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+ Buffered [ ] 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+ Buffered [ ] 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)
|
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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
|
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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).
|
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__
|
|
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).
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Michael A. Pignataro,
1959
|
|
Trustee
|
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Since April 2015
|
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Director, Credit Suisse Asset Management (2001 to 2012); and Chief Financial Officer, Credit Suisse Funds (1996 to 2013).
|
|
__
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Trustee, IndexIQ Trust, IndexIQ Active ETF Trust (2015 to present); The New Ireland Fund, Inc. (closed-end fund) (2015 to present).
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Paul D. Schaeffer,
1951
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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).
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Interested Trustee
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Kirk C. Lehneis, 1974 (4)
|
|
Trustee, President and Principal Executive Officer
|
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Since January2018
|
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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).
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__
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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
|
|
[ ]
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Michael Pignataro
|
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None
|
|
[ ]
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Paul Schaeffer
|
|
None
|
|
[ ]
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Kirk Lehneis(2)
|
|
None
|
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[ ]
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(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.
|
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(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
|
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(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 Management
Team
|
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.