
[Federal Register Volume 77, Number 135 (Friday, July 13, 2012)]
[Notices]
[Pages 41464-41467]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17070]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30130; File No. 812-13957]


IndexIQ Advisors LLC and IndexIQ Active ETF Trust; Notice of 
Application

July 9, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 15(a) of 
the Act and rule 18f-2 under the Act, as well as from certain 
disclosure requirements.

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Summary of the Application: Applicants, including an actively-managed 
open-end exchange traded fund, request an order that would permit them 
to enter into and materially amend subadvisory agreements without 
shareholder approval and would grant relief from certain disclosure 
requirements.

Applicants: IndexIQ Advisors LLC (``Manager'') and IndexIQ Active ETF 
Trust (``Trust'').

Filing Dates: The application was filed on September 9, 2011, and 
amended on March 6, 2012, March 27, 2012, and May 15, 2012.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on August 2, 2012, and should be accompanied by proof of service 
on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, c/o IndexIQ 
Advisors LLC, 800 Westchester Avenue, Suite N-611, Rye Brook, New York 
10573.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Senior Counsel, at 
(202) 551-6868, or Daniele Marchesani, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

[[Page 41465]]


SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. The Trust is organized as a Delaware statutory trust and will be 
registered under the Act as an open-end management investment company. 
The Trust plans to offer series (``Funds'') that will operate as 
actively-managed exchange-traded funds (``ETFs'') in reliance on an 
exemptive order,\1\ each with its own investment objective, policies 
and restrictions.
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    \1\ See Application for IndexIQ Advisors LLC, et al., filed with 
the Commission on September 9, 2011, as amended (File No. 812-
13956).
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    2. IndexIQ Advisors LLC, a Delaware limited liability company, is 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (``Advisers Act''). The Manager will serve as the investment 
adviser to each Fund. The Manager will have an investment advisory 
agreement with each Fund (an ``Investment Advisory Agreement'') 
approved by the board of trustees of the Trust (the ``Board''),\2\ 
including a majority of the trustees who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act (the ``Independent 
Board Members''), and the shareholders of each Fund.\3\
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    \2\ The term ``Board'' also includes the board of trustees or 
directors of future Funds.
    \3\ Applicants also request relief with respect to future Funds 
and any other existing or future registered open-end management 
investment company or series thereof that: (a) Is advised by IndexIQ 
Advisors LLC or an entity person controlling, controlled by, or 
under common control with IndexIQ Advisors LLC (any such entity, 
included in the term ``Manager''); (b) uses the management structure 
described in the application (``Multi-Manager Structure''); and (c) 
complies with the terms and conditions contained in the application 
(included in the term ``Funds''). The Trust is the only existing 
investment company that currently intends to rely on the requested 
order. If the name of any Fund contains the name of a Sub-Adviser 
(as defined below), the name of the Manager, including the legal 
name of the Manager and/or any ``doing business as'' or business 
unit names used by the Manager, will precede the name of the Sub-
Adviser.
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    3. Under the Investment Advisory Agreement, the Manager will be 
responsible for providing a program of continuous investment management 
to each Fund in accordance with the investment objective, policies and 
limitations of the Fund. The Investment Advisory Agreement permits the 
Manager to enter into separate advisory agreements (``Sub-Advisory 
Agreements'') with sub-advisers (``Sub-Advisers''). The specific 
investment decisions for each Fund are made by the Manager based on 
purchase and sale recommendations from one or more Sub-Advisers 
selected by the Manager to focus on all or a portion of the assets of 
the Fund or, at the discretion of the Manager, by the Sub-Advisers 
themselves with respect to the portion of any Fund portfolio allocated 
to them, subject to the general supervision by the Manager and the 
Board. The Manager will select Sub-Advisers based on an evaluation of 
the Sub-Adviser's performance, the Sub-Adviser's fees and services in 
relation to other investment advisers performing similar services, the 
nature of the advice provided by the Sub-Adviser and the Sub-Adviser's 
reputation in the investment community. Sub-Advisers will be subject to 
approval by the Board, including a majority of the Independent Board 
Members. The Manager will monitor and evaluate the performance of Sub-
Advisers and recommend to the Board their hiring, termination and 
replacement. The Manager will compensate each Sub-Adviser out of the 
advisory fees paid to the Manager by the Fund.
    4. Applicants request an order to permit the Manager, subject to 
Board approval, to enter into and materially amend Subadvisory 
Agreements without obtaining shareholder approval. The requested relief 
will not extend to any Sub-Adviser who is an affiliated person, as 
defined in section 2(a)(3) of the Act, of a Fund, the Trust or the 
Manager, other than by reason of serving as a Sub-Adviser to one or 
more of the Funds (``Affiliated Sub-Adviser'').
    5. Applicants also request an exemption from the various disclosure 
provisions described below that may require the Funds to disclose fees 
paid by the Manager to the Sub-Advisers. An exemption is requested to 
permit a Fund to disclose (both as a dollar amount and as a percentage 
of the Fund's net assets): (a) the aggregate fees paid to the Manager 
and any Affiliated Sub-Advisers; and (b) the aggregate fees paid to 
Sub-Advisers other than Affiliated Sub-Advisers (collectively, 
``Aggregate Fee Disclosure''). Any Fund that employs an Affiliated Sub-
Adviser will provide separate disclosure of any fees paid to the 
Affiliated Sub-Adviser.
    6. Applicants state that the requested relief is unusual insofar as 
the requested order seeks relief for an ETF. Applicants note, however, 
that the requested relief is substantially identical to multimanager 
relief already granted by the Commission for other ETFs. Applicants 
believe that operations of the Funds under the requested order address 
the concerns historically considered by the Commission when granting 
identical relief to mutual funds. Applicants believe that similar to 
shareholders of a mutual fund who may ``vote with their feet'' by 
redeeming their individual shares at net asset value (``NAV'') if they 
do not approve of a change in sub-adviser or sub-advisory agreement, 
Fund shareholders will be able to sell shares in the secondary market 
at negotiated prices that closely track the relevant Fund's NAV if they 
do not approve of a change. Applicants state that the Funds will rely 
on the same delivery mechanisms currently used by certain mutual funds 
to ensure that shareholders who purchase shares in the secondary market 
receive a prospectus and all of the information that would have been 
provided with a proxy statement, except for the modifications discussed 
below, under the Modified Notice and Access Procedures. Applicants note 
that the requested relief is not broader in scope than the relief 
previously granted to mutual funds.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by a vote of a majority of the company's outstanding voting 
securities. Rule 18f-2 under the Act provides that each series or class 
of stock in a series investment company affected by a matter must 
approve the matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 19(a)(3) of Form N-1A requires disclosure of 
the method and amount of the investment adviser's compensation.
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to an investment company to comply with Schedule 14A under the 
Securities Exchange Act of 1934 (``Exchange Act''). Items 22(c)(1)(ii), 
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together, 
require a proxy statement for a shareholder meeting at which the 
advisory contract will be voted upon to include the ``rate of 
compensation of the investment adviser,'' the ``aggregate amount of the 
investment adviser's fees,'' a description of the ``terms of the 
contract to be acted upon,'' and, if a change in the advisory fee is 
proposed, the existing and proposed fees and the difference between the 
two fees.

[[Page 41466]]

    4. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of investment company 
registration statements and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b) and (c) of Regulation S-X require 
that investment companies include in their financial statements 
information about investment advisory fees.
    5. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction or any class or classes of 
persons, securities, or transactions from any provisions of the Act, or 
from any rule thereunder, if such exemption is necessary or appropriate 
in the public interest and consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
Act. Applicants seek the same relief previously granted to mutual 
funds, and believe that the requested relief is equally appropriate for 
ETFs. Applicants state that the requested relief meets the necessary 
standards for the reasons discussed below.
    6. Applicants assert that the shareholders rely on the Manager to 
select and monitor the Sub-Advisers best suited to achieve a Fund's 
investment objectives. Applicants contend that, from the perspective of 
the investor, the role of the Sub-Advisers is comparable to that of 
individual portfolio managers employed by traditional investment 
advisory firms. Applicants state that requiring shareholder approval of 
each Sub-Advisory Agreement would impose costs and unnecessary delays 
on the Funds, and may preclude the Manager from acting promptly in a 
manner considered advisable by the Board. Applicants note that the 
Investment Advisory Agreements and any Sub-Advisory Agreement with an 
Affiliated Sub-Adviser will remain subject to section 15(a) of the Act 
and rule 18f-2 under the Act.
    7. If a new Sub-Adviser is retained in reliance on the requested 
order, the Funds will inform shareholders of the hiring of a new Sub-
Adviser pursuant to the following procedures (``Modified Notice and 
Access Procedures''): (a) Within 90 days after a new Sub-Advisor is 
hired for any Fund, that Fund will send its shareholders either a 
Multi-manager Notice or a Multi-manager Notice and Multi-manager 
Information Statement;\4\ and (b) the Fund will make the Multi-manager 
Information Statement available on the Web site identified in the 
Multi-manager Notice no later than when the Multi-manager Notice (or 
Multi-manager Notice and Multi-manager Information Statement) is first 
sent to shareholders, and will maintain it on that Web site for at 
least 90 days. In the circumstances described in the application, a 
proxy solicitation to approve the appointment of new Sub-Advisers 
provides no more meaningful information to shareholders than the 
proposed Multi-manager Information Statement. Moreover, the applicable 
Board would comply with the requirements of sections 15(a) and 15(c) of 
the 1940 Act before entering into or amending Sub-Advisory Agreements.
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    \4\ A ``Multi-manager Notice'' will be modeled on a Notice of 
Internet Availability as defined in rule 14a-16 under the Securities 
Exchange Act of 1934 (``Exchange Act''), and specifically will, 
among other things: (a) Summarize the relevant information regarding 
the new Sub-Adviser; (b) inform shareholders that the Multi-manager 
Information Statement is available on a Web site; (c) provide the 
Web site address; (d) state the time period during which the Multi-
manager Information Statement will remain available on that Web 
site; (e) provide instructions for accessing and printing the Multi-
manager Information Statement; and (f) instruct the shareholder that 
a paper or email copy of the Multi-manager Information Statement may 
be obtained, without charge, by contacting the Funds.
    A ``Multi-manager Information Statement'' will meet the 
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule 
14A under the Exchange Act for an information statement, except as 
modified by the requested order to permit Aggregate Fee Disclosure. 
Multi-manager Information Statements will be filed electronically 
with the Commission via the EDGAR system.
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    8. Applicants assert that many Sub-Advisers use a ``posted'' rate 
schedule to set their fees. Applicants state that, while Sub-Advisers 
are willing to negotiate fees lower than those posted in the schedule, 
they are reluctant to do so when the fees are disclosed to other 
prospective and existing customers. Applicants submit that the 
requested relief will encourage potential Sub-Advisers to negotiate 
lower subadvisory fees with the Manager.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Fund may rely on the requested order, the operation of 
the Fund in the manner described in the application will be approved by 
a majority of the Fund's outstanding voting securities, as defined in 
the Act, or, in the case of a Fund whose public shareholders purchase 
shares on the basis of a prospectus containing the disclosure 
contemplated by condition 2 below, by the initial shareholder(s) before 
offering the Fund's shares to the public.
    2. The prospectus for each Fund relying on the requested order will 
disclose the existence, substance and effect of the order. Each Fund 
relying on the requested order will hold itself out to the public as 
utilizing the Multi-Manager Structure. The prospectus will prominently 
disclose that the Manager has ultimate responsibility (subject to 
oversight by the Board) to oversee the Sub-Advisers and to recommend 
their hiring, termination, and replacement.
    3. Funds will inform shareholders of the hiring of a new Sub-
Adviser within 90 days after the hiring of the new Sub-Adviser pursuant 
to the Modified Notice and Access Procedures.
    4. The Manager will not enter into a Sub-Advisory Agreement with 
any Affiliated Sub-Adviser without that agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Fund.
    5. At all times, at least a majority of the Board will be 
Independent Board Members and the nomination of new or additional 
Independent Board Members will be at the discretion of the then-
existing Independent Board Members.
    6. Whenever a Sub-Adviser change is proposed for a Fund with an 
Affiliated Sub-Adviser, the Board, including a majority of the 
Independent Board Members, will make a separate finding, reflected in 
the applicable Board minutes, that such change is in the best interests 
of the Fund and its shareholders and does not involve a conflict of 
interest from which the Manager or the Affiliated Sub-Adviser derives 
an inappropriate advantage.
    7. The Manager will provide general management services to each 
Fund that is sub-advised, including overall supervisory responsibility 
for the general management and investment of the Fund's assets and, 
subject to review and approval by the Board, will: (a) Set each Fund's 
overall investment strategies; (b) evaluate, select and recommend Sub-
Advisers to provide purchase and sale recommendations to the Manager or 
investment advice to all or a part of the Fund's assets; (c) when 
appropriate, allocate and reallocate the Fund's assets among multiple 
Sub-Advisers; (d) monitor and evaluate the Sub-Advisers' performance; 
and (e) implement procedures reasonably designed to ensure compliance 
by the Sub-Advisers with the Fund's investment objective, policies and 
restrictions.
    8. No director, trustee or officer of the Trust or a Fund, or 
director, manager or officer of the Manager, will own directly or 
indirectly (other than through a pooled investment vehicle that is not 
controlled by such person), any interest in a Sub-Adviser except for: 
(a) ownership of interests in the Manager or

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any entity that controls, is controlled by, or is under common control 
with the Manager; or (b) ownership of less than 1% of the outstanding 
securities of any class of equity or debt of any publicly traded 
company that is either a Sub-Adviser or an entity that controls, is 
controlled by, or is under common control with a Sub-Adviser.
    9. Each Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.
    10. Independent legal counsel, as defined in rule 0-1(a)(6) under 
the Act, has been and will continue to be engaged to represent the 
Independent Board Members. The selection of such counsel will be within 
the discretion of the then-existing Independent Board Members.
    11. In the event the Commission adopts a rule under the Act 
providing substantially similar relief to that in the order requested 
in the application, the requested order will expire on the effective 
date of that rule.
    12. The Manager will provide the Board, no less frequently than 
quarterly, with information about the Manager's profitability on a per 
Fund basis. This information will reflect the impact on profitability 
of the hiring or termination of any Sub-Adviser during the applicable 
quarter.
    13. Whenever a Sub-Adviser is hired or terminated, the Manager will 
provide the Board with information showing the expected impact on the 
profitability of the Manager.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17070 Filed 7-12-12; 8:45 am]
BILLING CODE 8011-01-P


