fund is at or
near to the Upside Cap may have limited to no upside;
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·
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you are unwilling to forgo any gains in excess of the Upside Cap;
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·
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you are unwilling to have a loss equal to the Maximum Loss;
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·
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you have not read or do not fully understand the disclosure set forth in
the section entitled “Dividends, Distributions and Taxes” and understand that the Fund’s investments do not provide
for dividends to the Fund, and that the Fund may make no, irregular or substantial distributions to shareholders;
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·
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you do not fully understand that investments made after the Defined Outcome
Period has begun may not fully benefit from the Maximum Loss and that the performance of the Fund over such period may not track
the performance of the underlying reference asset;
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·
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you are unwilling to accept the risk of losing your entire investment; and
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·
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you have not visited the Fund’s website and do not
understand the investment outcomes available to you based upon the timing of your purchase.
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Buying
and Selling Shares in the Secondary Market
Most
investors will buy and sell Shares of the Fund in Secondary Market transactions through brokers. Shares of the Fund will be listed
for trading on the Secondary Market on the [ ]. Shares can be bought and sold throughout the trading day like other publicly-traded
shares. Unless imposed by your broker or dealer, there is no minimum dollar amount you must invest and no minimum number of Shares
you must buy in the Secondary Market. When buying or selling Shares through a broker, you will incur customary brokerage commissions
and charges, and you may pay some or all of the spread between the bid and the offered price in the Secondary Market on each leg
of a round trip (purchase and sale) transaction. In addition, because transactions in the Secondary Market occur at market prices,
you may pay more than NAV when you buy Shares and receive less than NAV when you sell those Shares.
Share
prices are reported in dollars and cents per Share. For information about buying and selling Shares in the Secondary Market, please
contact your broker or dealer.
Book Entry
Shares
of the Fund are held in book-entry form and no stock certificates are issued. DTC, through its nominee Cede & Co., is the record
owner of all outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its participants. DTC serves as the securities depository
for all Shares. Participants in DTC include securities brokers and dealers, banks, trust companies, clearing corporations and other
institutions that directly or indirectly maintain a custodial relationship with DTC. As a beneficial owner of Shares, you are not
entitled to receive physical delivery of stock certificates or to have Shares registered in your name, and you are not considered
a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must rely upon the procedures of DTC
and its participants.
These
procedures are the same as those that apply to any securities that you hold in book entry or “street name” form for
any publicly-traded company. Specifically, in the case of a shareholder meeting of the Fund, DTC assigns applicable Cede &
Co. voting rights to its participants that have Shares credited to their accounts on the record date, issues an omnibus proxy and
forwards the omnibus proxy to the Fund. The omnibus proxy transfers the voting authority from Cede & Co. to the DTC participant.
This gives the DTC participant through whom you own Shares (namely, your broker, dealer, bank, trust company or other nominee)
authority to vote the shares, and, in turn, the DTC participant is obligated to follow the voting instructions you provide.
Management
The
Board is responsible for the general supervision of the Fund. The Board appoints officers who are responsible for the day-to-day
operations of the Fund.
Investment Advisor
The
Advisor has been registered as an investment advisor with the SEC since August 2007 and is a wholly-owned indirect subsidiary of
New York Life Investment Management Holdings LLC. The Advisor’s principal office is located at 51 Madison Avenue, New York,
New York 10010. As of [__________], the Advisor had approximately $[_____] billion in assets under management.
The
Advisor has overall responsibility for the general management and administration of the Trust. The Advisor provides an investment
program for the Fund. The Advisor has delegated certain advisory duties with regard to the Fund (including management of all of
the Fund’s assets) to the Subadvisor. The Advisor has also arranged for custody, fund administration, transfer agency and
all other non-distribution related services necessary for the Fund to operate.
As
compensation for its services and its assumption of certain expenses, the Fund pays the Advisor a management fee equal to a percentage
of the Fund’s average daily net assets that is calculated daily and paid monthly, as follows:
Fund
|
Management
Fee
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IQ m+ Preservation [ ] ETF
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[____]%
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The
Advisor may voluntarily waive any portion of its advisory fee from time to time, and may discontinue or modify any such voluntary
limitations in the future at its discretion.
The
Advisor serves as investment advisor to the Fund pursuant to an Investment Advisory Agreement (the “Advisory Agreement”)
and the Subadvisor serves as investment subadvisor to the Fund pursuant to an Investment Subadvisory Agreement (the “Subadvisory
Agreement”). The Advisory Agreement and Subadvisory Agreement were approved by the Independent Trustees of the Trust. The
basis for the Trustees’ approval of the Advisory Agreement and Subadvisory Agreement [will be] available in the Trust’s
Annual or Semiannual Report to shareholders.
Section
15(a) of the 1940 Act requires that all contracts pursuant to which persons serve as investment advisors to investment companies
be approved by shareholders. As interpreted, this requirement also applies to the appointment of subadvisors to the Fund. The Advisor
and the Trust have obtained an exemptive order (the “Order”) from the SEC permitting the Advisor, on behalf of the
Fund and subject to the approval of the Board, including a majority of the Independent Trustees, to hire or terminate unaffiliated
subadvisors and to modify any existing or future subadvisory agreement with unaffiliated subadvisors without shareholder approval.
This authority is subject to certain conditions. The Fund will notify shareholders and provide them with certain information required
by the Order within 90 days of hiring a new subadvisor. The Fund’s sole shareholder has approved the use of the Order. Please
see the SAI for more information on the Order.
Expense Limitation
Agreement
The
Advisor has entered into an Expense Limitation Agreement with the Fund under which it has agreed to waive or reduce its fees and
to assume other expenses of the Fund in an amount that limits “Total Annual Fund Operating Expenses” (exclusive of
interest, taxes, brokerage fees and commissions, dividends paid on short sales, acquired fund fees and expenses, and extraordinary
expenses) to not more than 0.[__]% of the average daily net assets of the Fund for the twelve months ending _____________.
Subadvisor
Pursuant
to an investment subadvisory agreement with the Advisor, Alaia Capital, LLC serves as the subadvisor to the Fund and makes investment
decisions, and buys and sells securities for the Fund. For its services to the Fund, the Subadvisor is compensated by the Advisor.
The
Subadvisor was founded in 2015 with the purpose of delivering defined outcome solutions through various fiduciary-based fund vehicles
and is an SEC-registered investment advisor. The Subadvisor’s principal office is located at 10 Corbin Drive, Darien, CT
06820.
Portfolio Management
The
Advisor acts as investment advisor to the Fund and is responsible for the overall management of the investment portfolios of the
Fund. Under the supervision of the Advisor, the Subadvisor is responsible for making the specific decisions about the following:
(i) buying, selling and holding securities; (ii) selecting brokers and brokerage firms to trade for them; (iii) maintaining accurate
records; and, if possible, (iv) negotiating favorable commissions and fees with the brokers and brokerage firms for all the Funds
it oversees. For these services, the Subadvisor is paid a monthly fee by the Advisor out of the Advisor’s management fee,
not the Fund’s. See the SAI for a breakdown of fees.
The
Portfolio Management Team at the Subadvisor is primarily responsible for the day-to-day management of the Fund. The following individuals
comprise the Portfolio Management Team:
Oscar Loynaz, Founder
and CEO
Mr.
Loynaz is the founder and Chief Executive Officer of Alaia Capital, LLC and oversees the investment management of all current m+
funds defined outcome products. Prior to founding Alaia Capital, he was a Managing Director at Citigroup Global Markets in charge
of Americas Structuring and Sales of all structured equity and multi-asset solutions and defined outcome products for institutional,
high net worth and retail clients. Additionally, Oscar was the global head of Multi-Asset Structuring from 2012 to 2013, as
well as the head of Equity Derivatives for Latin America in 2014. He was part of the Equity Derivatives Operating Committee
and the Latam Equities Executive Committee. He was also a Managing Director and head of Multi-Asset Structuring and High Net Worth
Sales for the Americas at Bank of America Merrill Lynch prior to joining Citigroup. Mr Loynaz has an MBA from Columbia University
and received his Mechanical Engineer degree from Universidad Metropolitana in Venezuela.
Brad Berggren, Managing
Director and COO
Mr.
Berggren is the Chief Operating Office for Alaia Capital, LLC. Prior to Alaia, he founded Parametric in 2002. Mr. Berggren was
a Co-Founder and COO of Bank of America’s Equity Financial Products Group in NYC. While at Bank of America, he was Chief
Operating Officer of the Equity Financial Products Group, sat on the Board of Directors for Banc of America – Japan and oversaw
structured products, sales and marketing. Prior to Bank of America, Mr. Berggren was the Managing Director and Head of Equity Derivatives
Product Structuring group at Bear Stearns. He also worked in the derivative groups at Merrill Lynch and at Credit Suisse serving
U.S. institutional clients of debt capital markets, interest rate, currency, commodity and equity derivatives products. Mr. Berggren
graduated from the University of Vermont with a B.A. in Political Science and History.
Stephen
Clancy, Portfolio Manager
Mr.
Clancy has over 18 years of experience in multi-asset trading and asset management and has expertise in algorithmic indices and
derivatives risk management. Prior to joining Alaia, he was a Director at Citigroup Global Markets
in charge of Hybrids and Asset Management Derivatives trading. Prior to Citi, Mr. Clancy was a portfolio manager for managed futures
strategy hedge funds at EAM Partners LP/AFT LLC. He developed and codified trend following trading strategies that were packaged
as S&P Indices and licensed. Mr. Clancy is a Chartered Financial Analyst (CFA) Charterholder and Financial Risk Manager (FRM).
He graduated from James Madison University in 1999 with a B.A. in English.
For
more information about the compensation of the Portfolio Management Team, other accounts managed by the Portfolio Management Team
and the Portfolio Management Team’s ownership of Shares of the Fund, see the SAI.
Other
Service Providers
Fund Administrator,
Custodian, Transfer Agent and Securities Lending Agent
The
Bank of New York Mellon (“BNY Mellon”), located at 240 Greenwich Street, New York, New York 10286, serves as the Fund’s
Administrator, Custodian, Transfer Agent and Securities Lending Agent. BNY Mellon is the principal operating subsidiary of The
Bank of New York Mellon Corporation.
Under
the Fund Administration and Accounting Agreement (the “Administration Agreement”), BNY Mellon serves as Administrator
for the Fund. Under the Administration Agreement, BNY Mellon provides necessary administrative, legal, tax, accounting services,
and financial reporting for the maintenance and operations of the Trust. In addition, BNY Mellon makes available the office space,
equipment, personnel and facilities required to provide such services.
BNY
Mellon supervises the overall administration of the Trust, including, among other responsibilities, assisting in the preparation
and filing of documents required for compliance by the Fund with applicable
laws and regulations and arranging for the maintenance
of books and records of the Fund. BNY Mellon provides persons satisfactory to the Board to serve as officers of the Trust.
Distributor
ALPS
Distributors, Inc. (“ALPS” or the “Distributor”), located at 1290 Broadway, Suite 1100, Denver, Colorado
80203, serves as the Distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a Secondary
Market in the Fund’s Shares. NYLIFE Distributors LLC has entered into a Services Agreement with ALPS to market the Fund.
Independent Registered
Public Accounting Firm
PricewaterhouseCoopers
LLP, located at 300 Madison Avenue, New York, NY 10017, serves as the independent registered public accounting firm for the Trust.
Legal Counsel
Chapman
and Cutler LLP, located at 1717 Rhode Island Avenue, Washington, D.C. 20036, serves as counsel to the Trust and the Fund.
Frequent
Trading
The
Board has not adopted policies and procedures with respect to frequent purchases and redemptions of Shares by Fund shareholders
(“market timing”). In determining not to adopt market timing policies and procedures, the Board noted that the Fund
is expected to be attractive to active institutional and retail investors interested in buying and selling Shares on a short-term
basis. In addition, the Board considered that, unlike traditional mutual funds, Shares can only be purchased and redeemed directly
from the Fund in Creation Units by Authorized Participants, and that the vast majority of trading in Shares occurs on the Secondary
Market. Because Secondary Market trades do not involve the Fund directly, it is unlikely those trades would cause many of the harmful
effects of market timing, including dilution, disruption of portfolio management, increases in the Fund’s trading costs and
the realization of capital gains. With respect to trades directly with the Fund, to the extent effected in-kind (namely, for securities),
those trades do not cause any of the harmful effects that may result from frequent cash trades. To the extent trades are effected
in whole or in part in cash, the Board noted that those trades could result in dilution of the Fund and increased transaction costs
(the Fund may impose higher transaction fees to offset these increased costs), which could negatively impact the Fund’s ability
to achieve its investment objective. However, the Board also noted that direct trading on a short-term basis by Authorized Participants
is critical to ensuring that Shares trade at or close to NAV. Given this structure, the Board determined that it is not necessary
to adopt market timing policies and procedures. Each Fund reserves the right to reject any purchase order at any time and reserves
the right to impose restrictions on disruptive or excessive trading in Creation Units.
The
Board has instructed the officers of the Trust to review reports of purchases and redemptions of Creation Units on a regular basis
to determine if there is any unusual trading in the Fund. The officers of the Trust will report to the Board any such unusual trading
in Creation Units that is disruptive to the Fund. In such event, the Board may reconsider its decision not to adopt market timing
policies and procedures.
Distribution
and Service Plan
The
Board has adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1
plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to finance activities primarily
intended to result in the sale of Creation Units of the Fund or the provision of investor services. No Rule 12b-1 fees are currently
paid by the Fund and there are no plans to impose these fees. However, in the event Rule 12b-1 fees are charged in the future,
they will be paid out of the respective Fund’s assets, and over time these fees will increase the cost of your investment
and they may cost you more than certain other types of sales charges.
The
Advisor and its affiliates may, out of their own resources, pay amounts (“Payments”) to third-parties for distribution
or marketing services on behalf of the Fund. The making of these payments could create a conflict of interest for a financial intermediary
receiving such payments. The Advisor may make Payments for such third-parties to organize or participate in activities that are
designed to make registered representatives, other professionals and individual investors more knowledgeable about ETFs, including
ETFs advised by the Advisor, or for other activities, such as participation in marketing activities and presentations, educational
training programs, conferences, the development of technology platforms and reporting systems (“Education Costs”).
The Advisor also may make Payments to third-parties to help defray costs typically covered by a trading commission, such as certain
printing, publishing and mailing costs or materials relating to the marketing of services related to exchange-traded products (such
as commission-free trading platforms) or exchange-traded products in general (“Administrative Costs”). As of the date
of this Prospectus, the Advisor has agreed to make Payments to Charles Schwab & Co., Inc. (“Charles Schwab”) for
the services described above, including Education Costs and Administrative Costs. The Advisor has agreed to make payments to Charles
Schwab based on an annual fee for its services, as well as based on the average daily assets held by Charles Schwab customers in
certain ETFs advised by the Advisor.
Determination
of Net Asset Value (NAV)
The
NAV of the Shares for the Fund is equal to the Fund’s total assets minus its total liabilities divided by the total number
of Shares outstanding. Interest and investment income on the Fund’s assets accrue daily and are included in the Fund’s
total assets. Expenses and fees (including investment advisory, management, administration and distribution fees, if any) accrue
daily and are included in the Fund’s total liabilities. The NAV that is published is rounded to the nearest cent; however,
for purposes of determining the price of Creation Units, the NAV is calculated to eight decimal places. The NAV is calculated by
the Administrator and Custodian and determined each day the [ ] is open for trading as of the close of regular trading on the [
] (ordinarily 4:00 p.m. Eastern time).
The
Fund typically values fixed-income portfolio securities using last available bid prices or current market quotations provided by
dealers or prices (including evaluated prices) supplied by the Fund’s approved independent third-party pricing services.
Pricing services may use matrix pricing or valuation models that utilize certain inputs and assumptions to derive values. Pricing
services generally value fixed-income securities assuming orderly transactions of an institutional round lot size, but the Fund
may hold or transact in such securities in smaller odd lot sizes. Odd lots often trade at different prices that may be above or
below the price at which the pricing service has valued the security. An amortized cost method of valuation may be used with respect
to debt obligations with sixty days or less remaining to maturity unless the Advisor determines in good faith that such method
does not represent fair value.
Generally,
trading in U.S. government securities, money market instruments and certain fixed-income securities is substantially completed
each day at various times prior to the close of business on the [ ]. The values of such securities used in computing the NAV of
the Fund are determined as of such times.
When
market quotations or prices are not readily available or are deemed unreliable or not representative of an investment’s fair
value, investments are valued using fair value pricing as determined in good faith by the Advisor under procedures established
by and under the general supervision and responsibility of the Board. The Advisor may conclude that a market quotation is not readily
available or is unreliable if a security or other asset or liability does not have a price source due to its lack of liquidity
or other reason, if a market quotation differs significantly from recent price quotations or otherwise no longer appears to reflect
fair value, where the security or other asset or liability is thinly traded, or if the trading market on which a security is listed
is suspended or closed and no appropriate alternative trading market is available.
[The
value of FLEX Options is based on the last quoted price for the options where readily available and appropriate. In cases where
the options were not traded or where the Advisor or Subadvisor determines that market quotations are unavailable or inappropriate
(e.g., due to infrequent transactions, thin
trading or otherwise), the value of the options may be based on the last asked or bid
price provided by dealers active in market-making of securities similar to the options in the over-the-counter market if available
and appropriate, or may be based on the Advisor or Subadvisor’s good faith determination of the fair value of the options
at its reasonable discretion. To determine the fair value of the options, where and if available, they may use variables or values
generated using third party valuation services. They may also generate their own model-based valuations of the options, and/or
use current market quotations and ask/bid prices for comparable listed options that are more actively traded.]
The
frequency with which the Fund’s investments are valued using fair value pricing is primarily a function of the types of securities
and other assets in which the Fund invests pursuant to its investment objective, strategies and limitations. If the Fund invests
in other open-end management investment companies registered under the 1940 Act, it may rely on the NAVs of those companies to
value the shares they hold of them. Those companies may also use fair value pricing under some circumstances.
Valuing
the Fund’s investments using fair value pricing results in using prices for those investments that may differ from current
market valuations. Accordingly, fair value pricing could result in a difference between the prices used to calculate NAV and the
prices used to determine the Fund’s indicative intra-day value (“IIV”), which could result in the market prices
for Shares deviating from NAV.
Indicative
Intra-Day Value
The
approximate value of the Fund’s investments on a per-Share basis, the IIV, is disseminated by [ICE Data Indices, LLC (“ICE
Data”)] every 15 seconds during hours of trading on the [ ]. The IIV should not be viewed as a “real-time” update
of NAV because the IIV may not be calculated in the same manner as NAV, which is computed once per day.
[ICE
Data] calculates the IIV for the Fund during hours of trading on the [ ] by dividing the “Estimated Fund Value” as
of the time of the calculation by the total number of outstanding Shares of the Fund. “Estimated Fund Value” is the
sum of the estimated amount of cash held in the Fund’s portfolio, the estimated amount of accrued interest owed to the Fund
and the estimated value of the securities held in the Fund’s portfolio, minus the estimated amount of the Fund’s liabilities.
The IIV will be calculated based on the same portfolio holdings disclosed on the Trust’s website.
Although
the Fund provides the independent third-party calculator with information to calculate the IIV, the Fund is not involved in the
actual calculation of the IIV and is not responsible for the calculation or dissemination of the IIV. The Fund makes no warranty
as to the accuracy of the IIV.
The
Fund is not sponsored, endorsed, sold or marketed by [ICE Data], its affiliates, or their respective Third-Party Suppliers.
[ICE
DATA OR ITS THIRD-PARTY SUPPLIERS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABIITY
OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE IIVS, FUND OR ANY FUND DATA INCLUDED THEREIN. IN NO EVENT SHALL ICE DATA
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, DIRECT, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED
OF THE POSSIBILITY OF SUCH DAMAGES.]
Dividends,
Distributions and Taxes
Net Investment Income
and Capital Gains
As
a Fund shareholder, you are entitled to your share of the Fund’s distributions of net investment income and net realized
capital gains on its investments. The Fund pays out substantially all of its net earnings to its shareholders as “distributions.”
The
Fund typically earns interest from debt securities. These amounts, net of expenses, typically are passed along to Fund shareholders
as dividends from net investment income. The Fund realizes capital
gains or losses whenever they sell securities. Net capital gains
typically are passed along to shareholders as “capital gain distributions.”
Net
investment income and net capital gains typically are distributed to shareholders at least annually. Dividends may be declared
and paid more frequently to comply with the distribution requirements of the U.S. Internal Revenue Code of 1986, as amended (the
“Code”). In addition, the Fund may decide to distribute at least annually amounts representing the full dividend yield
net of expenses on the underlying investment securities, as if the Fund owned the underlying investment securities for the entire
dividend period, in which case some portion of each distribution may result in a return of capital. You will be notified regarding
the portion of a distribution that represents a return of capital.
Distributions
in cash may be reinvested automatically in additional Shares of the Fund only if the broker through which you purchased Shares
makes such option available.
U.S. Federal Income
Taxation
The
following is a summary of certain U.S. federal income tax considerations applicable to an investment in Shares of the Fund. The
summary is based on the Code, U.S. Treasury Department regulations promulgated thereunder, and judicial and administrative interpretations
thereof, all as in effect on the date of this Prospectus and all of which are subject to change, possibly with retroactive effect.
In addition, this summary assumes that the Fund shareholder holds Shares as capital assets within the meaning of the Code and does
not hold Shares in connection with a trade or business. This summary does not address all potential U.S. federal income tax considerations
possibly applicable to an investment in Shares of the Fund, and does not address the consequences to Fund shareholders subject
to special tax rules, including, but not limited to, partnerships and the partners therein, tax-exempt shareholders, regulated
investment companies (“RICs”), real estate investment trusts (“REITs”), real estate mortgage investment
conduits (“REMICs”), those who hold Shares through an IRA, 401(k) plan or other tax-advantaged account, and, except
to the extent discussed below, “non-U.S. shareholders” (as defined below). This discussion does not discuss any aspect
of U.S. state, local, estate, and gift, or non-U.S., tax law. Furthermore, this discussion is not intended or written to be legal
or tax advice to any shareholder in the Fund or other person and is not intended or written to be used or relied on, and cannot
be used or relied on, by any such person for the purpose of avoiding any U.S. federal tax penalties that may be imposed on such
person. Prospective Fund shareholders are urged to consult their own tax advisors with respect to the specific U.S. federal, state
and local, and non-U.S., tax consequences of investing in Shares, based on their particular circumstances.
The
Fund has not requested and will not request an advance ruling from the U.S. Internal Revenue Service (the “IRS”) as
to the U.S. federal income tax matters described below. The IRS could adopt positions contrary to those discussed below and such
positions could be sustained. Prospective investors should consult their own tax advisors with regard to the U.S. federal tax consequences
of the purchase, ownership and disposition of Shares, as well as the tax consequences arising under the laws of any state, locality,
non-U.S. country or other taxing jurisdiction. The following information supplements, and should be read in conjunction with, the
section in the SAI entitled “U.S. Federal Income Taxation.”
Tax Treatment of the
Fund
The
Fund intends to qualify and elect to be treated as a separate RIC under the Code. To qualify and remain eligible for the special
tax treatment accorded to RICs, the Fund must meet certain annual income and quarterly asset diversification requirements and must
distribute annually at least 90% of the sum of (i) its “investment company taxable income” (which includes dividends,
interest and net short-term capital gains) and (ii) its net tax-exempt interest.
As
a RIC, the Fund generally will not be required to pay corporate-level U.S. federal income taxes on any ordinary income or capital
gains that it distributes to its shareholders. If the Fund fails to qualify as a RIC for any year (subject to certain curative
measures allowed by the Code), the Fund will be subject to regular corporate-level U.S. federal income tax in that year on all
of its taxable income, regardless of whether the Fund makes any distributions to its shareholders. In addition, in such case, distributions
will be taxable to the Fund’s shareholders generally as ordinary dividends to the extent of the Fund’s current
and
accumulated earnings and profits. The remainder of this discussion assumes that the Fund will qualify for the special tax treatment
accorded to RICs.
The
Fund will be required to “mark to market” (i.e., treat as sold for fair market value) each outstanding section 1256
contract position at the close of each taxable year. As a result, the Fund may be required to make an annual income distribution
greater than the total cash actually received during the year. Such distribution may be made from the cash assets of the Fund or
by selling portfolio securities. The Fund may realize gains or losses from such sales, in which event its Shareholders may receive
a larger capital gain distribution than they would in the absence of such transactions.
The
Fund generally will be subject to a 4% excise tax on certain undistributed income if the Fund does not distribute to its shareholders
in each calendar year an amount at least equal to the sum of 98% of its ordinary income for the calendar year (taking into account
certain deferrals and elections), 98.2% of its capital gain net income (adjusted for certain ordinary losses) for the twelve months
ended October 31 of such year (or later if the Fund is permitted to elect and so elects), plus 100% of any undistributed amounts
from prior years. For these purposes, the Fund will be treated as having distributed any amount on which it has been subject to
U.S. corporate income tax for the taxable year ending within the calendar year. The Fund intends to make distributions necessary
to avoid this 4% excise tax, although there can be no assurance that it will be able to do so.
The
Fund may be required to recognize income in advance of receiving the related cash payment. For example, if the Fund invests in
original issue discount obligations (such as zero coupon debt instruments or debt instruments with payment-in-kind interest), the
Fund will be required to include in income each year a portion of the original issue discount that accrues over the term of the
obligation, even if the related cash payment is not received by the Fund until a later year. Under the “wash sale”
rules, the Fund may not be able to deduct currently a loss on a disposition of a portfolio security. As a result, the Fund may
be required to make an annual income distribution greater than the total cash actually received during the year. Such distribution
may be made from the existing cash assets of the Fund or cash generated from selling portfolio securities. The Fund may realize
gains or losses from such sales, in which event its shareholders may receive a larger capital gain distribution than they would
in the absence of such transactions.
Tax Treatment of Fund
Shareholders
Taxation of U.S.
Shareholders
The
following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable
to “U.S. shareholders.” For purposes of this discussion, a “U.S. shareholder” is a beneficial owner of
Shares who, for U.S. federal income tax purposes, is (i) an individual who is a citizen or resident of the U.S.; (ii) a corporation
(or an entity treated as a corporation for U.S. federal income tax purposes) created or organized in the U.S. or under the laws
of the U.S., or of any state thereof, or the District of Columbia; (iii) an estate, the income of which is includable in gross
income for U.S. federal income tax purposes regardless of its source; or (iv) a trust, if (1) a U.S. court is able to exercise
primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial
decisions of the trust, or (2) the trust has a valid election in place to be treated as a U.S. person.
Fund
Distributions. A majority of the Fund’s distributions to its shareholders is expected to be excluded from gross income
for U.S. federal income tax purposes as “exempt-interest dividends.” Notwithstanding the foregoing, Fund shareholders
should be aware of the following points:
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•
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Some tax-exempt distributions from the Fund may be subject to the alternative
minimum tax.
|
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•
|
Exempt-interest dividends may have other tax consequences to certain shareholders
(for example, they may result in a portion of a shareholder’s social security income being subject to federal income tax),
and a shareholder may not be entitled to deduct the interest expense on debt deemed to be incurred or continued to purchase or
carry Shares.
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•
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Tax-exempt distributions from the Fund may be subject to state and local
taxes.
|
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•
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The Fund may earn taxable income. In other words, shareholders of the Fund
may earn taxable income from the Fund even though the Fund generally intends to be tax-free to shareholders.
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•
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Capital gains of the Fund are not tax-free to shareholders.
|
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•
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Any time a shareholder sells Shares (even Shares of a generally tax-free
Fund), such shareholder will be subject to tax on any gain.
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•
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If a shareholder sells Shares of the Fund at a loss after receiving an exempt-interest
dividend, and the shareholder has held the Shares for six months or less, then such shareholder may not be allowed to claim a loss
on the sale.
|
In
general, taxable Fund distributions are subject to U.S. federal income tax when paid, regardless of whether they consist of cash
or property, and regardless of whether they are re-invested in Shares. However, any Fund distribution declared in October, November
or December of any calendar year and payable to shareholders of record on a specified date during such month will be deemed to
have been received by each Fund shareholder on December 31 of such calendar year, provided such dividend is actually paid during
January of the following calendar year.
Distributions
of the Fund’s taxable net investment income (except, as discussed below, qualified dividend income, if any) and net short-term
capital gains in excess of net long-term capital losses (collectively referred to as “ordinary income dividends”) are
taxable as ordinary income to the extent of the Fund’s current and accumulated earnings and profits. To the extent designated
as capital gain dividends by the Fund, distributions of the Fund’s net long-term capital gains in excess of net short-term
capital losses (“net capital gain”) are taxable at long-term capital gain tax rates to the extent of the Fund’s
current and accumulated earnings and profits, regardless of the Fund shareholder’s holding period in the Shares. Distributions
of qualified dividend income are, to the extent of the Fund’s current and accumulated earnings and profits, taxed to certain
non-corporate Fund shareholders at the rates generally applicable to long-term capital gain, provided that the Fund shareholder
meets certain holding period and other requirements with respect to the distributing Shares and the distributing Fund meets certain
holding period and other requirements with respect to its dividend-paying stocks. Substitute payments received on Shares that are
lent out will be ineligible for being reported as qualified dividend income. Given its investment strategy, the Fund does not anticipate
that a significant portion of its distributions will be eligible for qualifying dividend treatment. If the Fund pays a dividend
that would be “qualified” dividend income for individuals, corporate shareholders may be entitled to a dividends received
deduction.
The
Fund intends to distribute its net capital gain at least annually. However, by providing written notice to its shareholders no
later than 60 days after its year-end, the Fund may elect to retain some or all of its net capital gain and designate the retained
amount as a “deemed distribution.” In that event, the Fund pays U.S. federal income tax on the retained net capital
gain, and each Fund shareholder recognizes a proportionate share of the Fund’s undistributed net capital gain. In addition,
each Fund shareholder can claim a tax credit or refund for the shareholder’s proportionate share of the Fund’s U.S.
federal income taxes paid on the undistributed net capital gain and increase the shareholder’s tax basis in the Shares by
an amount equal to the shareholder’s proportionate share of the Fund’s undistributed net capital gain, reduced by the
amount of the shareholder’s tax credit or refund.
Distributions
in excess of the Fund’s current and accumulated earnings and profits will, as to each shareholder, be treated as a tax-free
return of capital to the extent of the shareholder’s tax basis in its Shares of the Fund, and generally as capital gain thereafter.
Any such distribution will reduce the shareholder’s tax basis in the Shares, and thus will increase the shareholder’s
capital gain, or decrease the capital loss, recognized upon a sale or exchange of Shares.
In
addition, individuals with adjusted gross incomes above certain threshold amounts (and certain trusts and estates) generally are
subject to a 3.8% Medicare tax on “net investment income” in addition to otherwise applicable U.S. federal income tax.
“Net investment income” generally will include taxable dividends (including capital gain dividends) received from the
Fund and net gains from the redemption or other disposition of Shares. Please consult your tax advisor regarding this tax.
Investors
considering buying Shares just prior to a distribution should be aware that, although the price of the Shares purchased at such
time may reflect the forthcoming distribution, such distribution nevertheless may be taxable (as opposed to a non-taxable return
of capital).
Sales
of Shares. Any capital gain or loss realized upon a sale or exchange of Shares (including an exchange of Shares of one Fund
for Shares of another Fund) generally is treated as a long-term gain or loss if the Shares have been held for more than one year.
Any capital gain or loss realized upon a sale or exchange of Shares held for one year or less generally is treated as a short-term
gain or loss, except that any capital loss on the sale or exchange of Shares held for six months or less, to the extent not disallowed
as discussed in the next sentence, is treated as long-term capital loss to the extent that capital gain dividends were paid (or
deemed to be paid) with respect to the Shares. Furthermore, a loss realized by a shareholder on the sale or exchange of Shares
of the Fund with respect to which exempt-interest dividends have been paid may, to the extent of such exempt-interest dividends,
be disallowed if such Shares have been held by the shareholder for six months or less at the time of their disposition.
Creation
Unit Issues and Redemptions. On an issue of Shares of the Fund as part of a Creation Unit where the creation is conducted in-kind,
an Authorized Participant recognizes capital gain or loss equal to the difference between (i) the fair market value (at issue)
of the issued Shares (plus any cash received by the Authorized Participant as part of the issue) and (ii) the Authorized Participant’s
aggregate basis in the exchanged securities (plus any cash paid by the Authorized Participant as part of the issue). On a redemption
of Shares as part of a Creation Unit where the redemption is conducted in-kind, an Authorized Participant recognizes capital gain
or loss equal to the difference between (i) the fair market value (at redemption) of the securities received (plus any cash received
by the Authorized Participant as part of the redemption) and (ii) the Authorized Participant’s basis in the redeemed Shares
(plus any cash paid by the Authorized Participant as part of the redemption). However, the IRS may assert, under the “wash
sale” rules or on the basis that there has been no significant change in the Authorized Participant’s economic position,
that any loss on creation or redemption of Creation Units cannot be deducted currently.
In
general, any capital gain or loss recognized upon the issue or redemption of Shares (as components of a Creation Unit) is treated
either as long-term capital gain or loss, if the deposited securities (in the case of an issue) or the Shares (in the case of a
redemption) have been held for more than one year, or otherwise as short-term capital gain or loss. However, any capital loss on
a redemption of Shares held for six months or less, to the extent not disallowed as discussed in the next sentence, is treated
as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect to such Shares.
Furthermore, a loss realized on the redemption of Shares of the Fund with respect to which exempt-interest dividends have been
paid may, to the extent of such exempt-interest dividends, be disallowed if such Shares have been held for six months or less at
the time of their disposition.
Back-Up Withholding
The
Fund (or a financial intermediary such as a broker through which a shareholder holds Shares in the Fund) may be required to report
certain information on the Fund shareholder to the IRS and withhold U.S. federal income tax (“backup withholding”)
at a current rate of 24% from taxable distributions and redemption or sale proceeds payable to the Fund shareholder if (i) the
Fund shareholder fails to provide the Fund with a correct taxpayer identification number or make required certifications, or if
the IRS notifies the Fund that the Fund shareholder is otherwise subject to backup withholding, and (ii) the Fund shareholder is
not otherwise exempt from backup withholding. Non-U.S. shareholders can qualify for exemption from backup withholding by submitting
a properly completed IRS Form W-8BEN or W-8BEN-E. Backup withholding is not an additional tax and any amount withheld may be credited
against the Fund shareholder’s U.S. federal income tax liability.
Taxation of Non-U.S.
Shareholders
The
following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable
to “non-U.S. shareholders.” For purposes of this discussion, a “non-U.S. shareholder” is a beneficial owner
of Shares that is not a U.S. shareholder (as defined above) and is not an entity or arrangement treated as a partnership for U.S.
federal income tax purposes. The following
discussion is based on current law and is for general information only. It addresses
only selected, and not all, aspects of U.S. federal income taxation applicable to non-U.S. shareholders.
As
indicated above, a majority of the Fund’s distributions to its shareholders, including its non-U.S. shareholders, is expected
to be excluded from gross income for U.S. federal income tax purposes as exempt-interest dividends. However, with respect to non-U.S.
shareholders of the Fund, the Fund’s other ordinary income dividends generally will be subject to U.S. federal withholding
tax at a rate of 30% (or at a lower rate established under an applicable tax treaty), subject to certain exceptions for “interest-related
dividends” and “short-term capital gain dividends” discussed below. The Fund will not pay any additional amounts
to shareholders in respect of any amounts withheld. U.S. federal withholding tax generally will not apply to any gain realized
by a non-U.S. shareholder in respect of the Fund’s net capital gain. Special rules (not discussed herein) apply with respect
to dividends of the Fund that are attributable to gain from the sale or exchange of “U.S. real property interests.”
In
general, all “interest-related dividends” and “short-term capital gain dividends” (each defined below)
will not be subject to U.S. federal withholding tax, provided that, among other requirements, the non-U.S. shareholder furnished
the Fund with a completed IRS Form W-8BEN or W-8BEN-E, as applicable, (or acceptable substitute documentation) establishing the
non-U.S. shareholder’s non-U.S. status and the Fund does not have actual knowledge or reason to know that the non-U.S. shareholder
would be subject to such withholding tax if the non-U.S. shareholder were to receive the related amounts directly rather than as
dividends from the Fund. “Interest-related dividends” generally means dividends designated by the Fund as attributable
to such Fund’s U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation
or partnership in which such Fund is at least a 10% shareholder, reduced by expenses that are allocable to such income. “Short-term
capital gain dividends” generally means dividends designated by the Fund as attributable to the excess of such Fund’s
net short-term capital gain over its net long-term capital loss. Depending on its circumstances, the Fund may treat such dividends,
in whole or in part, as ineligible for these exemptions from withholding.
In
general, subject to certain exceptions, non-U.S. shareholders will not be subject to U.S. federal income or withholding tax in
respect of a sale or other disposition of Shares of the Fund.
To
claim a credit or refund for any Fund-level taxes on any undistributed net capital gain (as discussed above) or any taxes collected
through back-up withholding (discussed below), a non-U.S. shareholder must obtain a U.S. taxpayer identification number and file
a U.S. federal income tax return even if the non-U.S. shareholder would not otherwise be required to do so.
Foreign Account
Tax Compliance Act
The
U.S. Foreign Account Tax Compliance Act (“FATCA”) generally imposes a 30% withholding tax on “withholdable payments”
(defined below) made to (i) a “foreign financial institution” (“FFI”), unless the FFI enters into an agreement
with the IRS to provide information regarding certain of its direct and indirect U.S. account holders and satisfy certain due diligence
and other specified requirements, and (ii) a “non-financial foreign entity” (“NFFE”) unless such NFFE provides
certain information about its direct and indirect “substantial U.S. owners” to the withholding agent or certifies that
it has no such U.S. owners. The beneficial owner of a “withholdable payment” may be eligible for a refund or credit
of the withheld tax. The U.S. government also has entered into intergovernmental agreements with other jurisdictions to provide
an alternative, and generally easier, approach for FFIs to comply with FATCA. If the shareholder is a tax resident in a jurisdiction
that has entered into an intergovernmental agreement with the U.S. government, the shareholder will be required to provide information
about the shareholder’s classification and compliance with the intergovernmental agreement.
“Withholdable
payments” generally include, among other items, U.S.-source interest and dividends, and gross proceeds from the sale or disposition
of property of a type that can produce U.S.-source interest or dividends. However, proposed regulations may eliminate the requirements
to withhold on payments of gross proceeds from dispositions.
The
Fund or a shareholder’s broker may be required to impose a 30% withholding tax on withholdable payments to a shareholder
if the shareholder fails to provide the Fund with the information, certifications or documentation required under FATCA, including
information, certification or documentation
necessary for the Fund to determine if the shareholder is a non-U.S. shareholder or
a U.S. shareholder and, if it is a non-U.S. shareholder, if the non-U.S. shareholder has “substantial U.S. owners”
and/or is in compliance with (or meets an exception from) FATCA requirements. The Fund will not pay any additional amounts to shareholders
in respect of any amounts withheld. The Fund may disclose any shareholder information, certifications or documentation to the IRS
or other parties as necessary to comply with FATCA.
The
requirements of, and exceptions from, FATCA are complex. All prospective shareholders are urged to consult their own tax advisors
regarding the potential application of FATCA with respect to their own situation.
For
a more detailed tax discussion regarding an investment in the Fund, please see the section of the SAI entitled “U.S. Federal
Income Taxation.”
Code
of Ethics
The
Trust, Advisor, Subadvisor and Distributor each have adopted a code of ethics under Rule 17j-1 of the 1940 Act that is designed
to prevent affiliated persons of the Trust, the Advisor, the Subadvisor and the Distributor from engaging in deceptive, manipulative
or fraudulent activities in connection with securities held or to be acquired by the Fund (which may also be held by persons subject
to a code). There can be no assurance that the codes will be effective in preventing such activities. The codes permit personnel
subject to them to invest in securities, including securities that may be held or purchased by the Fund. The codes are on file
with the SEC and are available to the public.
Fund
Website and Disclosure of Portfolio Holdings
The
Advisor maintains a website for the Fund at nylinvestments.com/etfs. The website for the Fund contains the following information,
on a per-Share basis, for the Fund: (1) the prior Business Day’s NAV; (2) the reported midpoint of the bid-ask spread at
the time of NAV calculation (the “Bid-Ask Price”); (3) a calculation of the premium or discount of the Bid-Ask Price
against such NAV; and (4) data in chart format displaying the frequency distribution of discounts and premiums of the Bid-Ask Price
against the NAV, within appropriate ranges, for each of the four previous calendar quarters (or for the life of the Fund if, shorter).
In addition, on each Business Day, before the commencement of trading in Shares on the [ ], the Fund will disclose on its website
(nylinvestments.com/etfs) the identities and quantities of the portfolio securities and other assets held by the Fund that will
form the basis for the calculation of NAV at the end of the Business Day.
A
description of the Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities
is available in the SAI.
Other
Information
The
Fund is not sponsored, endorsed, sold or promoted by the [ ]. The [ ] makes no representation or warranty, express or implied,
to the owners of Shares or any member of the public regarding the advisability of investing in securities generally or in the Fund
particularly or the ability of the Fund to achieve its objectives. The [ ] has no obligation or liability in connection with the
administration, marketing or trading of the Fund.
For
purposes of the 1940 Act, the Fund is a registered investment company, and the acquisition of Shares by other registered investment
companies and companies relying on exemption from registration as investment companies under Section 3(c)(1) or 3(c)(7) of the
1940 Act is subject to the restrictions of
Section 12(d)(1) of the 1940 Act, except as permitted by an exemptive order that permits
registered investment companies to invest in the Fund beyond those limitations.
Financial
Highlights
The Fund
has not yet commenced operations as of the date of this Prospectus; therefore, no financial information is available for the Fund.
Privacy
Policy
The
Trust is committed to respecting the privacy of personal information you entrust to us in the course of doing business with us.
The
Trust may collect non-public personal information from various sources. The Trust uses such information provided by you or your
representative to process transactions, to respond to inquiries from you, to deliver reports, products, and services, and to fulfill
legal and regulatory requirements.
We
do not disclose any non-public personal information about our customers to anyone unless permitted by law or approved by the customer.
We may share this information within the Trust’s family of companies in the course of providing services and products to
best meet your investing needs. We may share information with certain third-parties who are not affiliated with the Trust to perform
marketing services, to process or service a transaction at your request or as permitted by law. For example, sharing information
with companies that maintain or service customer accounts for the Trust is essential. We may also share information with companies
that perform administrative or marketing services for the Trust, including research firms. When we enter into such a relationship,
we restrict the companies’ use of our customers’ information and prohibit them from sharing it or using it for any
purposes other than those for which they were hired.
We
maintain physical, electronic, and procedural safeguards to protect your personal information. Within the Trust, we restrict access
to personal information to those employees who require access to that information in order to provide products or services to our
customers such as handling inquiries. Our employment policies restrict the use of customer information and require that it be held
in strict confidence.
We
will adhere to the policies and practices described in this notice for both current and former customers of the Trust.
Frequently Used Terms
Trust
|
IndexIQ Active ETF Trust, a registered open-end investment company
|
Fund
|
The investment portfolios of the Trust
|
Shares
|
Shares of the Fund offered to investors
|
Advisor
|
IndexIQ Advisors LLC
|
Custodian
|
The Bank of New York Mellon, the custodian of the Fund’s assets
|
Distributor
|
ALPS Distributors, Inc., the distributor to the Fund
|
AP or Authorized
Participant
|
Certain large institutional investors such as brokers, dealers, banks or other entities that have entered into authorized participant agreements with the Distributor
|
[ ] or
Exchange
|
[ ], the primary market on which Shares are listed for trading
|
IIV
|
The Indicative Intra-Day Value, an appropriate per-Share value based on the Fund’s portfolio
|
1940 Act
|
Investment Company Act of 1940, as amended
|
NAV
|
Net asset value
|
SAI
|
Statement of Additional Information
|
SEC
|
Securities and Exchange Commission
|
Secondary Market
|
A national securities exchange, national securities association or over-the-counter trading system where Shares may trade from time to time
|
Securities Act
|
Securities Act of 1933, as amended
|
Subadvisor
|
Alaia Capital, LLC is the Subadvisor of the Fund
|
IndexIQ
Active ETF Trust
Mailing
Address
51
Madison Avenue
New York,
New York 10010
1-888-474-7725
nylinvestments.com/etfs
IndexIQ
Active ETF Trust
PROSPECTUS |
[__________], 2020
FOR MORE
INFORMATION
If you would
like more information about the Trust, the Fund and the Shares, the following documents are available free
upon request:
Annual/Semi-annual
Report
Additional
information about the Fund’s investments is available in the Fund’s annual and semi-annual reports to shareholders,
once available. In the Fund’s annual report, you will find a discussion of the market conditions and investment
strategies
that significantly affected the Fund’s performance during the last fiscal year.
Statement
of Additional Information
Additional
information about the Fund and its policies is also available in the Fund’s SAI. The SAI is incorporated by reference into
this Prospectus (and is legally considered part of this Prospectus).
The Fund’s
annual and semi-annual reports, once available, and the SAI are available free upon request by calling IndexIQ at 1-888-474-7725.
You can also access and download the annual and semi-annual reports, once available, and the SAI at the Fund’s website:
nylinvestments.com/etfs.
To obtain
other information and for shareholder inquiries:
By telephone:
|
1-888-474-7725
|
|
|
By mail:
|
IndexIQ
Active ETF Trust
|
|
c/o IndexIQ
|
|
51 Madison
Avenue
|
|
New York,
NY 10010
|
|
|
On the Internet:
|
SEC Edgar
database: http://www.sec.gov; or nylinvestments.com/etfs
|
You
may review and obtain copies of Fund documents (including the SAI) by visiting the SEC’s public reference room in
Washington, D.C. You may also obtain copies of Fund documents, after paying a duplicating fee, by writing to the SEC’s
Public Reference Section, Washington, D.C. 20549-0102 or by electronic request to: publicinfo@sec.gov. Information on the
operation of the public reference room may be obtained by calling the SEC at (202) 942-8090.
No person
is authorized to give any information or to make any representations about the Fund and its Shares not contained in this Prospectus
and you should not rely on any other information. Read and keep the Prospectus for future reference.
Dealers
effecting transactions in the Fund’s Shares, whether or not participating in this distribution, may be generally
required to deliver a Prospectus. This is in addition to any obligation dealers have to deliver a Prospectus when acting as
underwriters.
“New
York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with
New York Life Insurance Company.
IQ®
and IndexIQ® are registered service marks of New York Life Insurance Company.
The Fund’s
investment company registration number is 811-22739.
The
information in this Statement of Additional Information (“SAI”) is not complete and may be changed. We may not sell
these securities until the registration statement filed with the Securities and Exchange Commission is effective. This SAI is not
an offer to sell these securities and is not soliciting an offer to buy these securities in any state in which the offer or sale
is not permitted.
Subject
to completion, dated April 15, 2020
STATEMENT
OF ADDITIONAL INFORMATION
INDEXIQ
ACTIVE ETF TRUST
51
MADISON AVENUE
NEW
YORK, NEW YORK 10010
PHONE:
(888) 474-7725
________,
2020
This Statement of
Additional Information (“SAI”) is not a prospectus. It should be read in conjunction with and is incorporated by reference
into the prospectus dated ________, 2020 (“Prospectus”) for the IndexIQ Active ETF (the “Trust), relating to
the IQ m+ Preservation [ ] ETF (______) (the “Fund”), as it may be revised from time to time.
A copy of the Trust’s
Prospectus relating to the Fund may be obtained, without charge, by calling (888) 474-7725 or visiting nylinvestments.com/etfs,
or writing to the Trust, c/o ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203.
Capitalized terms
used but not defined herein have the same meaning as in the Prospectus, unless otherwise noted.
TABLE
OF CONTENTS
No person has been
authorized to give any information or to make any representations other than those contained in this SAI and the Prospectus and,
if given or made, such information or representations may not be relied upon as having been authorized by the Trust.
The SAI does not constitute
an offer to sell securities.
GENERAL
DESCRIPTION OF THE TRUST AND THE FUND
The Trust was organized
as a Delaware statutory trust on January 30, 2008 and is authorized to have multiple segregated series or portfolios. The Trust
is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of a number of separate investment portfolios, of which ___ are in operation. This SAI addresses the
IQ m+ Preservation [ ] ETF (the “Fund”), an investment portfolio of the Trust, which is deemed to be non-diversified
for the purposes of the 1940 Act. Other portfolios may be added to the Trust in the future. The shares of the Fund are referred
to herein as “Shares.” The offering of Shares is registered under the Securities Act of 1933, as amended (the “Securities
Act”).
The Fund is managed
by IndexIQ Advisors LLC (the “Advisor” or “IndexIQ Advisors”). The Advisor has been registered as an investment
adviser with the Securities and Exchange Commission (the “SEC”) since August 9, 2007 and is a wholly-owned, indirect
subsidiary of New York Life Investment Management Holdings LLC.
The Fund is subadvised
by Alaia Capital, LLC (the “Subadvisor”).
The Fund offers and
issues Shares at net asset value (the “NAV”) only in aggregations of a specified number of Shares (each, a “Creation
Unit” or a “Creation Unit Aggregation”). The Shares of the Fund trade or are expected to trade on the ________
(the “Exchange”). Shares will trade on the Exchange at market prices that may be below, at, or above NAV. The consideration
for purchase of a Creation Unit of shares of the Fund generally consists of cash only, although the Fund also reserves the right
to permit or require the in-kind deposit of a designated portfolio of securities (the “Deposit Securities”) along with
a specified cash payment (the “Cash Component”). Shares are redeemable only in Creation Unit Aggregations and, generally,
in exchange for a basket of Deposit Securities together with a Cash Component. Creation Units are aggregations of __,000 Shares
of the Fund. In the event of the liquidation of the Fund, the Trust may lower the number of Shares in a Creation Unit.
EXCHANGE
LISTING AND TRADING
There can be no assurance
that the requirements of the Exchange necessary for the Fund to maintain the listing of its Shares will continue to be met. The
Exchange will consider the suspension of trading and delisting of the Shares of the Fund from listing if, (i) the Fund does not
comply with the Exchange’s continuous listing standards; or (ii) such other event shall occur or condition exist that, in
the opinion of the Exchange, makes further trading on the Exchange inadvisable. The Exchange will remove the Shares of the Fund
from listing and trading upon termination of the Fund.
The Fund’s continued
listing on the Exchange or another stock exchange or market system is a condition of the exemptive relief the Fund obtained from
the SEC to operate as an exchange-traded fund (“ETFs”). The Fund’s failure to be so listed would result in the
termination of the Fund.
As in the case of
other stocks traded on the Exchange, brokers’ commissions on transactions will be based on commission rates negotiated by
an investor and his or her broker.
The Trust reserves
the right to adjust the price levels of the Shares in the future to maintain convenient trading ranges for investors. Any adjustments
would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of the Fund.
INVESTMENT
OBJECTIVES AND POLICIES
Investment Objectives
The Fund has a distinct
investment objective and policies that are distinct from the other series of the Trust. There can be no assurance that the Fund’s
objective will be achieved.
All investment objectives
and investment policies not specifically designated as fundamental may be changed without shareholder approval. Additional information
about the Fund, its policies, and the investment instruments it may hold, is provided below.
The Fund’s Share
price will fluctuate with market and economic conditions. The Fund should not be relied upon as a complete investment program.
Investment Restrictions
The investment restrictions
set forth below have been adopted by the Board of Trustees of the Trust (the “Board”) as fundamental policies that
cannot be changed with respect to the Fund without the affirmative vote of the holders of a majority (as defined in the 1940 Act)
of the outstanding voting securities of the Fund. The investment objective of the Fund and all other investment policies or practices
of the Fund are considered by the Trust not to be fundamental and accordingly may be changed without shareholder approval. For
purposes of the 1940 Act, a “majority of the outstanding voting securities” means the lesser of the vote of (i) 67%
or more of the Shares of the Fund present at a meeting, if the holders of more than 50% of the outstanding Shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the Shares of the Fund.
As a matter of fundamental
policy, the Fund:
|
A. May not invest 25% or more of its total assets in the securities of one or more issuers conducting
their principal business activities in the same industry or group of industries. The Fund will not invest 25% or more of its total
assets in investment companies that have a policy to invest 25% of more of their total assets in issuers conducting their principal
business activities in the same industry or group of industries. This limitation does not apply to investments in securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, or shares of investment companies. Also, for purposes
of industry concentration, tax-exempt securities issued by states, municipalities and their political subdivisions are not considered
to be part of any industry.
|
|
B. May borrow money, to the extent permitted by the 1940 Act, as such may be interpreted or modified
by regulatory authorities having jurisdiction, from time to time.
|
|
C. May make loans as permitted under the 1940 Act, as such may be interpreted or modified by
regulatory authorities having jurisdiction, from time to time.
|
|
D. May act as an underwriter of securities within the meaning of the Securities Act, to the extent
permitted under the 1933 Act, as such may be interpreted or modified by regulatory authorities having jurisdiction, from time to
time.
|
|
E. May purchase or sell real estate or any interest therein to the extent permitted under the 1940
Act, as such may be interpreted or modified by regulatory authorities having jurisdiction, from time to time.
|
|
F. May not purchase physical commodities or contracts regarding physical commodities, except as permitted
under the 1940 Act and other applicable laws, rules and regulations, as such may be interpreted or modified by regulatory authorities
having jurisdiction, from time to time.
|
|
G. May issue senior securities, to the extent permitted by the 1940 Act, as such may be interpreted
or modified by regulatory authorities having jurisdiction, from time to time.
|
Unless otherwise indicated,
all of the percentage limitations above and in the investment restrictions recited in the Prospectus apply only at the time of
an acquisition or encumbrance of securities or assets of the Fund, except that any borrowings by the Fund that exceeds applicable
limitations must be reduced to meet such limitations within the period required by the 1940 Act. Therefore, a change in the percentage
that results from a relative change in values or from a change in the Fund’s assets will not be considered a violation of
the
Fund’s policies or restrictions. “Value” for the purposes of all investment restrictions shall mean the value
used in determining the Fund’s NAV.
Additional Information
Regarding Investment Restrictions
Below is additional
information regarding the Fund’s investment restrictions. This information is in addition to, rather than part of, the fundamental
investment restrictions themselves.
For purposes of the
Fund’s industry concentration policy, the Advisor or a Subadvisor may analyze the characteristics of a particular issuer
and instrument and may assign an industry classification consistent with those characteristics. The Advisor or a Subadvisor may,
but need not, consider industry classifications provided by third parties.
INVESTMENT
STRATEGIES AND RISKS
A discussion of the
risks associated with an investment in the Fund is contained in the Fund’s Prospectus under the headings “Principal
Risks,” “Description of the Principal Risks of the Fund” and “Additional Risks.” The discussion below
supplements, and should be read in conjunction with, such sections of the Fund’s Prospectus.
General
Investment in the Fund should be made
with an understanding that the value of the portfolio of securities held by the Fund will generally fluctuate in accordance with
changes in the value of the [ ] Index (the “Reference Index”).
FLEX Options
The Fund’s portfolio
is principally composed of FLexible EXchange® Options (“FLEX Options”) that reference the Reference
Index. FLEX Options are customized option contracts available through national securities exchanges that are guaranteed for settlement
by the Options Clearing Corporation (“OCC”), a market clearinghouse. FLEX Options provide investors with the ability
to customize terms of an option, including exercise prices, exercise styles (European style versus American style options which
are exercisable any time prior to the expiration date) and expiration dates. The Subadvisor expects that the Fund will primarily
utilize European style options, meaning options that are exercisable at the strike price only on the expiration date.
Each FLEX Option contract
entitles the holder thereof (i.e. the purchaser of the FLEX Option) the option to purchase (for call options) or sell (for
put options) the cash value of the Reference Index as of the close of the market on the FLEX Option expiration date at the strike
price. The Fund receives premiums in exchange for the written FLEX Options and pays premiums in exchange for the purchased FLEX
Options. The Fund intends to be structured so that any amount owed by the Fund on the written FLEX Options will be covered by payouts
at expiration from the purchased FLEX Options. As a result, the Subadvisor seeks to manage the Fund’s exposure such that
the FLEX Options will be fully covered and no additional collateral will be necessary during the life of the Fund. The OCC and
the securities exchange(s) upon which the FLEX Options are listed do not charge ongoing fees to writers or purchasers of the FLEX
Options during their life for continuing to hold the option contracts.
The OCC guarantees
performance by each of the counterparties to FLEX Options, becoming the “buyer for every seller and the seller for every
buyer,” protecting clearing members and options traders from counterparty risk. Subject to determination by the Securities
Committee of the OCC, adjustments may be made to the FLEX Options for certain events (collectively, “Corporate Actions”)
specified in the OCC’s by-laws and rules: certain stock dividends or distributions, stock splits, reverse stock splits, rights
offerings, distributions, reorganizations, recapitalizations, or reclassifications with respect to an underlying security, or a
merger, consolidation, dissolution or liquidation of the issuer of the underlying security. According to the OCC’s by-laws,
the nature and extent of any such adjustment is to be determined by the OCC’s Securities Committee, in light of the circumstances
known to it at the time such determination is made, based on its judgment as to what is appropriate for the protection of investors
and the public interest, taking into account such factors as fairness to holders and writers (or purchasers and sellers) of the
affected options, the maintenance of a fair and orderly market in the affected options, consistency of interpretation and practice,
efficiency of exercise settlement procedures, and the coordination with other clearing agencies of the clearance and settlement
of transactions in the underlying interest.
There is no assurance
that a liquid secondary market on an options exchange will exist for any particular FLEX Option, or at any particular time, and
for some options no secondary market on an exchange or elsewhere may exist. The writing and purchasing of FLEX Options is a highly
specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities
transactions. Options transactions may also result in significantly higher transaction costs for the Fund.
The Subadvisor may
elect to invest the Fund’s assets in FLEX Options that reference an ETF that tracks the Reference Index, rather than FLEX
Options on the Reference Index itself, if such a change was determined to be in the interest of shareholders. Fund shareholders
would be notified in advance of such a change.
Lending of Portfolio Securities
The Fund may lend
portfolio securities constituting up to 33 1/3% of its total assets (as permitted by the 1940 Act). Under present regulatory policies,
such loans may be made to institutions, such as brokers or dealers, pursuant to agreements requiring the loans to be continuously
secured by collateral in cash, securities issued or guaranteed by the U.S. Government or one of its agencies or instrumentalities,
irrevocable bank letters of credit (upon consent of the Board) or any combination thereof, marked to market daily, at least equal
to the market value of the securities loaned. Cash received as collateral for securities lending transactions may be invested in
liquid, short-term investments approved by the Advisor.
Investing the collateral
subjects the Fund to risks, and the Fund will be responsible for any loss that may result from its investment of the borrowed collateral.
The Fund will have the right to terminate a loan at any time and recall the loaned securities within the normal and customary settlement
time for securities transactions.
For the duration of
a loan, the Fund will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities loaned
and will also receive compensation from investment of the collateral. These events could also trigger adverse tax consequences
for the Fund.
The Fund will generally
not have the right to vote securities during the existence of the loan, but the Advisor may call the loan to exercise the Fund’s
voting or consent rights on material matters affecting the Fund’s investment in such loaned securities. As with other extensions
of credit there are risks of delay in recovering, or even loss of rights in, the collateral and loaned securities should the borrower
of the securities fail financially.
Loans will be made
only to firms deemed creditworthy, and when the consideration which can be earned from securities loans is deemed to justify the
attendant risk. The creditworthiness of a borrower will be considered in determining whether to lend portfolio securities and will
be monitored during the period of the loan. It is intended that the value of securities loaned by the Fund will not exceed one-third
of the value of the Fund’s total assets (including the loan collateral). Loan collateral (including any investment of the
collateral) is not subject to the percentage limitations stated elsewhere in this SAI or the Prospectus regarding investing in
fixed-income securities and cash equivalents.
Money Market Instruments
The Fund may invest
a portion of its assets in high-quality money market instruments on an ongoing basis, when it would be more efficient or less expensive
for the Fund to do so, or as collateral for financial instruments, for liquidity purposes, or to earn interest. The instruments
in which the Fund may invest include: (1) short-term obligations issued by the U.S. government; (2) negotiable certificates of
deposit (“CDs”), fixed time deposits and bankers’ acceptances of U.S. and foreign banks and similar institutions;
(3) commercial paper; (4) repurchase agreements; and (5) money market mutual funds. CDs are short-term negotiable obligations of
commercial banks. Time deposits are non-negotiable deposits maintained in banking institutions for specified periods of time at
stated interest rates. Banker’s acceptances are time drafts drawn on commercial banks by borrowers, usually in connection
with international transactions.
Tax Risks
As with any investment,
you should consider how your investment in Shares of the Fund will be taxed. The tax information in the Prospectus and this SAI
is provided as general information. You should consult your own tax professional about the tax consequences of an investment in
Shares of the Fund.
Cyber Security and Disruptions
in Operations
With the increasing
use of the Internet and technology in connection with the Fund’s operations, the Fund may be more susceptible to greater
operational and information security risks resulting from breaches in cyber security. Cyber incidents can result from unintentional
events (such as an inadvertent release of confidential information) or deliberate attacks by insiders or third-parties, including
cyber criminals, competitors, nation-states and “hacktivists,” and can be perpetrated by a variety of complex means,
including the use of stolen access credentials, malware or other computer viruses, ransomware, phishing, structured query language
injection attacks, and distributed denial of service attacks, among other means. Cyber incidents may result in actual or potential
adverse consequences for critical information and communications technology, or systems and networks that are vital to the Fund’s
or its service providers’ operations, or otherwise impair Fund or service provider operations. For example, a cyber incident
may cause operational disruptions and failures impacting information systems or information that a system processes, stores, or
transmits, such as by theft, damage or destruction, or corruption or modification of or denial of access to data maintained online
or digitally, denial of service on websites rendering the websites unavailable to intended users or not accessible for such users
in a timely manner, and the unauthorized release or other exploitation of confidential information (i.e., identity theft or other
privacy breaches). In addition, a cyber security breach may cause disruptions and impact the Fund’s business operations,
which could potentially result in financial losses, inability to determine the Fund’s NAV including over an extended period,
impediments to trading, the inability of shareholders to transact business, violation of applicable law, regulatory penalties and/or
fines, compliance and other costs. The Fund and its shareholders could be negatively impacted as a result. Further, substantial
costs may be incurred in order to prevent future cyber incidents.
In addition, because
the Fund works closely with third-party service providers (e.g., custodians), cyber security breaches at such third-party service
providers or trading counterparties may subject the Fund’s shareholders to the same risks associated with direct cyber security
breaches. Further, cyber security breaches at an issuer of securities in which the Fund invests may similarly negatively impact
the Fund’s shareholders because of a decrease in the value of these securities. These incidents could result in adverse consequences
for such issuers, and may cause the Fund’s investment in such securities to lose value. For example, a cyber incident involving
an issuer may include the theft, destruction or misappropriation of financial assets, intellectual property or other sensitive
information belonging to the issuer or their customers (i.e., identity theft or other privacy breaches). As a result, the issuer
may experience the types of adverse consequences summarized above, among others (such as loss of revenue), despite having implemented
preventative and other measures reasonably designed to protect from and/or defend against the risks or adverse effects associated
with cyber incidents.
While the Fund has
established risk management systems and business continuity policies designed to reduce the risks associated with cyber security
breaches and other operational disruptions, there can be no assurances that such measures will be successful particularly since
the Fund does not control the cyber security and operational systems of issuers or third-party service providers, and certain security
breaches may not be detected. The Fund and its service providers, as well as exchanges and market participants through or with
which the Fund trades and other infrastructures on which the Fund or its service providers rely, are also subject to the risks
associated with technological and operational disruptions or failures arising from, for example, processing errors and human errors,
inadequate or failed internal or external processes, failures in systems and technology, errors in algorithms used with respect
to the Fund, changes in personnel, and errors caused by third-parties or trading counterparties. In addition, there are inherent
limitations to these plans and systems and certain risks may not yet be identified and new risks may emerge in the future. The
Fund and its respective shareholders could be negatively impacted as a result of any security breaches or operational disruptions
and may bear certain costs tied to such events.
Liquidation of Fund
The Board may determine
to close and liquidate the Fund at any time, which may have adverse consequences for shareholders. In the event of the liquidation
of the Fund, shareholders will receive a liquidating distribution in cash or in-kind equal to their proportionate interest in the
Fund. A liquidating distribution may be a taxable event to shareholders, resulting in a gain or loss for tax purposes, depending
upon a shareholder's basis in his or her Shares of the Fund. A shareholder of a liquidating Fund will not be entitled to any refund
or reimbursement of expenses borne, directly or indirectly, by the shareholder (such as sales loads, account fees, or fund expenses),
and a shareholder may receive an amount in liquidation less than the shareholder’s original investment.
MANAGEMENT
Board
Responsibilities. The business of the Trust is managed under the direction of the Board. The Board has considered and
approved contracts, as described herein, under which certain companies provide essential management and administrative
services to the Trust. The day-to-day business of the Trust, including the day-to-day management of risk, is performed by the
service providers of the Trust, such as the Advisor, Subadvisor, Distributor and Administrator. The Board is responsible for
overseeing the Trust’s service providers and, thus, has oversight responsibility with respect to the risk management
performed by those service providers. Risk management seeks to identify and eliminate or mitigate the potential effects of
risks such as events or circumstances that could have material adverse effects on the business, operations, shareholder
services, investment performance or reputation of the Trust or the Fund. The Board’s role in risk management oversight
begins before the inception of an investment portfolio, at which time the Advisor and Subadvisor present the Board with
information concerning the investment objectives, strategies and risks of the investment portfolio. Additionally, the Advisor
and Subadvisor provide the Board with an overview of, among other things, the respective firm’s investment philosophy,
brokerage practices and compliance infrastructure. Thereafter, the Board oversees the risk management of the investment
portfolio’s operations, in part, by requesting periodic reports from and otherwise communicating with various personnel
of the service providers, including the Trust’s Chief Compliance Officer and the independent registered public
accounting firm of the Trust. The Board and, with respect to identified risks that relate to its scope of expertise, the
Audit Committee of the Board, oversee efforts by management and service providers to manage risks to which the Fund may be
exposed.
Under the overall
supervision of the Board and the Audit Committee (discussed in more detail below), the service providers to the Trust employ a
variety of processes, procedures and controls to identify risks relevant to the operations of the Trust and the Fund to lessen
the probability of their occurrence and/or to mitigate the effects of such events or circumstances if they do occur. Each service
provider is responsible for one or more discrete aspects of the Trust’s business and, consequently, for managing the risks
associated with that activity.
The Board is responsible
for overseeing the nature, extent and quality of the services provided to the Fund by the Advisor and Subadvisor and receives information
about those services at its regular meetings. In addition, on at least an annual basis, in connection with its consideration of
whether to renew the Advisory Agreement with the Advisor and the Subadvisory Agreement with the Subadvisor, the Board receives
detailed information from the Advisor and the Subadvisor. Among other things, the Board regularly considers each of the Advisor’s
and Subadvisor’s adherence to the Fund’s investment restrictions and compliance with various policies and procedures
of the Trust and with applicable securities regulations. The Board also reviews information about the Fund’s performance
and investments.
The Trust’s
Chief Compliance Officer meets regularly with the Board to review and discuss compliance and other issues. At least annually, the
Trust’s Chief Compliance Officer provides the Board with a report reviewing the adequacy and effectiveness of the Trust’s
policies and procedures and those of its service providers, including the Advisor and Subadvisor. The report addresses the operation
of the policies and procedures of the Trust and each service provider since the date of the last report; material changes to the
policies and procedures since the date of the last report; any recommendations for material changes to the policies and procedures;
and material compliance matters since the date of the last report.
The Board receives
reports from the Trust’s service providers regarding operational risks, portfolio valuation and other matters. Annually,
the independent registered public accounting firm reviews with the Audit Committee its audit of the financial statements of the
Fund, focusing on major areas of risk encountered by the Trust and noting any significant deficiencies or material weaknesses in
the Trust’s internal controls.
The Board recognizes
that not all risks that may affect the Fund can be identified, that it may not be practical or cost-effective to eliminate or mitigate
certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve the Fund’s goals,
and that the processes, procedures and controls employed to address certain risks may be limited in their effectiveness. Moreover,
despite the periodic reports the Board receives and the Board’s discussions with the service providers to the Trust, it may
not be made aware of all of the relevant information of a particular risk. Most of the Trust’s investment management and
business affairs are carried out by or through the Advisor and other service providers each of which has an independent interest
in risk management but whose policies and the methods by which one or more risk management functions are carried out may differ
from the Trust’s and each other’s in the setting of priorities, the resources available or the effectiveness of relevant
controls. As a result of the foregoing and other factors, the Board’s risk management oversight is subject to substantial
limitations.
Additionally, as required
by Rule 22e-4 under the 1940 Act, the Trust has implemented a written liquidity risk management program and related procedures
(“Liquidity Program”) that is reasonably designed to assess and manage the Fund’s “liquidity risk”
(defined by the SEC as the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution
of remaining investors’ interests in the Fund). The Liquidity Program is reasonably designed to assess and manage the Fund’s
liquidity risk. The Board, including a majority of the Independent Trustees, approved the designation of IndexIQ Advisors as the
Liquidity Program’s Administrator. The Board will review, no less frequently than annually, a written report prepared by
the Liquidity Program's Administrator that addresses the operation of the Liquidity Program and assesses its adequacy and effectiveness
of implementation.
The Board also benefits
from other risk management resources and functions within New York Life, such as its risk management personnel and internal auditor
department. The Board recognizes that it is not possible to identify all of the risks that may affect the Fund or to develop processes
and controls to mitigate or eliminate all risks and their possible effects, and that it may be necessary to bear certain risks
(such as investment risks) to achieve the Fund’s investment objectives. The Board may, at any time and in its discretion,
change the manner in which it conducts risk oversight.
Members of the
Board and Officers of the Trust. Set forth below are the names, years of birth, position with the Trust, term of office, portfolios
supervised and the principal occupations and other directorships for a minimum of the last five years of each of the persons currently
serving as members of the Board and as Executive Officers of the Trust. Also included below is the term of office for each of the
Executive Officers of the Trust. The members of the Board serve as Trustees for the life of the Trust or until retirement, removal,
or their office is terminated pursuant to the Trust’s Declaration of Trust.
Reena Aggarwal, an
Independent Trustee, is Chair of the Board of Trustees. Three of the Trustees, Reena Aggarwal, Michael Pignataro and Paul Schaeffer,
and their immediate family members have no affiliation or business connection with the Advisor or the Fund’s principal underwriter
or any of their affiliated persons and do not own any stock or other securities issued by the Advisor or the Fund’s principal
underwriter. These Trustees are not Interested Persons of the Trust and are referred to herein as “Independent Trustees.”
Kirk Lehneis (the “Interested Trustee”) is an interested person of the Trust as that term is defined under Section
2(a)(19) of the 1940 Act because of his affiliation with the Advisor.
There is an Audit
Committee and Nominating Committee of the Board, each of which is chaired by an Independent Trustee and comprised solely of Independent
Trustees. The Committee chair for each is responsible for running the Committee meeting, formulating agendas for those meetings,
and coordinating with management to serve as a liaison between the Independent Trustees and management on matters within the scope
of the responsibilities of such Committee as set forth in its Board- approved charter. There is a Valuation Committee, which is
comprised of the Independent Trustees and representatives of the Advisor to take action in connection with the valuation of portfolio
securities held by the Fund in accordance with the Board-approved Valuation Procedures. The Board has determined that this leadership
structure is appropriate given the specific characteristics and circumstances of the Fund. The Board made this determination in
consideration of, among other things, the fact that the Independent Trustees constitute a majority of the Board, the assets under
management of the Fund, the number of portfolios overseen by the Board and the total number of trustees on the Board.
Independent
Trustees
Name and
Year of Birth(1)
|
Position(s) Held with Trust
|
Term of Office and
Length of Time
Served(2)
|
Principal Occupation(s) During
Past 5 Years
|
Number of
Portfolios in Fund
Complex
Overseen by
Trustee(3)
|
Other Directorships Held by
Trustee During Past 5 Years
|
Reena Aggarwal, 1957
|
Trustee
Chair
|
Since August
2008
January 2018
|
Vice Provost of Faculty (2016 to present), Georgetown University, Robert E. McDonough Professor (2003 to present) and Professor of Finance, McDonough School of Business, Georgetown University (2000 to present); Director, Georgetown Center for Financial Markets and Policy (2010 to present); Co-Chair of Board, Social Innovations and Public Service Fund, Georgetown University (2012 to 2014).
|
__
|
Chair of Board, IndexIQ Trust, IndexIQ Active ETF Trust (2018 to present); Trustee, IndexIQ Trust, IndexIQ Active ETF Trust (2008 to present); FBR & Co. (investment banking) (2011 to 2017); Cohen & Steers (asset management) (2017 to present); Director, Brightwood Capital Advisors, L.P. (private equity investment) (2013 to present).
|
|
|
|
|
|
|
Michael A. Pignataro,
1959
|
Trustee
|
Since April 2015
|
Director, Credit Suisse Asset Management (2001 to 2012); and Chief Financial Officer, Credit Suisse Funds (1996 to 2013).
|
__
|
Trustee, IndexIQ Trust, IndexIQ Active ETF Trust (2015 to present); The New Ireland Fund, Inc. (closed-end fund) (2015 to present).
|
|
|
|
|
|
|
Paul D. Schaeffer,
1951
|
Trustee
|
Since April 2015
|
President, ASP (dba Aspiring Solution Partners) (financial services consulting) (2013 to present); Executive Advisor, Aquiline Capital Partners LLC (private equity investment) (2014 to present).
|
__
|
Trustee, IndexIQ Trust, IndexIQ Active ETF Trust (2015 to present); Management Board Member, RIA in a Box LLC (Financial services consulting) (2018 to present); Context Capital Funds (mutual fund trust) (2 Portfolios) (2014 to 2018); Management Board Members, Altegris Investments, LLC (registered broker-dealer) (2016 to 2018); Management Board Member, AssetMark Inc. (financial services consulting) (2016 to 2017); PopTech! (conference operator) (2012 to 2016).
|
Interested Trustee
|
|
|
|
|
|
Kirk C. Lehneis, 1974 (4)
|
Trustee, President and Principal Executive Officer
|
Since January2018
|
Chief Operating Officer and Senior Managing Director (since 2016), New York Life Investment Management LLC; Chairman of the Board (since September 2017), NYLIFE Distributors LLC; Chairman of the Board, NYLIM Service Company LLC (since September 2017); President, MainStay MacKay DefinedTerm Municipal Opportunities Fund, MainStay Funds, MainStay Funds Trust, and MainStay VP Funds Trust (since September 2017); Chief Executive Officer, IndexIQ Advisors (since January 2018); Trustee, President and Principal Executive Officer, IndexIQ Trust, IndexIQ ETF Trust and IndexIQ Active ETF Trust (since January 2018).
|
__
|
None
|
Officers
Name and Year of Birth(1)
|
Position(s)
Held
with Trust
|
Term of Office and
Length of Time Served(2)
|
Principal Occupation(s) During Past 5 Years
|
Jonathan Zimmerman,
1982
|
Executive Vice President
|
Since April 2018
|
Chief Operating Officer, IndexIQ Advisors (2018 to present); Managing Director, New York Life Investments LLC (2018present); Director, New York Life Investment Management LLC (2015-2018); Vice President, Morgan Stanley (2007 to 2015)
|
Name and Year of Birth(1)
|
Position(s)
Held
with Trust
|
Term of Office and
Length of Time Served(2)
|
Principal Occupation(s) During Past 5 Years
|
Adefolahan Oyefeso,
1974
|
Treasurer, Principal Financial Officer and Principal Accounting Office
|
Since April 2018
|
Vice President of Operations & Finance, IndexIQ Advisors (2015 to present); Director of the Fund Administration Client Service Department at The Bank of New York Mellon (2007 to 2015).
|
Matthew V. Curtin,
1982
|
Secretary and Chief Legal Officer
|
Since June 2015
|
Secretary and Chief
Legal Officer, IndexIQ Advisors, IndexIQ Trust, IndexIQ ETF Trust and IndexIQ Active ETF Trust (since June 2015), Chief Compliance
Officer, IndexIQ, IndexIQ ETF Trust and IndexIQ Active ETF Trust (June 2015 to January 2017); Associate General Counsel, New York
Life Insurance Company (since February 2015); Associate, Dechert LLP (2007 to 2015).
|
Rachel Kuo,
1981
|
Chief Compliance Officer
|
Since January 2020
|
Chief Compliance
Officer, IndexIQ ETF Trust and IndexIQ Active ETF Trust (since January 2020); Vice President and Chief Compliance Officer, The
MainStay Funds, MainStay Funds Trust, MainStay MacKay DefinedTerm Municipal Opportunities Fund and MainStay VP Funds Trust (since
January 2020); Director and Associate General Counsel, New York Life Investment Management LLC and Assistant Secretary, The MainStay
Funds, MainStay Funds Trust, MainStay VP Funds Trust and MainStay MacKay DefinedTerm Municipal Opportunities Fund (2015 to 2019).
|
|
(1)
|
The address of each Trustee or officer is c/o IndexIQ Advisors, 51 Madison Avenue, New York, New York
10010.
|
|
(2)
|
Trustees and Officers serve until their successors are duly elected and qualified.
|
|
(3)
|
The Fund is part of a “fund complex”. The fund complex includes all open-end funds (including
all of their portfolios) advised by the Advisor. As of the date of this SAI, the fund complex consists of the Trust’s funds
and the funds of IndexIQ ETF Trust.
|
|
(4)
|
Mr. Lehneis is an “interested person” of the Trust (as that term is defined in the 1940
Act) because of his affiliations with the Advisor.
|
Description of Standing
Board Committees
Audit Committee. The
principal responsibilities of the Audit Committee are the appointment, compensation and oversight of the Trust’s independent
auditors, including the resolution of disagreements regarding financial reporting between Trust management and such independent
auditors. The Audit Committee’s responsibilities include, without limitation, to (i) oversee the accounting and financial
reporting processes of the Trust and its internal control over financial reporting and, as the Committee deems appropriate, to
inquire into the internal control over financial reporting of certain third-party service providers; (ii) oversee the quality and
integrity of the Fund’s financial statements and the independent audits thereof; (iii) oversee, or, as appropriate, assist
Board oversight of, the Trust’s compliance with legal and regulatory requirements that relate to the Trust’s accounting
and financial reporting, internal control over financial reporting and independent audits; (iv) approve prior to appointment the
engagement of the Trust’s independent auditors and, in connection therewith, to review and evaluate the qualifications, independence
and performance of the Trust’s independent auditors; and (v) act as a liaison between the Trust’s independent auditors
and the full Board. The Board has adopted a written charter for the Audit Committee. All of the Independent Trustees serve on the
Trust’s Audit Committee.
Nominating Committee.
The Nominating Committee has been established to: (i) assist the Board in matters involving mutual fund governance and industry
practices; (ii) select and nominate candidates for appointment or election to serve as Trustees who are not “interested persons”
of the Trust or its Advisor or distributor (as defined by the 1940 Act); and (iii) advise the Board of Trustees on ways to improve
its effectiveness. All of the Independent Trustees serve on the Nominating Committee. As stated above, each Trustee holds office
for an indefinite term until the occurrence of certain events. In filling Board vacancies, the Nominating Committee will consider
nominees recommended by shareholders. Nominee recommendations should be submitted to the Trust at its mailing address stated in
the Fund’s Prospectus and should be directed to the attention of the IndexIQ Active ETF Trust Nominating Committee.
Valuation Committee.
The Valuation Committee shall oversee the implementation of the Trust’s Valuation Procedures. The Valuation Committee shall
make fair value determinations on behalf of the Board as specified in the Valuation Procedures. The Valuation Committee has appointed
the Advisor Fair Valuation Committee to deal in the first instance with questions that arise or cannot be resolved under the Valuation
Procedures. All of the Independent Trustees serve on the Trust’s Valuation Committee.
Individual Trustee Qualifications
The Trust has concluded
that each of the Trustees should serve on the Board because of their ability to review and understand information about the Trust
and the Fund provided to them by management, to identify and request other information they may deem relevant to the performance
of their duties, to question management and other service providers regarding material factors bearing on the management and administration
of the Fund, and to exercise their business judgment in a manner that serves the best interests of the Fund’s shareholders.
The Trust has concluded that each of the Trustees should serve as a Trustee based on their own experience, qualifications, attributes
and skills as described below.
The Trust has concluded
that Ms. Aggarwal should serve as trustee of the Trust and as an audit committee financial expert because of the experience she
has gained as a professor of finance, deputy dean at Georgetown University’s McDonough School of Business and Director of
the Georgetown Center for Financial Markets and Policy, her service as trustee for another mutual fund family, the experience she
has gained serving as Trustee of the Fund since 2008 and her general expertise with respect to financial matters and accounting
principles.
The Trust has concluded
that Mr. Pignataro should serve as trustee of the Trust and as an audit committee financial expert because of the experience he
has gained as a businessman and, in particular, his prior service in the financial services industry as a Director of Credit Suisse
Asset Management and Chief Financial Officer of the Credit Suisse Fund.
The Trust has concluded
that Mr. Schaeffer should serve as trustee of the Trust because of his experience in the financial services industry, including
his experience as a director of and service provider to investment companies.
The Trust has concluded
that Mr. Lehneis should serve as trustee of the Trust because of the experience he has gained as President of the MainStay Funds,
Chief Operating Officer of New York Life Investment Management LLC, and President of IndexIQ Advisors, his knowledge of and experience
in the financial services industry, and the experience he has gained serving as Chairman of the Board of New York Life Investment
Management LLC since 2017.
Trustees’ Ownership
of Shares
Listed below for each
Trustee is a dollar range of securities beneficially owned by the Trustees together with the aggregate dollar range of equity securities
in all registered investment companies overseen by each Trustee that are in the same family of investment companies as the Trust,
as of December 31, 2019. As of the date of this SAI, the Fund has not commended operations.
Name of Trustee
|
|
Dollar Range of Equity
Securities in the Fund
|
|
Aggregate
Dollar Range of Equity Securities in All
Registered Investment Companies Overseen by
Trustee in Family of Investment Companies(1)
|
Reena Aggarwal
|
|
None
|
|
[ ]
|
Michael Pignataro
|
|
None
|
|
[ ]
|
Paul Schaeffer
|
|
None
|
|
[ ]
|
Kirk Lehneis(2)
|
|
None
|
|
[ ]
|
|
(1)
|
The fund complex includes all open-end funds (including all of their portfolios) advised by the Advisor.
As of the date of this SAI, the fund complex consists of the Trust’s funds and the funds of IndexIQ ETF Trust.
|
|
(2)
|
Mr. Lehneis is an “interested person” of the Trust (as that term is defined in the 1940
Act) because of his affiliations with the Advisor.
|
Board Compensation
Each Independent Trustee
receives from the Fund Complex, either directly or indirectly, an annual retainer of $46,000. In addition, as the Chair of the
Board, Ms. Aggarwal receives an annual stipend of $35,000; as Audit Committee chair, Mr. Pignataro receives an annual stipend of
$10,000; and as Valuation Committee chair, Mr. Schaeffer receives an annual stipend of $10,000. In addition, the Independent Trustees
are reimbursed for all reasonable travel expenses relating to their attendance at the Board Meetings. The following table sets
forth certain information with respect to the compensation of each Trustee for the fiscal year ended April 30, 2020:
Name and Position
|
Pension or Retirement
Benefits Accrued As
Part of Trust Expenses
|
Estimated Annual
Benefits Upon
Retirement
|
Total Compensation
From Trust and Fund
Complex Paid
to
Trustees(1)
|
Reena Aggarwal, Trustee
|
N/A
|
N/A
|
$_________
|
Michael A. Pignataro, Trustee
|
N/A
|
N/A
|
$_________
|
Paul D. Schaeffer, Trustee
|
N/A
|
N/A
|
$_________
|
Kirk C. Lehneis, Trustee, President and Principal Executive Officer(2)
|
None
|
None
|
None
|
|
(1)
|
The Fund is part of a “fund complex”. The fund complex includes all open-end funds
(including all of their portfolios) advised by the Advisor. As of the date of this SAI, the fund complex consists of the Trust’s
funds and the funds of IndexIQ ETF Trust.
|
|
(2)
|
Mr. Lehneis is an “interested person” of the Trust (as that term is defined in the
1940 Act) because of his affiliations with the Advisor.
|
Code of Ethics
The Trust, its Advisor,
Subadvisor and principal underwriter have each adopted a code of ethics under Rule 17j-1 of the 1940 Act that permit personnel
subject to their particular codes of ethics to invest in securities, including securities that may be purchased or held by the
Fund.
PROXY
VOTING POLICIES
The Board believes
that the voting of proxies on securities held by the Fund is an important element of the overall investment process. As such, the
Board has delegated responsibility for decisions regarding proxy voting for securities held by each series of the Trust to the
Advisor. Where the Fund has retained the services of a Subadvisor to provide day-to-day portfolio management for the Fund, the
Advisor may delegate proxy voting authority to the Subadvisor; provided that, as specified in the Advisor’s Proxy Voting
Policies and Procedures, the Subadvisor has demonstrated that its proxy voting policies and procedures are consistent with the
Advisor’s Proxy Voting Policies and Procedures or are otherwise implemented in the best interests of the Advisor’s
clients and appear to comply with governing regulations. The Fund may revoke all or part of this delegation (to the Advisor and/or
Subadvisor as applicable) at any time by a vote of the Board. The Advisor has delegated proxy-voting authority to the Fund’s
Subadvisor. A summary of the Subadvisor’s proxy voting policies and procedures is included in Appendix A to this Statement
of Additional Information. The Board will periodically review each series’ proxy voting record.
The Trust is required
to disclose annually the Fund’s complete proxy voting record on Form N-PX covering the period July 1 through June 30 and
file it with the SEC no later than August 31 of each year. The Fund’s Form N-PX will be available at no charge upon request
by calling 1-888-474-7725. It will also be available on the SEC’s website at www.sec.gov.
CONTROL
PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of the date of
this SAI, the Fund had not yet commenced operations and information is not presented for the Fund.
MANAGEMENT
SERVICES
The following information
supplements and should be read in conjunction with the section in the Prospectus entitled “Management.”
Investment Advisor
IndexIQ Advisors LLC,
the Advisor, located at 51 Madison Avenue, New York, New York 10010, serves as investment advisor to the Fund and has overall responsibility
for the general management and administration of the Trust, pursuant to the Investment Advisory Agreement between the Trust and
the Advisor (the “Advisory Agreement”). Under the Advisory Agreement, the Advisor, subject to the supervision of the
Board, provides an investment program for the Fund and is responsible for the retention of subadvisors to manage the investment
of the Fund’s assets in conformity with the stated investment policies of the Fund if the Advisor does not provide these
services directly. The Advisor is responsible for the supervision of the Subadvisor and its management of the investment portfolio
of the
Fund. The Advisor also arranges for the provision of distribution, subadvisory, transfer agency, custody, administration
and all other services necessary for the Fund to operate.
The Advisory Agreement
will remain in effect with respect to the Fund from year to year provided such continuance is specifically approved at least annually
by (i) the vote of a majority of the Fund’s outstanding voting securities or a majority of the Trustees of the Trust, and
(ii) the vote of a majority of the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting
on such approval.
In addition to providing
advisory services, under the Advisory Agreement, the Advisor also: (i) supervises all non-advisory operations of the Fund; (ii)
provides personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective
administration of the Fund; (iii) arranges for (a) the preparation of all required tax returns, (b) the preparation and submission
of reports to existing shareholders, (c) the periodic updating of prospectuses and statements of additional information and (d)
the preparation of reports to be filed with the SEC and other regulatory authorities; (iv) maintains the records of the Fund; and
(v) provides office space and all necessary office equipment and services.
Section 15(a) of the
1940 Act requires that all contracts pursuant to which persons serve as investment advisors to investment companies be approved
by shareholders. As interpreted, this requirement also applies to the appointment of subadvisors to the Fund. The Advisor and the
Fund have obtained an exemptive order (the “Order”) from the SEC permitting the Advisor, on behalf of the Fund and
subject to the approval of the Board, including a majority of the Independent Trustees, to hire or terminate unaffiliated subadvisors
and to modify any existing or future subadvisory agreement with unaffiliated subadvisors without shareholder approval. This authority
is subject to certain conditions. The Fund will notify shareholders and provide them with certain information required by the Order
within 90 days of hiring a new subadvisor. The Fund’s sole shareholder has approved the use of the Order.
The Advisory Agreement
will terminate automatically if assigned (as defined in the 1940 Act). The Advisory Agreement is also terminable with respect to
the Fund at any time without penalty by the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities
of the Fund on 60 days’ written notice to the Advisor or by the Advisor on 60 days’ written notice to the Trust.
Pursuant to the Advisory
Agreement, the Advisor is entitled to receive a fee, payable monthly, at the annual rate for the Fund of 0.__% based on a percentage
of its average daily net assets. As of the date of this SAI, the Fund has not commenced operations.
Subadvisor
Alaia Capital, LLC,
the Subadvisor, located at 10 Corbin Drive, Darien, CT 06820, serves as investment subadvisor to the Fund pursuant to the Investment
Subadvisory Agreement between the Advisor and the Subadvisor (the “Subadvisory Agreement”). The Subadvisor is responsible
for placing purchase and sale orders and shall make investment decisions for the Fund, subject to the supervision by the Advisor
and the Board. For its services, the Subadvisor is compensated by the Advisor.
The Subadvisory Agreement
will continue in effect with respect to the Fund from year to year provided such continuance is specifically approved at least
annually by (i) the vote of a majority of the Fund’s outstanding voting securities or a majority of the Trustees of the Trust,
and (ii) the vote of a majority of the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on such approval. To the extent that the Advisor has agreed to waive its Advisory Fee or reimburse expenses, the Subadvisor
has voluntarily agreed to waive or reimburse its fee proportionately.
The Subadvisory Agreement
provides that the Subadvisor shall not be liable to the Fund for any error of judgment by the Subadvisor or for any loss sustained
by the Fund except in the case of the Subadvisor's willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Subadvisory Agreement will terminate automatically if assigned (as defined in the 1940 Act). The Subadvisory Agreement is also
terminable with respect to the Fund at any time without penalty by the Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Fund on 60 days’ written notice to the Subadvisor or by the Subadvisor on 60 days’ written
notice to the Advisor.
Pursuant to the Subadvisory
Agreement, the Subadvisor is entitled to receive a fee from the Advisor, payable monthly, at the annual rate of 0.___% based on
a percentage of the Fund’s average daily net assets. To the extent the Advisor has agreed to waive or reimburse expenses,
the Subadvisor has agreed to waive or reimburse its fees proportionately.
As of the date of
this SAI, the Fund has not commenced operations.
Portfolio Management Team
The Subadvisor acts
as portfolio manager for the Fund. Subject to the supervision of the Advisor and the Board, the Subadvisor will supervise and manage
the investment portfolios of the Fund and will direct the purchase and sale of its investment securities. The Subadvisor utilizes
a team of investment professionals acting together to manage the assets of the Fund. The Portfolio Management Team meets regularly
to review portfolio holdings and to discuss purchase and sale activity. The Portfolio Management Team adjusts holdings in the portfolio
as they deem appropriate in the pursuit of the Fund’s investment objective.
The following individuals
comprise the Portfolio Management Team that is primarily responsible for the day-to-day management of the Fund: Oscar Loynaz, Brad
Berggren and Stephen Clancy.
Other Accounts Managed
The Fund’s portfolio
manager also has responsibility for the day-to-day management of accounts other than the Fund. Except as otherwise indicated, information
regarding these other accounts, as of _____, 2020, is set forth below.
|
NUMBER OF OTHER ACCOUNTS MANAGED AND ASSETS BY ACCOUNT TYPE
|
NUMBER OF ACCOUNTS AND ASSETS FOR WHICH THE ADVISORY FEE IS BASED ON PERFORMANCE
|
Portfolio Manager
|
Registered
Investment
Company ($mm)
|
Other Pooled Investment
Vehicles
($mm)
|
Other Accounts
($mm)
|
Registered
Investment
Company
($mm)
|
Other Pooled
Investment
Vehicles
($mm)
|
Other
Accounts
($mm)
|
Brad Berggren
|
[ ]
|
[ ]
|
[ ]
|
[ ]
|
[ ]
|
[ ]
|
|
|
|
|
|
|
|
Oscar Loynaz
|
[ ]
|
[ ]
|
[ ]
|
[ ]
|
[ ]
|
[ ]
|
|
|
|
|
|
|
|
Stephen Clancy
|
[ ]
|
[ ]
|
[ ]
|
[ ]
|
[ ]
|
[ ]
|
Material Conflicts Of
Interest
Because the Portfolio
Management Team may manage multiple portfolios for multiple clients, the potential for conflicts of interest exists. The Portfolio
Management Team may manage portfolios having substantially the same investment style as the Fund. However, the portfolios managed
by the Portfolio Management Team may not have portfolio compositions identical to those of the Fund managed by the Portfolio Management
Team due, for example, to specific investment limitations or guidelines present in some portfolios or accounts, but not others.
The Portfolio Management Team may purchase securities for one portfolio and not another portfolio, and the performance of securities
purchased for one portfolio may vary from the performance of securities purchased for other portfolios. The Portfolio Management
Team may place transactions on behalf of other accounts that are directly or indirectly contrary to investment decisions made on
behalf of the Fund, or make investment decisions that are similar to those made for the Fund, both of which have the potential
to adversely impact the Fund depending on market conditions. For example, the Portfolio Management Team may purchase a security
in one portfolio while appropriately selling that same security in another portfolio. In addition, some of these portfolios have
fee structures that are or have the potential to be higher than the advisory fees paid by the Fund, which can cause potential conflicts
in the allocation of investment opportunities between the Fund and the other accounts.
The Subadvisor has
established policies and procedures to ensure that the purchase and sale of securities among all accounts it manages are fairly
and equitably allocated. However, there can be no assurance that these policies and procedures will be effective.
Compensation for the Portfolio
Management Team
The Portfolio Management
Team is compensated by the Subadvisor. Such compensation is comprised of a base salary and a discretionary bonus, which is based
on the profitability of the Subadvisor.
Ownership
of Securities
As of the date of
this SAI, the Fund has not commenced operations and no member of the Portfolio management Team owns Shares of the Fund.
OTHER
SERVICE PROVIDERS
Fund Administrator, Custodian,
Transfer Agent and Securities Lending Agent
The Bank of New York
Mellon (“BNY Mellon”) serves as the Fund’s administrator, custodian, transfer agent and securities lending agent.
BNY Mellon’s principal address is 240 Greenwich Street, New York, New York 10286. Under the Fund Administration and Accounting
Agreement, BNY Mellon provides necessary administrative, legal, tax, accounting services, and financial reporting for the maintenance
and operations of the Trust and the Fund. In addition, BNY Mellon makes available the office space, equipment, personnel and facilities
required to provide such services.
BNY Mellon supervises
the overall administration of the Trust and the Fund, including, among other responsibilities, assisting in the preparation and
filing of documents required for compliance by the Fund with applicable laws and regulations and arranging for the maintenance
of books and records of the Fund. BNY Mellon provides persons satisfactory to the Board to serve as officers of the Trust.
BNY Mellon is the
principal operating subsidiary of The Bank of New York Mellon Corporation.
BNY Mellon serves
as custodian of the Fund’s assets (the “Custodian”). Under the Custody Agreement with the Trust, BNY Mellon maintains
in separate accounts cash, securities and other assets of the Trust and the Fund, keeps all necessary accounts and records, and
provides other services. BNY Mellon is required, upon order of the Trust, to deliver securities held by BNY Mellon and to make
payments for securities purchased by the Trust for the Fund. Under the Custody Agreement, BNY Mellon is also authorized to appoint
certain foreign custodians or foreign custody managers for Fund investments outside the U.S.
The Custodian has
agreed to (1) make receipts and disbursements of money on behalf of the Fund; (2) collect and receive all income and other payments
and distributions on account of the Fund’s portfolio investments; (3) respond to correspondence from Fund shareholders and
others relating to its duties; and (4) make periodic reports to the Fund concerning the Fund’s operations. The Custodian
does not exercise any supervisory function over the purchase and sale of securities.
BNY Mellon serves
as transfer agent and dividend paying agent for the Fund (the “Transfer Agent”). The Transfer Agent has agreed to (1)
issue and redeem Shares of the Fund; (2) make dividend and other distributions to shareholders of the Fund’s; (3) respond
to correspondence by Fund shareholders and others relating to its duties; (4) maintain shareholder accounts; and (5) make periodic
reports to the Fund.
As compensation for
the foregoing services, BNY Mellon receives certain out of pocket costs, transaction fees and asset based fees, which are accrued
daily and paid monthly by the Trust.
As of the date of
this SAI, the Fund has not commenced operations.
BNY Mellon also serves
as the Trust’s securities lending agent pursuant to a Securities Lending Authorization Agreement. As compensation for providing
securities lending services, BNY Mellon receives a portion of the income earned by the Fund on collateral investments in connection
with the lending program. As of the date of this SAI, the Fund has not commenced operations.
Distributor
ALPS Distributors,
Inc., the Distributor, is located at 1290 Broadway, Suite 1100, Denver, Colorado 80203. The Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and a member of the Financial Industry
Regulatory Authority (“FINRA”). NYLIFE Distributors LLC has entered into a Services Agreement with ALPS to market the
Fund.
Shares will be continuously
offered for sale by the Trust through the Distributor only in whole Creation Units, as described in the section of this SAI entitled
“Purchase and Redemption of Creation Units.” The Distributor also acts as an agent for the Trust. The Distributor will
deliver a prospectus to authorized participants purchasing Shares in Creation Units and will maintain records of both orders placed
with it and confirmations of acceptance furnished by it. The Distributor has no role in determining the investment policies of
the Fund or which securities are to be purchased or sold by the Advisor.
As compensation for
the foregoing services, the Distributor receives certain out of pocket costs and per Fund flat fees, which are accrued daily and
paid monthly by the Advisor.
The Board of Trustees
has adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Distribution and
Service Plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to finance activities
primarily intended to result in the sale of Creation Units of the Fund or the provision of investor services. No Rule 12b-1 fees
are currently paid by the Fund and there are no plans to impose these fees. However, in the event Rule 12b-1 fees are charged in
the future, they will be paid out of the respective Fund’s assets, and over time these fees will increase the cost of your
investment and they may cost you more than certain other types of sales charges.
Under the Service
and Distribution Plan, and as required by Rule 12b-1, the Trustees will receive and review after the end of each calendar quarter
a written report provided by the Distributor of the amounts expended under the Plan, if any, and the purpose for which such expenditures
were made.
The Advisor and its
affiliates may, out of their own resources, pay amounts to third parties for distribution or marketing services on behalf of the
Fund. The making of these payments could create a conflict of interest for a financial intermediary receiving such payments.
Independent Registered
Public Accounting Firm
PricewaterhouseCoopers
LLP, located at 300 Madison Avenue, New York, NY 10017, serves as the independent registered public accounting firm to the Trust.
PricewaterhouseCoopers LLP will perform the annual audit of the Fund’s financial statements.
Ernst & Young
LLP, located at 5 Times Square, New York, New York 10036, serves as tax advisor to the Trust and will prepare the Fund’s
federal, state and excise tax returns, and advise the Trust on matters of accounting and federal and state income taxation.
Legal Counsel
Chapman and Cutler
LLP, 1717 Rhode Island Avenue, N.W., Washington, D.C. 20036, serves as legal counsel to the Trust and the Fund.
PORTFOLIO
TRANSACTIONS AND BROKERAGE
Subject to the general
supervision by the Board and the Advisor, the Subadvisor is responsible for decisions to buy and sell securities for the Fund,
the selection of brokers and dealers to effect the transactions, which may be affiliates of the Advisor or the Subadvisor, and
the negotiation of brokerage commissions. The Fund may execute brokerage or other agency transactions through registered broker-dealers
who receive compensation for their services in conformity with the 1940 Act, the Exchange Act, and the rules and regulations thereunder.
Compensation may also be paid in connection with riskless principal transactions (on Nasdaq or over-the-counter securities and
securities listed on an exchange) and agency Nasdaq or over-the-counter transactions executed with an electronic communications
network or an alternative trading system.
As of the date of
this SAI, the Fund has not commenced operations and therefore, has not entered into securities transactions.
DISCLOSURE
OF PORTFOLIO HOLDINGS
Portfolio Disclosure Policy
The Trust has adopted
a Portfolio Holdings Policy (the “Policy”) designed to govern the disclosure of Fund portfolio holdings and the use
of material non-public information about Fund holdings. The Policy applies to all officers, employees and agents of the Fund, including
the Advisor and Subadvisor. The Policy is designed to ensure that the disclosure of information about the Fund’s portfolio
holdings is consistent with applicable legal requirements and otherwise in the best interest of the Fund.
As an ETF, information
about the Fund’s portfolio holdings is made available on a daily basis in accordance with the provisions of any Order of
the SEC applicable to the Exchange and other applicable SEC regulations, orders and no-action relief. Such information typically
reflects all or a portion of the Fund’s anticipated portfolio holdings as of the next Business Day (as defined in the section
entitled “Purchase and Redemption of Creation Units”). This information is used in connection with the Creation and
Redemption process and is disseminated on a daily basis through the facilities of the Exchange, the National Securities Clearing
Corporation (the “NSCC”) and/or third party service providers.
The Fund will disclose
on the Fund’s website (nylinvestments.com/etfs) at the start of each Business Day the identities and quantities of the securities
and other assets held by the Fund that will form the basis of the Fund’s calculation of its NAV on that Business Day. The
portfolio holdings so disclosed will be based on information as of the close of business on the prior Business Day and/or trades
that have been completed prior to the opening of business on that Business Day and that are expected to settle on the Business
Day. Online disclosure of such holdings is publicly available at no charge.
Daily access to the
Fund’s portfolio holdings is permitted to personnel of the Advisor, Subadvisor and Distributor and the Fund’s administrator,
custodian and accountant and other agents or service providers of the Trust who have need of such information in connection with
the ordinary course of their respective duties to the Fund. The Fund’s Chief Compliance Officer may authorize disclosure
of portfolio holdings.
The Fund will disclose
its complete portfolio holdings schedule in public filings with the SEC on a quarterly basis, based on the Fund’s fiscal
year, within sixty (60) days of the end of the quarter, and will provide that information to shareholders, as required by federal
securities laws and regulations thereunder.
No person is authorized
to disclose the Fund’s portfolio holdings or other investment positions except in accordance with the Policy. The Trust’s
Board reviews the implementation of the Policy on a periodic basis.
INDICATIVE
INTRA-DAY VALUE
The approximate value
of the Fund’s investments on a per-Share basis, the Indicative Intra-Day Value, or IIV, is disseminated by the NYSE Arca
every 15 seconds during hours of trading on the NYSE Arca. The IIV should not be viewed as a “real-time” update of
NAV because the IIV may not be calculated in the same manner as NAV, which is computed once per day.
An independent third
party calculator calculates the IIV for the Fund during hours of trading on the NYSE Arca by dividing the “Estimated Fund
Value” as of the time of the calculation by the total number of outstanding Shares of that Fund. “Estimated Fund Value”
is the sum of the estimated amount of cash held in the Fund’s portfolio, the estimated amount of accrued interest owed to
the Fund and the estimated value of the securities held in the Fund’s portfolio, minus the estimated amount of the Fund’s
liabilities. The IIV will be calculated based on the same portfolio holdings disclosed on the Trust’s website.
The Fund provides
the independent third party calculator with information to calculate the IIV, but the Fund is not involved in the actual calculation
of the IIV and is not responsible for the calculation or dissemination of the IIV. The Fund makes no warranty as to the accuracy
of the IIV.
ADDITIONAL
INFORMATION CONCERNING SHARES
Organization and Description
of Shares of Beneficial Interest
The Trust is a Delaware
statutory trust and registered investment company. The Trust was organized on January 30, 2008, and has authorized capital of an
unlimited number of shares of beneficial interest of no par value which may be issued in more than one class or series.
Under Delaware law,
the Trust is not required to hold an annual shareholders meeting if the 1940 Act does not require such a meeting. Generally, there
will not be annual meetings of Trust shareholders. If requested by shareholders of at least 10% of the outstanding Shares of the
Trust, the Trust will call a meeting of the Trust’s shareholders for the purpose of voting upon the question of removal of
a Trustee
and will assist in communications with other Trust shareholders. Shareholders holding two-thirds of Shares outstanding
may remove Trustees from office by votes cast at a meeting of Trust shareholders or by written consent.
When issued, Shares
are fully paid, non-assessable, redeemable and are freely transferable; provided, however, that Shares may not be redeemed individually,
but only in Creation Units. The Shares do not have preemptive rights or cumulative voting rights, and none of the Shares have any
preference to conversion, exchange, dividends, retirements, liquidation, redemption or any other feature. Shares have equal voting
rights, except that, if the Trust creates additional funds, only Shares of that fund may be entitled to vote on a matter affecting
that particular fund. Trust shareholders are entitled to require the Trust to redeem Creation Units if such shareholders are Authorized
Participants. The Declaration of Trust confers upon the Board the power, by resolution, to alter the number of Shares constituting
a Creation Unit or to specify that Shares of the Trust may be individually redeemable. The Trust reserves the right to adjust the
stock prices of Shares to maintain convenient trading ranges for investors. Any such adjustments would be accomplished through
stock splits or reverse stock splits which would have no effect on the net assets of the Fund.
The Trust’s
Declaration of Trust disclaims liability of the shareholders or the officers of the Trust for acts or obligations of the Trust
which are binding only on the assets and property of the Trust. The Declaration of Trust provides for indemnification by the Trust
for all loss and expense of the Fund’s shareholders held personally liable for the obligations of the Trust. The risk of
a Trust’s shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the
Fund itself would not be able to meet the Trust’s obligations and this risk should be considered remote. If the Fund does
not grow to a size to permit it to be economically viable, the Fund may cease operations. In such an event, shareholders may be
required to liquidate or transfer their Shares at an inopportune time and shareholders may lose money on their investment.
Book Entry Only System
The Depository Trust
Company (“DTC”) will act as securities depository for the Shares. The Shares of the Fund are represented by global
securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC. Except as provided below, certificates
will not be issued for Shares.
DTC has advised the
Trust as follows, DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York
Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform
Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt
and money market instruments (from over 100 countries). DTC was created to hold securities of its participants (the “DTC
Participants”) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such
securities through electronic computerized book-entry transfers and pledges in accounts of DTC Participants, thereby eliminating
the need for physical movement of securities certificates. DTC Participants include both U.S. and non-U.S. securities brokers and
dealers, banks, trust companies, clearing corporations and certain other organization. DTC is a wholly-owned subsidiary of The
Depository Trust & Clearing Corporation (“DTCC”). DTCC is a holding company for DTC, the NSCC and Fixed Income
Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries.
More specifically, DTCC is owned by a number of its DTC Participants and by the New York Stock Exchange, Inc., the NYSE Alternext
U.S. (formerly known as the American Stock Exchange LLC) and FINRA.
Access to DTC system
is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing
corporations that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (“Indirect
Participants”). DTC agrees with and represents to DTC Participants that it will administer its book-entry system in accordance
with its rules and bylaws and requirements of law. Beneficial ownership of Shares is limited to DTC Participants, Indirect Participants
and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners
of such beneficial interests are referred to herein as “Beneficial Owners”) will be shown on, and the transfer of ownership
will be effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants
(with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from
or through the DTC Participant a written confirmation relating to their purchase of Shares. The laws of some jurisdictions may
require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair
the ability of certain investors to acquire benefits interests in Shares.
Beneficial Owners
of Shares will not be entitled to have Shares registered in their names, will not receive or be entitled to receive physical delivery
of certificates in definitive form and are not considered the registered holders of the Shares. Accordingly, each Beneficial Owner
must rely on the procedures of DTC, DTC Participants and any Indirect Participants through which such Beneficial Owner holds its
interest in order to exercise any rights of a holder of Shares. The Trust understands that under existing industry practice, in
the event the Trust requests any action of holders of Shares, or a Beneficial Owner desires to take any action that DTC, as the
record owner of all outstanding Shares, is entitled to take, DTC would authorize the DTC Participants to take such action and that
the DTC Participants would authorized the Indirect Participants and Beneficial Owners acting through such DTC Participants to take
such action and would otherwise act upon the instructions of Beneficial Owners owning through them. DTC, through its nominee Cede
& Co., is the record owner of all outstanding Shares.
Conveyance of all
notices, statements and other communications to Beneficial Owners will be effected as follows. DTC will make available to the Trust
upon request and for a fee to be charged to the Trust a listing of the Shares holdings of each DTC Participant. The Trust shall
inquire of each such DTC Participant as to the number of Beneficial Owners holding Shares, directly or indirectly, through such
DTC Participant. The Trust will provide each such DTC Participant with copies of such notice, statement or other communication,
in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or
communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trust
shall pay to each such DTC Participants a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal,
all subject to applicable statutory and regulatory requirements. Beneficial Owners may wish to take certain steps to augment the
transmission to them of notices of significant events with respect to Shares by providing their names and addresses to the DTC
registrar and request that copies of notices by provided directly to them.
Distributions of Shares
shall be made to DTC or its nominee, Cede & Co., as the registered holder of all Shares. DTC or its nominee, upon receipt of
any such distributions, shall immediately credit DTC Participants’ accounts with payments in amounts proportionate to their
respective beneficial interests in Shares as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect
Participants and Beneficial Owners of Shares held through such DTC Participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a “street
name,” and will be the responsibility of such DTC Participants. The Trust has no responsibility or liability for any aspect
of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such
Shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests, or for any other
aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect
Participants and Beneficial Owners owning through such DTC Participants.
DTC may determine
to discontinue providing its service with respect to shares at any time by giving reasonable notice to the Trust and discharging
its responsibilities with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to
find a replacement for DTC to perform its functions at a comparable cost, or if such replacement is unavailable, to issue and deliver
printed certificates representing ownership of Shares, unless the Trust makes other arrangements with respect thereto satisfactory
to the Exchange.
DTC rules applicable
to DTC Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com and www.dtc.org.
PURCHASE
AND REDEMPTION OF CREATION UNITS
Creation
The Trust issues and
sells Shares of the Fund only in Creation Units on a continuous basis on any Business Day (as defined below) through the Distributor
at the Shares’ NAV next determined after receipt of an order in proper form. The Distributor processes purchase orders only
on a day that the Exchange is open for trading (a “Business Day”). The Exchange is open for trading Monday through
Friday except for the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Deposit of Securities and
Deposit or Delivery of Cash
The consideration
for purchase of a Creation Unit of Shares of the Fund generally consists of cash only (including the appropriate Transaction Fee).
However, the Fund also reserves the right to permit or require the in-kind deposit of Deposit Securities constituting a representation
of the Fund’s portfolio, along with the Cash Component, computed as described below, and the appropriate Transaction Fee
(collectively, the “Fund Deposit”) as consideration for the purchase of a Creation Unit.
The Cash Component
of the Fund Deposit serves to compensate the Trust or the Authorized Participant, as applicable, for any differences between the
NAV per Creation Unit and the Deposit Amount (as defined below). The Cash Component of the Fund Deposit is an amount equal to the
difference between the NAV of the Shares (per Creation Unit) and the “Deposit Amount,” an amount equal to the market
value of the Deposit Securities. If the Cash Component of the Fund Deposit is a positive number (i.e., the NAV per Creation
Unit exceeds the Deposit Amount), the Authorized Participant will deliver the Cash Component. If the Cash Component of the Fund
Deposit is a negative number (i.e., the NAV per Creation Unit is less than the Deposit Amount), the Authorized Participant
will receive the Cash Component.
The Custodian through
the NSCC (see the section of this SAI entitled “Purchase and Redemption of Creation Units—Creation— Procedures
for Creation of Creation Units”), makes available on each Business Day, prior to the opening of business on the Exchange
(currently 9:30 a.m. Eastern time), the list of the name and the required number of shares of each Deposit Security to be included
in the current Fund Deposit (based on information at the end of the previous Business Day) for the Fund. This Fund Deposit is applicable,
subject to any adjustments as described below, to orders to effect creations of Creation Units of the Fund until such time as the
next-announced composition of the Deposit Securities is made available.
The identity and number
of shares of the Deposit Securities required for the Fund Deposit for the Fund changes from time to time. In addition, the Trust
reserves the right to permit or require the substitution of an amount of cash (that is a “cash in lieu” amount) to
be added to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or
that may not be eligible for transfer through the systems of DTC or the Clearing Process (discussed below) or for other similar
reasons. The Trust also reserves the right to permit or require a “cash in lieu” amount where the delivery of Deposit
Securities by the Authorized Participant (as described below) would be restricted under the securities laws or where delivery of
Deposit Securities to the Authorized Participant would result in the disposition of Deposit Securities by the Authorized Participant
becoming restricted under the securities laws, and in certain other situations.
In addition to the
list of names and number of securities constituting the current Deposit Securities of the Fund Deposit, the Custodian, through
the NSCC, also makes available on each Business Day the estimated Cash Component, effective through and including the previous
Business Day, per outstanding Creation Unit of the Fund.
Procedures for Creation
of Creation Units
All orders to create
Creation Units must be placed with the Distributor either (1) through Continuous Net Settlement System of the NSCC (the “Clearing
Process”), a clearing agency that is registered with the SEC, by a “Participating Party,” i.e., a broker-dealer
or other participant in the Clearing Process; or (2) outside the Clearing Process by a DTC Participant (see the section of this
SAI entitled “Additional Information Concerning Shares — Book Entry Only System”). In each case, the Participating
Party or the DTC Participant must have executed an agreement with the Distributor with respect to creations and redemptions of
Creation Units (a “Participant Agreement”); and accepted by the Transfer Agent; such parties are collectively referred
to as “APs” or “Authorized Participants.” Investors should contact the Distributor for the names of Authorized
Participants. All Shares, whether created through or outside the Clearing Process, will be entered on the records of DTC in the
name of Cede & Co. for the account of a DTC Participant.
Except as described
below, and in all cases subject to the terms of the applicable Participant Agreement, all orders to create Creation Units of the
Fund generally must be received by the Distributor by the time specified in the Participant Agreement and the applicable order
form (“Order Time”) in each case on the date such order is placed for creation of Creation Units to be effected based
on the NAV of Shares of the Fund as next determined after receipt of an order in proper form. Orders consisting of cash only or
requesting substitution of a “cash-in-lieu” amount (collectively, “Custom Orders”), must be received by
the Transfer Agent no later than the time specified in the Participant Agreement and the applicable order form. On days when the
Exchange closes earlier than normal (such as the day before
a holiday), the Fund may require orders to create Creation Units to
be placed earlier in the day. The date on which an order to create Creation Units (or an order to redeem Creation Units, as discussed
below) is placed is referred to as the “Transmittal Date.” Orders must be transmitted by an Authorized Participant
by telephone, electronic order entry system or other transmission method acceptable to the Transfer Agent pursuant to procedures
set forth in the Participant Agreement. Economic or market disruptions or changes, or telephone, electronic or communication failure
may impede the ability to reach the Transfer Agent or an Authorized Participant.
All orders to create
Creation Units from investors who are not Authorized Participants shall be placed with an Authorized Participant in the form required
by such Authorized Participant. In addition, the Authorized Participant may request the investor to make certain representations
or enter into agreements with respect to the order, e.g., to provide for payments of cash, when required. Investors should
be aware that their particular broker may not have executed a Participant Agreement and, therefore, orders to create Creation Units
of the Fund have to be placed by the investor’s broker through an Authorized Participant that has executed a Participant
Agreement. In such cases there may be additional charges to such investor. At any given time, there may be only a limited number
of broker-dealers that have executed a Participant Agreement.
Those placing orders
for Creation Units through the Clearing Process should afford sufficient time to permit proper submission of the order to the Distributor
prior to the Order Time on the Transmittal Date. Orders for Creation Units that are effected outside the Clearing Process are likely
to require transmittal by the DTC Participant earlier on the Transmittal Date than orders effected using the Clearing Process.
Those persons placing orders outside the Clearing Process should ascertain the deadlines applicable to DTC and the Federal Reserve
Bank wire system by contacting the operations department of the broker or depository institution effectuating such transfer of
the Fund Deposit. For more information about Clearing Process and DTC, see the sections of this SAI entitled “Purchase and
Redemption of Creation Units—Creation—Placement of Creation Orders Using the Clearing Process” and “Purchase
and Redemption of Creation Units—Creation—Placement of Creation Orders Outside the Clearing Process.”
Placement of Creation Orders
Using the Clearing Process
The Clearing Process
is the process of creating or redeeming Creation Units through the Continuous Net Settlement System of the NSCC. Fund Deposits
made through the Clearing Process must be delivered through a Participating Party that has executed a Participant Agreement. The
Participant Agreement authorizes the Distributor to transmit through the
Custodian to NSCC,
on behalf of the Participating Party, such trade instructions as are necessary to effect the Participating Party’s creation
order. Pursuant to such trade instructions to NSCC, the Participating Party agrees to deliver the Fund Deposit to the Trust, together
with such additional information as may be required by the Distributor. An order to create Creation Units through the Clearing
Process is deemed received by the Distributor on the Transmittal Date if (1) such order is received by the Distributor not later
than the Order Time on such Transmittal Date and (2) all other procedures set forth in the Participant Agreement are properly followed.
Placement of Creation Orders
Outside the Clearing Process
Fund Deposits made
outside the Clearing Process must be delivered through a DTC Participant that has executed a Participant Agreement. A DTC Participant
who wishes to place an order creating Creation Units to be effected outside the Clearing Process does not need to be a Participating
Party, but such orders must state that the DTC Participant is not using the Clearing Process and that the creation of Creation
Units will instead be effected through a transfer of securities and cash directly through DTC. The Fund Deposit transfer must be
ordered by the DTC Participant on the Transmittal Date in a timely fashion so as to ensure the delivery of the requisite number
of Deposit Securities through DTC to the account of the Fund by no later than 11:00 a.m. Eastern time on the next Business Day
following the Transmittal Date (the “DTC Cut-Off-Time”).
All questions as to
the number of Deposit Securities to be delivered, and the validity, form and eligibility (including time of receipt) for the deposit
of any tendered securities, will be determined by the Trust, whose determination shall be final and binding. The amount of cash
equal to the Cash Component must be transferred directly to the Custodian through the Federal Reserve Bank wire transfer system
in a timely manner so as to be received by the Custodian no later than 2:00 p.m. Eastern time on the next Business Day following
the Transmittal Date. An order to create Creation Units outside the Clearing Process is deemed received by the Distributor on the
Transmittal Date if (1) such order is received by the Distributor not later than the Order Time on such Transmittal Date and (2)
all other procedures
set forth in the Participant Agreement are properly followed. However, if the Custodian does not receive both
the required Deposit Securities and the Cash Component by 11:00 a.m. and 2:00 p.m. Eastern time respectively, on the next Business
Day following the Transmittal Date, such order will be canceled. Upon written notice to the Distributor, such canceled order may
be resubmitted the following Business Day using the Fund Deposit as newly constituted to reflect the then-current Deposit Securities
and Cash Component. The delivery of Creation Units so created will occur no later than the second Business Day following the day
on which the purchase order is deemed received by the Distributor.
Additional transaction
fees may be imposed with respect to transactions effected through a DTC participant outside the Clearing Process and in the limited
circumstances in which any cash can be used in lieu of Deposit Securities to create Creation Units. See the section of this SAI
entitled “Purchase and Sale of Creation Units—Creation—Creation Transaction Fee.”
Creation Units may
be created in advance of receipt by the Trust of all or a portion of the applicable Deposit Securities. In these circumstances,
the initial deposit will have a value greater than the NAV of the Shares on the date the order is placed in proper form since,
in addition to available Deposit Securities, cash must be deposited in an amount equal to the sum of (1) the Cash Component plus
(2) up to 115% of the then-current market value of the undelivered Deposit Securities (the “Additional Cash Deposit”).
The order shall be deemed to be received on the Business Day on which the order is placed provided that the order is placed in
proper form prior to Order Time and funds in the appropriate amount are deposited with the Custodian by 11:00 a.m. Eastern time
the following Business Day. If the order is not placed in proper form by Order Time or funds in the appropriate amount are not
received by 11:00 a.m. Eastern time on the next Business Day, then the order may be deemed to be canceled and the Authorized Participant
shall be liable to the Fund for losses, if any, resulting therefrom. An additional amount of cash shall be required to be deposited
with the Trust, pending receipt of the undelivered Deposit Securities to the extent necessary to maintain the Additional Cash Deposit
with the Trust in an amount at least equal up to 115% of the daily marked-to-market value of the undelivered Deposit Securities.
To the extent that undelivered Deposit Securities are not received by 1:00 p.m. Eastern time on the second Business Day following
the day on which the purchase order is deemed received by the Distributor, or in the event a marked-to-market payment is not made
within one Business Day following notification by the Distributor that such a payment is required, the Trust may use the cash on
deposit to purchase the undelivered Deposit Securities. Authorized Participants will be liable to the Trust and the Fund for the
costs incurred by the Trust in connection with any such purchases. These costs will be deemed to include the amount by which the
actual purchase price of the Deposit Securities exceeds the market value of such Deposit Securities on the day the purchase order
was deemed received by the Distributor plus the brokerage and related transaction costs associated with such purchases. The Trust
will return any unused portion of the Additional Cash Deposit once all of the undelivered Deposit Securities have been properly
received by the Custodian or purchased by the Trust and deposited into the Trust. In addition, a transaction fee will be charged
in all cases. See the section of this SAI entitled “Purchase and Redemption of Creation Units—Creation—Creation
Transaction Fee.” The delivery of Creation Units so created will occur no later than the second Business Day following the
day on which the purchase order is deemed received by the Distributor.
Acceptance of Orders for
Creation Units
The Trust reserves
the absolute right to reject a creation order transmitted to it by the Distributor if: (1) the order is not in proper form; (2)
the investor(s), upon obtaining the Shares ordered, would own 80% or more of the currently outstanding Shares of any Fund; (3)
the Deposit Securities delivered are not as disseminated for that date by the Custodian, as described above; (4) acceptance of
the Deposit Securities would have certain adverse tax consequences to the Fund; (5) acceptance of the Fund Deposit would, in the
opinion of counsel, be unlawful; (6) acceptance of the Fund Deposit would otherwise, in the discretion of the Trust, the Advisor,
or the Subadvisor, have an adverse effect on the Trust or the rights of beneficial owners; or (7) there exist circumstances outside
the control of the Trust, the Custodian, the Distributor and the Advisor that make it for all practical purposes impossible to
process creation orders. Examples of such circumstances include acts of God; public service or utility problems such as fires,
floods, extreme weather conditions and power outages resulting in telephone, telecopy and computer failures; market conditions
or activities causing trading halts; systems failures involving computer or other information systems affecting the Trust, the
Advisor, the Subadvisor, the Distributor, DTC, NSCC, the Custodian or sub-custodian or any other participant in the creation process
and similar extraordinary events. The Distributor shall notify the Authorized Participant of its rejection of the order. The Trust,
the Custodian, any sub-custodian and the Distributor are under no duty, however, to give notification of any defects or irregularities
in the delivery of Fund Deposits nor shall any of them incur any liability for the failure to give any such notification. All questions
as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit
of any securities to be delivered shall be determined by the Trust and the Trust’s determination shall be final and binding.
Creation Units typically
are issued on a “T+2 basis” (that is two Business Days after trade date). However, the Fund reserves the right to settle
Creation Unit transactions on a basis other than T+2 in order to accommodate foreign market holiday schedules, to account for different
treatment among foreign and U.S. markets of dividend record dates and ex-dividend dates (that is the last day the holder of a security
can sell the security and still receive dividends payable on the security), and in certain other circumstances.
To the extent contemplated
by a Participant Agreement with the Distributor, the Trust will issue Creation Units to such Authorized Participant notwithstanding
the fact that the corresponding Portfolio Deposits have not been received in part or in whole, in reliance on the undertaking of
the Authorized Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by
such Authorized Participant’s delivery and maintenance of collateral having a value equal to 115%, which the Advisor may
change from time to time, of the value of the missing Deposit Securities in accordance with the Trust’s then-effective procedures.
Such collateral must be delivered no later than 2:00 p.m., Eastern time, on the contractual settlement date. The only collateral
that is acceptable to the Trust is cash in U.S. Dollars or an irrevocable letter of credit in form, and drawn on a bank, that is
satisfactory to the Trust. The cash collateral posted by the Authorized Participant may be invested at the risk of the Authorized
Participant, and income, if any, on invested cash collateral will be paid to that Authorized Participant. Information concerning
the Trust’s current procedures for collateralization of missing Deposit Securities is available from the Transfer Agent.
The Authorized Participant Agreement will permit the Trust to buy the missing Deposit Securities at any time and will subject the
Authorized Participant to liability for any shortfall between the cost to the Trust of purchasing such securities and the cash
collateral or the amount that may be drawn under any letter of credit.
In certain cases,
Authorized Participants will create and redeem Creation Units on the same trade date. In these instances, the Trust reserves the
right to settle these transactions on a net basis. All questions as to the number of shares of each security in the Deposit Securities
and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust,
and the Trust’s determination shall be final and binding.
Creation Transaction Fee
Authorized Participants
placing a creation order will be required to pay to the Custodian a fixed transaction fee (the “Creation Transaction Fee”)
to offset the transfer and other transaction costs associated with the issuance of Creation Units. The standard creation transaction
fee will be the same regardless of the number of Creation Units purchased by an investor on the applicable Business Day. The Creation
Transaction Fee for each creation order is $250. The Creation Transaction Fee may be waived for the Fund when the Advisor believes
that waiver of the Creation Transaction Fee is in the best interest of the Fund. When determining whether to waive the Creation
Transaction Fee, the Advisor considers a number of factors including, but not limited to, whether waiving the Creation Transaction
Fee will: facilitate the initial launch of the Fund; reduce the cost of portfolio rebalancings; improve the quality of the secondary
trading market for the Fund’s Shares and not result in the Fund’s bearing additional costs or expenses as a result
of the waiver.
An additional variable
fee of up to 3.00% of the NAV per Creation Unit may be imposed for (1) creations effected outside the Clearing Process and (2)
cash creations (to offset the Trust’s brokerage and other transaction costs associated with using cash to purchase the requisite
Deposit Securities). Actual transaction costs may vary depending on the time of day a purchase order is received or the nature
of the securities to be purchased. The Advisor or Subadvisor may adjust the variable fee to ensure that the Fund collects the extra
expenses associated with brokerage commissions and other expenses incurred by the Fund to acquire a Deposit Security not part of
the Fund Deposit from the Authorized Participant. Authorized Participants placing a creation order are responsible for the costs
of transferring the securities constituting the Deposit Securities to the account of the Trust.
Redemption
To redeem Shares directly
from the Fund, an investor must be an Authorized Participant or must redeem through an Authorized Participant. The Trust redeems
Creation Units on a continuous basis on any Business Day through the Distributor at the Shares’ NAV next determined after
receipt of an order in proper form. The Fund will not redeem Shares in amounts less than Creation Units. Authorized Participants
must accumulate enough Shares in the secondary market to constitute a Creation Unit in order to have such Shares redeemed by the
Trust. There can be no assurance, however, that there will be sufficient liquidity in the public trading market at any time to
permit assembly of a Creation Unit.
With respect to the
Fund, the Custodian, through the NSCC, makes available prior to the opening of business on the Exchange (currently 9:30 a.m. Eastern
time) on each Business Day, the identity of the Fund Securities that will be applicable (subject to possible amendment or correction)
to redemption requests received in proper form (as described below) on that day. Fund Securities received on redemption may not
be identical to Deposit Securities that are applicable to creations of Creation Units. Unless cash redemptions are available or
specified for the Fund, the redemption proceeds for a Creation Unit generally consist of Fund Securities — as announced on
the Business Day the request for redemption is received in proper form — plus or minus cash in an amount equal to the difference
between the NAV of the Shares being redeemed, as next determined after a receipt of a redemption request in proper form, and the
value of the Fund Securities (the “Cash Redemption Amount”), less a redemption transaction fee (see the section of
this SAI entitled “Purchase and Redemption of Creation Units—Redemption—Redemption Transaction Fee”).
The right of redemption
may be suspended or the date of payment postponed (1) for any period during which the Exchange is closed (other than customary
weekend and holiday closings); (2) for any period during which trading on the Exchange is suspended or restricted; (3) for any
period during which an emergency exists as a result of which disposal of the Shares of the Fund or determination of the Fund’s
NAV is not reasonably practicable; or (4) in such other circumstances as is permitted by the SEC.
Deliveries of redemption
proceeds by the Fund generally will be made within two Business Days (that is “T+2”). However, the Fund reserves the
right to settle redemption transactions and deliver redemption proceeds on a basis other than T+2 to accommodate foreign market
holiday schedules, to account for different treatment among foreign and U.S. markets of dividend record dates and dividend ex-dates
(that is the last date the holder of a security can sell the security and still receive dividends payable on the security sold),
and in certain other circumstances.
In the event that
cash redemptions are permitted or required by the Trust, proceeds will be paid to the Authorized Participant redeeming Shares on
behalf of the redeeming investor as soon as practicable after the date of redemption.
Placement of Redemption
Orders Using the Clearing Process
Orders to redeem Creation
Units through the Clearing Process must be delivered through an Authorized Participant that has executed a Participant Agreement.
Investors other than Authorized Participants are responsible for making arrangements with an Authorized Participant for an order
to redeem. An order to redeem Creation Units is deemed received by the Trust on the Transmittal Date if: (1) such order is received
by the Distributor not later than Order Time on such Transmittal Date; and (2) all other procedures set forth in the Participant
Agreement are properly followed. Such order will be effected based on the NAV of the relevant Fund as next determined. An order
to redeem Creation Units using the Clearing Process made in proper form but received by the Distributor after the Order Time will
be deemed received on the next Business Day immediately following the Transmittal Date and will be effected at the NAV determined
on such next Business Day. The requisite Fund Securities and the Cash Redemption Amount will be transferred by the second NSCC
business day following the date on which such request for redemption is deemed received.
Placement of Redemption
Orders Outside the Clearing Process
Orders to redeem Creation
Units outside the Clearing Process must be delivered through a DTC Participant that has executed the Participant Agreement. A DTC
Participant who wishes to place an order for redemption of Creation Units to be effected outside the Clearing Process does not
need to be a Participating Party, but such orders must state that the DTC Participant is not using the Clearing Process and that
redemption of Creation Units will instead be effected through transfer of Shares directly through DTC. An order to redeem Creation
Units outside the Clearing Process is deemed received by the Transfer Agent on the Transmittal Date if (1) such order is received
by the Transfer Agent not later than Order Time on such Transmittal Date; (2) such order is accompanied or followed by the requisite
number of Shares, which delivery must be made through DTC to the Custodian no later than the DTC Cut-Off-Time, and the Cash Redemption
Amount, if owed to the Fund, which delivery must be made by 2:00 p.m. Eastern time; and (3) all other procedures set forth in the
Participant Agreement are properly followed. After the Transfer Agent receives an order for redemption outside the Clearing Process,
the Transfer Agent will initiate procedures to transfer the requisite Fund Securities which are expected to be delivered and the
Cash Redemption Amount, if any, by the second Business Day following the Transmittal Date.
The calculation of
the value of the Fund Securities and the Cash Redemption Amount to be delivered or received upon redemption (by the Authorized
Participant or the Trust, as applicable) will be made by the Custodian according to the procedures set forth the section of
this
SAI entitled “Determination of Net Asset Value” computed on the Business Day on which a redemption order is
deemed received by the Transfer Agent. Therefore, if a redemption order in proper form is submitted to the Distributor by a DTC
Participant not later than Order Time on the Transmittal Date, and the requisite number of Shares of the Fund are delivered to
the Custodian prior to the DTC Cut-Off-Time, then the value of the Fund Securities and the Cash Redemption Amount to be delivered
or received (by the Authorized Participant or the Trust, as applicable) will be determined by the Custodian on such Transmittal
Date. If, however, either (1) the requisite number of Shares of the relevant Fund are not delivered by the DTC Cut-Off-Time, as
described above, or (2) the redemption order is not submitted in proper form, then the redemption order will not be deemed received
as of the Transmittal Date. In such case, the value of the Fund Securities and the Cash Redemption Amount to be delivered or received
will be computed on the Business Day following the Transmittal Date provided that the Shares of the relevant Fund are delivered
through DTC to the Custodian by 11:00 a.m. Eastern time the following Business Day pursuant to a properly submitted redemption
order.
If it is not possible
to effect deliveries of the Fund Securities, the Trust may in its discretion exercise its option to redeem Shares in cash, and
the redeeming Authorized Participant will be required to receive its redemption proceeds in cash. In addition, an investor may
request a redemption in cash that the Trust may, in its sole discretion, permit. In either case, the investor will receive a cash
payment equal to the NAV of its Shares based on the NAV of Shares of the relevant Fund next determined after the redemption request
is received in proper form (minus a transaction fee which will include an additional charge for cash redemptions to offset the
Fund’s brokerage and other transaction costs associated with the disposition of Fund Securities). The Fund may also, in its
sole discretion, upon request of a shareholder, provide such redeemer a portfolio of securities that differs from the exact composition
of the Fund Securities, or cash in lieu of some securities added to the Cash Redemption Amount, but in no event will the total
value of the securities delivered and the cash transmitted differ from the NAV. Redemptions of Shares for Fund Securities will
be subject to compliance with applicable federal and state securities laws and the Fund (whether or not it otherwise permits cash
redemptions) reserves the right to redeem Creation Units for cash to the extent that the Trust could not lawfully deliver specific
Fund Securities upon redemptions or could not do so without first registering the Fund Securities under such laws. An Authorized
Participant or an investor for which it is acting that is subject to a legal restriction with respect to a particular security
included in the Fund Securities applicable to the redemption of a Creation Unit may be paid an equivalent amount of cash. The Authorized
Participant may request the redeeming Beneficial Owner of the Shares to complete an order form or to enter into agreements with
respect to such matters as compensating cash payment, beneficial ownership of Shares or delivery instructions.
Redemption Transaction
Fee
Authorized Participants
placing a redemption order will be required to pay to the Custodian a fixed transaction fee (the “Redemption Transaction
Fee”) to offset the transfer and other transaction costs associated with the redemption of Creation Units. The standard redemption
transaction fee will be the same regardless of the number of Creation Units redeemed by an investor on the applicable Business
Day. The Redemption Transaction Fee for each redemption order is $250. The Redemption Transaction Fee may be waived for the Fund
when the Advisor or Subadvisor believes that waiver of the Redemption Transaction Fee is in the best interest of the Fund. When
determining whether to waive the Redemption Transaction Fee, the Advisor considers a number of factors including, but not limited
to, whether waiving the Redemption Transaction Fee will: reduce the cost of portfolio rebalancings; improve the quality of the
secondary trading market for the Fund’s Shares and not result in the Fund’s bearing additional costs or expenses as
a result of the waiver.
An additional variable
fee of up to 2.00% of the NAV per Creation Unit may be imposed for (1) redemptions effected outside the Clearing Process and (2)
cash redemptions (to offset the Trust’s brokerage and other transaction costs associate with the sale of Fund Securities).
Actual transaction costs may vary depending on the time of day a purchase order is received or the nature of the securities to
be sold. The Advisor or Subadvisor may adjust the variable fee to ensure that the Fund collects the extra expenses associated with
brokerage commissions and other expenses incurred by the Fund to acquire a Deposit Security not part of the Fund Deposit from the
Authorized Participant. Authorized Participants placing a redemption order will also bear the costs of transferring the Fund Securities
from the Trust to their account or on their order.
In order to seek to
replicate the in-kind redemption order process for creation orders executed in whole or in part with cash, the Trust expects to
sell, in the secondary market, the portfolio securities or settle any financial instruments that may not be permitted to be re-registered
in the name of the Participating Party as a result of an in-kind redemption order pursuant to local law or market convention, or
for other reasons (“Market Sales”). In such cases where the Trust makes Market Sales, the Authorized Participant will
reimburse the
Trust for, among other things, any difference between the market value at which the securities and/or financial instruments
were sold or settled by the Trust and the cash-in-lieu amount, applicable registration fees, brokerage commissions and certain
taxes.
CONTINUOUS
OFFERING
The method by which
Creation Units are created and traded may raise certain issues under applicable securities laws. Because new Creation Units are
issued and sold by the Trust on an ongoing basis, at any point a “distribution,” as such term is used in the Securities
Act, may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances,
result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject
them to the prospectus delivery and liability provisions of the Securities Act.
For example, a broker-dealer
firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor,
breaks them down into constituent Shares, and sells such Shares directly to customers, or if it chooses to couple the creation
of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. A determination
of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining
to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered
a complete description of all the activities that could lead to a categorization as an underwriter.
Broker-dealers who
are not “underwriters” but are participating in a distribution (as contrasted to ordinary secondary trading transactions),
and thus dealing with Shares that are part of an “unsold allotment” within the meaning of Section 4(3)(C) of the Securities
Act, would be unable to take advantage of the prospectus-delivery exemption provided by Section 4(3) of the Securities Act. This
is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available in respect of such transactions
as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not underwriters
but are participating in a distribution (as contrasted with ordinary secondary market transactions) and thus dealing with the Shares
that are part of an over-allotment within the meaning of Section 4(3)(A) of the Securities Act would be unable to take advantage
of the prospectus delivery exemption provided by Section 4(3) of the Securities Act. Firms that incur a prospectus delivery obligation
with respect to Shares are reminded that, under Rule 153 of the Securities Act, a prospectus delivery obligation under Section
5(b)(2) of the Securities Act owed to an exchange member in connection with a sale on the Exchange is satisfied by the fact that
the prospectus is available at the Exchange upon request. The prospectus delivery mechanism provided in Rule 153 is only available
with respect to transactions on an exchange.
DETERMINATION
OF NET ASSET VALUE
The following information
supplements and should be read in conjunction with the section in the Prospectus entitled “Determination of Net Asset Value
(NAV).”
The NAV per Share
for the Fund is computed by dividing the value of the net assets of the Fund (i.e., the value of its total assets less total
liabilities) by the total number of Shares outstanding, rounded to the nearest cent. Expenses and fees, including the management
fee, are accrued daily and taken into account for purposes of determining NAV. The NAV of the Fund is determined as of the close
of the regular trading session on the Exchange (ordinarily 4:00 p.m., Eastern time) on each day that the Exchange is open. Any
assets or liabilities denominated in currencies other than the U.S. dollar are converted into U.S. dollars at the current market
rates on the date of valuation as quoted by one or more sources.
In computing the Fund’s
NAV, the Fund’s portfolio securities are valued based on market quotations. When market quotations are not readily available
for a portfolio security the Fund must use such security’s fair value as determined in good faith in accordance with the
Fund’s Fair Value Pricing Procedures which are approved by the Board.
The Fund typically
values fixed-income portfolio securities using last available bid prices or current market quotations provided by dealers or prices
(including evaluated prices) supplied by the Fund’s approved independent third-party pricing services. Pricing services may
use matrix pricing or valuation models that utilize certain inputs and assumptions to derive values. Pricing services generally
value fixed-income securities assuming orderly transactions of an institutional round lot size, but the Fund may hold or transact
in such securities in smaller odd lot sizes. Odd lots often trade at different prices that may be above or below the price at which
the pricing service
has valued the security. An amortized cost method of valuation may be used with respect to debt obligations
with sixty days or less remaining to maturity unless the Advisor determines in good faith that such method does not represent fair
value.
The value of FLEX Options
is based on the last quoted price for the options where readily available and appropriate. In cases where the options were not
traded or where the Advisor or Subadvisor determines that market quotations are unavailable or inappropriate (e.g., due to infrequent
transactions, thin trading or otherwise), the value of the options may be based on the last asked or bid price provided by dealers
active in market-making of securities similar to the options in the over-the-counter market if available and appropriate, or may
be based on the Advisor or Subadvisor’s good faith determination of the fair value of the options at its reasonable discretion.
To determine the fair value of the options, where and if available, they may use variables or values generated using third party
valuation services. They may also generate their own model-based valuations of the options, and/or use current market quotations
and ask/bid prices for comparable listed options that are more actively traded.
DIVIDENDS
AND DISTRIBUTIONS
General Policies
The following information
supplements and should be read in conjunction with the section in the Prospectus entitled “Dividends,
Distributions and
Taxes.”
Dividends from net
investment income are declared and paid at least annually by the Fund. Distributions of net realized capital gains, if any, generally
are declared and paid once a year. The Trust may make distributions on a more frequent basis for the Fund to comply with the distribution
requirements of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), in all events in a manner consistent
with the provisions of the 1940 Act. In addition, the Trust may distribute at least annually amounts representing the full dividend
yield on the underlying portfolio securities of the Fund, net of expenses of the Fund, as if the Fund owned such underlying portfolio
securities for the entire dividend period in which case some portion of each distribution may result in a return of capital for
tax purposes for certain shareholders.
Dividends and other
distributions on Shares are distributed, as described below, on a pro rata basis to Beneficial Owners of such Shares. Dividend
payments are made through DTC Participants and Indirect Participants to Beneficial Owners then of record with proceeds received
from the Trust. The Trust may make additional distributions to the extent necessary (i) to distribute the entire annual taxable
income of the Trust, plus any net capital gains and (ii) to avoid imposition of the excise tax imposed by Section 4982 of the Code.
Management of the Trust reserves the right to declare special dividends if, in its reasonable discretion, such action is necessary
or advisable to preserve the status of the Fund as a “regulated investment company” under the Code or to avoid imposition
of income or excise taxes on undistributed income.
Dividend Reinvestment Service
No reinvestment service
is provided by the Trust. Broker-dealers may make available the DTC book-entry Dividend Reinvestment Service for use by Beneficial
Owners of the Fund through DTC Participants for reinvestment of their dividend distributions. If this service is used, dividend
distributions of both income and realized gains will be automatically reinvested in additional whole Shares of the Fund. Beneficial
Owners should contact their broker to determine the availability and costs of the service and the details of participation therein.
Brokers may require Beneficial Owners to adhere to specific procedures and timetables.
U.S.
FEDERAL INCOME TAXATION
Set forth below is
a discussion of certain U.S. federal income tax considerations affecting the Fund and the purchase, ownership and disposition of
Shares. It is based upon the Code, U.S. Treasury Department regulations promulgated thereunder, judicial authorities, and administrative
rulings and practices, all as in effect as of the date of this SAI and all of which are subject to change, possibly with retroactive
effect. The following information supplements and should be read in conjunction with the section in the Prospectus entitled “Dividends,
Distributions and Taxes.”
Except to the extent
discussed below, this summary assumes that the Fund’s shareholder holds Shares as capital assets within the meaning of the
Code, and does not hold Shares in connection with a trade or business. This summary does not address all potential U.S. federal
income tax considerations possibly applicable to an investment in Shares, and does not address the tax consequences to Fund shareholders
subject to special tax rules, including, but not limited to, partnerships and the partners therein, those who hold Shares through
an IRA, 401(k) plan or other tax-advantaged account, and, except to the extent discussed below, tax-exempt shareholders. This discussion
does not discuss any aspect of U.S. state, local, estate, and gift, or non-U.S., tax law. This discussion is not intended or written
to be legal or tax advice to any shareholder in the Fund or other person and is not intended or written to be used or relied on,
and cannot be used or relied on, by any such person for the purpose of avoiding any U.S. federal tax penalties that may be imposed
on such person. Prospective Fund shareholders are urged to consult their own tax advisers with respect to the specific U.S. federal,
state, and local, and non-U.S., tax consequences of investing in Shares based on their particular circumstances.
The Fund has not requested
and will not request an advance ruling from the U.S. Internal Revenue Service (“IRS”) as to the U.S. federal income
tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions could be sustained.
Prospective investors should consult their own tax advisors with regard to the U.S. federal tax consequences of the purchase, ownership
and disposition of Shares, as well as the tax consequences arising under the laws of any state, non-U.S. country or other taxing
jurisdiction.
Tax Treatment of the Fund
In General. The
Fund intends to qualify and elect to be treated as a separate regulated investment company (“RIC”) under the Code.
As a RIC, the Fund generally will not be required to pay corporate-level U.S. federal income taxes on any ordinary income or capital
gains that it distributes to its shareholders.
To qualify and remain
eligible for the special tax treatment accorded to RICs, the Fund must meet certain income, asset and distribution requirements,
described in more detail below. Specifically, the Fund must (i) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock, securities or
foreign currencies, other income (including, but not limited to, gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies and net income derived from interests in qualified
publicly traded partnerships (“QPTPs”) (i.e., partnerships that are traded on an established securities market or readily
tradable on a secondary market, other than partnerships that derive at least 90% of their income from interest, dividends, and
other qualifying RIC income described above), and (ii) diversify its holdings so that, at the end of each quarter of the Fund’s
taxable year, (a) at least 50% of the value of the Fund’s assets is represented by cash, securities of other RICs, U.S. government
securities and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater in
value than five percent of the Fund’s total assets and not greater than 10% of the outstanding voting securities of such
issuer, and (b) not more than 25% of the value of its assets is invested in the securities (other than U.S. government securities
or securities of other RICs) of any one issuer, any two or more issuers of which 20% or more of the voting stock of each such issuer
is held by the Fund and that are determined to be engaged in the same or similar trades or businesses or related trades or businesses
or in the securities of one or more QPTPs. Furthermore, the Fund must distribute annually at least 90% of the sum of (i) its “investment
company taxable income” (which includes dividends, interest and net short-term capital gains) and (ii) its net tax-exempt
interest income, if any.
Failure to Maintain
RIC Status. If the Fund fails to qualify as a RIC for any year (subject to certain curative measures allowed by the Code),
the Fund will be subject to regular corporate-level U.S. federal income tax in that year on all of its taxable income, regardless
of whether the Fund makes any distributions to its shareholders. In addition, in such case, distributions will be taxable to the
Fund’s shareholders generally as ordinary dividends to the extent of the Fund’s current and accumulated earnings and
profits, possibly eligible for (i) in the case of an individual Fund shareholder, treatment as a qualified dividend (as discussed
below) subject to tax at preferential long-term capital gains rates or (ii) in the case of a corporate Fund shareholder, a dividends-received
deduction. The remainder of this discussion assumes that the Fund will qualify for the special tax treatment accorded to RICs.
Excise Tax.
The Fund will be subject to a four percent excise tax on certain undistributed income generally if the Fund does not distribute
to its shareholders in each calendar year at least 98% of its ordinary income for the calendar year, 98.2% of its capital gain
net income for the twelve months ended October 31 of such year, plus 100% of any undistributed amounts from prior years. For these
purposes, the Fund will be treated as having distributed any amount on which it has been subject to U.S. corporate income tax for
the taxable year
ending within such calendar year. The Fund intends to make distributions necessary to avoid this four percent
excise tax, although there can be no assurance that it will be able to do so.
Special or Uncertain
Tax Consequences. The Fund’s investment or other activities could be subject to special and complex tax rules that may
produce differing tax consequences, such as disallowing or limiting the use of losses or deductions, causing the recognition of
income or gain without a corresponding receipt of cash, affecting the time as to when a purchase or sale of stock or securities
is deemed to occur or altering the characterization of certain complex financial transactions.
Tax Treatment of Fund Shareholders
Taxation of
U.S. Shareholders
The following is
a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “U.S.
shareholders.” For purposes of this discussion, a “U.S. shareholder” is a beneficial owner of Shares who, for
U.S. federal income tax purposes, is (i) an individual who is a citizen or resident of the U.S.; (ii) a corporation (or an entity
treated as a corporation for U.S. federal income tax purposes) created or organized in the U.S. or under the laws of the U.S.,
or of any state thereof, or the District of Columbia; (iii) an estate, the income of which is includable in gross income for U.S.
federal income tax purposes regardless of its source; or (iv) a trust, if (a) a U.S. court is able to exercise primary supervision
over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of
the trust, or (b) the trust has a valid election in place to be treated as a U.S. person.
Fund Distributions.
In general, Fund distributions are subject to U.S. federal income tax when paid, regardless of whether they consist of cash or
property and regardless of whether they are re-invested in Shares. However, a Fund distribution declared in October, November or
December of any calendar year and payable to shareholders of record on a specified date during such month will be deemed to have
been received by each Fund shareholder on December 31 of such calendar year, provided such dividend is actually paid during January
of the following calendar year.
Distributions of the
Fund’s net investment income and the Fund’s net short-term capital gains in excess of net long-term capital losses
(collectively referred to as “ordinary income dividends”) are taxable as ordinary income to the extent of the Fund’s
current and accumulated earnings and profits (subject to an exception for distributions of “qualified dividend income, as
discussed below). Corporate shareholders of the Fund may be eligible to take a dividends-received deduction with respect to some
of such distributions, provided the distributions are attributable to dividends received by the Fund on stock of U.S. corporations
with respect to which the Fund meets certain holding period and other requirements. To the extent designated as “capital
gain dividends” by the Fund, distributions of the Fund’s net long-term capital gains in excess of net short-term capital
losses (“net capital gain”) are taxable at long-term capital gain tax rates to the extent of the Fund’s current
and accumulated earnings and profits, regardless of a Fund shareholder’s holding period in the Fund’s Shares. Such
dividends will not be eligible for a dividends-received deduction by corporate shareholders.
The Fund’s net
capital gain is computed by taking into account the Fund’s capital loss carryforwards, if any. Under the Regulated Investment
Company Modernization Act of 2010, capital losses incurred in tax years beginning after December 22, 2010 can be carried forward
indefinitely and retain the character of the original loss. To the extent that these carryforwards are available to offset future
capital gains, it is probable that the amount offset will not be distributed to shareholders. In the event that the Fund were to
experience an ownership change as defined under the Code, the Fund’s loss carryforwards, if any, may be subject to limitation.
Distributions of “qualified
dividend income” (defined below) are taxed to certain non-corporate shareholders at the reduced rates applicable to long-term
capital gain to the extent of the Fund’s current and accumulated earnings and profits, provided that the Fund shareholder
meets certain holding period and other requirements with respect to the distributing Fund’s Shares and the distributing Fund
meets certain holding period and other requirements with respect to the dividend-paying stocks. Dividends subject to these special
rules, however, are not actually treated as capital gains and, thus, are not included in the computation of a non-corporate shareholder’s
net capital gain and generally cannot be used to offset capital losses. The portion of distributions that the Fund may report as
qualified dividend income generally is limited to the amount of qualified dividend income received by the Fund, but if for the
Fund taxable year 95% or more of the Fund’s gross income (exclusive of net capital gain from sales of stock and securities)
consists of qualified dividend income, all distributions of such income for that taxable year may be reported as qualified dividend
income. For this purpose, “qualified
dividend income” generally means income from dividends received by the Fund from
U.S. corporations and qualified non-U.S. corporations. Income from dividends received by the Fund from a REIT or another RIC generally
is qualified dividend income only to the extent that the dividend distributions are made out of qualified dividend income received
by such REIT or other RIC.
To the extent that
the Fund makes a distribution of income received by the Fund in lieu of dividends with respect to securities on loan pursuant to
a securities lending transaction, such income will not constitute qualified dividend income to individual shareholders and will
not be eligible for the dividends-received deduction for corporate shareholders.
Distributions in excess
of the Fund’s current and accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return
of capital to the extent of the shareholder’s tax basis in its Shares of the Fund, and as a capital gain thereafter (assuming
the shareholder holds its Shares of the Fund as capital assets). Any such distributions will reduce the shareholder’s tax
basis in the Shares, and thus will increase the shareholder’s capital gain, or decrease the capital loss, recognized upon
a sale or exchange of Shares.
The Fund intends to
distribute its net capital gain at least annually. However, by providing written notice to its shareholders no later than 60 days
after its year-end, the Fund may elect to retain some or all of its net capital gain and designate the retained amount as a “deemed
distribution.” In that event, the Fund pays U.S. federal income tax on the retained net capital gain, and each Fund shareholder
recognizes a proportionate share of the Fund’s undistributed net capital gain. In addition, each Fund shareholder can claim
a tax credit or refund for the shareholder’s proportionate share of the Fund’s U.S. federal income taxes paid on the
undistributed net capital gain and increase the shareholder’s tax basis in the Shares by an amount equal to the shareholder’s
proportionate share of the Fund’s undistributed net capital gain, reduced by the amount of the shareholder’s tax credit
or refund. Organizations or persons not subject to U.S. federal income tax on such net capital gain will be entitled to a refund,
if any, of their pro rata share of such taxes paid by the Fund only upon filing appropriate returns or claims for refund with the
IRS.
With respect to non-corporate
Fund shareholders (i.e., individuals, trusts and estates), ordinary income and short-term capital gain are taxed at a current maximum
rate of 37% and long-term capital gain is generally taxed at a current maximum rate of 20%. Corporate shareholders are taxed at
a current maximum rate of 21% on their income and gain.
In addition, individuals
with adjusted gross incomes above certain threshold amounts (and certain trusts and estates) generally will be subject to a 3.8%
Medicare tax on “net investment income,” in addition to otherwise applicable U.S. federal income tax. “Net investment
income” generally will include dividends (including capital gain dividends) received from the Fund and net gains from the
redemption or other disposition of Shares. Please consult your tax advisor regarding this tax.
If the Fund is a “qualified
fund of funds” (i.e., a RIC at least 50% of the value of the total assets of which, at the close of each quarter of the taxable
year, is represented by interests in other RICs) or more than 50% of the value of the Fund’s total assets at the end of a
taxable year consist of non-U.S. stock or securities, the Fund may elect to “pass through” to its shareholders certain
non-U.S. income taxes paid by the Fund. This means that each shareholder will be required to (i) include in gross income, even
though not actually received, the shareholder’s pro rata share of the Fund’s non-U.S. income taxes, and (ii) either
take a corresponding deduction (in calculating U.S. federal taxable income) or credit (in calculating U.S. federal income tax),
subject to certain limitations. Investors considering buying Shares just prior to a distribution should be aware that, although
the price of the Shares purchased at such time may reflect the forthcoming distribution, such distribution nevertheless may be
taxable (as opposed to a non-taxable return of capital).
Exempt-Interest
Dividends. If at the end of each quarter of the Fund’s taxable year, (i) the Fund is a qualified fund of funds (as defined
above), or (ii) 50% or more of the value of the Fund’s assets, by value, consist of certain obligations exempt from U.S.
federal income tax under Section 103(a) of the Code (relating generally to obligations of a state or local governmental unit),
the Fund shall be qualified to designate a portion of its dividends as “exempt-interest dividends.” Exempt-interest
dividends generally will be excludable from a shareholder’s gross income for U.S. federal income tax purposes. Exempt-interest
dividends will be included, however, in determining the portion, if any, of a person’s social security and railroad retirement
benefit payments subject to U.S. federal income tax. Interest on indebtedness incurred to purchase or carry shares of the Fund
that pays exempt-interest dividends will not be deductible by the shareholders for U.S. federal income tax purposes to the extent
attributable to exempt-interest dividends.
Sales of Shares.
Any capital gain or loss realized upon a sale or exchange of Shares generally is treated as a long-term gain or loss if the Shares
have been held for more than one year. Any capital gain or loss realized upon a sale or exchange of Shares held for one year or
less generally is treated as a short-term gain or loss, except that any capital loss on the sale of Shares held for six months
or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect
to such Shares. Furthermore, a loss realized by a shareholder on the sale or exchange of Shares of the Fund with respect to which
exempt-interest dividends have been paid may, to the extent of such exempt-interest dividends, be disallowed if such Shares have
been held by the shareholder for six months or less at the time of their disposition. All or a portion of any loss realized upon
a sale or exchange of Shares also will be disallowed under the “wash sale” rules if substantially identical shares
are purchased (through reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days
after the disposition of the Shares. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed
loss.
Legislation passed
by Congress requires reporting to the IRS and to taxpayers of adjusted cost basis information for “covered securities,”
which generally include shares of a RIC acquired on or after January 1, 2012. Shareholders should contact their brokers to obtain
information with respect to the available cost basis reporting methods and available elections for their accounts.
Creation Unit Issues
and Redemptions. On an issue of Shares as part of a Creation Unit, made by means of an in-kind deposit, an Authorized Participant
recognizes capital gain or loss equal to the difference between (i) the fair market value (at issue) of the issued Shares (plus
any cash received by the Authorized Participant as part of the issue) and (ii) the Authorized Participant’s aggregate basis
in the exchanged securities (plus any cash paid by the Authorized Participant as part of the issue). On a redemption of Shares
as part of a Creation Unit where the redemption is conducted in-kind by a payment of Fund Securities, an Authorized Participant
recognizes capital gain or loss equal to the difference between (i) the fair market value (at redemption) of the securities received
(plus any cash received by the Authorized Participant as part of the redemption) and (ii) the Authorized Participant’s basis
in the redeemed Shares (plus any cash paid by the Authorized Participant as part of the redemption). However, the IRS may assert,
under the “wash sale” rules or on the basis that there has been no significant change in the Authorized Participant’s
economic position, that any loss on an issue or redemption of Creation Units cannot be deducted currently.
In general, any capital
gain or loss recognized upon the issue or redemption of Shares (as components of a Creation Unit) is treated either as long-term
capital gain or loss, if the deposited securities (in the case of an issue) or the Shares (in the case of a redemption) have been
held for more than one year, or otherwise as short-term capital gain or loss. However, any capital loss on a redemption of Shares
held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed
to be paid) with respect to the Shares. Furthermore, a loss realized on the redemption of Shares of the Fund with respect to which
exempt-interest dividends have been paid may, to the extent of such exempt-interest dividends, be disallowed if such Shares have
been held for six months or less at the time of their disposition.
Reportable Transactions.
If the Fund’s shareholder recognizes a loss with respect to Shares of $2 million or more (for an individual Fund shareholder)
or $10 million or more (for a corporate shareholder) in any single taxable year (or a greater loss over a combination of years),
the Fund shareholder may be required file a disclosure statement with the IRS. Significant penalties may be imposed upon the failure
to comply with these reporting rules. Shareholders should consult their tax advisors to determine the applicability of these rules
in light of their individual circumstances.
Taxation of
Non-U.S. Shareholders
The following is a
summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Shares applicable to “non-U.S.
shareholders.” For purposes of this discussion, a “non-U.S. shareholder” is a beneficial owner of Shares that
is not a U.S. shareholder (as defined above) and is not an entity or arrangement treated as a partnership for U.S. federal income
tax purposes. The following discussion is based on current law, and is for general information only. It addresses only selected,
and not all, aspects of U.S. federal income taxation.
Dividends. As indicated
above, a majority of the Fund’s dividend distributions to its shareholders, including its non-U.S. shareholders, is expected
to be exempt from U.S. federal income tax as exempt-interest dividends. However, with respect to non-U.S. shareholders of the Fund,
the Fund’s ordinary income dividends generally will be subject to U.S. federal withholding tax at a rate of 30% (or at a
lower rate established under an applicable tax treaty). However, ordinary income dividends that are “interest-related dividends”
or “short-term capital gain dividends” (each as defined below) and capital gain dividends generally will not be subject
to U.S. federal withholding (or income) tax, provided that the non-U.S. shareholder furnishes the Fund with a completed IRS Form
W-8BEN or W-8BEN-E, as
applicable, (or acceptable substitute documentation) establishing the non-U.S. shareholder’s non-U.S.
status and the Fund does not have actual knowledge or reason to know that the non-U.S. shareholder would be subject to such withholding
tax if the non-U.S. shareholder were to receive the related amounts directly rather than as dividends from the Fund. “Interest-related
dividends” generally means dividends designated by the Fund as attributable to the Fund’s U.S.-source interest income,
other than certain contingent interest and interest from obligations of a corporation or partnership in which the Fund is at least
a 10% shareholder, reduced by expenses that are allocable to such income. “Short-term capital gain dividends” generally
means dividends designated by the Fund as attributable to the excess of the Fund’s net short-term capital gain over its net
long-term capital loss. Depending on its circumstances, the Fund may treat such dividends, in whole or in part, as ineligible for
these exemptions from withholding.
Notwithstanding the
foregoing, special rules apply in certain cases, including as described below. For example, in cases where dividend income from
a non-U.S. shareholder’s investment in the Fund is effectively connected with a trade or business of the non-U.S. shareholder
conducted in the U.S., the non-U.S. shareholder generally will be exempt from withholding tax, but will be subject to U.S. federal
income tax at the graduated rates applicable to U.S. shareholders. Such income generally must be reported on a U.S. federal income
tax return. Furthermore, such income also may be subject to the 30% branch profits tax in the case of a non-U.S. shareholder that
is a corporation. In addition, if a non-U.S. shareholder is an individual who is present in the U.S. for 183 days or more during
the taxable year and has a “tax home” in the U.S., any gain incurred by such shareholder with respect to his or her
capital gain dividends and short-term capital gain dividends would be subject to a 30% U.S. federal income tax (which, in the case
of short-term capital gain dividends, may, in certain instances, be withheld at source by the Fund).
Sales of Fund Shares.
Under current law, gain on a sale or exchange of Shares generally will be exempt from U.S. federal income tax (including withholding
at the source) unless (i) the non-U.S. shareholder is an individual who was physically present in the U.S. for 183 days or more
during the taxable year and has a “tax home” in the U.S., in which case the non-U.S. shareholder would incur a 30%
U.S. federal income tax on his capital gain, (ii) the gain is effectively connected with a U.S. trade or business conducted by
the non-U.S. shareholder (in which case the non-U.S. shareholder generally would be taxable on such gain at the same graduated
rates applicable to U.S. shareholders, would be required to file a U.S. federal income tax return and, in the case of a corporate
non-U.S. shareholder, may also be subject to the 30% branch profits tax.
Credits or Refunds.
To claim a credit or refund for any Fund-level taxes on any undistributed long-term capital gains (as discussed above) or any taxes
collected through withholding, a non-U.S. Fund shareholder must obtain a U.S. taxpayer identification number and file a U.S. federal
income tax return even if the non-U.S. Fund shareholder would not otherwise be required to do so.
Non-U.S. shareholders
that engage in certain “wash sale” and/or substitute dividend payment transactions the effect of which is to avoid
the receipt of distributions from the Fund that would be treated as gain effectively connected with a U.S. trade or business will
be treated as having received such distributions.
All shareholders of
the Fund should consult their tax advisers regarding the application of the rules described above.
Back-Up Withholding
The Fund (or a financial
intermediary such as a broker through which a shareholder holds Shares in the Fund) may be required to report certain information
on the Fund’s shareholder to the IRS and withhold U.S. federal income tax (“backup withholding”) at a 24% rate
from taxable distributions and redemption or sale proceeds payable to the Fund shareholder if (i) the Fund shareholder fails to
provide the Fund with a correct taxpayer identification number or make required certifications, or if the IRS notifies the Fund
that the Fund shareholder is otherwise subject to backup withholding, and (ii) the Fund shareholder is not otherwise exempt from
backup withholding. Non-U.S. shareholders can qualify for exemption from backup withholding by submitting a properly completed
IRS Form W-8BEN or W-8BEN-E. Backup withholding is not an additional tax and any amount withheld may be credited against the Fund’s
shareholder’s U.S. federal income tax liability.
Foreign
Account Tax Compliance Act
The U.S. Foreign Account
Tax Compliance Act (“FATCA”) generally imposes a 30% withholding tax on “withholdable payments” (defined
below) made to (i) a “foreign financial institution” ("FFI"), unless the FFI enters into an agreement with
the IRS to provide
information regarding certain of its direct and indirect U.S. account holders and satisfy certain due diligence
and other specified requirements, and (ii) a “non-financial foreign entity” (“NFFE”) unless such NFFE provides
certain information to the withholding agent about certain of its direct and indirect “substantial U.S. owners” or
certifies that it has no such U.S. owners. The beneficial owner of a “withholdable payment” may be eligible for a refund
or credit of the withheld tax. The U.S. government also has entered into several intergovernmental agreements with other jurisdictions
to provide an alternative, and generally easier, approach for FFIs to comply with FATCA.
“Withholdable
payments” generally include, among other items, (i) U.S.-source interest and dividends, and (ii) gross proceeds from the
sale or disposition, occurring on or after January 1, 2019, of property of a type that can produce U.S.-source interest or dividends.
The Fund may be required
to impose a 30% withholding tax on withholdable payments to a shareholder if the shareholder fails to provide the Fund with the
information, certifications or documentation required under FATCA, including information, certification or documentation necessary
for the Fund to determine if the shareholder is a non-U.S. shareholder or a U.S. shareholder and, if it is a non-U.S. shareholder,
if the non-U.S. shareholder has “substantial U.S. owners” and/or is in compliance with (or meets an exception from)
FATCA requirements. The Fund will not pay any additional amounts to shareholders in respect of any amounts withheld. The Fund
may disclose any shareholder information, certifications or documentation to the IRS or other parties as necessary to comply with
FATCA.
The requirements of,
and exceptions from, FATCA are complex. All prospective shareholders are urged to consult their own tax advisors regarding the
potential application of FATCA with respect to their own situation.
Section 351
The Trust, on behalf
of the Fund, has the right to reject an order for a purchase of shares of the Fund if the purchaser (or any group of purchasers)
would, upon obtaining the shares so ordered, own 80% or more of the outstanding shares of a given Fund and if, pursuant to Section
351 of the Code, that Fund would have a basis in the Deposit Securities different from the market value of such securities on the
date of deposit. The Trust also has the right to require information necessary to determine beneficial share ownership for purposes
of the 80% determination.
OTHER
INFORMATION
The Fund is not sponsored,
endorsed, sold or promoted by the Exchange. The Exchange makes no representation or warranty, express or implied, to the owners
of Shares or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly
or the ability of the Fund to achieve their objective. The Exchange has no obligation or liability in connection with the administration,
marketing or trading of the Fund.
For purposes of the
1940 Act, the Fund is registered investment companies, and the acquisition of Shares by other registered investment companies and
companies relying on exemption from registration as investment companies under Section 3(c)(1) or 3(c)(7) of the 1940 Act is subject
to the restrictions of Section 12(d)(1) of the 1940 Act, except as permitted by an exemptive order that permits registered investment
companies to invest in the Fund beyond those limitations.
Shareholder inquiries
may be made by writing to the Trust, c/o IndexIQ Advisors LLC, 51 Madison Avenue, New York, New York 10010.
FINANCIAL
STATEMENTS
As of the date of
this SAI, the Fund had not yet commenced operations.
APPENDIX
A
SUMMARY
OF PROXY VOTING POLICY AND PROCEDURES
The Advisor has delegated
proxy-voting authority to the Fund’s Subadvisor, Alaia Capital, LLC (“Alaia Capital”). A summary of Alaia Capital’s
proxy voting policies and procedures is provided below.
Alaia Capital has
adopted proxy-voting policies and procedures pursuant to where clients have delegated proxy-voting authority to Alaia Capital,
all proxies are voted in the best interest of such clients without regard to the interests of Alaia Capital or related parties.
When a client retains Alaia Capital, the firm generally determines through its investment management agreement whether it will
vote proxies on behalf of that client. Currently, Alaia Capital uses ISS as its third-party proxy voting service provider. If the
client appoints Alaia Capital as its proxy-voting agent, the client will also instruct Alaia Capital to vote its proxies in accordance
with custom guidelines provided by the client, Alaia Capital’s Standard Guidelines (currently the same as the ISS standard
guidelines), or in the case of a Taft-Hartley client, in accordance with the ISS Taft-Hartley guidelines. Alaia Capital informs
the client’s custodian to send all proxies to ISS. Alaia Capital then informs ISS that the client has appointed Alaia Capital
as its agent and instructs ISS as to which guidelines to follow.
Once the appropriate
guidelines have been established, each proxy must be voted in accordance with those guidelines unless a Alaia Capital portfolio
manager believes that it is in the best interest of the client(s) to vote otherwise. In those cases, the portfolio manager must
complete a form describing the reasons for departing from the guidelines and disclosing any facts that might suggest there is a
conflict. The portfolio manager submits the form to Alaia Capital’s Compliance Department for review. If the Compliance Department
determines that no “conflict” exists, then the dissent will be approved and ISS will be informed of how to vote. All
dissenting votes are presented to Alaia Capital’s Compliance Committee. If Alaia Capital’s General Counsel or CCO determines
that a conflict exists, the matter will immediately be referred to Alaia Capital’s Compliance Committee for consideration.
In accordance with Firm procedures in this area, the committee members will consider the matter and resolve the conflict as deemed
appropriate under the circumstances.
PART C
OTHER INFORMATION
Item 28. Exhibits
|
(d)
|
Investment Advisory Agreements
|
|
(7)
|
Form of Subadvisory Agreement between IndexIQ Advisors LLC and Alaia Capital, LLC for the IQ m+ Buffered ETF and IQ m+ Preservation
ETF. (8)
|
|
(e)
|
Underwriting Agreements
|
|
(h)
|
Other Material Agreements
|
|
(i)
|
Opinion and Consent of Chapman & Cutler LLP. (8)
|
|
(4)
|
Code of Ethics of Alaia Capital, LLC. (8)
|
|
(1)
|
Previously filed as part of the Registration Statement,
filed August 22, 2012.
|
|
(2)
|
Previously filed as part of Pre-Effective Amendment No.
3 to the Registration Statement, filed November 21, 2013.
|
|
(3)
|
Previously filed as part of Post-Effective Amendment
No. 3 to the Registration Statement filed on August 26, 2016.
|
|
(4)
|
Previously filed as part of Post-Effective Amendment
No. 5 to the Registration Statement filed on February 24, 2017.
|
|
(5)
|
Previously filed as part of Post-Effective Amendment
No. 14 to the Registration Statement filed on August 22, 2017.
|
|
(6)
|
Previously filed as part of Post-Effective Amendment
No. 18 to the Registration Statement filed on August 29, 2018.
|
|
(7)
|
Previously filed as part of Post-Effective Amendment
No. 21 to the Registration Statement filed on July 19, 2019.
|
|
(8)
|
To be filed by amendment.
|
Item 29. Persons Controlled By or Under Common Control with
Registrant
Not applicable.
Item 30. Indemnification
Reference
is made to Article Eight of the Registrant’s Declaration of Trust, which is incorporated by reference herein. The general
effect of the indemnification available to an officer or trustee may be to reduce the circumstances under which the officer or
trustee is required to bear the economic burden of liabilities and expenses related to actions taken by the individual in his or
her capacity as an officer or trustee.
The Registrant
(sometimes referred to as the “Trust”) is organized as a Delaware statutory trust and is operated pursuant to a Declaration
of Trust that permits the Registrant to indemnify every person who is, or has been, a trustee, officer, employee or agent of the
Trust, including persons who serve at the request of the Trust as directors, trustees, officers, employees or agents of another
organization in which the Trust has an interest as a shareholder, creditor or otherwise (each, a “Covered Person”).
Each Covered Person is indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses
reasonably incurred or paid by him or her in connection with any claim, action, suit or proceeding in which he or she becomes involved
as a party or otherwise by virtue of his or her being or having been such a director, trustee, officer, employee or agent and against
amounts paid or incurred by him in settlement thereof. This indemnification is subject to the following conditions:
No indemnification is provided to a Covered
Person:
(a) For
a liability to the Trust or its shareholders arising out of a final adjudication by the court or other body before which the proceeding
was brought that the Covered Person engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office;
(b) With
respect to any matter as to which the Covered Person has been finally adjudicated not to have acted in good faith in the reasonable
belief that his or her action was in the best interests of the Trust; or
(c) In
the event of a settlement or other disposition not involving a final adjudication (as provided in paragraph (a) or (b) above) and
resulting in a payment by a Covered Person, unless there has been either a determination that such Covered Person did not engage
in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office
or position by the court or other body approving the settlement or other disposition, or a reasonable determination, based on a
review of readily available facts (as opposed to a full trial-type inquiry), that he or she did not engage in such conduct, such
determination being made by: (i) a vote of a majority of the Disinterested Trustees (as such term is defined in Section 8.5.5 of
the Declaration of Trust) acting on the matter (provided that a majority of Disinterested Trustees then in office act on the matter);
or (ii) a written opinion of independent legal counsel.
The rights
of indemnification under the Declaration of Trust may be insured against by policies maintained by the Trust are severable; will
not affect any other rights to which any Covered Person is entitled; will continue as to a person who has ceased to be a Covered
Person; and will inure to the benefit of the heirs, executors and administrators of such a person. Nothing contained in the Declaration
of Trust will affect any rights to indemnification to which Trust personnel other than Covered Persons may be entitled by contract
or otherwise under law.
Expenses
of preparation and presentation of a defense to any claim, action, suit or proceeding subject to a claim for indemnification under
Section 8.5 of the Declaration of Trust will be advanced by the Trust prior to final disposition thereof upon receipt of an undertaking
by or on behalf of the recipient to repay such amount if it is ultimately determined that he or she is not entitled to indemnification
under Section 8.5 of the Declaration of Trust, provided that either:
(a) Such
undertaking is secured by a surety bond or some other appropriate security or the Trust is insured against losses arising out of
any such advances; or
(b) A
majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office
act on the matter) or independent legal counsel in a written opinion determines, based upon a review of the readily available facts
(as opposed to the facts available upon a full trial), that there is reason to believe that the recipient ultimately will be found
entitled to indemnification.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant by the Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is aware that in
the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act, and
therefore, is unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by trustees, officers or controlling persons of the Registrant in connection with the
successful defense of any act, suit or proceeding) is asserted by such trustees, officers or controlling persons in connection
with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of such issues.
Item 31. Business and Other Connections of the Investment
Advisor
The description
of the Investment Advisor is found under the caption “Service Providers—Investment Advisor” in the Prospectus
and under the caption “Management Services—Investment Advisor” in the Statement of Additional Information constituting
Parts A and B, respectively, of this Registration Statement, which are incorporated by reference herein. The Investment Advisor
provides investment advisory services to other persons or entities other than the Registrant.
Item 32. Principal Underwriters
(a) ALPS
Distributors, Inc. acts as the distributor for the Registrant and the following investment companies: 1WS Credit Income Fund, 1290
Funds, Aberdeen Standard Investments ETFs, ALPS Series Trust, The Arbitrage Funds, AQR Funds, Axonic Alternative Income Fund, Axomic
Funds, Barings Funds Trust, BBH Trust, Bluerock Total Income + Real Estate Fund, Brandes Investment Trust, Bridge Builder Trust,
Broadstone Real Estate Access Fund, Brown Advisory Funds, Brown Capital Management Mutual Funds, CC Real Estate Income Fund, Centre
Funds, CION Ares Diversified Credit Fund, Columbia ETF Trust, Columbia ETF Trust I, Columbia ETF Trust II, CRM Mutual Fund Trust,
CSOP ETF Trust, Cullen Funds Trust, DBX ETF Trust, Flat Rock Opportunity Fund, Financial Investors Trust, Firsthand Funds, FS Credit
Income Fund, FS Energy Total Return Fund, FS Series Trust, FS Multi-Alternative Income Fund, Goehring & Rozencwajg Investment
Funds, Goldman Sachs ETF Trust, Griffin Institutional Access Credit Fund, Griffin Institutional Access Real Estate Fund, Hartford
Funds Exchange-Traded Trust, Hartford Funds NextShares Trust, Heartland Group, Inc., Holland Series Fund, Inc., Index Funds, IndexIQ
Active ETF Trust, Index IQ ETF Trust, Infusive US Trust, James Advantage Funds, Janus Detroit Street Trust, Lattice Strategies
Trust, Litman Gregory Funds Trust, Longleaf Partners Funds Trust, M3Sixty Funds Trust, Mairs & Power Funds Trust, Meridian
Fund, Inc., Natixis ETF Trust, Pax World Series Trust I, Pax World Funds Trust III, Principal Exchange-Traded Funds, Reality Shares
ETF Trust, Resource Credit Income Fund, Resource Real Estate Diversified Income Fund, RiverNorth Funds, Sierra Total Return Fund,
Smead Funds Trust, SPDR Dow Jones Industrial Average ETF Trust, SPDR S&P 500 ETF Trust, SPDR S&P MidCap 400 ETF Trust,
Sprott ETF Trust, Stadion Investment Trust, Stone Harbor Investment Funds, Stone Ridge Trust, Stone Ridge Trust II, Stone Ridge
Trust III, Stone Ridge Trust IV, Stone Ridge Trust V, USCF ETF Trust, Wasatch Funds, WesMark Funds, Wilmington Funds and XAI Octagon
Credit Trust.
(b) To
the best of Registrant’s knowledge, the directors and executive officers of ALPS Distributors, Inc., are as follows:
Name*
|
Position with Underwriter
|
Positions with Fund
|
Bradley J. Swenson
|
President, Chief Operating Officer, Director
|
None
|
Robert J. Szydlowski
|
Senior Vice President, Chief Technology Officer
|
None
|
Eric T. Parsons
|
Vice President, Controller and Assistant Treasurer
|
None
|
Joseph J. Frank**
|
Secretary
|
None
|
Patrick J. Pedonti **
|
Vice President, Treasurer and Assistant Secretary
|
None
|
Richard C. Noyes
|
Senior Vice President, General Counsel, Assistant Secretary
|
None
|
Steven Price
|
Senior Vice President, Chief Compliance Officer
|
None
|
Liza Orr
|
Vice President, Senior Counsel
|
None
|
Jed Stahl
|
Vice President, Senior Counsel
|
None
|
James Stegall
|
Vice President
|
None
|
Gary Ross
|
Senior Vice President
|
None
|
Kevin Ireland
|
Senior Vice President
|
None
|
Mark Kiniry
|
Senior Vice President
|
None
|
Stephen J. Kyllo
|
Vice President, Deputy Chief Compliance Officer
|
None
|
Hilary Quinn
|
Vice President
|
None
|
Jennifer Craig
|
Assistant Vice President
|
None
|
* Except as otherwise noted, the principal
business address for each of the above directors and executive officers is 1290 Broadway, Suite 1000, Denver, Colorado 80203.
** The principal business address for Messrs.
Pedonti and Frank is 333 W. 11th Street, 5th Floor, Kansas City, Missouri 64105.
* This list does not serve as an admission
that the Trust considers all of these persons listed to be officers of investment companies having the same Investment Advisor
or Distributor or having an Investment Advisor or Distributor that directly or indirectly controls, is controlled by or is under
common control with the Investment Advisor or Distributor.
Item 33. Location of Accounts and Records
All accounts, books
and other documents required by Section 31(a) of the Investment Company Act of 1940, as amended, and the rules thereunder are maintained
at:
IndexIQ Advisors LLC
51 Madison Avenue
New York, NY 10010
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
ALPS Distributors, Inc.
1625 Broadway, Suite 2200
Denver, CO 80202
Item 34. Management Services
Not applicable.
Item 35. Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Post-Effective Amendment No. 26 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and State
of New York on this 15th day of April, 2020.
|
INDEXIQ ACTIVE ETF TRUST
|
|
|
|
By: /s/ Kirk C. Lehneis
|
|
Kirk C. Lehneis
|
|
President
|
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and on the date indicated.
Name
|
Title
|
Date
|
Reena Aggarwal*
|
Trustee
|
April 15, 2020
|
Reena Aggarwal
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Pignataro*
|
Trustee
|
April 15, 2020
|
Michael A. Pignataro
|
|
|
|
|
|
|
|
|
|
|
|
Paul D. Schaeffer*
|
Trustee
|
April 15, 2020
|
Paul D. Schaeffer
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Kirk C. Lehneis
|
Trustee, President and Principal
|
April 15, 2020
|
Kirk C. Lehneis
|
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
/s/ Adefolahan Oyefeso
|
Treasurer, Principal Financial
|
April 15, 2020
|
Adefolahan Oyefeso
|
Officer, and Principal Accounting
|
|
|
Officer
|
|
|
|
|
|
|
|
/s/ Matthew V. Curtin
|
|
|
Matthew V. Curtin, Attorney-in-fact*
|
|
|
* PURSUANT TO POWERS OF ATTORNEY PREVIOUSLY FILED
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