UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-22185
IndexIQ Trust
(Exact name of registrant as specified in charter)
800 Westchester Ave., Suite S-710
Rye Brook, NY 10573
(Address of principal executive offices) (Zip code)
Adam S. Patti
IndexIQ Advisors LLC
800 Westchester Ave., Suite S-710
Rye Brook, NY 10573
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-888-934-0777
Date of fiscal year end: April 30
Date of reporting period: April 30, 2016
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
ANNUAL REPORT | APRIL 30, 2016
IndexIQ Trust
IQ Hedge
Multi-Strategy Plus Fund
The investment return and value of the Fund shares will fluctuate so that an investor’s shares, when sold, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus and the statement of additional information include this and other relevant information about the Fund and are available by visiting www.IQetfs.com or by calling 1-888-934-0777. Read the prospectus carefully before investing.
Fund performance that is current to the most recent month-end is available by visiting www.IQetfs.com or by calling 1-888-934-0777.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Please visit IndexIQ’s web site at www.IQetfs.com, or go to the Securities and Exchange Commission’s (the “Commission”) web site at www.sec.gov, or call IndexIQ at 1-888-934-0777.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s web site at www.sec.gov. The Fund’s Forms N-Q also may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
The Fund is distributed by NYLIFE Distributors, LLC which is affiliated with IndexIQ the Fund’s investment advisor.
IndexIQ® and IQ® are registered service marks of IndexIQ.
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| Shareholder Letter (unaudited) |
Dear Shareholder:
We are pleased to present you with the annual report for IQ Hedge Multi-Strategy Plus Fund for the 12 months ended April 30, 2016 (the “Reporting Period”).
It was a challenging Reporting Period for investors, as high levels of volatility and disparity were evident in the returns of various global asset classes. Indeed, the Reporting Period was marked by numerous global cross currents. The Chinese economic growth rate slowed, and this put pressure on China’s equity prices as well as on global commodity prices, specifically, oil and industrial metals. Greece was on the brink of defaulting on its debt obligations, but a last minute agreement allowed the nation to avert a default. The U.S. dollar gained strength through the first three quarters of the Reporting Period but then began to lose ground to other major currencies as it became more clear that the U.S. Federal Reserve would be unable to implement its intended schedule to increase interest rates. Overall, this was a turbulent Reporting Period, wherein U.S. large-cap equities were barely able to stay above water, and investment-grade bonds had solid results, but many other asset classes did not.
On the following pages, you will find a detailed discussion of the key factors influencing the performance of the IQ Hedge Multi-Strategy Plus Fund during the Reporting Period. You will also find a schedule of investments and financial statements.
We thank you for choosing the IQ Hedge Multi-Strategy Plus Fund, and we honor the responsibility you have placed on us. For more information on IQ Hedge Multi-Strategy Plus Fund or our broad array of alternative investment solutions, please visit us at www.indexiq.com or call us at 888-934-0777.
Adam S. Patti
Chief Executive Officer
Registered Representative of NYLIFE Distributors, Inc.
| Management’s Discussion of Fund Performance (unaudited) |
IQ Hedge Multi-Strategy Plus Fund
How did IQ Hedge Multi-Strategy Plus Fund (the “Fund”) perform during the 12 months ended April 30, 2016?
Excluding all sales charges, the Fund returned –4.99% for Class A shares for the 12 months ended April 30, 2016. Over the same period, the Fund returned –4.50% for Class I shares. To compare, the Fund’s Underlying Index, the IQ Hedge Multi-Strategy Plus Index1 returned –2.03% for the same time period. The S&P 500® Index1 and the HFRI Fund of Funds Composite Index1 returned 0.55% and –5.52%, respectively, for the same period.
What factors affected the Fund’s performance during the reporting period?
The Fund’s position in investment grade bonds, particularly investment grade corporate bonds, aggregate bonds and short-term Treasury bonds, via underlying ETFs, was the primary positive contributor to returns. The Fund’s short exposure to Brazil, via an underlying ETF, was also beneficial, as oil prices plummeted. However, losses on the Fund’s long exposure to China, via an underlying ETF, largely offset those gains. Similarly, via underlying ETFs, gains from short positions in Asia ex Japan equities were negated by losses from long positions in Emerging Small Cap equities. The Fund’s results were boosted by positions in U.S. large-capitalization value stock ETFs but gave back most of that from its positions in U.S. large-capitalization growth stock ETFs and U.S. small cap value stock ETFs.
The Fund’s position in convertible bond ETFs detracted from its performance during the reporting period as did the Fund’s holding in a currency carry strategy ETF. Implemented via underlying ETFs, positions in emerging market equities in general were a net detractor from performance. The Fund’s position in a volatility-oriented ETN also dampened relative results.
During the reporting period, how was the Fund’s performance materially affected by investments in derivatives?
The Fund used derivative positions where necessary to help it track its Underlying Index, which contains both long and short weights. Derivatives were also used to gain an additional 25% leverage on both long and short positions. Consequently, the net weight of all long and short positions is 125%. Primarily, the Fund used total return swaps on the ETFs at the weights in which they are included in the Underlying Index.
How were the Fund’s assets allocated during the reporting period and why?
The Fund’s allocations are driven by quantitative models that determine the weights across the various hedge fund strategies represented in the Fund as well as the weights of the assets within these strategies. Given the rules-based nature of the process, there is no subjectivity involved in the allocation decision process.
During the reporting period, the Fund had positive, or long, allocations to the following hedge fund strategies: Long/Short Equity, Equity Market Neutral, Event Driven and Fixed Income Arbitrage. The Fund had negative, or short, allocations to the following hedge fund strategies: Emerging Markets and Global Macro. These allocations are driven by a proprietary quantitative model that overweights strategies with high price momentum, high correlation to the broad hedge fund universe and low total variance. The Fund underweights strategies with the opposite characteristics.
At the asset class level, the Fund was net long in bonds, particularly convertible bonds, aggregate bonds, short-term bonds and floating rate bank loans. The Fund was also net long in equities, particularly U.S. value-oriented equities, as well as real estate investment trusts (REITs). The Fund was net short volatility and currencies, especially the U.S. dollar, during the reporting period.
How did the Fund’s allocations change over the course of the reporting period?
Based on our proprietary quantitative models and via shifts in its underlying ETF positions, the Fund’s total bond exposure was relatively unchanged, however the allocation within fixed income changed, as the Fund gradually decreased its exposure to aggregate bonds and convertible bonds and increased its exposure to investment grade corporate bonds and Treasury inflation-protected securities (TIPS).
| 1 | See page 6 for more information on this index. |
| Management’s Discussion of Fund Performance (unaudited)(continued) |
Via underlying ETFs, the Fund’s currency position shifted from long the euro and yen to small short exposures. The Fund’s equity allocation, implemented via underlying ETFs, increased in broad international, Japan and U.S. large-capitalization value equities. The Fund’s net real estate position went from a small positive to a small negative, via underlying ETFs.
During the reporting period, which underlying ETFs had the highest total returns and which underlying ETFs had the lowest total returns?
In terms of total return, the best-performing underlying ETFs in the Fund were CurrencyShares Japanese Yen Trust (FXY) and iShares Silver Trust (SLV). During the reporting period, iShares China Large-Cap ETF (FXI) and iShares MSCI China ETF (MCHI) recorded the lowest total returns.
Which underlying ETFs were the strongest positive contributors to the Fund’s performance and which underlying ETFs were particularly weak?
On the basis of impact, which takes weightings and total returns into consideration, the underlying ETFs that made the greatest positive contributions to the Fund’s performance during the reporting period were iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD) and iShares Core U.C. Aggregate Bond ETF (AGG). The weakest contributors were SPDR Barclays Convertible Securities ETF (CWB) and SPDR S&P Emerging Markets Small Cap ETF (EWX).
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
Hypothetical Growth of a $10,000 Investment (Since Inception through 4/30/16)
Fund Performance History
IQ Hedge Multi-Strategy Plus Fund
(as of April 30, 2016)
| | | 1 Year | | 3 Year | | 5 Year | | Since Inception |
| | | Average
Annual | | Average
Annual | | Average
Annual | | Average
Annual | | Cumulative |
| IQ Hedge Multi-Strategy Plus Fund — Class A Shares1 | | (4.99)% | | 1.37% | | 1.28% | | 2.27% | | 19.08% |
| IQ Hedge Multi-Strategy Plus Fund — Class I Shares1 | | (4.50)% | | 1.81% | | 1.70% | | 2.65% | | 22.76% |
| IQ Hedge Multi-Strategy Plus Index | | (2.03)% | | 3.62% | | 3.54% | | 4.82% | | 44.65% |
| HFRI Fund of Funds Composite Index | | (5.52)% | | 1.63% | | 1.13% | | 0.32% | | 2.56% |
| S&P 500 Index | | 0.55% | | 10.55% | | 10.30% | | 7.93% | | 81.84% |
| 1 | Fund Inception Date: 06/30/2008. For performance reporting purposes, the inception date for the Class A and Class I shares is the Fund Inception Date. |
| Fund Expenses (unaudited) |
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Six Month Period 11/01/15 to 04/30/16” to estimate the expenses you paid on your account during this period. The Fund will indirectly bear its pro rata share of the expenses incurred by the underlying investments in which the Fund invests. These expenses are not included in the table.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The Fund will indirectly bear its pro rata share of the expenses incurred by the underlying investments in which the Fund invests. These expenses are not included in the table.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| | | Beginning
Account
Value
11/01/15 | | Ending
Account
Value
04/30/16 | | Annualized
Expense
Ratios for
the Period
11/01/15 to
04/30/16 | | Expenses
Paid During
the Six
Month Period
11/01/15 to
4/30/16† |
| Class A Shares | | | | | | | | | | | | | | | | |
| Actual | | $ | 1,000.00 | | | $ | 995.20 | | | | 1.90% | | | $ | 9.43 | |
| Hypothetical (5% return before expenses) | | $ | 1,000.00 | | | $ | 1,015.42 | | | | 1.90% | | | $ | 9.52 | |
| Class I Shares | | | | | | | | | | | | | | | | |
| Actual | | $ | 1,000.00 | | | $ | 998.30 | | | | 1.51% | | | $ | 7.50 | |
| Hypothetical (5% return before expenses) | | $ | 1,000.00 | | | $ | 1,017.35 | | | | 1.51% | | | $ | 7.57 | |
| † | Expenses are calculated using each Class’s annualized expense ratio, multiplied by the average account value for the period, multiplied by 182/366 (to reflect the one-half year period). |
| Portfolio Summary |
| April 30, 2016 |
PORTFOLIO STATISTICS
Net Assets ($ mil): $111.3
SCHEDULE OF INVESTMENTS SUMMARY TABLE
| Investment Companies | | % of
Net Assets |
| U.S. Short Term Treasury Bond Funds | | | 24.1 | % |
| Investment Grade Corporate Bond Funds | | | 23.8 | |
| Aggregate Bond Funds | | | 10.2 | |
| U.S. Large Cap Value Funds | | | 9.2 | |
| U.S. Small Cap Growth Funds | | | 6.3 | |
| Money Market Funds | | | 5.2 | |
| Treasury Inflation-Protected Securities Fund | | | 4.5 | |
| Floating Rate Funds | | | 3.2 | |
| International Equity Core Funds | | | 3.1 | |
| Europe Equity Funds | | | 3.1 | |
| Convertible Bonds Fund | | | 2.8 | |
| U.S. Large Cap Growth Funds | | | 2.7 | |
| U.S. Large Cap Core Fund | | | 2.3 | |
| Japan Equity Fund | | | 1.6 | |
| Silver Fund | | | 0.9 | |
| Volatility Fund | | | 0.8 | |
| U.S. Low Volatility Funds | | | 0.4 | |
| U.S. Preferred Fund | | | 0.3 | |
| BRIC Equity Funds | | | 0.3 | |
| International Bond Funds | | | 0.1 | |
| International Small Cap Equity Funds | | | 0.1 | |
| Emerging Small Cap Equity Fund | | | 0.1 | |
| U.S. Small Cap Core Fund | | | 0.0 | 1 |
| Total Investments | | | 105.1 | |
| Liabilities in Excess of Other Assets | | | (5.1 | ) |
| Net Assets | | | 100.0 | % |
| Schedule of Investments |
| April 30, 2016 |
| | | Shares | | Value |
| Exchange Traded Notes — 0.8% | | | | |
| Volatility Fund — 0.8% | | | | |
| iPATH S&P 500 VIX Short-Term Futures ETN*(a) | | | | |
| (Cost $1,034,269) | | | 55,519 | | | $ | 933,275 | |
| |
| Investment Companies — 99.1% | | | | | | | | |
| Aggregate Bond Funds — 10.2% | | | | | | | | |
| iShares Core U.S. Aggregate Bond ETF(b) | | | 54,827 | | | | 6,079,766 | |
| SPDR Barclays Aggregate Bond ETF | | | 3,653 | | | | 214,066 | |
| Vanguard Total Bond Market ETF(b) | | | 61,408 | | | | 5,095,022 | |
| Total Aggregate Bond Funds | | | | | | | 11,388,854 | |
| |
| BRIC Equity Funds — 0.3% | | | | | | | | |
| iShares China Large-Cap ETF | | | 1,309 | | | | 43,891 | |
| iShares India 50 ETF | | | 1,819 | | | | 49,186 | |
| iShares MSCI China ETF(a) | | | 429 | | | | 18,142 | |
| iShares MSCI India ETF | | | 8,803 | | | | 238,209 | |
| SPDR S&P China ETF | | | 96 | | | | 6,663 | |
| Total BRIC Equity Funds | | | | | | | 356,091 | |
| |
| Convertible Bonds Fund — 2.8% | | | | | | | | |
| SPDR Barclays Convertible | | | | | | | | |
| Securities ETF(b) | | | 70,740 | | | | 3,072,946 | |
| |
| Emerging Small Cap Equity Fund — 0.1% | | | | | | | | |
| SPDR S&P Emerging Markets | | | | | | | | |
| SmallCap ETF | | | 1,778 | | | | 69,786 | |
| |
| Europe Equity Funds — 3.1% | | | | | | | | |
| iShares Europe ETF | | | 7,963 | | | | 320,989 | |
| iShares MSCI Eurozone ETF | | | 42,598 | | | | 1,502,431 | |
| Vanguard FTSE Europe ETF | | | 32,405 | | | | 1,615,713 | |
| Total Europe Equity Funds | | | | | | | 3,439,133 | |
| |
| Floating Rate Funds — 3.2% | | | | | | | | |
| PowerShares Senior Loan Portfolio | | | 126,884 | | | | 2,929,751 | |
| SPDR Blackstone/GSO Senior Loan ETF | | | 12,419 | | | | 581,458 | |
| Total Floating Rate Funds | | | | | | | 3,511,209 | |
| |
| International Bond Funds — 0.1% | | | | | | | | |
| VanEck Vectors J.P. Morgan EM Local | | | | | | | | |
| Currency Bond ETF(a) | | | 4,300 | | | | 81,485 | |
| WisdomTree Emerging Markets Local | | | | | | | | |
| Debt Fund | | | 646 | | | | 24,264 | |
| Total International Bond Funds | | | | | | | 105,749 | |
| |
| International Equity Core Funds — 3.1% | | | | | | | | |
| iShares MSCI EAFE ETF | | | 38,835 | | | | 2,269,129 | |
| Vanguard FTSE Developed Markets ETF | | | 32,938 | | | | 1,209,154 | |
| Total International Equity Core Funds | | | | | | | 3,478,283 | |
| |
| International Small Cap Equity Funds — 0.1% | | | | | | | | |
| iShares MSCI EAFE Small-Cap ETF | | | 1,057 | | | | 53,262 | |
| SPDR S&P International Small Cap ETF | | | 216 | | | | 6,355 | |
| WisdomTree International SmallCap | | | | | | | | |
| Dividend Fund(a) | | | 176 | | | | 10,470 | |
| Total International Small Cap | | | | | | | | |
| Equity Funds | | | | | | | 70,087 | |
| |
| Investment Grade Corporate Bond Funds — 23.8% | | | | |
| iShares Core US Credit Bond ETF | | | 6,548 | | | | 729,382 | |
| iShares iBoxx $ Investment Grade | | | | | | | | |
| Corporate Bond ETF(b) | | | 214,122 | | | | 25,765,300 | |
| Total Investment Grade Corporate | | | | | | | | |
| Bond Funds | | | | | | | 26,494,682 | |
| | | Shares | | Value |
| Investment Companies (continued) | | | | |
| Japan Equity Fund — 1.6% | | | | |
| iShares MSCI Japan ETF | | | 159,022 | | | $ | 1,816,031 | |
| |
| Silver Fund — 0.9% | | | | | | | | |
| iShares Silver Trust* | | | 58,900 | | | | 1,000,122 | |
| |
| Treasury Inflation–Protected Securities | | | | | | | | |
| Fund — 4.5% | | | | | | | | |
| iShares TIPS Bond ETF | | | 43,197 | | | | 4,962,471 | |
| |
| U.S. Large Cap Core Fund — 2.3% | | | | | | | | |
| Financial Select Sector SPDR Fund | | | 111,986 | | | | 2,610,394 | |
| |
| U.S. Large Cap Growth Funds — 2.7% | | | | | | | | |
| Guggenheim S&P 500 Pure Growth ETF | | | 1,115 | | | | 87,751 | |
| iShares Russell 1000 Growth ETF | | | 13,606 | | | | 1,344,953 | |
| iShares S&P 500 Growth ETF | | | 5,418 | | | | 620,469 | |
| Vanguard Growth ETF | | | 8,828 | | | | 932,325 | |
| Total U.S. Large Cap Growth Funds | | | | | | | 2,985,498 | |
| |
| U.S. Large Cap Value Funds — 9.2% | | | | | | | | |
| Guggenheim S&P 500 Pure Value ETF(a) | | | 2,547 | | | | 132,240 | |
| iShares Russell 1000 Value ETF(b) | | | 47,536 | | | | 4,795,907 | |
| iShares S&P 500 Value ETF | | | 19,191 | | | | 1,760,199 | |
| Vanguard Value ETF(b) | | | 42,897 | | | | 3,587,905 | |
| Total U.S. Large Cap Value Funds | | | | | | | 10,276,251 | |
| |
| U.S. Low Volatility Funds — 0.4% | | | | | | | | |
| iShares Edge MSCI Min Vol USA ETF | | | 5,882 | | | | 257,455 | |
| PowerShares S&P 500 Low | | | | | | | | |
| Volatility Portfolio | | | 3,807 | | | | 152,052 | |
| Total U.S. Low Volatility Funds | | | | | | | 409,507 | |
| |
| U.S. Preferred Fund — 0.3% | | | | | | | | |
| iShares U.S. Preferred Stock ETF(a) | | | 10,020 | | | | 392,584 | |
| |
| U.S. Short Term Treasury Bond Funds — 24.1% | | | | | | | | |
| iShares 1-3 Year Treasury Bond ETF(a)(b) | | | 58,239 | | | | 4,950,897 | |
| iShares Short Treasury Bond ETF | | | 30,530 | | | | 3,370,512 | |
| SPDR Barclays 1-3 Month T-Bill ETF*(a) | | | 48,201 | | | | 2,203,268 | |
| Vanguard Short-Term Bond ETF(b) | | | 202,173 | | | | 16,297,166 | |
| Total U.S. Short Term Treasury Bond Funds | | | | | | | 26,821,843 | |
| |
| U.S. Small Cap Core Fund — 0.0%(c) | | | | | | | | |
| iShares Russell 2000 ETF | | | 112 | | | | 12,584 | |
| |
| U.S. Small Cap Growth Funds — 6.3% | | | | | | | | |
| iShares Russell 2000 Growth ETF(a) | | | 23,622 | | | | 3,167,001 | |
| iShares S&P Small-Cap 600 Growth ETF | | | 13,294 | | | | 1,656,034 | |
| Vanguard Small-Cap Growth ETF | | | 18,397 | | | | 2,218,494 | |
| Total U.S. Small Cap Growth Funds | | | | | | | 7,041,529 | |
| Total Investment Companies | | | | | | | | |
| (Cost $107,146,981) | | | | | | | 110,315,634 | |
See notes to financial statements.
| Schedule of Investments (continued) |
| April 30, 2016 |
| | | Shares | | Value |
| Short-Term Investment — 0.7% | | | | |
| Money Market Fund — 0.7% | | | | |
| Dreyfus Treasury & Agency Cash | | | | |
| Management Institutional Shares, 0.17%(d) | | | | |
| (Cost $739,380) | | | 739,380 | | | $ | 739,380 | |
| |
| Investment of Cash Collateral For | | | | | | | | |
| Securities Loaned — 4.5% | | | | | | | | |
| Money Market Fund — 4.5% | | | | | | | | |
| Dreyfus Government Cash | | | | | | | | |
| Management Fund, | | | | | | | | |
| Institutional Shares, 0.20%(e) | | | | | | | | |
| (Cost $5,062,770) | | | 5,062,770 | | | | 5,062,770 | |
| Total Investments — 105.1% | | | | | | | | |
| (Cost $113,983,400) | | | | | | | 117,051,059 | |
| Liabilities in Excess of Other | | | | | | | | |
| Assets — (5.1)% | | | | | | | (5,703,068 | ) |
| Net Assets — 100.0% | | | | | | $ | 111,347,991 | |
| * | Non-income producing securities. |
| (a) | All or a portion of the security was on loan. In addition, “Other Assets and Liabilities, Net” may include pending sales that are also on loan. The aggregate market value of securities on loan was $4,942,074; total market value of collateral held by the Fund was $5,062,770. |
| (b) | All or a portion of these securities have been segregated as collateral for swap contracts. The total value of securities segregated amounted to $37,296,172. |
| (d) | Rate shown reflects the 7-day yield at April 30, 2016. |
| (e) | Rate shown reflects the 1-day yield at April 30, 2016. |
BRIC — Brazil, Russia, India and China
ETF — Exchange Traded Fund
ETN — Exchange Traded Notes
TIPS — Treasury Inflation Protected Security
See notes to financial statements.
| Schedule of Investments (continued) |
| April 30, 2016 |
Total Return Swap contracts outstanding at April 30, 2016:
| Total Return Benchmark | | Counterparties | | Annual
Financing
Rate
(Received)
Paid % | | Expiration
Date | | Notional
Amount
Long (Short) | | Unrealized
Appreciation
(Depreciation)1 |
| CurrencyShares Euro Trust | | Morgan Stanley | | (2.10) | | 5/19/2016 | | $ | (379,809 | ) | | $ | — | |
| CurrencyShares Euro Trust | | Bank of America Merrill Lynch | | (0.06) | | 10/31/2017 | | | (126,715 | ) | | | — | |
| CurrencyShares Japanese | | | | | | | | | | | | | | |
| Yen Trust | | Bank of America Merrill Lynch | | (2.07) – (0.06) | | 4/28/2017 – 10/31/2017 | | | (963,040 | ) | | | — | |
| CurrencyShares Japanese | | | | | | | | | | | | | | |
| Yen Trust | | Morgan Stanley | | (1.84) | | 5/19/2016 | | | (2,900,212 | ) | | | — | |
| Energy Select Sector SPDR Fund | | Morgan Stanley | | (0.50) | | 5/19/2016 | | | (1,454,908 | ) | | | — | |
| Financial Select Sector SPDR Fund | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 1,631,047 | | | | — | |
| Guggenheim S&P 500 | | | | | | | | | | | | | | |
| Pure Growth ETF | | Morgan Stanley | | 1.31 | | 5/19/2016 | | | 54,854 | | | | — | |
| Guggenheim S&P 500 | | | | | | | | | | | | | | |
| Pure Value ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 82,605 | | | | — | |
| Health Care Select Sector | | | | | | | | | | | | | | |
| SPDR Fund | | Morgan Stanley | | (0.50) | | 5/19/2016 | | | (1,673,145 | ) | | | — | |
| iPath Bloomberg Commodity Index | | | | | | | | | | | | | | |
| Total Return ETN | | Morgan Stanley | | (2.34) | | 5/19/2016 | | | (4,324 | ) | | | — | |
| iPath Bloomberg Commodity Index | | | | | | | | | | | | | | |
| Total Return ETN | | Bank of America Merrill Lynch | | (2.88) | | 9/29/2017 | | | (1,441 | ) | | | — | |
| iPATH S&P 500 VIX | | | | | | | | | | | | | | |
| Short-Term Futures ETN | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 437,346 | | | | — | |
| iPATH S&P 500 VIX | | | | | | | | | | | | | | |
| Short-Term Futures ETN | | Bank of America Merrill Lynch | | 0.94 | | 10/31/2017 | | | 143,610 | | | | — | |
| iShares 1-3 Year Treasury Bond ETF | | Bank of America Merrill Lynch | | 0.94 | | 9/29/2017 | | | 773,251 | | | | — | |
| iShares 1-3 Year Treasury Bond ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 2,320,093 | | | | — | |
| iShares China Large-Cap ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 27,428 | | | | — | |
| iShares Core U.S. Aggregate | | | | | | | | | | | | | | |
| Bond ETF | | Morgan Stanley | | 1.20 | | 5/19/2016 | | | 2,849,097 | | | | — | |
| iShares Core U.S. Aggregate | | | | | | | | | | | | | | |
| Bond ETF | | Bank of America Merrill Lynch | | 0.94 | | 5/31/2017 – 9/29/2017 | | | 949,108 | | | | — | |
| iShares Core U.S. Credit Bond ETF | | Bank of America Merrill Lynch | | 0.94 | | 4/28/2017 – 10/31/2017 | | | 113,841 | | | | — | |
| iShares Core U.S. Credit Bond ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 341,856 | | | | — | |
| iShares Europe ETF | | Bank of America Merrill Lynch | | 0.94 | | 10/31/2017 | | | 50,025 | | | | — | |
| iShares Europe ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 150,397 | | | | — | |
| iShares iBoxx $ High Yield | | | | | | | | | | | | | | |
| Corporate Bond ETF | | Bank of America Merrill Lynch | | (5.42) – (0.06) | | 3/31/2017 – 10/31/2017 | | | (1,334,305 | ) | | | — | |
| iShares iBoxx $ High Yield | | | | | | | | | | | | | | |
| Corporate Bond ETF | | Morgan Stanley | | (1.32) | | 5/19/2016 | | | (4,000,484 | ) | | | — | |
| iShares iBoxx $ Investment Grade | | | | | | | | | | | | | | |
| Corporate Bond ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 12,074,153 | | | | — | |
| iShares iBoxx $ Investment Grade | | | | | | | | | | | | | | |
| Corporate Bond ETF | | Bank of America Merrill Lynch | | 0.94 | | 4/28/2017 – 10/31/2017 | | | 4,026,362 | | | | — | |
| iShares India 50 ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 30,717 | | | | — | |
| iShares MSCI All Country Asia | | | | | | | | | | | | | | |
| ex Japan ETF | | Bank of America Merrill Lynch | | (3.38) | | 9/29/2017 | | | (266,917 | ) | | | — | |
| iShares MSCI All Country Asia | | | | | | | | | | | | | | |
| ex Japan ETF | | Morgan Stanley | | (4.01) | | 5/19/2016 | | | (797,728 | ) | | | — | |
| iShares MSCI Brazil Capped ETF | | Morgan Stanley | | (1.59) | | 5/19/2016 | | | (55,302 | ) | | | — | |
| iShares MSCI China ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 11,328 | | | | — | |
| iShares MSCI EAFE ETF | | Bank of America Merrill Lynch | | 0.94 | | 6/30/2017 – 9/29/2017 | | | 354,553 | | | | — | |
| iShares MSCI EAFE ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 1,063,368 | | | | — | |
| iShares MSCI EAFE Small-Cap ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 33,257 | | | | — | |
| iShares MSCI Emerging Markets ETF | | Morgan Stanley | | (1.10) | | 5/19/2016 | | | (573,109 | ) | | | — | |
| iShares MSCI Emerging Markets ETF | | Bank of America Merrill Lynch | | (1.30) – (0.94) | | 8/31/2017 – 9/29/2017 | | | (192,103 | ) | | | — | |
| iShares MSCI Eurozone ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 704,060 | | | | — | |
| iShares MSCI Eurozone ETF | | Bank of America Merrill Lynch | | 0.94 | | 10/31/2017 | | | 234,839 | | | | — | |
| iShares MSCI India ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 148,857 | | | | — | |
| iShares MSCI Japan ETF | | Bank of America Merrill Lynch | | 0.94 | | 10/31/2017 | | | 283,673 | | | | — | |
| iShares MSCI Japan ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 851,030 | | | | — | |
| iShares MSCI Pacific ex Japan ETF | | Morgan Stanley | | (4.19) | | 5/19/2016 | | | (679,589 | ) | | | — | |
| iShares MSCI Pacific ex Japan ETF | | Bank of America Merrill Lynch | | (2.51) | | 9/29/2017 | | | (228,474 | ) | | | — | |
| iShares MSCI Russia Capped ETF | | Morgan Stanley | | (2.84) | | 5/19/2016 | | | (155 | ) | | | — | |
| iShares MSCI USA Minimum | | | | | | | | | | | | | | |
| Volatility ETF | | Bank of America Merrill Lynch | | 0.94 | | 10/31/2017 | | | 40,575 | | | | — | |
See notes to financial statements.
| Schedule of Investments (continued) |
| April 30, 2016 |
Total Return Swap contracts outstanding at April 30, 2016: (continued)
| Total Return Benchmark | | Counterparties | | Annual
Financing
Rate
(Received)
Paid % | | Expiration
Date | | Notional
Amount
Long (Short) | | Unrealized
Appreciation
(Depreciation)1 |
| iShares MSCI USA Minimum | | | | | | | | | | | | | | |
| Volatility ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | $ | 120,630 | | | $ | — | |
| iShares Russell 1000 Growth ETF | | Bank of America Merrill Lynch | | 0.94 | | 7/31/2017 – 10/31/2017 | | | 210,671 | | | | — | |
| iShares Russell 1000 Growth ETF | | Morgan Stanley | | 1.32 | | 5/19/2016 | | | 630,268 | | | | — | |
| iShares Russell 1000 Value ETF | | Bank of America Merrill Lynch | | 0.94 | | 3/31/2017 – 10/31/2017 | | | 751,731 | | | | — | |
| iShares Russell 1000 Value ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 2,247,426 | | | | — | |
| iShares Russell 2000 ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 5,843 | | | | — | |
| iShares Russell 2000 ETF | | Bank of America Merrill Lynch | | 0.94 | | 7/31/2017 | | | 2,025 | | | | — | |
| iShares Russell 2000 Growth ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 1,484,155 | | | | — | |
| iShares Russell 2000 Growth ETF | | Bank of America Merrill Lynch | | 0.94 | | 8/31/2017 – 9/29/2017 | | | 496,729 | | | | — | |
| iShares Russell 2000 Value ETF | | Morgan Stanley | | (1.38) | | 5/19/2016 | | | (2,961,526 | ) | | | — | |
| iShares Russell 2000 Value ETF | | Bank of America Merrill Lynch | | (1.84) – (0.96) | | 8/31/2017 – 9/29/2017 | | | (993,099 | ) | | | — | |
| iShares S&P 500 Growth ETF | | Morgan Stanley | | 1.32 | | 5/19/2016 | | | 290,766 | | | | — | |
| iShares S&P 500 Growth ETF | | Bank of America Merrill Lynch | | 0.94 | | 7/31/2017 – 10/31/2017 | | | 97,342 | | | | — | |
| iShares S&P 500 Value ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 824,838 | | | | — | |
| iShares S&P 500 Value ETF | | Bank of America Merrill Lynch | | 0.94 | | 3/31/2017 – 10/31/2017 | | | 275,710 | | | | — | |
| iShares S&P Small-Cap 600 | | | | | | | | | | | | | | |
| Growth ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 776,071 | | | | — | |
| iShares S&P Small-Cap 600 | | | | | | | | | | | | | | |
| Growth ETF | | Bank of America Merrill Lynch | | 0.94 | | 7/31/2017 – 9/29/2017 | | | 260,725 | | | | — | |
| iShares S&P Small-Cap 600 | | | | | | | | | | | | | | |
| Value ETF | | Bank of America Merrill Lynch | | (3.17) – (2.43) | | 8/31/2017 – 9/29/2017 | | | (588,834 | ) | | | — | |
| iShares S&P Small-Cap 600 | | | | | | | | | | | | | | |
| Value ETF | | Morgan Stanley | | (3.01) | | 5/19/2016 | | | (1,753,194 | ) | | | — | |
| iShares Short Treasury Bond ETF | | Bank of America Merrill Lynch | | 0.94 | | 6/30/2017 – 10/31/2017 | | | 526,387 | | | | — | |
| iShares Short Treasury Bond ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 1,579,493 | | | | — | |
| iShares Silver Trust | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 468,682 | | | | — | |
| iShares Silver Trust | | Bank of America Merrill Lynch | | 0.94 | | 7/31/2017 – 10/31/2017 | | | 157,218 | | | | — | |
| iShares TIPS Bond ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 3,100,726 | | | | — | |
| iShares U.S. Preferred Stock ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 183,950 | | | | — | |
| iShares U.S. Real Estate ETF | | Bank of America Merrill Lynch | | (1.90) – (0.06) | | 4/28/2017 – 10/31/2017 | | | (89,652 | ) | | | — | |
| iShares U.S. Real Estate ETF | | Morgan Stanley | | (0.90) | | 5/19/2016 | | | (269,112 | ) | | | — | |
| iShares US Preferred Stock ETF | | Bank of America Merrill Lynch | | 0.94 | | 10/31/2017 | | | 60,651 | | | | — | |
| PowerShares DB Commodity Index | | | | | | | | | | | | | | |
| Tracking Fund | | Bank of America Merrill Lynch | | (0.94) | | 9/29/2017 | | | (5,745 | ) | | | — | |
| PowerShares DB Commodity Index | | | | | | | | | | | | | | |
| Tracking Fund | | Morgan Stanley | | (1.09) | | 5/19/2016 | | | (17,146 | ) | | | — | |
| PowerShares DB G10 Currency | | | | | | | | | | | | | | |
| Harvest Fund | | Bank of America Merrill Lynch | | (0.06) | | 10/31/2017 | | | (85,568 | ) | | | — | |
| PowerShares DB G10 Currency | | | | | | | | | | | | | | |
| Harvest Fund | | Morgan Stanley | | (4.63) | | 5/19/2016 | | | (255,480 | ) | | | — | |
| PowerShares DB Gold Fund | | Bank of America Merrill Lynch | | (0.06) | | 6/30/2017 | | | (27,030 | ) | | | — | |
| PowerShares DB Gold Fund | | Morgan Stanley | | (1.01) | | 5/19/2016 | | | (81,131 | ) | | | — | |
| PowerShares DB US Dollar Index | | | | | | | | | | | | | | |
| Bullish Fund | | Morgan Stanley | | (2.77) | | 5/19/2016 | | | (3,233,304 | ) | | | — | |
| PowerShares S&P 500 Low | | | | | | | | | | | | | | |
| Volatility Portfolio | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 71,253 | | | | — | |
| PowerShares S&P 500 Low | | | | | | | | | | | | | | |
| Volatility Portfolio | | Bank of America Merrill Lynch | | 0.94 | | 10/31/2017 | | | 23,964 | | | | — | |
| PowerShares Senior Loan Portfolio | | Bank of America Merrill Lynch | | 0.94 | | 9/29/2017 | | | 458,360 | | | | — | |
| PowerShares Senior Loan Portfolio | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 1,372,931 | | | | — | |
| SPDR Barclays 1-3 Month T-Bill | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 1,032,497 | | | | — | |
| SPDR Barclays 1-3 Month T-Bill | | Bank of America Merrill Lynch | | 0.94 | | 6/30/2017 – 10/31/2017 | | | 344,105 | | | | — | |
| SPDR Barclays Aggregate Bond ETF | | Morgan Stanley | | 1.19 | | 5/19/2016 | | | 100,323 | | | | — | |
| SPDR Barclays Aggregate Bond ETF | | Bank of America Merrill Lynch | | 0.94 | | 5/31/2017 – 9/29/2017 | | | 33,402 | | | | — | |
| SPDR Barclays Convertible | | | | | | | | | | | | | | |
| Securities ETF | | Morgan Stanley | | 1.34 | | 5/19/2016 | | | 1,440,036 | | | | — | |
| SPDR Barclays Convertible | | | | | | | | | | | | | | |
| Securities ETF | | Bank of America Merrill Lynch | | 0.94 | | 7/31/2017 – 8/31/2017 | | | 480,446 | | | | — | |
| SPDR Barclays High Yield Bond ETF | | Bank of America Merrill Lynch | | (2.39) – (0.06) | | 5/31/2017 – 10/31/2017 | | | (960,548 | ) | | | — | |
| SPDR Barclays High Yield Bond ETF | | Morgan Stanley | | (1.47) | | 5/19/2016 | | | (2,877,868 | ) | | | — | |
| SPDR Blackstone / GSO Senior | | | | | | | | | | | | | | |
| Loan ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 272,492 | | | | — | |
See notes to financial statements.
| Schedule of Investments (continued) |
| April 30, 2016 |
Total Return Swap contracts outstanding at April 30, 2016: (continued)
| Total Return Benchmark | | Counterparties | | Annual
Financing
Rate
(Received)
Paid % | | Expiration
Date | | Notional
Amount
Long (Short) | | Unrealized
Appreciation
(Depreciation)1 |
| SPDR Blackstone / GSO Senior | | | | | | | | | | | | | | |
| Loan ETF | | Bank of America Merrill Lynch | | 0.94 | | 9/29/2017 | | $ | 90,784 | | | $ | — | |
| SPDR Dow Jones International | | | | | | | | | | | | | | |
| Real Estate ETF | | Morgan Stanley | | (2.09) | | 5/19/2016 | | | (43,673 | ) | | | — | |
| SPDR Dow Jones International | | | | | | | | | | | | | | |
| Real Estate ETF | | Bank of America Merrill Lynch | | (1.86) | | 9/29/2017 | | | (14,572 | ) | | | — | |
| SPDR Dow Jones REIT ETF | | Morgan Stanley | | (1.35) | | 5/19/2016 | | | (199,894 | ) | | | — | |
| SPDR Dow Jones REIT ETF | | Bank of America Merrill Lynch | | (1.40) – (0.06) | | 4/28/2017 – 10/31/2017 | | | (66,755 | ) | | | — | |
| SPDR S&P China ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 4,165 | | | | — | |
| SPDR S&P Emerging Markets | | | | | | | | | | | | | | |
| SmallCap ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 43,607 | | | | — | |
| SPDR S&P International | | | | | | | | | | | | | | |
| Small Cap ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 3,972 | | | | — | |
| Technology Select Sector | | | | | | | | | | | | | | |
| SPDR Fund | | Morgan Stanley | | (0.15) | | 5/19/2016 | | | (999,155 | ) | | | — | |
| VanEck Vectors J.P. Morgan EM | | | | | | | | | | | | | | |
| Local Currency Bond ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 50,919 | | | | — | |
| VanEck Vectors Russia ETF | | Morgan Stanley | | (0.37) | | 5/19/2016 | | | (1,118 | ) | | | — | |
| Vanguard FTSE Developed | | | | | | | | | | | | | | |
| Markets ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 566,619 | | | | — | |
| Vanguard FTSE Developed | | | | | | | | | | | | | | |
| Markets ETF | | Bank of America Merrill Lynch | | 0.94 | | 6/30/2017 – 9/29/2017 | | | 188,946 | | | | — | |
| Vanguard FTSE Emerging | | | | | | | | | | | | | | |
| Markets ETF | | Bank of America Merrill Lynch | | (0.06) – 0.21 | | 8/31/2017 – 9/29/2017 | | | (269,764 | ) | | | — | |
| Vanguard FTSE Emerging | | | | | | | | | | | | | | |
| Markets ETF | | Morgan Stanley | | (0.60) | | 5/19/2016 | | | (804,054 | ) | | | — | |
| Vanguard FTSE Europe ETF | | Bank of America Merrill Lynch | | 0.94 | | 10/31/2017 | | | 252,192 | | | | — | |
| Vanguard FTSE Europe ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 757,174 | | | | — | |
| Vanguard FTSE Pacific ETF | | Bank of America Merrill Lynch | | (0.94) | | 9/29/2017 | | | (316,854 | ) | | | — | |
| Vanguard FTSE Pacific ETF | | Morgan Stanley | | (0.80) | | 5/19/2016 | | | (947,564 | ) | | | — | |
| Vanguard Growth ETF | | Bank of America Merrill Lynch | | 0.94 | | 7/31/2017 – 10/31/2017 | | | 145,953 | | | | — | |
| Vanguard Growth ETF | | Morgan Stanley | | 1.32 | | 5/19/2016 | | | 436,909 | | | | — | |
| Vanguard REIT ETF | | Bank of America Merrill Lynch | | (0.90) – (0.06) | | 4/28/2017 – 10/31/2017 | | | (570,273 | ) | | | — | |
| Vanguard REIT ETF | | Morgan Stanley | | (0.85) | | 5/19/2016 | | | (1,709,020 | ) | | | — | |
| Vanguard Short-Term Bond ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 7,637,153 | | | | — | |
| Vanguard Short-Term Bond ETF | | Bank of America Merrill Lynch | | 0.94 | | 6/30/2017 – 10/31/2017 | | | 2,545,825 | | | | — | |
| Vanguard Small-Cap Growth ETF | | Bank of America Merrill Lynch | | 0.94 | | 8/31/2017 – 9/29/2017 | | | 347,782 | | | | — | |
| Vanguard Small-Cap Growth ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 1,039,606 | | | | — | |
| Vanguard Small-Cap Value ETF | | Bank of America Merrill Lynch | | (3.05) – (2.25) | | 8/31/2017 – 9/29/2017 | | | (1,055,699 | ) | | | — | |
| Vanguard Small-Cap Value ETF | | Morgan Stanley | | (2.89) | | 5/19/2016 | | | (3,148,893 | ) | | | — | |
| Vanguard Total Bond Market ETF | | Morgan Stanley | | 1.20 | | 5/19/2016 | | | 2,387,628 | | | | — | |
| Vanguard Total Bond Market ETF | | Bank of America Merrill Lynch | | 0.94 | | 5/31/2017 – 9/29/2017 | | | 795,765 | | | | — | |
| Vanguard Value ETF | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 1,681,331 | | | | — | |
| Vanguard Value ETF | | Bank of America Merrill Lynch | | 0.94 | | 3/31/2017 – 10/31/2017 | | | 562,563 | | | | — | |
| WisdomTree Emerging Markets | | | | | | | | | | | | | | |
| Local Debt Fund | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 15,174 | | | | — | |
| WisdomTree International SmallCap | | | | | | | | | | | | | | |
| Dividend Fund | | Morgan Stanley | | 1.37 | | 5/19/2016 | | | 6,544 | | | | — | |
| Net Unrealized Appreciation (Depreciation) | | | | | | | | | | $ | — | |
The total value of securities segregated as collateral for swap contracts with Morgan Stanley amounted to $28,212,737 and with Bank of America Merrill Lynch amounted to $9,083,435 at April 30, 2016.
Morgan Stanley and Bank of America Merrill Lynch act as the counterparties to the total return swap contracts listed above. The Fund either receives fees from, or pays to the counterparty, the total return of the benchmark and the agreed-upon financing rate.
| 1 | Reflects a Reset date of April 30, 2016. |
See notes to financial statements.
| Schedule of Investments (continued) |
| April 30, 2016 |
The following is a summary of the fair valuations according to the inputs used as of April 30, 2016 for valuing the Fund’s assets and liabilities.
For more information on the valuation techniques, and their aggregation into the levels used in the table below, please refer to Note 2.
Asset Valuation Inputs
| Description | | Level 1 | | Level 2 | | Level 3 | | Total |
| Investments in Securities:(a) | | | | | | | | | | | | | | | | |
| Exchange Traded Notes | | $ | 933,275 | | | $ | — | | | $ | — | | | $ | 933,275 | |
| Investment Companies | | | 110,315,634 | | | | — | | | | — | | | | 110,315,634 | |
| Short-Term Investment: | | | | | | | | | | | | | | | | |
| Money Market Fund | | | 739,380 | | | | — | | | | — | | | | 739,380 | |
| Investment of Cash Collateral for | | | | | | | | | | | | | | | | |
| Securities Loaned: | | | | | | | | | | | | | | | | |
| Money Market Fund | | | 5,062,770 | | | | — | | | | — | | | | 5,062,770 | |
| Total Investments in Securities | | $ | 117,051,059 | | | $ | — | | | $ | — | | | $ | 117,051,059 | |
| Other Financial Instruments | | | | | | | | | | | | | | | | |
| Swap Contracts | | | — | | | | — | (b) | | | — | | | | — | |
| Total Investments in Securities and Other | | | | | | | | | | | | | | | | |
| Financial Instruments | | $ | 117,051,059 | | | $ | — | | | $ | — | | | $ | 117,051,059 | |
Liability Valuation Inputs
| Description | | | Level 1 | | | | Level 2 | | | | Level 3 | | | | Total | |
| Other Financial Instruments | | | | | | | | | | | | | | | | |
| Swap Contracts | | $ | — | | | $ | — | (b) | | $ | — | | | $ | — | |
| Total Other Financial Instruments | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| (a) | For a complete listing of investments and their industries, see the Schedule of Investments. |
| (b) | The value listed for these securities reflects the unrealized appreciation (depreciation) of the instrument. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended April 30, 2016, the Fund did not have any transfers between any levels within the fair value hierarchy. (See Note 2)
The Fund did not hold any level 3 securities as of April 30, 2016.
See notes to financial statements.
| Statement of Assets and Liabilities |
| April 30, 2016 |
| Assets | | | | |
| Investments, at value, (including securities loaned of $4,942,074) (cost $113,983,400) | | $ | 117,051,059 | |
| Due from Broker | | | 959,914 | |
| Receivable for capital shares sold | | | 123,544 | |
| Prepaid expenses and other receivables | | | 7,328 | |
| Total Assets | | | 118,141,845 | |
| |
| Liabilities | | | | |
| Collateral for securities on loan | | | 5,062,770 | |
| Due to broker | | | 1,130,850 | |
| Payable for capital shares redeemed | | | 372,225 | |
| Advisory fees payable | | | 86,618 | |
| Distribution fees payable — Class A | | | 1,600 | |
| Accrued expenses | | | 139,791 | |
| Total Liabilities | | | 6,793,854 | |
| Net Assets | | $ | 111,347,991 | |
| |
| Composition of Net Assets | | | | |
| Common stock, at par | | $ | 11,317 | |
| Paid-in capital in excess of par | | | 115,759,781 | |
| Overdistributed net investment income | | | (486,555 | ) |
| Accumulated net realized loss from investment securities and swap transactions | | | (7,004,211 | ) |
| Net unrealized appreciation on investment securities and swap transactions | | | 3,067,659 | |
| Net Assets | | $ | 111,347,991 | |
NET ASSET VALUE PER SHARE
($0.001 par value common stock, unlimited authorized shares)
| Class | | Net Assets | | Shares
Outstanding | | Net Asset
Value |
| Class A | | $ | 7,759,748 | | | | 791,327 | | | $ | 9.81 | |
| Class I | | $ | 103,588,243 | | | | 10,525,879 | | | $ | 9.84 | |
| |
| Maximum Sales Charge Imposed on Class A Purchases (as a percentage of offering price) | | | | 5.50% |
| |
| Maximum Offering Price Per Share — Class A | | | $ | 10.38 | |
See notes to financial statements.
| Statement of Operations |
| For the Year Ended April 30, 2016 |
| Investment Income | | | | | | | | |
| Dividend income | | | | | | $ | 3,311,183 | |
| Securities lending income, net of borrower rebates | | | | | | | 77,172 | |
| Total Investment Income | | | | | | | 3,388,355 | |
| |
| Expenses | | | | | | | | |
| Advisory fees | | $ | 1,443,605 | | | | | |
| Professional fees | | | 146,857 | | | | | |
| Transfer agent fees | | | 140,255 | | | | | |
| Administrative and accounting fees | | | 111,294 | | | | | |
| Trustee fees and expenses | | | 98,692 | | | | | |
| Blue sky fees | | | 55,314 | | | | | |
| Custodian fees | | | 36,083 | | | | | |
| Distribution fee — Class A | | | 33,370 | | | | | |
| Insurance fees | | | 31,394 | | | | | |
| Shareholder reporting fees | | | 29,094 | | | | | |
| Compliance fees | | | 25,000 | | | | | |
| Registration fees | | | 12,000 | | | | | |
| Miscellaneous fees | | | 942 | | | | | |
| Total expenses | | | | | | | 2,163,900 | |
| Net Investment Income | | | | | | | 1,224,455 | |
| |
| Realized and Unrealized Gain (Loss) | | | | | | | | |
| Net realized gain (loss) on: | | | | | | | | |
| Investment securities | | | | | | | (3,953,757 | ) |
| Swap transactions | | | | | | | (2,922,731 | ) |
| Distributions from investments in other investment companies | | | | | | | 208,962 | |
| Total net realized loss | | | | | | | (6,667,526 | ) |
| Net change in net unrealized appreciation/(depreciation) on | | | | | | | | |
| Investment securities | | | | | | | (3,948,476 | ) |
| Net realized and unrealized loss | | | | | | | (10,616,002 | ) |
| Net decrease in Net Assets Resulting from Operations | | | | | | $ | (9,391,547 | ) |
See notes to financial statements.
| Statement of Changes in Net Assets |
| | | | For the
Year Ended
April 30, 2016 | | | | For the
Year Ended
April 30, 2015 | |
| Increase (Decrease) in Net Assets from Operations | | | | | | | | |
| Net investment income | | $ | 1,224,455 | | | $ | 2,772,273 | |
| Net realized gain (loss) on investment securities, swap transactions and | | | | | | | | |
| distributions from investments in other investment companies | | | (6,667,526 | ) | | | 7,521,698 | |
| Change in net unrealized appreciation (depreciation) on investment securities | | | (3,948,476 | ) | | | (749,637 | ) |
| Net increase (decrease) in net assets resulting from operations | | | (9,391,547 | ) | | | 9,544,334 | |
| Dividends and Distributions to Shareholders from: | | | | | | | | |
| Net investment income | | | | | | | | |
| Class A | | | (73,080 | ) | | | (352,526 | ) |
| Class I | | | (1,567,568 | ) | | | (4,746,549 | ) |
| Total net investment income dividend distributions to shareholders | | | (1,640,648 | ) | | | (5,099,075 | ) |
| Net realized gains | | | | | | | | |
| Class A | | | (327,610 | ) | | | (647,238 | ) |
| Class I | | | (4,414,570 | ) | | | (7,214,251 | ) |
| Total net realized gain distributions to shareholders | | | (4,742,180 | ) | | | (7,861,489 | ) |
| Capital Share Transactions | | | | | | | | |
| Class A | | | | | | | | |
| Proceeds from shares sold | | | 6,131,896 | | | | 8,579,210 | |
| Cost of shares redeemed | | | (17,116,006 | ) | | | (21,954,714 | ) |
| Proceeds from distributions reinvested | | | 366,499 | | | | 941,212 | |
| Net Decrease from capital share transactions — Class A | | | (10,617,611 | ) | | | (12,434,292 | ) |
| Class I | | | | | | | | |
| Proceeds from shares sold | | | 30,087,679 | | | | 83,967,012 | |
| Cost of shares redeemed | | | (93,732,511 | ) | | | (97,567,767 | ) |
| Proceeds from distributions reinvested | | | 5,501,248 | | | | 11,288,357 | |
| Net Decrease from capital share transactions — Class I | | | (58,143,584 | ) | | | (2,312,398 | ) |
| Total increase (decrease) from capital shares transactions | | | (68,761,195 | ) | | | (14,746,690 | ) |
| Total decrease in net assets | | | (84,535,570 | ) | | | (18,162,920 | ) |
| Net Assets | | | | | | | | |
| Beginning of year | | | 195,883,561 | | | | 214,046,481 | |
| End of year | | $ | 111,347,991 | | | $ | 195,883,561 | |
| (Overdistributed) underdistributed net investment income included in net | | | | | | | | |
| assets at the end of the year | | $ | (486,555 | ) | | $ | 1,657,147 | |
| Changes in Shares Outstanding | | | | | | | | |
| Class A | | | | | | | | |
| Shares outstanding, beginning of year | | | 1,836,804 | | | | 2,951,553 | |
| Shares sold | | | 585,689 | | | | 778,167 | |
| Shares redeemed | | | (1,669,185 | ) | | | (1,982,046 | ) |
| Shares issued for distributions reinvested | | | 38,019 | | | | 89,130 | |
| Shares outstanding, end of year | | | 791,327 | | | | 1,836,804 | |
| Class I | | | | | | | | |
| Shares outstanding, beginning of year | | | 16,219,061 | | | | 16,501,389 | |
| Shares sold | | | 2,943,787 | | | | 7,562,311 | |
| Shares redeemed | | | (9,207,046 | ) | | | (8,912,601 | ) |
| Shares issued for distributions reinvested | | | 570,077 | | | | 1,067,962 | |
| Shares outstanding, end of year | | | 10,525,879 | | | | 16,219,061 | |
See notes to financial statements.
| Financial Highlights |
| Selected Data for a Share of Capital Stock Outstanding |
| | | | CLASS A |
| | | | For the
Year Ended
April 30, 2016 | | | | For the
Year Ended
April 30, 2015 | | | | For the
Year Ended
April 30, 2014 | | | | For the
Year Ended
April 30, 2013 | | | | For the
Year Ended
April 30, 2012 | |
| Net asset value, beginning of year | | $ | 10.82 | | | $ | 10.98 | | | $ | 10.52 | | | $ | 10.23 | | | $ | 10.64 | |
| |
| Income from Investment Operations | | | | | | | | | | | | | | | | | | | | |
| Net investment income1* | | | 0.03 | | | | 0.09 | | | | 0.07 | | | | 0.11 | | | | 0.12 | |
| Net realized and unrealized gain (loss) | | | (0.59 | ) | | | 0.29 | | | | 0.50 | | | | 0.33 | | | | (0.36 | ) |
| Distributions of net realized gains | | | | | | | | | | | | | | | | | | | | |
| from investment in other | | | | | | | | | | | | | | | | | | | | |
| investment companies | | | 0.01 | | | | 0.05 | | | | 0.00 | 2 | | | 0.01 | | | | 0.02 | |
| Net increase (decrease) resulting | | | | | | | | | | | | | | | | | | | | |
| from operations | | | (0.55 | ) | | | 0.43 | | | | 0.57 | | | | 0.45 | | | | (0.22 | ) |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.08 | ) | | | (0.21 | ) | | | (0.04 | ) | | | (0.16 | ) | | | (0.12 | ) |
| Net realized gains | | | (0.38 | ) | | | (0.38 | ) | | | (0.07 | ) | | | — | | | | (0.07 | ) |
| Total distributions to shareholders | | | (0.46 | ) | | | (0.59 | ) | | | (0.11 | ) | | | (0.16 | ) | | | (0.19 | ) |
| Capital share transactions: | | | | | | | | | | | | | | | | | | | | |
| Redemption fees | | | — | | | | — | | | | 0.00 | 2 | | | 0.00 | 2 | | | — | |
| Net asset value, end of year | | $ | 9.81 | | | $ | 10.82 | | | $ | 10.98 | | | $ | 10.52 | | | $ | 10.23 | |
| |
| Total Return | | | | | | | | | | | | | | | | | | | | |
| Total investment return based on | | | | | | | | | | | | | | | | | | | | |
| net asset value3 | | | (4.99 | )% | | | 3.99 | % | | | 5.44 | % | | | 4.42 | % | | | (2.05 | )% |
| |
| Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| Net assets, end of year | | | | | | | | | | | | | | | | | | | | |
| (000’s omitted) | | $ | 7,760 | | | $ | 19,882 | | | $ | 32,408 | | | $ | 24,779 | | | $ | 34,210 | |
| Ratio to average net assets of:4 | | | | | | | | | | | | | | | | | | | | |
| Expenses net of reimbursements | | | 1.90 | % | | | 1.55 | % | | | 1.60 | % | | | 1.56 | % | | | 1.65 | % |
| Expenses before reimbursements | | | 1.90 | % | | | 1.55 | % | | | 1.60 | % | | | 1.56 | % | | | 1.65 | % |
| Net investment Income* | | | 0.29 | % | | | 0.77 | % | | | 0.63 | % | | | 1.06 | % | | | 1.20 | % |
| Portfolio turnover rate | | | 305 | % | | | 116 | %5 | | | 174 | % | | | 197 | % | | | 142 | % |
See footnotes on page 19.
See notes to financial statements.
| Financial Highlights (continued) |
| Selected Data for a Share of Capital Stock Outstanding |
| | | | CLASS I |
| | | | For the
Year Ended
April 30, 2016 | | | | For the
Year Ended
April 30, 2015 | | | | For the
Year Ended
April 30, 2014 | | | | For the
Year Ended
April 30, 2013 | | | | For the
Year Ended
April 30, 2012 | |
| Net asset value, beginning of year | | $ | 10.85 | | | $ | 11.01 | | | $ | 10.55 | | | $ | 10.26 | | | $ | 10.67 | |
|
| Income from Investment Operations | | | | | | | | | | | | | | | | | | | | |
| Net investment income1* | | | 0.09 | | | | 0.14 | | | | 0.12 | | | | 0.14 | | | | 0.17 | |
| Net realized and unrealized gain (loss) | | | (0.60 | ) | | | 0.27 | | | | 0.50 | | | | 0.33 | | | | (0.37 | ) |
| Distributions of net realized gains | | | | | | | | | | | | | | | | | | | | |
| from investment in other | | | | | | | | | | | | | | | | | | | | |
| investment companies | | | 0.01 | | | | 0.06 | | | | 0.00 | 2 | | | 0.02 | | | | 0.02 | |
| Net increase (decrease) resulting | | | | | | | | | | | | | | | | | | | | |
| from operations | | | (0.50 | ) | | | 0.47 | | | | 0.62 | | | | 0.49 | | | | (0.18 | ) |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.13 | ) | | | (0.25 | ) | | | (0.09 | ) | | | (0.20 | ) | | | (0.16 | ) |
| Net realized gains | | | (0.38 | ) | | | (0.38 | ) | | | (0.07 | ) | | | — | | | | (0.07 | ) |
| Total distributions to shareholders | | | (0.51 | ) | | | (0.63 | ) | | | (0.16 | ) | | | (0.20 | ) | | | (0.23 | ) |
| Capital share transactions: | | | | | | | | | | | | | | | | | | | | |
| Redemption fees | | | — | | | | — | | | | 0.00 | 2 | | | 0.00 | 2 | | | — | |
| Net asset value, end of year | | $ | 9.84 | | | $ | 10.85 | | | $ | 11.01 | | | $ | 10.55 | | | $ | 10.26 | |
|
| Total Return | | | | | | | | | | | | | | | | | | | | |
| Total investment return based on | | | | | | | | | | | | | | | | | | | | |
| net asset value3 | | | (4.50 | )% | | | 4.39 | % | | | 5.85 | % | | | 4.78 | % | | | (1.62 | )% |
|
| Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| Net assets, end of year | | | | | | | | | | | | | | | | | | | | |
| (000’s omitted) | | $ | 103,588 | | | $ | 176,001 | | | $ | 181,639 | | | $ | 208,386 | | | $ | 237,466 | |
| Ratio to average net assets of:4 | | | | | | | | | | | | | | | | | | | | |
| Expenses net of reimbursements | | | 1.38 | % | | | 1.16 | % | | | 1.21 | % | | | 1.18 | % | | | 1.16 | % |
| Expenses before reimbursements | | | 1.38 | % | | | 1.16 | % | | | 1.21 | % | | | 1.18 | % | | | 1.16 | % |
| Net investment Income* | | | 0.86 | % | | | 1.28 | % | | | 1.11 | % | | | 1.40 | % | | | 1.62 | % |
| Portfolio turnover rate | | | 305 | % | | | 116 | %5 | | | 174 | % | | | 197 | % | | | 142 | % |
| * | Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the investment companies in which the Fund invests. |
| 1 | Based on average shares outstanding. |
| 2 | Less than $0.005 per share. |
| 3 | Total investment return is calculated by assuming a purchase of shares on the first day, reinvestment of all dividends and distributions at net asset value during the period and a sale of shares on the last day of the period reported. |
| 4 | The ratio to average net assets do not include net investment income or expenses of other investment companies in which the Fund invests. |
| 5 | Portfolio turnover rate excludes the value of securities received or delivered as a result of in-kind transactions. |
See notes to financial statements.
| Notes to Financial Statements |
| April 30, 2016 |
1. ORGANIZATION
IQ Hedge Multi-Strategy Plus Fund (the “Fund”) is a series of the IndexIQ Trust (the “Trust”) which is a statutory trust organized under Delaware law. The Fund is a non-diversified, open-end, management investment company, as defined by the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund offers two classes of shares, Class A Shares and Class I Shares. Both classes have equal rights and voting privileges, except in matters affecting a single class.
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the IQ Hedge Multi-Strategy Plus Index (the “Index”). The Index seeks to provide superior returns (“alpha”) relative to the Standard & Poor’s 500® Composite Stock Total Return Index (the “S&P 500 Index”) with lower volatility than the S&P 500 Index and correlation to the S&P 500 Index that is similar to the correlation between hedge funds (as measured by broad-based hedge fund indexes) and the S&P 500 Index.
Investors may find the financial statements of any issuer whose securities represent a significant amount of the Fund’s assets on the Securities and Exchange Commission’s website (www.sec.gov).
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Account Standards Board (FASB) Accounting Standard Codification Topic 946 Financial Services — Investment Companies. The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
Use of Estimates
Management makes certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of increases and decreases in the net assets from operations during the reporting period. Actual results could differ from those estimates.
Indemnification
In the normal course of business, the Fund may enter into contracts that contain a variety of representations which provide general indemnifications for certain liabilities. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third party service providers that contain a variety of representations and warranties and which may provide general indemnifications.
Investment Valuation
The Net Asset Value (“NAV”) is determined as of the close of trading (generally, 4:00 PM Eastern Time) on each day the New York Stock Exchange (“NYSE”) is open for trading. NAV per share is calculated by dividing the Fund’s net assets by the number of Fund shares outstanding. Securities and investment funds traded on any recognized national or foreign stock exchange are valued at the last close price, or if no close price is available, at the bid price. Securities listed on the NASDAQ Stock Market, Inc. are generally valued at the NASDAQ official closing price. The primary exchanges for the Fund’s foreign equity securities may close for trading at various times prior to the close of regular trading on the NYSE, and the value of such securities used in computing the Fund’s NAV are generally determined as of such time. Securities not listed on a national or foreign stock exchange may be valued on the basis of prices furnished by approved pricing services or at the closing bid price on the over-the-counter market.
If market quotations are not readily available, or if it is determined that a quotation of a security does not represent fair value, then the security is valued at fair value as determined in good faith using procedures adopted by the Board of Trustees (the “Board”). Market prices may not represent fair value, for example, if a security is thinly traded or if an event occurs between the market quotation and the time the security is to be
| Notes to Financial Statements (continued) |
| April 30, 2016 |
valued which is expected to affect the value of the security. The circumstances in which the Board may fair value a security include, among others: the occurrence of events that are significant to a particular issuer, such as mergers, restructurings or defaults; the occurrence of events that are significant to an entire market, such as natural disasters in a particular region or government actions; trading restrictions on securities; thinly traded securities; and market events such as trading halts and early market closings. Due to the inherent uncertainty of valuations, fair values may differ significantly from the values that would have been used had an active market existed. Fair valuation could result in a different NAV than a NAV determined by using market quotes. Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates current market value. Investments in open end regulated investment companies are valued at net asset value. Price information on Exchange Traded Funds is taken from the exchange where the security is primarily traded.
A swap on an exchange-listed security or securities is valued based on the last reported sale price of the swap’s underlying security or securities on the exchange where the security or securities is primarily traded, or if no sale price is available, at the mid-price of the security or securities underlying the swap on the exchange where the security is primarily traded. A swap on an index is valued based on the publicly available index price. The index price, in turn, is determined by the applicable index calculation agent, which generally values the securities underlying the index at the last reported sale price.
The Fund automatically sweeps uninvested cash balances into a money market fund, the Dreyfus Treasury & Agency Cash Management Institutional Shares. The Dreyfus Treasury & Agency Cash Management Institutional Shares seeks as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. Dreyfus Treasury & Agency Cash Management Institutional Shares has no redemption restriction and is valued at the daily NAV.
Under normal conditions, the Fund invests cash collateral from securities lending activities into Dreyfus Government Cash Management Fund. The Dreyfus Government Cash Management Fund’s investment objective is to maximize current income to the extent consistent with the preservation of capital and the maintenance of liquidity. Dreyfus Government Cash Management Fund has no redemption restrictions and is valued at the daily NAV.
Fair Value Measurement
Accounting Standards Codification, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and requires disclosure about fair value measurements. It also provides guidance on determining when there has been a significant decrease in the volume and level of activity for an asset or liability, when a transaction is not orderly, and how that information must be incorporated into fair value measurement. Under ASC 820, various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the following hierarchy:
| • | Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. |
| • | Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. |
| • | Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The inputs or methodology used for valuing instruments are not necessarily an indication of the risk associated with investing in those instruments.
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that
| Notes to Financial Statements (continued) |
| April 30, 2016 |
valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. With respect to the valuation of Level 3 securities, IndexIQ Advisors LLC (the “Advisor”) may employ a market-based valuation approach which may use related or comparable securities, recent transactions, market multiples, book values, and other relevant information to determine fair value. The Advisor may also use an income-based valuation approach in which anticipated future cash flows of the financial instrument are discounted to calculate fair value. The Advisor representatives meet regularly to review and discuss the appropriateness of such fair values using more current information such as, recent security news, recent market transactions, updated corporate action information and/or other macro or security specific events.
All other securities and investments for which market values are not readily available, including restricted securities, and those securities for which it is inappropriate to determine prices in accordance with the aforementioned procedures, are valued at fair value as determined in good faith under procedures adopted by the Board, although the actual calculations may be done by others. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer’s financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances.
At April 30, 2016, the aggregate value by input level of the Fund’s assets and liabilities is included at the end of the Fund’s Schedule of Investments.
Tax Information, Dividends and Distributions to Shareholders and Uncertain Tax Positions
The Fund is treated as a separate entity for federal income tax purposes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Distributions to shareholders are recorded on the ex-dividend date. Therefore, no federal, state and local income tax provisions are required.
The Fund intends to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, by distributing substantially all of its net investment income and net realized gains to shareholders. Dividends and/or distributions, if any, are paid to shareholders invested in the Fund on the applicable record date. Dividends paid by the Fund with respect to all classes of shares are calculated in the same manner and at the same time, but dividends on Class A Shares may be lower than dividends on the Class I Shares as a result of the service and/or distribution fees applicable to Class A Shares. Net realized long-term and short-term capital gains, if any, will be distributed by the Fund at least annually. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with Federal income tax regulations which may differ from GAAP. These “book/tax” differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets based on their Federal tax basis treatment; temporary differences do not require reclassification. Dividends and distributions, which exceed earnings and profit for tax purposes are reported as a tax return of capital.
Management evaluates the Fund’s tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for open tax years (for up to three tax years), and has concluded that no provisions for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
| Notes to Financial Statements (continued) |
| April 30, 2016 |
The Fund has concluded that there is no tax liability resulting from uncertain income tax positions taken or expected to be taken.
Cash Equivalents
Cash equivalents consist of highly liquid investments, with maturities of three months or less when acquired, and are disclosed as Short-Term Investments in the Schedule of Investments.
Security Transactions
Security transactions are recorded as of the trade date. Realized gains and losses on sales of investment securities are calculated using the identified cost method.
Securities Lending
The Bank of New York Mellon serves as the Fund’s securities lending agent. The Fund may lend portfolio securities to certain creditworthy borrowers, including the Fund’s securities lending agent. It is the Fund’s policy that, at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral in the form of cash and/or high grade debt obligations, equivalent to at least 100% of the market value of securities loaned, is maintained at all times. Cash collateral can be invested in certain money market mutual funds which also have exposure to the fluctuations of the market. The Fund receives compensation for lending its securities from interest or dividends earned on the cash or U.S. government securities held as collateral, net of fee rebates paid to the borrower plus reasonable administrative and custody fees. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income. The borrower pays to the Fund an amount equal to any dividends or interest received on loaned securities. Lending portfolio securities could result in a loss or delay in recovering the Fund’s securities if the borrower defaults.
The Fund’s security lending activities are governed by a Securities Lending Authorization Agreement (“Lending Agreement”) between the Fund and the lending agent. The Lending Agreement authorizes the lending agent to lend qualifying U.S. and foreign securities held by the Fund to approved borrowers (each a “Borrower”). To mitigate borrower risk, the Fund typically receives from a Borrower, collateral in the form of U.S. dollar cash and/or securities issued or guaranteed by the U.S. Government or its agencies in excess of the market value of the securities loaned. Under the provisions of the Lending Agreement, the Fund shall have, as to the collateral, all of the rights and remedies of a secured party under applicable law. The Fund is exposed to risk of loss if a Borrower defaults on its obligation to return borrowed securities and the value of the collateral the Fund received is insufficient to cover the market value of the securities loaned. Also, the lending agent is permitted to invest the cash collateral it receives from a Borrower into a money market fund which is subject to market fluctuation. Therefore, the Fund is exposed to risk of loss if the value of invested cash collateral is insufficient to satisfy the Fund’s obligation to return the full amount owed to such Borrower.
In accordance with the securities lending agreement between the Fund and the Bank of New York Mellon, the Fund will be indemnified by the Bank of New York Mellon in the event of a default by a Borrower.
The securities lending income earned by the Fund is disclosed on the Statement of Operations. The value of loaned securities and related collateral outstanding at April 30, 2016 are shown on a gross basis in the Schedule of Investments and Statement of Assets and Liabilities.
Master Netting Arrangements
In order to better define its contractual rights and to secure rights that will help a fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between a fund and a counterparty that governs over-the-counter derivatives (“OTC”), including Forward Contracts, and typically contains, among other things, collateral posting terms, netting and rights of
| Notes to Financial Statements (continued) |
| April 30, 2016 |
set-off provisions in the event of a default and/or termination event. Generally, the amount of collateral due from or to counterparty must exceed a minimum transfer amount threshold before a transfer is required to be made. To the extent amounts due to the Fund from its derivatives counterparties are not fully collateralized, contractually or otherwise, the fund bears the risk of loss from counterparty non-performance.
For financial reporting purposes, the Fund does not offset assets and liabilities subject to master netting arrangements or similar arrangements in the Statement of Assets and Liabilities. Therefore, all qualifying transactions are presented on a gross basis in the Statement of Assets and Liabilities. As of April 30, 2016, the Fund has transactions subject to enforceable master netting agreements and securities lending transactions.
Total Return Swap contracts are valued at the unrealized appreciation/depreciation of the instrument. Securities segregated as collateral for swap contracts are footnoted within the Fund’s Schedule of Investments and the cash collateral is noted at the end of the Fund’s swap table.
At April 30, 2016 the unrealized appreciation/depreciation for the Fund was zero, reflecting a reset date at year end based on the contractual agreement with Morgan Stanley Capital Services LLC and Bank of America Merrill Lynch, the Fund’s counterparties.
As of April 30, 2016, the impact of netting of assets and liabilities and offsetting of collateral pledged or received based on contractual netting provisions in the Lending Agreement are detailed in the following table:
| | | | Assets | | | | Liabilities |
| Fund | | | Gross Amounts
Presented in
Statement of
Assets and
Liabilities | | | | Collateral
Received | | | | Net Amount | | | | Gross Amounts
Presented in
Statement of
Assets and
Liabilities | | | | Collateral
Pledged | | | | Net Amount | |
| IQ Hedge Multi-Strategy | | | | | | | | | | | | | | | | | | | | | | | | |
| Plus Fund | | | | | | | | | | | | | | | | | | | | | | | | |
| Securities Lending | | $ | 4,942,074 | | | $ | (4,942,074 | )1 | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| 1 | The amount of collateral presented is limited such that the net amount cannot be less than zero. |
Investment Income and Expenses
Dividend income is recognized on the ex-dividend date. Interest income is accrued daily. Distributions of realized capital gains by (other than class specific expenses) underlying funds are recorded as realized capital gains on the ex-date. The Fund’s investment income, expenses and unrealized and realized gains and losses are allocated daily between share classes based on the net asset value of that class in relation to the net asset value of the Fund. Class level expenses are allocated to the respective class as incurred. The Fund distributes all or substantially all of its net investment income to shareholders in the form of dividends. Net investment income and net capital gains are typically distributed to shareholders at least annually. Dividends may be declared and paid more frequently to comply with the distribution requirements of the Internal Revenue Code. The expenses of the investment companies in which the Fund invests are not included in the amounts shown as expenses on the Statement of Operations or in the expense ratios included in the financial highlights.
3. INVESTMENT MANAGEMENT AND OTHER AGREEMENTS
Investment Advisory Agreement
The Advisor serves as the investment advisor to the Fund and is an indirect wholly-owned subsidiary of New York Life Investment Management Holdings LLC. Under an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Fund, the Advisor provides a continuous investment program for the Fund’s assets in accordance with its investment objectives, policies and limitations, and oversees the day-to-day operations of the Fund, subject to the supervision of the Independent Trustees (“Trustees”). Pursuant to the Advisory Agreement, the Fund pays the Advisor an advisory fee at an annual rate of 0.95% of the Fund’s average daily net assets. Such fee is accrued daily and paid monthly.
| Notes to Financial Statements (continued) |
| April 30, 2016 |
The Advisor has entered into an Expense Limitation Agreement with the Fund under which it has agreed to waive or reduce its fees and to assume other expenses of the Fund, if necessary, in an amount that limits “Total Annual Fund Operating Expenses” (exclusive of interest, taxes, brokerage fees and commissions, dividends paid on short sales, acquired fund fees and expenses, extraordinary expenses, and payments, if any) to not more than 1.65% and 1.90% of the average daily net assets for the Class I Shares and the Class A Shares, respectively, for the Fund for the twelve months ending April 30, 2016. The expense limitation agreement allows the Advisor to recover reimbursements made to the extent that the Fund’s expense ratios fall below the above indicated expense limitation. The amounts that can be recovered are limited to the difference between the actual expense ratio and the amount of the expense limitation in place at that time. Under the terms of the agreement, the Advisor can only recover such amounts for a period of up to three years after the reimbursement. This agreement can be extended year to year thereafter provided such continuance is specifically approved by a majority of the Independent Trustees of the Trust (“Independent Trustees”).
At April 30, 2016, there were no recoupment amounts subject to future recovery.
Distribution Agreement (12b-1 Fees)
NYLIFE Distributors, LLC (the “Distributor”) serves as the Fund’s Distributor. The Board has adopted a Distribution Service Agreement (“Distribution Agreement”) pursuant to Rule 12b-1 under the 1940 Act with respect to the Class A Shares and Class I Shares. The Distribution Agreement allows for the payment of services related to the distribution and servicing of shares at a rate of up to 0.25% per annum of the average daily net asset value of the Class A Shares of the Fund.
The Fund was advised by the Distributor that the amount of sales charges retained by the Distributor on sales of Class A Shares was $0 for the year ended April 30, 2016. The Distributor retained CDSCs on redemptions of Class A Shares of $0 for the year ended April 30, 2016. There is no sales charge on Class I Shares.
Administrator, Custodian and Accounting Agent
The Bank of New York Mellon (in each capacity, the “Administrator,” “Custodian” or “Accounting Agent”) serves as the Fund’s Administrator, Custodian and Accounting Agent pursuant to the Fund Administration and Accounting Agreement. The Bank of New York Mellon is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Transfer Agent
BNY Mellon Investment Servicing (U.S.) Inc. serves as the Fund’s transfer agent.
4. CAPITAL SHARE TRANSACTIONS
As of April 30, 2016, there were an unlimited number of common stock shares at $0.001 par value authorized by the Fund. Investors may purchase or redeem Class A and Class I Shares of the Fund at their NAV, based on the next calculation of NAV after the order is placed. Redemption requests are processed at the next NAV on the effective date of redemption.
5. FEDERAL INCOME TAX
At April 30, 2016, the cost of investments (including securities on loan) on a tax basis was as follows:
| Cost | | Gross
Unrealized
Appreciation | | Gross
Unrealized
Depreciation | | Net Unrealized
Appreciation |
| $115,385,810 | | $1,770,947 | | $(105,698) | | $1,665,249 |
The differences between book and tax basis cost of investments and net unrealized appreciation (depreciation) are primarily attributable to wash sale loss deferrals and nontaxable distributions from regulated investment companies.
| Notes to Financial Statements (continued) |
| April 30, 2016 |
At April 30, 2016, the components of undistributed or accumulated earnings/loss on a tax-basis were as follows:
Ordinary
Income/(Loss)1 | | Net Capital
and Other
Gains/(Losses)2 | | Net Unrealized
Appreciation | | Total
Earnings/(Loss) |
| $(487,015) | | $(5,601,341) | | $1,665,249 | | $(4,423,107) |
The differences between book and tax basis components of net assets are primarily attributable to wash sale loss deferrals and other book and tax differences.
The tax character of distributions paid from ordinary income during the years ended April 30, 2016 and April 30, 2015 were $2,403,524 and $8,398,289 respectively. $3,979,304 was distributed from long term capital gains during the fiscal year ended April 30, 2016 and $4,562,275 long term capital gains were distributed for the fiscal year ended April 30, 2015.
| 1 | Includes late year ordinary losses of $487,015. |
| 2 | Amount includes the deferral of post October losses of $1,939,779. |
At April 30, 2016, the effect of permanent book/tax reclassifications resulted in increases (decreases) to the components of net assets as follows:
Undistributed
Net Investment
Income | | Accumulated
Capital
and Other
Gains/(Losses) | | Paid-in Capital |
| $(1,727,509) | | $1,727,203 | | $306 |
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to the tax treatment of swap contracts and pass through investments.
At April 30, 2016, the Fund had net capital loss carryforwards for Federal income tax purposes which are available for offset against future taxable net capital gains. The amounts were determined after adjustments for certain differences between financial reporting and tax purposes, such as wash sale losses. Accordingly, no capital gain distributions are expected to be paid to shareholders until future net capital gains have been realized in excess of the available capital loss carryforwards. These capital loss carryforwards have no expiration.
| Short-Term | | Long-Term | | Utilized In
Current Year |
| $3,661,562 | | $ — | | $ — |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments) for the year ended April 30, 2016 were $463,682,596 and $538,543,150, respectively.
7. DERIVATIVE FINANCIAL INSTRUMENTS
Swap Transactions
A swap agreement is an agreement between two parties pursuant to which the parties exchange payments at specified dates on the basis of a specified notional amount, with the payments calculated by reference to specified securities, indexes, reference rates or other instruments. Most swap agreements provide that when the period payment dates for both parties are the same, the payments are made on a net basis (i.e., the two payment streams are netted out, with only the net amount paid by one party to the other). The Fund’s obligations or rights under a swap agreement entered into on a net basis will generally be equal only to the net amount to be paid or received under the agreement, based on the relative values of the notional positions held by each counterparty. Swap agreements are not entered into or traded on exchanges and there is no central clearing or guaranty function for total return swaps. Therefore, swaps are subject to credit risk or the risk of default or non-performance by the counterparty. Swaps could result in losses if interest rate or credit quality changes are not correctly anticipated by the Fund or if the reference index, security or investments do not perform as expected. Such loss could be in excess of the related amounts reflected in the Fund’s Statement of Assets and Liabilities. Total return swaps can give the Fund the right to receive the appreciation in the value of a specified
| Notes to Financial Statements (continued) |
| April 30, 2016 |
security, index or other instrument in return for a fee paid to the counterparty, which will typically be an agreed upon interest rate. Total return swaps can also be used to replicate an exposure to a short position in an asset class where the Fund has the right to receive the depreciation in value of a specified security, index or other instrument (“inverse swaps”). If the underlying asset in a total return swap declines in value (or increases in value, if an inverse swap) over the term of the swap, the Fund may also be required to pay the dollar value of that decline (or increase, if an inverse swap) to the counterparty.
The value of a total return swap agreement is recorded as either an asset or a liability on the Statement of Assets and Liabilities at the beginning of the measurement period. Segregated securities are designated on the Schedule of Investments and cash deposited is recorded on the Statement of Assets and Liabilities. Daily changes in valuation of total return swaps, if any, are recorded as unrealized appreciation or depreciation on the Statement of Assets and Liabilities. The change in the value of swaps, including accruals of periodic amounts of interest to be paid or received on swaps, is reported as change in net unrealized appreciation/depreciation in the Statement of Operations. A realized gain or loss is recorded upon payment or receipt of a periodic payment or payment made upon termination of a swap agreement.
When the Fund has an unrealized loss on a swap agreement, the Fund has instructed the custodian to pledge cash or liquid securities as collateral with a value at least equal to the amount of the unrealized loss. Collateral pledges are monitored and subsequently adjusted with the fluctuations of the swap value.
During the year ended April 30, 2016, the Fund utilized swaps to affect long and short exposure to several asset classes, including, among others, real estate, domestic equity, international equity, investment grade corporate bonds, high yield corporate bonds, convertible bonds, and U.S. short-term Treasury bonds. In addition, the Fund employed swaps to leverage the Fund’s portfolio by approximately 25%. Both types of exposures affected by the swaps were consistent with the exposures of the Fund’s Underlying Index. The Fund segregates liquid assets, which may include securities, cash or cash equivalents, to cover the Fund’s daily marked-to-market net obligations under outstanding swap agreements. At April 30, 2016, the Fund posted $37,296,172 as collateral for swaps.
Pursuant to documentation governing the Fund’s swap transactions between the Fund and its counterparties, Morgan Stanley Capital Services LLC (“Morgan Stanley”) and Bank of America Merrill Lynch (“Merrill Lynch”), the counterparties have the right to terminate the swaps early in the event that the net assets of the Fund decline below specific levels set forth in the documentation (“net asset contingent features”). In the event of early termination, the counterparties may require the Fund to pay or receive a settlement amount in connection with the terminated swap transaction. As of April 30, 2016, the Fund has not triggered the conditions under such documentation that will give a counterparty the right to call for an early termination. As of such date, the settlement value of these contracts was approximately equal to the fair value of such contracts.
At April 30, 2016, the fair values of open total return swap contracts were zero and therefore no derivative instruments were reflected on the Statement of Assets and Liabilities. As a result of April 30, 2016 being a swap reset date, the swap values reset to zero and the net unrealized appreciation or depreciation settled through cash and is reflected in net realized gain on swap transactions on the statement of operations.
Transactions in derivative instruments reflected on the Statement of Operations during the year ended April 30, 2016, were as follows:
| | | Equity Risk | | Total |
| Net Realized Loss | | | | |
| Total Return Swap transactions | | | ($2,922,731 | ) | | | ($2,922,731 | ) |
| Net realized loss | | | ($2,922,731 | ) | | | ($2,922,731 | ) |
| Notes to Financial Statements (continued) |
| April 30, 2016 |
For the year ended April 30, 2016, the monthly average notional volume of derivatives was as follows:
| | | | Monthly
Average Volume | |
Long
Swaps
Short
Swaps | | | $ 50,350,701 $(91,858,177 | ) |
8. INVESTMENT RISKS
The Fund is subject to the principal risks described below, some or all of these risks may adversely affect the Fund’s NAV, yield, total return and ability to meet its investment objective. As with any investment, an investment in the Fund could result in a loss or the performance of the Fund could be inferior to that of other investments.
Fund of Funds Risk
The Fund’s investment performance, because it is a fund of funds, depends on the investment performance of the underlying ETFs in which it invests. An investment in the Fund is subject to the risks associated with the underlying ETFs that comprise the Fund’s Underlying Index. The Fund will indirectly pay a proportional share of the fees, if any, of the underlying ETFs in which it invests.
Exchange Traded Vehicle Risk
Unlike an investment in a mutual fund, the value of the Fund’s investment in ETFs, exchange-traded vehicles (“ETVs”), and exchange-traded notes (“ETNs”) is based on stock market prices and the Fund could lose money due to stock market developments, the failure of an active trading market to develop or exchange trading halts or de-listings. Federal law prohibits the Fund from acquiring investment company shares, including shares of ETFs, in excess of specific thresholds unless exempted by rule, regulation or exemptive order. These prohibitions may prevent the Fund from allocating its investments to ETFs in an optimal manner.
Index Risk
The Underlying Index may not be successful in replicating the performance of its target strategies. There is a risk that hedge fund return data provided by third party hedge fund data providers may be inaccurate or may not accurately reflect hedge fund returns due to survivorship bias, self-reporting bias or other biases. In constructing the underlying strategies of the Index, the Advisor may not be successful in replicating the returns of the hedge fund indexes. In addition, the Index may not achieve its objective of producing superior returns to the S&P 500 Index with lower volatility than the S&P 500 Index and a correlation to the S&P 500 Index that is similar to the correlation between the performance of hedge funds (as measured by broad-based hedge fund indexes) and the S&P 500 Index.
Industry Concentration Risk
The Fund will not invest 25% or more of the value 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; except that, to the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry. The risk of concentrating Fund investments in a limited number of issuers conducting business in the same industry or group of industries will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
Total Return Swap Risk
The Fund intends to use total return swaps in several ways to replicate the performance of the Index. Consequently, the performance of the Fund’s total return swaps will be a significant component of the Fund’s performance. Risks may arise as a result of the failure of the counterparty to the swap contract to comply with the terms of the swap contract. Therefore the Fund considers the creditworthiness of the counterparty to a swap contract in evaluating potential credit risk. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying instruments.
9. SUBSEQUENT EVENTS
The Fund has evaluated subsequent events through the date of issuance of this report and has determined that there are no other material events that would require disclosure.
| Report of Independent Registered Public Accounting Firm |
To the Board of Trustees of the IndexIQ Trust and Shareholders of IQ Hedge Multi-Strategy Plus Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of IQ Hedge Multi-Strategy Plus Fund (the “Fund”, a portfolio of IndexIQ Trust) at April 30, 2016, and the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at April 30, 2016 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion.
The financial statements of the Fund as of and for periods ended on or before April 30, 2014 were audited by other auditors whose report dated June 27, 2014 expressed an unqualified opinion on those statements.
New York, New York
June 28, 2016
| Supplemental Information (unaudited) |
Federal Tax Status of Dividends Declared During the Tax Year
Qualified Dividend Income — For the Fiscal year ended April 30, 2016 the Fund designated 17.15% as ordinary income dividends, or maximum amount allowable, as qualifying for the reduced tax rate under the Jobs and Growth Tax Relief Reconciliation Act of 2003.
Dividend Received Deduction — Corporate shareholders are generally entitled to take the dividend received deduction on the portion of the Fund's dividend distribution that qualifies under the tax law. The percentage for the Fund's ordinary income dividend that qualifies for the corporate dividend received deduction is 5.73% for the fiscal year ended April 30, 2016.
In January 2017, you will be advised on IRS Form 1099 DIV as to the Federal tax status of the distributions received by you in calendar year 2016.
| Board of Trustees and Officers (unaudited) |
The business of the Trust is managed under the direction of the Trust’s Board of Trustees. The Board elects the officers of the Trust who are responsible for administering the Trust’s day-to-day operations. Each Trustee serves until his or her successor is duly elected or appointed and qualified.
The name, year of birth, address and principal occupations during the past five years for each Trustee and Officer of the Trust is set forth below, along with the other public directorships held by the Trustees.
Name and
Year of Birth1 | | Position(s)
Held with
Trust | | Term of
Office and
Length of
Time Served2 | | Principal Occupation(s) During Past 5 Years | | Number of
Portfolios
in Fund
Complex
Overseen
by Trustee3 | | Other
Directorships
Held by
Trustee
During Past
5 Years |
| |
| Reena Aggarwal 1957 | | Trustee | | Since August 2008 | | Robert E. McDonough Professor (2003 to present) and Professor of Finance (2000 to 2003), McDonough School of Business, Georgetown University (2000 to present); Co-Chair of Board, Social Innovations and Public Service Fund, Georgetown University (2012 to present); and Director, Brightwood Capital Advisors, L.P. (2013 to present). | | 18 | | FBR & Co. (2011 to present)
Hennessy Funds Trust (fka The FBR Funds) (2006 to 2011) |
| | | | | | | | | | | |
|
| Michael A. Pignataro 1959 | | Trustee | | Since April 2015 | | Proprietor, Countless Collectables LLC (online retailer) (2009 to present); Director, Credit Suisse Asset Management (2001 to 2013); and Chief Financial Officer, Credit Suisse Funds (1996 to 2013). | | 18 | | The New Ireland Fund, Inc. (closed-end fund) (2015 to present) |
| |
| Paul D. Schaeffer 1951 | | Trustee | | Since April 2015 | | President, AlphaHut (dba Aspiring Solution Partners) (financial services consulting) (2013 to present); Managing Director, Forward Management LLC (asset management) (2010 to 2013); and President, Reflow) Management (mutual fund service provider (2008 to 2010). | | 18 | | Context Capital Funds (mutual fund trust) (2014 to present); PopTech! (conference operator) (2012 to present) |
Adam S. Patti4
1970 | Chairman and Trustee
President and Principal Executive Officer | Since November 2008
Since July 2008 | Chairman, Trustee, President and Principal Executive, IndexIQ Trust (2008 to present); Chief Executive Officer, the Advisor (2007 to present); and Chief Executive Officer, IndexIQ (2006 to present). | 18 | None |
Name and
Year of Birth1 | | Position(s)
Held with
Trust | | Term of
Office and
Length of
Time Served2 | | Principal Occupation(s) During Past 5 Years |
|
Matthew V. Curtin
1982 | | Secretary, Chief Compliance Officer | | Since June 2015 | | Chief Compliance Officer, IndexIQ (since June 2015); Associate General Counsel, New York Life Insurance Company (since February 2015); Associate, Dechert LLP (2007 to 2015) |
| | | | | | | |
|
David L. Fogel
1971 | | Treasurer, Principal Financial Officer
Executive Vice President | | Since October 2008
Since June 2011 | | Treasurer, Principal Financial Officer, IndexIQ Trust (2008 to present); Executive Vice President, IndexIQ Trust (2011 to present); President (2013 to present) and Executive Vice President (2006 to 2013), IndexIQ; and formerly, Chief Compliance Officer, IndexIQ Trust (2008-2015). |
| 1 | The address of each Trustee or officer is c/o IndexIQ, 800 Westchester Avenue, Suite S-710, Rye Brook, New York 10573. |
| 2 | Trustees and Officers serve until their successors are duly elected and qualified. |
| 3 | The Fund is part of a “fund complex” as defined in the 1940 Act. The fund complex includes all open-end funds (including all of their portfolios) advised by the Advisor and any funds that have an investment advisor that is an affiliated person of the Advisor. As of the date of this SAI, the fund complex consists of the Trust’s Fund and the seventeen funds of the IndexIQ ETF Trust advised by the Advisor. |
| 4 | Mr. Patti is an “interested person” of the Trust (as that term is defined in the 1940 Act) because of his affiliations with the Advisor. |
| Board Review of Investment Advisory Agreement (unaudited) |
The Board (the members of which are referred to as “Trustees”) of the Trust met in person on March 28, 2016, to consider the continuation, for an additional year, of the Advisory Agreement with respect to the IQ Hedge Multi-Strategy Plus Fund (the “Fund”).
In accordance with Section 15(c) of the Investment Company Act of 1940, as amended (“1940 Act”), the Board requested, reviewed and considered materials furnished by the Advisor relevant to the Board’s consideration of whether to approve the continuation of the Advisory Agreement. In connection with considering approval of the continuation of the Advisory Agreement, the Trustees who are not “interested persons” of the Trust, as that term is defined in the 1940 Act (the “Independent Trustees”), met in executive session with counsel to the Trust and counsel to the Independent Trustees, who provided assistance and advice. The consideration of the both the amendment to and the continuation of the Advisory Agreement was conducted by both the full Board and the Independent Trustees, who also voted separately.
During their review and consideration, the Board and the Independent Trustees focused on and analyzed the factors they deemed relevant, including: (1) the nature, extent and quality of the services provided by the Advisor to the Fund, and the fees to be charged by the Advisor; (2) information concerning business and operations, compliance program and portfolio management team of the Advisor, (3) the investment performance of the Fund; (3) the costs of the services to be provided and profits to be realized by the Advisor and their affiliates from the relationship with the Trust, including the Expense Limitation Agreement between the Advisor and the Fund; (4) the extent to which economies of scale would be realized as the Fund grows; (5) any benefits derived or to be derived by the Advisor from the relationship with the Trust; and (6) potential conflicts of interest.
In reviewing such factors, the Board relied on certain information, including (1) a copy of the Advisory Agreement and Expense Limitation Agreement; (2) information describing the Advisor and the services provided thereby; (3) information regarding the compliance program and portfolio management team of the Advisor; (4) copies of the Form ADV for the Advisor; (5) memoranda and guidance from Drinker Biddle & Reath LLP on the fiduciary responsibilities of trustees, including Independent Trustees, in considering advisory and distribution agreements under the 1940 Act; and (6) materials provided by the Advisor in response to a 15(c) request for information from Drinker Biddle Reath, LLP. In addition, the Board was provided data comparing the advisory fees and operating expenses (including acquired fund fees and expenses) of the Funds with expenses and performance of other registered investment companies with similar investment objectives and policies. The Trustees also considered their personal experiences as Trustees and participants in the exchange-traded fund and mutual fund industry, as applicable.
In particular, the Trustees including the Independent Trustees, considered and discussed the following with respect to the Funds:
1. The nature, extent and quality of the facilities and services provided by the Advisor. The Board reviewed the services that the Advisor provides to the Fund. The Board noted the responsibilities that the Advisor has as the Fund’s investment adviser, including overall supervisory responsibility for the general management and investment of the Fund’s securities portfolio, monitoring Fund compliance with regulatory requirements and Fund objectives and policies, daily monitoring of the portfolio and tracking error, overseeing Fund service providers, obtaining licenses for use of indexes tracked by the Fund, providing officers for the Fund, ongoing reporting to the Board, and the implementation of Board directives as they relate to the Fund.
The Board reviewed the experience, resources, and strengths of the Advisor in managing the Fund and the IndexIQ ETF Trust’s funds, as well as separately managed accounts. Based on their consideration and review of the foregoing information, the Board determined that the Fund was likely to continue to benefit from the nature, quality, and extent of these services, as well as the Advisor’s ability to render such services based on its experience, operations, and resources.
| Board Review of Investment Advisory Agreement (unaudited)(continued) |
2. Comparison of services provided and fees charged by the Advisor and other investment advisers to similar clients, and the cost of the services provided and profits realized by the Advisor from its relationship with the Fund. The Board then compared both the services rendered and the fees paid pursuant to the Investment Advisory Agreement to contracts of other registered investment advisers providing services to similar mutual funds. In particular, the Board compared the Fund’s advisory fees and expense ratios (including acquired fund fees and expenses) to other investment companies considered to be in the Fund’s respective peer groups. It was noted that the Advisor has an expense limitation agreement whereby the Advisor reimburses expenses and/or waives fees to keep the expenses of the Investor Class shares (excluding 12b-1 fees, if any) and Institutional Class shares of the Fund from exceeding 1.65% of average daily net assets.
After comparing the Fund’s fees with those of other funds in the Fund’s respective peer group, and in light of the nature, quality, and extent of services provided by the Advisor and the costs incurred by the Advisor in rendering those services, the Board concluded that the level of fees paid to the Advisor with respect to the Fund are fair and reasonable.
3. The Advisor’s profitability and the extent to which economies of scale would be realized as the Fund grows and whether fee levels would reflect such economies of scale. The Board discussed with the Advisor the costs and profitability of the Advisor in connection with its serving as investment adviser to the Fund, including operational costs.
4. Investment performance of the Fund. The Board considered the investment performance of the Fund over various periods. In particular, the Board considered the investment performance of the Fund relative to its stated objectives and the success of the Advisor in reaching such objectives. The Board considered the Fund’s investment performance compared to the benchmark index that the Fund uses for comparison in its prospectus and shareholder reports. The Board also considered the Fund’s investment performance compared to the average of the Fund’s peer group.
Based on the foregoing and such other matters as were deemed relevant, and while no single factor was determinative in the decision, the Independent Trustees concluded that the terms of the Advisory Agreement with the Advisor were reasonable and fair to the Fund and to recommend to the Board the approval of the Advisory Agreement. As a result, the Board determined that the continuation of the Advisory Agreement with the Advisor and the Expense Limitation Agreement was in the best interests of the Fund and its shareholders. The Board and the Independent Trustees, voting separately, approved the continuation of the Advisory Agreement for an additional one-year period.
ANNUAL REPORT | APRIL 30, 2016
IndexIQ Trust
IQ Hedge
Multi-Strategy Plus Fund
Investment Advisor
IndexIQ Advisors LLC
800 Westchester Avenue, Suite S-710
Rye Brook, NY 10573
Custodian/Fund Administrator
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
Legal Counsel
Kaye Scholer, LLP
250 West 55th Street
New York, New York 10019
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017
Transfer Agent
BNY Mellon Investment Servicing (U.S.) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
Distributor
NYLIFE Distributors, LLC
30 Hudson Street
Jersey City, NJ 07302
IQ Hedge Multi-Strategy Plus Fund
c/o IndexIQ
800 Westchester Avenue, Suite S-710
Rye Brook, NY 10573
1-888-934-0777
MEIQH11-06/16 1698564
Item 2. Code of Ethics.
| (a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
| (b) | There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. |
| (d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions. |
Item 3. Audit Committee Financial Expert.
The Registrant’s Board of Trustees has two audit committee financial experts serving on its audit committee, an “independent” Trustee, Reena Aggarwal and Michael Pignataro. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services
Audit Fees
| (a) | The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $57,000 for 2016 and $57,000 for 2015. |
Audit-Related Fees
| (b) | The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item are $0 for 2016 and $0 for 2015. |
Tax Fees
| (c) | The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $0 for 2016 and $0 for 2015. |
All Other Fees
| (d) | The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $0 for 2016 and $0 for 2015. |
| (e)(1) | Per Rule 2-01(c)(7)(A), the Audit Committee pre-approves all of the Audit, Audit-Related, Tax and Other Fees of the Registrant. |
| (e)(2) | 100% of services described in each of Items 4(b) through (d) were approved by the audit committee pursuant to paragraph (c)(7)(A) of Rule 2-01 of Regulation S-X. |
| (g) | The aggregate non-audit fees billed by the principal accountant for services rendered to the registrant’s investment adviser (not including any subadvisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant were (i) approximately $5,300,000 for the fiscal year ended April 30, 2016, and (ii) $3,771,000 for the fiscal year ended April 30, 2015. |
| (h) | The registrant’s Audit Committee has determined that the non-audit services rendered by the principal accountant for the fiscal year ended April 30, 2016 to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the registrant’s investment adviser that provides ongoing services to the registrant that were not required to be pre-approved by the Audit Committee because they did not relate directly to the operations and financial reporting of the registrant were compatible with maintaining the respective independence of the principal accountant during the relevant time period. |
Item 5. Audit Committee of Listed Registrants.
| (a) | The Fund has a designated Audit Committee in accordance with Section 3(a)(58)(A) of the Securities and Exchange Act of 1934 (the “Exchange Act”) and the members of such committee are Reena Aggarwal, Michael Pignataro and Paul Schaeffer. |
Item 6. Investments.
| (a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. Controls and Procedures.
| (a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the |
report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
| (b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Exhibits.
| (a)(1) | Code of ethics that is the subject of disclosure required by Item 2 is attached hereto. |
| (a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
| (b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) | IndexIQ Trust |
| By (Signature and Title)* | /s/ Adam S. Patti |
| | Adam S. Patti |
| | (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title)* | /s/ Adam S. Patti |
| | Adam S. Patti |
| | (Principal Executive Officer) |
| By (Signature and Title)* | /s/ David L. Fogel |
| | David L. Fogel |
| | (Principal Financial Officer) |
* Print the name and title of each signing officer under his or her signature.
