ck0001432353-20231130
Statement
of Additional Information
Dated
April 1, 2024
This
Statement of Additional Information ("SAI") is not a prospectus. It should be
read in conjunction with the current Prospectus (each a "Prospectus" and,
collectively, the "Prospectuses") for the following Funds ("Funds") of Global X
Funds ("Trust") as such Prospectus may be revised or supplemented from time to
time:
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Global
X MLP ETF (MLPA) |
Global
X Artificial Intelligence & Technology ETF (AIQ) |
Global
X MLP & Energy Infrastructure ETF (MLPX) |
Global
X Genomics & Biotechnology ETF (GNOM) |
Global
X Alternative Income ETF (ALTY) |
Global
X Cloud Computing ETF (CLOU) |
Global
X Conscious Companies ETF (KRMA) |
Global
X Thematic Growth ETF (GXTG) |
Global
X U.S. Preferred ETF (PFFD) |
Global
X Video Games & Esports ETF (HERO) |
Global
X S&P 500® Quality Dividend ETF (QDIV) |
Global
X Cybersecurity ETF (BUG) |
Global
X Adaptive U.S. Factor ETF (AUSF) |
Global
X Telemedicine & Digital Health ETF (EDOC) |
Global
X Variable Rate Preferred ETF (PFFV) |
Global
X CleanTech ETF (CTEC) |
Global
X Adaptive U.S. Risk Management ETF (ONOF) |
Global
X Data Center & Digital Infrastructure ETF (formerly known as the
Global X Data Center REITs & Digital Infrastructure ETF)
(DTCR) |
Global
X 1-3 Month T-Bill ETF (CLIP) |
Global
X Clean Water ETF (AQWA) |
Global
X U.S. Cash Flow Kings 100 ETF (FLOW) |
Global
X AgTech & Food Innovation ETF (KROP) |
Global
X Millennial Consumer ETF (MILN) |
Global
X Blockchain ETF (BKCH) |
Global
X Aging Population ETF (AGNG) |
Global
X Hydrogen ETF (HYDR) |
Global
X Robotics & Artificial Intelligence ETF (BOTZ) |
Global
X Solar ETF (RAYS) |
Global
X FinTech ETF (FINX) |
Global
X Wind Energy ETF (WNDY) |
Global
X Internet of Things ETF (SNSR) |
Global
X PropTech ETF (PTEC) |
Global
X U.S. Infrastructure Development ETF (PAVE) |
Global
X Defense Tech ETF (SHLD) |
Global
X Autonomous & Electric Vehicles ETF (DRIV) |
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The
Funds' Prospectuses are dated April 1, 2024. Capitalized terms used herein
that are not defined have the same meaning as in the Prospectus, unless
otherwise noted. The financial statements and notes contained in the Annual
Report of the Trust are incorporated by reference into and are deemed to be part
of this SAI (for the Global X MLP ETF, Global X MLP & Energy Infrastructure
ETF, Global X Alternative Income ETF, Global X Conscious Companies ETF, Global X
U.S. Preferred ETF, Global X S&P 500® Quality Dividend ETF, Global X
Adaptive U.S. Factor ETF, Global X Variable Rate Preferred ETF, Global X
Adaptive U.S. Risk Management ETF, Global X 1-3 Month T-Bill ETF, and Global X
U.S. Cash Flow Kings 100 ETF: https://www.sec.gov/Archives/edgar/data/1432353;
and for all other funds: https://www.sec.gov/Archives/edgar/data/1432353).
A copy of the Prospectus and Annual Report may be obtained without charge by
writing to SEI Investments Global Funds Services, One Freedom Valley Drive,
Oaks, PA 19456, calling 1-888-493-8631 or visiting www.globalxetfs.com. The
Global X MLP ETF, Global X MLP & Energy Infrastructure ETF, Global X U.S.
Preferred ETF, Global X S&P 500®
Quality Dividend ETF, Global X Adaptive U.S. Factor ETF, Global X Variable Rate
Preferred ETF, Global X Adaptive U.S. Risk Management ETF, Global X 1-3 Month
T-Bill ETF, Global X U.S. Cash Flow Kings 100 ETF and Global X Defense Tech ETF
are listed on NYSE Arca Inc. ("NYSE Arca"). The Global X Alternative Income ETF,
Global X Conscious Companies ETF, Global X Robotics & Artificial
Intelligence ETF, Global X FinTech ETF, Global X Internet of Things ETF, Global
X Cloud Computing ETF, Global X Artificial Intelligence & Technology ETF,
Global X Autonomous & Electric Vehicles ETF, Global X Genomics &
Biotechnology ETF, Global X Video Games & Esports ETF, Global X
Cybersecurity ETF, Global X Millennial Consumer ETF, Global X Aging Population
ETF, Global X Thematic Growth ETF,
Global
X Telemedicine & Digital Health ETF, Global X CleanTech ETF, Global X Data
Center & Digital Infrastructure ETF (formerly known as the Global X Data
Center REITs & Digital Infrastructure ETF), Global X AgTech & Food
Innovation ETF, Global X Blockchain ETF, Global X Clean Water ETF, Global X
Hydrogen ETF, Global X Solar ETF, Global X Wind Energy ETF and Global X PropTech
ETF are listed on The NASDAQ Stock Market LLC ("NASDAQ"). The Global X U.S.
Infrastructure Development ETF is listed on Cboe BZX Exchange, Inc. ("Cboe
BZX"). The NYSE Arca, NASDAQ, and Cboe BZX are respectively referred to herein
as the "Exchange".
TABLE
OF CONTENTS
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GENERAL
DESCRIPTION OF THE TRUST AND FUNDS |
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ADDITIONAL
INVESTMENT INFORMATION |
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EXCHANGE
LISTING AND TRADING |
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INVESTMENT
OBJECTIVE, STRATEGIES AND RISKS |
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PORTFOLIO
TURNOVER |
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INFORMATION
REGARDING THE INDICES AND THE INDEX PROVIDERS |
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INVESTMENT
RESTRICTIONS |
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CURRENT
1940 ACT LIMITATIONS |
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CONTINUOUS
OFFERING |
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PORTFOLIO
HOLDINGS |
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MANAGEMENT
OF THE TRUST |
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BOARD
OF TRUSTEES AND OFFICERS |
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STANDING
BOARD COMMITTEES |
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TRUSTEE
AND OFFICER OWNERSHIP OF FUND SHARES |
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TRUSTEE
OWNERSHIP OF SECURITIES OF THE ADVISER AND RELATED COMPANIES |
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TRUSTEE
COMPENSATION |
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CODE
OF ETHICS |
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INVESTMENT
ADVISER |
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PORTFOLIO
MANAGERS |
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BROKERAGE
TRANSACTIONS |
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PROXY
VOTING |
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SUB-ADMINISTRATOR |
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DISTRIBUTOR |
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CUSTODIANS
AND TRANSFER AGENTS |
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SECURITIES
LENDING AGENTS |
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DESCRIPTION
OF SHARES |
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BOOK-ENTRY
ONLY SYSTEM |
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PURCHASE
AND REDEMPTION OF CREATION UNITS |
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TRANSACTIONS
IN CREATION UNITS |
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CREATION
UNIT AGGREGATIONS |
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PURCHASE
AND ISSUANCE OF CREATION UNIT AGGREGATIONS |
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REDEMPTION
OF CREATION UNITS |
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TAXES |
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TAXES
FOR THE GLOBAL X MLP ETF |
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TAXES
FOR EACH FUND OTHER THAN THE GLOBAL X MLP ETF |
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FUND
TAXATION |
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DISTRIBUTIONS |
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EXCESS
INCLUSION INCOME |
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TAXES
APPLICABLE TO ALL FUNDS |
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SECTION
351 AND 362 |
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FOREIGN
TAXES |
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TAXATION
OF FUND DISTRIBUTIONS |
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TAXATION
OF INCOME FROM CERTAIN FINANCIAL INSTRUMENTS AND PFICS |
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SALES
OF SHARES |
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COST
BASIS REPORTING |
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REPORTING |
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BACK-UP
WITHHOLDING |
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OTHER
TAXES |
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TAXATION
OF NON-U.S. SHAREHOLDERS |
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NET
ASSET VALUE |
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DISTRIBUTION
AND SERVICE PLAN |
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DIVIDENDS
AND DISTRIBUTIONS |
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GENERAL
POLICIES |
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DIVIDEND
REINVESTMENT SERVICE |
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FINANCIAL
STATEMENTS |
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OTHER
INFORMATION |
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CONTROL
PERSONS AND PRINCIPAL HOLDERS OF SECURITIES |
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INDEPENDENT
TRUSTEE COUNSEL |
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INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM |
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SECURITIES
LENDING AGENTS |
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TAX
SERVICES |
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ADDITIONAL
INFORMATION |
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APPENDIX
A |
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GENERAL
DESCRIPTION OF THE TRUST AND FUNDS
As
of March 1, 2024, the Trust consisted of 95 portfolios, 91 of which were
operational. The Trust was formed as a Delaware Statutory Trust on March 6, 2008
and is authorized to have multiple series or portfolios. The Trust is an
open-end management investment company, registered under the Investment Company
Act of 1940, as amended ("1940 Act"). The offering of the Trust's shares is
registered under the Securities Act of 1933, as amended ("Securities Act"). Each
Fund, other than the Global X Autonomous & Electric Vehicles ETF, Global X
Artificial Intelligence & Technology ETF, Global X Millennial Consumer ETF,
Global X Aging Population ETF, Global X U.S. Infrastructure Development ETF,
Global X Alternative Income ETF, Global X S&P 500® Quality Dividend ETF,
Global X U.S. Preferred ETF, Global X Variable Rate Preferred ETF, Global X
Thematic Growth ETF, Global X Conscious Companies ETF, Global X Adaptive U.S.
Factor ETF and Global X 1-3 Month T-Bill ETF is "non-diversified" and as such,
each Fund's investments are not required to meet certain diversification
requirements under the 1940 Act. This SAI relates only to the following
Funds:
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Global
X MLP ETF (MLPA) |
Global
X Artificial Intelligence & Technology ETF (AIQ) |
Global
X MLP & Energy Infrastructure ETF (MLPX) |
Global
X Genomics & Biotechnology ETF (GNOM) |
Global
X Alternative Income ETF (ALTY) |
Global
X Cloud Computing ETF (CLOU) |
Global
X Conscious Companies ETF (KRMA) |
Global
X Thematic Growth ETF (GXTG) |
Global
X U.S. Preferred ETF (PFFD) |
Global
X Video Games & Esports ETF (HERO) |
Global
X S&P 500® Quality Dividend ETF (QDIV) |
Global
X Cybersecurity ETF (BUG) |
Global
X Adaptive U.S. Factor ETF (AUSF) |
Global
X Telemedicine & Digital Health ETF (EDOC) |
Global
X Variable Rate Preferred ETF (PFFV) |
Global
X CleanTech ETF (CTEC) |
Global
X Adaptive U.S. Risk Management ETF (ONOF) |
Global
X Data Center & Digital Infrastructure ETF (formerly known as the
Global X Data Center REITs & Digital Infrastructure ETF)
(DTCR) |
Global
X 1-3 Month T-Bill ETF (CLIP) |
Global
X Clean Water ETF (AQWA) |
Global
X U.S. Cash Flow Kings 100 ETF (FLOW) |
Global
X AgTech & Food Innovation ETF (KROP) |
Global
X Millennial Consumer ETF (MILN) |
Global
X Blockchain ETF (BKCH) |
Global
X Aging Population ETF (AGNG) |
Global
X Hydrogen ETF (HYDR) |
Global
X Robotics & Artificial Intelligence ETF (BOTZ) |
Global
X Solar ETF (RAYS) |
Global
X FinTech ETF (FINX) |
Global
X Wind Energy ETF (WNDY) |
Global
X Internet of Things ETF (SNSR) |
Global
X PropTech ETF (PTEC) |
Global
X U.S. Infrastructure Development ETF (PAVE) |
Global
X Defense Tech ETF (SHLD) |
Global
X Autonomous & Electric Vehicles ETF (DRIV) |
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The
following operational Funds changed names within the past five years:
The
Global X Artificial Intelligence & Technology ETF in 2020 (formerly known as
the Global X Future Analytics Tech ETF)
The
Global X Millennial Consumer ETF in 2021 (formerly known as the Global X
Millennials Thematic ETF)
The
Global X Aging Population ETF in 2021 (formerly known as the Global X Longevity
Thematic ETF)
The
Global X Alternative Income ETF in 2021 (formerly known as the Global X
SuperDividend®
Alternatives ETF)
The
Global X Data Center & Digital Infrastructure ETF in 2024 (formerly known as
the Global X Data Center REITs & Digital Infrastructure ETF)
The
investment objective of each Fund is to provide investment results that
correspond generally to the price and yield performance, before fees and
expenses, of a specified benchmark index ("Underlying Index"). A Fund's
investment objective and Underlying Index may be changed without shareholder
approval. Shareholders will be given 60 days prior notice of any change of a
Fund's investment objective. If Global X Management Company LLC, the Funds'
investment adviser ("GXMC" or the "Adviser") changes the Underlying Index, the
name of the Fund may be changed as well. Each Fund is managed by the
Adviser.
The
Funds offer and issue shares at net asset value per share ("NAV") only in
aggregations of a specified number of shares (each, a "Creation Unit" or a
"Creation Unit Aggregation"), generally in exchange for a basket of securities
included in each Fund's Underlying Index ("Deposit Securities"), together with
the deposit of a specified cash payment ("Cash Component"). The shares of the
Funds ("Shares") are, or will be, listed and expected to be traded on NYSE Arca,
NASDAQ, or Cboe BZX.
Shares
trade in the secondary market and elsewhere at market prices that may be at,
above or below NAV. Shares are redeemable only in Creation Unit Aggregations
and, generally, in exchange for portfolio securities and a Cash Component. The
number of Shares per Creation Unit of each Fund are as follows:
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Fund |
Number
of Shares per Creation Unit |
Global
X MLP ETF (MLPA) |
10,000 |
Global
X MLP & Energy Infrastructure ETF (MLPX) |
10,000 |
Global
X Alternative Income ETF (ALTY) |
10,000 |
Global
X Conscious Companies ETF (KRMA) |
10,000 |
Global
X U.S. Preferred ETF (PFFD) |
10,000 |
Global
X S&P 500® Quality Dividend ETF (QDIV) |
10,000 |
Global
X Adaptive U.S. Factor ETF (AUSF) |
10,000 |
Global
X Variable Rate Preferred ETF (PFFV) |
10,000 |
Global
X Adaptive U.S. Risk Management ETF (ONOF) |
10,000 |
Global
X 1-3 Month T-Bill ETF (CLIP) |
10,000 |
Global
X U.S. Cash Flow Kings 100 ETF (FLOW) |
10,000 |
Global
X Millennial Consumer ETF (MILN) |
10,000 |
Global
X Aging Population ETF (AGNG) |
10,000 |
Global
X Robotics & Artificial Intelligence ETF (BOTZ) |
10,000 |
Global
X FinTech ETF (FINX) |
10,000 |
Global
X Internet of Things ETF (SNSR) |
10,000 |
Global
X U.S. Infrastructure Development ETF (PAVE) |
10,000 |
Global
X Autonomous & Electric Vehicles ETF (DRIV) |
10,000 |
Global
X Artificial Intelligence & Technology ETF (AIQ) |
10,000 |
Global
X Genomics & Biotechnology ETF (GNOM) |
10,000 |
Global
X Cloud Computing ETF (CLOU) |
10,000 |
Global
X Thematic Growth ETF (GXTG) |
10,000 |
Global
X Video Games & Esports ETF (HERO) |
10,000 |
Global
X Cybersecurity ETF (BUG) |
10,000 |
Global
X Telemedicine & Digital Health ETF (EDOC) |
10,000 |
Global
X CleanTech ETF (CTEC) |
10,000 |
Global
X Data Center & Digital Infrastructure ETF (formerly known as the
Global X Data Center REITs & Digital Infrastructure ETF)
(DTCR) |
10,000 |
Global
X Clean Water ETF (AQWA) |
10,000 |
Global
X AgTech & Food Innovation ETF (KROP) |
10,000 |
Global
X Blockchain ETF (BKCH) |
10,000 |
Global
X Hydrogen ETF (HYDR) |
10,000 |
Global
X Solar ETF (RAYS) |
10,000 |
Global
X Wind Energy ETF (WNDY) |
10,000 |
Global
X PropTech ETF (PTEC) |
10,000 |
Global
X Defense Tech ETF (SHLD) |
10,000 |
The
Trust reserves the right to offer a "cash" option for creations and redemptions
of Shares. Shares may be issued in advance of receipt of Deposit Securities
subject to various conditions, including a requirement to maintain on deposit
with the Trust cash equal to 110% of the market value of the missing Deposit
Securities. The required amount of deposit may be changed by the Adviser from
time to time. See the "Purchase and Redemption of Creation Units" section of
this SAI for further discussion. In each instance of such cash creations or
redemptions, transaction fees may be imposed that will be in addition to the
transaction fees associated with in-kind creations or redemptions. In all cases,
such conditions and fees will be limited in accordance with the requirements of
the Securities and Exchange Commission ("SEC") applicable to management
investment companies offering redeemable securities.
ADDITIONAL
INVESTMENT INFORMATION
EXCHANGE
LISTING AND TRADING
A
discussion of exchange listing and trading matters associated with an investment
in each Fund is contained in the respective Prospectus. The discussion below
supplements, and should be read in conjunction with, that section of such
Prospectus.
Shares
of each Fund are listed for trading on the Exchange and trade throughout the day
on the Exchange and other secondary markets. There can be no assurance that each
Fund will continue to meet the listing requirements of the Exchange on which it
is listed. The Exchange may, but is not required to, remove the Shares of a Fund
from its listing if (1) following the initial twelve-month period beginning upon
the commencement of trading of the Fund, there are fewer than fifty (50) record
and/or beneficial holders of the Fund for thirty (30) or more consecutive
trading days, (2) the value of the Underlying Index on which the Fund is based
is no longer calculated or available, or (3) any other event shall occur or
condition exist that, in the opinion of the Exchange, makes further dealings on
the Exchange inadvisable. The Exchange will remove the Shares of a Fund from
listing and trading upon termination of the Fund.
As
in the case of other publicly-traded securities, brokers' commissions on
transactions will be based on negotiated commission rates at customary
levels.
In
order to provide additional information regarding the indicative value of Shares
of each Fund, the Exchange or a designated "indicative optimized portfolio
value" ("IOPV") provider disseminates every fifteen seconds, through the
facilities of the Consolidated Tape Association, an updated IOPV for each Fund
as calculated by an information provider or a market data vendor. The Trust is
not involved in or responsible for any aspect of the calculation or
dissemination of the IOPVs and makes no representation or warranty as to the
accuracy of the IOPVs.
An
IOPV has a securities value component and a cash component. The securities
values included in an IOPV are the values of the Deposit Securities for the
applicable Fund. The IOPV is generally determined by using both current market
quotations and/or price quotations obtained from broker-dealers that may trade
in the portfolio securities held by a Fund. The quotations of certain Fund
holdings may not be updated during U.S. trading hours if such holdings do not
trade in the United States. While the IOPV reflects the current market value of
the Deposit Securities required to be deposited in connection with the purchase
of a Creation Unit Aggregation, it does not necessarily reflect the precise
composition of the current portfolio of securities held by the applicable Fund
at a particular point in time, because the current portfolio of the Fund may
include securities that are not a part of the Deposit Securities. Furthermore,
the IOPV does not capture certain items, such as tax liability accruals, which
may occur for Fund investments in certain foreign jurisdictions. Therefore, each
Fund's IOPV disseminated during the Exchange's trading hours should not be
viewed as a real time update of the Fund's NAV, which is calculated only once a
day.
In
addition to the securities component described in the preceding paragraph, the
IOPV for each Fund includes a cash component consisting of estimated accrued
dividends and other income, less expenses. If applicable, each IOPV also
reflects changes in currency exchange rates between the U.S. Dollar and the
applicable foreign currency.
The
Trust reserves the right to adjust the share prices of the Funds in the future
to maintain convenient trading ranges for investors. Any adjustments would be
accomplished through stock splits or reverse stock splits, which would have no
effect on the net assets of the applicable Fund.
INVESTMENT
OBJECTIVE, STRATEGIES AND RISKS
Each
Fund seeks to achieve its objective by investing primarily in securities issued
by companies that comprise the relevant Underlying Index and through
transactions that provide substantially similar exposure to securities in the
Underlying Index. Each Fund operates as an index fund and will not be actively
managed. Adverse performance of a security in a Fund's portfolio will ordinarily
not result in the elimination of the security from the Fund's portfolio. Each
Fund invests at least 80% of its total assets in the securities of its
Underlying Index and, if applicable, in American Depositary Receipts ("ADRs")
and Global Depositary Receipts ("GDRs") (collectively "Depositary Receipts")
based on the securities in its Underlying Index. Each Fund may also invest up to
20% of its assets in certain futures, options and swap contracts, cash and cash
equivalents, as well as in stocks not included in its Underlying Index but which
the Adviser believes will help the Fund track its Underlying Index.
All
Funds (other than the Global X U.S. Preferred ETF, Global X Variable Rate
Preferred ETF and Global X 1-3 Month T-Bill ETF ) use a replication strategy. A
replication strategy is an indexing strategy that involves investing in the
securities of the Underlying Index in approximately the same proportions as in
the Underlying Index. However, each Fund may utilize a representative sampling
strategy with respect to its Underlying Index when a replication strategy might
be detrimental to its
shareholders,
such as when there are practical difficulties or substantial costs involved in
compiling a portfolio of securities to follow its Underlying Index, or, in
certain instances, when securities in the Underlying Index become temporarily
illiquid, unavailable or less liquid, or due to legal restrictions (such as
diversification requirements that apply to the Funds but not the Underlying
Index). Each of the Global X U.S. Preferred ETF, Global X Variable Rate
Preferred ETF and Global X 1-3 Month T-Bill ETF will use a representative
sampling strategy with respect to its Underlying Index. "Representative
sampling" is an indexing strategy that involves investing in a representative
sample of securities that collectively has an investment profile similar to the
Underlying Index in terms of key risk factors, performance attributes and other
characteristics. Under a representative sampling strategy, a Fund may or may not
hold all of the securities in the Underlying Index. If a Fund uses a replication
strategy, it can be expected to have greater correlation to the Underlying Index
than if it uses a representative sampling strategy.
Each
Fund has adopted a non-fundamental investment policy to invest, under normal
circumstances, at least 80% of the value of its net assets, plus the amount of
any borrowings for investment purposes, in securities of the Fund's Underlying
Index and in Depositary Receipts based on securities in the Underlying Index. A
Fund also may have adopted an additional non-fundamental policy to invest at
least 80% of its total assets in securities as disclosed in its Prospectus. Each
Fund has also adopted a policy to provide its shareholders with at least 60 days
prior written notice of a change to its investment objective. If, subsequent to
an investment, the 80% requirement is no longer met, a Fund's future investments
will be made in a manner that will bring the Fund into compliance with this
policy.
The
following supplements the information contained in the Prospectus concerning the
investment objectives and policies of the Funds.
CYBER
SECURITY RISK. With
the increased use of technologies such as the Internet to conduct business, each
Fund is susceptible to operational, information security and related risks. In
general, cyber incidents can result from deliberate attacks or unintentional
events. Cyber attacks include, but are not limited to, gaining unauthorized
access to digital systems (e.g., through “hacking” or malicious software coding)
for purposes of misappropriating assets or sensitive information, corrupting
data, or causing operational disruption. Cyber attacks may also be carried out
in a manner that does not require gaining unauthorized access, such as causing
denial-of-service attacks on websites (i.e., efforts to make network services
unavailable to intended users). Cyber security failures or breaches suffered by
a Fund’s adviser, distributor and other service providers (including, but not
limited to, index providers, fund accountants, custodians, transfer agents and
administrators), market makers, Authorized Participants (as defined below) and
the issuers of securities in which the Funds invest have the ability to cause
disruptions and impact business operations potentially resulting in financial
losses, interference with a Fund’s ability to calculate its NAV, impediments to
trading, the inability of Fund shareholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, or additional compliance
costs. In addition, substantial costs may be incurred in order to prevent any
cyber incidents in the future. While the Funds have established business
continuity plans in the event of, and risk management systems to prevent, such
cyber attacks, there are inherent limitations in such plans and systems,
including the possibility that certain risks have not been identified.
Furthermore, the Funds cannot control the cyber security plans and systems put
in place by service providers to the Funds and issuers in which the Funds
invest, market makers or Authorized Participants. The Funds and their
shareholders could be negatively impacted as a result of any cyber incidents
impacting such parties.
DEPOSITARY
RECEIPTS. ADRs
are receipts that are traded in the United States evidencing ownership of the
underlying foreign securities and are denominated in U.S. dollars. GDRs are
receipts issued by a non-U.S. financial institution evidencing ownership of
underlying foreign or U.S. securities and usually are denominated in foreign
currencies. GDRs may not be denominated in the same currency as the securities
they represent. Generally, GDRs are designed for use in the foreign securities
markets.
To
the extent each Fund invests in ADRs, such ADRs will be listed on a national
securities exchange. To the extent each Fund invests in GDRs, such GDRs will be
listed on a foreign exchange. The Funds will not invest in any unlisted
Depositary Receipt or any Depositary Receipt for which pricing information is
not readily available. Generally, all Depositary Receipts must be sponsored. The
Funds, however, may invest in unsponsored Depositary Receipts under certain
limited circumstances. A non-sponsored depository may not provide the same
shareholder information that a sponsored depositary is required to provide under
its contractual arrangement with the issuer. Therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the Depositary Receipts.
NON-DIVERSIFICATION
RISK.
Non-diversification risk is the risk that a non-diversified fund may be more
susceptible to adverse financial, economic or other developments affecting any
single issuer, and more susceptible to greater losses because of these
developments. Each Fund (except the Global X Autonomous & Electric Vehicles
ETF, Global X Artificial Intelligence & Technology ETF, Global X Millennial
Consumer ETF, Global X Aging Population ETF, Global X U.S. Infrastructure
Development
ETF, Global X Alternative Income ETF, Global X S&P 500® Quality Dividend
ETF, Global X U.S. Preferred ETF, Global X Variable Rate Preferred ETF, Global X
Thematic Growth ETF, Global X Conscious Companies ETF, Global X Adaptive U.S.
Factor ETF and Global X 1-3 Month T-Bill ETF) is classified as “non-diversified”
for purposes of the 1940 Act. A “non-diversified” classification means that a
Fund is not limited by the 1940 Act with regard to the percentage of its assets
that may be invested in the securities of a single issuer. The securities of a
particular issuer may dominate the Underlying Index of a Fund and, consequently,
a Fund’s investment portfolio. Each Fund may also concentrate its investments in
a particular industry or group of industries, as noted in the description of the
Fund. The securities of issuers in particular industries may dominate the
Underlying Index of such a Fund and, consequently, the Fund’s investment
portfolio. This may adversely affect its performance or subject the Fund’s
Shares to greater price volatility than that experienced by less concentrated
investment companies.
Each
Fund intends to maintain the required level of diversification and otherwise
conduct its operations so as to qualify as a “regulated investment company” for
purposes of the Internal Revenue Code of 1986, as amended (the “Code”), and to
relieve the Fund of any liability for federal income tax to the extent that its
earnings are distributed to shareholders. Compliance with the diversification
requirements of the Code may limit the investment flexibility of certain Funds
and may make it less likely that such a Fund will meet its investment objective.
SHORT-TERM
INSTRUMENTS AND TEMPORARY INVESTMENTS.
To the extent consistent with its investment policies, each Fund may invest in
short-term instruments, including money market instruments, on an ongoing basis
to provide liquidity or for other reasons. Money market instruments are
generally short-term investments that may include but are not limited to: (i)
shares of money market funds; (ii) obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities (including government-sponsored
enterprises ("GSE")); (iii) negotiable certificates of deposit ("CDs"), bankers'
acceptances, fixed time deposits, bank notes and other obligations of U.S. and
foreign banks (including foreign branches) and similar institutions; (iv)
commercial paper rated at the date of purchase "Prime-1" by Moody's Investors
Service, Inc. ("Moody's"), "A-1" by Standard & Poor's Rating Service
("S&P") or, if unrated, of comparable quality as determined by the Adviser;
(v) non-convertible corporate debt securities (e.g., bonds and debentures) with
remaining maturities at the date of purchase of not more than 397 days and that
satisfy the rating requirements set forth in Rule 2a-7 under the 1940 Act; (vi)
repurchase agreements; and (vii) short-term U.S. dollar-denominated obligations
of foreign banks (including U.S. branches) that, in the opinion of the Adviser,
are of comparable quality to obligations of U.S. banks which may be purchased by
a Fund. Any of these instruments may be purchased on a current or a
forward-settled basis.
SEC
regulations governing money market funds require money market funds that do not
meet the definitions of a retail money market fund or government money market
fund to transact at a floating NAV per share (similar to all other non-money
market mutual funds), instead of at a $1 stable share price, as well as permit
(or, in certain circumstances, require) money market funds to impose liquidity
fees and redemption gates for use in times of market stress. Any impact on the
trading and value of money market instruments as a result of these money market
fund regulations may negatively affect a Fund's yield and return potential.
Time
deposits are non-negotiable deposits maintained in banking institutions for
specified periods of time at stated interest rates. Bankers' acceptances are
time drafts drawn on commercial banks by borrowers, usually in connection with
international transactions. Commercial paper represents short-term unsecured
promissory notes issued in bearer form by banks or bank holding companies,
corporations and finance companies. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return. Bankers' acceptances are
negotiable drafts or bills of exchange, normally drawn by an importer or
exporter to pay for specific merchandise, which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on maturity. Fixed time deposits are bank obligations payable
at a stated maturity date and bearing interest at a fixed rate. Fixed time
deposits may be withdrawn on demand by the investor but may be subject to early
withdrawal penalties that vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party. Bank notes generally rank junior to deposit liabilities of banks and pari
passu with other senior, unsecured obligations of the bank. Bank notes are
classified as "other borrowings" on a bank's balance sheet, while deposit notes
and certificates of deposit are classified as deposits. Bank notes are not
insured by the FDIC or any other insurer.
Each
Fund may invest a portion of its assets in the obligations of foreign banks and
foreign branches of domestic banks. Such obligations include Eurodollar
Certificates of Deposit ("ECDs"), which are U.S. dollar-denominated certificates
of deposit issued by offices of foreign and domestic banks located outside the
United States; Eurodollar Time Deposits ("ETDs"), which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits ("CTDs"), which are essentially the same as ETDs
except they are issued by Canadian offices of major Canadian banks; Schedule Bs,
which are obligations issued by Canadian branches of foreign or domestic banks;
Yankee Certificates of Deposit ("Yankee CDs"), which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank and held in
the
United
States; and Yankee Bankers' Acceptances ("Yankee BAs"), which are U.S.
dollar-denominated bankers' acceptances issued by a U.S. branch of a foreign
bank and held in the United States.
Commercial
paper purchased by the Funds may include asset-backed commercial paper.
Asset-backed commercial paper is issued by a special purpose entity that is
organized to issue the commercial paper and to purchase trade receivables or
other financial assets. The credit quality of asset-backed commercial paper
depends primarily on the quality of these assets and the level of any additional
credit support.
EQUITY
SWAPS, TOTAL RATE OF RETURN SWAPS, AND CURRENCY SWAPS.
Each Fund may invest up to 20% of its total assets in swap
contracts.
A
swap is an agreement involving the exchange by a Fund with another party of
their respective commitments to pay or receive payments at specified dates based
upon or calculated by reference to changes in specified prices or rates (e.g.,
interest rates in the case of interest rate swaps) based on a specified amount
(the "notional" amount). Some swaps currently are, and more in the future will
be, exchange-traded and centrally cleared. Examples of swap agreements include,
but are not limited to, equity, index or other total return swaps and foreign
currency swaps.
Each
Fund may enter into equity swap contracts to invest in a market without owning
or taking physical custody of securities in circumstances in which direct
investment is restricted for legal reasons or is otherwise impracticable. These
instruments provide a great deal of flexibility. For example, a counterparty may
agree to pay a Fund the amount, if any, by which the notional amount of the
equity swap contract would have increased in value had it been invested in
particular stocks (or an index of stocks), plus the dividends that would have
been received on those stocks. In these cases, a Fund may agree to pay to the
counterparty the amount, if any, by which that notional amount would have
decreased in value had it been invested in the stocks. Therefore, the return to
a Fund on any equity swap contract should be the gain or loss on the notional
amount plus dividends on the stocks less the interest paid by the Fund on the
notional amount. In other cases, the counterparty and the Fund may each agree to
pay the other the difference between the relative investment performances that
would have been achieved if the notional amount of the equity swap contract had
been invested in different stocks (or indices of stocks).
Total
rate of return swaps are contracts that obligate a party to pay or receive
interest in exchange for the payment by the other party of the total return
generated by a security, a basket of securities, an index or an index component.
The Funds also may enter into currency swaps, which involve the exchange of the
rights of the Funds and another party to make or receive payments in specific
currencies. Currency swaps involve the exchange of rights of the Funds and
another party to make or receive payments in specific currencies.
Some
swaps transactions are entered into on a net basis, i.e., the two payment
streams are netted out, with a Fund receiving or paying, as the case may be,
only the net amount of the two payments. A Fund will enter into equity swaps
only on a net basis. Payments may be made at the conclusion of an equity swap
contract or periodically during its term. Equity swaps do not involve the
delivery of securities or other underlying assets. Accordingly, the risk of loss
with respect to equity swaps is limited to the net amount of payments that such
Fund is contractually obligated to make. If the other party to an equity swap,
or any other swap entered into on a net basis, defaults, a Fund's risk of loss
consists of the net amount of payments that such Fund is contractually entitled
to receive, if any. In contrast, other swaps transactions may involve the
payment of the gross amount owed. For example, currency swaps usually involve
the delivery of the entire principal amount of one designated currency in
exchange for the other designated currency. Therefore, the entire principal
value of a currency swap is subject to the risk that the other party to the swap
will default on its contractual delivery obligations. To the extent that the
amount payable by a Fund under a swap is covered by segregated cash or liquid
assets, the Funds and the Adviser believe that transactions do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to the Funds' borrowing restrictions.
Swaps
that are centrally-cleared are subject to the creditworthiness of the clearing
organizations involved in the transaction. For example, a Fund could lose margin
payments it has deposited with the clearing organization as well as the net
amount of gains not yet paid by the clearing organization if it breaches its
agreement with the Fund or becomes insolvent or goes into bankruptcy. In the
event of bankruptcy of the clearing organization, the Fund may be entitled to
the net amount of gains the Fund is entitled to receive plus the return of
margin owed to it only in proportion to the amount received by the clearing
organization's other customers, potentially resulting in losses to the
Fund.
To
the extent a swap is not centrally cleared, the use of swaps also involves the
risk that a loss may be sustained as a result of the insolvency or bankruptcy of
the counterparty or the failure of the counterparty to make required payments or
otherwise comply with the terms of the agreement.
A
Fund will not enter into any swap transactions unless the unsecured commercial
paper, senior debt or claims-paying ability of the other party is rated either
A, or A-1 or better by S&P or Fitch Ratings ("Fitch"); or A or Prime-1 or
better by Moody's, or has received a comparable rating from another organization
that is recognized as a nationally recognized statistical rating organization
("NRSRO") or, if unrated by such rating organization, is determined to be of
comparable quality by the Adviser. If a counterparty's creditworthiness
declines, the value of the swap might decline, potentially resulting in losses
to a Fund. Changing conditions in a particular market area, whether or not
directly related to the referenced assets that underlie the swap agreement, may
have an adverse impact on the creditworthiness of the counterparty. For example,
the counterparty may have experienced losses as a result of its exposure to a
sector of the market that adversely affect its creditworthiness. If there is a
default by the other party to such a transaction, a Fund will have contractual
remedies pursuant to the agreements related to the transaction. Such contractual
remedies, however, may be subject to bankruptcy and insolvency laws that may
affect such Fund's rights as a creditor (e.g.,
the Fund may not receive the net amount of payments that it contractually is
entitled to receive). The swap market has grown substantially in recent years
with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid in comparison with markets for
other similar instruments which are traded in the interbank market.
The
use of equity, total rate of return and currency swaps is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions.
In
connection with a Fund's position in a swaps contract, the Fund will segregate
liquid assets or will otherwise cover its position in accordance with applicable
SEC requirements.
FOREIGN
CURRENCY TRANSACTIONS.
To the extent consistent with its investment policies, each Fund may invest in
forward foreign currency exchange contracts and foreign currency futures
contracts. No Fund, however, expects to engage in currency transactions for
speculative purposes or for the purpose of hedging against declines in the value
of a Fund's assets that are denominated in a foreign currency. A Fund may enter
into forward foreign currency exchange contracts and foreign currency futures
contracts to facilitate local settlements or to protect against currency
exposure in connection with its distributions to shareholders.
Foreign
currency exchange contracts involve an obligation to purchase or sell a
specified currency on a future date at a price set at the time of the contract.
Forward currency contracts do not eliminate fluctuations in the values of
portfolio securities but rather allow a Fund to establish a rate of exchange for
a future point in time. Foreign currency futures contracts involve an obligation
to deliver or acquire the specified amount of a specific currency, at a
specified price and at a specified future time. Such futures contracts may be
settled on a net cash payment basis rather than by the sale and delivery of the
underlying currency. A Fund may incur costs in connection with forward foreign
currency exchange and futures contracts and conversions of foreign currencies
and U.S. dollars.
Liquid
assets equal to the amount of a Fund's assets that could be required to
consummate forward contracts will be segregated except to the extent the
contracts are otherwise "covered." The segregated assets will be valued at
market or fair value. If the market or fair value of such assets declines,
additional liquid assets will be segregated daily so that the value of the
segregated assets will equal the amount of such commitments by the Fund. A
forward contract to sell a foreign currency is "covered" if a Fund owns the
currency (or securities denominated in the currency) underlying the contract, or
holds a forward contract (or call option) permitting the Fund to buy the same
currency at a price that is (i) no higher than the Fund's price to sell the
currency or (ii) greater than the Fund's price to sell the currency provided the
Fund segregates liquid assets in the amount of the difference. A forward
contract to buy a foreign currency is "covered" if a Fund holds a forward
contract (or call option) permitting the Fund to sell the same currency at a
price that is (i) as high as or higher than the Fund's price to buy the currency
or (ii) lower than the Fund's price to buy the currency, provided the Fund
segregates liquid assets in the amount of the difference.
FOREIGN
INVESTMENTS – GENERAL.
To the extent consistent with its investment policies, each Fund may invest in
foreign securities. Investment in foreign securities involves special risks.
These include market risk, interest rate risk and the risks of investing in
securities of foreign issuers and of companies whose securities are principally
traded outside the United States on foreign exchanges or foreign
over-the-counter markets and in investments denominated in foreign currencies.
Market risk involves the possibility that stock prices will decline over short
or even extended periods. The stock markets tend to be cyclical, with periods of
generally rising prices and periods of generally declining prices. These cycles
will affect the value of a Fund to the extent that it invests in foreign stocks.
In addition, the performance of investments in securities denominated in a
foreign currency will depend on the strength of the foreign currency against the
U.S. dollar and the interest rate environment in the country issuing the
currency. Absent other events which could otherwise affect the value of a
foreign security (such as a change in the political climate or an issuer's
credit quality), appreciation in the value of the foreign currency generally can
be expected to increase the value of a foreign currency-denominated security in
terms of U.S. dollars. A rise in foreign interest
rates
or decline in the value of the foreign currency relative to the U.S. dollar
generally can be expected to depress the value of a foreign currency-denominated
security.
There
are other risks and costs involved in investing in foreign securities, which are
in addition to the usual risks inherent in domestic investments. Investment in
foreign securities involves higher costs than investment in U.S. securities,
including higher transaction and custody costs as well as the imposition of
additional taxes by foreign governments. Foreign investments also involve risks
associated with the level of currency exchange rates, less complete financial
information about the issuers, less market liquidity, more market volatility and
political instability. Future political and economic developments, the possible
imposition of withholding taxes on dividend income, the possible seizure or
nationalization of foreign holdings, the possible establishment of exchange
controls, or the adoption of other governmental restrictions might adversely
affect an investment in foreign securities. Additionally, foreign banks and
foreign branches of domestic banks are subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements. Also, the legal remedies for investors may be more limited than
the remedies available in the U.S.
Although
a Fund may invest in securities denominated in foreign currencies, its portfolio
securities and other assets are valued in U.S. dollars. Currency exchange rates
may fluctuate significantly over short periods of time causing, together with
other factors, a Fund's NAV to fluctuate as well. Currency exchange rates can be
affected unpredictably by the intervention or the failure to intervene by U.S.
or foreign governments or central banks, or by currency controls or political
developments in the U.S. or abroad. To the extent that a Fund's total assets,
adjusted to reflect a Fund's net position after giving effect to currency
transactions, are denominated in the currencies of foreign countries, a Fund
will be more susceptible to the risk of adverse economic and political
developments within those countries.
Issuers
of foreign securities may also suffer from social, political and economic
instability. Such instability can lead to illiquidity or price volatility in
foreign securities traded on affected markets. Foreign issuers may be subject to
the risk that during certain periods the liquidity of securities of a particular
issuer or industry, or all the securities within a particular region, will be
adversely affected by economic, market or political events, or adverse investor
perceptions, which may cause temporary or permanent devaluation of the relevant
securities. In addition, if a market for a foreign security closes as a result
of such instability, it may be more difficult to obtain accurate independently
sourced prices for securities traded on these markets and may be difficult to
value the affected foreign securities for extended periods of time.
A
Fund also is subject to the possible imposition of exchange control regulations
or freezes on the convertibility of currency. In addition, through the use of
forward currency exchange contracts with other instruments, any net currency
positions of the Funds may expose them to risks independent of their securities
positions.
A
Fund will be subject to foreign withholding taxes with respect to certain
dividends or interest received from sources in foreign countries, and capital
gains on securities of certain foreign countries may be subject to taxation. To
the extent such taxes are not offset by credits or deductions allowed to
investors under U.S. federal income tax law, they may reduce the net return to
shareholders.
The
costs attributable to investing abroad usually are higher than investments in
domestic securities for several reasons, such as the higher cost of investment
research, higher costs of custody of foreign securities, higher commissions paid
on comparable transactions on foreign markets and additional costs arising from
delays in settlements of transactions involving foreign securities.
Foreign
markets also have different clearance and settlement procedures, and in certain
markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Such delays in settlement could result in temporary periods when a
portion of the assets of a Fund remain un-invested and no return is earned on
such assets. The inability of a Fund to make intended security purchases or
sales due to settlement problems could result either in losses to a Fund due to
subsequent declines in value of the portfolio securities or, if a Fund has
entered into a contract to sell the securities, could result in possible
liability to the purchaser.
FOREIGN
INVESTMENTS – EMERGING MARKETS.
Countries with emerging markets are generally located in the Asia and Pacific
regions, the Middle East, Eastern Europe, Central America, South America, and
Africa. To the extent permitted by their investment policies, the Funds may
invest their assets in countries with emerging economies or securities markets.
The
securities markets of emerging countries are less liquid and subject to greater
price volatility, and have a smaller market capitalization, than the securities
markets of more developed countries. In certain countries, there may be fewer
publicly traded securities and the market may be dominated by a few issues or
sectors. Issuers and securities markets in such countries are not subject to as
extensive and frequent accounting, financial and other reporting requirements or
as comprehensive government
regulations
as are issuers and securities markets in the U.S. In particular, the assets and
profits appearing on the financial statements of emerging country issuers may
not reflect their financial position or results of operations in the same manner
as financial statements for U.S. issuers. Substantially less information may be
publicly available about emerging country issuers than is available about
issuers in the United States.
Emerging
country securities markets are typically marked by a high concentration of
market capitalization and trading volume in a small number of issuers
representing a limited number of industries, as well as a high concentration of
ownership of such securities by a limited number of investors. The markets for
securities in certain emerging countries are in the earliest stages of their
development. Even the markets for relatively widely traded securities in
emerging countries may not be able to absorb, without price disruptions, a
significant increase in trading volume or trades of a size customarily
undertaken by institutional investors in the securities markets of developed
countries. The limited size of many of these securities markets can cause prices
to be erratic for reasons apart from factors that affect the soundness and
competitiveness of the securities issuers. For example, prices may be unduly
influenced by traders who control large positions in these markets.
Additionally, market making and arbitrage activities are generally less
extensive in such markets, which may contribute to increased volatility and
reduced liquidity of such markets. The limited liquidity of emerging country
securities may also affect a Fund’s ability to accurately value its portfolio
securities or to acquire or dispose of securities at the price and time it
wishes to do so or in order to meet redemption requests.
Certain
emerging market countries may have antiquated legal systems, which may adversely
impact the Funds. For example, while the potential liability of a shareholder in
a U.S. corporation with respect to acts of the corporation is generally limited
to the amount of the shareholder’s investment, the notion of limited liability
is less clear in certain emerging market countries. Similarly, the rights of
investors in emerging market companies may be more limited than those of
shareholders in U.S. corporations.
Transaction
costs, including brokerage commissions or dealer mark-ups, in emerging countries
may be higher than in developed securities markets. In addition, existing laws
and regulations are often inconsistently applied. As legal systems in emerging
countries develop, foreign investors may be adversely affected by new or amended
laws and regulations. In circumstances where adequate laws exist, it may not be
possible to obtain swift and equitable enforcement of the law.
Certain
emerging market countries may restrict or control foreign investments in their
securities markets. These restrictions may limit a Fund’s investment in certain
emerging countries and may increase the expenses of such Fund. Certain emerging
countries require governmental approval prior to investments by foreign persons
or limit investment by foreign persons to only a specified percentage of an
issuer’s outstanding securities or a specific class of securities which may have
less advantageous terms (including price) than securities of the company
available for purchase by nationals. In addition, the repatriation of both
investment income and capital from emerging countries may be subject to
restrictions which require governmental consents or prohibit repatriation
entirely for a period of time. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of a Fund. A Fund may be required to establish special
custodial or other arrangements before investing in certain emerging countries.
Certain
issuers in emerging market countries may utilize share blocking schemes. Share
blocking refers to a practice, in certain foreign markets, where voting rights
related to an issuer’s securities are predicated on these securities being
blocked from trading at the custodian or sub-custodian level, for a period of
time around a shareholder meeting. These restrictions have the effect of barring
the purchase and sale of certain voting securities within a specified number of
days before, and in certain instances, after a shareholder meeting where a vote
of shareholders will be taken. Share blocking may prevent a Fund from buying or
selling securities for a period of time. During the time that shares are
blocked, trades in such securities will not settle. The blocking period can last
up to several weeks. The process for having a blocking restriction lifted can be
quite onerous with the particular requirements varying widely by country. In
addition, in certain countries, the block cannot be removed. As a result of the
ramifications of voting ballots in markets that allow share blocking, the
Adviser, on behalf of a Fund, reserves the right to abstain from voting proxies
in those markets.
Emerging
countries may be subject to a substantially greater degree of economic,
political and social instability and disruption than more developed countries.
This instability may result from, among other things, the following: (i)
authoritarian governments or military involvement in political and economic
decision making, including changes or attempted changes in governments through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic or social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; (v) ethnic, religious and
racial disaffection or conflict; (vi) the absence of developed legal structures
governing foreign private investments and private property; (vii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (viii) certain national policies which may restrict a
Fund’s investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interest; (ix)
foreign
taxation; (x) the absence, in some cases, of a capital market structure or
market-oriented economy; and (xi) the possibility that economic developments may
be slowed or reversed by unanticipated political or social events in such
countries. Such economic, political and social instability could disrupt the
principal financial markets in which a Fund may invest and adversely affect the
value of the Fund’s assets. A Fund’s investments can also be adversely affected
by any increase in taxes or by political, economic or diplomatic developments.
The
economies of emerging countries may suffer from unfavorable growth of gross
domestic product, rates of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments. Many emerging countries have
experienced in the past, and continue to experience, high rates of inflation. In
certain countries inflation has at times accelerated rapidly to
hyperinflationary levels, creating a negative interest rate environment and
sharply eroding the value of outstanding financial assets in those countries.
Other emerging countries, on the other hand, have experienced deflationary
pressures and are in economic recessions. In addition, many emerging countries
are also highly dependent on international trade and exports, including exports
of oil and other commodities to sustain their economic growth. As a result,
emerging countries are particularly vulnerable to downturns of the world
economy.
A
portion of a Fund’s investments may be in Russian securities and instruments. As
a result of recent events, the United States and the Economic and Monetary Union
of the European Union, along with the regulatory bodies of a number of
countries, including Japan, Australia, Norway, Switzerland and Canada, have
imposed economic sanctions and renewed existing economic sanctions, which
consist of prohibiting certain securities trades, prohibiting certain private
transactions in the energy sector, asset freezes, and prohibition of all
business, against certain Russian individuals and Russian corporate entities.
Sanctions announced in February and March 2022 include measures against the
Russian financial sector and restrictions on business in the Donetsk and Luhansk
regions of Ukraine. The United States and other nations or international
organizations may impose additional, broader economic sanctions or take other
actions that may adversely affect Russian-related issuers in the future. These
sanctions, any future sanctions or other actions, or even the threat of further
sanctions or other actions, may negatively affect the value and liquidity of a
Fund’s investments. For example, a Fund may be prohibited from investing in
securities issued by companies subject to such sanctions. In addition, the
sanctions may require a Fund to freeze its existing investments in Russian
companies, prohibiting the Fund from buying, selling or otherwise transacting in
these investments. Russia may undertake countermeasures or retaliatory actions,
which may further impair the value and liquidity of a Fund’s portfolio and
potentially disrupt its operations. Also, if an affected security is included in
a Fund's Underlying Index, the Fund may, where practicable, seek to eliminate
its holdings of the affected security by employing or augmenting its
representative sampling strategy to seek to track the investment results of its
Underlying Index. The use of (or increased use of) a representative sampling
strategy may increase a Fund’s tracking error risk. These sanctions may also
lead to changes in a Fund’s Underlying Index. A Fund’s index provider may remove
securities from the Underlying Index or implement caps on the securities of
certain issuers that have been subject to recent economic sanctions. In such an
event, it is expected that a Fund will rebalance its portfolio to bring it in
line with its Underlying Index as a result of any such changes, which may result
in transaction costs and increased tracking error.
For
these or other reasons, a Fund could seek to suspend redemptions of Creation
Units, including in the event that an emergency exists in which it is not
reasonably practicable for the Fund to dispose of its securities or to determine
its net asset value. A Fund could also, among other things, limit or suspend
creations of Creation Units. During the period that creations or redemptions are
affected, Shares could trade at a significant premium or discount to their net
asset value. In the case of a period during which creations are suspended, a
Fund could experience substantial redemptions, which may cause the Fund to
experience increased transaction costs and make greater taxable distributions to
shareholders of a Fund. A Fund could liquidate all or a portion of its assets,
which may be at unfavorable prices. A Fund may also change its investment
objective by, for example, seeking to track an alternative index.
Investments
in Chinese A-Shares may pose additional risks relative to the risks of investing
in emerging markets securities generally. A-Shares are issued by companies
incorporated in mainland China and are traded in Renminbi (“RMB”) on the
Shanghai Stock Exchange and Shenzhen Stock Exchange. Historically, direct
participation in the A-Shares market has been limited to mainland Chinese
investors. Foreign investors have been able to invest in the mainland Chinese
securities markets through certain market-access programs. Among other programs,
foreign investors may invest in A-Shares listed and traded on the Shanghai Stock
Exchange and Shenzhen Stock Exchange through the Shanghai - Hong Kong and
Shenzhen - Hong Kong Stock Connect programs (“Stock Connect Programs”), which
launched in 2014 and 2016, respectively. These Stock Connect Programs are novel,
and Chinese regulators may alter or eliminate these programs at any time. The
Stock Connect Programs are securities trading and clearing programs between
either the Shanghai Stock Exchange (“SSE”) or Shenzhen Stock Exchange (“SZSE”)
and The Stock Exchange of Hong Kong Limited (“SEHK”), China Securities
Depository and Clearing Corporation Limited and Hong Kong Securities Clearing
Company Limited. The Stock Connect Programs are designed to permit mutual stock
market access between mainland China and Hong Kong by allowing investors to
trade and settle shares on each market via their local exchanges. Trading
through the Stock Connect Programs is subject to a daily quota (“Daily Quota”),
which limits
the
maximum daily net purchases on any particular day by Hong Kong investors (and
foreign investors trading through Hong Kong) trading mainland Chinese listed
securities and mainland Chinese investors trading Hong Kong listed securities
trading through the relevant Stock Connect Program. Accordingly, direct
investments in A-Shares will be limited by the Daily Quota that limits total
purchases through the Stock Connect Programs. The Daily Quota is utilized by all
non-mainland Chinese investors on a first-come-first-serve basis. As such, buy
orders for A-Shares would be rejected once the Daily Quota is exceeded (although
the investors would be permitted to sell A-Shares regardless of the Daily Quota
balance). The Daily Quota may restrict a Fund’s ability to invest in A-Shares
through the Stock Connect Programs on a timely basis, which could affect the
Funds’ ability to effectively pursue its investment strategy. The Daily Quota is
also subject to change.
In
addition, investments made through Stock Connect are subject to trading,
clearance and settlement procedures that are still relatively untested in
mainland China, which could pose risks to a Fund. Moreover, A-Shares purchased
through a Stock Connect Program generally may not be sold, purchased or
otherwise transferred other than through the Stock Connect Program in accordance
with applicable rules. A primary feature of the Stock Connect Programs is the
application of the home market’s laws and rules applicable to investors in
A-Shares (i.e. mainland China). Therefore, a Fund’s investments in A-Shares via
the Stock Connect Programs are subject to Chinese securities regulations and
listing rules, among other restrictions. While A-Shares must be designated as
eligible to be traded under a Stock Connect Program (such eligible A-Shares
listed on the SSE, the “SSE Securities,” and such eligible A-Shares listed on
the SZSE, the “SZSE Securities”), those A-Shares may also lose such designation,
and if this occurs, such A-Shares may be sold but could no longer be purchased
through the applicable Stock Connect Program. In addition, the Stock Connect
Programs will only operate on days when both the Chinese and Hong Kong markets
are open for trading and when banking services are available in both markets on
the corresponding settlement days. Therefore, an investment in A-Shares through
the Stock Connect Programs may subject a Fund to the risk of price fluctuations
on days when the Chinese markets are open, but the SEHK is not. Each of the
SEHK, SSE and SZSE reserves the right to suspend trading under the Stock Connect
Programs under certain circumstances. Where such a suspension of trading is
effected, a Fund’s ability to access A-Shares through the Stock Connect Programs
will be adversely affected.
A
Fund’s investments in A-Shares through a Stock Connect Program are held by its
custodian in accounts in the Central Clearing and Settlement System (“CCASS”)
maintained by the Hong Kong Securities Clearing Company Limited (“HKSCC”), which
in turn holds the A-Shares, as the nominee holder, through an omnibus securities
account in its name registered with the CSDCC. The precise nature and rights of
a Fund as the beneficial owner of the SSE Securities or SZSE Securities through
HKSCC as nominee is not well defined under Chinese law. There is a lack of a
clear definition of, and distinction between, legal ownership and beneficial
ownership under Chinese law and there have been few cases involving a nominee
account structure in Chinese courts. The exact nature and methods of enforcement
of the rights and interests of a Fund under Chinese law is also uncertain, and
there is a possibility that the SSE Securities or SZSE Securities may not be
regarded as held for the beneficial ownership of a Fund in the event of a credit
event with respect to HKSCC, the Fund’s custodian, or other market participants.
Notwithstanding
the fact that HKSCC does not claim proprietary interests in the SSE Securities
or SZSE Securities held in its omnibus stock account in the CSDCC, the CSDCC as
the share registrar for SSE- or SZSE-listed companies will still treat HKSCC as
one of the shareholders when it handles corporate actions in respect of such SSE
Securities or SZSE Securities. HKSCC monitors the corporate actions affecting
SSE Securities and SZSE Securities and keeps participants of CCASS informed of
all such corporate actions that require CCASS participants to take steps in
order to participate in them. A Fund will therefore depend on HKSCC for both
settlement and notification and implementation of corporate actions.
Other
market access programs, each of which may present different risks, may also be
used to provide non-Chinese investors with exposure to A-Shares. To the extent
that the Funds do not utilize such other market access programs, any disruptions
to a Stock Connect Program would be more likely to impact the Funds’ ability to
access exposure to A-Shares.
DERIVATIVES.
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act (“Rule 18f-4”),
which imposes new requirements and restrictions on the Funds’ use of derivatives
and eliminates the asset segregation framework previously used by funds,
including the Funds, to comply with Section 18 of the 1940 Act. Rule 18f-4
imposes limits on the amount of leverage risk to which a Fund may be exposed
through certain derivative instruments that may oblige the Fund to make payments
or incur additional obligations in the future. Under Rule 18f-4, the Funds’
investment in such derivatives is limited through a value-at risk or “VaR” test.
Funds whose use of such derivatives is more than a limited specified exposure
amount are required to establish and maintain a derivatives risk management
program, subject to oversight by the Board of Trustees of the Trust, and appoint
a derivatives risk manager to implement such program. To the extent a Fund’s
compliance with Rule 18f-4 changes how the Fund uses derivatives, Rule 18f-4 may
adversely affect the Fund’s performance and/or increase costs related to the
Fund’s use of derivatives.
FUTURES
CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.
To the extent consistent with its investment policies, each Fund may invest up
to 20% of its total assets (minus any percent of Fund assets invested in other
derivatives) in U.S. or foreign futures contracts and may purchase and sell call
and put options on futures contracts. These futures contracts and options will
be used to simulate full investment in the respective Underlying Index, to
facilitate trading or to reduce transaction costs. A Fund will only enter into
futures contracts and options on futures contracts that are traded on a U.S. or
foreign exchange. A Fund will not use futures or options for speculative
purposes. In connection with a Fund's position in a futures contract or related
option, the Fund will segregate liquid assets or will otherwise cover its
position in accordance with applicable SEC requirements.
Futures
Contracts.
Each Fund may enter into certain equity, index and currency futures
transactions, as well as other futures transactions that become available in the
markets. By using such futures contracts, the Funds may obtain exposure to
certain equities, indexes and currencies without actually investing in such
instruments. Index futures may be based on broad indices, such as the S&P
500 Index, or narrower indices. A futures contract on foreign currency creates a
binding obligation on one party to deliver, and a corresponding obligation on
another party to accept delivery of, a stated quantity of foreign currency for
an amount fixed in U.S. dollars. Foreign currency futures may be used by a Fund
to help the Fund track the price and yield performance of its Underlying
Index.
Some
futures contracts are traded on organized exchanges regulated by the SEC or
Commodity Futures Trading Commission ("CFTC"), and transactions on them are
cleared through a clearing corporation, which guarantees the performance of the
parties to the contract. If regulated by the CFTC, such exchanges may be
designated contract markets or swap execution facilities.
A
Fund may also engage in transactions in foreign stock index futures, which may
be traded on foreign exchanges. Participation in foreign futures and foreign
options transactions involves the execution and clearing of trades on or subject
to the rules of a foreign board of trade. Neither the National Futures
Association ("NFA") nor any domestic exchange regulates activities of any such
organization, even if it is formally linked to a domestic market. Moreover,
foreign laws and regulations and transactions executed under such laws and
regulations may not be afforded certain of the protective measures provided
domestically. In addition, the price of foreign futures or foreign options
contracts may be affected by any variance in the foreign exchange rate between
the time an order is placed and the time it is liquidated, offset or
exercised.
Unlike
purchases or sales of portfolio securities, no price is paid or received by a
Fund upon the purchase or sale of a futures contract. Initially, a Fund will be
required to deposit with the broker or in a segregated account with a custodian
or sub-custodian an amount of liquid assets, known as initial margin, based on
the value of the contract. The nature of initial margin in futures transactions
is different from that of margin in security transactions in that futures
contract margin does not involve the borrowing of funds by the customer to
finance the transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract, which is returned to the
Fund upon termination of the futures contract assuming all contractual
obligations have been satisfied. Subsequent payments, called variation margin,
to and from the broker, will be made on a daily basis as the price of the
underlying instruments fluctuates making the long and short positions in the
futures contract more or less valuable, a process known as "marking-to-market."
For example, when a Fund has purchased a futures contract and the price of the
contract has risen in response to a rise in the underlying instruments, that
position will have increased in value and the Fund will be entitled to receive
from the broker a variation margin payment equal to that increase in value.
Conversely, where a Fund has purchased a futures contract and the price of the
future contract has declined in response to a decrease in the underlying
instruments, the position would be less valuable, and the Fund would be required
to make a variation margin payment to the broker. Prior to expiration of the
futures contract, the Adviser may elect to close the position by taking an
opposite position, subject to the availability of a secondary market, which will
operate to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Fund, and the Fund realizes a loss or
gain.
There
are several risks in connection with the use of futures by a Fund. One risk
arises because of the imperfect correlation between movements in the price of
the futures and movements in the price of the instruments which are the subject
of the hedge. The price of the future may move more than or less than the price
of the instruments being hedged. If the price of the futures moves less than the
price of the instruments which are the subject of the hedge, the hedge will not
be fully effective but, if the price of the instruments being hedged has moved
in an unfavorable direction, the Fund would be in a better position than if it
had not hedged at all. If the price of the instruments being hedged has moved in
a favorable direction, this advantage will be partially offset by the loss on
the futures. If the price of the futures moves more than the price of the hedged
instruments, the Fund involved will experience either a loss or gain on the
futures which will not be completely offset by movements in the price of the
instruments that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of instruments being hedged and movements
in the price of futures contracts, a Fund may buy or sell futures contracts in a
greater dollar amount than the dollar amount of instruments being hedged if the
volatility over a particular time period of the prices of such instruments has
been greater than the volatility over such time period of the futures, or if
otherwise deemed to be
appropriate
by the Adviser. Conversely, a Fund may buy or sell fewer futures contracts if
the volatility over a particular time period of the prices of the instruments
being hedged is less than the volatility over such time period of the futures
contract being used, or if otherwise deemed to be appropriate by the
Adviser.
In
addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in futures and the instruments being
hedged, the price of futures may not correlate perfectly with movement in the
cash market due to certain market distortions. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
off-setting transactions, which could distort the normal relationship between
the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the Adviser may still not result in
a successful hedging transaction over a short time frame.
In
general, positions in futures may be closed out only on an exchange, board of
trade or other trading facility that provides a secondary market for such
futures. Although each Fund intends to purchase or sell futures only on trading
facilities where there appear to be active secondary markets, there is no
assurance that a liquid secondary market on any trading facility will exist for
any particular contract or at any particular time. In such an event, it may not
be possible to close a futures contract position, and in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities may not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures
contract.
Further,
it should be noted that the liquidity of a secondary market in a futures
contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges, which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Successful
use of futures by a Fund is subject to the Adviser's ability to predict
correctly movements in the direction of the market. In addition, in such
situations, if a Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market. A
Fund may have to sell securities at a time when it may be disadvantageous to do
so.
Options
on Futures Contracts.
Each Fund may purchase and write options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to receive and execute a long futures contract (if the option is a call)
or a short futures contract (if the option is a put) at a specified price at any
time during the period of the option. Like the buyer or seller of a futures
contract, the holder, or writer, of an option has the right to terminate its
position prior to the scheduled expiration of the option by selling, or
purchasing an option of the same series, at which time the person entering into
the closing transaction will realize a gain or loss. Each Fund will be required
to deposit initial margin and variation margin with respect to put and call
options on futures contracts written by it pursuant to brokers' requirements
similar to those described above. Net option premiums received will be included
as initial margin deposits.
Investments
in futures options involve some of the same considerations that are involved in
connection with investments in futures contracts (for example, the existence of
a liquid secondary market). In addition, the purchase or sale of an option also
entails the risk that changes in the value of the underlying futures contract
will not correspond to changes in the value of the option purchased. Depending
on the pricing of the option compared to either the futures contract upon which
it is based, or upon the price of the securities being hedged, an option may or
may not be less risky than ownership of the futures contract or such securities.
In general, the market prices of options can be expected to be more volatile
than the market prices on the underlying futures contract. Compared to the
purchase or sale of futures contracts, however, the purchase of call or put
options on futures contracts may frequently involve less potential risk to a
Fund because the maximum amount at risk is the premium
paid
for the options (plus transaction costs). The writing of an option on a futures
contract involves risks similar to those risks relating to the purchase or sale
of futures contracts.
CFTC
REGULATION. The
Trust, on behalf of each Fund, has claimed an exclusion from the definition of
commodity pool operator ("CPO") under the Commodity Exchange Act ("CEA"), and
the Adviser has claimed an exemption from registration as a commodity trading
advisor ("CTA") under the CEA. Therefore, each Fund and the Adviser are not
subject to registration as a CPO or CTA. Under this CPO exclusion, a Fund may
only use a de minimis amount of commodity interests (such as futures contracts,
options on futures contracts and swaps) other than for bona fide hedging
purposes (as defined by the CFTC). A "de minimis" amount is defined as an amount
such that the aggregate initial margin and premiums required to establish these
positions (after taking into account unrealized profits and unrealized losses on
any such positions and excluding the amount by which options are "in-the-money"
at the time of purchase) may not exceed 5% of a Fund's net asset value or,
alternatively, the aggregate net notional value of those positions, determined
at the time the most recent position was established, may not exceed 100% of a
Fund's net asset value (after taking into account unrealized profits and
unrealized losses on any such positions). The Funds and the Adviser currently
are engaged only in a de minimis amount of such transactions, and therefore,
neither the Funds nor the Adviser are currently subject to the registration and
most regulatory requirements applicable to CPOs and CTAs, respectively. There
can be no certainty that the Funds or the Adviser will continue to qualify under
the applicable exclusion or exemption, as each Fund's investments may change
over time. If a Fund or the Adviser is subject to CFTC registration, it may
incur additional costs or be subject to additional regulatory
requirements.
GOVERNMENT
INTERVENTION IN FINANCIAL MARKETS. The
value of a Fund's holdings is generally subject to the risk of future local,
national, or global economic disturbances based on unknown weaknesses in the
markets in which the Fund invests. In the event of such a disturbance, issuers
of securities held by the Fund may experience significant declines in the value
of their assets and even cease operations or may receive government assistance
accompanied by increased restrictions on their business operations or other
government intervention. Governments or their agencies may acquire distressed
assets from financial institutions and acquire ownership interests in those
institutions. The implications of government ownership and disposition of these
assets are unclear, and such a program may have positive or negative effects on
the liquidity, valuation and performance of a Fund's portfolio holdings.
Past
instability during the 2008-2009 financial downturn led the U.S. Government,
other governments and financial and prudential regulators to take a number of
unprecedented actions designed to support certain financial institutions and
segments of the financial markets that experienced extreme volatility, and in
some cases a lack of liquidity. It is not certain that the U.S. Government will
intervene in response to a future market disturbance and the effect of any such
future intervention cannot be predicted. It is difficult for issuers to prepare
for the impact of future financial downturns, although companies can seek to
identify and manage future uncertainties through risk management
programs.
ILLIQUID
OR RESTRICTED SECURITIES.
To the extent consistent with its investment policies, each Fund may invest up
to 15% of its net assets in securities that are illiquid (calculated at the time
of investment). The Funds comply with Rule 22e-4 under the 1940 Act in managing
illiquid investments. A Fund may purchase commercial paper issued pursuant to
Section 4(2) of the Securities Act, as well as securities that are not
registered under the Securities Act but can be sold to “qualified institutional
buyers” in accordance with Rule 144A under the Securities Act. These securities
will not be considered illiquid so long as the Adviser determines, under
guidelines approved by the Trust’s Board of Trustees, that an adequate trading
market exists. This practice could increase the level of illiquidity during any
period that qualified institutional buyers become uninterested in purchasing
these securities.
INVESTMENT
COMPANIES.
Subject to applicable statutory and regulatory limitations described below, each
Fund may invest in shares of other investment companies, including open-end and
closed-end investment companies, business development companies and other
exchange-traded funds (“ETFs”). An investment in an investment company is
subject to the risks associated with that investment company’s portfolio
securities. Because the value of other investment company or ETF shares depends
on the NAV or the demand in the market, respectively, the Adviser may not be
able to liquidate a Fund’s holdings in those shares at the most optimal time,
adversely affecting the Fund’s performance. Investments in closed-end funds may
entail the additional risk that the market value of such investments may be
substantially less than their net asset value. To the extent a Fund invests in
shares of another investment company, the Fund will indirectly bear a
proportionate share of that investment company’s advisory fees and other
operating expenses. These fees are in addition to the management fees and other
operational expenses incurred directly by the Funds. In addition, the Funds
could incur a sales charge in connection with purchasing an investment company
security or a redemption fee upon the redemption of such security.
Section
12(d)(1)(A) of the 1940 Act provides that a fund may not purchase or otherwise
acquire the securities of other investment companies if, as a result of such
purchase or acquisition, it would own: (i) more than 3% of the total outstanding
voting stock of the acquired investment company; (ii) securities issued by any
one investment company having a value in
excess
of 5% of the fund’s total assets; or (iii) securities issued by all investment
companies having an aggregate value in excess of 10% of the fund’s total assets.
These limitations are subject to certain statutory and regulatory exemptions
including rule 12d1-4 under the 1940 Act (“Rule 12d1-4”). Rule 12d1-4 permits a
Fund to invest in other investment companies beyond the statutory limits,
subject to certain conditions. Among other conditions, Rule 12d1-4 prohibits a
fund from acquiring control of another investment company (other than an
investment company in the same group of investment companies), including by
acquiring more than 25% of its voting securities. In addition, Rule 12d1-4
imposes certain voting requirements when a fund’s ownership of another
investment company exceeds particular thresholds. If shares of a fund are
acquired by another investment company, the “acquired” fund may not purchase or
otherwise acquire the securities of an investment company or private fund if
immediately after such purchase or acquisition, the securities of investment
companies and private funds owned by that acquired fund have an aggregate value
in excess of 10% of the value of the total assets of the fund, subject to
certain exceptions. These restrictions may limit the Funds’ ability to invest in
other investment companies to the extent desired. In addition, other
unaffiliated investment companies may impose other investment limitations or
redemption restrictions which may also limit the Funds’ flexibility with respect
to making investments in those unaffiliated investment companies.
Because
the value of other investment company or ETF shares depends on the NAV or the
demand in the market, respectively, the Adviser may not be able to liquidate a
Fund’s holdings in those shares at the most optimal time, adversely affecting
the Fund’s performance. If required by the 1940 Act, each Fund expects to vote
the shares of other investment companies that are held by the Fund in the same
proportion as the vote of all other holders of such securities. In addition,
closed-end investment company and ETF shares potentially may trade at a discount
or a premium and are subject to brokerage and other trading costs, which could
result in greater expenses to the Funds.
POOLED
INVESTMENT VEHICLES.
The Funds may invest in the securities of pooled vehicles that are not
investment companies and, thus, not required to comply with the provisions of
the 1940 Act. As a shareholder of such pooled vehicles, the Funds will not have
all of the investor protections afforded by the 1940 Act. Such pooled vehicles
may, however, be required to comply with the provisions of other federal
securities laws, such as the Securities Act. These pooled vehicles typically
hold currency or commodities, such as gold or oil, or other property that is
itself not a security. If a Fund invests in, and thus, is a shareholder of, a
pooled vehicle, the Fund's shareholders will indirectly bear the Fund's
proportionate share of the fees and expenses paid by the pooled vehicle,
including any applicable management fees, in addition to both the management
fees payable directly by the Fund to the Adviser and the other expenses that the
Fund bears directly in connection with its own operations. In addition, a
Fund's investment in pooled investment vehicles may be considered illiquid and
subject to the Fund's restrictions on illiquid investments.
STRUCTURED
PRODUCTS. The
Funds may invest in structured products, including exchange traded notes
("ETNs") and equity-linked instruments. These types of structured products are
senior, unsecured unsubordinated debt securities issued by an underwriting bank
that are designed to provide returns that are linked to a particular benchmark
less investor fees. Structured products have a maturity date and, generally, are
backed only by the creditworthiness of the issuer. As a result, the value of a
structured product may be influenced by time to maturity, volatility and lack of
liquidity in the underlying market (e.g., the commodities market), changes
in the applicable interest rates, and changes in the issuer's credit rating and
economic, legal, political or geographic events that affect the referenced
market. Structured products also may be subject to credit risk. The value of an
ETN may also be subject to the level of supply and demand for the ETN.
LEVERAGE.
Under the 1940 Act, a Fund is permitted to borrow from a bank up to 33 1/3% of
its net assets for short-term or emergency purposes. Each Fund may borrow money
at fiscal quarter end to maintain the required level of diversification to
qualify as a RIC for purposes of the Code. As a result, a Fund may be exposed to
the risks of leverage, which may be considered a speculative investment
technique. Leverage magnifies the potential for gain and loss on amounts
invested and therefore increases the risks associated with investing in the
Funds. If the value of a Fund's assets increases, then leveraging would cause
the Fund's NAV to increase more sharply than it would have had the Fund not been
leveraged. Conversely, if the value of a Fund's assets decreases, leveraging
would cause the Fund's NAV to decline more sharply than it otherwise would have
had the Fund not been leveraged. The Funds may incur additional expenses in
connection with borrowings.
MLP
RISK.
Investments in securities of MLPs involve risks that differ from an investment
in common stock. Holders of units of MLPs have more limited control rights and
limited rights to vote on matters affecting the MLP as compared to holders of
stock of a corporation. For example, MLP unit holders may not elect the general
partner or the directors of the general partner and the MLP unit holders have
limited ability to remove an MLP's general partner. An MLP is controlled by its
general partner, which generally has conflicts of interest and limited fiduciary
duties to the MLP, which may permit the general partner to favor its own
interests over the MLP's. A Fund investing in MLPs will derive the cash flow
associated from that investment from investments in equity securities of MLPs.
The amount of cash that each Fund investing in MLPs will have available to pay
or distribute to shareholders depends entirely on the ability of the MLPs that
each such Fund owns to make distributions to their partners and the tax
character of those distributions. Neither the Funds investing in MLPs nor the
Adviser has control over the
actions
of underlying MLPs. The amount of cash that each individual MLP can distribute
to its partners will depend on the amount of cash it generates from operations,
which will vary from quarter to quarter depending on factors affecting the
energy infrastructure market generally and on factors affecting the particular
business lines of the MLP. Available cash will also depend on the MLPs' level of
operating costs (including incentive distributions to the general partner),
level of capital expenditures, debt service requirements, acquisition costs (if
any), fluctuations in working capital needs, and other factors. The benefit
derived from an investment in an MLP is also dependent on the MLP being treated
as a partnership for federal income tax purposes, which generally do not pay
U.S. federal income tax at the partnership level, subject to the application of
the partnership audit rules. A change in current tax law, or a change in the
underlying business mix of a given MLP, could result in an MLP that previously
elected to be taxed as a partnership being treated as a corporation for U.S.
federal income tax purposes, which would result in such MLP being required to
pay U.S. federal income tax on its taxable income. The classification of an MLP
as a corporation for U.S. federal income tax purposes would have the effect of
reducing the amount of cash available for distribution by the MLP. Thus, to the
extent that any of the MLPs to which a Fund has exposure are treated as a
corporation for U.S. federal income tax purposes, it could result in a reduction
in the value of the Fund’s investment and lower the Fund’s income. A Fund may
also invest in MLPs that elect to be taxed as corporations, which taxes would
have the effect of reducing the amount of cash available for distribution by the
MLP.
Certain
MLPs depend upon their parent or sponsor entities for a majority of their
revenues. If their parent or sponsor entities fail to make such payments or
satisfy their obligations, the revenues and cash flows of such MLPs and ability
of such MLPs to make distributions to unit holders, such as a Fund, would be
adversely affected.
MLPs
are subject to various federal, state and local environmental laws and health
and safety laws as well as laws and regulations specific to their particular
activities. These laws and regulations address: health and safety standards for
the operation of facilities, transportation systems and the handling of
materials; air and water pollution requirements and standards; solid waste
disposal requirements; land reclamation requirements; and requirements relating
to the handling and disposition of hazardous materials. MLPs are subject to the
costs of compliance with such laws applicable to them, and changes in such laws
and regulations may adversely affect their results of operations.
MLPs
are subject to numerous business related risks, including: deterioration of
business fundamentals reducing profitability due to development of alternative
energy sources, among other things, consumer sentiment, changing demographics in
the markets served, unexpectedly prolonged and precipitous changes in commodity
prices and increased competition that reduces the MLP's market share; the lack
of growth of markets requiring growth through acquisitions; disruptions in
transportation systems; the dependence of certain MLPs upon unrelated third
parties; availability of capital for expansion and construction of needed
facilities; a significant decrease in production due to depressed commodity
prices or otherwise; the inability of MLPs to successfully integrate recent or
future acquisitions; and the general level of the economy.
NEW
FUND RISKS.
Certain of the Funds are new funds, with limited operating history, which may
result in additional risks for investors in the Funds. There can be no assurance
that these Funds will grow to or maintain an economically viable size, in which
case the Board of Trustees may determine to liquidate the Funds. While
shareholder interests will be the paramount consideration, the timing of any
liquidation may not be favorable to certain individual
shareholders.
OPTIONS.
To the extent consistent with its investment policies, each Fund may invest up
to 20% of its net assets (minus any percent of the Fund assets invested in other
derivatives) in put options and buy call options and write covered call and
secured put options that the Adviser believes will help the Fund to track its
Underlying Index. Such options may relate to particular securities, foreign and
domestic stock indices, financial instruments, foreign currencies or the yield
differential between two securities ("yield curve options") and may or may not
be listed on a domestic or foreign securities exchange or issued by the Options
Clearing Corporation. A call option for a particular security or currency gives
the purchaser of the option the right to buy, and a writer the obligation to
sell, the underlying security at the stated exercise price prior to the
expiration of the option, regardless of the market price of the security or
currency. The premium paid to the writer is in consideration for undertaking the
obligation under the option contract. A put option for a particular security or
currency gives the purchaser the right to sell the security or currency at the
stated exercise price prior to the expiration date of the option, regardless of
the market price of the security or currency. In contrast to an option on a
particular security, an option on an index provides the holder with the right to
make or receive a cash settlement upon exercise of the option. The amount of
this settlement will be equal to the difference between the closing price of the
index at the time of exercise and the exercise price of the option expressed in
dollars, times a specified multiple.
Options
trading is a highly specialized activity, which entails risk greater than
ordinary investment risk. Options on particular securities may be more volatile
than the underlying instruments and, therefore, on a percentage basis, an
investment in options may be subject to greater fluctuation than an investment
in the underlying instruments themselves.
The
Funds will write call options only if they are "covered." In the case of a call
option on a security or currency, the option is "covered" if the Fund owns the
security or currency underlying the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or, if
additional cash consideration is required, liquid assets in such amount are
segregated) upon conversion or exchange of other securities held by it. For a
call option on an index, the option is covered if the Fund maintains with its
custodian a portfolio of securities substantially replicating the index, or
liquid assets equal to the contract value. A call option also is covered if the
Fund holds a call on the same security, currency or index as the call written
where the exercise price of the call held is (i) equal to or less than the
exercise price of the call written, or (ii) greater than the exercise price of
the call written provided the Fund segregates liquid assets in the amount of the
difference.
All
put options written by a Fund would be covered, which means that such Fund will
segregate cash or liquid assets with a value at least equal to the exercise
price of the put option or will use the other methods described in the next
sentence. A put option also is covered if the Fund holds a put option on the
same security or currency as the option written where the exercise price of the
option held is (i) equal to or higher than the exercise price of the option
written, or (ii) less than the exercise price of the option written provided the
Fund segregates liquid assets in the amount of the difference.
With
respect to yield curve options, a call (or put) option is covered if a Fund
holds another call (or put) option on the spread between the same two securities
and segregates liquid assets sufficient to cover the Fund's net liability under
the two options. Therefore, the Fund's liability for such a covered option
generally is limited to the difference between the amount of the Fund's
liability under the option written by the Fund less the value of the option held
by the Fund. Yield curve options also may be covered in such other manner as may
be in accordance with the requirements of the counterparty with which the option
is traded and applicable laws and regulations.
A
Fund's obligation to sell subject to a covered call option written by it, or to
purchase a security or currency subject to a secured put option written by it,
may be terminated prior to the expiration date of the option by the Fund's
execution of a closing purchase transaction, which is effected by purchasing on
an exchange an option of the same series (i.e.,
same underlying security or currency, exercise price and expiration date) as the
option previously written. Such a purchase does not result in the ownership of
an option. A closing purchase transaction will ordinarily be effected to realize
a profit on an outstanding option, to prevent an underlying instrument from
being called, to permit the sale of the underlying security or currency or to
permit the writing of a new option containing different terms on such underlying
security. The cost of such a liquidation purchase plus transaction costs may be
greater than the premium received upon the original option, in which event the
Fund will have incurred a loss in the transaction. There is no assurance that a
liquid secondary market will exist for any particular option. An option writer,
unable to effect a closing purchase transaction, will not be able to sell the
underlying security or currency (in the case of a covered call option) or
liquidate the segregated assets (in the case of a secured put option) until the
option expires or the optioned security or currency is delivered upon exercise
with the result that the writer in such circumstances will be subject to the
risk of market decline or appreciation in the instrument during such
period.
When
a Fund purchases an option, the premium paid by it is recorded as an asset of
the Fund. When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of this asset or deferred credit will be subsequently
marked-to-market to reflect the current value of the option purchased or
written. The current value of the traded option is the last sale price or, in
the absence of a sale, the current bid price. If an option purchased by a Fund
expires unexercised, the Fund realizes a loss equal to the premium paid. If a
Fund enters into a closing sale transaction on an option purchased by it, the
Fund will realize a gain if the premium received by the Fund on the closing
transaction is more than the premium paid to purchase the option, or a loss if
it is less. If an option written by a Fund expires on the stipulated expiration
date or if a Fund enters into a closing purchase transaction, it will realize a
gain (or loss if the cost of a closing purchase transaction exceeds the net
premium received when the option is sold) and the deferred credit related to
such option will be eliminated. If an option written by a Fund is exercised, the
proceeds of the sale will be increased by the net premium originally received
and the Fund will realize a gain or loss.
There
are several risks associated with transactions in certain options. For example,
there are significant differences between the securities, currency and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. In addition, a liquid
secondary market for particular options, whether traded over-the-counter or on
an exchange, may be absent for reasons which include the following: there may be
insufficient trading interest in certain options; restrictions may be imposed by
an exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities or currencies;
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; the facilities of an exchange or the Options Clearing Corporation may
not at all times be adequate to handle current trading volume; or one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or
series
of options) would cease to exist, although outstanding options that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their
terms.
REPURCHASE
AGREEMENTS.
To the extent consistent with its investment policies, each Fund may agree to
purchase portfolio securities from financial institutions subject to the
seller's agreement to repurchase them at a mutually agreed upon date and price
("repurchase agreements"). Each Fund may invest in repurchase agreements,
provided that a Fund may not invest more than 15% of its net assets in illiquid
securities or other illiquid assets (calculated at the time of investment),
including repurchase agreements maturing in more than seven days. Repurchase
agreements are considered to be loans under the 1940 Act. Although the
securities subject to a repurchase agreement may bear maturities exceeding one
year, settlement for the repurchase agreement will never be more than one year
after the Fund's acquisition of the securities and normally will be within a
shorter period of time. Securities subject to repurchase agreements normally are
held either by the Trust's custodian or sub-custodian, or in the Federal
Reserve/Treasury Book-Entry System. The seller under a repurchase agreement will
be required to maintain the value of the securities subject to the agreement in
an amount exceeding the repurchase price (including accrued interest). Default
by the seller would, however, expose a Fund to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, a Fund could experience both delays in liquidating the
underlying security and losses, including: (a) possible decline in the value of
the underlying security during the period while the Fund seeks to enforce its
rights thereto; (b) possible subnormal levels of income and lack of access to
income during this period; and (c) expenses of enforcing its rights.
REVERSE
REPURCHASE AGREEMENTS.
To the extent consistent with its investment policies, each Fund may borrow
funds by selling portfolio securities to financial institutions such as banks
and broker-dealers and agreeing to repurchase them at a mutually specified date
and price ("reverse repurchase agreements"). The Funds may use the proceeds of
reverse repurchase agreements to purchase other securities either maturing, or
under an agreement to resell, on a date simultaneous with or prior to the
expiration of the reverse repurchase agreement. Reverse repurchase agreements
are considered to be borrowings under the 1940 Act. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the repurchase price. The Funds will pay interest on
amounts obtained pursuant to a reverse repurchase agreement. While reverse
repurchase agreements are outstanding, the applicable Fund will segregate liquid
assets in an amount at least equal to the market value of the securities, plus
accrued interest, subject to the agreement.
SECURITIES
LENDING.
Collateral for loans of portfolio securities made by a Fund may consist of cash,
cash equivalents, securities issued or guaranteed by the U.S. government or its
agencies or irrevocable bank letters of credit (or any combination thereof). The
borrower of securities will be required to maintain the market value of the
collateral at not less than the market value of the loaned securities, and such
value will be monitored on a daily basis. When a Fund lends its securities, it
continues to receive payments equal to the dividends and interest paid on the
securities loaned and simultaneously may earn interest on the investment of the
cash collateral. Investing the collateral subjects it to market depreciation or
appreciation, and each Fund is responsible for any loss that may result from its
investment in borrowed collateral. A Fund will have the right to terminate a
loan at any time and recall the loaned securities within the normal and
customary settlement time for securities transactions. Although voting rights,
or rights to consent, attendant to securities on loan pass to the borrower, such
loans may be called so that the securities may be voted by a Fund if a material
event affecting the investment is to occur. As with other extensions of credit
there are risks of delay in recovering, or even loss of rights in, the
collateral should the borrower of the securities fail financially.
TRACKING
VARIANCE.
As discussed in the Prospectus, the Funds are subject to the risk of tracking
variance (also referred to as tracking error risk). Tracking variance may result
from share purchases and redemptions, transaction costs, expenses and other
factors. Share purchases and redemptions may necessitate the purchase and sale
of securities by a Fund and the resulting transaction costs which may be
substantial because of the number and the characteristics of the securities
held. In addition, transaction costs are incurred because sales of securities
received in connection with spin-offs and other corporate reorganizations are
made to conform each Fund's holdings to its investment objective. Tracking
variance also may occur due to factors such as the size of a Fund, the
maintenance of a cash reserve pending investment or to meet expected
redemptions, changes made in the Fund's designated index or the manner in which
the index is calculated or because the indexing and investment approach of the
Adviser does not produce the intended goal of the Fund. Tracking variance is
monitored by the Adviser at least quarterly. In the event the performance of a
Fund is not comparable to the performance of its designated index, the Board of
Trustees will evaluate the reasons for the deviation and the availability of
corrective measures.
WARRANTS.
To the extent consistent with its investment policies, a Fund may purchase
warrants and similar rights, which are privileges issued by corporations
enabling the owners to subscribe to and purchase a specified number of shares of
the corporation at a specified price during a specified period of time. The
prices of warrants do not necessarily correlate with the prices of the
underlying shares. The purchase of warrants involves the risk that the
applicable Fund could lose the purchase value of a warrant if the right to
subscribe to additional shares is not exercised prior to the warrant's
expiration. Also, the
purchase
of warrants involves the risk that the effective price paid for the warrant
added to the subscription price of the related security may exceed the value of
the subscribed security's market price such as when there is no movement in the
level of the underlying security.
CORPORATE
DEBT SECURITIES.
A Fund may invest in investment grade corporate debt securities of any rating or
maturity. Investment grade corporate bonds are those rated BBB or better by
S&P®
or Baa or better by Moody's. Securities rated BBB by S&P®
are considered investment grade, but Moody's considers securities rated Baa to
have speculative characteristics. See Appendix A for a description of corporate
bond ratings. A Fund may also invest in unrated securities.
Corporate
debt securities are fixed-income securities issued by businesses to finance
their operations, although corporate debt instruments may also include bank
loans to companies. Notes, bonds, debentures and commercial paper are the most
common types of corporate debt securities, with the primary difference being
their maturities and secured or un-secured status. Commercial paper has the
shortest term and is usually unsecured.
The
broad category of corporate debt securities includes debt issued by domestic or
foreign companies of all kinds, including those with small-, mid- and
large-capitalizations. Corporate debt may be rated investment-grade or below
investment-grade and may carry variable or floating rates of
interest.
Because
of the wide range of types, and maturities, of corporate debt securities, as
well as the range of creditworthiness of its issuers, corporate debt securities
have widely varying potentials for return and risk profiles. For example,
commercial paper issued by a large established domestic corporation that is
rated investment-grade may have a modest return on principal but carries
relatively limited risk. On the other hand, a long-term corporate note issued by
a small foreign corporation from an emerging market country that has not been
rated may have the potential for relatively large returns on principal but
carries a relatively high degree of risk.
Corporate
debt securities carry both credit risk and interest rate risk. Credit risk is
the risk that a Fund could lose money if the issuer of a corporate debt security
is unable to pay interest or repay principal when it is due. Some corporate debt
securities that are rated below investment-grade are generally considered
speculative because they present a greater risk of loss, including default, than
higher quality debt securities. The credit risk of a particular issuer's debt
security may vary based on its priority for repayment. For example, higher
ranking (senior) debt securities have a higher priority than lower ranking
(subordinated) securities. This means that the issuer might not make payments on
subordinated securities while continuing to make payments on senior securities.
In addition, in the event of bankruptcy, holders of higher-ranking senior
securities may receive amounts otherwise payable to the holders of more junior
securities. Interest rate risk is the risk that the value of certain corporate
debt securities will tend to fall when interest rates rise. In general,
corporate debt securities with longer terms tend to fall more in value when
interest rates rise than corporate debt securities with shorter
terms.
JUNK
BONDS. A
Fund may invest in lower-rated debt securities, including securities in the
lowest credit rating category, of any maturity, otherwise known as "junk bonds."
Junk
bonds generally offer a higher current yield than that available for
higher-grade issues. However, lower-rated securities involve higher risks, in
that they are especially subject to adverse changes in general economic
conditions and in the industries in which the issuers are engaged, to changes in
the financial condition of the issuers and to price fluctuations in response to
changes in interest rates. During periods of economic downturn or rising
interest rates, highly leveraged issuers may experience financial stress that
could adversely affect their ability to make payments of interest and principal
and increase the possibility of default. In the past, the prices of many
lower-rated debt securities declined substantially, reflecting an expectation
that many issuers of such securities might experience financial difficulties. As
a result, the yields on lower-rated debt securities rose dramatically, but such
higher yields did not reflect the value of the income stream that holders of
such securities expected, but rather, the risk that holders of such securities
could lose a substantial portion of their value as a result of the issuers'
financial restructuring or default. There can be no assurance that such declines
will not recur.
The
market for lower-rated debt issues generally is thinner and less active than
that for higher quality securities, which may limit the Fund's ability to sell
such securities at fair value in response to changes in the economy or financial
markets. Adverse publicity and investor perceptions, whether based on
fundamental analysis, may also decrease the values and liquidity of lower-rated
securities, especially in a thinly traded market. Changes by recognized rating
services in their rating of a fixed-income security may affect the value of
these investments. The Fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase. However, the Adviser
will monitor the investment to determine whether continued investment in the
security will assist in meeting the Fund's investment objective.
U.S.
GOVERNMENT SECURITIES.
A Fund may invest in securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities in pursuit of its investment objective, in
order to deposit such securities as initial or variation margin, as "cover" for
the investment techniques it employs, as part of a cash reserve or for liquidity
purposes. U.S. government securities, such as Treasury bills, notes and bonds
and mortgage-backed securities guaranteed by the Government National Mortgage
Association ("Ginnie Mae"), are supported by the full faith and credit of the
United States; others are supported by the right of the issuer to borrow from
the U.S. Treasury; others are supported by the discretionary authority of the
U.S. government to purchase an agency's obligations; and still others are
supported only by the credit of the issuing agency, instrumentality, or
enterprise.
Although
U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage
Corporation ("Freddie Mac®")
and the Federal National Mortgage Association ("Fannie Mae®")
may be chartered or sponsored by Congress, they are not funded by Congressional
appropriations, and their securities are not issued by the U.S. Treasury nor
supported by the full faith and credit of the U.S. government. The maximum
potential liability of the issuers of some U.S. government securities held by a
Fund may greatly exceed their current resources, including any legal right to
support from the U.S. Treasury. It is possible that issuers of U.S. government
securities will not have the funds to meet their payment obligations in the
future. There is no assurance that the U.S. government would provide financial
support to its agencies and instrumentalities in the future if not required to
do so, even though the U.S. government has provided financial support to certain
U.S. government-sponsored enterprises in the past during periods of extremity.
Fannie Mae and Freddie Mac have been operating under conservatorship, with the
Federal Housing Finance Administration ("FHFA") acting as their conservator,
since September 2008. The entities are dependent upon the continued support of
the U.S. Treasury and FHFA in order to continue their business operations. These
factors, among others, could affect the future status and role of Fannie Mae and
Freddie Mac and the value of their securities and the securities which they
guarantee. Additionally, the U.S. government and its agencies and
instrumentalities do not guarantee the market values of their securities, which
may fluctuate.
U.S.
government agencies and instrumentalities that issue or guarantee securities
include the FHFA, Fannie Mae, the Farmers Home Administration, the Export-Import
Bank of the United States, the Small Business Administration, Ginnie Mae, the
General Services Administration, the Central Bank for Cooperatives, the Federal
Home Loan Banks, Freddie Mac, the Farm Credit Banks, the Maritime
Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation and the Student Loan Marketing Association ("Sallie Mae®").
RECENT
MARKET CONDITIONS. Although
each Fund seeks to track its Underlying Index, the performance of the Underlying
Indices and the Funds are subject to general market conditions.
The U.S.
economy has been highly resilient over the past twelve months, with a tight
labor market driving favorable consumption trends. While the U.S. economy has
remained resilient, signs of U.S. economic data softening are beginning to
emerge. The relationship between employment and consumption remains a key focus
as U.S. economic growth slows. While economic growth is expected to slow in the
United States, it is unclear whether the U.S. economy will avoid a recession in
2024.
In December 2023, the Federal Reserve Board (the Fed) indicated
that it expects to lower interest rates by 75 basis points during the course of
2024, though the Fed has also indicated it will take a balanced approach to rate
cuts. International markets, and emerging markets in particular, may benefit
from a move away from aggressive Fed rhetoric. Economic growth may be more
asynchronized globally, with certain regions continuing to experience solid
economic growth while other regions may face recessionary forces. Projections
for European growth are weak, with the potential for recession, while Chinese
economic growth projections remain uncertain. Regulatory uncertainty, lingering
concerns related to property development debt, and subdued consumer activity
have limited the benefits from China’s post-COVID-19 reopening. Support from the
Chinese government is a key consideration for the potential of improved Chinese
economic growth.
Expectations around slowing but resilient economic
growth and lower interest rates in the United States rest on the expectation
that inflation will be returning to target. However, various ongoing events have
the potential to negatively impact global markets. The global economy continues
to recover from COVID-19-related shutdowns and disruptions in trade, but
government responses to future outbreaks may impact growth. Energy prices
continue to be a potential source of concern that could increase inflation
pressures. The Middle East conflict and the attacks on Red Sea shipping activity
could increase shipping times and costs, while potentially also impacting crude
oil prices. Additionally, the war between Russia and Ukraine is ongoing and
continues to contribute to elevated energy prices, and the imposition of
sanctions against Russia could adversely affect global financial markets.
Escalations in any of these conflicts, as well as other global developments,
could potentially weigh on market sentiment and increase
volatility.
It
is impossible to predict the effects of these or similar events in the future on
the performance of the Funds, although it is possible that these or similar
events could have a significant adverse impact on the NAV and/or risk profile of
a Fund.
PORTFOLIO
TURNOVER
For
the fiscal year ended November 30, 2023, the portfolio turnover rate for
each of the following Funds varied from such Fund's portfolio turnover rate for
the fiscal years ended November 30, 2022 and 2021 due to the application of each
Fund's respective index methodology:
|
|
|
|
|
|
|
|
|
|
| |
| 2021 |
2022 |
2023 |
Global
X MLP ETF |
33.79% |
47.13% |
42.36% |
Global
X MLP & Energy Infrastructure ETF |
16.88% |
23.48% |
24.32% |
Global
X Alternative Income ETF |
86.85% |
18.10% |
14.38% |
Global
X Millennial Consumer ETF |
11.59% |
14.75% |
16.60% |
Global
X Aging Population ETF |
19.57% |
13.50% |
13.34% |
Global
X Conscious Companies ETF |
22.92% |
31.92% |
27.74% |
Global
X FinTech ETF |
29.60% |
38.15% |
13.12% |
Global
X Internet of Things ETF |
9.25% |
8.40% |
11.12% |
Global
X Robotics & Artificial Intelligence ETF |
22.66% |
29.86% |
8.28% |
Global
X U.S. Infrastructure Development ETF |
10.07% |
9.78% |
5.99% |
Global
X U.S. Preferred ETF |
47.89% |
33.20% |
36.65% |
Global
X Autonomous & Electric Vehicles ETF |
18.17% |
34.76% |
26.60% |
Global
X Artificial Intelligence & Technology ETF |
26.37% |
21.28% |
19.08% |
Global
X S&P 500® Quality Dividend ETF |
70.66% |
78.73% |
78.89% |
Global
X Adaptive U.S. Factor ETF |
96.21% |
115.74% |
234.57% |
Global
X Genomics & Biotechnology ETF |
29.25% |
39.39% |
16.59% |
Global
X Cloud Computing ETF |
23.77% |
31.21% |
21.60% |
Global
X Cybersecurity ETF |
26.34% |
57.81% |
18.77% |
Global
X Thematic Growth ETF |
32.16% |
55.00% |
54.28% |
Global
X Video Games & Esports ETF |
23.45% |
55.72% |
26.11% |
Global
X Variable Rate Preferred ETF |
26.17% |
74.41% |
81.87% |
Global
X Telemedicine & Digital Health ETF |
42.39% |
43.26% |
29.92% |
Global
X CleanTech ETF |
35.53% |
15.72% |
23.91% |
Global
X Data Center & Digital Infrastructure ETF (formerly known as the
Global X Data Center REITs & Digital Infrastructure
ETF) |
15.80% |
36.96% |
62.01% |
Global
X Adaptive U.S. Risk Management ETF |
30.10% |
1481.94% |
574.56% |
Global
X Clean Water ETF |
4.84% |
28.19% |
15.27% |
Global
X AgTech & Food Innovation ETF |
32.72% |
55.85% |
54.45% |
Global
X Blockchain ETF |
19.49% |
36.47% |
39.77% |
Global
X Hydrogen ETF |
40.38% |
36.44% |
27.79% |
Global
X Solar ETF |
9.85% |
128.22% |
50.01% |
Global
X Wind Energy ETF |
23.01% |
34.53% |
94.18% |
Global
X PropTech ETF |
N/A |
N/A |
13.73% |
Global
X 1-3 Month T-Bill ETF |
N/A |
N/A |
0.00% |
Global
X U.S. Cash Flow Kings 100 ETF |
N/A |
N/A |
14.76% |
Global
X Defense Tech ETF |
N/A |
N/A |
2.94% |
For
the fiscal year ended November 30, 2023, the changes in turnover experienced by
the Funds were driven by their respective index rebalances, in accordance with
the funds’ principal investment strategies. For the fiscal year ended November
30, 2023, the Global X Adaptive U.S. Factor ETF and the Global X Adaptive U.S.
Risk Management ETF experienced above-average turnover as a result of the
frequency with which their underlying Indexes allocated their weight to the
respective sub-indexes, in accordance with the funds’ principal investment
strategies.
INFORMATION
REGARDING THE INDICES AND THE INDEX PROVIDERS
Solactive
MLP Infrastructure Index
The
Solactive MLP Infrastructure Index is intended to give investors a means of
tracking the performance of the United States energy infrastructure master
limited partnership ("MLP") asset class. As of January 31, 2024, the
Underlying Index was comprised of 15 MLPs engaged in the transportation,
storage, and processing of natural resources. The Underlying Index is comprised
of MLPs that meet certain criteria relating to size and liquidity, as determined
by Solactive AG. The index is maintained by Solactive AG.
Solactive
MLP & Energy Infrastructure Index
The
Solactive MLP & Energy Infrastructure Index is intended to give investors a
means of tracking the performance of midstream energy infrastructure MLPs
corporations. Midstream energy infrastructure MLPs and corporations principally
own and operate assets used in energy logistics, including, but not limited to,
pipelines, storage facilities and other assets used in transporting, storing,
gathering, and processing natural gas, natural gas liquids, crude oil or refined
products. The index limits its exposure to partnerships in order to comply with
applicable tax diversification rules. Securities must be publicly traded in the
United States. As of January 31, 2024, the index was comprised of 25
securities. The index is composed of securities that meet certain criteria
relating to size and liquidity, as determined by Solactive AG. The index is
maintained by Solactive AG.
Indxx
SuperDividend®
Alternatives Index
The
Indxx SuperDividend®
Alternatives Index is intended to provide exposure to five income-producing
categories: Master Limited Partnerships ("MLPs") and Infrastructure, Real
Estate, Preferreds, Emerging Market Bonds and Covered Calls. The MLPs and
Infrastructure categories primarily consist of units of MLPs and shares of
infrastructure companies. The Real Estate category provides exposure to global
real estate investment trusts ("REITs"), and gains this exposure through
investing directly in the Global X SuperDividend®
REIT ETF. The Preferreds category provides exposure to U.S. preferred
securities, and gains this exposure through investing directly in the Global X
U.S. Preferred ETF. The Emerging Markets Bonds category provides exposure to
emerging markets debt, and gains this exposure through investing directly in the
Global X Emerging Markets Bond ETF. The Covered Call category provides exposure
to a covered call strategy, and gains this exposure through investing directly
in the Global X Nasdaq 100 Covered Call ETF. At the annual reconstitution, each
of the five categories is equally weighted at 20%. The Underlying Index may
rebalance quarterly if any one category deviates more than 3% from its target
weight, in which case each category is rebalanced back to equal weight of 20%.
The Fund's investment objective and Underlying Index may be changed without
shareholder approval.
Concinnity
Conscious Companies Index
The
Concinnity Conscious Companies Index is designed to provide exposure to
companies listed in the U.S. that operate their businesses in a sustainable and
responsible manner, as measured by their ability to achieve positive outcomes
that are consistent with a multi-stakeholder operating system ("MsOS"), as
defined by Concinnity Advisors LP ("Concinnity"), the provider of the Concinnity
Conscious Companies Index. The MsOS is a corporate governance structure that
seeks to account for the multiple stakeholders that are critical for the ongoing
success of the business, and incorporate the considerations of these
stakeholders into the corporate decision-making and problem-solving process.
Concinnity conducts its analysis based on the following five key stakeholder
groups: (1) Customers, (2) Employees, (3) Suppliers, (4) Stock and Debt Holders,
and (5) Communities in which the companies operate.
The
universe of companies eligible for inclusion in the Concinnity Conscious
Companies Index is comprised of companies listed in the U.S. with a market
capitalization greater than $2 billion. From this initial universe, Concinnity
applies a proprietary, three-step analysis to select companies for the
Concinnity Conscious Companies Index. In the first step, Concinnity utilizes
approximately forty information sources and public rankings to identify and
evaluate companies based on their demonstrated ability to achieve positive
outcomes across all five stakeholder groups. Positive outcomes vary by
stakeholder group, but include metrics that assess areas such as employee
productivity, customer loyalty and corporate governance. These information
sources are vetted annually by Concinnity and evaluated based on stakeholder
focus, research methodology and third party or in-house analysis of a source's
potential as a leading indicator of corporate and/or stock performance.
Companies are scored by Concinnity based on their appearance and performance in
these sources and rankings. Of the approximately 1,100 - 1,400 companies that
typically make up the eligible universe, approximately 600-700 are generally
selected by Concinnity for further analysis and potential inclusion in the
Concinnity Conscious Companies Index.
In
the second step of the research process, Concinnity uses a composite analysis to
apply a deeper evaluation on the remaining companies. The composite analysis is
a process that assesses various MsOS criteria by combining ratings data from
multiple research entities that specialize in various stakeholder assessment
categories. Companies are evaluated through a series of scoring lenses that
combine to form a composite score, which is underpinned by several hundred MsOS
criteria. Composite analysis MsOS criteria include, but are not limited to:
employee engagement, executive integrity, customer relationship quality, labor
and human rights, and quality of financial reporting. Various modeling
techniques are then used by Concinnity to combine qualitative and quantitative
data into a single score for each company. This score reflects the degree to
which a company operates its business using the MsOS approach, as defined by the
research process. The approximately 300-350 highest scoring companies ultimately
comprise the MsOS investable universe for the purposes of constructing the
Concinnity Conscious Companies Index.
In
the final step, Concinnity applies a screen for consistent achievement to the
MsOS investable universe of the approximately 300-350 highest scoring companies.
In order to be included in the Concinnity Conscious Companies Index, a company
must have qualified for inclusion in the MsOS investable universe for at least
three consecutive years. As of January 31, 2024, the Concinnity Conscious
Companies Index is equal-weighted with adjustments for extreme underweight
exposures relative to the Solactive US Large Cap Index, as determined by the
Index Provider. The Concinnity Conscious Companies Index may include large- or
mid-capitalization companies, and will generally provide exposure to all major
sectors. As of January 31, 2024, the Concinnity Conscious Companies Index
had 166 constituents, with no single sector having an allocation greater than
25%. The three largest sectors represented in the Concinnity Conscious Companies
Index as of January 31, 2024, were information technology, health care and
financials.
ICE
BofA Diversified Core U.S. Preferred Securities Index
The
ICE BofA Diversified Core U.S. Preferred Securities Index is designed to track
the broad-based performance of the U.S. preferred securities market. The ICE
BofA Diversified Core U.S. Preferred Securities Index includes different
categories of preferred stock, such as floating, variable and fixed-rate
preferreds, cumulative and non-cumulative preferreds, and trust preferreds.
Qualifying preferred securities must be listed on a U.S. exchange, denominated
in U.S. dollars, and have a minimum amount outstanding of $50 million.
Qualifying preferred securities must meet minimum price, liquidity, maturity and
other requirements as determined by ICE Data Indices, LLC.
Constituents
in the ICE BofA Diversified Core U.S. Preferred Securities Index are
capitalization-weighted based on their current amount outstanding times the
market price plus accrued interest. A weighting cap of 10% is applied at the
issuer level in order to limit the aggregate weight of a single issuer to 10% at
each rebalance. The ICE BofA Diversified Core U.S. Preferred Securities Index is
rebalanced quarterly.
S&P
500®
Quality
High Dividend Index
The
S&P
500®
Quality
High Dividend Index is designed to provide exposure to U.S. equity securities
included in the S&P 500®
Index that exhibit high quality and dividend yield characteristics, as
determined by Standard & Poor's Financial Services LLC, the provider of the
S&P
500®
Quality
High Dividend Index. All constituents of the S&P
500®
Quality
High Dividend Index are members of the S&P 500®
Index and follow the eligibility criteria for that index. From this starting
universe, eligible constituents are screened to include only securities that
rank within the top 200 of the S&P 500®
Index universe by both quality score and dividend yield. The S&P
500®
Quality
High Dividend Index is equal weighted and is reconstituted and rebalanced
semi-annually. At each semi-annual rebalance, a sector capping methodology is
applied to reduce sector concentration and increase diversification of the
S&P
500®
Quality
High Dividend Index. As of January 31, 2024, the S&P
500®
Quality
High Dividend Index had 64 constituents.
Adaptive
Wealth Strategies U.S. Factor Index
The
Adaptive Wealth Strategies U.S. Factor Index is owned and was developed by
NorthCrest Asset Management. The Index is calculated and maintained by Solactive
AG. The Adaptive Wealth Strategies U.S. Factor Index is designed to dynamically
allocate across three sub-indices that provide exposure to U.S. equities that
exhibit characteristics of one of three primary factors: value, momentum and low
volatility. Each factor is represented by a sub-index that is derived from the
Solactive U.S. Large & Mid Cap Index, which is designed to measure the 1,000
largest companies, by free float market capitalization, that are exchange-listed
in the United States:
•Solactive
U.S. Large & Mid Cap Value 100 Index TR
– This index is designed to measure the performance of the 100 stocks in the
Solactive U.S. Large & Mid Cap Index that exhibit the greatest exposure to
the value factor.
•Solactive
U.S. Large & Mid Cap Momentum 100 Index TR
– This index is designed to measure the performance of the 100 stocks in the
Solactive U.S. Large & Mid Cap Index that exhibit the highest degree of
relative performance.
•Solactive
U.S. Large & Mid Cap Minimum Downside Volatility 100 Index TR
– This index is designed to measure the performance of the 100 stocks in the
Solactive U.S. Large & Mid Cap Index that exhibit the lowest degree of
downside volatility.
The
Adaptive Wealth Strategies U.S. Factor Index is rebalanced quarterly. At each
rebalance, the Adaptive Wealth Strategies U.S. Factor Index allocates weight to
the three sub-indices based on the relative performance of each sub-index since
the last rebalance of the Adaptive Wealth Strategies U.S. Factor Index. The
Adaptive Wealth Strategies U.S. Factor Index is designed to always be fully
allocated to at least two of the three sub-indices described above. As of
January 31, 2024, the Adaptive Wealth Strategies U.S. Factor Index had 193
constituents.
ICE
U.S. Variable Rate Preferred Securities Index
The
ICE U.S. Variable Rate Preferred Securities Index is designed to track the
broad-based performance of the U.S. variable rate preferred securities market.
Qualifying preferred securities must be listed on a U.S. exchange, denominated
in U.S. dollars, have floating or variable dividends or coupons, and have a
minimum amount outstanding of $50 million. Qualifying preferred securities may,
however, be issued by non-U.S. companies. Qualifying securities must be issued
in $25, $50, $100, or $1000 par/liquidation preference increments, must have a
traded market value of greater than $6 million in each of the previous three
calendar months, and must have at least one year remaining to maturity, as
determined by ICE Data Indices, LLC (the "Index Provider").
Constituents
in the ICE U.S. Variable Rate Preferred Securities Index are
capitalization-weighted based on their current amount outstanding times the
market price plus accrued interest. A weighting cap of 10% is applied at the
issuer level to limit the aggregate weight of a single issuer to 10% at each
rebalance. The ICE U.S. Variable Rate Preferred Securities Index may include
large-, mid- or small-capitalization companies. Components of the ICE U.S.
Variable Rate Preferred Securities Index primarily include financials companies.
The ICE U.S. Variable Rate Preferred Securities Index is rebalanced quarterly.
Adaptive
Wealth Strategies U.S. Risk Management Index
The
Adaptive Wealth Strategies U.S. Risk Management Index is owned and was developed
by NorthCrest Asset Management. The Adaptive Wealth Strategies U.S. Risk
Management Index is calculated and maintained by Solactive AG. The Adaptive
Wealth Strategies U.S. Risk Management Index is designed to dynamically allocate
between either 100% exposure to the Solactive GBS United States 500 Index TR
("U.S. Equity Position") or 100% exposure to the Solactive U.S. 1-3 Year
Treasury Bond Index ("U.S. Treasury Position"). The Solactive U.S. 1-3 Year
Treasury Bond Index is a rules-based, market value weighted index designed to
track the performance of USD-denominated bonds issued by the U.S. Treasury with
at least 1 year until maturity but less than 3 years until maturity, as of the
selection date of the index. The Solactive GBS United States 500 Index TR is a
float-adjusted market capitalization weighted index which measures the
performance of the equity securities of the 500 largest companies from the
United States stock market across all sectors. A float-adjusted market
capitalization weighted index weights each index component according to its
market capitalization, using the number of shares that are readily available for
purchase on the open market, rather than the total number of shares outstanding
of an issuer. The Adaptive Wealth Strategies U.S. Risk Management Index seeks to
provide exposure to the U.S. Equity Position during periods of normal equity
market returns, and seeks to provide exposure to the U.S. Treasury Position
prior to and during periods of adverse market conditions, as determined by the
quantitative model developed by the Index Provider. The Adaptive Wealth
Strategies U.S. Risk Management Index seeks to anticipate periods of adverse
market conditions using quantitative signals (explained in further detail below)
that have been developed based on historical data.
The
Adaptive Wealth Strategies U.S. Risk Management Index uses four quantitative
signals calculated daily by Solactive AG to determine how the Adaptive Wealth
Strategies U.S. Risk Management Index will be allocated between either the U.S.
Equity Position or the U.S. Treasury Position, as further described below:
i.The
200-day simple moving average (“SMA”) of the U.S. Equity Position, which
measures the average closing price of securities within the Solactive GBS United
States 500 Index TR over a 200-day period;
ii.The
moving average convergence divergence (“MACD”), which shows the relationship
between two moving averages of the prices of securities within the U.S. Equity
Position by subtracting the 26-day exponential moving average of the U.S. Equity
Position from the 12-day exponential moving average;
iii.The
drawdown percentage, where drawdown is defined as the peak-to-valley total
change in market price of the U.S. Equity Position, and;
iv.The
level of the Cboe Volatility Index (“VIX”), which is a benchmark index designed
to measure the market’s expectation of future volatility.
Each
of the signals above is given an equal “vote” in determining whether the
Adaptive Wealth Strategies U.S. Risk Management Index is allocated to the U.S.
Equity Position or to the U.S. Treasury Position. The allocation to either the
U.S. Equity Position or the U.S. Treasury Position is determined as
follows:
•Exit
Voting:
If the Adaptive Wealth Strategies U.S. Risk Management Index is currently
invested in the U.S. Equity Position, at least three of the exit signals must be
triggered (and no more than one entry signal) for the Adaptive Wealth Strategies
U.S. Risk Management Index to exit the U.S. Equity Position and enter the U.S.
Treasury Position.
•Entry
Voting:
If the Adaptive Wealth Strategies U.S. Risk Management Index is currently
invested in the U.S. Treasury Position, at least two of the entry signals must
be triggered for the Adaptive Wealth Strategies U.S. Risk Management Index to
exit the U.S. Treasury Position and enter the U.S. Equity Position.
The
trigger threshold for each signal is based on a predetermined Z-score level for
that given signal. A Z-score (often referred to as a “standard score”) is a
measure of how many standard deviations below or above the mean a data point is,
and can be used to identify data points that may be considered outliers relative
to the mean. The Z-score threshold for each vote is determined using historical
returns data for the U.S. Equity Position starting in January of 1993. Each
signal looks at the recent performance of the U.S. Equity Position or the VIX,
and compares that to the historical performance of the U.S. Equity Position or
the VIX, respectively. The Z-scores used in determining an exit or entry vote
are designed to identify cases where the recent performance of the U.S. Equity
Position or the VIX are sufficiently statistically different from the historical
performance to indicate a drawdown event or period of positive market returns
may be likely going forward. Depending on the performance of the U.S. Equity
Position and the VIX, each signal can go for months without changing direction,
or can change as frequently as within the course of a few days. Below is a
description of each signal and its trigger threshold for market entry or exit:
◦SMA
Signal:
▪Market
Exit Vote:
If the prior day Z-Score of the percent difference between the U.S. Equity
Position closing price and the 200-day SMA of the U.S. Equity Position is below
-0.50, the signal indicates to exit the U.S. Equity Position and enter the U.S.
Treasury Position. If the Z-score of the 200-day SMA is below -0.50, based on
historical data, it may indicate that a drawdown event is possible, and the
signal votes to move out of the U.S. Equity Position and into the U.S. Treasury
Position.
▪Market
Entry Vote:
If the prior day Z-Score of the percent difference between the U.S. Equity
Position closing price and the 200-day SMA of the U.S. Equity Position is below
-4.00, the signal indicates to exit the U.S. Treasury Position and enter the
U.S. Equity Position. If the Z-score of the 200-day SMA is below -4.00, based on
historical data, it may indicate that the U.S. Equity Position will experience
positive returns, and the signal votes to re-enter the U.S. Equity
Position.
◦MACD
Signal:
▪Market
Exit Vote:
If the prior day Z-Score of the MACD is below -0.25, the signal indicates to
exit the U.S. Equity Position and enter the U.S. Treasury Position. If the
Z-score of the MACD is below -0.25, based on historical data, it may indicate
that a drawdown event is possible, and the signal votes to move out of the U.S.
Equity Position and into the U.S. Treasury Position.
•Market
Entry Vote:
If the prior day Z-Score of the MACD is above 4.00, the signal indicates to exit
the U.S. Treasury Position and enter the U.S. Equity Position. If the Z-score of
the MACD is above 4.00, based on historical data, it may indicate that the U.S.
Equity Position will experience positive returns, and the signal votes to
re-enter the U.S. Equity Position.
◦Drawdown
Percentage Signal:
•Market
Exit Vote:
If the prior day Drawdown Percentage Z-Score is below 0.50, the signal indicates
to exit the U.S. Equity Position and enter the U.S. Treasury Position. If the
Z-score of the drawdown percentage is below 0.50, based on historical data, it
may indicate that a drawdown event is possible, and the signal votes to move out
of the U.S. Equity Position and into the U.S. Treasury Position.
•Market
Entry Vote:
If the prior day Drawdown Percentage Z-Score is below -2.00, the signal
indicates to exit the U.S. Treasury Position and enter the U.S. Equity Position.
If the Z-score of the drawdown percentage is below -2.00, based on historical
data, it may indicate that the U.S. Equity Position will experience positive
returns, and the signal votes to re-enter the U.S. Equity Position.
◦VIX
Signal:
▪Market
Exit Vote:
If the Z-Score of the level of the VIX is above 1.25, the signal votes to exit
the U.S. Equity Position and enter the U.S. Treasury Position. If the Z-score of
the level of the VIX is above 1.25, based on historical data, it may indicate
that a drawdown event is possible, and the signal votes to move out of the U.S.
Equity Position and into the U.S. Treasury Position.
▪Market
Entry Vote:
If the Z-Score of the level of the VIX is above 5.5, the signal indicates to
exit the U.S. Treasury Position and enter the U.S. Equity Position. If the
Z-score of the level of the VIX is above 5.5, based on historical data, it may
indicate that the U.S. Equity Position will experience positive returns, and the
signal votes to re-enter the U.S. Equity Position.
Each
of the signals are calculated daily by Solactive AG. Whenever the required
number of signals are triggered, the Adaptive Wealth Strategies U.S. Risk
Management Index allocates 100% weight to either the constituents of the U.S.
Equity Position or the U.S. Treasury Position. As a result, the Fund may engage
in active and frequent trading of its portfolio securities to achieve its
investment objective. Whenever the Adaptive Wealth Strategies U.S. Risk
Management Index rebalances into either the U.S. Equity Position or into the
Treasury Position, the new weights go into effect three trading days after the
quantitative signals indicate a rebalance is required. After changing its
allocation, the Adaptive Wealth Strategies U.S. Risk Management Index must
remain in the same allocation (the U.S. Equity Position or the U.S. Treasury
Position) for at least ten trading days before it can change its allocation
again. The Fund's investment objective and Adaptive Wealth Strategies U.S. Risk
Management Index may be changed without shareholder approval.
Solactive
1-3 month US T-Bill Index
The
Solactive 1-3 month US T-Bill Index is designed to measure the performance of
public obligations of the U.S. Treasury that have a remaining maturity of
greater than or equal to 1 month and less than 3 months. To be a part of the
eligible universe of the Solactive 1-3 month US T-Bill Index, certain criteria,
as defined by Solactive AG, the provider of the Solactive 1-3 month US T-Bill
Index ("Index Provider"), must be met. As of each selection date, the Solactive
1-3 month US T-Bill Index is comprised of Treasury bills (“T-Bills”) issued by
the U.S. government, that have a remaining maturity of less than 3 months and at
least 1 month. In addition, each security must be zero coupon, be denominated in
U.S. dollars and have an amount outstanding of at least $250 million, as
determined by Solactive AG on the selection date. A zero coupon bond is a bond
that is sold at a discount, does not pay interest, and pays its face value at
maturity.
The
Solactive 1-3 month US T-Bill Index is reconstituted and re-weighted monthly.
Each index component is weighted using the market value based on the last
evaluated bid price and accrued interest, in proportion to the aggregated market
value of all index components in the Solactive 1-3 month US T-Bill Index. As of
June 13, 2023, the Solactive 1-3 month US T-Bill Index had 18 constituents. The
Fund's investment objective and the Solactive 1-3 month US T-Bill Index may be
changed without shareholder approval.
Global
X U.S. Cash Flow Kings 100 Index
The
Global X U.S. Cash Flow Kings 100 Index is owned and was developed by Global X
Management Company LLC (the “Index Provider”), an affiliate of the Fund and the
Fund's investment adviser (the “Adviser”). The Global X U.S. Cash Flow Kings 100
Index is administered and calculated by Mirae Asset Global Indices Pvt. Ltd.
(the “Index Administrator”), an affiliate of Global X Management Company LLC.
The Global X U.S. Cash Flow Kings 100 Index is designed to provide exposure to
large- and mid-capitalization U.S. equity securities that exhibit high free cash
flow yields relative to the eligible universe of companies, as determined by
Mirae Asset Global Indices Pvt. Ltd. Generally speaking, free cash flow is the
cash a company generates after accounting for operating expenses and capital
expenditures, and free cash flow yield is a financial ratio comparing the free
cash flow per share a company earns against its enterprise value per share. When
a company has high free cash flow yield, this indicates that the company is
generating a surplus of cash, which can be utilized for paying dividends,
repaying debts, buying back shares and/or investing in growth
opportunities.
While
free cash flow yield can be a useful metric for evaluating a company, there is
no guarantee that companies with high free cash flow yields will continue to
maintain high free cash flow yields in the future, or that these companies will
outperform companies with lower free cash flow yields. Mirae Asset Global
Indices Pvt. Ltd. calculates free cash flow as operating cash flow minus (-)
capital expenditure, and calculates free cash flow yield by taking a company’s
free cash flow from the trailing twelve-month period and dividing by its
enterprise value. Enterprise value is defined by Mirae Asset Global Indices Pvt.
Ltd. as the market value plus (+) total debt outstanding minus (-) cash and cash
equivalents.
The
initial universe of securities is the Mirae Asset U.S. 1000 Index, which seeks
to measure the performance of the large- and mid-capitalization segments of the
U.S. equity market by selecting the top 1000 U.S. companies by full market
capitalization,
subject
to additional liquidity criteria and buffer rules. The Mirae Asset U.S. 1000
Index is a float-adjusted, capitalization-weighted index and is rebalanced
annually. In constructing the Global X U.S. Cash Flow Kings 100 Index, Mirae
Asset Global Indices Pvt. Ltd. screens the Mirae Asset U.S. 1000 Index based on
free cash flow yield from the trailing twelve-month period as described above.
Securities with negative free cash flow for the trailing twelve-month period are
removed from the eligible universe for the Global X U.S. Cash Flow Kings 100
Index. Additionally, securities classified in the financials sector, other than
those securities classified as real estate investment trusts (“REITs”), are
excluded from the eligible universe.
Eligible
securities are then further screened by Mirae Asset Global Indices Pvt. Ltd. and
ranked by free cash flow yield for the trailing twelve-month period. The top 100
securities by free cash flow yield are selected as constituents of the Global X
U.S. Cash Flow Kings 100 Index. At each quarterly reconstitution of the Global X
U.S. Cash Flow Kings 100 Index, constituents are weighted in proportion to their
trailing twelve-month free cash flow, with the weights of individual securities
capped at 2%. In addition, the aggregate weight of companies from the same
sector is capped at 25% to reduce sector concentration and increase the sector
diversification of the Global X U.S. Cash Flow Kings 100 Index, as determined by
Mirae Asset Global Indices Pvt. Ltd. The Fund's investment objective and the
Global X U.S. Cash Flow Kings 100 Index may be changed without shareholder
approval.
The
Global X U.S. Cash Flow Kings 100 Index is created and sponsored by the Global X
Management Company LLC. Any determinations related to the constituents of the
Global X U.S. Cash Flow Kings 100 Index are made by Mirae Asset Global Indices
Pvt. Ltd. and are independent of the Fund's portfolio managers. Mirae Asset
Global Indices Pvt. Ltd. determines the composition and relative weightings of
the securities in the Global X U.S. Cash Flow Kings 100 Index and publishes
information regarding the market value of the Global X U.S. Cash Flow Kings 100
Index. As of June 15, 2023, the Global X U.S. Cash Flow Kings 100 Index had 100
constituents.
Indxx
Millennials Thematic Index
The
objective of the Indxx Millennials Thematic Index is to track the performance of
U.S. listed companies that provide exposure to the millennial generation
consumption trends, (collectively, "Millennial Companies"), as defined by Indxx,
LLC, the provider of the Indxx Millennials Thematic Index. The millennial
generation refers to the demographic in the U.S. with birth years ranging from
1980 to 2000.
The
eligible universe of the Indxx Millennials Thematic Index includes the most
liquid and investable companies in accordance with the standard market
capitalization and liquidity criteria associated with developed markets, as
defined by Indxx, LLC. As of January 31, 2024, companies must have a
minimum market capitalization of $500 million and a minimum average daily
turnover for the last 6 months (or since the IPO launch date for Significant
IPOs as defined by Indxx, LLC or 3 months, in the case of other IPOs) greater
than or equal to $2 million in order to be eligible for inclusion in the Indxx
Millennials Thematic Index. The Indxx Millennials Thematic Index only includes
companies listed in the United States. The Indxx Millennials Thematic Index is
developed using a proprietary, multi-step research process to identify
Millennial Companies. First, Indxx, LLC conducts fundamental research on trends
related to the millennial generation, including but not limited to: consumer
spending data, consumer behavior, technology and demographics. Based on this
analysis, Indxx, LLC determines key categories that appear to be most reflective
of how individuals from the millennial generation spend their time and money
(collectively, "Spending Categories"). As of January 31, 2024, Indxx, LLC
has identified the following eight key Spending Categories for millennials: (1)
Social and Entertainment, (2) Clothing and Apparel, (3) Travel and Mobility, (4)
Food/Restaurants and Consumer Staples, (5) Financial Services and Investments,
(6) Housing and Home Goods, (7) Education and Employment, and (8) Health and
Fitness. These Spending Categories may change over time, as determined by Indxx,
LLC.
After
establishing these Spending Categories, Indxx, LLC uses a variety of sources -
including, but not limited to: industry reports, investment research and
financial statements published by companies - to identify companies with
significant exposure to these Spending Categories. A company is determined to
have significant exposure to the Spending Categories if (i) it derives a
significant portion of its revenue from the Spending Categories, or (ii) it has
stated its primary business to be in products and services focused on the
Spending Categories, as determined by Indxx, LLC The companies identified at
this stage are then considered for further analysis, which ultimately determines
their eligibility for inclusion in the Indxx Millennials Thematic
Index.
In
the final step of the selection process, Indxx, LLC conducts a composite
analysis on the remaining companies to identify Millennial Companies within each
of the Spending Categories. As part of this process, Indxx, LLC utilizes the
fundamental research it has conducted on trends related to the millennial
generation in order to evaluate companies based on quantitative and qualitative
criteria that have been identified as being consistent with millennial
demographics and consumer preferences. As of January 31, 2024, some
examples of the criteria used in the evaluation process include but are not
limited to: E-commerce, social and professional networks, digital media
streaming services, athletic and outdoor apparel, multi-family apartments, and
peer
reviews/recommendations. A company identified as having significant exposure to
a criteria will receive additional points as part of the composite scoring
process. A company is determined to have significant exposure to a criteria
based on its revenue exposure to that particular criteria (relative to the other
companies in its Spending Category) or based on its primary stated area of
business (relative to other companies in its Spending Category). Indxx, LLC then
scores the companies based on these criteria to determine the companies that are
most reflective of Millennial Companies within each Spending Category. These
criteria will vary by Spending Category and are subject to evaluation by Indxx,
LLC on an annual basis. A minimum of five and a maximum of fifteen companies
from each Spending Category are included in the Indxx Millennials Thematic
Index, primarily based on their score in the composite analysis conducted by
Indxx, LLC.
The
Indxx Millennials Thematic Index is weighted according to a modified
capitalization weighting methodology and is reconstituted and rebalanced
annually. The Indxx Millennials Thematic Index may include large-, mid- or
small-capitalization companies, and components primarily include consumer
discretionary, consumer staples, information technology and financial services
companies as well as real estate investment trusts ("REITs").
Indxx
Aging Population Thematic Index
The
Indxx Aging Population Thematic Index is designed to provide exposure to
exchange-listed companies in developed markets that facilitate the demographic
trend of longer average life spans and the aging of the global population,
including but not limited to companies involved in biotechnology, medical
devices, pharmaceuticals, senior living facilities and specialized health care
services (collectively, "Aging Population Companies"), as defined by Indxx, LLC,
the provider of the Indxx Aging Population Thematic Index.
The
eligible universe of the Indxx Aging Population Thematic Index includes the most
liquid and investable companies in accordance with the standard market
capitalization and liquidity criteria associated with developed markets, as
defined by Indxx, LLC. As of January 31, 2024, companies must have a
minimum market capitalization of $500 million and a minimum average daily
turnover for the last 6 months (or since the IPO launch date for Significant
IPOs as defined by Indxx, LLC) greater than or equal to $2 million in order to
be eligible for inclusion in the Indxx Aging Population Thematic Index. The
Indxx Aging Population Thematic Index may include components from the following
countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand,
Norway, Poland, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland,
Taiwan, the United Kingdom and the United States.
From
the eligible universe, Indxx, LLC identifies Aging Population Companies by
applying a proprietary analysis that consists of two primary components: theme
identification and company analysis. As of January 31, 2024, Indxx, LLC has
identified the following four themes that are expected to provide the most
exposure to Aging Population Companies: (1) Health Care Products, (2) Health
Care Services, (3) Medical Devices, and (4) Senior Homes (collectively, "Aging
Population Themes"). In order to be included in the Indxx Aging Population
Thematic Index, a company must be identified as having significant exposure to
these Aging Population Themes, as determined by Indxx, LLC. Companies are
analyzed based on two primary criteria: revenue exposure and primary business
operations. A company is deemed to have significant exposure to the Aging
Population Themes if (i) it derives a significant portion of its revenue from
the Aging Population Themes, or (ii) it has stated its primary business to be in
products and services focused on the Aging Population Themes, as determined by
Indxx, LLC.
The
Indxx Aging Population Thematic Index is weighted according to a modified
capitalization weighting methodology and is reconstituted and rebalanced
annually. The Indxx Aging Population Thematic Index may include large-, mid- or
small-capitalization companies, and components primarily include health care,
biotechnology and pharmaceuticals companies as well as real estate investment
trusts ("REITs").
Indxx
Global Fintech Thematic Index
The
Indxx Global Fintech Thematic Index is designed to provide exposure to
exchange-listed companies in developed markets that provide financial technology
products and services, including companies involved in mobile payments,
peer-to-peer (P2P) and marketplace lending, financial analytics software and
alternative currencies (collectively, "FinTech Companies"), as defined by Indxx,
LLC, the provider of the Indxx Global Fintech Thematic Index.
The
eligible universe of the Indxx Global Fintech Thematic Index includes among the
most liquid and investable companies in accordance with the standard market
capitalization and liquidity criteria associated with developed markets, as
defined by the Indxx, LLC. As of January 31, 2024, companies must have a
minimum market capitalization of $300 million and a minimum average daily
turnover for the last 6 months (or since the IPO launch date for Significant
IPOs as defined by Indxx, LLC or 3 months, in the case of other IPOs) greater
than or equal to $2 million in order to be eligible for inclusion in the Indxx
Global Fintech Thematic Index. As of January 31, 2024, components from the
following countries were eligible for inclusion in the
Indxx
Global Fintech Thematic Index: Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands,
New Zealand, Norway, Poland, Portugal, Singapore, South Korea, Spain, Sweden,
Switzerland, Taiwan, the United Kingdom and the United States.
From
the eligible universe, Indxx, LLC identifies FinTech Companies by applying a
proprietary analysis that consists of two primary components: theme
identification and company analysis. As part of the theme identification
process, Indxx, LLC analyzes industry reports, investment research and consumer
data related to the fintech industry in order to establish the themes that are
expected to provide the most exposure to the growth of the fintech industry. As
of January 31, 2024, Indxx, LLC has identified the following six fintech
themes: (1) Mobile Payments, (2) P2P and Marketplace Lending, (3) Enterprise
Solutions, (4) Blockchain and Alternative Currencies, (5) Crowdfunding, and (6)
Personal Finance Software and Automated Wealth Management/Trading (collectively,
"FinTech Themes"). In order to be included in the Indxx Global Fintech Thematic
Index, a company must be identified as having significant exposure to these
FinTech Themes, as determined by Indxx, LLC. In the second step of the process,
companies are analyzed based on two primary criteria: revenue exposure and
primary business operations. A company is deemed to have significant exposure to
the FinTech Themes if (i), it derives a significant portion of its revenue from
the FinTech Themes, and (ii), it has stated its primary business to be in
products and services focused on the FinTech Themes, as determined by Indxx,
LLC.
The
Indxx Global Fintech Thematic Index is weighted according to a modified
capitalization weighting methodology and is reconstituted and rebalanced
annually. At the annual rebalance, a capping methodology is applied to reduce
concentration in individual securities and increase diversification of the Indxx
Global Fintech Thematic Index. The Indxx Global Fintech Thematic Index may
include large-, mid- or small-capitalization companies, and components primarily
include financial and information technology companies.
Indxx
Global Internet of Things Thematic Index
The
Indxx Global Internet of Things Thematic Index is designed to provide exposure
to exchange-listed companies in developed markets that facilitate the Internet
of Things industry, including companies involved in wearable technology, home
automation, connected automotive technology, sensors, networking
infrastructure/software, smart metering and energy control devices
(collectively, "Internet of Things Companies"), as defined by Indxx, LLC, the
provider of the Indxx Global Internet of Things Thematic Index. The Internet of
Things refers to the network of physical objects (such as electronic devices,
wearables, connected vehicles, infrastructure, equipment, smart home appliances,
buildings) that are connected to the internet. Such objects often utilize
embedded semiconductors, sensors, and software to collect, analyze, receive, and
transfer data via networks enabled by technologies such as WiFi, 4G and 5G
telecommunications infrastructure, and fiber optics.
The
eligible universe of the Indxx Global Internet of Things Thematic Index includes
among the most liquid and investable companies in accordance with the standard
market capitalization and liquidity criteria associated with developed markets,
as defined by Indxx, LLC. As of January 31, 2024, companies must have a
minimum market capitalization of $300 million and a minimum average daily
turnover for the last 6 months (or since the IPO launch date for Significant
IPOs as defined by Indxx, LLC or 3 months, in the case of other IPOs) greater
than or equal to $2 million in order to be eligible for inclusion in the Indxx
Global Internet of Things Thematic Index. As of January 31, 2024,
components from the following countries were eligible for inclusion in the Indxx
Global Internet of Things Thematic Index: Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan,
Netherlands, New Zealand, Norway, Poland, Portugal, Singapore, South Korea,
Spain, Sweden, Switzerland, Taiwan, the United Kingdom and the United
States.
From
the eligible universe, Indxx, LLC identifies Internet of Things Companies by
applying a proprietary analysis that consists of two primary components: theme
identification and company analysis. As part of the theme identification
process, Indxx, LLC analyzes industry reports, investment research and consumer
data related to the Internet of Things industry in order to establish the themes
that are expected to provide the most exposure to the growth of the Internet of
Things industry. As of January 31, 2024, Indxx, LLC has identified the
following four Internet of Things themes: (1) Consumer Internet of Things
Technology, (2) Equipment, Vehicle, and Infrastructure/Building Technology, (3)
Semiconductors and Sensors and (4) Networking Infrastructure/Software
(collectively, "Internet of Things Themes"). In order to be included in the
Indxx Global Internet of Things Thematic Index, a company must be identified as
having significant exposure to these Internet of Things Themes, as determined by
Indxx, LLC. In the second step of the process, companies are analyzed based on
two primary criteria: revenue exposure and primary business operations. A
company is deemed to have significant exposure to the Internet of Things Themes
if (i), it derives a significant portion of its revenue from the Internet of
Things Themes, (ii), it has stated its primary business to be in products and
services focused on the Internet of Things Themes, as determined by Indxx, LLC.
In addition, companies with more diversified revenue streams may also be
included in the Indxx Global Internet of Things Thematic Index if they meet the
following criteria: (1) identified as being critical to the IoT ecosystem due to
scale in certain IoT technologies and services, (2) have a distinct business
unit(s) focused on IoT products and services and (3) have a core
competency
that is expected to benefit from increased adoption of IoT, as determined by
Indxx, LLC. Companies that meet these criteria are eligible for inclusion in the
Indxx Global Internet of Things Thematic Index with a weighting cap of 2%.
The
Indxx Global Internet of Things Thematic Index is weighted according to a
modified capitalization weighting methodology and is reconstituted and
rebalanced annually. At the annual rebalance, a capping methodology is applied
to reduce concentration in individual securities and increase diversification of
the Indxx Global Internet of Things Thematic Index. The Indxx Global Internet of
Things Thematic Index may include large-, mid- or small-capitalization
companies, and components primarily include industrials and information
technology companies.
Indxx
Global Robotics & Artificial Intelligence Thematic Index
The
Indxx Global Robotics & Artificial Intelligence Thematic Index is designed
to provide exposure to exchange-listed companies in developed markets that are
involved in the development of robotics and/or artificial intelligence,
including companies involved in developing industrial robots and production
systems, automated inventory management, unmanned vehicles, voice/image/text
recognition, and medical robots or robotic instruments (collectively, "Robotics
& Artificial Intelligence Companies"), as defined by Indxx, LLC, the
provider of the Indxx Global Robotics & Artificial Intelligence Thematic
Index.
The
eligible universe of the Indxx Global Robotics & Artificial Intelligence
Thematic Index includes among the most liquid and investable companies in
accordance with the standard market capitalization and liquidity criteria
associated with developed markets, as defined by Indxx, LLC. As of
January 31, 2024, companies must have a minimum market capitalization of
$300 million and a minimum average daily turnover for the last 6 months (or
since the IPO launch date for Significant IPOs as defined by Indxx, LLC or 3
months, in the case of other IPOs) greater than or equal to $2 million in order
to be eligible for inclusion in the Indxx Global Robotics & Artificial
Intelligence Thematic Index. As of January 31, 2024, components from the
following countries were eligible for inclusion in the Indxx Global Robotics
& Artificial Intelligence Thematic Index: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy,
Japan, Netherlands, New Zealand, Norway, Poland, Portugal, Singapore, South
Korea, Spain, Sweden, Switzerland, Taiwan, the United Kingdom and the United
States.
From
the eligible universe, Indxx, LLC identifies Robotics & Artificial
Intelligence Companies by applying a proprietary analysis that consists of two
primary components: theme identification and company analysis. As part of the
theme identification process, Indxx, LLC analyzes industry reports, investment
research and consumer data related to the robotics and artificial intelligence
industry in order to establish the themes that are expected to provide the most
exposure to the growth of the robotics and artificial intelligence industry. As
of January 31, 2024, Indxx, LLC has identified the following four robotics
and artificial intelligence themes: (1) Industrial Robotics and Automation, (2)
Unmanned Vehicles and Drones, (3) Artificial Intelligence and (4) Non-Industrial
Robotics (collectively, "Robotics & Artificial Intelligence Themes"). In
order to be included in the Indxx Global Robotics & Artificial Intelligence
Thematic Index, a company must be identified as having significant exposure to
these Robotics & Artificial Intelligence Themes, as determined by Indxx,
LLC. In the second step of the process, companies are analyzed based on two
primary criteria: revenue exposure and primary business operations. A company is
deemed to have significant exposure to the Robotics & Artificial
Intelligence Themes if (i), it derives a significant portion of its revenue from
the Robotics & Artificial Intelligence Themes, (ii), it has stated its
primary business to be in products and services focused on the Robotics &
Artificial Intelligence Themes, as determined by Indxx, LLC.
The
Indxx Global Robotics & Artificial Intelligence Thematic Index is weighted
according to a modified capitalization weighting methodology and is
reconstituted and rebalanced annually. At the annual rebalance, a capping
methodology is applied to reduce concentration in individual securities and
increase diversification of the Indxx Global Robotics & Artificial
Intelligence Thematic Index. The Indxx Global Robotics & Artificial
Intelligence Thematic Index may include large-, mid- or small-capitalization
companies, and components primarily include industrials and information
technology companies.
Indxx
U.S. Infrastructure Development Index
The
Indxx U.S. Infrastructure Development Index is designed to measure the
performance of U.S. listed companies that provide exposure to domestic
infrastructure development, including companies involved in construction and
engineering, production of infrastructure raw materials, composites and
products; industrial transportation; and producers/distributors of heavy
construction equipment (collectively, "U.S. Infrastructure Development
Companies"), as defined by Indxx, LLC, the provider of the Indxx U.S.
Infrastructure Development Index.
The
eligible universe of the Indxx U.S. Infrastructure Development Index includes
the most liquid and investable companies in accordance with the standard market
capitalization and liquidity criteria associated with developed markets, as
defined by
Indxx,
LLC. As of January 31, 2024, companies must have a minimum market
capitalization of $300 million and a minimum average daily turnover for the last
6 months (or since the IPO launch date for Significant IPOs as defined by Indxx,
LLC) greater than or equal to $1 million in order to be eligible for inclusion
in the Index. The Indxx U.S. Infrastructure Development Index only includes
companies listed in the United States.
From
the eligible universe, Indxx, LLC identifies U.S. Infrastructure Development
Companies by applying a proprietary analysis that consists of two primary
components: theme identification and company analysis. As part of the theme
identification process, Indxx, LLC analyzes industry reports, investment
research and spending trends related to infrastructure development in order to
establish the themes that are expected to provide the most exposure to increased
investment in U.S. infrastructure. As of January 31, 2024, Indxx, LLC has
identified the following four U.S. infrastructure development themes: (1)
Construction and Engineering Services, (2) Raw Materials and Composites, (3)
Products and Equipment, and (4) Industrial Transportation (collectively, "U.S.
Infrastructure Development Themes").
In
the second step of the process, companies are analyzed based on two primary
criteria: revenue exposure and primary business operations. A company is
eligible for inclusion in the Indxx U.S. Infrastructure Development Index if (i)
it derives a significant portion of its revenue from the U.S. Infrastructure
Development Themes, or (ii) it has stated its primary business to be in products
and services focused on the U.S. Infrastructure Development Themes, as
determined by Indxx, LLC. Furthermore, only companies that generate greater than
50% of revenues from the U.S. as of the index selection date, as determined by
Indxx, LLC, are eligible for inclusion in the Indxx U.S. Infrastructure
Development Index.
The
Indxx U.S. Infrastructure Development Index is weighted according to a modified
capitalization weighting methodology and is reconstituted and rebalanced
annually. At the annual rebalance, a capping methodology is applied to reduce
concentration in individual securities and increase diversification of the Indxx
U.S. Infrastructure Development Index. The Indxx U.S. Infrastructure Development
Index may include large-, mid- or small-capitalization companies, and components
primarily include industrials and materials companies.
Solactive
Autonomous & Electric Vehicles Index
The
Solactive Autonomous & Electric Vehicles Index is designed to provide
exposure to exchange-listed companies that are involved in the development of
electric vehicles and/or autonomous vehicles, including companies that produce
electric/hybrid vehicles, electric/hybrid vehicle components and materials,
autonomous driving technology, and network connected services for
transportation, (collectively, "Autonomous and Electric Vehicle Companies"), as
defined by Solactive AG, the provider of the Solactive Autonomous & Electric
Vehicles Index.
The
eligible universe of the Solactive Autonomous & Electric Vehicles Index
includes among the most liquid and investable companies in accordance with the
market capitalization and liquidity criteria associated with the eligible
markets, as defined by Solactive AG. As of January 31, 2024, companies must
have a minimum market capitalization of $500 million and a minimum average daily
turnover for the last 6 months greater than or equal to $2 million in order to
be eligible for inclusion in the Solactive Autonomous & Electric Vehicles
Index. As of January 31, 2024, companies from the following countries were
eligible for inclusion in the Solactive Autonomous & Electric Vehicles
Index: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway,
Poland, Portugal, Singapore, Spain, Sweden, Switzerland, South Korea, Taiwan,
the United Kingdom, and the United States.
From
the eligible universe, Solactive AG identifies Autonomous and Electric Vehicle
Companies by applying a proprietary natural language processing algorithm
process that seeks to identify companies with exposure to the following
categories:
•Electric
Vehicles ("EV")
- companies that produce electric/hybrid vehicles, including cars, trucks,
motorcycles/scooters, buses, and electric rail.
•Electric
Vehicle Components ("EVC")
- companies that produce electric/hybrid vehicle components, including electric
drivetrains, lithium-ion and other types of electric batteries, and fuel cells.
In addition, companies that produce the chemicals and raw materials (including
but not limited to lithium and cobalt) that comprise these electric/hybrid
vehicle components are eligible for inclusion.
•Autonomous
Vehicle Technology ("AVT")
- companies that build autonomous vehicles and/or develop hardware and software
that facilitates the development of autonomous vehicles, including sensors,
mapping technology, artificial intelligence, advanced driver assistance systems,
ride-share platforms, and network-connected services for
transportation.
In
order to be included in the Solactive Autonomous & Electric Vehicles Index,
a company must be identified as having exposure to these categories based on the
ranking it receives from the natural language processing algorithm ("Segment
Score"), as determined by Solactive AG. Within each category listed above,
companies are ranked by Solactive AG according to their respective Segment
Score. Solactive AG then reviews the companies to ensure relevance to one or
more of the categories above based on the business operations of the company.
The Solactive Autonomous & Electric Vehicles Index is comprised of the
highest ranking 15 companies in the EV segment, the highest ranking 30 companies
in the EVC segment, and the highest ranking 30 companies in the AVT segment, as
determined by Solactive AG and subject to certain buffer rules intended to
reduce turnover.
The
Solactive Autonomous & Electric Vehicles Index is weighted according to a
modified capitalization weighting methodology and is reconstituted
semi-annually. At the semi-annual reconstitution, a capping methodology is
applied to reduce concentration in individual securities and increase
diversification of the Solactive Autonomous & Electric Vehicles Index. The
Solactive Autonomous & Electric Vehicles Index may include large-, mid- or
small-capitalization companies, and components primarily include industrials,
information technology, materials, and consumer discretionary
companies.
Indxx
Artificial Intelligence & Big Data Index
The
Indxx Artificial Intelligence & Big Data Index is designed to provide
exposure to exchange-listed companies that are positioned to benefit from the
further development and utilization of artificial intelligence technology in
their products and services, as well as to companies that provide hardware which
facilitates the use of artificial intelligence for the analysis of big data
(collectively, "Artificial Intelligence & Big Data Companies"), as defined
by Indxx, LLC, the provider of the Indxx Artificial Intelligence & Big Data
Index.
The
eligible universe of the Indxx Artificial Intelligence & Big Data Index
includes exchange-listed companies that meet minimum market capitalization and
liquidity criteria, as defined by Indxx, LLC. As of January 31, 2024,
companies must have a minimum market capitalization of $500 million and a
minimum average daily turnover for the last 6 months (or since the IPO launch
date for Significant IPOs as defined by Indxx, LLC or 3 months, in the case of
other IPOs) greater than or equal to $2 million in order to be eligible for
inclusion in the Indxx Artificial Intelligence & Big Data Index. As of
January 31, 2024, companies listed or incorporated in the following
countries were eligible for inclusion in the Indxx Artificial Intelligence &
Big Data Index: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand,
Norway, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan,
the United Kingdom, and the United States. In addition, ADRs and GDRs of
companies incorporated or with primary listing in China are eligible for
inclusion.
From
the eligible universe, Indxx, LLC identifies Artificial Intelligence & Big
Data Companies by applying a proprietary analysis that seeks to identify
companies that can be classified in the following categories:
•Artificial
Intelligence Developers
▪Artificial
Intelligence Applied to Products and Services - Companies
that have developed internal artificial intelligence capabilities (organically
or through acquisition) and are applying artificial intelligence technology
directly in their products and services. Artificial intelligence applications
include but are not limited to language/ image processing and recognition,
automated communications, threat detection, recommendation generation, and other
predictive analytics.
▪Artificial
Intelligence-as-a-Service ("AIaaS") for Big Data Applications - Companies
that provide artificial intelligence capabilities to their customers as a
service. Companies in this segment typically offer cloud-based platforms that
allow their customers to apply artificial intelligence techniques to big data
without the need for a direct investment in their own artificial
intelligence-related infrastructure or capabilities.
•Artificial
Intelligence and Big Data Analytics Hardware
◦Artificial
Intelligence Hardware - Companies
that produce semiconductors, memory storage and other hardware that is utilized
for artificial intelligence applications. This currently includes, but is not
limited to, companies that produce graphics processing units (GPUs),
application-specific integrated circuit ("ASIC") chips, field-programmable gate
array ("FPGA") chips, and all-flash array storage.
◦Quantum
Computing - Companies
that are developing quantum computing technology. While currently in the
process of being commercialized, quantum computing is expected to have
significant potential for artificial intelligence and big data applications.
In
order to be included in the Indxx Artificial Intelligence & Big Data Index,
a company must be classified in the categories described above, as determined by
Indxx, LLC. This classification is based on a composite analysis of public
filings, products and services, official company statements and other
information regarding direct involvement in the artificial intelligence and big
data categories as described above. Eligible companies are then ranked by Indxx,
LLC using a research framework that assesses a company's exposure to these
categories. Companies must receive a minimum score within a given category to be
selected in the Indxx Artificial Intelligence & Big Data Index, as
determined by Indxx, LLC.
The
Indxx Artificial Intelligence & Big Data Index is weighted according to a
modified capitalization weighting methodology and is reconstituted annually with
a semi-annual re-weighting. The Indxx Artificial Intelligence & Big Data
Index may include large-, mid- or small-capitalization companies, and components
primarily include information technology companies.
Solactive
Genomics Index
The
Solactive Genomics Index is designed to provide exposure to exchange-listed
companies that are positioned to benefit from further advances in the field of
genomic science and biotechnology, as well as applications thereof
(collectively, "Genomics & Biotechnology Companies"), as defined by
Solactive AG, the provider of the Solactive Genomics Index ("Index Provider").
In order to be eligible for inclusion in the Solactive Genomics Index, a company
is considered by the Index Provider to be a Genomics & Biotechnology Company
if it derives at least 50% of its revenue, operating income, or assets from
genomics and/or biotechnology, as determined by Solactive AG. These companies
include those involved in the following business activities, as determined by
Solactive AG: (i) gene editing, (ii) genomic sequencing, (iii) development and
testing of genetic medicine/therapies, (iv) computational genomics and genetic
diagnostics, and/or (v) biotechnology.
In
constructing the Solactive Genomics Index, Solactive AG first establishes the
eligible universe by utilizing FactSet sector classifications: only companies
classified by FactSet as healthcare companies are eligible for the Solactive
Genomics Index. Solactive AG then applies a proprietary natural language
processing algorithm to the eligible universe, which seeks to identify and rank
companies with direct exposure to the genomics industry based on filings,
disclosures and other public information (e.g. regulatory filings, earnings
transcripts, etc.). The highest ranking companies identified by the natural
language processing algorithm, as of the selection date, are further reviewed by
Solactive AG to confirm they derive at least 50% of their revenues, operating
income, or assets from the following business activities:
i.Gene
Editing:
Companies that develop technology for the insertion, deletion, or replacement of
DNA at a specific site in the genome of an organism.
ii.Genomic
Sequencing:
Companies that are engaged in the process of determining the complete DNA
sequence of an organism's genome.
iii.Genetic
Medicine/Therapies:
Companies that seek to detect, cure or treat diseases by identifying and/or
modifying an organism's gene expression or functioning.
iv.Computational
Genomics and Genetic Diagnostics:
Companies that use computational and statistical analysis to decipher biological
insights from genome sequences and related data.
v.Biotechnology:
Companies that combine biologic processes and technology to develop products and
services.
The
eligible universe of the Solactive Genomics Index includes exchange-listed
companies that meet minimum market capitalization and liquidity criteria, as
defined by Solactive AG. As of January 31, 2024, companies must have a
minimum market capitalization of $200 million and a minimum average daily
turnover for the last 6 months greater than or equal to $2 million in order to
be eligible for inclusion in the Solactive Genomics Index. As of
January 31, 2024, companies listed in the following countries were eligible
for inclusion in the Solactive Genomics Index: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy,
Japan, Netherlands, New Zealand, Norway, Poland, Portugal, Singapore, Spain,
Sweden, Switzerland, the United Kingdom, and the United States.
The
Solactive Genomics Index is weighted according to a modified capitalization
weighting methodology and is reconstituted and re-weighted semi-annually. The
Solactive Genomics Index may include large-, mid- or small-capitalization
companies, and components primarily include healthcare companies. As of
January 31, 2024, the Solactive Genomics Index had 40
constituents.
Indxx
Global Cloud Computing Index
The
Indxx Global Cloud Computing Index is designed to provide exposure to
exchange-listed companies that are positioned to benefit from the increased
adoption of cloud computing technology, including but not limited to companies
whose principal business is in offering computing Software-as-a-Service
("SaaS"), Platform-as-a-Service ("PaaS"), Infrastructure-as-a-Service ("IaaS"),
managed server storage space and data center real estate investment trusts
("REITs"), and/or cloud and edge computing infrastructure and hardware
(collectively, "Cloud Computing Companies"), as defined by Indxx LLC, the
provider of the Indxx Global Cloud Computing Index.
In
constructing the Indxx Global Cloud Computing Index, Indxx LLC first identifies
FactSet Industries related to cloud computing. Companies within these
Industries, as of the selection date, are further reviewed by Indxx LLC on the
basis of revenue related to cloud computing activities. To be eligible for the
Indxx Global Cloud Computing Index, a company is considered by Indxx LLC to be a
Cloud Computing Company if the company generates at least 50% of its revenues
from cloud computing activities, as determined by Indxx LLC. Indxx LLC
classifies Cloud Computing Companies as those companies that (i) license and
deliver software over the internet on a subscription basis (SaaS), (ii) provide
a platform for creating software applications which are delivered over the
internet (PaaS), (iii) provide virtualized computing infrastructure over the
internet (IaaS), (iv) own and manage facilities customers use to store data and
servers, including data center REITs, and/or (v) manufacture or distribute
infrastructure and/or hardware components used in cloud and edge computing
activities, as determined by Indxx LLC. In addition, companies that generate at
least $500 million of revenue from providing public cloud infrastructure (but
less than 50% of their overall revenues), are eligible for inclusion in the
Indxx Global Cloud Computing Index. These companies are subject to an individual
weight cap of 2% and an aggregate weight cap of 10% at each semi-annual
rebalance.
To
be a part of the eligible universe of the Indxx Global Cloud Computing Index,
certain minimum market capitalization and liquidity criteria, as defined by
Indxx LLC, must be met. As of January 31, 2024, companies must have a
minimum market capitalization of $200 million and a minimum average daily
turnover for the last 6 months (or since the IPO launch date for Significant
IPOs as defined by Indxx, LLC) greater than or equal to $2 million in order to
be eligible for inclusion in the Indxx Global Cloud Computing Index. As of
January 31, 2024, companies listed in the following countries were eligible
for inclusion in the Indxx Global Cloud Computing Index: Australia, Austria,
Belgium, Brazil, Canada, Chile, China, Colombia, Czech Republic, Denmark,
Finland, France, Germany, Greece, Hong Kong, Hungary, Indonesia, Ireland,
Israel, Italy, Japan, Kuwait, Malaysia, Mexico, Netherlands, New Zealand,
Norway, Peru, Philippines, Poland, Portugal, Qatar, South Africa, South Korea,
Singapore, Spain, Sweden, Switzerland, Thailand, Turkey, United Arab Emirates,
the United Kingdom, and the United States.
The
Indxx Global Cloud Computing Index is weighted according to a modified
capitalization weighting methodology and is reconstituted and re-weighted
semi-annually. Modified capitalization weighting seeks to weight constituents
primarily based on market capitalization, but subject to caps on the weights of
the individual securities. Generally speaking, this approach will limit the
amount of concentration in the largest market capitalization companies and
increase company-level diversification. The Indxx Global Cloud Computing Index
may include large-, mid- or small-capitalization companies, and components
primarily include information technology companies. As of January 31, 2024,
the Indxx Global Cloud Computing Index had 36 constituents.
Global
X Cybersecurity ETF
The
Indxx Cybersecurity Index is designed to provide exposure to exchange-listed
companies that are positioned to benefit from increased adoption of
cybersecurity technology, including but not limited to companies whose principal
business is in the development and management of security protocols preventing
intrusion and attacks to systems, networks, applications, computers, and mobile
devices (collectively, "Cybersecurity Companies"), as determined by Indxx LLC,
the provider of the Indxx Cybersecurity Index.
In
constructing the Indxx Cybersecurity Index, Indxx LLC first identifies FactSet
Industries related to cybersecurity. Companies within these FactSet Industries,
as of the selection date, are further reviewed by Indxx LLC on the basis of
revenue related to cybersecurity activities. To be eligible for the Indxx
Cybersecurity Index as a Cybersecurity Company, a company must generate at least
50% of its revenues from cybersecurity activities, which Indxx LLC classifies as
the development and management of security protocols preventing intrusion and
attacks to systems, networks, applications, computers, and mobile devices.
To
be a part of the eligible universe of the Indxx Cybersecurity Index, certain
minimum market capitalization and liquidity criteria, as defined by Indxx LLC,
must be met. As of January 31, 2024, companies must have a minimum market
capitalization of $200 million and a minimum average daily turnover for the last
six months (or since the IPO launch date for Significant IPOs as defined by
Indxx LLC) greater than or equal to $2 million in order to be eligible for
inclusion in the Indxx Cybersecurity Index.As of January 31, 2024,
companies listed in the following countries were eligible for inclusion in the
Indxx Cybersecurity
Index:
Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, Czech
Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary,
Indonesia, Ireland, Israel, Italy, Japan, Kuwait, Malaysia, Mexico, Netherlands,
New Zealand, Norway, Peru, Philippines, Poland, Portugal, Qatar, South Africa,
South Korea, Singapore, Spain, Sweden, Switzerland, Thailand, Turkey, United
Arab Emirates, the United Kingdom, and the United States.
The
Indxx Cybersecurity Index is weighted according to a modified capitalization
weighting methodology and is reconstituted and re-weighted semi-annually.
Modified capitalization weighting seeks to weight constituents primarily based
on market capitalization, but subject to caps on the weights of the individual
securities. Generally speaking, this approach will limit the amount of
concentration in the largest market capitalization companies and thereby
increase exposure to other companies. The Indxx Cybersecurity Index may include
large-, mid- or small-capitalization companies, and components primarily include
mid-capitalization companies. As of January 31, 2024, the Indxx
Cybersecurity Index had 24 constituents.
Solactive
Thematic Growth Index
The
Solactive Thematic Growth Index seeks to provide broad exposure to thematic
growth strategies using a portfolio of exchange-traded funds (each, an
"Underlying ETF"). The Solactive Thematic Growth Index allocates index weights
among the Underlying ETFs based on a quantitative methodology developed by
Solactive AG, the provider of the Solactive Thematic Growth Index, which is
designed to determine the selection and weighting of the eligible Underlying
ETFs. The share prices of the Underlying ETFs are expected to track the
performance of equities in developed or emerging markets that provide exposure
to structurally disruptive macro-trends.
The
Solactive Thematic Growth Index is constructed from the eligible universe of
Underlying ETFs, each of which is issued by Global X Funds®
and is determined by Solactive AG to provide exposure to structurally disruptive
macro-trends and the underlying investments that stand to benefit from the
materialization of those trends ("Global X Thematic Growth ETFs"). Structurally
disruptive macro-trends typically eschew traditional sector and geographic
classifications, and may stem from advancements in disruptive technology,
changing consumer habits and demographics, or changing needs for infrastructure
or finite resources. The Underlying Index is equal weighted. On an annual basis,
the Underlying Index is reconstituted to allocate exposure to a subset of the
eligible Underlying ETFs using a quantitative methodology that ranks each of the
eligible Underlying ETFs based on realized sales growth. In order to calculate
the realized sales growth for a given Underlying ETF, Solactive AG calculates
the realized sales growth of each component security of each eligible Underlying
ETF. The realized sales growth of each component security of the Underlying ETF
is then used to calculate the aggregate realized sales growth for the Underlying
ETF, based on the respective weights of the component securities in the
Underlying ETF. Realized sales growth is determined by calculating the
difference between a component security's revenue over the previous 12 months
from the date of the rebalance and its revenue over the 12 months prior to the
previous rebalance date. In addition to the annual reconstitution, the Solactive
Thematic Growth Index is reweighted on a semi-annual basis. As of
January 31, 2024, the Underlying ETFs eligible for inclusion in the
Solactive Thematic Growth Index are: Global X Aging Population ETF, Global X
AgTech & Food Innovation ETF, Global X Artificial Intelligence &
Technology ETF, Global X Autonomous & Electric Vehicles ETF, Global X
Blockchain ETF, Global X Clean Water ETF, Global X CleanTech ETF, Global X Cloud
Computing ETF, Global X Cybersecurity ETF, Global X Data Center & Digital
Infrastructure ETF, Global X E-Commerce ETF, Global X FinTech ETF, Global X
Genomics & Biotechnology ETF, Global X Hydrogen ETF, Global X Internet of
Things ETF, Global X Lithium and Battery Tech ETF, Global X Millennial Consumer
ETF, Global X Renewable Energy Producers ETF, Global X Robotics & Artificial
Intelligence ETF, Global X Social Media ETF, Global X Telemedicine & Digital
Health ETF, Global X U.S. Infrastructure Development ETF, Global X Video Games
& Esports ETF, Global X Disruptive Materials ETF and Global X Wind Energy
ETF.
Solactive
Video Games & Esports Index
The
Solactive Video Games & Esports Index is designed to provide exposure to
exchange-listed companies that are positioned to benefit from increased
consumption related to video games and esports, including companies whose
principal business is in video game development/publishing, video game and
esports content distribution and streaming, operating/owning esports
leagues/teams, and producing video game/esports hardware (collectively, "Video
Games & Esports Companies"), as defined by Solactive AG, the provider of the
Solactive Video Games & Esports Index.
In
constructing the Solactive Video Games & Esports Index, Solactive AG first
applies a proprietary natural language processing algorithm to the eligible
universe, which screens filings, disclosures and other public information (e.g.,
regulatory filings, earnings transcripts, etc.) for keywords that describe the
index theme, to identify and rank companies with direct exposure to the video
games and esports industry. Companies identified by the natural language
processing algorithm, as of the selection date, are further reviewed by
Solactive AG on the basis of revenue related to video games and esports
activities. To be eligible for the Solactive Video Games & Esports Index, a
company is considered by Solactive AG to be a Video Games &
Esports
Company if the company generates at least 50% of its revenues from video games
and esports activities, as determined by Solactive AG. Video Games & Esports
Companies are those companies that (i) develop and/or publish video games, (ii)
facilitate the streaming or distribution of video gaming and/or esports content,
(iii) operate and/or own competitive esports leagues and/or competitive esports
teams, and/or (iv) produce hardware used in video games and/or esports,
including augmented and virtual reality.
To
be a part of the eligible universe of the Solactive Video Games & Esports
Index, certain minimum market capitalization and liquidity criteria, as defined
by Solactive AG, must be met. As of January 31, 2024, companies must have a
minimum market capitalization of $200 million and a minimum average daily
turnover for the last 6 months greater than or equal to $2 million in order to
be eligible for inclusion in the Solactive Video Games & Esports Index. As
of January 31, 2024, companies listed in the following countries were
eligible for inclusion in the Solactive Video Games & Esports Index:
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Poland,
Portugal, Singapore, Spain, Sweden, Switzerland, South Korea, Taiwan, the United
Kingdom, and the United States.
The
Solactive Video Games & Esports Index is weighted according to a modified
capitalization weighting methodology and is reconstituted and re-weighted
semi-annually. Modified capitalization weighting seeks to weight constituents
primarily based on market capitalization, but subject to caps on the weights of
the individual securities. Generally speaking, this approach will limit the
amount of concentration in the largest market capitalization companies and
increase company-level diversification. The Solactive Video Games & Esports
Index may include large-, mid- or small-capitalization companies. As of
January 31, 2024, the Solactive Video Games & Esports Index had 48
constituents.
Solactive
Telemedicine & Digital Health Index
The
Solactive Telemedicine & Digital Health Index is designed to provide
exposure to exchange-listed companies that are positioned to benefit from
further advances in the field of telemedicine and digital health, as well as
applications thereof (collectively, "Telemedicine & Digital Health
Companies"), as defined by Solactive AG, the provider of the Solactive
Telemedicine & Digital Health Index. In order to be eligible for inclusion
in the Solactive Telemedicine & Digital Health Index, a company is
considered by Solactive AG to be a Telemedicine & Digital Health Company if
it derives at least 50% of its revenue, operating income, or assets from
telemedicine and/or digital health. These companies include those involved in
the following business activities: (i) telemedicine, (ii) healthcare analytics,
(iii) connected healthcare devices, and/or (iv) administrative
digitization.
In
constructing the Solactive Telemedicine & Digital Health Index, Solactive AG
first applies a proprietary natural language processing algorithm to the
eligible universe, which seeks to identify and rank companies with direct
exposure to the telemedicine and digital health industry based on filings,
disclosures and other public information (e.g. regulatory filings, earnings
transcripts, etc.). The highest ranking companies identified by the natural
language processing algorithm, as of the selection date, are further reviewed by
Solactive AG to confirm they derive at least 50% of their revenues, operating
income, or assets from the following business activities:
i.Telemedicine:
Companies that connect physicians and patients digitally, facilitating a range
of medical activities that include diagnosis, treatment, and medication
management, as well as offering online pharmaceutical services, and/or providing
internet healthcare platforms.
ii.Healthcare
Analytics: Companies that collect, produce, utilize, and/or store data for
healthcare related statistical and/or computational analyses, including
artificial intelligence analyses and cloud-based analytics platforms.
iii.Connected
Healthcare Devices: Companies that develop healthcare devices which
automatically transmit data and results to patients and/or physicians to assist
in real-time, dynamic patient treatment and preventative care.
iv.Administrative
Digitization: Companies that enhance healthcare provider management processes
including patient intake, staffing solutions, revenue/billing cycle management,
digital healthcare security, as well as doctor/hospital search, booking and/or
rating services for patient use.
The
eligible universe of the Solactive Telemedicine & Digital Health Index
includes exchange-listed companies that meet minimum market capitalization and
liquidity criteria, as defined by Solactive AG. As of January 31, 2024,
companies must have a minimum market capitalization of $200 million and a
minimum average daily turnover for the last 6 months greater than or equal to $2
million in order to be eligible for inclusion in the Solactive Telemedicine
& Digital Health Index. As of January 31, 2024, companies listed in the
following countries were eligible for inclusion in the Solactive Telemedicine
& Digital Health Index: Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands,
New Zealand, Norway, Poland, Portugal, Singapore, Spain, Sweden, Switzerland,
South Korea, Taiwan, the United Kingdom, and the United States.
The
Solactive Telemedicine & Digital Health Index is weighted according to a
modified capitalization weighting methodology and is reconstituted and
re-weighted semi-annually. Modified capitalization weighting seeks to weight
constituents primarily based on market capitalization, but subject to caps on
the weights of the individual securities. Generally speaking, this approach will
limit the amount of concentration in the largest market capitalization companies
and increase company-level diversification. The Solactive Telemedicine &
Digital Health Index may include large-, mid- or small-capitalization companies,
and components primarily include healthcare companies. As of January 31,
2024, the Solactive Telemedicine & Digital Health Index had 38
constituents.
Indxx
Global CleanTech Index
The
Indxx Global CleanTech Index is designed to provide exposure to exchange-listed
companies that are positioned to benefit from the increased adoption of
technologies focused on improving the efficiency of renewable energy production
and/or mitigating the adverse environmental effects of resource consumption
(“CleanTech”), including, but not limited to, companies whose principal business
is in developing technology relating to renewable energy, energy efficiency and
storage, smart grid, lithium-ion batteries and/or fuel cells, and/or pollution
prevention/amelioration (collectively, "CleanTech Companies"), as defined by
Indxx LLC, the provider of the Indxx Global CleanTech Index.
In
constructing the Indxx Global CleanTech Index, Indxx LLC first identifies
FactSet Industries related to CleanTech. Companies within these Industries, as
of the selection date, are further reviewed by Indxx LLC on the basis of revenue
related to CleanTech activities. To be eligible for the Indxx Global CleanTech
Index, a company is considered by Indxx LLC to be a CleanTech Company if the
company generates at least 50% of its revenues from developing technologies
and/or equipment relating to: (i) renewable energy production, (ii) residential
and commercial energy efficiency and storage, (iii) smart grid implementation,
(iv) lithium-ion batteries and/or fuel cells, or (v) preventing/ameliorating the
negative environmental effects of pollution, in each case, as determined by
Indxx LLC.
To
be a part of the eligible universe of the Indxx Global CleanTech Index, certain
minimum market capitalization and liquidity criteria, as defined by Indxx LLC,
must be met. As of January 31, 2024, companies must have a minimum market
capitalization of $500 million and a minimum average daily turnover for the last
6 months (or since the IPO launch date for Significant IPOs as defined by Indxx,
LLC) greater than or equal to $2 million in order to be eligible for inclusion
in the Indxx Global CleanTech Index. As of January 31, 2024, companies
listed in the following countries were eligible for inclusion in the Indxx
Global CleanTech Index: Australia, Austria, Belgium, Brazil, Canada, Chile,
China, Colombia, Czech Republic, Denmark, Finland, France, Germany, Greece, Hong
Kong, Hungary, Indonesia, Ireland, Israel, Italy, Japan, Kuwait, Malaysia,
Mexico, Netherlands, New Zealand, Norway, Peru, Philippines, Poland, Portugal,
Qatar, South Africa, South Korea, Singapore, Spain, Sweden, Switzerland, Taiwan,
Thailand, Turkey, United Arab Emirates, the United Kingdom, and the United
States
The
Indxx Global CleanTech Index is weighted according to a modified capitalization
weighting methodology and is reconstituted and re-weighted semi-annually.
Modified capitalization weighting seeks to weight constituents primarily based
on market capitalization, but subject to caps on the weights of the individual
securities. During each rebalance, the maximum weight of a company is capped at
6%, the aggregate weight of companies with a weight greater than or equal to 5%
is capped at 40%, and all remaining companies are capped at a weight of 4.5%,
and all constituents are subject to a minimum weight of 0.3%. Generally
speaking, this approach will limit the amount of concentration in the largest
market capitalization companies and increase company-level diversification. The
Indxx Global CleanTech Index may include large-, mid- or small-capitalization
companies, and components primarily include industrials and information
technology companies. As of January 31, 2024, the Indxx Global CleanTech
Index had 40 constituents.
Solactive
Data Center REITs & Digital Infrastructure Index
The
Solactive Data Center REITs & Digital Infrastructure Index is designed to
provide exposure to companies that have business operations in the fields of
data centers, cellular towers, and/or digital infrastructure hardware.
Specifically, the Solactive Data Center REITs & Digital Infrastructure Index
will include securities issued by “Data Center REITs & Digital
Infrastructure Companies” as defined by Solactive AG, the provider of the
Solactive Data Center REITs & Digital Infrastructure Index (the "Index
Provider"). Data Center REITs & Digital Infrastructure Companies are those
companies that derive at least 50% of their revenues, operating income, or
assets from the following business activities:
i.Data
Center Companies: Companies that own, operate, and/or develop data centers
(including data center REITs (as defined below)), which are publicly-listed
companies that own and manage facilities that customers use to safely and
efficiently store computer servers and data. Data Center Companies offer a range
of products and services to help secure, maintain, and facilitate the use of
servers and data within data centers, including providing uninterruptable power
supplies, temperature regulation, and physical security.
ii.Cellular
Tower Companies: Companies that own, operate and/or develop cellular towers
(including cellular tower REITs), which are publicly-listed companies that lease
antennae and equipment space on cellular towers to wireless carriers. Wireless
carriers utilize the cellular tower space provided by Cellular Tower Companies
to operate antennae and equipment that transmit and receive the signal reception
of cellular phones, televisions, radios, and other wireless communication
devices.
iii.Digital
Infrastructure Hardware Companies: Companies that manufacture, design, and/or
assemble the servers and/or other hardware often used in data centers and
cellular towers, including data center servers, processors and data center
switches.
Data
Center Companies and Cellular Tower Companies can be (but are not required to
be) structured as real estate investment trusts (“REITs”), which are publicly
listed companies that own or finance income-producing real estate assets. In
order to qualify as a REIT under the Internal Revenue Code of 1986, as amended,
a company needs to satisfy several regulatory requirements including but not
limited to:
i.Investing
at least 75% of its assets in real estate.
ii.Deriving
at least 75% of its gross income from rents from real property, interest on
mortgages financing real property, or from sales of real estate.
iii.Distributing
at least 90% of its taxable income in the form of shareholder dividends each
year.
In
constructing the Solactive Data Center REITs & Digital Infrastructure Index,
Solactive AG first applies a proprietary natural language processing algorithm
to the eligible universe, which seeks to identify and rank companies that
operate data centers and/or companies with direct exposure to digital
infrastructure based on filings, disclosures and other public information (e.g.
regulatory filings, earnings transcripts, etc.). The highest ranking companies
identified by the natural language processing algorithm, as of the selection
date, are further reviewed by Solactive AG to confirm they derive at least 50%
of their revenues, operating income, or assets from Data Center REITs and/or
Digital Infrastructure.
The
eligible universe of the Solactive Data Center REITs & Digital
Infrastructure Index includes exchange-listed companies that meet minimum market
capitalization and liquidity criteria, as defined by Solactive AG. As of
January 31, 2024, companies must have a minimum market capitalization of
$200 million and a minimum average daily turnover for the last 6 months greater
than or equal to $2 million in order to be eligible for inclusion in the
Solactive Data Center REITs & Digital Infrastructure Index. As of
January 31, 2024, companies listed in the following countries were eligible
for inclusion in the Solactive Data Center REITs & Digital Infrastructure
Index: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Hong Kong, Indonesia, Ireland, Israel, Italy, Japan, Netherlands, New Zealand,
Norway, Poland, Portugal, Singapore, Spain, Sweden, Switzerland, South Korea,
Taiwan, the United Kingdom, and the United States.
The
Solactive Data Center REITs & Digital Infrastructure Index is weighted
according to a modified capitalization weighting methodology and is
reconstituted and re-weighted semi-annually. Modified capitalization weighting
seeks to weight constituents primarily based on market capitalization, but
subject to caps on the weights of the individual securities. During each
rebalance, the maximum weight of a Data Center Company or Cellular Tower Company
(defined by the Index Provider as companies that own, operate, and/or develop
data centers (including data center REITs) and cellular towers (including
Cellular Tower REITs)), respectively, is capped at 12% and the maximum weight of
a Digital Infrastructure Hardware Company (defined by the Index Provider as
companies that manufacture the servers and/or other hardware often used in data
centers and cellular towers, including semiconductors, integrated circuits, and
processors) is capped at 2%, the aggregate weight of companies with a weight
greater than or equal to 4.5% is capped at 45%, all remaining companies are
capped at a weight of 4.5%, and all constituents are subject to a minimum weight
of 0.3%. Generally speaking, this approach will limit the amount of
concentration in the largest market capitalization companies but may increase
the number of constituents included within the Solactive Data Center REITs &
Digital Infrastructure Index. The Solactive Data Center REITs & Digital
Infrastructure Index may include large-, mid- or small-capitalization companies,
and components primarily include and components primarily include real estate
and information technology companies. As of January 31, 2024, the Solactive
Data Center REITs & Digital Infrastructure Index had 24 constituents.
Solactive
Global Clean Water Industry Index
The
Solactive Global Clean Water Industry Index is designed to provide exposure to
companies that have business operations in the provision of clean water.
Specifically, the Solactive Global Clean Water Industry Index will include
securities issued by
“Clean
Water Companies” as defined by Solactive AG, the provider of the Solactive
Global Clean Water Industry Index. Clean Water Companies are those companies
that derive at least 50% of their revenues, operating income, or assets from the
following business activities:
1.Industrial
water treatment, recycling (including water reclamation), purification, and
conservation.
2.Water
storage, transportation, metering, and distribution infrastructure.
3.Production
of household and commercial water purifier and heating products.
4.Provision
of consulting services identifying and implementing water efficiency strategies
at the corporate and/or municipal levels.
In
constructing the Solactive Global Clean Water Industry Index, Solactive AG first
applies a proprietary natural language processing algorithm to the eligible
universe, which seeks to identify and rank companies involved in the provision
of clean water based on filings, disclosures and other public information (e.g.
regulatory filings, earnings transcripts, etc.). Solactive AG also applies an
ESG (Environmental, Social and Governance) screening process to the universe of
eligible companies. Solactive AG, in partnership with ESG data provider Minerva,
on a quarterly basis reviews each constituent of the Solactive Global Clean
Water Industry Index for compliance with the principles of the United Nations
Global Compact. Any existing or potential constituent of the Solactive Global
Clean Water Industry Index which does not meet the labor, human rights,
environmental, and anti-corruption standards as defined by the United Nations
Global Compact Principles as of the quarterly review will be excluded from the
Solactive Global Clean Water Industry Index, as determined by Solactive AG. The
highest-ranking companies identified by the natural language processing
algorithm, as of the selection date, are further reviewed by Solactive AG to
confirm they derive at least 50% of their revenues from the provision of clean
water.
To
be a part of the eligible universe of the Solactive Global Clean Water Industry
Index, certain minimum market capitalization and liquidity criteria, as defined
by Solactive AG, must be met. As of January 31, 2024, companies must have a
minimum market capitalization of $200 million and a minimum average daily
turnover for the last 6 months greater than or equal to $2 million in order to
be eligible for inclusion in the Solactive Global Clean Water Industry Index. As
of January 31, 2024, companies listed in the following countries were
eligible for inclusion in the Solactive Global Clean Water Industry Index:
Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, Czech
Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, Hungary,
Indonesia, Ireland, Israel, Italy, Japan, Kuwait, Malaysia, Mexico, Netherlands,
New Zealand, Norway, Philippines, Poland, Portugal, Qatar, Saudi Arabia, South
Africa, South Korea, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand,
Turkey, United Arab Emirates, the United Kingdom, and the United
States.
The
Solactive Global Clean Water Industry Index is weighted according to a modified
capitalization weighting methodology and is reconstituted and re-weighted
semi-annually. Modified capitalization weighting seeks to weight constituents
primarily based on market capitalization, but subject to caps on the weights of
the individual securities. During each rebalance, the maximum weight of a
company is capped at 8%, the aggregate weight of companies with a weight greater
than or equal to 4.5% is capped at 40%, and all remaining companies are capped
at a weight of 4.5%, and all constituents are subject to a minimum weight of
0.3%. Generally speaking, this approach will limit the amount of concentration
in the largest market capitalization companies and increase company-level
diversification. The Solactive Global Clean Water Industry Index may include
large-, mid- or small-capitalization companies, and components primarily include
utilities and industrials companies. As of January 31, 2024, the Solactive
Global Clean Water Industry Index had 39 constituents.
Solactive
AgTech & Food Innovation Index
The
Solactive AgTech & Food Innovation Index is designed to provide exposure to
companies that are positioned to benefit from further advances in the fields of
agricultural technology (“AgTech”) and food innovation. Specifically, the
Solactive AgTech & Food Innovation Index will include securities issued by
“AgTech & Food Innovation Companies” as defined by Solactive AG, the
provider of the Solactive AgTech & Food Innovation Index. “AgTech & Food
Innovation Companies” are those companies that derive at least 50% of their
revenues, operating income, or assets from the following business
activities:
•AgTech
◦Precision
Agriculture:
Technologies used to increase crop yields and reduce levels of traditional
agricultural inputs (land, water, fertilizer, etc.) to grow crops more
profitably/efficiently. Business activities include the development of
Geographic Information System (“GIS”) software and hardware for GIS-based
agriculture, precision weed control technologies, soil and water sensors,
weather tracking, and satellite imaging.
◦Robotics/Automation:
Technologies used to reduce labor and other farming inputs. Business activities
include the development of farming drones and autonomous farm equipment for
irrigation, soil management (agronomy), pollination, harvesting and processing
(e.g. robotic-enabled harvesters).
◦Controlled
Environment Agriculture (“CEA”):
Technologies and systems that optimize plant and/or fish farming and use
controlled environments to reduce the types and/or quantity of inputs required
for farming. Business activities include vertical farming, hydroponics,
aquaponics and aeroponics.
◦Agricultural
Biotechnology:
Biological/genetic technologies used to enhance agricultural cultivation and
yield. Business activities include the use of gene editing to develop crops with
higher yield, less water requirements, greater insect resistance,
etc.
•Food
Innovation
◦Protein
& Dairy Alternatives:
Products containing protein-rich ingredients sourced from plants, insects,
fungi, or through tissue culture that replace conventional animal-based protein
sources like meat and dairy. Business activities include the development of
plant-based and/or food-technology (e.g. molecular based) alternative proteins
and dairy.
◦Food
Waste Reduction:
Technologies and/or systems designed to reduce food-waste in the supply chain.
Business activities include the development of technology to track, monitor,
and/or preserve food (e.g. blockchain-based food sourcing and tracking systems
and software), as well as the development of products and services (e.g.
marketplaces) that reduce food waste.
In
addition, companies identified by Solactive AG as deriving greater than 0% but
less than 50% of revenue from the business activities described above
("Diversified AgTech & Food Innovation Companies"), as well as companies
identified by Solactive AG as having primary business operations in the business
activities described above but that do not currently generate revenues
(“Pre-Revenue AgTech & Food Innovation Companies”), are eligible for
inclusion in the Solactive AgTech & Food Innovation Index if there are fewer
than 30 eligible AgTech & Food Innovation Companies. Diversified AgTech
& Food Innovation Companies and Pre-Revenue AgTech & Food Innovation
Companies are collectively subject to an aggregate weight cap of 15% at each
semi-annual rebalance.
In
constructing the Solactive AgTech & Food Innovation Index, Solactive AG
first applies a proprietary natural language processing algorithm to the
eligible universe, which seeks to identify and rank companies involved in the
fields of agriculture technology and food innovation based on filings,
disclosures and other public information (e.g. regulatory filings, earnings
transcripts, etc.). The highest-ranking companies identified by the natural
language processing algorithm, as of the selection date, are further reviewed by
Solactive AG to confirm they derive at least 50% of their revenues from the
business activities described above, greater than 0% of their revenues from the
business activities described above in the case of Diversified AgTech & Food
Innovation Companies, or that they have primary business operations in the
business activities described above but do not currently generate revenues in
the case of Pre-Revenue AgTech & Food Innovation Companies.
To
be a part of the eligible universe of the Solactive AgTech & Food Innovation
Index, certain minimum market capitalization and liquidity criteria, as defined
by the Index Provider, must be met. As of January 31, 2024, companies must
have a minimum market capitalization of $50 million and a minimum average daily
turnover for the last 6 months greater than or equal to $.5 million in order to
be eligible for inclusion in the Solactive AgTech & Food Innovation Index.
As of January 31, 2024, companies listed in the following countries were
eligible for inclusion in the Solactive AgTech & Food Innovation Index:
Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, Czech
Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, Hungary,
Indonesia, Ireland, Israel, Italy, Japan, Kuwait, Malaysia, Mexico, Netherlands,
New Zealand, Norway, Philippines, Poland, Portugal, Qatar, Saudi Arabia, South
Africa, South Korea, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand,
Turkey, United Arab Emirates, the United Kingdom, and the United States. The
Fund may invest in China A-Shares, which are issued by companies incorporated in
mainland China and traded on Chinese exchanges.
The
Solactive AgTech & Food Innovation Index is weighted according to a modified
capitalization weighting methodology and is reconstituted and re-weighted
semi-annually. Modified capitalization weighting seeks to weight constituents
primarily based on market capitalization, but subject to caps on the weights of
the individual securities. During each rebalance, the maximum weight of a
company is capped at 12%, the aggregate weight of companies with a weight
greater than or equal to 4.5% is capped at 48%, and all remaining companies are
capped at a weight of 4.5%, and all constituents are subject to a minimum weight
of 0.3%. In addition, Diversified AgTech & Food Innovation Companies and
Pre-Revenue AgTech & Food Innovation Companies are subject to an individual
weight cap of 4% and an aggregate weight cap of 15% at each semi-annual
rebalance. Generally speaking, modified capitalization weighting will limit the
amount of concentration in the largest market capitalization companies and
increase company-level diversification. The Solactive AgTech & Food
Innovation Index may include large-, mid- or small-capitalization companies, and
components primarily include consumer staples and materials companies. As of
January 31, 2024, the Solactive AgTech & Food Innovation Index had 30
constituents.
Solactive
Blockchain Index
The
Solactive Blockchain Index is designed to provide exposure to companies that are
positioned to benefit from further advances in the field of blockchain
technology. A blockchain is a peer-to-peer shared, distributed ledger (or
decentralized database) that facilitates the recording of transactions and
tracking of assets without the need for the use of a central authority acting as
a trusted intermediary (i.e., a bank). Certain users, known as nodes, elect to
maintain a copy of the database (“ledger”) on their computer. Nodes connect on a
peer-to-peer basis with other nodes, propagating transactions and blocks across
the network to be independently verified by other nodes according to the
network’s rules. Transactions are aggregated into blocks which record the time
and sequence of transactions, like new pages of a ledger. “Blocks” are linked
together with the prior block to form a “chain”, or a “blockchain”, which grows
linearly in time with the addition of each subsequent block, or page of the
ledger. The resulting blockchain is a distributed, time-stamped ledger of
information—because the rules for adding information to the ledger are public,
any transactions and new pages of the ledger can be independently verified by
any user maintaining a copy of the ledger, resulting in a shared and continually
reconciled database. Blockchains may also be private or public networks. A
public blockchain network is a publicly available set of rules that anyone can
download and run to participate in the network. A private blockchain network is
a centralized blockchain that requires an invitation from the originator of the
network to participate. Specifically, the Solactive Blockchain Index will
include securities issued by “Blockchain Companies” as defined by Solactive AG,
the provider of the Solactive Blockchain Index. “Blockchain Companies” are those
companies that derive at least 50% of their revenues, operating income, or
assets from the following business activities:
1.Digital
Asset Mining:
Companies involved in verifying and adding digital asset transactions to a
blockchain ledger (i.e. digital asset mining), or that produce technology used
in digital asset mining.
2.Blockchain
& Digital Asset Transactions:
Companies that operate trading platforms/exchanges, custodians, wallets, and/or
payment gateways for digital assets issued on a blockchain.
3.Blockchain
Applications:
Companies involved in the development and distribution of applications and
software services related to blockchain technology and digital assets issued on
a blockchain, including smart contracts.
4.Blockchain
& Digital Asset Hardware:
Companies that manufacture and distribute infrastructure and/or hardware used
for blockchain activities and digital assets issued on a blockchain.
5.Blockchain
& Digital Asset Integration:
Companies that provide engineering and consulting services for the adoption and
utilization of blockchain technology and digital assets issued on a blockchain.
For purposes of the definition of “Blockchain Companies”, the Index Provider
will consider only those revenues, operating income, or assets from consulting
and/or engineering services specifically related to blockchain and digital asset
technologies.
The
Fund will not invest in digital assets (including cryptocurrencies) (i) directly
or (ii) indirectly through the use of digital asset derivatives.
In
addition, companies identified by Solactive AG as deriving greater than 0% but
less than 50% of revenue from the business activities described above
("Diversified Blockchain Companies"), as well as companies identified by
Solactive AG as having primary business operations in the business activities
described above but that do not currently generate revenues (“Pre-Revenue
Blockchain Companies”, are eligible for inclusion in the Underlying Index if
there are fewer than 25 eligible Blockchain Companies. Diversified Blockchain
Companies and Pre-Revenue Blockchain Companies are collectively subject to an
aggregate weight cap of 10% at each semi-annual rebalance.
In
constructing the Solactive Blockchain Index, Solactive AG first applies a
proprietary natural language processing algorithm to the eligible universe,
which seeks to identify and rank companies involved in the blockchain fields
based on filings, disclosures and other public information (e.g. regulatory
filings, earnings transcripts, etc.). The highest-ranking companies identified
by the natural language processing algorithm, as of the selection date, are
further reviewed by Solactive AG to confirm they derive at least 50% of their
revenues from the business activities described above, greater than 0% of their
revenues from the business activities described above in the case of Diversified
Blockchain Companies, or that they have primary business operations in the
business activities described above but do not currently generate revenues in
the case of Pre-Revenue Blockchain Companies.
To
be a part of the eligible universe of the Solactive Blockchain Index, certain
minimum market capitalization and liquidity criteria, as defined by Solactive
AG, must be met. As of January 31, 2024, companies must have a minimum
market capitalization of $50 million million and a minimum average daily
turnover for the last 6 months greater than or equal to $0.5 million in order to
be eligible for inclusion in the Solactive Blockchain Index. As of
January 31, 2024, companies listed in the following countries were eligible
for inclusion in the Underlying Index: Australia, Austria, Belgium, Brazil,
Canada, Chile, China, Colombia, Czech Republic, Denmark, Egypt, Finland, France,
Germany, Greece, Hong Kong, Hungary, Indonesia, Ireland, Israel, Italy, Japan,
Kuwait, Malaysia, Mexico, Netherlands, New Zealand, Norway, Philippines, Poland,
Portugal, Qatar, Saudi Arabia, South Africa, South Korea, Singapore, Spain,
Sweden, Switzerland, Taiwan, Thailand, Turkey, United
Arab
Emirates, the United Kingdom, and the United States. The Fund may invest in
China A-Shares, which are issued by companies incorporated in mainland China and
traded on Chinese exchanges.
The
Solactive Blockchain Index is weighted according to a modified effective market
capitalization weighting methodology and is reconstituted and re-weighted
semi-annually. Modified effective market capitalization weighting seeks to
weight constituents based on market capitalization but accounting for liquidity
in determining final weights, and subject to caps on the weights of the
individual securities. During each rebalance, the maximum weight of a company is
capped at 12%, the aggregate weight of companies with a weight greater than or
equal to 4.5% is capped at 45%, and all remaining companies are capped at a
weight of 4.5%, and all constituents are subject to a minimum weight of 0.3%. In
addition, Diversified Blockchain Companies and Pre-Revenue Blockchain Companies
are subject to an individual weight cap of 2% and an aggregate weight cap of 10%
at each semi-annual rebalance. Generally speaking, modified effective market
capitalization weighting will limit the amount of concentration in the largest
market capitalization companies and increase company-level diversification. The
Solactive Blockchain Index may include large-, mid- or small-capitalization
companies, and components primarily include information technology and
financials companies. As of January 31, 2024, the Solactive Blockchain
Index had 25 constituents.
Solactive
Global Hydrogen Index
The
Solactive Global Hydrogen Index is designed to provide exposure to companies
that are positioned to benefit from further advances in the field of hydrogen
technology. Hydrogen technology includes products and services focused on the
development and implementation of hydrogen gas as a renewable fuel source.
Hydrogen technology may play an important role in the transition toward
renewable energy from fossil fuels. Specifically, the Solactive Global Hydrogen
Index will include securities issued by “Hydrogen Companies” as defined by
Solactive AG, the provider of the Solactive Global Hydrogen Index. “Hydrogen
Companies” are those companies that derive at least 50% of their revenues,
operating income, or assets from the following business activities:
1.Hydrogen
Production:
Companies involved in the production, transportation, storage, and distribution
of hydrogen (including renewable hydrogen) that can be used as an energy
source.
2.Hydrogen
Fuel Cells:
Companies that develop and/or manufacture fuel cells (and the components
thereof) that convert chemical energy into electricity and heat, powered by
hydrogen fuel and/or reformed hydrogen-rich gas.
3.Hydrogen
Technology:
Companies involved in the production of hydrogen electrolyzers (which produce
hydrogen gas from water), tanks and pipelines, commercial and residential
infrastructure, generators, engines, and vehicles powered by hydrogen fuel
cells, as well as hydrogen fueling stations.
4.Hydrogen
Integration:
Companies that provide engineering and consulting services for the adoption and
utilization of hydrogen-based fuel and/or energy sources at the residential,
commercial, and industrial levels.
In
addition, companies identified by Solactive AG as deriving greater than 0% but
less than 50% of revenue from the business activities described above
("Diversified Hydrogen Companies"), as well as companies identified by Solactive
AG as having primary business operations in the business activities described
above but that do not currently generate revenues (“Pre-Revenue Hydrogen
Companies”), are eligible for inclusion in the Solactive Global Hydrogen Index
if there are fewer than 25 eligible Hydrogen Companies. Diversified Hydrogen
Companies and Pre-Revenue Hydrogen Companies are collectively subject to an
aggregate weight cap of 10% at each semi-annual rebalance.
In
constructing the Solactive Global Hydrogen Index, Solactive AG first applies a
proprietary natural language processing algorithm to the eligible universe,
which seeks to identify and rank companies involved in the fields of hydrogen
and fuel cells based on filings, disclosures and other public information (e.g.
regulatory filings, earnings transcripts, etc.). The highest-ranking companies
identified by the natural language processing algorithm, as of the selection
date, are further reviewed by Solactive AG to confirm they derive at least 50%
of their revenues from the business activities described above, greater than 0%
of their revenues from the business activities described above in the case of
Diversified Hydrogen Companies, or that they have primary business operations in
the business activities described above but do not currently generate revenues
in the case of Pre-Revenue Hydrogen Companies.
To
be a part of the eligible universe of the Solactive Global Hydrogen Index,
certain minimum market capitalization and liquidity criteria, as defined by
Solactive AG, must be met. As of January 31, 2024, companies must have a
minimum market capitalization of $50 million and a minimum average daily
turnover for the last 6 months greater than or equal to $0.5 million in order to
be eligible for inclusion in the Solactive Global Hydrogen Index. As of
January 31, 2024, companies listed in the following countries were eligible
for inclusion in the Solactive Global Hydrogen Index: Australia, Austria,
Belgium, Brazil, Canada, Chile, China, Colombia, Czech Republic, Denmark, Egypt,
Finland, France, Germany, Greece, Hong Kong, Hungary, Indonesia, Ireland,
Israel, Italy, Japan, Kuwait, Malaysia, Mexico, Netherlands, New Zealand,
Norway, Philippines, Poland, Portugal, Qatar, Saudi Arabia, South Africa, South
Korea, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey,
United
Arab Emirates, the United Kingdom, and the United States. The Fund may invest in
China A-Shares, which are issued by companies incorporated in mainland China and
traded on Chinese exchanges. The Fund may invest in securities of issuers
located in emerging markets
The
Solactive Global Hydrogen Index is weighted according to a modified
capitalization weighting methodology and is reconstituted and re-weighted
semi-annually. Modified capitalization weighting seeks to weight constituents
primarily based on market capitalization, but subject to caps on the weights of
the individual securities. During each rebalance, the maximum weight of a
company is capped at 12%, the aggregate weight of companies with a weight
greater than or equal to 4.5% is capped at 45%, and all remaining companies are
capped at a weight of 4.5%, and all constituents are subject to a minimum weight
of 0.3%. In addition, Diversified Hydrogen Companies and Pre-Revenue Hydrogen
Companies are subject to an individual weight cap of 2% and an aggregate weight
cap of 10% at each semi-annual rebalance. Generally speaking, modified
capitalization weighting will limit the amount of concentration in the largest
market capitalization companies and increase company-level diversification. The
Solactive Global Hydrogen Index may include large-, mid- or small-capitalization
companies, and components primarily include industrials companies. As of
January 31, 2024, the Solactive Global Hydrogen Index had 25
constituents.
Solactive
Solar Index
The
Solactive Solar Index is designed to provide exposure to companies that are
positioned to benefit from further advances in the field of solar technology.
Specifically, the Solactive Solar Index consists of securities issued by “Solar
Companies” as defined by Solactive AG, the provider of the Solactive Solar
Index. Solar Companies are those companies that derive at least 50% of their
revenues from the following business activities:
Solar
Energy Materials:
Companies involved in the production of raw materials that are primarily used in
photovoltaic solar cells or concentrating solar-thermal mirrors or lenses
(including silicon, cadmium telluride, copper indium gallium deselenide,
titanium dioxide, and/or perovskite).
Solar
Energy Systems & Components: Companies
involved in the development and/or manufacturing of solar energy systems (and
the components thereof) that harness energy from the photovoltaic effect or from
sunlight to generate electricity. For example, a company involved in the
production of solar panels may be categorized as having business activities
related to Solar Energy Systems & Components. Solar panels consist of an
arrangement of solar photovoltaic cells mounted in a framework for
installation.
Solar
Power Production: Companies
that generate and distribute electricity from light energy.
Solar
Technology:
Companies that develop commercial and residential infrastructure, generators,
and engines powered by solar energy, as well as residential and commercial scale
batteries for electricity produced from solar power, and solar-powered charging
systems for electric vehicles or other electric devices.
Solar
Installation, Integration & Maintenance:
Companies that provide engineering and/or advisory services for the
installation, integration, maintenance, and/or utilization of solar power at the
residential, commercial, and industrial levels.
In
constructing the Solactive Solar Index, Solactive AG first applies a proprietary
natural language processing algorithm to the eligible universe, which seeks to
identify and rank companies involved in the field of solar technology based on
filings, disclosures and other public information (e.g. regulatory filings,
earnings transcripts, etc.). Solactive AG also applies an ESG (Environmental,
Social and Governance) screening process to the universe of eligible companies.
Solactive AG, in partnership with ESG data provider Minerva, on a quarterly
basis reviews each constituent of the Solactive Solar Index for compliance with
the principles of the United Nations Global Compact. Any existing or potential
constituent of the Solactive Solar Index which does not meet the labor, human
rights, environmental, and anti-corruption standards as defined by the United
Nations Global Compact Principles as of the quarterly review will be excluded
from the Solactive Solar Index, as determined by Solactive AG. The
highest-ranking companies identified by the natural language processing
algorithm, as of the selection date, are further reviewed by Solactive AG to
confirm they derive at least 50% of their revenues from the business activities
described above.
To
be a part of the eligible universe of the Solactive Solar Index, certain minimum
market capitalization and liquidity criteria, as defined by Solactive AG, must
be met. As of January 31, 2024, companies must have a minimum market
capitalization of $200 million and a minimum average daily turnover for the last
6 months greater than or equal to $2 million in order to be eligible for
inclusion in the Solactive Solar Index. As of January 31, 2024, companies
listed in the following countries were
eligible
for inclusion in the Solactive Solar Index: Australia, Austria, Belgium, Brazil,
Canada, Chile, China, Colombia, Czech Republic, Denmark, Egypt, Finland, France,
Germany, Greece, Hong Kong, Hungary, Indonesia, Ireland, Israel, Italy, Japan,
Kuwait, Malaysia, Mexico, Netherlands, New Zealand, Norway, Philippines, Poland,
Portugal, Qatar, Saudi Arabia, South Africa, South Korea, Singapore, Spain,
Sweden, Switzerland, Taiwan, Thailand, Turkey, United Arab Emirates, the United
Kingdom, and the United States. As of January 31, 2024, the Solactive Solar
Index had significant exposure to Chinese issuers. The Fund may invest in China
A-Shares, which are issued by companies incorporated in mainland China and
traded on Chinese exchanges.
The
Solactive Solar Index is weighted according to a modified capitalization
weighting methodology and is reconstituted and re-weighted semi-annually.
Modified capitalization weighting seeks to weight constituents primarily based
on market capitalization, but subject to caps on the weights of the individual
securities. During each rebalance, the maximum weight of a company is capped at
8%, the aggregate weight of companies with a weight greater than or equal to
4.5% is capped at 40%, and all remaining companies are capped at a weight of
4.5%, and all constituents are subject to a minimum weight of 0.3%. Generally
speaking, this approach will limit the amount of concentration in the largest
market capitalization companies and increase company-level diversification. The
Solactive Solar Index may include large-, mid- or small-capitalization
companies, and components primarily include information technology companies. As
of January 31, 2024, the Solactive Solar Index had 50
constituents.
Solactive
Wind Energy Index
The
Solactive Wind Energy Index is designed to provide exposure to companies that
are positioned to benefit from further advances in the field of wind energy
technology. Specifically, the Solactive Wind Energy Index will include
securities issued by “Wind Energy Companies” as defined by Solactive AG, the
provider of the Solactive Wind Energy Index. Wind Energy Companies are those
companies that derive at least 50% of their revenues from the following business
activities:
Wind
Energy Systems:
Companies involved in development, manufacturing, integration, and/or
maintenance of turbine components and turbines that harness energy from the wind
and convert it into electrical power.
Wind
Power Production: Companies
that generate and distribute electricity from wind power.
Wind
Energy Technology:
Companies that develop commercial and residential infrastructure and systems
powered by wind energy, as well as residential and commercial scale batteries
for electricity produced from wind power.
Wind
Power Integration & Maintenance:
Companies that provide engineering and/or advisory services for the
installation, maintenance, and/or utilization of wind energy at the residential,
commercial, and industrial levels.
In
addition, companies identified by Solactive AG as having primary business
operations in the business activities described above but that do not currently
generate revenues (“Pre-Revenue Wind Energy Companies”), are eligible for
inclusion in the Solactive Wind Energy Index if there are fewer than 25 eligible
Wind Energy Companies. Pre-Revenue Wind Energy Companies are subject to an
aggregate weight cap of 10% at each semi-annual rebalance.
In
constructing the Solactive Wind Energy Index, Solactive AG first applies a
proprietary natural language processing algorithm to the eligible universe,
which seeks to identify and rank companies involved in field of wind energy
technology based on filings, disclosures and other public information (e.g.
regulatory filings, earnings transcripts, etc.). The Index Provider also applies
an ESG (Environmental, Social and Governance) screening process to the universe
of eligible companies. Solactive AG, in partnership with ESG data provider
Minerva, on a quarterly basis reviews each constituent of the Solactive Wind
Energy Index for compliance with the principles of the United Nations Global
Compact. Any existing or potential constituent of the Underlying Index which
does not meet the labor, human rights, environmental, and anti-corruption
standards as defined by the United Nations Global Compact Principles as of the
quarterly review will be excluded from the Solactive Wind Energy Index, as
determined by the Solactive AG. The highest-ranking companies identified by the
natural language processing algorithm, as of the selection date, are further
reviewed by Solactive AG to confirm they derive at least 50% of their revenues
from the business activities described above, or that they have primary business
operations in the business activities described above but do not currently
generate revenues in the case of Pre-Revenue Wind Energy Companies.
To
be a part of the eligible universe of the Solactive Wind Energy Index, certain
minimum market capitalization and liquidity criteria, as defined by Solactive
AG, must be met. As of January 31, 2024, companies must have a minimum
market capitalization of $200 million and a minimum average daily turnover for
the last 6 months greater than or equal to $2 million in order to be eligible
for inclusion in the Underlying Index. As of January 31, 2024, companies
listed in the following countries were eligible for inclusion in the Solactive
Wind Energy Index: Australia, Austria, Belgium, Brazil, Canada, Chile, China,
Colombia,
Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong,
Hungary, Indonesia, Ireland, Israel, Italy, Japan, Kuwait, Malaysia, Mexico,
Netherlands, New Zealand, Norway, Philippines, Poland, Portugal, Qatar, Saudi
Arabia, South Africa, South Korea, Singapore, Spain, Sweden, Switzerland,
Taiwan, Thailand, Turkey, United Arab Emirates, the United Kingdom, and the
United States. As of January 31, 2024, the Solactive Wind Energy Index had
significant exposure to Chinese issuers. The Fund may invest in China A-Shares,
which are issued by companies incorporated in mainland China and traded on
Chinese exchanges.
The
Solactive Wind Energy Index is weighted according to a modified capitalization
weighting methodology and is reconstituted and re-weighted semi-annually.
Modified capitalization weighting seeks to weight constituents primarily based
on market capitalization, but subject to caps on the weights of the individual
securities. During each rebalance, the maximum weight of a company is capped at
12%, the aggregate weight of companies with a weight greater than or equal to
4.5% is capped at 45%, and all remaining companies are capped at a weight of
4.5%, and all constituents are subject to a minimum weight of 0.3%. In addition,
Pre-Revenue Wind Energy Companies are subject to an individual weight cap of 2%
and an aggregate weight cap of 10% at each semi-annual rebalance. Generally
speaking, this approach will limit the amount of concentration in the largest
market capitalization companies and increase company-level diversification. The
Solactive Wind Energy Index may include large-, mid- or small-capitalization
companies, and components primarily include utilities and industrials companies.
As of January 31, 2024, the Solactive Wind Energy Index had 27
constituents.
Global
X PropTech Index
The
Global X PropTech Index is owned and was developed by Global X Management
Company LLC, an affiliate of the Fund and the Fund's investment adviser (the
“Adviser”). The Global X PropTech Index is administered and calculated by Mirae
Asset Global Indices Pvt. Ltd., an affiliate of Global X Management Company LLC.
The Global X PropTech Index is designed to provide exposure to property
technology (“PropTech”) companies that are positioned to benefit from technology
that optimizes the way people buy, sell, rent, design, construct, manage, and
research/market residential and commercial properties. Specifically, the Global
X PropTech Index consists of securities issued by “PropTech Companies”, as
determined by Mirae Asset Global Indices Pvt. Ltd. “PropTech Companies” are
those companies that derive at least 50% of their revenues from one or more of
the following business activities in aggregate, as determined by Mirae Asset
Global Indices Pvt. Ltd.:
•Property
Management:
Companies that provide software and/or information technology services to
facilitate the management of commercial and residential real estate, including
home automation, smart security systems, tenant management and energy
management/monitoring. This also includes insurance and construction process
management.
•Marketplace
and Platforms:
Companies that operate online marketplaces and platforms that facilitate the
purchase, sale, rental, shared workspace, discovery and/or financing of real
estate.
•Research
and Analytics:
Companies that utilize software, data, artificial intelligence, machine
learning, spatial recognition and/or other information technology to provide
real estate research and analytics. This includes companies that provide virtual
and augmented reality solutions to the real estate sector.
In
constructing the Global X PropTech Index, Mirae Asset Global Indices Pvt. Ltd.
first identifies FactSet Industries related to PropTech. FactSet is a leading
financial data provider that maintains a comprehensive structured taxonomy
designed to offer precise classification of global companies and their
individual business units. Companies within these FactSet Industries, as of the
selection date, are further reviewed by Mirae Asset Global Indices Pvt. Ltd. on
the basis of revenue related to PropTech, as defined above.
To
be a part of the eligible universe of the Global X PropTech Index, certain
minimum market capitalization and liquidity criteria, as defined by Mirae Asset
Global Indices Pvt. Ltd., must be met. As of January 31, 2024, companies
must have a minimum market capitalization of $200 million and a minimum average
daily turnover for the last 6 months greater than or equal to $2 million in
order to be eligible for inclusion in the Global X PropTech Index. As of
January 31, 2024, companies listed in the following countries were eligible
for inclusion in the Global X PropTech Index: Australia, Austria, Belgium,
Brazil, Canada, Chile, Colombia, Czech Republic, Denmark, Egypt, Finland,
France, Germany, Greece, Hong Kong, Hungary, Indonesia, Ireland, Israel, Italy,
Japan, Luxembourg, Malaysia, Mexico, Netherlands, New Zealand, Norway, Peru,
Philippines, Poland, Portugal, Qatar, South Africa, South Korea, Singapore,
Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, United Arab Emirates, the
United Kingdom, and the United States.
The
Global X PropTech Index is weighted according to a modified capitalization
weighting methodology and is reconstituted and re-weighted semi-annually.
Modified capitalization weighting seeks to weight constituents primarily based
on free-float market capitalization, but subject to caps on the weights of the
individual securities. During each rebalance, the maximum
weight
of a company is capped at 8%. Generally speaking, modified capitalization
weighting will limit the amount of concentration in the largest market
capitalization companies. The Global X PropTech Index may include large-, mid-
or small-capitalization companies, and components primarily include information
technology companies. As of January 31, 2024, the Global X PropTech Index
had 31
constituents.
Global
X Defense Tech Index
The
Global X Defense Tech Index is owned and was developed by Global X Management
Company LLC (the “Index Provider”), an affiliate of the Fund and the Fund's
investment adviser (the “Adviser”). The Global X Defense Tech Index is
administered and calculated by Mirae Asset Global Indices Pvt. Ltd. (the “Index
Administrator”), an affiliate of Global X Management Company LLC. The Global X
Defense Tech Index is designed to provide exposure to defense technology
(“Defense Tech”) companies that are positioned to benefit from technology,
services, systems and hardware that cater to the defense and military sector.
Specifically, the Global X Defense Tech Index consists of securities issued by
“Defense Tech Companies”, as determined by Mirae Asset Global Indices Pvt. Ltd.
“Defense Tech Companies” are those companies that derive at least 50% of their
revenues from one or more of the following business activities in aggregate, as
determined by Mirae Asset Global Indices Pvt. Ltd.:
•Cybersecurity:
Companies that develop and manage security protocols preventing intrusion and
attacks to systems, networks, applications, computers, and/or infrastructure for
local and/or national defense applications.
•Defense
Technology:
Companies that develop artificial intelligence (AI), internet of things (IoT),
augmented/virtual reality (AR/VR), human-machine collaboration, big data,
specialized 3D light detecting and ranging (LiDAR), analytics, geospatial
intelligence, and/or security scanning solutions (e.g., biometrics, credential
authentication, etc.) for local and/or national defense applications, as well as
companies that provide applications and services for mission support via a
combination of command, control, communications, computers, cyber-defense,
combat systems (“C6”), and companies involved in intelligence, surveillance, and
reconnaissance (ISR).
•Advanced
Military Systems and Hardware: Companies
that develop robotics, drones, advanced weapon systems and military/naval
munitions, defense-specific power and fuel systems, sensor arrays, processors
and networking equipment, space launch systems (including satellites), radar
systems, and/or military aircraft//naval ships/vehicle production, for local
and/or national defense applications, as well as companies that provide
engineering, technical training and/or simulation for the above
systems.
Local
and/or national defense applications refer to the products and services that
local and/or national governmental organizations require in order to prepare for
and respond to threats, including but not limited to intelligence, surveillance,
combat systems and cyber-defense.
In
constructing the Global X Defense Tech Index, Mirae Asset Global Indices Pvt.
Ltd. first identifies FactSet Industries related to Defense Tech. FactSet is a
leading financial data provider that maintains a comprehensive structured
taxonomy designed to offer precise classification of global companies and their
individual business units. Companies within these FactSet Industries, as of the
selection date, are further reviewed by Mirae Asset Global Indices Pvt. Ltd. on
the basis of revenue related to Defense Tech, as defined above.
To
be a part of the eligible universe of the Global X Defense Tech Index, certain
minimum market capitalization and liquidity criteria, as defined by Mirae Asset
Global Indices Pvt. Ltd., must be met. Companies must have a minimum market
capitalization of $200 million and a minimum average daily turnover for the last
6 months greater than or equal to $2 million in order to be eligible for initial
inclusion in the Global X Defense Tech Index. As of January 31, 2024,
companies listed in the following countries were eligible for inclusion in the
Global X Defense Tech Index: Australia, Austria, Belgium, Brazil, Canada, Chile,
Colombia, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hong
Kong, Hungary, Indonesia, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia,
Mexico, Netherlands, New Zealand, Norway, Peru, Philippines, Poland, Portugal,
Qatar, South Africa, South Korea, Singapore, Spain, Sweden, Switzerland, Taiwan,
Thailand, Turkey, United Arab Emirates, the United Kingdom, and the United
States.
The
Global X Defense Tech Index is weighted according to a modified capitalization
weighting methodology and is reconstituted and re-weighted semi-annually.
Modified capitalization weighting seeks to weight constituents primarily based
on free-float market capitalization, but subject to caps on the weights of the
individual securities. Free-float market capitalization measures a company’s
market capitalization discounted by the percentage of its shares readily
available to be traded by the general public in the open market (“free float”).
At each rebalance, the maximum weight of a company is capped at 8%. Generally
speaking, modified capitalization weighting will limit the amount of
concentration in the largest market capitalization
companies.
The Global X Defense Tech Index may include large-, mid- or small-capitalization
companies, and components primarily include industrials companies. As of
January 31, 2024, the Underlying Index had 34 constituents.
Disclaimers
The
Index Providers are independent of the Fund and Global X Management Company LLC,
the investment adviser for the Fund ("Adviser"). The Index Providers determine
the relative weightings of the constituents of each relevant Underlying Index
and publish information regarding the market value of such Underlying Index.
Solactive
AG ("Solactive") is a leading company in the structuring and indexing business
for institutional clients. Solactive runs the Solactive index platform.
Solactive indices are used by issuers worldwide as underlying indices for
financial products. Solactive does not sponsor, endorse or promote any Fund and
is not in any way connected to it and does not accept any liability in relation
to their issue, operation and trading.
Concinnity
has a background in corporate consulting with a focus on causal path modeling
comprised of stakeholder indices, as well as significant experience in
quantitative analysis and portfolio management. Concinnity has developed a
proprietary, blended qualitative and quantitative framework for identifying
companies guided by an MsOS and has been conducting this analysis for nearly a
decade. Concinnity makes no representation or warranty, express or implied, to
the shareholders of this Fund or any member of the public regarding the
advisability of investing in securities generally or in this Fund particularly
or the ability of any data supplied by Concinnity to track general stock market
performance.
The
Funds are not sponsored, promoted, sold or supported in any other manner by
Solactive AG or Concinnity, nor does Solactive AG or Concinnity offer any
express or implicit guarantee or assurance either with regard to the results of
using the index and/or index trade mark or the index price at any time or in any
other respect. The relevant indexes are calculated and published by Solactive AG
and/or Concinnity. Solactive AG and/or Concinnity uses its best efforts to
ensure that the relevant indexes are calculated correctly. Irrespective of its
obligations towards the issuer, Solactive AG and/or Concinnity have no
obligations to point out errors in the index to third parties including but not
limited to investors and/or financial intermediaries of the Funds. Neither
publication of the index by Solactive AG or Concinnity nor the licensing of the
index or index trade mark by Concinnity and/or Solactive AG for the purpose of
use in connection with the Funds constitutes a recommendation by Solactive AG or
Concinnity to invest capital in said Funds nor does it in any way represent an
assurance or opinion of Solactive AG or Concinnity with regard to any investment
in the Funds.
Indxx
is a service mark of Indxx, LLC ("Indxx") and has been licensed for use for
certain purposes by the Adviser. The Funds are not sponsored, endorsed, sold or
promoted by Indxx. Indxx makes no representation or warranty, express or
implied, to the owners of the Funds or any member of the public regarding the
advisability of investing in securities generally or in the Funds particularly.
Indxx has no obligation to take the needs of the Adviser or the shareholders of
the Funds into consideration in determining, composing or calculating the
Underlying Indices. Indxx is not responsible for and has not participated in the
determination of the timing, amount or pricing of the Fund Shares to be issued
or in the determination or calculation of the equation by which the Fund Shares
are to be converted into cash. Indxx has no obligation or liability in
connection with the administration, marketing or trading of the
Funds.
Source
ICE Data Indices, LLC (“ICE Data”), is used with permission. ICE®
and ICE BofA®
are trade marks of ICE Data Indices, LLC or its affiliates and have been
licensed, along with the BofA Diversified Core U.S. Preferred Securities Index
and ICE U.S. Variable Rate Preferred Securities Index (each, an “Index”) for use
by Global X Management Company LLC (the “LICENSEE”) in connection with the
Global X U.S. Preferred ETF and the Global X Variable Rate Preferred ETF (each,
a “Product”). Neither the LICENSEE, Global X Funds (the “Trust”) nor the
Product, as applicable, is sponsored, endorsed, sold or promoted by ICE Data
Indices, LLC, its affiliates or its Third Party Suppliers (“ICE Data and its
Suppliers”). ICE Data and its Suppliers make no representations or warranties
regarding the advisability of investing in securities generally, in the Product
particularly, the Trust or the ability of the Index to track general stock
market performance. ICE Data’s only relationship to LICENSEE is the licensing of
certain trademarks and trade names and the Index or components thereof. The
Index is determined, composed and calculated by ICE Data without regard to the
LICENSEE or the Product or its holders. ICE Data has no obligation to take the
needs of the Licensee or the holders of the Product into consideration in
determining, composing or calculating the Index. ICE Data is not responsible for
and has not participated in the determination of the timing of, prices of, or
quantities of the Product to be issued or in the determination or calculation of
the equation by which the Product is to be priced, sold, purchased, or redeemed.
Except for certain custom index calculation services, all information provided
by ICE Data is general in nature and not tailored to the needs of LICENSEE or
any other person, entity or group of persons. ICE Data has no obligation or
liability in connection with the administration, marketing, or trading of the
Product. ICE Data is not an investment advisor. Inclusion of a security within
an index is not a recommendation by ICE Data to buy, sell, or hold such
security, nor is it considered to be investment advice.
ICE
DATA AND ITS SUPPLIERS DISCLAIM ANY AND ALL WARRANTIES AND REPRESENTATIONS,
EXPRESS AND/OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE, INCLUDING THE INDICES, INDEX DATA AND ANY
INFORMATION INCLUDED IN, RELATED TO, OR DERIVED THEREFROM (“INDEX DATA”). ICE
DATA AND ITS SUPPLIERS SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH
RESPECT TO THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE INDICES AND
THE INDEX DATA, WHICH ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT YOUR
OWN RISK.
Standard
& Poor's® and S&P® are registered trademarks of Standard & Poor's
Financial Services LLC ("S&P") and have been licensed for use by the
Adviser. The Global X S&P 500® Quality Dividend ETF ("ETF") is not
sponsored, endorsed, sold or promoted by Standard & Poor's and its
affiliates ("S&P"). S&P makes no representation, condition or warranty,
express or implied, to the owners of the ETF or any member of the public
regarding the advisability of investing in securities generally or in the ETF
particularly or the ability of the S&P 500® Quality High Dividend Index (the
"Index") to track the performance of certain financial markets and/or sections
thereof and/or of groups of assets or asset classes. S&P's only relationship
to the Adviser is the licensing of certain trademarks and trade names and of the
index which is determined, composed and calculated by S&P without regard to
the Adviser or the ETF. S&P has no obligation to take the needs of Global X
Management Company, LLC or the owners of the ETF into consideration in
determining, composing or calculating the index. S&P is not responsible for
and has not participated in the determination of the prices and amount of the
ETF or the timing of the issuance or sale of the ETF or in the determination or
calculation of the equation by which the ETF units are to be converted into
cash. S&P has no obligation or liability in connection with the
administration, marketing, or trading of the ETF.
Neither
S&P, its affiliates nor third party licensors, guarantees the accuracy
and/or the completeness of the index or any data included therein and S&P,
its affiliates and their third party licensors, shall have no liability for any
errors, omissions, or interruptions therein. S&P, its affiliates and third
party licensors make no warranty, condition or representation, express or
implied, as to the results to be obtained by to Adviser, owners of the ETF, or
any other person or entity from the use of the index or any data included
therein. S&P makes no express or implied warranties, representations or
conditions, and expressly disclaims all warranties or conditions of
merchantability or fitness for a particular purpose or use and any other express
or implied warranty or condition with respect to the index or any data included
therein. Without limiting any of the foregoing, in no event shall S&P, its
affiliates or their third party licensors, have any liability for any special,
punitive, indirect, or consequential damages (including lost profits) resulting
from the use of the index or any data included therein, even if notified of the
possibility of such damages.
The
Global X Adaptive U.S. Factor ETF and the Global X Adaptive U.S. Risk Management
ETF and their common shares are not sponsored, endorsed, sold or promoted by
NorthCrest Asset Management. NorthCrest Asset Management makes no representation
or warranty, express or implied, to the shareholders of the Global X Adaptive
U.S. Factor ETF, the Global X Adaptive U.S. Risk Management ETF or any member of
the public regarding the advisability of investing in securities generally or in
the Global X Adaptive U.S. Factor ETF or the Global X Adaptive U.S. Risk
Management ETF particularly or the ability of any data supplied by NorthCrest
Asset Management, to track general stock market performance. NorthCrest Asset
Management's only relationship to the Adviser is the licensing of certain
trademarks and trade names of Adaptive Wealth Strategies and of the data
supplied by NorthCrest Asset Management related to the Adaptive Wealth
Strategies U.S. Factor Index and the Adaptive Wealth Strategies U.S. Risk
Management Index, which is determined, composed and calculated by Solactive AG
without regard to the Global X Adaptive U.S. Factor ETF or the Global X Adaptive
U.S. Risk Management ETF or its common shares. NorthCrest Asset Management has
no obligation to take the needs of the Adviser or the shareholders of the Global
X Adaptive U.S. Factor ETF or the Global X Adaptive U.S. Risk Management ETF
into consideration in determining, composing or calculating the data supplied by
NorthCrest Asset Management. NorthCrest Asset Management is not responsible for
and has not participated in the determination of the prices of the common shares
of the Global X Adaptive U.S. Factor ETF or the Global X Adaptive U.S. Risk
Management ETF or the timing of the issuance or sale of such common shares.
NorthCrest Asset Management has no obligation or liability in connection with
the administration, marketing or trading of the Global X Adaptive U.S. Factor
ETF, the Global X Adaptive U.S. Risk Management ETF or their common
shares.
Global
X Management Company LLC owns all rights to the trademark, name and intellectual
property associated with the Global X U.S. Cash Flow Kings 100 Index. No
representation is made by Global X Management Company LLC that the Global X U.S.
Cash Flow Kings 100 Index is accurate or complete or that investment in the
Global X U.S. Cash Flow Kings 100 Index or the Fund will be profitable or
suitable for any person. The Global X U.S. Cash Flow Kings 100 Index is
administered and calculated by Mirae Asset Global Indices Pvt. Ltd. and Global X
Management Company LLC will have no liability for any error in calculation of
the Global X U.S. Cash Flow Kings 100 Index. Global X Management Company LLC
does not guarantee that the Global X U.S. Cash Flow Kings 100 Index or the
underlying methodology is accurate or complete.
INVESTMENT
RESTRICTIONS
Each
Fund is subject to the investment policies enumerated in this section, which may
be changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's outstanding Shares, which is defined by the 1940 Act as:
(i) more than 50% of the Fund's outstanding shares; or (ii) 67% or more of the
Fund's shares present at a shareholder meeting if more than 50% of the Fund's
outstanding shares are represented at the meeting in person or by proxy,
whichever is less.
The
Funds:
1.May
not issue any senior security, except as permitted under the 1940 Act, and as
interpreted or modified by regulatory authority having jurisdiction, from time
to time;
2.May
not borrow money, except as permitted under the 1940 Act, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time;
3.May
not act as an underwriter of securities within the meaning of the Securities
Act, except as permitted under the Securities Act, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. Among
other things, to the extent that a Fund may be deemed to be an underwriter
within the meaning of the Securities Act, this would permit the Fund to act as
an underwriter of securities in connection with the purchase and sale of its
portfolio securities in the ordinary course of pursuing its investment
objective, investment policies and investment program;
4.May
not purchase or sell real estate or any interests therein, except as permitted
under the 1940 Act, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time. Notwithstanding this limitation, a Fund
may, among other things: (i) acquire or lease office space for its own use; (ii)
invest in securities of issuers that invest in real estate or interests therein;
(iii) invest in mortgage-related securities and other securities that are
secured by real estate or interests therein; or (iv) hold and sell real estate
acquired by the Fund as a result of the ownership of securities;
5.May
not purchase physical commodities or contracts relating to physical commodities,
except as permitted under the 1940 Act, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
6.May
not make loans, except as permitted under the 1940 Act, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time;
and
7.May
not "concentrate" its investments in a particular industry or group of
industries: (I) except that the Fund will concentrate to approximately the same
extent that its Underlying Index concentrates in the securities of such
particular industry or group of industries; and (II) except as permitted under
the 1940 Act, and as interpreted or modified by regulatory authority having
jurisdiction from time to time, provided that, without limiting the generality
of the foregoing: (a) this limitation will not apply to a Fund's investments in:
(i) securities of other investment companies; (ii) securities issued or
guaranteed as to principal and/or interest by the U.S. government, its agencies
or instrumentalities; (iii) repurchase agreements (collateralized by the
instruments described in clause (ii)) or (iv) securities of state or municipal
governments and their political subdivisions are not considered to be issued by
members of any industry; (b) wholly owned finance companies will be considered
to be in the industries of their parents if their activities are primarily
related to the financing activities of the parents; and (c) utilities will be
divided according to their services, for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a separate
industry.
Notwithstanding
these fundamental investment restrictions, each Fund may purchase securities of
other investment companies to the full extent permitted under Section 12 or any
other provision of the 1940 Act (or any successor provision thereto) or under
any regulation or order of the SEC.
If
a percentage limitation is satisfied at the time of investment, a later increase
or decrease in such percentage resulting from a change in the value of a Fund's
investments will not constitute a violation of such limitation, except that any
borrowing by the Fund that exceeds the fundamental investment limitations stated
above must be reduced to meet such limitations within the period required by the
1940 Act (currently three days). A Fund may not acquire any illiquid investment
if, immediately after the acquisition, the Fund would have invested more than
15% of its net assets in illiquid investments. In addition, if a Fund's holdings
of illiquid securities exceed 15% of net assets because of changes in the value
of the Fund's investments, the Fund will act in accordance with Rule 22e-4 under
the 1940 Act and will take action to reduce its holdings of illiquid securities
within a
reasonable
time frame deemed to be in the best interest of the Fund. Otherwise, a Fund may
continue to hold a security even though it causes the Fund to exceed a
percentage limitation because of fluctuation in the value of the Fund's
assets.
Any
investment restriction which involves a maximum percentage (other than the
restriction set forth above in investment restriction No. 2) will not be
considered violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition or encumbrance of securities or assets
of a Fund. The 1940 Act requires that if the asset coverage for borrowings at
any time falls below the limits under the 1940 Act described in investment
restriction No. 2, a Fund will, within three days thereafter (not including
Sundays and holidays), reduce the amount of its borrowings to an extent that the
net asset coverage of such borrowings shall conform to such limits.
CURRENT
1940 ACT LIMITATIONS
BORROWING.
Investment companies generally may not borrow money, except that an investment
company may borrow money in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than
borrowings).
UNDERWRITING.
Investment companies generally may not act as an underwriter of another issuer's
securities, except to the extent that an investment company may be deemed to be
an underwriter within the meaning of the Securities Act in connection with the
purchase or sale of portfolio securities.
REAL
ESTATE.
Investment companies generally may not purchase or sell real estate unless
acquired as a result of ownership of securities or other instruments (but
investment companies may purchase or sell securities or other instruments backed
by real estate or of issuers engaged in real estate activities).
LOANS.
Investment companies generally may not lend any security or make any other loan
if, as a result, more than 33 1/3% of its total assets would be lent to other
parties, but this limitation does not apply to purchases of debt securities or
to repurchase agreements, or to acquisitions of loans, loan participations or
other forms of debt instruments.
PHYSICAL
COMMODITIES.
Investment companies generally may not purchase or sell physical commodities
unless acquired as a result of ownership of securities or other instruments (but
investment companies may purchase or sell options, futures contracts or other
derivative instruments, and invest in securities or other instruments backed by
physical commodities).
CONCENTRATION.
For purposes of calculating concentration percentages, investment companies
investing in (a) affiliated investment companies are required to look through to
the holdings of the affiliated investment companies and include the holdings in
calculations of concentration percentages, and (ii) unaffiliated investment
companies are required to include the holdings of the unaffiliated investment
companies to the extent that they are concentrated in calculations of
concentration percentages. In addition, revenue bonds are characterized by the
industry in which the revenue is used.
CONTINUOUS
OFFERING
The
method by which Creation Unit Aggregations of Shares are created and traded may
raise certain issues under applicable securities laws. Because new Creation Unit
Aggregations of Shares are issued and sold by the Funds on an ongoing basis, at
any point a "distribution," as such term is used in the Securities Act, may
occur. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed
participants in a distribution in a manner which could render them statutory
underwriters and subject them to the prospectus delivery requirement and
liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with
the Distributor, breaks them down into constituent shares, and sells such shares
directly to customers, or if it chooses to couple the creation of a supply of
new shares with an active selling effort involving solicitation of secondary
market demand for shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker-dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a categorization
as an underwriter. Broker-dealer firms should also note that dealers who are not
"underwriters" but are effecting transactions in shares, whether or not
participating in the distribution of shares, generally are required to deliver a
prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)
of the Securities Act is not available in respect of such transactions as a
result of Section 24(d) of the 1940 Act. Firms that incur a prospectus delivery
obligation with respect to shares of the Funds are reminded that, pursuant to
Rule 153 under the Securities Act, a prospectus delivery obligation under
Section 5(b)(2) of the Securities Act owed to an exchange member in connection
with a sale on the Exchange is satisfied by the fact that
the
prospectus is available at the Exchange upon request. The prospectus delivery
mechanism provided in Rule 153 is only available with respect to transactions on
an exchange.
The
Adviser or its affiliates (each, as applicable, a “Selling Shareholder”) may
purchase Creation Unit Aggregations through a broker-dealer to “seed” (in whole
or in part) Funds as they are launched or thereafter, or may purchase shares
from broker-dealers or other investors that have previously provided “seed” for
Funds when they were launched or otherwise in secondary market transactions, and
because the Selling Shareholder may be deemed an affiliate of such Funds, the
shares are being registered to permit the resale of these shares from time to
time after purchase. The Fund will not receive any of the proceeds from the
resale by the Selling Shareholders of these shares.
The
Selling Shareholder intends to sell all or a portion of the shares owned by it
and offered hereby from time to time directly or through one or more
broker-dealers, and may also hedge such positions. The shares may be sold
on any national securities exchange on which the shares may be listed or quoted
at the time of sale, in the over-the-counter market or in transactions other
than on these exchanges or systems at fixed prices, at prevailing market prices
at the time of the sale, at varying prices determined at the time of sale, or at
negotiated prices. These sales may be effected in transactions, which may
involve crosses or block transactions. The Selling Shareholder may use any
one or more of the following methods when selling shares:
•ordinary
brokerage transactions through brokers or dealers (who may act as agents or
principals) or directly to one or more purchasers;
•privately
negotiated transactions;
•through
the writing or settlement of options or other hedging transactions, whether such
options are listed on an options exchange or otherwise; and
•any
other method permitted pursuant to applicable law.
The
Selling Shareholder may also loan or pledge shares to broker-dealers that in
turn may sell such shares, to the extent permitted by applicable law. The
Selling Shareholder may also enter into options or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares, which shares such broker-dealer or other
financial institution may resell.
The
Selling Shareholder and any broker-dealer or agents participating in the
distribution of shares may be deemed to be “underwriters” within the meaning of
Section 2(11) of the Securities Act in connection with such sales. In such
event, any commissions paid to any such broker-dealer or agent and any profit on
the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Shareholder who
may be deemed an "underwriter" within the meaning of Section 2(11) of the
Securities Act will be subject to the applicable prospectus delivery
requirements of the Securities Act.
The
Selling Shareholder has informed the Fund that it is not a registered
broker-dealer and does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the shares. Upon the
Fund being notified in writing by the Selling Shareholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this SAI will
be filed, if required, pursuant to Rule 497 under the Securities Act, disclosing
(i) the name of each Selling Shareholder and of the participating
broker-dealer(s), (ii) the number of shares involved, (iii) the price at which
such shares were sold, (iv) the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in the Fund’s Prospectus and SAI, and (vi)
other facts material to the transaction.
The
Selling Shareholder and any other person participating in such distribution will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, to the extent applicable,
Regulation M of the Exchange Act, which may limit the timing of purchases and
sales of any of the shares by the Selling Shareholder and any other
participating person. To the extent applicable, Regulation M may also
restrict the ability of any person engaged in the distribution of the shares to
engage in market-making activities with respect to the shares. All of the
foregoing may affect the marketability of the shares and the ability of any
person or entity to engage in market-making activities with respect to the
shares. There is a risk that the Selling Shareholder may redeem its
investments in the Fund or otherwise sell its shares to a third party that may
redeem. As with redemptions by other large shareholders, such redemptions could
have a significant negative impact on the Fund.
PORTFOLIO
HOLDINGS
Policy
on Disclosure of Portfolio Holdings
The
Board of Trustees of the Trust has adopted a policy on disclosure of portfolio
holdings, which it believes is in the best interests of the Funds' shareholders.
The policy is designed to: (i) protect the confidentiality of the Funds'
non-public portfolio holdings information, (ii) prevent the selective disclosure
of such information, and (iii) ensure compliance by the Adviser and the Funds
with the federal securities laws, including the 1940 Act and the rules
promulgated thereunder and general principles of fiduciary duty. The Funds'
portfolio holdings, or information derived from the Funds' portfolio holdings,
may, in the Adviser's discretion, be made available to third parties if (i) such
disclosure has been included in a Fund's public filings with the SEC or is
disclosed on the Fund's publicly accessible Website; (ii) such disclosure is
determined by the Chief Compliance Officer ("CCO") to be in the best interests
of Fund shareholders and consistent with applicable law, (iii) such disclosure
is made equally available to anyone requesting it; and (iv) the Adviser
determines that the disclosure does not present the risk of such information
being used to trade against the Funds.
Each
business day, portfolio holdings information will be provided to each Fund's
transfer agent or other agent for dissemination through the facilities of the
National Securities Clearing Corporation ("NSCC") and/or other fee based
subscription services to NSCC members and/or subscribers to those other fee
based subscription services, including Authorized Participants (defined below),
and to entities that publish and/or analyze such information in connection with
the process of purchasing or redeeming Creation Units or trading Shares of the
Funds in the secondary market. Information with respect to each Fund's portfolio
holdings is also disseminated daily on the Fund's Website.
The
Distributor may also make available portfolio holdings information to other
institutional market participants and entities that provide information
services. This information typically reflects each Fund's anticipated holdings
on the following business day. "Authorized Participants" are generally large
institutional investors that have been authorized by the Distributor to purchase
and redeem large blocks of Shares (known as Creation Units). Other than
portfolio holdings information made available in connection with the
creation/redemption process, as discussed above, portfolio holdings information
that is not filed with the SEC or posted on the publicly available Website may
be provided to third parties only in limited circumstances, as described
above.
Disclosure
to providers of auditing, custody, proxy voting and other similar services for
the Funds, as well as rating and ranking organizations, will generally be
permitted; however, information may be disclosed to other third parties
(including, without limitation, individuals, institutional investors, and
Authorized Participants that sell Shares of a Fund) only upon approval by the
CCO. The recipients who may receive non-public portfolio holdings information
are as follows: the Adviser and its affiliates, the Funds' independent
registered public accounting firm, the Distributor, administrator and custodian,
the Funds' legal counsel, the Funds' financial printer and the Funds' proxy
voting service. These entities are obligated to keep such information
confidential. Third-party providers of custodial or accounting services to a
Fund may release non-public portfolio holdings information of a Fund only with
the permission of the CCO.
Portfolio
holdings will be disclosed through required filings with the SEC. Each Fund
files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR
(with respect to each annual period and semiannual period) and Form N-PORT (with
respect to the first and third quarters of the Fund's fiscal year). Shareholders
may obtain a Fund's Forms N-CSR and N-PORT filings on the SEC's Website at
sec.gov. In addition, the Funds' Forms N-CSR and N-PORT filings may be reviewed
and copied at the SEC's public reference room in Washington, DC. You may call
the SEC at 1-800-SEC-0330 for information about the SEC's Website or the
operation of the public reference room.
Under
the policy on disclosure of portfolio holdings, the Board of Trustees is to
receive information, on a quarterly basis, regarding any other disclosures of
non-public portfolio holdings information that were permitted during the
preceding quarter.
MANAGEMENT
OF THE TRUST
BOARD
OF TRUSTEES AND OFFICERS
The
business and affairs of the Trust are overseen by the Board of Trustees
("Board"). Subject to the provisions of the Trust's Declaration of Trust and
By-Laws and Delaware law, the Board has all powers necessary and convenient to
carry out this general oversight responsibility, including the power to elect
and remove the Trust's officers. The focus of the Board's oversight of the
business and affairs of the Trust (and each of the Funds) is to protect the
interests of the shareholders in the Funds.
The
Board appoints and oversees the Trust's officers and service providers. The
Adviser is responsible for the day-to-day management and operations of the Trust
and each of the Funds, based on each Fund's investment objective, strategies,
policies, and restrictions and agreements entered into by the Trust and/or the
Adviser on behalf of the Trust. In carrying out its general oversight
responsibility, the Board regularly interacts with and receives reports from the
senior personnel of the Trust's service
providers
(including, in particular, the Adviser) and the Trust's CCO. The Board is
assisted by the Trust's independent registered public accounting firm (which
reports directly to the Trust's Audit Committee), independent counsel to the
Independent Trustees (as defined below), counsel to the Trust and the Adviser,
and other experts selected and approved by the Board.
BOARD
STRUCTURE AND RELATED MATTERS.
Board members who are not “interested persons” of the Trust, as defined in
Section 2(a)(19) of the 1940 Act (“Independent Trustees”), constitute 100
percent of the Board. Mr. Charles A. Baker, an Independent Trustee, serves as
Independent Chairman of the Board. The Independent Chairman helps to facilitate
communication among the Independent Trustees as well as communication between
the Independent Trustees and management of the Trust. The Independent Chairman
may assume such other duties and perform such activities as the Board may, from
time to time, determine should be handled by the Independent Chairman.
The
Trustees discharge their responsibilities collectively as a Board, as well as
through Board committees, each of which operates pursuant to a charter that
delineates the specific responsibilities of that committee. The Board has
established two standing committees: an Audit Committee and a Nominating and
Governance Committee. Currently, each of the Independent Trustees serves on each
of these committees, which are comprised solely of Independent
Trustees.
The
Board periodically evaluates its structure and composition as well as various
aspects of its operations. On an annual basis, the Board conducts a
self-evaluation process that, among other things, considers (i) whether the
Board and its committees are functioning effectively, (ii) given the size and
composition of the Board and each of its committees, whether the Trustees are
able to effectively oversee the number of funds in the complex and (iii) whether
the mix of skills, perspectives, qualifications, attributes, education, and
relevant experience of the Trustees helps to enhance the Board's
effectiveness.
There
are no specific required qualifications for Board membership. The Board believes
that the different skills, perspectives, qualifications, attributes, education,
and relevant experience of each of the Trustees provide the Board with a variety
of complementary skills. Please note that (i) none of the Trustees is an
"expert" within the meaning of the federal securities laws and (ii) the Board is
not responsible for the day to day operations of the Trust and the
Funds.
The
Board of Trustees met nine (9) times during the fiscal period ended
November 30, 2023. The Board may hold special meetings, as needed, either
in person or by telephone, to address matters arising between regular
meetings.
The
Trustees are identified in the table below, which provides information as to
their principal business occupations held during the last five years and certain
other information. Each Trustee serves until his or her death, resignation or
removal and replacement. As of March 1, 2024, each of the Trustees oversaw
95 funds (91 of which were operational). The address for all Trustees and
officers is c/o Global X Funds®,
605 3rd
Avenue, 43rd
Floor, New York, New York 10158.
Independent
Trustees
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Name
(Year
of Birth) |
Position(s)
Held
with
Funds |
Principal
Occupation(s) During the Past 5 Years |
Number
of
Portfolios
in Fund
Complex Overseen
by
Trustees |
Other
Directorships Held by Trustees during the
Past
5 Years |
Charles
A. Baker (1953) |
Trustee
(since 07/2018) |
Chief
Executive Officer of Investment Innovations LLC (investment consulting)
(since 2013); Managing Director of NYSE Euronext (2003 to 2012) |
95
(91 of which are operational) |
Trustee
of OSI ETF Trust (2016-2022) |
Susan
M. Ciccarone (1973) |
Trustee
(since 09/2019) |
Partner,
Further Global Capital Management, L.P. (private equity) (since 2017);
formerly Chief Operating Officer (2014-2016) and Chief Financial Officer
(2012-2016), Emerging Global Advisors, LLC (ETF issuer) |
95
(91 of which are operational) |
Director
of E78 Partners (since 2022); Director of Coaction Global, Inc. (since
2021); Director of Casa Holdco LP, parent of Celink (since 2018);
Chairman, Payment Alliance International, Inc.
(2019-2021) |
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Clifford
J. Weber (1963) |
Trustee
(since 07/2018) |
Owner,
Financial Products Consulting Group LLC (consulting services to financial
institutions) (since 2015); Formerly, Executive Vice President of Global
Index and Exchange-Traded Products, NYSE Market, Inc., a subsidiary of
Intercontinental Exchange (ETF/ETP listing exchange) (2013-2015) |
95
(91 of which are operational) |
Chairman
and Trustee of Clayton Street Trust (since 2016); Chairman and Trustee of
Janus Detroit Street Trust (since 2016); Trustee of Clough Global Equity
Fund (since 2017); Trustee of Clough Global Dividend and Income Fund
(since 2017); Trustee of Clough Global Opportunities Fund (since 2017);
Chairman (2017-2023) and Trustee (2015-2023) of Clough Funds Trust; and
Chairman and Trustee of Elevation ETF Trust
(2016-2018) |
Interested
Trustee/Officers
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|
|
|
|
| |
Name (Year
of Birth) |
Position(s)
Held
with
Funds |
Principal
Occupation(s)
During
the Past 5 Years |
Number
of Portfolios in Fund Complex Overseen by Trustees |
Other
Directorships
Held
by Trustees During the Past
5
Years |
Thomas
Park (1978) |
President
(since 11/2023) |
Chief
Executive Officer, GXMC (since 11/2023); Co-Chief Executive Officer Mirae
Asset Global Investments (USA) (since 12/2022); President of Mirae Asset
Global Investments (USA) (1/2020-12/2022); and Executive Managing Director
of Mirae Asset Global Investments (USA) (2011-2022) |
n/a |
n/a |
Susan
Lively (1981) |
Secretary
(since 09/2020) |
General
Counsel, GXMC (since 09/2020); Senior Corporate Counsel at Franklin
Templeton (previously, Managing Director and Associate General Counsel at
Legg Mason & Co., LLC) (2014-2020) |
n/a |
n/a |
Eric
Griffith1
(1969) |
Assistant
Secretary (since 02/2020) |
Counsel,
SEI Investments (since 10/2019); Vice President and Assistant General
Counsel, JPMorgan Chase & Co. (2012-2018) |
n/a |
n/a |
Joe
Costello (1974) |
Chief
Compliance Officer (since 09/2016) |
Chief
Compliance Officer, GXMC (since 09/2016) |
n/a |
n/a |
Alex
Ashby (1986) |
Chief
Operating Officer (since 11/2023) |
Chief
Operating Officer, GXMC (since 11/2023); Head of Product Development, GXMC
(2019-2024); Vice President, Director of Product Development (2015 -
2018) |
n/a |
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name (Year
of Birth) |
Position(s)
Held
with
Funds |
Principal
Occupation(s)
During
the Past 5 Years |
Number
of Portfolios in Fund Complex Overseen by Trustees |
Other
Directorships
Held
by Trustees During the Past
5
Years |
Eric
Olsen1
(1970) |
Assistant
Treasurer (since 05/2021) |
Director
of Accounting, SEI Investment Manager Services (March 2021 to present);
Deputy Head of Fund Operations, Traditional Assets, Aberdeen Standard
Investments (2013-2021) |
n/a |
n/a |
1
These
officers of the Trust also serve as officers of one or more funds for which SEI
Investments Company or an affiliate acts as investment manager, administrator or
distributor.
In
addition to the information set forth in the table above, each Trustee possesses
other relevant skills, perspectives, qualifications, attributes, education, and
relevant experience. The following provides additional information about certain
qualifications and experience of each of the Trustees and the reason why he or
she was selected to serve as a Trustee.
Charles
A. Baker: Mr. Baker has extensive knowledge of and experience in the financial
services industry, including previously serving as Managing Director of NYSE
Euronext. Additionally, Mr. Baker has experience serving as an independent
director for an ETF trust.
Susan
M. Ciccarone: Ms. Ciccarone has extensive knowledge of and experience in the
financial services and investment management industries. She is currently a
partner of Further Global Capital Management, L.P., a private equity firm, and
previously served as Chief Operating and Chief Financial Officer of an adviser
to ETFs. Ms. Ciccarone received her MBA from the Wharton School of the
University of Pennsylvania.
Clifford
J. Weber: Mr. Weber has experience previously serving as a senior executive of
stock exchanges with responsibilities including ETF and exchange-traded product
issues, experience with the structure and operations of ETFs, experience with
secondary market transactions involving ETFs, and experience serving as a mutual
fund independent director.
RISK
MANAGEMENT OVERSIGHT. The
Funds are subject to a variety of risks, including (but not limited to)
investment risk, financial risk, legal, regulatory and compliance risk, and
operational risk. Consistent with its responsibility for general oversight of
the business and affairs of the Trust and the Funds, the Board oversees the
Adviser's day-to-day management of the risks to which the Trust and the Funds
are subject. The Board has charged the Adviser with (i) identifying possible
events and circumstances that could have demonstrable, adverse effects on the
business and affairs of the Trust and the Funds; (ii) implementing of processes
and controls to lessen the possibility that such events or circumstances occur
or mitigate the effects of such events or circumstances if they do occur; and
(iii) creating and maintaining a system designed to continuously evaluate
business and market conditions to facilitate the processes described in (i) and
(ii) above. The Adviser seeks to address the day-to-day risk management of the
Trust and the Funds by relying on the Trust's compliance policies and procedures
(i.e., the Trust's compliance program) as well as the compliance programs of the
Trust's various service providers, internal control mechanisms and other risk
oversight mechanisms as well as the assistance of the Trust's sub-administrator.
The Adviser also separately considers potential risks that may impact the
individual Funds.
As
noted above, on behalf of the Trust, the Board has adopted, and periodically
reviews, various compliance policies and procedures that are designed to address
certain risks to the Trust and the Funds. In addition, under the general
oversight of the Board, the Adviser and the Trust's other service providers have
adopted a variety of processes, policies, procedures and controls designed to
address particular risks to which the Trust and the Funds are subject. Different
processes, policies, procedures and controls are employed with respect to
different types of risks. Further, the Adviser oversees and regularly monitors
the investments, operations, and compliance of the Funds' investments with
various regulatory and other requirements.
Because
the day-to-day operations of the Funds are carried out by the Adviser, the risk
exposure of the Trust and the Funds are mitigated but not eliminated by the
processes overseen by the Board. In addition to the risk management processes,
policies, procedures, and controls implemented by the Adviser, the Board seeks
to oversee the risk management structure of the Trust and the Funds directly and
through its committees (as described below). In this regard, the Board has
requested that the Adviser, the CCO for the Trust, the independent auditors for
the Trust, and counsel to the Trust and Adviser provide the Board with periodic
reports regarding issues that should be focused on by the Board members. In
large part, the Board oversees the Adviser's management of the Trust's risk
management structure through the Board's review of regular reports,
presentations and
other
information from officers of the Trust and other persons. Senior officers of the
Trust, including the Trust's CCO, regularly report to the Board on a range of
matters, including those relating to risk management. In this regard, the Board
periodically receives reports regarding the Trust's service providers, either
directly or through the CCO. On at least a quarterly basis, the Independent
Trustees meet with the CCO to discuss matters relating to the Trust's compliance
program and, in accordance with Rule 38a-1 under the 1940 Act, the Board
receives at least annually a written report from the CCO regarding the
effectiveness of the Trust's compliance program. In connection with the CCO's
annual Rule 38a-1 compliance report to the Board, the Independent Trustees meet
with the CCO in executive session to discuss the Trust's compliance
program.
Further,
the Board regularly receives reports from the Adviser with respect to the Funds'
investments and securities trading and, as necessary, any fair valuation
determinations made by the Adviser with respect to certain investments held by
the Funds. Senior officers of the Trust and Adviser routinely report regularly
to the Board on valuation matters, internal controls, accounting and financial
reporting policies and practices. In addition, the Audit Committee
receives information on the Funds' internal controls and financial reporting
from the Trust's independent registered public accounting firm.
The
Board recognizes that not all risks that may affect the Funds can be identified
nor can processes and controls be developed to eliminate or mitigate their
occurrence or effects of certain risks. Some risks are simply beyond the
reasonable control of the Funds, their management and service providers.
Although the risk management process, policies and procedures of the Funds,
their management and service providers are designed to be effective, there is no
guarantee that they will eliminate or mitigate all such risks. Moreover, it may
be necessary to bear certain risks to achieve each Fund's investment
objective.
STANDING
BOARD COMMITTEES
The
Board of Trustees currently has two standing committees: an Audit Committee and
a Nominating and Governance Committee. Currently, each Independent Trustee
serves on each of these committees.
AUDIT
COMMITTEE. The
purposes of the Audit Committee are to assist the Board in (1) its oversight of
the Trust's accounting and financial reporting principles and policies and
related controls and procedures maintained by or on behalf of the Trust; (2) its
oversight of the Trust's financial statements and the independent audit thereof;
(3) selecting, evaluating and, where deemed appropriate, replacing the
independent registered public accounting firm (or nominating the independent
registered public accounting firm to be proposed for shareholder approval in any
proxy statement); and (4) evaluating the independence of the independent
registered public accounting firm. During the fiscal period ended
November 30, 2023, the Audit Committee held four (4) meetings.
NOMINATING
AND GOVERNANCE COMMITTEE.
The purposes of the Nominating and Governance Committee are, among other things,
to assist the Board in (1) its assessment of the adequacy of the Board's
adherence to industry corporate governance best practices; (2) periodic
evaluation of the operation of the Trust and meetings with management of the
Trust concerning the Trust's operations and the application of policies and
procedures to the Funds; (3) review, consideration and recommendation to the
full Board regarding Independent Trustee compensation; (4) identification and
evaluation of potential candidates to fill a vacancy on the Board; and (5)
selection from among potential candidates of a nominee to be presented to the
full Board for its consideration. The Nominating and Governance Committee will
not consider shareholders' nominees. During the fiscal period ended
November 30, 2023, the Nominating and Governance Committee held two (2)
meetings.
TRUSTEE
AND OFFICER OWNERSHIP OF FUND SHARES
To
the best of the Trust's knowledge, as of the date of this SAI, the Trustees and
officers of the Trust, as a group, owned less than 1% of the Shares of each
Fund.
Securities
Ownership
Listed
below for each Trustee is a dollar range of securities beneficially owned in a
Fund together with the aggregate dollar range of equity securities in all
registered investment companies overseen by each Trustee that are in the same
family of investment companies as the Trust, as of December 31,
2023.
|
|
|
|
|
|
|
|
|
|
| |
Name
of Trustee |
Fund |
Dollar
Range of Equity Securities In Fund |
Aggregate
Dollar Range of Equity Securities in All Funds Overseen by Trustee in
Family of Investment Companies |
Independent
Trustees |
|
| |
Charles
A. Baker |
None |
None |
$10,001-$50,000 |
|
|
| |
Susan
M. Ciccarone |
None |
None |
None |
|
|
| |
Clifford
J. Weber |
None |
None |
None |
TRUSTEE
OWNERSHIP OF SECURITIES OF THE ADVISER AND RELATED COMPANIES
As
of December 31, 2023, no Independent Trustee (or any of his or her
immediate family members) owned beneficially or of record securities of any
Trust investment adviser, its principal underwriter, or any person directly or
indirectly, controlling, controlled by or under common control with any Trust
investment adviser or principal underwriter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name
of Independent Trustee |
Name
of Owners and Relationship to Trustee |
Company |
Title
of Class |
Value
of Securities |
Percent
of Class |
Charles
A. Baker |
None |
None |
None |
None |
None |
Susan
M. Ciccarone |
None |
None |
None |
None |
None |
Clifford
J. Weber |
None |
None |
None |
None |
None |
No
Independent Trustee or immediate family member has during the two most recently
completed calendar years had: (i) any material interest, direct or
indirect, in any transaction or series of similar transactions, in which the
amount involved exceeds $120,000; or (ii) any direct or indirect
relationship of any nature, in which the amount involved exceeds $120,000,
with:
•the
Funds;
•an
officer of the Trust;
•an
investment company, or person that would be an investment company but for the
exclusions provided by Sections 3(c)(1) and 3(c)(7) of the 1940 Act, having the
same investment adviser or principal underwriter as the Funds or having an
investment adviser or principal underwriter that directly or indirectly
controls, is controlled by, or is under common control with the Adviser or
principal underwriter of the Funds;
•an
officer or an investment company, or a person that would be an investment
company but for the exclusions provided by Sections 3(c)(1) and 3(c)(7) of the
1940 Act, having the same investment adviser or principal underwriter as the
Funds or having an investment adviser or principal underwriter that directly or
indirectly controls, is controlled by, or is under common control with the
Adviser or principal underwriter of the Funds;
•the
Adviser or principal underwriter of the Funds;
•an
officer of the Adviser or principal underwriter of the Funds;
•a
person directly or indirectly controlling, controlled by, or under common
control with the Adviser or principal underwriter of the Funds; or
•an
officer of a person directly or indirectly controlling, controlled by, or under
common control with the Adviser or principal underwriter of the
Funds.
TRUSTEE
COMPENSATION
Independent
Trustee fees are paid from the unitary fee paid to the Adviser by the Funds. All
of the Independent Trustees are reimbursed for their travel expenses and other
reasonable out-of-pocket expenses incurred in connection with attending Board
meetings
(these other expenses are subject to Board review to ensure that they are not
excessive). The Trust does not accrue pension or retirement benefits as part of
the Fund's expenses, and Trustees are not entitled to benefits upon retirement
from the Board. The Trust's officers receive no compensation directly from the
Trust.
The
following sets forth the fees paid to each Trustee for the fiscal year ended
November 30, 2023, unless otherwise indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name
of
Independent
Trustee |
|
Aggregate
Compensation from the Funds |
|
Pension
or Retirement Benefits Accrued as Part of Funds Expenses |
|
Total
Compensation from Trust* |
Charles
A. Baker |
| $73,722 |
| $0 |
| $190,000 |
Susan
M. Ciccarone |
| $73,722 |
| $0 |
| $190,000 |
Clifford
J. Weber |
| $73,722 |
| $0 |
| $190,000 |
*
Information is as of December 31, 2023.
CODE
OF ETHICS
The
Trust, the Adviser, and the Distributor each have adopted a code of ethics, as
required by applicable law, which is designed to prevent affiliated persons of
the Trust, the Adviser, and the Distributor from engaging in deceptive,
manipulative or fraudulent activities in connection with securities held or to
be acquired by the Funds (which may also be held by persons subject to a code of
ethics). There can be no assurance that the codes of ethics will be effective in
preventing such activities. The codes of ethics permit personnel subject to them
to invest in securities, including securities that may be held or purchased by
the Funds. The codes of ethics are on file with the SEC and are available to the
public.
INVESTMENT
ADVISER
The
Adviser, Global X Management Company LLC, serves as investment manager to the
Funds pursuant to an Investment Advisory Agreement between the Trust and the
Adviser. It is registered as an investment adviser with the SEC and is located
at 605 3rd Avenue, 43rd Floor, New York, New York 10158. The Adviser was
organized in Delaware on March 28, 2008 as a limited liability company. On July
2, 2018, the Adviser consummated a transaction pursuant to which the Adviser
became an indirect, wholly-owned subsidiary of Mirae Asset Global Investments
Co., Ltd. ("Mirae"). In this manner, the Adviser is ultimately controlled by
Mirae, which is a leading financial services company in Korea and is the
headquarters for the Mirae Asset Global Investments Group.
Pursuant
to Supervision and Administration Agreements between the Trust and the Adviser,
the Adviser oversees the operation of the Funds, provides or causes to be
furnished the advisory, supervisory, administrative, distribution, transfer
agency, custody and all other services necessary for the Funds to operate, and
exercises day-to-day oversight over the Funds' service providers. Under the
Supervision and Administration Agreement, the Adviser also bears all the fees
and expenses incurred in connection with its obligations under the Supervision
and Administration Agreement, including, but not limited to, the costs of
various third-party services required by the Funds, including audit, certain
custody, portfolio accounting, legal, transfer agency and printing costs, except
those fees and expenses specifically assumed by the Trust on behalf of each
Fund. The Supervision and Administration Agreement for the Global X Thematic
Growth ETF, Global X Alternative Income ETF and the Global X Adaptive U.S. Risk
Management ETF provides that the Adviser also bears the costs for acquired fund
fees and expenses generated by investments by the Fund in affiliated investment
companies.
Under
the Investment Advisory Agreement between the Trust and the Adviser, the Adviser
is responsible for the management of the investment portfolio of each Fund. The
ability of the Adviser to successfully implement each Fund's investment
strategies will influence such Fund's performance significantly.
Each
Fund pays the Adviser a fee ("Management Fee") for the advisory, supervisory,
administrative and other services it requires under an all-in fee structure.
Each Fund pays (or will pay, for Funds that have not yet commenced operations) a
monthly Management Fee to the Adviser at the annual rates set forth in the table
below (stated as a percentage of each Fund's respective average daily net
assets).
|
|
|
|
| |
Fund |
Management
Fee |
Global
X MLP ETF |
0.45% |
|
|
|
|
| |
Global
X MLP & Energy Infrastructure ETF |
0.45% |
Global
X Alternative Income ETF |
0.50% |
Global
X Conscious Companies ETF |
0.43% |
Global
X U.S. Preferred ETF |
0.23% |
Global
X S&P 500® Quality Dividend ETF |
0.20% |
Global
X Adaptive U.S. Factor ETF |
0.27% |
Global
X Variable Rate Preferred ETF |
0.25% |
Global
X Adaptive U.S. Risk Management ETF |
0.39% |
Global
X 1-3 Month T-Bill ETF |
0.07% |
Global
X U.S. Cash Flow Kings 100 ETF |
0.25% |
Global
X Millennial Consumer ETF |
0.50% |
Global
X Aging Population ETF |
0.50% |
Global
X FinTech ETF |
0.68% |
Global
X Internet of Things ETF |
0.68% |
Global
X Robotics & Artificial Intelligence ETF |
0.68% |
Global
X U.S. Infrastructure Development ETF |
0.47% |
Global
X Autonomous & Electric Vehicles ETF |
0.68% |
Global
X Artificial Intelligence & Technology ETF |
0.68% |
Global
X Genomics & Biotechnology ETF |
0.50% |
Global
X Cloud Computing ETF |
0.68% |
Global
X Cybersecurity ETF |
0.50% |
Global
X Thematic Growth ETF |
0.50% |
Global
X Video Games & Esports ETF |
0.50% |
Global
X Telemedicine & Digital Health ETF |
0.68% |
Global
X CleanTech ETF |
0.50% |
Global
X Data Center & Digital Infrastructure ETF (formerly known as the
Global X Data Center REITs & Digital Infrastructure
ETF) |
0.50% |
Global
X AgTech & Food Innovation ETF |
0.50% |
Global
X Blockchain ETF |
0.50% |
Global
X Clean Water ETF |
0.50% |
Global
X Hydrogen ETF |
0.50% |
Global
X Solar ETF |
0.50% |
Global
X Wind Energy ETF |
0.50% |
Global
X PropTech ETF |
0.50% |
Global
X Defense Tech ETF |
0.50% |
In
addition, each Fund bears other fees and expenses that are not covered by the
Supervision and Administration Agreement, which may vary and will affect the
total expense ratio of each Fund, such as taxes, brokerage fees, commissions and
other transaction expenses, interest and extraordinary expenses (such as
litigation and indemnification expenses). The Adviser may earn a profit on the
Management Fee paid by each Fund. Also, the Adviser, and not shareholders of the
Funds, would benefit from any price decreases in third-party services, including
decreases resulting from an increase in net assets. The Supervision and
Administration Agreement for the Global X Thematic Growth ETF, Global X U.S.
Preferred ETF, Global X Variable Rate Preferred ETF, Global X Adaptive U.S. Risk
Management ETF and Global X Alternative Income ETF provides that the Adviser
also bears the costs for acquired fund fees and expenses generated by
investments by such Funds in affiliated investment companies.
The
Adviser and its affiliates deal, trade and invest for their own accounts in the
types of securities in which a Fund also may invest. The Adviser does not use
inside information in making investment decisions on behalf of the
Funds.
Each
of the Supervision and Administration Agreement and the related Investment
Advisory Agreement remains in effect for two (2) years from its effective date
and thereafter continues in effect for as long as its continuance is
specifically approved at least annually, by (i) the Board of Trustees of the
Trust, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding
Shares of the Fund, and (ii) by the vote of a majority of the Trustees of the
Trust who are not parties to the Investment Advisory Agreement or interested
persons of the Adviser, cast in person at a meeting called for the purpose of
voting on such approval. Each of the Supervision and Administration Agreement
and the related Investment Advisory Agreement provides that it may be terminated
at any time without the payment of any penalty, by the Board of Trustees of the
Trust or by vote of a majority of the Funds' shareholders, on 60 calendar days
written notice to the Adviser, and by the Adviser on the same notice to the
Trust and that it shall be automatically terminated if it is
assigned.
Each
of the Supervision and Administration Agreement and the related Investment
Advisory Agreement provides that the Adviser shall not be liable to each Fund or
its shareholders for anything other than willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or duties. The Investment
Advisory Agreement also provides that the Adviser may engage in other
businesses, devote time and attention to any other business whether of a similar
or dissimilar nature, and render investment advisory services to
others.
The
Management Fees paid by each operational Fund to the Adviser and the aggregated
amount of Management Fees reimbursed or waived by the Adviser (net of expenses
reimbursed to the Adviser under the applicable Expense Limitation Agreement) for
the fiscal years ended November 30, 2021, 2022 and 2023 are set forth in the
chart below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Management
Fees Paid for the Fiscal Year Ended |
Reimbursements
or Waivers for the Fiscal Year Ended |
|
Fund |
November
30, 2021 |
November
30, 2022 |
November
30, 2023 |
November
30, 2021 |
November
30, 2023 |
November
30, 2023 |
Date
of Commencement of Investment Operations |
Global
X MLP ETF |
4,040,676 |
5,344,753 |
6,180,576 |
— |
— |
— |
04/18/2012 |
Global
X MLP & Energy Infrastructure ETF |
3,215,197 |
4,192,282 |
4,384,924 |
— |
— |
— |
08/06/2013 |
Global
X Alternative Income ETF |
201,440 |
182,554 |
184,088 |
(20,773) |
(129,532) |
134,225 |
07/13/2015 |
Global
X Millennial Consumer ETF |
944,458 |
709,470 |
503,082 |
— |
— |
— |
05/04/2016 |
Global
X Aging Population ETF |
265,382 |
254,936 |
264,003 |
— |
— |
— |
05/09/2016 |
Global
X Conscious Companies ETF |
2,088,608 |
2,811,857 |
2,680,496 |
— |
— |
— |
07/11/2016 |
Global
X FinTech ETF |
8,462,468 |
5,010,499 |
2,623,792 |
— |
— |
— |
09/12/2016 |
Global
X Internet of Things ETF |
2,936,578 |
2,486,894 |
2,133,803 |
— |
— |
— |
09/12/2016 |
Global
X Robotics & Artificial Intelligence ETF |
17,601,681 |
11,787,620 |
13,028,034 |
— |
— |
— |
09/12/2016 |
Global
X U.S. Infrastructure Development ETF |
14,628,049 |
20,471,091 |
20,652,659 |
— |
— |
— |
03/06/2017 |
Global
X U.S. Preferred ETF |
4,137,495 |
5,086,571 |
5,155,048 |
(165) |
— |
— |
09/11/2017 |
Global
X Autonomous & Electric Vehicles ETF |
5,934,718 |
7,360,072 |
5,555,285 |
— |
— |
— |
04/13/2018 |
Global
X Artificial Intelligence & Technology ETF |
1,234,864 |
1,029,613 |
2,218,954 |
— |
— |
— |
05/11/2018 |
Global
X S&P 500® Quality Dividend ETF |
17,155 |
94,095 |
121,808 |
— |
— |
— |
07/13/2018 |
Global
X Adaptive U.S. Factor ETF |
456,051 |
459,345 |
464,100 |
— |
— |
— |
08/24/2018 |
Global
X Genomics & Biotechnology ETF |
1,076,994 |
989,122 |
926,079 |
— |
— |
— |
04/05/2019 |
Global
X Cloud Computing ETF |
9,700,881 |
5,358,282 |
3,814,991 |
— |
— |
— |
04/12/2019 |
Global
X Cybersecurity ETF |
3,237,647 |
5,615,421 |
3,530,828 |
(130,273) |
— |
— |
10/25/2019 |
Global
X Thematic Growth ETF |
470,794 |
395,494 |
207,806 |
(594,387) |
(508,212) |
247,624 |
10/25/2019 |
Global
X Video Games & Esports ETF |
3,162,010 |
1,356,129 |
817,514 |
— |
— |
— |
10/25/2019 |
Global
X Variable Rate Preferred ETF |
84,601 |
462,167 |
613,083 |
— |
— |
— |
06/22/2020 |
Global
X Telemedicine & Digital Health ETF |
4,661,152 |
1,401,769 |
801,902 |
— |
— |
— |
07/29/2020 |
Global
X CleanTech ETF |
743,073 |
583,129 |
493,442 |
— |
— |
— |
10/27/2020 |
Global
X Data Center & Digital Infrastructure ETF (formerly known as the
Global X Data Center REITs & Digital Infrastructure
ETF) |
214,004 |
381,270 |
190,867 |
— |
— |
— |
10/27/2020 |
Global
X Adaptive U.S. Risk Management ETF |
260,736 |
319,632 |
301,537 |
— |
— |
— |
01/12/2021 |
Global
X Clean Water ETF |
17,468 |
35,687 |
42,823 |
— |
— |
— |
04/08/2021 |
Global
X AgTech & Food Innovation ETF |
7,029 |
30,685 |
28,767 |
— |
— |
— |
07/12/2021 |
Global
X Blockchain ETF |
98,544 |
394,551 |
330,793 |
— |
— |
— |
07/12/2021 |
Global
X Hydrogen ETF |
25,418 |
159,276 |
196,696 |
— |
— |
— |
07/12/2021 |
Global
X Solar ETF |
3,632 |
38,438 |
24,091 |
— |
— |
— |
09/08/2021 |
Global
X Wind Energy ETF |
3,596 |
18,870 |
29,409 |
— |
— |
— |
09/08/2021 |
Global
X PropTech ETF |
— |
— |
8,446 |
— |
— |
— |
04/11/2023 |
Global
X 1-3 Month T-Bill ETF |
— |
— |
20,830 |
— |
— |
— |
06/20/2023 |
Global
X U.S. Cash Flow Kings 100 ETF |
— |
— |
2,892 |
— |
— |
— |
07/10/2023 |
Global
X Defense Tech ETF |
— |
— |
3,698 |
— |
— |
— |
09/11/2023 |
PORTFOLIO
MANAGERS
The
portfolio managers Nam To, Wayne Xie, Vanessa Yang and Sandy Lu are employees of
the Adviser.
Portfolio
Manager's Compensation
The
Adviser believes that its compensation program is competitively positioned to
attract and retain high-caliber investment professionals. Portfolio managers
receive a salary and are eligible to receive an annual bonus. A portfolio
manager's salary compensation is designed to be competitive with the marketplace
and reflect the portfolio manager's relative experience and contribution to the
Funds. Base salary compensation is reviewed and adjusted annually to reflect
increases in the cost of living and market rates. The
annual incentive bonus opportunity provides cash bonuses based upon (a)
individual performance in the
functional
aspects of the portfolio manager role, (b) achievement of strategic goals
related to process and technology improvement, and (c) overall company
performance. Portfolio manager compensation is not tied to the performance
of the individual funds themselves. Senior members of the portfolio
management team may have stock options of the Adviser.
Other
Accounts Managed by Portfolio Managers
It
is anticipated that a portfolio manager will be responsible for multiple
investment accounts, including other investment companies registered under the
1940 Act. As a general matter, certain conflicts of interest may arise in
connection with a portfolio manager's management of a Fund's investments, on the
one hand, and the investments of other accounts for which the portfolio manager
is responsible, on the other. For example, it is possible that the various
accounts managed could have different investment strategies that, at times,
might conflict with one another to the possible detriment of a Fund.
Alternatively, to the extent that the same investment opportunities might be
desirable for more than one account, possible conflicts could arise in
determining how to allocate them. Other potential conflicts might include
conflicts created by specific portfolio manager compensation arrangements and
conflicts relating to selection of brokers or dealers to execute a Fund's
trades. The Adviser has structured a portfolio manager's compensation in a
manner, and the Funds and the Adviser have adopted policies, procedures and a
code of ethics, reasonably designed to safeguard the Funds from being negatively
affected as a result of any such conflicts that may arise.
The
Portfolio Managers were responsible for the management of the following accounts
as of November 30, 2023, unless otherwise stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Other
Accounts Managed
|
Accounts
With Respect To Which The Advisory Fee Is Based On The
Performance
of The Account |
Name
of
Portfolio
Manager |
Category
of Account |
Number
of Accounts in Category |
Total
Assets in Accounts in Category |
Number
of Accounts in Category |
Total
Assets in Accounts in Category |
Nam
To |
Registered
investment companies |
103 |
$40,527,108,515 |
0 |
$0.00 |
| Other
pooled investment vehicles |
32 |
$748,091,992 |
0 |
$0.00 |
| Other
accounts |
0 |
$0.00 |
0 |
$0.00 |
|
|
|
|
| |
Wayne
Xie |
Registered
investment companies |
103 |
$40,527,108,515 |
0 |
$0.00 |
| Other
pooled investment vehicles |
32 |
$748,091,992 |
0 |
$0.00 |
| Other
accounts |
0 |
$0.00 |
0 |
$0.00 |
|
|
|
|
| |
Vanessa
Yang |
Registered
investment companies |
103 |
$40,527,108,515 |
0 |
$0.00 |
| Other
pooled investment vehicles |
32 |
$748,091,992 |
0 |
$0.00 |
| Other
accounts |
0 |
$0.00 |
0 |
$0.00 |
|
|
|
|
| |
Sandy
Lu |
Registered
investment companies |
103 |
$40,527,108,515 |
0 |
$0.00 |
| Other
pooled investment vehicles |
32 |
$748,091,992 |
0 |
$0.00 |
| Other
accounts |
0 |
$0.00 |
0 |
$0.00 |
Although
the Funds in the Trust that are managed by Messrs. To, Xie and Lu and Ms. Yang
may have different investment strategies, each has an investment objective of
seeking to replicate, before fees and expenses, its respective underlying index.
The Adviser does not believe that management of the various accounts presents a
material conflict of interest for Messrs. To, Xie and Lu and Ms. Yang or the
Adviser.
Disclosure
of Securities Ownership
Listed
below for each Portfolio Manager is a dollar range of securities beneficially
owned in a Fund as of November 30, 2023, unless otherwise
stated:
|
|
|
|
|
|
|
| |
Name
of Portfolio Manager |
Fund |
Dollar
Range of Equity Securities In Fund |
Nam
To |
None |
None |
|
| |
Wayne
Xie |
None |
None |
|
| |
Vanessa
Yang |
None |
None |
|
| |
Sandy
Lu |
Global
X MLP ETF |
$1–$10,000 |
| Global
X 1-3 Month T-Bill ETF |
$1–$10,000 |
BROKERAGE
TRANSACTIONS
The
policy of the Trust regarding purchases and sales of securities is that primary
consideration will be given to obtaining the most favorable prices and efficient
executions of transactions. Consistent with this policy, when securities
transactions are effected on a stock exchange, the Trust's policy is to pay
commissions that are considered fair and reasonable without necessarily
determining that the lowest possible commissions are paid in all circumstances.
In seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Adviser relies upon its experience and knowledge regarding
commissions generally charged by various brokers and in various jurisdictions.
The Adviser effects transactions for the Funds with those brokers and dealers
that the Adviser believes provide the most favorable prices and are capable of
providing the most efficient and best execution of trades. The primary
consideration of the Adviser is to seek prompt execution of orders at the most
favorable net price. The sale of Shares by a broker-dealer is not a factor in
the selection of broker-dealers. The Adviser and its affiliates do not currently
participate in any soft dollar transactions with respect to the Funds, although
the Adviser relies on Section 28(e) of the 1934 Act in effecting or executing
transactions for the Funds. Accordingly, in selecting broker-dealers to execute
a particular transaction, the Adviser may consider the brokerage and research
services (as those terms are defined in Section 28(e) of the 1934 Act) provided
to the Funds and/or other accounts over which the Adviser or its affiliates
exercise investment discretion. The Adviser may cause the Funds to pay a
broker-dealer that furnishes brokerage and research services a higher commission
than that which might be charged by another broker-dealer for effecting the same
transaction, provided that the Adviser determines in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer, viewed in terms of either the
particular transaction or the overall responsibilities of the Adviser to the
Funds. Such brokerage and research services might consist of reports and
statistics on specific companies or industries or broad overviews of the
securities markets and the economy. Shareholders of the Funds should understand
that the services provided by such brokers may be useful to the Adviser in
connection with its services to other clients.
The
Adviser assumes general supervision over placing orders on behalf of the Funds
for the purchase or sale of portfolio securities. If purchases or sales of
portfolio securities by the Funds are considered at or about the same time,
transactions in such securities are allocated among the Funds in a manner deemed
equitable to the Funds by the Adviser. Bundling or bunching transactions for the
Funds is intended to result in better prices for portfolio securities and lower
brokerage commissions, which should be beneficial to the Funds.
The
aggregate brokerage commissions paid by each Fund during the fiscal periods
ended November 30, 2021, 2022, and 2023 are set forth in the chart
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Brokerage
Commission Paid for the Fiscal Period Ended |
|
Fund |
November
30, 2021 |
November
30, 2022 |
November
30, 2023 |
Date
of Commencement of Investment Operations |
Global
X MLP ETF |
$352,273 |
$488,272 |
$360,987 |
04/18/2012 |
Global
X MLP & Energy Infrastructure ETF |
$124,747 |
$156,026 |
$117,343 |
08/06/2013 |
Global
X Alternative Income ETF |
$24,579 |
$4,962 |
$3,101 |
07/13/2015 |
Global
X Millennial Consumer ETF |
$3,828 |
$5,918 |
$9,400 |
05/04/2016 |
Global
X Aging Population ETF |
$6,423 |
$6,296 |
$5,391 |
05/09/2016 |
Global
X Conscious Companies ETF |
$14,549 |
$31,359 |
$22,173 |
07/11/2016 |
Global
X FinTech ETF |
$362,311 |
$214,703 |
$30,721 |
09/12/2016 |
Global
X Internet of Things ETF |
$39,103 |
$34,035 |
$26,377 |
09/12/2016 |
Global
X Robotics & Artificial Intelligence ETF |
$386,892 |
$415,538 |
$122,638 |
09/12/2016 |
Global
X U.S. Infrastructure Development ETF |
$68,335 |
$196,164 |
$58,593 |
03/06/2017 |
Global
X U.S. Preferred ETF |
$415,435 |
$361,241 |
$350,955 |
09/11/2017 |
Global
X Autonomous & Electric Vehicles ETF |
$167,181 |
$362,665 |
$164,894 |
04/13/2018 |
Global
X Artificial Intelligence & Technology ETF |
$32,970 |
$28,128 |
$44,550 |
05/11/2018 |
Global
X S&P 500® Quality Dividend ETF |
$1,831 |
$6,950 |
$12,107 |
07/13/2018 |
Global
X Adaptive U.S. Factor ETF |
$44,801 |
$29,269 |
$95,378 |
08/24/2018 |
Global
X Genomics & Biotechnology ETF |
$51,304 |
$52,242 |
$38,735 |
04/05/2019 |
Global
X Cloud Computing ETF |
$112,805 |
$67,664 |
$37,470 |
04/12/2019 |
Global
X Cybersecurity ETF |
$90,444 |
$336,330 |
$94,271 |
10/25/2019 |
Global
X Thematic Growth ETF |
$15,861 |
$47,357 |
$16,613 |
10/25/2019 |
Global
X Video Games & Esports ETF |
$157,020 |
$164,109 |
$37,244 |
10/25/2019 |
Global
X Variable Rate Preferred ETF |
$5,440 |
$84,681 |
$61,479 |
06/22/2020 |
Global
X Telemedicine & Digital Health ETF |
$166,565 |
$76,720 |
$25,015 |
07/29/2020 |
Global
X CleanTech ETF |
$81,211 |
$15,857 |
$22,156 |
10/27/2020 |
Global
X Data Center & Digital Infrastructure ETF (formerly known as the
Global X Data Center REITs & Digital Infrastructure
ETF) |
$6,560 |
$20,227 |
$11,575 |
10/27/2020 |
Global
X Adaptive U.S. Risk Management ETF |
$2,851 |
$73,042 |
$43,077 |
01/12/2021 |
Global
X Clean Water ETF |
$781 |
$1,449 |
$710 |
04/08/2021 |
Global
X AgTech & Food Innovation ETF |
$1,414 |
$6,740 |
$13,342 |
07/12/2021 |
Global
X Blockchain ETF |
$17,597 |
$220,452 |
$156,316 |
07/12/2021 |
Global
X Hydrogen ETF |
$6,844 |
$15,529 |
$15,817 |
07/12/2021 |
Global
X Solar ETF |
$4,779 |
$15,728 |
$4,818 |
09/08/2021 |
Global
X Wind Energy ETF |
2,871 |
1,678 |
$8,998 |
09/08/2021 |
Global
X PropTech ETF |
— |
— |
$343 |
04/11/2023 |
Global
X 1-3 Month T-Bill ETF |
— |
— |
— |
06/20/2023 |
Global
X U.S. Cash Flow Kings 100 ETF |
— |
— |
$123 |
07/10/2023 |
Global
X Defense Tech ETF |
— |
— |
$142 |
09/11/2023 |
PROXY
VOTING
The
Funds have delegated proxy voting responsibilities to the Adviser, subject to
the Board of Trustees' oversight. In delegating proxy responsibilities, the
Board of Trustees has directed that proxies be voted consistent with each Fund's
and its shareholders' best interests and in compliance with all applicable proxy
voting rules and regulations. The Adviser has adopted proxy voting policies and
guidelines for this purpose ("Proxy Voting Policies") and the Adviser has
engaged a third party proxy solicitation firm, Glass Lewis & Co. ("Glass
Lewis"), an independent third party proxy service that is responsible for the
actual voting of all proxies in a timely manner, while the CCO is responsible
for monitoring the effectiveness of the Proxy Voting Policies. The
Proxy
Voting Policies have been adopted by the Trust as the policies and procedures
that the Adviser will use when voting proxies on behalf of the
Funds.
In
addition to the general Proxy Voting Policies, the Adviser has adopted the ESG
(Environmental, Social & Governance) voting policy addendum for the Global X
Autonomous & Electric Vehicles ETF, the Global X CleanTech ETF, the Global X
Cloud Computing ETF, the Global X Conscious Companies ETF, the Global X
Telemedicine & Digital Health ETF, the Global X Clean Water ETF, the Global
X Hydrogen ETF, the Global X Wind Energy ETF, the Global X Solar ETF and the
Global X Renewable Energy Producers ETF.
I.
General Guidelines
Except
in instances where the Adviser has provided Glass Lewis with different
direction, Glass Lewis has agreed to vote proxies in accordance with
recommendations developed by Glass Lewis and overseen by the Advisor. The Glass
Lewis guidelines address a wide variety of individual topics, including, among
other matters, shareholder voting rights, anti-takeover defenses, board
structures, the election of directors, executive and director compensation,
reorganizations, mergers, and various shareholder proposals. The Glass Lewis
guidelines encourage the maximization of return for shareholders through
identifying and avoiding financial, audit and corporate governance risks.
Detailed information on Glass Lewis’s proxy voting guidelines are available
under “Proxy Paper GuidelinesTM”
from Glass Lewis at www.glasslewis.com/guidelines.
The
Proxy Voting Policies are designed to ensure that all issues brought to
shareholders are analyzed in light of the Adviser's fiduciary responsibilities.
The Proxy Voting Policies address the Adviser's oversight of Glass Lewis, as
well as when securities on loan are recalled to participate in proxy votes.
Additionally, the Proxy Voting Policies address material conflicts of interest
that may arise between the interests of the Funds and the interests of the
Adviser. In situations in which there is a conflict of interest between the
interests of the Adviser or its affiliates and the interests of the Fund’s
shareholders, the Adviser will take necessary actions to resolve the conflict
and to protect the interests of shareholders.
II.
Oversight of Third Party Solicitation Firm
The
Advisor has reviewed the principles and procedures employed by Glass Lewis in
making recommendations on voting proxies on each issue presented, and has
satisfied itself that Glass Lewis’s recommendations are (i) based upon an
appropriate level of diligence and research, and (ii) designed to further the
interests of shareholders, and not serve other unrelated or improper interests.
The Advisor shall review its determinations as to Glass Lewis at least
annually.
III.
Record of Proxy Voting
Information
on how the Funds voted proxies relating to portfolio securities during the most
recent 12 month period ended June 30 is available (1) without charge, upon
request, by calling 1-888-843-7824 and (2) on the SEC's website at
www.sec.gov.
SUB-ADMINISTRATOR
SEI
Investments Global Funds Services ("SEIGFS"), located at One Freedom Valley
Drive, Oaks, PA 19456, serves as sub-administrator to the Funds. As
sub-administrator, SEIGFS provides the Funds with all required general
administrative services, including, without limitation, office space, equipment,
and personnel; clerical and general back office services; bookkeeping, internal
accounting and secretarial services; the calculation of NAV; and the
coordination or preparation and filing of all reports, registration statements,
proxy statements and all other materials required to be filed or furnished by
the Funds under federal and state securities laws. As compensation for these
services, SEIGFS receives certain out-of-pocket costs, transaction fees and
asset-based fees which are accrued daily and paid monthly by the Adviser from
its fees.
DISTRIBUTOR
The
Trust has entered into a Distribution Agreement under which SEI Investments
Distribution Co. ("SIDCO"), with principal offices at One Freedom Valley Drive,
Oaks, PA 19456, serves as the Funds' underwriter and distributor of Creation
Units. The distributor has no obligation to sell any specific quantity of Shares
of the Funds. SIDCO bears the following costs and expenses relating to the
distribution of Shares: (i) the costs of processing and maintaining records of
creations of Creation Units; (ii) all costs of maintaining the records required
of a registered broker/dealer; (iii) the expenses of maintaining its
registration or qualification as a dealer or broker under federal or state laws;
(iv) filing fees; and (v) all other expenses incurred in connection with the
distribution services as contemplated in the Distribution Agreement. No
compensation is payable by the Trust to SIDCO for such distribution services.
The Distribution Agreement provides that the Trust will indemnify SIDCO against
certain liabilities relating to untrue statements or omissions of material fact
except those resulting from the reliance on
information
furnished to the Trust by SIDCO, or those resulting from the willful
misfeasance, bad faith or gross negligence of SIDCO, or SIDCO's reckless
disregard of its duties and obligations under the Distribution Agreement. SIDCO,
its affiliates and officers have no role in determining the investment policies
or which securities are to be purchased or sold by the Trust or the Funds. The
Distributor is not affiliated with the Trust, the Adviser or any stock
exchange.
Additionally,
the Adviser or its affiliates may, from time to time, and from its own
resources, pay, defray or absorb costs relating to distribution, including
payments out of its own resources to SIDCO or to otherwise promote the sale of
shares.
CUSTODIANS
AND TRANSFER AGENTS
For
the Global X Robotics & Artificial Intelligence ETF, the Global X Cloud
Computing ETF, the Global X Millennial Consumer ETF, the Global X Telemedicine
& Digital Health ETF, the Global X Autonomous & Electric Vehicles ETF,
the Global X U.S. Infrastructure Development ETF, the Global X MLP ETF, the
Global X MLP & Energy Infrastructure ETF, the Global X Alternative Income
ETF, the Global X Conscious Companies ETF, the Global X U.S. Preferred ETF, the
Global X S&P 500®
Quality Dividend ETF, the Global X Adaptive U.S. Factor ETF, the Global X
Variable Rate Preferred ETF, the Global X Adaptive U.S. Risk Management ETF,
Brown Brothers Harriman & Co. ("BBH"), located at 50 Post Office Square,
Boston, MA 02110, serves as custodian of the Funds' assets. As custodian, BBH
has agreed to (1) make receipts and disbursements of money on behalf of each
Fund, (2) collect and receive all income and other payments and distributions on
account of each Fund's portfolio investments, (3) respond to correspondence from
shareholders, security brokers and others relating to its duties; and (4) make
periodic reports to the Funds concerning the Funds' operations. BBH does not
exercise any supervisory function over the purchase and sale of securities. As
compensation for these services, BBH receives certain out-of-pocket costs,
transaction fees and asset-based fees which are accrued daily and paid monthly
by the Adviser from its fees.
As
transfer agent, BBH has agreed to (1) issue and redeem Shares of each Fund, (2)
make dividend and other distributions to shareholders of each Fund, (3) respond
to correspondence by shareholders and others relating to its duties; (4)
maintain shareholder accounts, and (5) make periodic reports to the Funds. As
compensation for these services, BBH receives certain out-of-pocket costs,
transaction fees and asset-based fees which are accrued daily and paid monthly
by the Adviser from its fees.
For
all Funds other than the Global X Robotics & Artificial Intelligence ETF,
the Global X Cloud Computing ETF, the Global X Millennial Consumer ETF, the
Global X Telemedicine & Digital Health ETF, the Global X Autonomous &
Electric Vehicles ETF, the Global X U.S. Infrastructure Development ETF, the
Global X MLP ETF, the Global X MLP & Energy Infrastructure ETF, the Global X
Alternative Income ETF, the Global X Conscious Companies ETF, the Global X U.S.
Preferred ETF, the Global X S&P 500®
Quality Dividend ETF, the Global X Adaptive U.S. Factor ETF, the Global X
Variable Rate Preferred ETF, the Global X Adaptive U.S. Risk Management ETF, The
Bank of New York Mellon (“BNY Mellon”), located at 240 Greenwich Street, New
York, New York 10286, is the custodian of the Trust’s portfolio securities and
cash on behalf of each Fund. BNY Mellon may appoint domestic and foreign
sub-custodians and use depositories from time to time to hold securities and
other instruments purchased by the Trust in foreign countries and to hold cash
and currencies for the Trust on behalf of each Fund.
BNY
Mellon also serves as the Trust’s transfer agent on behalf of each Fund for
which it acts as custodian. Under its transfer agency agreement with the Trust,
BNY Mellon has undertaken with the Trust to provide the following services with
respect to each Fund: (i) perform and facilitate the performance of purchases
and redemptions of Creation Units, (ii) prepare and transmit by means of
Depository Trust Company’s (“DTC”) book-entry system payments for dividends and
distributions on or with respect to the Shares declared by the Trust on behalf
of each Fund, as applicable, (iii) prepare and deliver reports, information and
documents as specified in the transfer agency agreement, (iv) perform the
customary services of a transfer agent and dividend disbursing agent, and (v)
render certain other miscellaneous services as specified in the transfer agency
agreement or as otherwise agreed upon.
SECURITIES
LENDING AGENTS
The
Board of Trustees has approved each Fund's participation in a securities lending
program. Prior to June 30, 2023, BBH served as the securities lending agent for
the Funds. From June 30, 2023 to present, BBH serves as the securities lending
agent for the Global X Robotics & Artificial Intelligence ETF, the Global X
Cloud Computing ETF, the Global X Millennial Consumer ETF, the Global X
Telemedicine & Digital Health ETF, the Global X Autonomous & Electric
Vehicles ETF, the Global X U.S. Infrastructure Development ETF, the Global X MLP
ETF, the Global X MLP & Energy Infrastructure ETF, the Global X Alternative
Income ETF, the Global X Conscious Companies ETF, the Global X U.S. Preferred
ETF, the Global X S&P 500®
Quality Dividend ETF, the Global X Adaptive U.S. Factor ETF, the Global X
Variable Rate Preferred ETF, the Global X Adaptive U.S. Risk Management ETF.
From
June 30, 2023 to present, BNY Mellon (together with BBH, each a “Securities
Lending Agent”) serves as the securities lending agent for each Fund except for
the Global X Robotics & Artificial Intelligence ETF, the Global X Cloud
Computing ETF, the Global X Millennial Consumer ETF, the Global X Telemedicine
& Digital Health ETF, the Global X Autonomous & Electric Vehicles ETF,
the Global X U.S. Infrastructure Development ETF, the Global X MLP ETF, the
Global X MLP & Energy Infrastructure ETF, the Global X Alternative Income
ETF, the Global X Conscious Companies ETF, the Global X U.S. Preferred ETF, the
Global X S&P 500®
Quality Dividend ETF, the Global X Adaptive U.S. Factor ETF, the Global X
Variable Rate Preferred ETF, the Global X Adaptive U.S. Risk Management ETF. BBH
and BNY Mellon serve as securities lending agents for the Trust.
For
the fiscal year ended November 30, 2023, the total income earned by the Funds,
as well as the fees and/or compensation paid by the Funds (in dollars) pursuant
to a securities lending agreement between the Trust and each Securities Lending
Agent were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Global
X Alternative Income ETF |
Global
X Artificial Intelligence & Technology ETF |
Global
X Autonomous & Electric Vehicles ETF |
Global
X Blockchain ETF |
Global
X Cloud Computing ETF |
Global
X FinTech ETF |
Gross
income earned by the Fund from securities lending
activities |
$42,292.01 |
$55,048.58 |
$6,684,688.33 |
$968,815.29 |
$167,681.19 |
$1,838,951.05 |
Fees
paid to Securities Lending Agent from revenue split |
$1,223.32 |
$1,635.33 |
$726,966.44 |
$125,201.22 |
$5,316.44 |
$190,683.68 |
Fees
paid for any cash collateral management service (including fees deducted
from a pooled cash collateral reinvestment vehicle) not included in a
revenue split |
$307.95 |
$136.66 |
$22,122.82 |
$2,826.97 |
$1,377.85 |
$6,224.49 |
Administrative
fees not included in a revenue split |
— |
— |
— |
— |
— |
— |
Indemnification
fees not included in a revenue split |
— |
— |
— |
— |
— |
— |
Rebate
(paid to borrower) |
$32,879.21 |
$41,613.12 |
$1,092,591.01 |
$5,712.07 |
$126,784.98 |
$357,463.73 |
Other
fees not included above |
— |
— |
— |
— |
— |
— |
Aggregate
fees/compensation paid by the Fund for securities lending
activities |
$34,410.48 |
$43,385.11 |
$1,841,680.27 |
$133,740.26 |
$133,479.27 |
$554,371.90 |
Net
income from securities lending activities |
$7,881.53 |
$11,663.47 |
$4,843,008.06 |
$835,075.03 |
$34,201.92 |
$1,284,579.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Global
X Genomics & Biotechnology ETF |
Global
X Internet of Things ETF |
Global
X Millennial Consumer ETF |
Global
X MLP and Energy Infrastructure ETF |
Global
X Robotics & Artificial Intelligence ETF |
Global
X Solar ETF |
Gross
income earned by the Fund from securities lending
activities |
$91,494.98 |
$217,304.99 |
$28,019.50 |
$348,616.75 |
$7,843,867.56 |
$57.29 |
Fees
paid to Securities Lending Agent from revenue split |
$3,977.07 |
$18,072.81 |
$2,255.97 |
$13,668.14 |
$876,494.57 |
$1.43 |
Fees
paid for any cash collateral management service (including fees deducted
from a pooled cash collateral reinvestment vehicle) not included in a
revenue split |
$493.11 |
$1,239.57 |
$152.86 |
$2,332.99 |
$27,201.35 |
— |
Administrative
fees not included in a revenue split |
— |
— |
— |
— |
— |
— |
Indemnification
fees not included in a revenue split |
— |
— |
— |
— |
— |
— |
Rebate
(paid to borrower) |
$55,311.92 |
73,566.04 |
10,667.46 |
243,476.74 |
1,101,584.93 |
$42.93 |
Other
fees not included above |
— |
— |
— |
— |
— |
— |
Aggregate
fees/compensation paid by the Fund for securities lending
activities |
$59,782.10 |
$92,878.42 |
$13,076.29 |
$259,477.87 |
$2,005,280.85 |
$44.36 |
Net
income from securities lending activities |
$31,712.88 |
$124,426.57 |
$14,943.21 |
$89,138.88 |
$5,838,586.71 |
$12.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Global
X Telemedicine & Digital Health ETF |
Global
X Thematic Growth ETF |
Global
X U.S. Infrastructure Development ETF |
Global
X U.S. Preferred ETF |
Global
X Video Games & Esports ETF |
Global
X Wind Energy ETF |
Gross
income earned by the Fund from securities lending
activities |
$202,457.02 |
$30,217.67 |
$9,571.69 |
$1,706,078.30 |
$313,887.18 |
$16.69 |
Fees
paid to Securities Lending Agent from revenue split |
$14,809.43 |
$795.24 |
$73.90 |
$114,726.77 |
$11,524.76 |
$0.18 |
Fees
paid for any cash collateral management service (including fees deducted
from a pooled cash collateral reinvestment vehicle) not included in a
revenue split |
$1,168.51 |
$4.39 |
$74.50 |
$11,395.02 |
$2,586.09 |
— |
Administrative
fees not included in a revenue split |
— |
— |
— |
— |
— |
— |
Indemnification
fees not included in a revenue split |
— |
— |
— |
— |
— |
— |
Rebate
(paid to borrower) |
$88,537.29 |
$22,275.09 |
$9,003.20 |
$823,540.47 |
$225,233.51 |
$14.86 |
Other
fees not included above |
— |
— |
— |
— |
— |
— |
Aggregate
fees/compensation paid by the Fund for securities lending
activities |
$104,515.23 |
$23,074.72 |
$9,151.60 |
$949,662.26 |
$239,344.36 |
$15.04 |
Net
income from securities lending activities |
$97,941.79 |
$7,142.95 |
$420.09 |
$756,416.04 |
$74,542.82 |
$1.65 |
The
net income amounts from securities lending activities reflected in the tables
above may differ from amounts reflected in the Statements of Operations within
the November 30, 2023 annual report. The amounts reflected in the November 30,
2023 annual report are considered estimates at the time the financial statements
are prepared.
Each
Securities Lending Agent provides the following services to the Funds in
connection with their securities lending activities: (i) entering into loans
subject to guidelines or restrictions provided by the Funds; (ii) establishing
and maintaining collateral accounts; (iii) monitoring daily the value of the
loaned securities and collateral; (iv) seeking additional collateral as
necessary from borrowers, and returning collateral to borrowers; (v) receiving
and holding collateral from borrowers, and facilitating the investment and
reinvestment of cash collateral; (vi) negotiating loan terms; (vii) selecting
securities to be loaned subject to guidelines or restrictions provided by the
Funds; (viii) recordkeeping and account servicing; (ix) monitoring dividend and
proxy activity relating to loaned securities; and (x) arranging for return of
loaned securities to the Funds at loan termination.
DESCRIPTION
OF SHARES
The
Declaration of Trust of the Trust ("Declaration") permits the Board to issue an
unlimited number of full and fractional shares of beneficial interest of one or
more separate series representing interests in one or more investment
portfolios. The Board of Trustees or the Trust may create additional series and
each series may be divided into classes.
Under
the terms of the Declaration, each Share of each Fund represents a proportionate
interest in the particular Fund with each other share of its class in the same
Fund and is entitled to such dividends and distributions out of the income
belonging to the Fund as are authorized by the Trustees and declared by the
Trust. Upon any liquidation of a Fund, shareholders of each class of a Fund are
entitled to share pro rata in the net assets belonging to that class available
for distribution. Shares do not have any preemptive or conversion rights. The
right of redemption is described in the Prospectus. In addition, pursuant to the
terms of the 1940 Act, the right of a shareholder to redeem Shares and the date
of payment by a Fund may be suspended for more than seven days (i) for any
period during which the New York Stock Exchange is closed, other than the
customary weekends or holidays, or trading in the markets the Fund normally
utilizes is closed or is restricted as determined by the SEC, (ii) during any
emergency, as determined by the SEC, as a result of which it is not reasonably
practicable for such Fund to dispose of instruments owned by it or fairly to
determine the value of its net assets, or (iii) for such other period as the SEC
may by order permit for the protection of the shareholders of such Fund. The
Trust also may suspend or postpone the recording of the transfer of its shares
upon the occurrence of any of the foregoing conditions. In addition, Shares of
each Fund are redeemable at the unilateral option of the Trust. The Declaration
permits the Board to alter the number of Shares constituting a Creation Unit or
to specify that shares of beneficial interest of the Trust may be individually
redeemable. Shares when issued as described in the Prospectus are validly
issued, fully paid and non-assessable. In the interests of economy and
convenience, certificates representing Shares of the Funds are not
issued.
Following
the creation of the initial Creation Unit Aggregation(s) of a Fund and
immediately prior to the commencement of trading in such Fund's Shares, a holder
of Shares may be a "control person" of the Fund, as defined in the 1940 Act. A
Fund cannot predict the length of time for which one or more shareholders may
remain a control person of the Fund.
The
proceeds received by each Fund for each issue or sale of its Shares, and all net
investment income, realized and unrealized gain and proceeds thereof, subject
only to the rights of creditors of that Fund, will be specifically allocated to
and constitute the underlying assets of that Fund. The underlying assets of each
Fund will be segregated on the books of account, and will be charged with the
liabilities in respect to that Fund and with a share of the general liabilities
of the Trust. Expenses with respect to the Funds normally are allocated in
proportion to the NAV of the respective Fund, except where allocations of direct
expenses can otherwise be fairly made.
Shareholders
are entitled to one vote for each full Share held and proportionate fractional
votes for fractional shares held. The funds of the Trust entitled to vote on a
matter will vote in the aggregate and not by fund, except as required by law or
when the matter to be voted on affects only the interests of shareholders of a
particular fund or class.
Rule
18f-2 under the 1940 Act provides that any matter required by the provisions of
the 1940 Act or applicable state law, or otherwise, to be submitted to the
holders of the outstanding voting securities of an investment company (such as
the Trust) shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each
investment portfolio affected by such matter. Rule 18f-2 further provides that
an investment portfolio shall be deemed to be affected by a matter unless the
interests of each investment portfolio in the matter are substantially identical
or the matter does not affect any interest of the investment portfolio. Under
Rule 18f-2, the approval of an Investment Advisory Agreement, a distribution
plan subject to Rule 12b-1 under the 1940 Act or any change in the fundamental
investment policy would be effectively acted upon with respect to an investment
portfolio only if approved by a majority of the outstanding shares of such
investment portfolio. However, Rule 18f-2 also provides that the ratification of
the appointment of independent accountants, the approval of principal
underwriting contracts and the election of Trustees are exempt from the separate
voting requirements stated above.
The
Trust is not required to hold annual meetings of shareholders and does not
intend to hold such meetings. In the event that a meeting of shareholders is
held, each share of the Trust will be entitled, as determined by the Trustees
without the vote or consent of shareholders, to one vote for each share
represented by such shares on all matters presented to shareholders, including
the election of Trustees (this method of voting being referred to as
"dollar-based voting"). However, to the extent required by the 1940 Act or
otherwise determined by the Trustees, series and classes of the Trust will vote
separately from each other. Shareholders of the Trust do not have cumulative
voting rights in the election of Trustees and, accordingly, the holders of more
than 50% of the aggregate voting power of the Trust may elect all of the
Trustees, irrespective of the vote of the other shareholders. Meetings of
shareholders of the Trust, or any series or class thereof, may be called by the
Trustees, the President or Secretary of the Trust or upon the written request of
holders of at least a majority of the shares entitled to vote at such meeting.
The shareholders of the Trust will have voting rights only with respect to the
limited number of matters specified in the Declaration and such other matters as
the Trustees may determine or may be required by law.
The
Declaration authorizes the Trustees, without shareholder approval (except as
stated in the next paragraph), to cause the Trust, or any series thereof, to
merge or consolidate with any corporation, association, trust or other
organization or sell or exchange all or substantially all of the property
belonging to the Trust, or any series thereof. In addition, the Trustees,
without shareholder approval, may adopt a "master-feeder" structure by investing
substantially all of the assets of a series of the Trust in the securities of
another open-end investment company or pooled portfolio.
The
Declaration also authorizes the Trustees, in connection with the termination or
other reorganization of the Trust or any series or class by way of merger,
consolidation, the sale of all or substantially all of the assets, or otherwise,
to classify the shareholders of any class into one or more separate groups and
to provide for the different treatment of shares held by the different groups,
provided that such termination or reorganization is approved by a majority of
the outstanding voting securities (as defined in the 1940 Act) of each group of
shareholders that are so classified.
The
Declaration permits the Trustees to amend the Declaration without a shareholder
vote. However, shareholders of the Trust have the right to vote on any
amendment: (i) that would adversely affect the voting rights of shareholders
specified in the Declaration; (ii) that is required by law to be approved by
shareholders; (iii) to the amendment section of the Declaration; or (iv) that
the Trustees determine to submit to shareholders.
The
Declaration permits the termination of the Trust or of any series or class of
the Trust: (i) by vote of a majority of the affected shareholders at a meeting
of shareholders of the Trust, series or class; or (ii) by vote of a majority of
the Trustees without shareholder approval if the Trustees determine that such
action is in the best interest of the Trust or its shareholders.
The
factors and events that the Trustees may take into account in making such
determination include: (i) the inability of the Trust or any series or class to
maintain its assets at an appropriate size; (ii) changes in laws or regulations
governing the Trust, or any series or class thereof, or affecting assets of the
type in which it invests; or (iii) economic developments or trends having a
significant adverse impact on their business or operations.
In
the event of a termination of the Trust or a Fund, the Board, in its sole
discretion, could determine to permit the shares to be redeemable in
aggregations smaller than Creation Unit Aggregations or to be individually
redeemable. In such circumstance, the Trust may make redemptions in-kind, for
cash, or for a combination of cash or securities.
The
Declaration provides that the Trustees will not be liable to any person other
than the Trust or a shareholder and that a Trustee will not be liable for any
act as a Trustee. Additionally, subject to applicable federal law, no person who
is or who has been a Trustee or officer of the Trust shall be liable to the
Trust or to any shareholder for money damages, except for liability resulting
from (a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final judgment
and which is material to the cause of action. However, nothing in the
Declaration protects a Trustee against any liability to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office. The Declaration provides for indemnification of Trustees and
officers of the Trust unless the indemnitee is liable to the Trust or any
shareholder by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such person's
office.
The
Declaration provides that each shareholder, by virtue of becoming such, will be
held to have expressly assented and agreed to the terms of the
Declaration.
The
Declaration provides that a shareholder of the Trust may bring a derivative
action on behalf of the Trust only if the following conditions are met: (i) the
shareholder was a shareholder at the time of the action complained of; (ii) the
shareholder was a shareholder at the time demand is made; (iii) the shareholder
must make demand to the Trustees before commencing a derivative action on behalf
of the Trust; (iv) any shareholders that hold at least 10% of the outstanding
shares of the Trust (or 10% of the outstanding shares of the series or class to
which such action relates) must join in the request for the Trustees to commence
such action; and (v) the Trustees must be afforded a reasonable amount of time
to consider such shareholder request and to investigate the basis of such claim.
The Declaration also provides that no person, other than the Trustees, who is
not a shareholder of a particular series or class shall be entitled to bring any
derivative action, suit or other proceeding on behalf of or with respect to such
series or class. The Trustees will be entitled to retain counsel or other
advisers in considering the merits of the request and will require an
undertaking by the shareholders making such request to reimburse the Trust for
the expense of any such advisers in the event that the Trustees determine not to
bring such action.
The
term "majority of the outstanding shares" of either the Trust or a particular
fund or investment portfolio means, with respect to the approval of an
Investment Advisory Agreement, a distribution plan or a change in the
fundamental investment policy, the vote of the lesser of (i) 67% or more of the
shares of the Trust or such fund or portfolio present at a meeting, if the
holders of more than 50% of the outstanding shares of the Trust or such fund or
portfolio are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Trust or such fund or portfolio.
BOOK-ENTRY
ONLY SYSTEM
The
following information supplements and should be read in conjunction with the
"Shareholder Information" section in the Prospectus. The Depository Trust
Company ("DTC") acts as Securities Depository for the shares of the Trust.
Shares of each Fund are represented by securities registered in the name of DTC
or its nominee and deposited with, or on behalf of, DTC.
DTC,
a limited-purpose trust company, was created to hold securities of its
participants ("DTC Participants") and to facilitate the clearance and settlement
of securities transactions among the DTC Participants in such securities through
electronic book-entry changes in accounts of the DTC Participants, thereby
eliminating the need for physical movement of securities' certificates. DTC
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations, some of whom (and/or
their representatives) own DTC. More specifically, DTC is a subsidiary of the
Depository Trust and Clearing Corporation ("DTCC"), which is owned by its member
firms, including international broker/dealers, correspondent and clearing banks,
mutual fund companies and investment banks. Access to the DTC system is also
available to others such as banks, brokers, dealers and Trust companies that
clear through or maintain a custodial relationship with a DTC Participant,
either directly or indirectly ("Indirect Participants").
Beneficial
ownership of shares is limited to DTC Participants, Indirect Participants and
persons holding interests through DTC Participants and Indirect Participants.
Ownership of beneficial interests in shares (owners of such beneficial interests
are
referred
to herein as "Beneficial Owners") is shown on, and the transfer of ownership is
effected only through, records maintained by DTC (with respect to DTC
Participants) and on the records of DTC Participants (with respect to Indirect
Participants and Beneficial Owners that are not DTC Participants). Beneficial
Owners will receive from or through the DTC Participant a written confirmation
relating to their purchase of shares. The laws of some jurisdictions may require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such laws may impair the ability of certain investors to
acquire beneficial interests in shares.
Beneficial
Owners of shares are not entitled to have shares registered in their names, will
not receive or be entitled to receive physical delivery of certificates in
definitive form and are not considered the registered holder thereof.
Accordingly, each Beneficial Owner must rely on the procedures of DTC, the DTC
Participant and any Indirect Participant through which such Beneficial Owner
holds its interests, to exercise any rights of a holder of shares. The Trust
understands that under existing industry practice, in the event the Trust
requests any action of holders of shares, or a Beneficial Owner desires to take
any action that DTC, as the record owner of all outstanding shares, is entitled
to take, DTC would authorize the DTC Participants to take such action and that
the DTC Participants would authorize the Indirect Participants and Beneficial
Owners acting through such DTC Participants to take such action and would
otherwise act upon the instructions of Beneficial Owners owning through them. As
described above, the Trust recognizes DTC or its nominee as the owner of all
shares for all purposes.
Conveyance
of all notices, statements and other communications to Beneficial Owners is
effected as follows. Pursuant to the Depositary Agreement between the Trust and
DTC, DTC is required to make available to the Trust upon request and for a fee
to be charged to the Trust a listing of the share holdings of each DTC
Participant. The Trust shall inquire of each such DTC Participant as to the
number of Beneficial Owners holding shares of the Funds, directly or indirectly,
through such DTC Participant. The Trust shall provide each such DTC Participant
with copies of such notice, statement or other communication, in such form,
number and at such place as such DTC Participant may reasonably request, in
order that such notice, statement or communication may be transmitted by such
DTC Participant, directly or indirectly, to such Beneficial Owners. In addition,
the Trust shall pay to each such DTC Participant a fair and reasonable amount as
reimbursement for the expenses attendant to such transmittal, all subject to
applicable statutory and regulatory requirements.
Share
distributions shall be made to DTC or its nominee, Cede & Co., as the
registered holder of all shares of the Trust. DTC or its nominee, upon receipt
of any such distributions, shall credit immediately DTC Participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in shares as shown on the records of DTC or its nominee. Payments by DTC
Participants to Indirect Participants and Beneficial Owners of shares held
through such DTC Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in a "street name," and will be the
responsibility of such DTC Participants. The Trust has no responsibility or
liability for any aspects of the records relating to or notices to Beneficial
Owners, or payments made on account of beneficial ownership interests in such
shares, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests or for any other aspect of the relationship
between DTC and the DTC Participants or the relationship between such DTC
Participants and the Indirect Participants and Beneficial Owners owning through
such DTC Participants.
DTC
may determine to discontinue providing its service with respect to shares of the
Trust at any time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action either to find a replacement for DTC
to perform its functions at a comparable cost or, if such a replacement is
unavailable, to issue and deliver printed certificates representing ownership of
shares, unless the Trust makes other arrangements with respect thereto
satisfactory to the Exchange on which shares are listed.
PURCHASE
AND REDEMPTION OF CREATION UNITS
TRANSACTIONS
IN CREATION UNITS
Each
Fund may issue or redeem Creation Units in return for a “custom basket” or a
“standard basket” of cash and/or securities that the Fund specifies any Business
Day (defined below). A custom basket is defined as either (i) a basket that is
composed of a nonrepresentative selection of the exchange-traded fund’s
portfolio holdings; or (ii) a representative basket that is different from the
initial basket used in transactions on the same business day. A standard basket
is a basket of securities, assets or other positions that is generally
representative of a Fund’s portfolio in exchange for which an exchange-traded
fund issues (or in return for which it redeems) creation units.
All
standard and custom baskets will be governed by the Trust’s written policies and
procedure for basket creation, including (with respect to custom baskets): (i)
detailed parameters for the construction and acceptance of custom baskets that
are in the best interest of the Fund and its shareholders, including the process
for any revisions to, or deviations from, those parameters;
and
(ii) a specification of the titles or roles of the employees of the Adviser who
are required to review each custom basket for compliance with those
parameters.
CREATION
UNIT AGGREGATIONS
The
Trust issues and sells Shares of each Fund only in Creation Unit Aggregations.
The Board reserves the right to declare a split or a consolidation in the number
of shares outstanding of any fund of the Trust, and to make a corresponding
change in the number of shares constituting a Creation Unit, in the event that
the per share price in the secondary market rises (or declines) to an amount
that falls outside the range deemed desirable by the Board.
PURCHASE
AND ISSUANCE OF CREATION UNIT AGGREGATIONS
General.
The Trust issues and sells Shares of each Fund only in Creation Units on a
continuous basis through the Distributor, without a sales load, at the Fund's
NAV next determined after receipt, on any Business Day (as defined herein), of
an order in proper form.
A
"Business Day" with respect to each Fund is any day on which the NYSE is open
for business. As of the date of this SAI, the NYSE observes the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Juneteenth National Independence Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio
Deposit.
The consideration for purchase of a Creation Unit of Shares of a Fund generally
consists of the in-kind deposit of a designated portfolio of securities (the
"Deposit Securities") constituting an optimized representation of the Fund's
Underlying Index and an amount of cash in U.S. dollars computed as described
below (the "Cash Component"). Together, the Deposit Securities and the Cash
Component constitute the "Portfolio Deposit," which represents the minimum
initial and subsequent investment amount for a Creation Unit of such Fund. The
Cash Component is an amount equal to the Balancing Amount (as defined below).
The "Balancing Amount" is an amount equal to the difference between (x) the net
asset value (per Creation Unit) of a Fund and (y) the "Deposit Amount" which is
the market value (per Creation Unit) of the Deposit Securities. The Balancing
Amount serves the function of compensating for any differences between the net
asset value per Creation Unit and the Deposit Amount. If the Balancing Amount is
a positive number (i.e.,
the net asset value per Creation Unit is more than the Deposit Amount), the
Authorized Participant will deliver the Balancing Amount. If the Balancing
Amount is a negative number (i.e.,
the net asset value per Creation Unit is less than the Deposit Amount), the
Authorized Participant will receive the Balancing Amount. Payment of any stamp
duty or other similar fees and expenses payable upon transfer of beneficial
ownership of the Deposit Securities shall be the sole responsibility of the
Authorized Participant that purchased the Creation Unit. The Authorized
Participant must ensure that all Deposit Securities properly denote change in
beneficial ownership.
The
Adviser makes available through the NSCC on each Business Day, prior to the
opening of business on the relevant Exchange (currently 9:30 a.m., Eastern
Time), the list of the names and the required number of shares of each Deposit
Security to be included in the current Portfolio Deposit (based on information
at the end of the previous Business Day) for each Fund. Such Portfolio
Securities are applicable, subject to any adjustments as described below, to
purchases of Creation Units of a given Fund until such time as the
next-announced Deposit Securities composition is made available.
The
identity and number of shares of the Deposit Securities required for a Portfolio
Deposit for each Fund changes pursuant to changes in the composition of the
Fund's portfolio and as rebalancing adjustments and corporate action events are
reflected from time to time by the Adviser with a view to the investment
objective of the Fund. The composition of the Deposit Securities may also change
in response to adjustments to the weighting or composition of the securities
constituting the Underlying Index.
In
addition, the Trust reserves the right to permit or require the substitution of
an amount of cash (that is a "cash in lieu" amount) to be added to the Cash
Component to replace any Deposit Security which may not be available in
sufficient quantity for delivery or that may not be eligible for transfer
through the systems of DTC or the clearing process or for other similar reasons.
The Trust also reserves the right to permit or require a cash in lieu amount
where the delivery of Deposit Securities by the Authorized Participant would be
restricted under the securities laws or where delivery of Deposit Securities to
the Authorized Participant would result in the disposition of Deposit Securities
by the Authorized Participant becoming restricted under the securities laws, and
in certain other situations. The adjustments described above will reflect
changes, known to the Adviser on the date of announcement to be in effect by the
time of delivery of the Portfolio Deposit, in the composition of the Underlying
Index, or resulting from stock splits and other corporate actions.
In
addition to the list of names and numbers of securities constituting the current
Deposit Securities of a Portfolio Deposit, on each Business Day, the Cash
Component effective through and including the previous Business Day, per
outstanding Creation Unit of each Fund, will be made available.
Role
of the Authorized Participant.
Creation Units of shares may be purchased only by or through a DTC Participant
that has entered into an Authorized Participant Agreement with the Distributor.
Such Authorized Participant will agree pursuant to the terms of such Authorized
Participant Agreement on behalf of itself or any investor on whose behalf it
will act, as the case may be, to certain conditions, including that such
Authorized Participant will make available in advance of each purchase of
Creation Units an amount of cash sufficient to pay the Cash Component, once the
NAV of a Creation Unit is next determined after receipt of the purchase order in
proper form, together with the transaction fee described below. The Authorized
Participant may require the investor to enter into an agreement with such
Authorized Participant with respect to certain matters, including payment of the
Cash Component. Investors who are not Authorized Participants must make
appropriate arrangements with an Authorized Participant. Investors should be
aware that their particular broker may not be a DTC Participant or may not have
executed an Authorized Participant Agreement, and that therefore orders to
purchase Creation Units may have to be placed by the investor's broker through
an Authorized Participant. As a result, purchase orders placed through an
Authorized Participant may result in additional charges to such investor. The
Trust does not expect to enter into an Authorized Participant Agreement with
more than a small number of DTC Participants that have international
capabilities. A list of the current Authorized Participants may be obtained from
the Distributor.
Purchase
Order.
To initiate an order for a Creation Unit of shares of a Fund, the Authorized
Participant must submit to the Distributor an irrevocable order to purchase
Shares of a Fund. With respect to a Fund, the Distributor will notify the
Adviser and the Custodian of such order. The Custodian will then provide such
information to the appropriate local sub-custodian(s). The Custodian shall cause
the appropriate local sub-custodian(s) of a Fund to maintain an account into
which the Authorized Participant shall deliver, on behalf of itself or the party
on whose behalf it is acting, the securities included in the designated
Portfolio Deposit (or the cash value of all or a part of such securities, in the
case of a permitted or required cash purchase or cash in lieu amount), with any
appropriate adjustments as advised by the Trust. Deposit Securities must be
delivered to an account maintained at the applicable local sub-custodian. Those
placing orders to purchase Creation Units through an Authorized Participant
should allow sufficient time to permit proper submission of the purchase order
to the Distributor by the cut-off time (as described below) on such Business
Day.
The
Authorized Participant must also make available on or before the contractual
settlement date, by means satisfactory to the Trust, immediately available or
same day funds in U.S. dollars estimated by the Trust to be sufficient to pay
the Cash Component next determined after acceptance of the purchase order,
together with the applicable purchase transaction fee. Any excess funds will be
returned following settlement of the issue of the Creation Unit. Those placing
orders should ascertain the applicable deadline for cash transfers by contacting
the operations department of the broker or depositary institution effectuating
the transfer of the Cash Component. This deadline is likely to be significantly
earlier than the closing time of the regular trading session on the
Exchange.
Investors
should be aware that an Authorized Participant may require orders for purchases
of shares placed with it to be in the particular form required by the individual
Authorized Participant.
Timing
of Submission of Purchase Orders.
An Authorized Participant must submit an irrevocable purchase order no later
than the earlier of (i) 4:00 p.m., Eastern Time or (ii) the closing time of the
trading session on the relevant Fund's Exchange, on any Business Day in order to
receive that Business Day's NAV.
Acceptance
of Purchase Order.
Subject to the conditions that (i) an irrevocable purchase order has been
submitted by the Authorized Participant (either on its own or another investor's
behalf) and (ii) arrangements satisfactory to the Trust are in place for payment
of the Cash Component and any other cash amounts which may be due, the Trust
will accept the order, subject to its right (and the right of the Distributor
and the Adviser) to reject any order until acceptance.
Once
the Trust has accepted an order, upon next determination of the NAV of the
shares, the Trust will confirm the issuance of a Creation Unit of the Fund,
against receipt of payment, at such NAV. The Distributor will then transmit a
confirmation of acceptance to the Authorized Participant that placed the
order.
The
SEC has expressed the view that a suspension of creations that impairs the
arbitrage mechanism applicable to the trading of ETF shares in the secondary
market is inconsistent with Rule 6c-11 under the 1940 Act. The SEC’s position
does not prohibit the suspension or rejection of creations in all instances. The
Trust reserves the right, to the extent consistent with the provisions of Rule
6c-11 under the 1940 Act and the SEC’s position, to reject or revoke acceptance
of a purchase order transmitted to it by the Distributor in respect of any Fund
including instances in which: (a) the order is not in proper form; (b) the
investor(s), upon
obtaining
the shares ordered, would own 80% or more of the currently outstanding shares of
any Fund; (c) the Deposit Securities delivered do not conform to the identify
and number of shares disseminated through the facilities of the NSCC for that
date by the Adviser, as described above; (d) the acceptance of the Portfolio
Deposit would, in the opinion of counsel, be unlawful; or (e) in the event that
circumstances outside the control of the Trust, the Distributor and the Adviser
make it for all practical purposes impossible to process purchase orders.
Examples of such circumstances include acts of God; public service or utility
problems resulting in telephone, telecopy or computer failures; fires, floods or
extreme weather conditions; market conditions or activities causing trading
halts; systems failures involving computer or other informational systems
affecting the Trust, the Distributor, DTC, NSCC, the Adviser, the Custodian, a
sub-custodian or any other participant in the creation process; and similar
extraordinary events. The Trust shall notify a prospective purchaser and/or the
Authorized Participant acting on behalf of such person of its rejection of the
order of such person. The Trust, the Custodian, any sub-custodian and the
Distributor are under no duty, however, to give notification of any defects or
irregularities in the delivery of Portfolio Deposits nor shall either of them
incur any liability for the failure to give any such notification.
Issuance
of a Creation Unit.
Except as provided herein, a Creation Unit of shares of a Fund will not be
issued until the transfer of good title to the Trust of the Deposit Securities
and the payment of the Cash Component have been completed. When the applicable
local sub-custodian(s) have confirmed to the Custodian that the required
securities included in the Portfolio Deposit (or the cash value thereof) have
been delivered to the account of the applicable local sub-custodian or
sub-custodians, the Distributor and the Adviser shall be notified of such
delivery, and the Trust will issue and cause the delivery of the Creation Unit.
Creation Units typically are issued on a "T+2 basis" (that is, two Business Days
after trade date). However, as discussed in this SAI, a Fund reserves the right
to settle redemption transactions and deliver redemption proceeds related to
“foreign investments” (i.e., any security, asset or other position of the Fund
issued by a foreign issuer that is traded on a trading market outside of the
United States) in excess of seven days with settlement as soon as practicable,
but in no event later than 15 days after the tender of shares for redemption in
order to accommodate local market holidays, or series of consecutive holidays,
or the extended delivery cycles for transferring foreign
investments.
To
the extent contemplated by an Authorized Participant's agreement with the
Distributor, the Trust will issue Creation Units to such Authorized Participant
notwithstanding the fact that the corresponding Portfolio Deposits have not been
received in part or in whole, in reliance on the undertaking of the Authorized
Participant to deliver the missing Deposit Securities as soon as possible, which
undertaking shall be secured by such Authorized Participant's delivery and
maintenance of collateral having a value equal to 110%, which the Adviser may
change from time to time, of the value of the missing Deposit Securities in
accordance with the Trust's then-effective procedures. Such collateral must be
delivered no later than 2:00 p.m., Eastern Time, on the contractual settlement
date. The only collateral that is acceptable to the Trust is cash in U.S.
Dollars or an irrevocable letter of credit in form, and drawn on a bank, that is
satisfactory to the Trust. The cash collateral posted by the Authorized
Participant may be invested at the risk of the Authorized Participant, and
income, if any, on invested cash collateral will be paid to that Authorized
Participant. Information concerning the Trust's current procedures for
collateralization of missing Deposit Securities is available from the
Distributor. The Authorized Participant Agreement will permit the Trust to buy
the missing Deposit Securities at any time and will subject the Authorized
Participant to liability for any shortfall between the cost to the Trust of
purchasing such securities and the cash collateral or the amount that may be
drawn under any letter of credit.
In
certain cases, Authorized Participants will create and redeem Creation Units on
the same trade date. In these instances, the Trust reserves the right to settle
these transactions on a net basis. All questions as to the number of shares of
each security in the Deposit Securities and the validity, form, eligibility and
acceptance for deposit of any securities to be delivered shall be determined by
the Trust, and the Trust's determination shall be final and
binding.
Cash
Purchase Method.
When cash purchases of Creation Units are available or specified for a Fund,
they will be effected in essentially the same manner as in-kind purchases
thereof. In addition, the Trust may in its discretion make Creation Units of any
of the other funds available for purchase and redemption in U.S. dollars. In the
case of a cash purchase, the investor must pay the cash equivalent of the
Deposit Securities it would otherwise be required to provide through an in-kind
purchase, plus the same Cash Component required to be paid by an in-kind
purchaser. In addition, to offset the Trust's brokerage and other transaction
costs associated with using the cash to purchase the requisite Deposit
Securities, the investor will be required to pay a fixed purchase transaction
fee, plus an additional variable charge for cash purchases, which is expressed
as a percentage of the value of the Deposit Securities. The transaction fees for
in-kind and cash purchases of Creation Units are described below.
Purchase
Transaction Fee.
A standard creation transaction fee is imposed to offset the transfer,
processing and other transaction costs associated with the issuance of Creation
Units. The standard creation transaction fee is charged on each Creation Unit
created by an Authorized Participant on the day of the transaction. The standard
creation transaction fee is generally fixed at the amount shown in the table
regardless of the number of Creation Units being purchased, but may be reduced
by each Fund if transfer and processing expenses associated with the creation
are anticipated to be lower than the stated fee. In the case of cash creations
or where a Fund permits or requires an Authorized Participant to substitute cash
in lieu of
depositing
a portion of the Deposit Securities, the Authorized Participant may be assessed
an additional variable charge to compensate the Funds for the costs associated
with purchasing the applicable securities. As a result, in order to seek to
replicate the in-kind creation order process, the Funds expect to purchase, in
the secondary market or to otherwise gain exposure to, the portfolio securities
that could have been delivered as a result of an in-kind creation order pursuant
to local law or market convention, or for other reasons ("Market Purchases"). In
such cases where a Fund makes Market Purchases, the Authorized Participant will
reimburse the Fund for, among other things, any difference between the market
value at the which the securities and/or financial instruments were purchased by
the Fund and the cash in lieu amount (which amount, at the Adviser's discretion,
may be capped), applicable registration fees, brokerage commissions and certain
taxes. The Adviser may adjust the transaction fee to the extent the composition
of the creation securities changes or cash in lieu is added to the Cash
Component to protect ongoing shareholders. Authorized Participants are also
responsible for the costs of transferring the Deposit Securities to the Funds.
Investors who use the services of a broker or other financial intermediary to
acquire Fund shares may be charged a fee for such services. The following table
sets forth each Fund's standard creation transaction fees. The fees may be
waived for a Fund until it reaches a certain asset size.
|
|
|
|
| |
Fund |
Standard
Fee for In-Kind and Cash Purchases |
Global
X MLP ETF |
$100 |
Global
X MLP & Energy Infrastructure ETF |
$250 |
Global
X Alternative Income ETF |
$250 |
Global
X Millennial Consumer ETF |
$300 |
Global
X Aging Population ETF |
$300 |
Global
X Conscious Companies ETF |
$500 |
Global
X FinTech ETF |
$250 |
Global
X Internet of Things ETF |
$250 |
Global
X Robotics & Artificial Intelligence ETF |
400 |
Global
X U.S. Infrastructure Development ETF |
$300 |
Global
X U.S. Preferred ETF |
$650 |
Global
X Autonomous & Electric Vehicles ETF |
$700 |
Global
X Artificial Intelligence & Technology ETF |
$300 |
Global
X S&P 500® Quality Dividend ETF |
$250 |
Global
X Adaptive U.S. Factor ETF |
$600 |
Global
X Genomics & Biotechnology ETF |
$250 |
Global
X Cloud Computing ETF |
$250 |
Global
X Cybersecurity ETF |
$250 |
Global
X Thematic Growth ETF |
$250 |
Global
X Video Games & Esports ETF |
$300 |
Global
X Variable Rate Preferred ETF |
$250 |
Global
X Telemedicine & Digital Health ETF |
$250 |
Global
X CleanTech ETF |
$250 |
Global
X Data Center & Digital Infrastructure ETF (formerly known as the
Global X Data Center REITs & Digital Infrastructure
ETF) |
$250 |
Global
X Adaptive U.S. Risk Management ETF |
$1300* |
Global
X Clean Water ETF |
$250 |
Global
X AgTech & Food Innovation ETF |
$250 |
Global
X Blockchain ETF |
$250 |
Global
X Hydrogen ETF |
$250 |
Global
X Solar ETF |
$400 |
Global
X Wind Energy ETF |
$300 |
Global
X PropTech ETF |
$250 |
Global
X 1-3 Month T-Bill ETF |
$250 |
Global
X U.S. Cash Flow Kings 100 ETF |
$250 |
|
|
|
|
| |
Fund |
Standard
Fee for In-Kind and Cash Purchases |
Global
X Defense Tech ETF |
$250 |
*The
standard creation transaction fee will be $200 when the Fund Deposit Securities
include only U.S. Treasury Obligations.
REDEMPTION
OF CREATION UNITS
Shares
of a Fund may be redeemed only in Creation Units at its NAV next determined
after receipt of a redemption request in proper form by the Distributor. The
Trust will not redeem shares in amounts less than Creation Units. Beneficial
owners also may sell Shares in the secondary market, but must accumulate enough
Shares to constitute a Creation Unit in order to have such Shares redeemed by
the Trust. There can be no assurance, however, that there will be sufficient
liquidity in the public trading market at any time to permit assembly of a
Creation Unit. Investors should expect to incur brokerage and other costs in
connection with assembling a sufficient number of Shares to constitute a
redeemable Creation Unit.
With
respect to each Fund, the Adviser makes available through the NSCC prior to the
opening of business on the Exchange (currently 9:30 a.m., Eastern Time) on each
Business Day, the identity and number of shares that will be applicable (subject
to possible amendment or correction) to redemption requests received in proper
form (as defined below) on that day ("Portfolio Securities"). Portfolio
Securities received on redemption may not be identical to Deposit Securities
that are applicable to creation of Creation Units. Unless cash redemptions are
available or specified for a Fund, the redemption proceeds for a Creation Unit
generally consist of Portfolio Securities on the Business Day of the request for
redemption, plus cash in an amount equal to the difference between the NAV of
the shares being redeemed, as next determined after a receipt of a request in
proper form, and the value of the Portfolio Securities, less the redemption
transaction fee described below. The redemption transaction fee described below
is deducted from such redemption proceeds.
A
fixed redemption transaction fee payable to the custodian is imposed on each
redemption transaction. Redemptions of Creation Units for cash are required to
pay an additional variable charge to compensate the relevant Fund for brokerage
and market impact expenses relating to disposing of portfolio securities. The
redemption transaction fee for redemptions in-kind and for cash and the
additional variable charge for cash redemptions (when cash redemptions are
available or specified) are listed in the table below. Investors will also bear
the costs of transferring the Portfolio Deposit from the Trust to their account
or on their order. Investors who use the services of a broker or other such
intermediary may be charged a fee for such services.
|
|
|
|
|
|
|
| |
Fund |
Standard
Fee for In-Kind and Cash Redemptions |
Maximum
Additional Variable Charge for Cash Redemptions* |
Global
X MLP ETF |
$100 |
2% |
Global
X MLP & Energy Infrastructure ETF |
$250 |
2% |
Global
X Alternative Income ETF |
$250 |
2% |
Global
X Millennial Consumer ETF |
$300 |
2% |
Global
X Aging Population ETF |
$300 |
2% |
Global
X Conscious Companies ETF |
$500 |
2% |
Global
X FinTech ETF |
$250 |
2% |
Global
X Internet of Things ETF |
$250 |
2% |
Global
X Robotics & Artificial Intelligence ETF |
400 |
2% |
Global
X U.S. Infrastructure Development ETF |
$300 |
2% |
Global
X U.S. Preferred ETF |
$650 |
2% |
Global
X Autonomous & Electric Vehicles ETF |
$700 |
2% |
Global
X Artificial Intelligence & Technology ETF |
$300 |
2% |
Global
X S&P 500® Quality Dividend ETF |
$250 |
2% |
Global
X Adaptive U.S. Factor ETF |
$600 |
2% |
Global
X Genomics & Biotechnology ETF |
$250 |
2% |
Global
X Cloud Computing ETF |
$250 |
2% |
Global
X Cybersecurity ETF |
$250 |
2% |
Global
X Thematic Growth ETF |
$250 |
2% |
Global
X Video Games & Esports ETF |
$300 |
2% |
|
|
|
|
|
|
|
| |
Fund |
Standard
Fee for In-Kind and Cash Redemptions |
Maximum
Additional Variable Charge for Cash Redemptions* |
Global
X Variable Rate Preferred ETF |
$250 |
2% |
Global
X Telemedicine & Digital Health ETF |
$250 |
2% |
Global
X CleanTech ETF |
$250 |
2% |
Global
X Data Center & Digital Infrastructure ETF (formerly known as the
Global X Data Center REITs & Digital Infrastructure
ETF) |
$250 |
2% |
Global
X Adaptive U.S. Risk Management ETF |
$1300** |
2% |
Global
X Clean Water ETF |
$250 |
2% |
Global
X AgTech & Food Innovation ETF |
$250 |
2% |
Global
X Blockchain ETF |
$250 |
2% |
Global
X Hydrogen ETF |
$250 |
2% |
Global
X Solar ETF |
$400 |
2% |
Global
X Wind Energy ETF |
$300 |
2% |
Global
X PropTech ETF |
$250 |
2% |
Global
X 1-3 Month T-Bill ETF |
$250 |
2% |
Global
X U.S. Cash Flow Kings 100 ETF |
$250 |
2% |
Global
X Defense Tech ETF |
$250 |
2% |
* As
a percentage of the net asset value per Creation Unit, inclusive of the standard
redemption transaction fee.
** The
standard redemption transaction fee will be $200 when the portfolio securities
include only U.S. Treasury Obligations.
Redemption
requests in respect of Creation Units must be submitted to the Distributor by or
through an Authorized Participant. Investors other than Authorized Participants
are responsible for making arrangements for a redemption request through an
Authorized Participant. An Authorized Participant must submit an irrevocable
redemption request no later than the earlier of (i) 4:00 p.m., Eastern Time or
(ii) the closing time of the trading session on the relevant Fund's Exchange, on
any Business Day in order to receive that Business Day's NAV.
The
Distributor will provide a list of current Authorized Participants upon request.
The Authorized Participant must transmit the request for redemption, in the form
required by the Trust, to the Distributor in accordance with procedures set
forth in the Authorized Participant Agreement. Investors should be aware that
their particular broker may not have executed an Authorized Participant
Agreement, and that, therefore, requests to redeem Creation Units may have to be
placed by the investor's broker through an Authorized Participant who has
executed an Authorized Participant Agreement. At any given time there will be
only a limited number of broker-dealers that have executed an Authorized
Participant Agreement. Investors making a redemption request should be aware
that such request must be in the form specified by such Authorized Participant.
Investors making a request to redeem Creation Units should allow sufficient time
to permit proper submission of the request by an Authorized Participant and
transfer of the shares to the Trust's Transfer Agent; such investors should
allow for the additional time that may be required to effect redemptions through
their banks, brokers or other financial intermediaries if such intermediaries
are not Authorized Participants.
Orders
to redeem Creation Unit Aggregations of Funds based on foreign indexes must be
delivered through an Authorized Participant that has executed an Authorized
Participant Agreement. Investors other than Authorized Participants are
responsible for making arrangements for a redemption request to be made through
an Authorized Participant. An order to redeem Creation Unit Aggregations of a
Fund is deemed received by the Trust on the Business Day if: (i) such order is
received by the Fund's distributor not later than the closing time of the
applicable Exchange on the applicable Business Day; (ii) such order is
accompanied or followed by the requisite number of Shares of the Fund specified
in such order, which delivery must be made through DTC to the Fund's custodian
no later than 10:00 a.m., Eastern Time, on the next Business Day following the
day the order was transmitted; and (iii) all other procedures set forth in the
Authorized Participant Agreement are properly followed. Deliveries of Fund
securities to redeeming investors generally will be made within two Business
Days. Due to the schedule of holidays in certain countries, however, the
delivery of in-kind redemption proceeds for a Fund may take longer than two
Business Days after the day on which the redemption request is received in
proper form. In such cases, settlement will occur as soon as practicable, but in
any event no longer than fifteen days after the tender of Shares is received in
proper form.
A
redemption request is considered to be in "proper form" if (i) an Authorized
Participant has transferred or caused to be transferred to the Trust's Transfer
Agent the Creation Unit of Shares being redeemed through the book-entry system
of DTC so
as
to be effective by the relevant Exchange closing time on any Business Day and
(ii) a request in form satisfactory to the Trust is received by the Distributor
from the Authorized Participant on behalf of itself or another redeeming
investor within the time periods specified above. If the Transfer Agent does not
receive the investor's shares through DTC's facilities by 10:00 a.m., Eastern
Time, on the Business Day next following the day that the redemption request is
received, the redemption request shall be rejected. Investors should be aware
that the deadline for such transfers of Shares through the DTC system may be
significantly earlier than the close of business on the relevant Exchange. Those
making redemption requests should ascertain the deadline applicable to transfers
of shares through the DTC system by contacting the operations department of the
broker or depositary institution effecting the transfer of the
shares.
Upon
receiving a redemption request, the Distributor shall notify the Trust and the
Trust's Transfer Agent of such redemption request. The tender of an investor's
Shares for redemption and the distribution of the cash redemption payment in
respect of Creation Units redeemed will be effected through DTC and the relevant
Authorized Participant to the beneficial owner thereof as recorded on the
book-entry system of DTC or the DTC Participant through which such investor
holds, as the case may be, or by such other means specified by the Authorized
Participant submitting the redemption request.
In
connection with taking delivery of shares of Portfolio Securities upon
redemption of shares of a Fund, a redeeming Beneficial Owner, or Authorized
Participant acting on behalf of such Beneficial Owner, must maintain appropriate
security arrangements with a qualified broker-dealer, bank or other custody
providers in each jurisdiction in which any of the Portfolio Securities are
customarily traded, to which account such Portfolio Securities will be
delivered.
Deliveries
of redemption proceeds by the Fund generally will be made within two Business
Days (that is “T+2”). , However, the Fund reserves the right, including under
stressed market conditions, to take up to seven days after the receipt of a
redemption request to pay an Authorized Participant, all as permitted by the
1940 Act. The Fund further reserves the right to settle redemption transactions
and deliver redemption proceeds related to foreign investments in excess of
seven days with settlement as soon as practicable, but in no event later than 15
days after the tender of shares for redemption in order to accommodate local
market holidays, or series of consecutive holidays, or the extended delivery
cycles for transferring foreign investments. The ability of the Trust to effect
in-kind creations and redemptions within two business days of receipt of an
order in good form is subject, among other things, to the condition that, within
the time period from the date of the order to the date of delivery of the
securities, there are no days that are holidays in the applicable foreign
market. For every occurrence of one or more intervening holidays in the
applicable foreign market that are not holidays observed in the U.S. equity
market, the redemption settlement cycle will be extended by the number of such
intervening holidays, subject to a maximum of 15 days as permitted by rule. In
addition to holidays, other unforeseeable closings in a foreign market due to
emergencies may also prevent the Trust from delivering securities within the
normal settlement period. The securities delivery cycles currently practicable
for transferring portfolio securities to redeeming investors, coupled with
foreign market holiday schedules, will require a delivery process longer than
seven calendar days in certain circumstances.
If
neither the redeeming Beneficial Owner nor the Authorized Participant acting on
behalf of such redeeming Beneficial Owner has appropriate arrangements to take
delivery of the portfolio securities in the applicable jurisdiction and it is
not possible to make other such arrangements, or if it is not possible to effect
deliveries of the Portfolio Securities in such jurisdiction, the Trust may in
its discretion redeem such shares in cash (i.e., U.S. dollars or non U.S.
currency), and the redeeming Beneficial Owner will be required to receive its
redemption proceeds in cash. In addition, an investor may request a redemption
in cash that the Trust may, in its sole discretion, permit. In either case, the
investor will receive a cash payment equal to the net asset value of its Shares
based on the NAV of shares of the relevant Fund next determined after the
redemption request is received in proper form (minus a redemption transaction
fee and additional variable charge for cash redemptions specified above, to
offset the Trust's brokerage and other transaction costs associated with the
disposition of Portfolio Securities). The Trust may also, in its sole
discretion, upon request of a shareholder, provide such redeemer a portfolio of
securities that differ from the exact composition of the Portfolio Securities
but does not differ in NAV. Redemptions of shares for Deposit Securities will be
subject to compliance with applicable U.S. federal and state securities laws and
each Fund (whether or not it otherwise permits cash redemptions) reserves the
right to redeem Creation Units for cash to the extent that the Fund could not
lawfully deliver specific Deposit Securities upon redemptions or could not do so
without first registering the Deposit Securities under such laws.
In
the event that cash redemptions are permitted or required by the Trust, proceeds
will be paid to the Authorized Participant redeeming shares on behalf of the
redeeming investor as soon as practicable after the date of redemption (within
seven calendar days thereafter, except for the instances involving foreign
investments in which payment may be delayed in order to accommodate local market
holidays, or series of consecutive holidays, or the extended delivery cycles for
transferring foreign investments. In such instances, the Fund reserves the right
to settle redemption transactions and deliver redemption proceeds as soon as
practicable, but in no event later than 15 days after the tender of shares for
redemption.
To
the extent contemplated by an Authorized Participant's agreement with the
Distributor, in the event the Authorized Participant that has submitted a
redemption request in proper form is unable to transfer all or part of the
Creation Units to be redeemed to the Trust, at or prior to 10:00 a.m., Eastern
Time, on the Business Day after the date of submission of such redemption
request, the Distributor will nonetheless accept the redemption request in
reliance on the undertaking by the Authorized Participant to deliver the missing
shares as soon as possible. Such undertaking shall be secured by the Authorized
Participant's delivery and maintenance of collateral consisting of cash having a
value equal to 110%, which the Adviser may change from time to time, of the
value of the missing shares in accordance with the Trust's then-effective
procedures. The only collateral that is acceptable to the Trust is cash in U.S.
dollars or an irrevocable letter of credit in form, and drawn on a bank, that is
satisfactory to the Trust. The Trust's current procedures for collateralization
of missing shares require, among other things, that any cash collateral shall be
held by the Trust's custodian, and that the fees of the custodian and any
sub-custodians in respect of the delivery, maintenance and redelivery of the
cash collateral shall be payable by the Authorized Participant. The cash
collateral posted by the Authorized Participant may be invested at the risk of
the Authorized Participant, and income, if any, on invested cash collateral will
be paid to that Authorized Participant. The Authorized Participant Agreement
permits the Trust to purchase the missing shares or acquire the portfolio
securities and the Cash Component underlying such shares at any time and
subjects the Authorized Participant to liability for any shortfall between the
cost to the Trust of purchasing such shares, Portfolio Securities or Cash
Component and the cash collateral or the amount that may be drawn under any
letter of credit.
Because
the portfolio securities of a Fund may trade on the relevant Exchange(s) on days
that the Exchange is closed or are otherwise not Business Days for such Fund,
shareholders may not be able to redeem their shares of such Fund, or to purchase
or sell shares of such Fund on the Exchange, on days when the NAV of such Fund
could be significantly affected by events in the relevant foreign
markets.
The
right of redemption may be suspended or the date of payment postponed with
respect to any Fund (1) for any period during which the Exchange is closed
(other than customary weekend and holiday closings); (2) for any period during
which trading on the Exchange is suspended or restricted; (3) for any period
during which an emergency exists as a result of which disposal of the shares of
the Fund's portfolio securities or determination of its net asset value is not
reasonably practicable; or (4) in such other circumstance as is permitted by the
SEC.
TAXES
TAXES
FOR THE GLOBAL X MLP ETF
Set
forth below is a discussion of certain U.S. federal income tax considerations
affecting the Fund and the purchase, ownership and disposition of Shares. It is
based upon the Code, the regulations promulgated thereunder, judicial
authorities, and administrative rulings and practices as in effect as of the
date of this SAI, all of which are subject to change, including the following
information which also supplements and should be read in conjunction with the
section in the Prospectus entitled "Dividends, Distributions and
Taxes."
The
following is a summary of the material U.S. federal income tax considerations
applicable to an investment in Shares of the Fund. The summary is based on the
laws in effect on the date of this SAI and existing judicial and administrative
interpretations thereof, all of which are subject to change, possibly with
retroactive effect. In addition, this summary assumes that the Fund shareholder
holds Fund Shares as capital assets within the meaning of the Code, and does not
hold Fund Shares in connection with a trade or business. This summary does not
address all potential U.S. federal income tax considerations possibly applicable
to an investment in Fund Shares, to Fund shareholders holding Fund Shares
through a partnership (or other pass-through entity) or to Fund shareholders
subject to special tax rules. Prospective Fund shareholders are urged to consult
their own tax advisers with respect to the specific federal, state, local and
foreign tax consequences of investing in Fund Shares.
The
Fund is taxed as a regular corporation for federal income tax purposes and as
such is obligated to pay federal and applicable state, local, and foreign
corporate taxes on its taxable income. This differs from most investment
companies, which elect to be treated as regulated investment companies under the
Code in order to avoid paying entity level income taxes. Under current law, the
Fund is not eligible to elect treatment as a regulated investment company due to
its investments in MLPs invested in energy assets. As a result, the Fund will be
obligated to pay federal and state taxes on its taxable income, as opposed to
most other investment companies, which are not so obligated.
As
discussed below, the Fund expects that a portion of the distributions it
receives from MLPs may be treated as a tax-deferred return of capital, thus
reducing the Fund's current tax liability. However, the amount of taxes
currently paid by the Fund will vary depending on the amount of income and gains
derived from investments and/or sales of MLP interests, such taxes will reduce
your return from an investment in the Fund.
The
Fund invests its assets primarily in MLPs, which generally are treated as
partnerships for federal income tax purposes. As a partner in the MLPs, the Fund
must report its allocable share of the MLPs' taxable income in computing its
taxable income, regardless of the extent (if any) to which the MLPs make
distributions. Based upon the Adviser's review of the historic results of the
types of MLPs in which the Fund invests, the Adviser expects that the cash flow
received by the Fund with respect to its MLP investments will generally exceed
the taxable income allocated to the Fund (and this excess generally will not be
currently taxable to the Fund but, rather, will result in a reduction of the
Fund's adjusted tax basis in each MLP as described in the following paragraph).
This is the result of a variety of factors, including significant non-cash
deductions, such as accelerated depreciation. There is no assurance that the
Adviser's expectation regarding the tax character of MLP distributions will be
realized. If this expectation is not realized, there may be greater tax expense
borne by the Fund and less cash available to distribute to you or to pay to
expenses.
The
Fund will also be subject to U.S. federal income tax (and possibly state, local,
or foreign taxes) at the corporate tax rate on any gain recognized by the Fund
on any sale of equity securities of an MLP. Cash distributions from an MLP to
the Fund that exceed the Fund's allocable share of such MLP's net taxable income
will reduce the Fund's adjusted tax basis in the equity securities of the MLP.
These reductions in the Fund's adjusted tax basis in the MLP equity securities
will increase the amount of any taxable gain (or decrease the amount of any tax
loss) recognized by the Fund on a subsequent sale of the
securities.
The
Funds will accrue deferred income taxes for any future tax liability associated
with its investment in MLPs, including as a result of ordinary income incurred
by the MLPs as well as resulting from capital appreciation of the Fund’s
investments. Upon the sale of MLP security, the Fund may be liable for
previously deferred taxes. The Fund will rely to some extent on information
provided by the MLPs in which it invests, which is not necessarily timely, to
estimate deferred tax liability for purposes of financial statement reporting
and determining NAV. The Fund may accrue separately for taxes associated with
both capital gains and ordinary income realized by the Fund. From time to time,
the Adviser will modify the estimates or assumptions regarding the Fund's
deferred tax liability as new information becomes available. The Fund will
generally compute deferred income taxes based on the federal income tax rate
applicable to corporations and an assumed rate attributable to state
taxes.
Distributions
reinvested in additional Shares of the Fund through the means of the dividend
reinvestment service (see above) will nevertheless be taxable dividends to
shareholders acquiring such additional Shares.
Distributions
by the Fund will be treated as dividends for U.S. federal income tax purposes to
the extent paid from the Fund's current or accumulated earnings and profits (as
determined under U.S. federal income tax principles). Such dividends may be
eligible for treatment as qualified dividend income if certain holding period
requirements are satisfied. Dividends paid by the Fund to a Non-U.S. Shareholder
(defined below) generally will be subject to withholding tax at a 30% rate or a
reduced rate specified by an applicable income tax treaty. If an income tax
treaty applies to a Non-U.S. Shareholder, the Non-U.S. Shareholder will be
required to provide an IRS Form W-8BEN certifying its entitlement to benefits
under the treaty in order to obtain a reduced rate of withholding
tax.
TAXES
FOR EACH FUND OTHER THAN THE GLOBAL X MLP ETF
The
following summarizes certain additional tax considerations generally affecting
the Funds and their shareholders that are not described in the Prospectus. No
attempt is made to present a detailed explanation of the tax treatment of the
Funds or their shareholders, and the discussions here and in the Prospectus are
not intended as a substitute for careful tax planning. Potential investors
should consult their tax advisers with specific reference to their own tax
situations.
The
discussions of the federal tax consequences in the Prospectus and this SAI are
based on the Code and the regulations, rulings and decisions under it, as in
effect on the date of this SAI. Future legislative or administrative changes or
court decisions may significantly change the statements included herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein. This discussion does not address all aspects
of U.S. federal income taxation that may be relevant to shareholders in light of
their particular circumstances or to shareholders subject to special treatment
under U.S. federal income tax laws (e.g., certain financial institutions,
insurance companies, dealers in stock or securities, tax-exempt organizations,
persons who have entered into hedging transactions with respect to Shares of a
Fund, persons who borrow in order to acquire Shares, and certain foreign
taxpayers). Furthermore, this discussion does not reflect possible application
of the alternative minimum tax ("AMT"). Unless otherwise noted, this discussion
assumes Shares of each Fund (including the Global X MLP ETF) are held by U.S.
shareholders and that such Shares are held as capital assets. No representation
is made as to the tax consequences of the operation of any Fund.
U.S.
SHAREHOLDER
A
U.S. shareholder is a beneficial owner of Shares of a Fund that is for U.S.
federal income tax purposes:
•a
citizen or individual resident of the United States (including certain former
citizens and former long-term residents);
•a
domestic corporation or other entity treated as a corporation for U.S. federal
income tax purposes, created or organized in or under the laws of the United
States or any state thereof or the District of Columbia;
•an
estate, the income of which is subject to U.S. federal income taxation
regardless of its source; or
•a
trust if a court within the United States is able to exercise primary
supervision over its administration and one or more U.S. persons have the
authority to control all of its substantial decisions or the trust has made a
valid election in effect under applicable Treasury Regulations to be treated as
a U.S. person.
A
"Non-U.S. shareholder" is a beneficial owner of Shares of a Fund that is an
individual, corporation, trust or estate and is not a U.S. shareholder. If a
partnership (including any entity treated as a partnership for U.S. federal
income tax purposes) holds Shares of a Fund, the tax treatment of a partner in
the partnership generally depends upon the status of the partner and the
activities of the partnership. A prospective shareholder who is a partner of a
partnership holding Shares should consult its tax advisors with respect to the
purchase, ownership and disposition of its Shares.
FUND
TAXATION
Each
Fund is treated as a separate corporation for federal income tax purposes.
Losses in one fund do not offset gains in another fund and the requirements
(other than certain organizational requirements) for qualifying for regulated
investment company status as described below are determined at the Fund level
rather than the Trust level.
Each
Fund has elected and intends to qualify as a regulated investment company
("RIC") under Subchapter M of Subtitle A, Chapter 1, of the Code. As a RIC, each
Fund generally will be exempt from federal income tax on its net investment
income and realized capital gains that it distributes to shareholders, provided
that it distributes an amount equal to at least the sum of 90% of its tax-exempt
income and 90% of its investment company taxable income (net investment income
and the excess of net short-term capital gain over net long-term capital loss),
if any, for the year (the "Distribution Requirement") and satisfies certain
other requirements of the Code that are described below. Each Fund intends to
make sufficient distributions or deemed distributions each year to avoid
liability for corporate income tax. If a Fund were to fail to make sufficient
distributions, it could be liable for corporate income tax and for excise tax in
respect of the shortfall or, if the shortfall is large enough, such Fund could
be disqualified as a RIC.
In
addition to satisfaction of the Distribution Requirement, a Fund must derive
with respect to a taxable year at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock or securities or foreign currencies, or from
other income derived with respect to its business of investing in such stock,
securities, or currencies or net income derived from an interest in a qualified
publicly traded partnership (the "Income Requirement"). A "qualified publicly
traded partnership" ("QPTP") is generally defined as a publicly traded
partnership under Section 7704 of the Code, which is generally a partnership the
interests in which are "traded on an established securities market" or are
"readily tradable on a secondary market (or the substantial equivalent
thereof)". However, for these purposes, a QPTP does not include a publicly
traded partnership if 90% or more of its income is as described above.
Also,
at the close of each quarter of its taxable year, at least 50% of the value of a
Fund's assets must consist of cash and cash items, U.S. government securities,
securities of other regulated investment companies and securities of other
issuers (as to which the Fund does not hold more than 5% of the value of its
total assets in securities of such issuer and as to which the Fund does not hold
more than 10% of the outstanding voting securities (including securities of a
QPTP of such issuer), and no more than 25% of the value of the Fund's total
assets may be invested in the securities of (i) any one issuer (other than U.S.
government securities and securities of other regulated investment companies),
(ii) two or more issuers which such Fund controls and which are engaged in the
same or similar trades or businesses or (iii) one or more QPTPs (the "Asset
Diversification Requirement"). Each Fund intends to comply with these
requirements.
If
a RIC fails this asset-diversification test, such RIC, in addition to other cure
provisions previously permitted, has a 6-month period to correct any failure
without incurring a penalty if such failure is "de minimis," meaning that the
failure does not exceed the lesser of 1% of the RIC's assets, or $10
million.
If
for any taxable year a Fund does not qualify as a RIC, all of its taxable income
will be subject to tax at the corporate income tax rate without any deduction
for distributions to shareholders. In such event, the shareholders would
recognize dividend income on distributions to the extent of such Fund's current
and accumulated earnings and profits. Failure to qualify as a regulated
investment company would thus have a negative impact on the Fund's income and
performance. Subject to savings provisions for certain failures to satisfy the
Income Requirement or Asset Diversification Requirement, which, in general, are
limited to those due to reasonable cause and not willful neglect, it is possible
that the Fund will not qualify as a regulated investment company in any given
tax year. Even if such savings provisions apply, the Fund may be subject to a
monetary sanction of $50,000 or more.
The
Code imposes a nondeductible 4% excise tax on regulated investment companies
that fail to currently distribute an amount equal to specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). Each Fund intends to make sufficient distributions
or deemed distributions of its ordinary taxable income and capital gain net
income each calendar year to avoid liability for this excise tax.
Each
Fund intends to distribute annually to its shareholders all or substantially all
of its investment company taxable income, and any net realized long-term capital
gains in excess of net realized short-term capital losses (including any capital
loss carryovers). However, if a Fund retains for investment an amount equal to
all or a portion of its net long-term capital gains in excess of its net
short-term capital losses (including any capital loss carryovers), it will be
subject to a corporate tax on the amount retained. In that event, a Fund may
designate such retained amounts as undistributed capital gains in a notice to
its shareholders who (a) will be required to include in income for U.S. federal
income tax purposes, as long-term capital gains, their proportionate Shares of
the undistributed amount, (b) will be entitled to credit their proportionate
Shares of the tax paid by the Fund on the undistributed amount against their
U.S. federal income tax liabilities, if any, and to claim refunds to the extent
their credits exceed their liabilities, if any, and (c) will be entitled to
increase their tax basis, for U.S. federal income tax purposes, in their Shares
by an amount equal to the difference between the amount of undistributed capital
gains included in the shareholder's income and the tax deemed paid by the
shareholder. Organizations or persons not subject to U.S. federal income tax on
such capital gains will be entitled to a refund of their pro rata share of such
taxes paid by such Fund upon filing appropriate returns or claims for refund
with the Internal Revenue Service ("IRS").
Investors
considering buying Shares just prior to a dividend or capital gain distribution
should be aware that, although the price of Shares just purchased at that time
may reflect the amount of the forthcoming distribution, such dividend or
distribution may nevertheless be taxable to them. If a Fund is the holder of
record of any stock on the record date for any dividends payable with respect to
such stock, such dividends will be included in such Fund's gross income not as
of the date received but as of the later of (a) the date such stock became
ex-dividend with respect to such dividends (that is, the date on which a buyer
of the stock would not be entitled to receive the declared, but unpaid,
dividends) or (b) the date such Fund acquired such stock. Accordingly, to
satisfy its income distribution requirements, a Fund may be required to pay
dividends based on anticipated earnings, and shareholders may receive dividends
in an earlier year than would otherwise be the case.
For
investors that hold their Fund Shares in a taxable account, a high portfolio
turnover rate may result in higher taxes. This is because a Fund with a high
turnover rate is likely to accelerate the recognition of capital gains and more
of such gains are likely to be taxable as short-term rather than long-term
capital gains in contrast to a comparable fund with a low turnover rate. Any
such higher taxes would reduce the Fund’s after-tax performance.
A
RIC is permitted to carry forward net capital losses to offset capital gains
realized in later years, and the losses carried forward retain their original
character as either long-term or short-term losses.
DISTRIBUTIONS
Distributions
by a Fund of its net short-term capital gains will be taxable as ordinary
income. Distributions of net realized long-term capital gains, if any, that a
Fund designates as capital gains dividends are taxable as long-term capital
gains, whether paid in cash or in shares and regardless of how long a
shareholder has held shares of such Fund. All other dividends of a Fund
(including dividends from short-term capital gains) from its current and
accumulated earnings and profits ("regular dividends") are generally subject to
tax as ordinary income except as described below for qualified
dividends.
EXCESS
INCLUSION INCOME
Certain
types of income received by a Fund from REITs, real estate mortgage investment
conduits ("REMICs"), taxable mortgage pools ("TMPs") or other investments may
cause a Fund to designate some or all of its distributions as "excess inclusion
income." Such excess inclusion income may (1) constitute taxable income, as
"unrelated business taxable income" ("UBTI") for Fund shareholders who would
otherwise be tax-exempt, such as individual retirement accounts, 401(k)
accounts,
Keogh plans, pension plans and certain charitable entities; (2) as UBTI, cause a
charitable remainder trust to be subject to a 100% excise tax on its UBTI; (3)
not be offset against net operating losses for tax purposes; (4) not be eligible
for reduced U.S. withholding for non-U.S. shareholders even from tax treaty
countries; and (5) cause a Fund to be subject to tax if certain "disqualified
organizations" as defined by the Code are Fund shareholders.
TAXES
APPLICABLE TO ALL FUNDS
SECTIONS
351 AND 362
The
Trust on behalf of each Fund has the right to reject an order for a purchase of
Shares of a Fund if the purchaser (or group of purchasers) would, upon obtaining
the Shares so ordered, own 80% or more of the outstanding Shares of the Fund and
if, pursuant to Sections 351 and 362 of the Code, the Fund would have a basis in
the securities different from the market value of such securities on the date of
deposit. If a Fund's basis in such securities on the date of deposit was less
than market value on such date, such Fund, upon disposition of the securities,
would recognize more taxable gain or less taxable loss than if its basis in the
securities had been equal to market value. It is not anticipated that the Trust
will exercise the right of rejection except in a case where the Trust determines
that accepting the order could result in material adverse tax consequences to a
Fund or its shareholders. The Trust also has the right to require information
necessary to determine deemed and beneficial share ownership for purposes of the
80% determination.
FOREIGN
TAXES
It
is expected that certain income of the Funds will be subject to foreign
withholding taxes and other taxes imposed by countries in which the Funds
invest. If a Fund is liable for foreign income taxes, including such withholding
taxes and more than 50% of the value of a Fund's total assets at the close of
the taxable year consists of stock or securities of foreign corporations, such
Fund may file an election with the IRS to "pass through" to the Fund's
shareholders the amount of foreign income taxes paid by the Fund. The Funds
expect to be able to make this election, though no assurance can be given that
they will be able to do so. Pursuant to this election, a shareholder (a) will
include in gross income (in addition to taxable dividends actually received) the
shareholder's pro rata share of the foreign income taxes paid by a Fund; (b)
will treat the shareholder's pro rata share of such foreign income taxes as
having been paid by the shareholder; and (c) may, subject to certain
limitations, be entitled either to deduct the shareholder's pro rata share of
such foreign income taxes in computing the shareholder's taxable income or to
use it as a foreign tax credit against U.S. income taxes. Shortly after any year
for which a Fund makes such a pass-through election, the Fund will report to its
shareholders, in writing, the amount per Share of such foreign tax that must be
included in each shareholder's gross income and the amount which will be
available for deduction or credit.
If
a Fund does not make the election, any foreign taxes paid or accrued will
represent an expense to such Fund, which will reduce its net investment income.
Absent this election, shareholders will not be able to claim either a credit or
deduction for their pro rata shares of such taxes paid by the Fund, nor will
shareholders be required to treat their pro rata shares of such taxes as amounts
distributed to them.
The
rules governing foreign tax credits are complex and, therefore, shareholders
should consult their own tax advisors regarding the availability of foreign tax
credits in their particular circumstances.
TAXATION
OF FUND DISTRIBUTIONS
Distributions.
Distributions
by a Fund of its net short-term capital gains will be taxable as ordinary
income. Distributions of net realized long-term capital gains, if any, that a
Fund designates as capital gains dividends are taxable as long-term capital
gains, whether paid in cash or in shares and regardless of how long a
shareholder has held shares of such Fund. All other dividends of a Fund
(including dividends from short-term capital gains) from its current and
accumulated earnings and profits ("regular dividends") are generally subject to
tax as ordinary income except as described below for qualified
dividends.
Return
of Capital. Distributions
in excess of a Fund's current and accumulated earnings and profits will, as to
each shareholder, be treated as a tax-free return of capital to the extent of a
shareholder's basis in his shares of such Fund, and as a capital gain thereafter
(if the shareholder holds his Shares of such Fund as capital assets).
Shareholders receiving dividends or distributions in the form of additional
Shares should be treated for U.S. federal income tax purposes as receiving a
distribution in an amount equal to the amount of money that the shareholders
receiving cash dividends or distributions will receive, and should have a cost
basis in the Shares received equal to such amount. Dividends paid by a Fund that
are attributable to dividends received by a Fund from domestic corporations may
qualify for the federal dividends-received deduction for corporations.
Extraordinary
Dividends. If
an individual, trust or estate receives a regular dividend or qualified
dividends qualifying for the long-term capital gains rates and such dividend
constitutes an "extraordinary dividend," and the individual subsequently
recognizes a loss on the sale or exchange of stock in respect of which the
extraordinary dividend was paid, then the loss will be long-term capital loss to
the extent of such extraordinary dividend. An extraordinary dividend on common
stock for this purpose is generally a dividend (i) in an amount greater than or
equal to 10% of the taxpayer's tax basis (or trading value) in a share of stock,
aggregating dividends with ex-dividend dates within an 85-day period or (ii) in
an amount greater than 20% of the taxpayer's tax basis (or trading value) in a
share of stock, aggregating dividends with ex-dividend dates within a 365-day
period.
Qualified
Dividend Income. Distributions
by a Fund of investment company taxable income (excluding any short-term capital
gains) whether received in cash or shares will be taxable either as ordinary
income or as qualified dividend income, eligible for the reduced maximum rate to
individuals of 20% to the extent the Fund receives qualified dividend income on
the securities it holds and the Fund designates the distribution as qualified
dividend income. Qualified dividend income is, in general, dividend income from
taxable domestic corporations and certain foreign corporations (e.g., foreign
corporations incorporated in a possession of the United States or in certain
countries with a comprehensive tax treaty with the United States, or the stock
of which is readily tradable on an established securities market in the United
States). A dividend will not be treated as qualified dividend income to the
extent that (i) the shareholder has not held the shares on which the dividend
was paid for more than 60 days during the 121-day period that begins on the date
that is 60 days before the date on which the shares become ex dividend with
respect to such dividend (and the Fund also satisfies those holding period
requirements with respect to the securities it holds that paid the dividends
distributed to the shareholder), (ii) the shareholder is under an obligation
(whether pursuant to a short sale or otherwise) to make related payments with
respect to substantially similar or related property, or (iii) the shareholder
elects to treat such dividend as investment income under section 163(d)(4)(B) of
the Code.
Qualified
REIT Dividends and Income from QPTPs. Under
the 2017 Tax Cuts and Jobs Act, "qualified REIT dividends" (i.e., ordinary REIT
dividends other than capital gain dividends and portions of REIT dividends
designated as qualified dividend income) are treated as eligible for a 20%
deduction by noncorporate taxpayers. This deduction, if allowed in full, equates
to a maximum effective tax rate of 29.6% (37% top rate applied to income after
20% deduction). A Fund may choose to report the special character of "qualified
REIT dividends". A noncorporate shareholder receiving such dividends would treat
them as eligible for the 20% deduction, provided Fund shares were held by the
shareholder for more than 45 days during the 91-day period beginning on the date
that is 45 days before the date on which the shares become ex-dividend with
respect to such dividend). The amount of a RIC's dividends eligible for the 20%
deduction for a taxable year is limited to the excess of the RIC's qualified
REIT dividends for the taxable year over allocable expenses. The IRS continues
to study whether conduit treatment of income from QPTPs (income from MLPs) for
purposes of the 20% deduction by noncorporate taxpayers is appropriate in the
context of publicly traded partnerships.
Corporate
Dividends-Received Deduction. A
Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends it received from U.S. domestic corporations
may be eligible, in the hands of such shareholders, for the corporate
dividends-received deduction, subject to certain holding period requirements and
debt financing limitations.
Medicare
Tax.
Certain
U.S. shareholders, including individuals and estates and trusts, are subject to
an additional 3.8% Medicare tax on all or a portion of their "net investment
income," which includes dividends from a Fund and net gains from the disposition
of shares of a Fund. U.S. shareholders are urged to consult their own tax
advisors regarding the implications of the additional Medicare tax resulting
from an investment in a Fund.
TAXATION
OF INCOME FROM CERTAIN FINANCIAL INSTRUMENTS AND PFICS
The
tax principles applicable to transactions in financial instruments and futures
contracts and options that may be engaged in by a Fund including the effect of
fluctuations in the value of foreign currencies, and investments in passive
foreign investment companies, are complex and, in some cases, uncertain. Such
transactions and investments may cause a Fund to recognize taxable income prior
to the receipt of cash, thereby requiring such Fund to liquidate other
positions, or to borrow money, so as to make sufficient distributions to
shareholders to avoid corporate-level tax. Moreover, some or all of the taxable
income recognized may be ordinary income or short-term capital gain, so that the
distributions may be taxable to shareholders as ordinary income.
Options,
Futures, Forward Contracts, Swap Agreements, Hedges, Straddles and Other
Transactions.
In
general, option premiums received by a Fund are not immediately included in the
income of the Fund. Instead, the premiums are recognized (i) when the option
contract expires, (ii) the option is exercised by the holder, or (iii) the Fund
transfers or otherwise terminates the option (e.g., through a closing
transaction). If a call option written by a Fund is exercised and the Fund sells
or delivers the underlying stock, the Fund generally will recognize capital gain
or loss equal to (a) sum of the strike price and the option
premium
received by the Fund minus (b) a Fund's basis in the stock. Such gain or loss
generally will be short-term or long-term depending upon the holding period of
the underlying stock. If securities are purchased by a Fund pursuant to the
exercise of a put option written by it, the Fund generally will subtract the
premium received for purposes of computing its cost basis in the securities
purchased. The gain or loss that may arise in respect of any termination of a
Fund's obligation under an option other than through the exercise of the option
will be short-term gain or loss, depending on whether the premium income
received by the Fund is greater or less than the amount paid by the Fund (if
any) in terminating the transaction. Thus, for example, if an option written by
a Fund expires unexercised, the Fund generally will recognize short-term gain
equal to the premium received.
Certain
covered call writing activities of a Fund may trigger the U.S. federal income
tax straddle rules of section 1092 of the Code, requiring that losses be
deferred and holding periods be tolled on offsetting positions in options and
stocks deemed to constitute substantially similar or related property. Options
on single stocks that are not "deep in the money" may constitute qualified
covered calls, which generally are not subject to the straddle rules; the
holding period on stock underlying qualified covered calls that are "in the
money" although not "deep in the money" will be suspended during the period that
such calls are outstanding. Thus, the straddle rules and the rules governing
qualified covered calls could cause gains that would otherwise constitute
long-term capital gains to be treated as short-term capital gains, and
distributions that would otherwise constitute "qualified dividend income" or
qualify for the dividends-received deduction to fail to satisfy the holding
period requirements and therefore to be taxed as ordinary income or fail to
qualify for the 50% dividends-received deduction, as the case may be.
The
tax treatment of certain futures contracts entered into by a Fund as well as
listed non-equity options written or purchased by a Fund on U.S. exchanges
(including options on futures contracts, equity indices and debt securities)
will be governed by Section 1256 of the Code ("Section 1256 Contracts"). Gains
or losses on Section 1256 Contracts generally are considered 60% long-term and
40% short-term capital gains or losses ("60/40"), although certain foreign
currency gains and losses from such contracts may be treated as ordinary in
character. Also, Section 1256 Contracts held by a Fund at the end of each
taxable year (and, for purposes of the 4% excise tax, on certain other dates as
prescribed under the Code) are "marked to market" with the result that
unrealized gains or losses are treated as though they were realized and the
resulting gain or loss is treated as ordinary or 60/40 gain or loss, as
applicable.
In
addition to the special rules described above in respect of futures and options
transactions, a Fund's transactions in other derivative instruments (e.g.,
forward contracts and swap agreements) as well as any of its other hedging,
short sale or similar transactions, may be subject to one or more special tax
rules (e.g., notional principal contract, straddle, constructive sale, wash sale
and short sale rules). These rules may affect whether gains and losses
recognized by a Fund are treated as ordinary or capital or as short-term or
long-term, accelerate the recognition of income or gains to the Fund, defer
losses to the Fund, and cause adjustments in the holding periods of the Fund's
securities. These rules could therefore affect the amount, timing and/or
character of distributions to shareholders. Because these and other tax rules
applicable to these types of transactions are in some cases uncertain under
current law, an adverse determination or future guidance by the IRS with respect
to these rules (which determination or guidance may be retroactive) may affect
whether a Fund has made sufficient distributions, and otherwise satisfied the
relevant requirements, to maintain its qualification as a RIC and avoid
Fund-level tax. Each Fund will monitor its transactions, will make appropriate
tax elections and will make appropriate entries in its books and records in
order to mitigate the effect of these rules.
Certain
of a Fund's investments in derivative instruments and foreign
currency-denominated instruments, and any of a Fund's transactions in foreign
currencies and hedging activities, are likely to produce a difference between a
Fund's book income and the sum of its taxable income and net tax-exempt income
(if any). If there is a difference between a Fund's book income and the sum of
its taxable income and net tax-exempt income (if any), the Fund may be required
to distribute amounts in excess of its book income or a portion of Fund
distributions may be treated as a return of capital to shareholders. If a Fund's
book income exceeds the sum of its taxable income (including realized capital
gains) and net tax-exempt income (if any), the distribution (if any) of such
excess generally will be treated as (i) a dividend to the extent of the Fund's
remaining earnings and profits (including earnings and profits arising from
tax-exempt income), (ii) thereafter, as a return of capital to the extent of the
recipient's basis in the shares, and (iii) thereafter, as gain from the sale or
exchange of a capital asset. If a Fund's book income is less than the sum of its
taxable income and net tax-exempt income (if any), the Fund could be required to
make distributions exceeding book income to qualify as a RIC that is accorded
special tax treatment.
Commodities.
Gains
from the disposition of commodities, including precious metals, will neither be
considered qualifying income for purposes of satisfying the Income Requirement
nor qualifying assets for purposes of satisfying the Asset Diversification
Requirement. Also, the IRS has issued a revenue ruling which holds that income
derived from commodity- linked swaps is not qualifying income for purposes of
the Income Requirement. In a subsequent revenue ruling, as well as in a number
of follow-on private letter rulings (upon which only the fund that received the
private letter ruling may rely), the IRS provides that income from certain
alternative investments which create commodity exposure, such as certain
commodity-linked or structured notes or a corporate subsidiary that invests in
commodities, may be considered qualifying income under the Code.
However,
the portion of such rulings relating to the treatment of a corporation as a RIC
that require a determination of whether a financial instrument or position is a
security under section 2(a)(36) of the 1940 Act was revoked because of changes
in the IRS’s position. (A financial instrument or position that constitutes a
security under section 2(a)(36) of the 1940 Act generates qualifying income for
a corporation taxed as a regulated investment company). Accordingly, a Fund may
decide to invest in certain commodity-linked notes only to the extent it obtains
an opinion of counsel confirming that income from such investments should be
qualifying income. In addition, a RIC may gain exposure to commodities through
investment in a QPTP, such as an exchange-traded fund or ETF that is classified
as a partnership and which invests in commodities. Accordingly, the extent to
which a Fund invests in commodities or commodity-linked derivatives may be
limited by the Income Requirement and the Asset Diversification Requirement,
which the Fund must continue to satisfy to maintain its status as a RIC. A Fund
also may be limited in its ability to sell its investments in commodities,
commodity-linked derivatives, and certain ETFs or be forced to sell other
investments to generate income due to the Income Requirement. If a Fund does not
appropriately limit such investments or if such investments (or the income
earned on such investments) were to be recharacterized for U.S. tax purposes,
the Fund could fail to qualify as a RIC. In lieu of potential disqualification,
a Fund is permitted to pay a tax for certain failures to satisfy the Asset
Diversification Test or Income Requirement, which, in general, are limited to
those due to reasonable cause and not willful neglect.
Original
Issue Discount, Pay-In-Kind Securities, Market Discount and Commodity-Linked
Notes.
Some
debt obligations with a fixed maturity date of more than one year from the date
of issuance (and zero-coupon debt obligations with a fixed maturity date of more
than one year from the date of issuance) that may be acquired by a Fund may be
treated as debt obligations that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in a Fund's taxable income (and required to be distributed by
the Fund) over the term of the debt obligation, even though payment of that
amount is not received until a later time, upon partial or full repayment or
disposition of the debt security.
Some
debt obligations (with a fixed maturity date of more than one year from the date
of issuance) that may be acquired by a Fund in the secondary market may be
treated as having "market discount." Very generally, market discount is the
excess of the stated redemption price of a debt obligation (or in the case of an
obligations issued with OID, its "revised issue price") over the purchase price
of such obligation. Generally, any gain recognized on the disposition of, and
any partial payment of principal on, a debt obligation having market discount is
treated as ordinary income to the extent the gain, or principal payment, does
not exceed the "accrued market discount" on such debt obligation. Alternatively,
a Fund may elect to accrue market discount currently, in which case the Fund
will be required to include the accrued market discount in the Fund's income (as
ordinary income) and thus distribute it over the term of the debt security, even
though payment of that amount is not received until a later time, upon partial
or full repayment or disposition of the debt security. The rate at which the
market discount accrues, and thus is included in a Fund's income, will depend
upon which of the permitted accrual methods the Fund elects. In the case of
higher-risk securities, the amount of market discount may be unclear. See
"Higher-Risk Securities."
Some
debt obligations (with a fixed maturity date of one year or less from the date
of issuance) that may be acquired by a Fund may be treated as having
"acquisition discount" (very generally, the excess of the stated redemption
price over the purchase price), or OID in the case of certain types of debt
obligations. A Fund will be required to include the acquisition discount, or
OID, in income (as ordinary income) over the term of the debt obligation, even
though payment of that amount is not received until a later time, upon partial
or full repayment or disposition of the debt security. A Fund may make one or
more of the elections applicable to debt obligations having acquisition
discount, or OID, which could affect the character and timing of recognition of
income.
In
addition, payment-in-kind securities will, and commodity-linked notes may, give
rise to income that is required to be distributed and is taxable even though the
Fund holding the security receives no interest payment in cash on the security
during the year.
If
a Fund holds the foregoing kinds of securities, it may be required to pay out as
an income distribution each year an amount that is greater than the total amount
of cash interest the Fund actually received. Such distributions may be made from
the cash assets of a Fund or by liquidation of portfolio securities, if
necessary (including when it is not advantageous to do so). A Fund may realize
gains or losses from such liquidations. In the event a Fund realizes net capital
gains from such transactions, its shareholders may receive a larger capital gain
distribution than they would in the absence of such transactions.
Higher-Risk
Securities.
To the extent such investments are permissible for a Fund, a Fund may invest in
debt obligations that are in the lowest rating categories or are unrated,
including debt obligations of issuers not currently paying interest or who are
in default. Investments in debt obligations that are at risk of or in default
present special tax issues for a Fund. Tax rules are not entirely clear about
issues such as when a Fund may cease to accrue interest, OID or market discount,
when and to what extent deductions may be taken for bad debts or worthless
securities and how payments received on obligations in default should be
allocated
between principal and income. In limited circumstances, it may also not be clear
whether a Fund should recognize market discount on a debt obligation, and if so,
what amount of market discount the Fund should recognize. These and other
related issues will be addressed by a Fund when, as and if it invests in such
securities, in order to seek to ensure that it distributes sufficient income to
preserve its status as a RIC and does not become subject to U.S. federal income
or excise tax.
Issuer
Deductibility of Interest.
A portion of the interest paid or accrued on certain high yield discount
obligations owned by a Fund may not be deductible to (and thus, may affect the
cash flow of) the issuer. If a portion of the interest paid or accrued on
certain high yield discount obligations is not deductible, that portion will be
treated as a dividend for purposes of the corporate dividends-received
deduction. In such cases, if the issuer of the high yield discount obligations
is a domestic corporation, dividend payments by a Fund may be eligible for the
dividends-received deduction to the extent of the deemed dividend portion of
such accrued interest.
Interest
paid on debt obligations owned by a Fund, if any, that are considered for U.S.
tax purposes to be payable in the equity of the issuer or a related party will
not be deductible to the issuer, possibly affecting the cash flow of the
issuer.
Securities
Lending.
While securities are loaned out by a Fund, the Fund generally will receive from
the borrower amounts equal to any dividends or interest paid on the borrowed
securities. For federal income tax purposes, payments made “in lieu of”
dividends are not considered dividend income. These distributions will neither
qualify for the reduced rate of federal income taxation for individuals on
qualified dividends income, if otherwise available, nor the 50%
dividends-received deduction for corporations. Also, any foreign tax withheld on
payments made “in lieu of” dividends or interest may not qualify for the
passthrough of foreign tax credits to shareholders.
Tax-Exempt
Shareholders.
A tax-exempt shareholder could recognize UBTI by virtue of its investment in a
Fund if Shares in the Fund constitute debt-financed property in the hands of the
tax-exempt shareholder within the meaning of section 514(b) of the Code.
Furthermore, a tax-exempt shareholder may recognize UBTI if a Fund recognizes
"excess inclusion income" derived from direct or indirect investments in
residual interests in REMICs or equity interests in TMPs if the amount of such
income recognized by the Fund exceeds the Fund's investment company taxable
income (after taking into account deductions for dividends paid by the
Fund).
In
addition, special tax consequences apply to charitable remainder trusts ("CRTs")
that invest in RICs that invest directly or indirectly in residual interests in
REMICs or equity interests in TMPs. Under legislation enacted in
December 2006, a CRT (as defined in Section 664 of the Code) that realizes
any UBTI for a taxable year must pay an excise tax annually of an amount equal
to such UBTI. Under IRS guidance issued in October 2006, a CRT will not
recognize UBTI solely as a result of investing in a regulated investment company
that recognizes "excess inclusion income." Rather, if at any time during any
taxable year a CRT (or one of certain other tax-exempt shareholders, such as the
United States, a state or political subdivision, or an agency or instrumentality
thereof, and certain energy cooperatives) is a record holder of a share in the
regulated investment company that recognizes "excess inclusion income," then the
RIC will be subject to a tax on that portion of its "excess inclusion income"
for the taxable year that is allocable to such shareholders, at the corporate
income tax rate. The extent to which this IRS guidance remains applicable in
light of the December 2006 legislation is unclear. To the extent permitted
under the 1940 Act, a Fund may elect to specially allocate any such tax to the
applicable CRT, or other shareholder, and thus reduce such shareholder's
distributions for the year by the amount of the tax that relates to such
shareholder's interest in the Fund. Each Fund has not yet determined whether
such an election will be made. CRTs and other tax-exempt investors are urged to
consult their tax advisers concerning the consequences of investing in a
Fund.
Passive
Foreign Investment Companies.
A
passive foreign investment company ("PFIC") is any foreign corporation: (i) 75%
or more of the gross income of which for the taxable year is passive income, or
(ii) the average percentage of the assets of which (generally by value, but by
adjusted tax basis in certain cases) that produce or are held for the production
of passive income is at least 50%. Generally, passive income for this purpose
means dividends, interest (including income equivalent to interest), royalties,
rents, annuities, the excess of gains over losses from certain property
transactions and commodities transactions, and foreign currency gains. Passive
income for this purpose does not include rents and royalties received by the
foreign corporation from an active business and certain income received from
related persons. Equity investments by a Fund in certain PFICs could potentially
subject the Fund to a U.S. federal income tax or other charge (including
interest charges) on the distributions received from the PFIC or on proceeds
received from the disposition of shares in the PFIC. This tax cannot be
eliminated by making distributions to Fund shareholders. However, a Fund may
elect to avoid the imposition of that tax. For example, if a Fund is in a
position to and elects to treat a PFIC as a "qualified electing fund" (i.e.,
make a "QEF election"), the Fund will be required to include its share of the
PFIC's income and net capital gains annually, regardless of whether it receives
any distribution from the PFIC. Alternatively, a Fund may make an election to
mark the gains (and to a limited extent losses) in its PFIC holdings "to the
market" as though it had sold and repurchased its holdings in those PFICs on the
last day of the Fund's taxable year. Such gains and losses are treated as
ordinary income and loss. The QEF and mark-to-market elections may
accelerate
the recognition of income (without the receipt of cash) and increase the amount
required to be distributed by a Fund to avoid taxation. Making either of these
elections therefore may require a Fund to liquidate other investments (including
when it is not advantageous to do so) to meet its distribution requirement,
which also may accelerate the recognition of gain and affect the Fund's total
return. Dividends paid by PFICs will not be eligible to be treated as "qualified
dividend income."
Because
it is not always possible to identify a foreign corporation as a PFIC, a Fund
may be liable for corporate-level tax on any ultimate gain or distributions on
the shares if such Fund fails to make an election to recognize income annually
during the period of its ownership of the shares.
Foreign
Currency Transactions.
A
Fund's transactions in foreign currencies, foreign currency-denominated debt
obligations and certain foreign currency options, futures contracts and forward
contracts (and similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the value of the
foreign currency concerned. Any such net gains could require a larger dividend
toward the end of the calendar year. Any such net losses will generally reduce
and potentially require the re-characterization of prior ordinary income
distributions. Such ordinary income treatment may accelerate a Fund's
distributions to shareholders and increase the distributions taxed to
shareholders as ordinary income. Any net ordinary losses so created cannot be
carried forward by a Fund to offset income or gains earned in subsequent taxable
years.
Investments
in partnerships and QPTPs.
For
purposes of the Income Requirement, income derived by a Fund from a partnership
that is not a QPTP will be treated as qualifying income only to the extent such
income is attributable to items of income of the partnership that would be
qualifying income if realized directly by such Fund. While the rules are not
entirely clear with respect to a Fund investing in a partnership outside a
master feeder structure, for purposes of testing whether a Fund satisfies the
Asset Diversification Requirement, the Fund generally is treated as owning a pro
rata share of the underlying assets of a partnership. In contrast, different
rules apply to a partnership that is a QPTP. All of the net income derived by a
Fund from an interest in a QPTP will be treated as qualifying income but the
Fund may not invest more than 25% of its total assets in one or more QPTPs.
However, there can be no assurance that a partnership classified as a QPTP in
one year will qualify as a QPTP in the next year. Any such failure to annually
qualify as a QPTP might, in turn, cause a Fund to fail to qualify as a RIC.
Although, in general, the passive loss rules of the Code do not apply to RICs,
such rules do apply to a Fund with respect to items attributable to an interest
in a QPTP. Fund investments in partnerships, including in QPTPs, may result in
the fund being subject to state, local or foreign income, franchise, or
withholding tax liabilities.
If
an MLP is treated as a partnership for U.S. federal income tax purposes (whether
or not a QPTP), all or portion of the dividends received by a Fund from the MLP
likely will be treated as a return of capital for U.S. federal income tax
purposes because of accelerated deductions available with respect to the
activities of such MLPs. Further, because of these accelerated deductions, on
the disposition of interests in such an MLP, a Fund likely will realize taxable
income in excess of economic gain with respect to those MLP interests (or if the
Fund does not dispose of the MLP, the Fund could realize taxable income in
excess of cash flow with respect to the MLP in a later period), and the Fund
must take such income into account in determining whether the Fund has satisfied
its Distribution Requirement. A Fund may have to borrow or liquidate securities
to satisfy its Distribution Requirement and to meet its redemption requests,
even though investment considerations might otherwise make it undesirable for
the Fund to sell securities or borrow money at such time. In addition, any gain
recognized, either upon the sale of a Fund's MLP interest or sale by the MLP of
property held by it, including in excess of economic gain thereon, treated as
so-called "recapture income," will be treated as ordinary income. Therefore, to
the extent a Fund invests in MLPs, Fund shareholders might receive greater
amounts of distributions from the Fund taxable as ordinary income than they
otherwise would in the absence of such MLP investments.
Although
MLPs are generally expected to be treated as partnerships for U.S. federal
income tax purposes, some MLPs may be treated as PFICs or "regular" corporations
for U.S. federal income tax purposes. The treatment of particular MLPs for U.S.
federal income tax purposes will affect the extent to which a Fund can invest in
MLPs and will impact the amount, character, and timing of income recognized by
the Fund.
SALES
OF SHARES
Sales,
exchanges and redemptions (including redemptions in-kind) of Fund Shares are
taxable transactions for federal and state income tax purposes. A redemption of
Shares by a Fund will be treated as a sale. An Authorized Participant who
exchanges securities for Creation Units generally will recognize a gain or a
loss. The gain or loss will be equal to the difference between the market value
of the Creation Units at the time of purchase (plus any cash received by the
Authorized Participant as part of the issue) and the Authorized Participant's
aggregate basis in the securities surrendered (plus any cash paid by the
Authorized Participant as part of the issue). An Authorized Participant who
exchanges Creation Units for securities generally will recognize a gain or loss
equal to the difference between the Authorized Participant's basis in the
Creation Units (plus any cash paid by the Authorized Participant as part of the
redemption) and the aggregate market value of the securities received (plus any
cash
received
by the Authorized Participant as part of the redemption). The IRS, however, may
assert that a loss realized upon an exchange of securities for Creation Units
cannot be deducted currently under the rules governing "wash sales," or on the
basis that there has been no significant change in economic position. Persons
exchanging securities should consult their own tax advisor with respect to
whether the wash sale rules apply and when a loss might be deductible.
Under
current federal tax laws, any capital gain or loss realized upon redemption of
Creation Units is generally treated as long-term capital gain or loss if the
Shares have been held for more than one year and as a short-term capital gain or
loss if the Shares have been held for one year or less assuming that such
Creation Units are held as a capital asset.
If
a Fund redeems Creation Units in cash, it may recognize more capital gains than
it will if it redeems Creation Units in-kind.
Any
loss realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced, including replacement through the reinvesting of
dividends and capital gains distributions in a Fund, within a 61-day period
beginning 30 days before and ending 30 days after the disposition of the shares.
In such a case, the basis of the shares acquired will be increased to reflect
the disallowed loss. Any loss realized by a shareholder on the sale of the Fund
Shares held by the shareholder for six months or less will be treated for U.S.
federal income tax purposes as a long-term capital loss to the extent of any
distributions or deemed distributions of long-term capital gains received by the
shareholder with respect to such Shares.
COST
BASIS REPORTING
Federal
law requires that mutual fund companies or intermediaries report their
shareholders' cost basis, gain/loss, and holding period to the IRS on the
shareholders' Consolidated Form 1099s when "covered" securities are sold.
Covered securities are any RIC and/or dividend reinvestment plan shares acquired
on or after January 1, 2012.
Each
Fund or intermediaries (broker) will choose or has chosen a standing (default)
tax lot identification method for all shareholders. A tax lot identification
method is the way the broker will determine which specific shares are deemed to
be sold when there are multiple purchases on different dates at differing net
asset values, and the entire position is not sold at one time. A broker's
standing tax lot identification method is the method covered Shares will be
reported on your Consolidated Form 1099 if you do not select a specific tax lot
identification method. You may choose a method different than the standing
method and will be able to do so at the time of your purchase or upon the sale
of covered Shares. Please refer to the appropriate IRS regulations or consult
your tax advisor with regard to your personal circumstances. Shareholders will
be notified as to which default tax lot identification method their broker will
use.
For
those securities defined as "covered" under current IRS cost basis tax reporting
regulations, a Fund is responsible for maintaining accurate cost basis and tax
lot information for tax reporting purposes. A broker is not responsible for the
reliability or accuracy of the information for those securities that are not
"covered." A Fund and its service providers do not provide tax advice. You
should consult independent sources, which may include a tax professional, with
respect to any decisions you may make with respect to choosing a tax lot
identification method.
REPORTING
If
a shareholder recognizes a loss with respect to a Fund's Shares of $2 million or
more for an individual shareholder or $10 million or more for a corporate
shareholder, the shareholder may be required to file with the IRS a disclosure
statement on Form 8886. Direct shareholders of portfolio securities are in many
cases exempted from this reporting requirement, but under current guidance,
shareholders of a RIC are not exempted. The fact that a loss is reportable under
these regulations does not affect the legal determination of whether the
taxpayer's treatment of the loss is proper. Shareholders should consult their
tax advisors to determine the applicability of these regulations in light of
their individual circumstances. Under recently enacted legislation, certain
tax-exempt entities and their managers may be subject to excise tax if they are
parties to certain reportable transactions.
The
foregoing discussion is a summary only and is not intended as a substitute for
careful tax planning. Purchasers of Shares should consult their own tax advisers
as to the tax consequences of investing in such shares, including under state,
local and foreign tax laws. Finally, the foregoing discussion is based on
applicable provisions of the Code, regulations, judicial authority and
administrative interpretations in effect on the date of this SAI. Changes in
applicable authority could materially affect the conclusions discussed above,
and such changes often occur.
BACKUP
WITHHOLDING
Withholding
is required on dividends and gross sales proceeds paid to any shareholder who:
(1) has failed to provide a correct taxpayer identification number; (2) is
subject to backup withholding by the IRS; (3) has failed to certify to a Fund
that such shareholder is not subject to backup withholding; or (4) has not
certified that such shareholder is a U.S. person (including a U.S. resident
alien)." When withholding is required, the amount will be 24% of any
distributions or proceeds paid.
OTHER
TAXES
Dividends,
distributions and redemption proceeds may also be subject to additional state,
local and foreign taxes depending on each shareholder's particular situation.
TAXATION
OF NON-U.S. SHAREHOLDERS
Dividends
paid to non-U.S. shareholders are generally subject to withholding tax at a 30%
rate or a reduced rate specified by an applicable income tax treaty to the
extent derived from investment income and short-term capital gains. In order to
obtain a reduced rate of withholding, a non-U.S. shareholder will be required to
provide an IRS Form W-8BEN or W-8BEN-E certifying its entitlement to benefits
under a treaty. The withholding tax does not apply to regular dividends paid to
a non-U.S. shareholder who provides a Form W-8ECI, certifying that the dividends
are effectively connected with the non-U.S. shareholder's conduct of a trade or
business within the United States. Instead, the effectively connected dividends
will be subject to regular U.S. income tax as if the non-U.S. shareholder were a
U.S. shareholder. A non-U.S. corporation receiving effectively connected
dividends may also be subject to additional "branch profits tax" imposed at a
rate of 30% (or lower treaty rate). A non-U.S. shareholder who fails to provide
an IRS Form W-8BEN or other applicable form may be subject to backup withholding
at the appropriate rate.
In
general, capital gain dividends reported shareholders as paid from its net
long-term capital gains, other than long-term capital gains realized on
disposition of U.S. real property interests (see the discussion below), are not
subject to U.S. withholding tax unless you are a nonresident alien individual
present in the U.S. for a period or periods aggregating 183 days or more during
the calendar year. Generally, dividends reported to shareholders as
interest-related dividends paid from the Fund's qualified net interest income
from U.S. sources and short-term capital gain dividends reported to shareholders
as paid from its net short-term capital gains, other than short-term capital
gains realized on disposition of U.S. real property interests (see the
discussion below), are not subject to U.S. withholding tax unless you were a
nonresident alien individual present in the U.S. for a period or periods
aggregating 183 days or more during the calendar year. The Fund reserves the
right to not report interest-related dividends or short-term capital gain
dividends. Additionally, the Fund's reporting of interest-related dividends or
short-term capital gain dividends may not be passed through to shareholders by
intermediaries who have assumed tax reporting responsibilities for this income
in managed or omnibus accounts due to systems limitations or operational
constraints.
For
foreign shareholders of a Fund, a distribution attributable to such Fund's sale
of a REIT or other U.S. real property holding company will be treated as real
property gain subject to withholding tax at the corporate income tax rate if 50%
or more of the value of such Fund's assets are invested in REITs and other U.S.
real property holding corporations and if the foreign shareholder has held more
than 5% of a class of stock at any time during the one-year period ending on the
date of the distribution. A distribution from a Fund will be treated as
attributable to a U.S. real property interest only if such distribution is
attributable to a distribution received by such Fund from a REIT. Restrictions
apply regarding wash sales and substitute payment transactions. Because each
Fund expects to invest less than 50% of its assets at all times, directly or
indirectly, in U.S. real property interests, each Fund expects that neither gain
on the sale or redemption of Fund shares nor Fund dividends and distributions
would be subject to FIRPTA reporting and tax withholding.
Under
the Foreign Account Tax Compliance Act ("FATCA"), a 30% withholding tax is
imposed on income dividends paid by the Fund to certain foreign entities,
referred to as foreign financial institutions or nonfinancial foreign entities,
that fail to comply (or be deemed compliant) with extensive reporting and
withholding requirements designed to inform the U.S. department of the Treasury
of U.S.-owned foreign investment accounts. After December 31, 2018, FATCA
withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Fund
Shares, however based on proposed regulations issued by the IRS, which can be
relied upon currently, such withholding is no longer required unless final
regulations provide otherwise (which is not expected). Information about a
shareholder in a Fund may be disclosed to the IRS, non-U.S. taxing authorities
or other parties as necessary to comply with FATCA. Withholding also may be
required if a foreign entity that is a shareholder of a Fund fails to provide
the appropriate certifications or other documentation concerning its status
under FATCA.
Each
prospective shareholder is urged to consult its tax adviser regarding the
applicability of FATCA and any other reporting requirements with respect to the
prospective shareholder's own situation, including investments through an
intermediary.
NET
ASSET VALUE
The
NAV for each Fund is calculated by deducting all of the Fund's liabilities
(including accrued expenses) from the total value of its assets (including the
securities held by the Fund plus any cash or other assets, including interest
and dividends accrued but not yet received) and dividing the result by the
number of shares outstanding, and generally rounded to the nearest cent,
although each Fund reserves the right to calculate its NAV to more than two
decimal places. The NAV for each Fund will generally be determined by SEIGFS
once daily Monday through Friday generally as of the regularly scheduled close
of business of the Exchange (normally 4:00 p.m. Eastern Time) on each day that
the Exchange is open for trading, based on prices at the time of closing,
provided that (a) any assets or liabilities denominated in currencies other than
the U.S. dollar shall be translated into U.S. dollars at the prevailing market
rates on the date of valuation as quoted by one or more major banks or dealers
that makes a two-way market in such currencies (or a data service provider based
on quotations received from such banks or dealers); and (b) U.S. fixed-income
assets may be valued as of the announced closing time for trading in
fixed-income instruments on any day that the Bond Market Association announces
an early closing time.
In
calculating a Fund's NAV, the Fund's investments are generally valued using
market valuations. In the event that current market valuations are not readily
available or such valuations do not reflect current market values, the affected
investments will be valued using fair value pricing pursuant to the pricing
policy and procedures approved by the Board. A market valuation generally means
a valuation (i) obtained from an exchange or a major market maker (or dealer),
(ii) based on a price quotation or other equivalent indication of value supplied
by an exchange, a pricing service, or a major market maker (or dealer) or (iii)
based on amortized cost. In the case of shares of funds that are not traded on
an exchange, a market valuation means such fund's published NAV per share.
SEIGFS may use various pricing services or discontinue the use of any pricing
service.
In
the event that current market valuations are not readily available or such
valuations do not reflect current market values, the affected investments will
be valued using fair value pricing pursuant to the pricing policy and procedures
approved by the Board. A price obtained from a pricing service based on such
pricing service's valuation matrix may be used to fair value a security. The
frequency with which a Fund's investments are valued using fair value pricing is
primarily a function of the types of securities and other assets in which the
Fund invests pursuant to its investment objective, strategies and
limitations.
Investments
that may be valued using fair value pricing include, but are not limited to: (i)
an unlisted security related to corporate actions; (ii) a restricted security
(i.e., one that may not be publicly sold without registration under the
Securities Act of 1933, as amended (the "Securities Act")); (iii) a security
whose trading has been suspended or which has been de-listed from its primary
trading exchange; (iv) a security that is thinly traded; (v) a security in
default or bankruptcy proceedings for which there is no current market
quotation; (vi) a security affected by currency controls or restrictions; and
(vii) a security affected by a significant event (i.e., an event that occurs
after the close of the markets on which the security is traded but before the
time as of which the Fund's NAV is computed and that may materially affect the
value of the Fund's investments). Examples of events that may be "significant
events" are government actions, natural disasters, armed conflict, acts of
terrorism, and significant market fluctuations.
Valuing
a Fund's investments using fair value pricing will result in using prices for
those investments that may differ from current market valuations. Use of fair
value prices and certain current market valuations could result in a difference
between the prices used to calculate a Fund's net asset value and the prices
used by the Fund's Underlying Index, which, in turn, could result in a
difference between the Fund's performance and the performance of the Fund's
Underlying Index.
The
value of assets denominated in foreign currencies is converted into U.S. dollars
using exchange rates deemed appropriate by the Adviser as investment adviser.
Any use of fair value prices, current market valuations or exchange rates
different from the prices and rates used by the Index Providers may adversely
affect a Fund's ability to track its Underlying Index.
Each
Fund will publish the following information on the Fund’s website for each
portfolio holding that will form the basis of the next calculation of current
net asset value per share: (A) the ticker symbol (if available); (B) CUSIP or
other identifier; (C) a description of the holding; (D) quantity of each
security or other asset held; and (E) the percentage weight of the holding in
the portfolio.
DISTRIBUTION
AND SERVICE PLAN
The
Board of Trustees of the Trust has adopted a distribution and services plan
("Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, each Fund is
authorized to pay distribution fees in connection with the sale and distribution
of its Shares and pay service fees in connection with the provision of ongoing
services to shareholders of each class and the maintenance of shareholder
accounts in an amount up to 0.25% of its average daily net assets each
year.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no current plans
to impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because these fees are paid out of each Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Funds. By
purchasing Shares subject to distribution fees and service fees, you may pay
more over time than you would by purchasing Shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the rules of
FINRA. The net income attributable to Shares will be reduced by the amount of
distribution fees and service fees and other expenses.
DIVIDENDS
AND DISTRIBUTIONS
GENERAL
POLICIES
Dividends
from net investment income, including any net foreign currency gains, are
declared and paid at least annually and any net realized securities gains are
distributed at least annually. To improve tracking error or comply with the
distribution requirements of the Code, dividends may be declared and paid more
frequently than annually for certain funds. Dividends and securities gains
distributions are distributed in U.S. dollars and cannot be automatically
reinvested in additional Shares of the Funds. The Trust reserves the right to
declare special distributions if, in its reasonable discretion, such action is
necessary or advisable to preserve the status of each Fund as a RIC or to avoid
imposition of income or excise taxes on undistributed income.
Dividends
and other distributions of shares are distributed on a pro rata basis to
Beneficial Owners of such shares. Dividend payments are made through DTC
Participants and Indirect Participants to Beneficial Owners then of record with
proceeds received from the Funds.
DIVIDEND
REINVESTMENT SERVICE
No
dividend reinvestment service is provided by the Trust. Broker-dealers may make
available the DTC book-entry Dividend Reinvestment Service for use by Beneficial
Owners of the Funds for reinvestment of their dividend distributions. Beneficial
Owners should contact their broker to determine the availability and costs of
the service and the details of participation therein. Brokers may require
Beneficial Owners to adhere to specific procedures and timetables. If this
service is available and used, dividend distributions of both income and
realized gains will be automatically reinvested in additional whole shares of
the same Fund purchased in the secondary market.
FINANCIAL
STATEMENTS
Audited
financial statements and financial highlights for the Trust as of
November 30, 2023, including the notes thereto, and the reports of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
are incorporated herein by reference from the Trust's November 30, 2023
Annual Report (for the Global X MLP ETF, Global X MLP & Energy
Infrastructure ETF, Global X Alternative Income ETF, Global X Conscious
Companies ETF, Global X U.S. Preferred ETF, Global X S&P 500® Quality
Dividend ETF, Global X Adaptive U.S. Factor ETF, Global X Variable Rate
Preferred ETF, Global X Adaptive U.S. Risk Management ETF, Global X 1-3 Month
T-Bill ETF, and Global X U.S. Cash Flow Kings 100 ETF: https://www.sec.gov/Archives/edgar/data/1432353;
and for all other funds: https://www.sec.gov/Archives/edgar/data/1432353)
to shareholders. The Annual Report will be delivered upon request.
OTHER
INFORMATION
CONTROL
PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Although
the Trust does not have information concerning the beneficial ownership of
shares held in the names of Authorized Participants, as of March 1, 2024,
the following persons owned, of record or beneficially, 5% or more of the
outstanding shares of the following Funds.
Global
X MLP ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
26.89% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II,
Jersey City, NJ 07311 |
13.02% |
UBS
Financial Services Inc. 1000 Harbor Boulevard, Weehawken, NJ
07086-6790 |
11.35% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
11.19% |
Merrill
Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, New
York, NY 10036 |
5.80% |
Wells
Fargo Clearing Services, LLC 1 North Jefferson Ave, St. Louis, MO
63103 |
5.42% |
Global
X MLP & Energy Infrastructure ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
22.03% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II,
Jersey City, NJ 07311 |
15.67% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
15.28% |
Merrill
Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, New
York, NY 10036 |
11.96% |
Global
X Alternative Income ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
26.61% |
Pershing
LLC One Pershing Plaza, Jersey City, NJ 07399 |
17.85% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
13.32% |
Merrill
Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, New
York, NY 10036 |
6.24% |
LPL
Financial LLC LPL Financial, 4707 Executive Dr., San Diego, CA
92121-3091 |
5.97% |
Global
X Conscious Companies ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Sumitomo
Mitsui Trust Bank (U.S.A.) Limited 111 River Street, Hoboken, NJ
07030 |
73.24% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II,
Jersey City, NJ 07311 |
14.37% |
Global
X U.S. Preferred ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
39.77% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
11.98% |
LPL
Financial LLC LPL Financial, 4707 Executive Dr., San Diego, CA
92121-3091 |
7.44% |
Merrill
Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, New
York, NY 10036 |
6.46% |
Wells
Fargo Clearing Services, LLC 1 North Jefferson Ave, St. Louis, MO
63103 |
5.74% |
Global
X S&P 500®
Quality Dividend ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
19.28% |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
16.71% |
LPL
Financial LLC LPL Financial, 4707 Executive Dr., San Diego, CA
92121-3091 |
12.90% |
Stifel,
Nicolaus & Company Incorporated 501 North Broadway, St. Louis, MO
63102 |
11.59% |
Pershing
LLC One Pershing Plaza, Jersey City, NJ 07399 |
7.12% |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
5.22% |
Global
X Adaptive U.S. Factor ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
67.94% |
Pershing
LLC One Pershing Plaza, Jersey City, NJ 07399 |
23.42% |
Global
X Variable Rate Preferred ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
55.24% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II,
Jersey City, NJ 07311 |
11.06% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
6.85% |
Global
X Adaptive U.S. Risk Management ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
57.52% |
Pershing
LLC One Pershing Plaza, Jersey City, NJ 07399 |
36.13% |
Global
X 1-3 Month T-Bill ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
37.27% |
Interactive
Brokers, LLC/Retail Clearance Two Pickwick Plaza, 2nd Floor, Greenwich,
CT 06830 |
18.71% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
14.92% |
Global
X U.S. Cash Flow Kings 100 ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
57.71% |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
16.42% |
BofA
Securities, Inc. 1 Bryant Park, New York, NY 10036 |
11.02% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
5.29% |
Global
X Millennial Consumer ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Apex
Clearing Corporation 1155 Long Island Ave, Edgewood, NY 11717 |
20.97% |
Merrill
Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, New
York, NY 10036 |
19.07% |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
11.54% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
8.92% |
Global
X Aging Population ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
JPMorgan
Chase Bank, National Association 14201 Dallas Parkway, Chase
International Plaza, Dallas, TX 75254-2916 |
37.07% |
The
Bank of New York Mellon One Wall Street, 5th Floor, New York, NY
10286-0001 |
18.62% |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
12.58% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
9.34% |
Global
X FinTech ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
15.64% |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
11.41% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
9.81% |
PNC
Bank, N.A. 8800 Tinicum Boulevard, Philadelphia, PA
19153-3198 |
6.85% |
UBS
Financial Services Inc. 1000 Harbor Boulevard, Weehawken, NJ
07086-6790 |
5.67% |
J.P.
Morgan Securities
LLC/JPMC
383
Madison Ave, New York, NY 10179 |
5.52% |
Merrill
Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, New
York, NY 10036 |
5.06% |
Global
X Internet of Things ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
25.43% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
13.62% |
Merrill
Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, New
York, NY 10036 |
12.03% |
PNC
Bank, N.A. 8800 Tinicum Boulevard, Philadelphia, PA
19153-3198 |
7.76% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II,
Jersey City, NJ 07311 |
5.31% |
Global
X Robotics & Artificial Intelligence ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
14.85% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
13.91% |
Merrill
Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, New
York, NY 10036 |
8.87% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II,
Jersey City, NJ 07311 |
7.82% |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
7.31% |
Global
X U.S. Infrastructure Development ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
15.07% |
Merrill
Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, New
York, NY 10036 |
13.12% |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
10.87% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
10.00% |
SEI
Private Trust Company/C/O/ GWP |
9.35% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II,
Jersey City, NJ 07311 |
7.03% |
LPL
Financial LLC LPL Financial, 4707 Executive Dr., San Diego, CA
92121-3091 |
6.99% |
Global
X Autonomous & Electric Vehicles ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
17.40% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
13.69% |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
12.70% |
Pershing
LLC One Pershing Plaza, Jersey City, NJ 07399 |
5.95% |
Global
X Artificial Intelligence & Technology ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
16.87% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
15.33% |
Merrill
Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, New
York, NY 10036 |
12.68% |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
5.81% |
Pershing
LLC One Pershing Plaza, Jersey City, NJ 07399 |
5.24% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II,
Jersey City, NJ 07311 |
5.14% |
Global
X Genomics & Biotechnology ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
19.63% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
15.89% |
HSBC
Bank USA, National Association/Clearing 452 Fifth Avenue, New York, NY
10018 |
10.04% |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
9.05% |
Global
X Cloud Computing ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
23.24% |
JPMorgan
Chase Bank, National Association 14201 Dallas Parkway, Chase
International Plaza, Dallas, TX 75254-2916 |
17.23% |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
10.54% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
7.95% |
Merrill
Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, New
York, NY 10036 |
5.71% |
Global
X Cybersecurity ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
20.21% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
14.61% |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
12.16% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II,
Jersey City, NJ 07311 |
5.82% |
Global
X Thematic Growth ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
25.88% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
12.56% |
Merrill
Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, New
York, NY 10036 |
10.95% |
Pershing
LLC One Pershing Plaza, Jersey City, NJ 07399 |
8.01% |
Raymond
James & Associates, Inc. 880 Carillon Parkway, St. Petersburg, FL
33733-2749 |
5.29% |
The
Bank of New York Mellon One Wall Street, 5th Floor, New York, NY
10286-0001 |
5.05% |
Global
X Video Games & Esports ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
19.04% |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
12.85% |
PNC
Bank, N.A. 8800 Tinicum Boulevard, Philadelphia, PA
19153-3198 |
9.35% |
JPMorgan
Chase Bank, National Association 14201 Dallas Parkway, Chase
International Plaza, Dallas, TX 75254-2916 |
8.58% |
Merrill
Lynch, Pierce, Fenner & Smith Incorporated One Bryant Park, New
York, NY 10036 |
7.86% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
7.02% |
Global
X Telemedicine & Digital Health ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
24.78% |
JPMorgan
Chase Bank, National Association 14201 Dallas Parkway, Chase
International Plaza, Dallas, TX 75254-2916 |
19.12% |
HSBC
Bank USA, National Association/Clearing 452 Fifth Avenue, New York, NY
10018 |
14.42% |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
8.40% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
5.77% |
Global
X CleanTech ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
32.81% |
Pershing
LLC One Pershing Plaza, Jersey City, NJ 07399 |
20.91% |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
12.10% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
5.93% |
Global
X Data Center & Digital Infrastructure ETF (formerly known as the Global X
Data Center REITs & Digital Infrastructure ETF)
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
29.58% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
16.86% |
JPMorgan
Chase Bank, National Association 14201 Dallas Parkway, Chase
International Plaza, Dallas, TX 75254-2916 |
15.47% |
BNYMellon/RE
MIDCAP SPDRS 2 Hanson Place 12th floor, Brooklyn, NY 11217 |
6.73% |
Global
X Clean Water ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
32.51% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
12.41% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II,
Jersey City, NJ 07311 |
9.17% |
National
Bank Financial Inc./CDS 130 Adelaide Street, West, Suite 1400, Toronto,
Ontario, Canada M5H 3P5 |
8.84% |
BofA
Securities, Inc. 1 Bryant Park, New York, NY 10036 |
8.82% |
Global
X AgTech & Food Innovation ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
14.29% |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
13.53% |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
10.03% |
Goldman,
Sachs & Co. LLC 180 Maiden Lane, New York, NY 10038 |
9.62% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II,
Jersey City, NJ 07311 |
6.47% |
J.P.
Morgan Securities
LLC/JPMC
383
Madison Ave, New York, NY 10179 |
5.74% |
Interactive
Brokers, LLC/Retail Clearance Two Pickwick Plaza, 2nd Floor, Greenwich,
CT 06830 |
5.71% |
Global
X Blockchain ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
18.50% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
14.32% |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
9.10% |
LPL
Financial LLC LPL Financial, 4707 Executive Dr., San Diego, CA
92121-3091 |
7.49% |
BNYMellon/RE
MIDCAP SPDRS 2 Hanson Place 12th floor, Brooklyn, NY 11217 |
7.01% |
Global
X Hydrogen ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Citibank,
N.A. 3800 Citigroup Center, Tampa, FL 33610-9122 |
15.86% |
Interactive
Brokers, LLC/Retail Clearance Two Pickwick Plaza, 2nd Floor, Greenwich,
CT 06830 |
14.26% |
JPMorgan
Chase Bank, National Association 14201 Dallas Parkway, Chase
International Plaza, Dallas, TX 75254-2916 |
13.63% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
13.61% |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
13.12% |
Global
X Solar ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
BNYMellon/RE
MIDCAP SPDRS 2 Hanson Place 12th floor, Brooklyn, NY 11217 |
40.60% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
17.01% |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
11.48% |
Brown
Brothers Harriman & Co. 525 Washington Blvd., Jersey City, NJ
07310 |
6.37% |
Global
X Wind Energy ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
26.08% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
15.27% |
Vanguard
Marketing Corporation 100 Vanguard Boulevard, Malvern, PA
19355 |
7.00% |
BofA
Securities, Inc. 1 Bryant Park, New York, NY 10036 |
6.11% |
Pershing
LLC One Pershing Plaza, Jersey City, NJ 07399 |
5.56% |
Goldman,
Sachs & Co. LLC 180 Maiden Lane, New York, NY 10038 |
5.42% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II,
Jersey City, NJ 07311 |
5.22% |
Global
X PropTech ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
BofA
Securities, Inc. 1 Bryant Park, New York, NY 10036 |
94.31% |
Global
X Defense Tech ETF
|
|
|
|
| |
Name
and Address of Beneficial Owner |
Percentage
of Outstanding Shares of Fund Owned |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
35.08% |
National
Financial Services LLC 200 Liberty Street, New York, NY 10281 |
28.98% |
BNYMellon/RE
MIDCAP SPDRS 2 Hanson Place 12th floor, Brooklyn, NY 11217 |
10.14% |
Vanguard
Marketing Corporation 100 Vanguard Boulevard, Malvern, PA
19355 |
5.18% |
INDEPENDENT
TRUSTEE COUNSEL
Stradley
Ronon Stevens & Young, LLP, with offices at 2000 K Street N.W., Suite 700,
Washington, DC 20006, is Fund Counsel and Counsel to the Independent Trustees of
the Trust.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers
LLP serves as the Funds' independent registered public accounting
firm.
SECURITIES
LENDING AGENTS
The
Bank of New York Mellon and Brown Brothers Harriman & Co. serve as the
securities lending agents for the Trust.
TAX
SERVICES
Cohen
Fund Audit Services, Ltd. ("Cohen") prepares federal 1120 and state tax returns
for the Global X MLP ETF. In addition, among other things, Cohen calculated the
estimated tax provisions for financial statement purposes for the Funds' fiscal
period ended November 30, 2023.
ADDITIONAL
INFORMATION
The
Prospectus and this SAI do not contain all the information included in the
registration statement filed with the SEC under the Securities Act with respect
to the securities offered by the Trust's Prospectus. Certain portions of the
registration statement have been omitted from the Prospectus and this SAI
pursuant to the rules and regulations of the SEC. The registration statement,
including the exhibits filed therewith, may be examined at the office of the SEC
in Washington, D.C.
Statements
contained in the Prospectus or in this SAI as to the contents of any contract or
other documents referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement of which the Prospectus and this SAI form
a part, each such statement being qualified in all respects by such
reference.
Appendix
A
Description
of Corporate Bond Ratings
Following
are expanded explanations of the ratings shown in the Prospectus and this
SAI.
Description
of Moody's Investors Service, Inc. - Global Long-Term Obligation
Ratings
Ratings
assigned on Moody's global long-term rating scale are forward-looking opinions
of the relative credit risks of financial obligations issued by non-financial
corporates, financial institutions, structured finance vehicles, project finance
vehicles, and public sector entities. Long-term ratings are assigned to issuers
or obligations with an original maturity of one year or more and reflect both on
the likelihood of a default on contractually promised payments and the expected
financial loss suffered in the event of default. Such ratings have been
published by Moody's Investors Service, Inc. and Moody's Analytics
Inc.
Aaa:
Obligations rated Aaa are judged to be of the highest quality, subject to the
lowest level of credit risk.
Aa:
Obligations
rated Aa are judged to be of high quality and are subject to very low credit
risk.
A:
Obligations rated A are judged to be upper-medium grade and are subject to low
credit risk.
Baa:
Obligations rated Baa are judged to be medium-grade and subject to moderate
credit risk and as such may possess certain speculative
characteristics.
Ba:
Obligations rated Ba are judged to be speculative and are subject to substantial
credit risk.
B:
Obligations rated B are considered speculative and are subject to high credit
risk.
Caa:
Obligations
rated Caa are judged to be speculative of poor standing and are subject to very
high credit risk.
Ca:
Obligations
rated Ca are highly speculative and are likely in, or very near, default, with
some prospect of recovery of principal and interest.
C:
Obligations rated C are the lowest rated and are typically in default, with
little prospect for recovery of principal or interest.
Note:
Moody's appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category. Additionally, a "(hyb)" indicator is appended to
all ratings of hybrid securities issued by banks, insurers, finance companies,
and securities firms.*
*
By their terms, hybrid securities allow for the omission of scheduled dividends,
interest, or principal payments, which can potentially result in impairment if
such an omission occurs. Hybrid securities may also be subject to contractually
allowable write-downs of principal that could result in impairment. Together
with the hybrid indicator, the long-term obligation rating assigned to a hybrid
security is an expression of the relative credit risk associated with that
security.
Description
of Moody's Investors Service, Inc. - National Long-Term Scale
Ratings
Moody's
long-term National Scale Ratings (NSRs) are opinions of the relative
creditworthiness of issuers and financial obligations within a particular
country. NSRs are not designed to be compared among countries; rather, they
address relative credit risk within a given country. Moody's assigns national
scale ratings in certain local capital markets in which investors have found the
global rating scale provides inadequate differentiation among credits or is
inconsistent with a rating scale already in common use in the country. In each
specific country, the last two characters of the rating indicate the country in
which the issuer is located (e.g., Aaa.br for Brazil).
Aaa.n:
Issuers
or issues rated Aaa.n demonstrate the strongest creditworthiness relative to
other domestic issuers.
Aa.n:
Issuers or issues rated Aa.n demonstrate very strong creditworthiness relative
to other domestic issuers.
A.n:
Issuers
or issues rated A.n present above-average creditworthiness relative to other
domestic issuers.
Baa.n:
Issuers
or issues rated Baa.n represent average creditworthiness relative to other
domestic issuers.
Ba.n:
Issuers
or issues rated Ba.n demonstrate below-average creditworthiness relative to
other domestic issuers.
B.n:
Issuers
or issues rated B.n demonstrate weak creditworthiness relative to other domestic
issuers.
Caa.n:
Issuers
or issues rated Caa.n demonstrate very weak creditworthiness relative to other
domestic issuers.
Ca.n:
Issuers
or issues rated Ca.n demonstrate extremely weak creditworthiness relative to
other domestic issuers.
C.n:
Issuers
or issues rated C.n demonstrate the weakest creditworthiness relative to other
domestic issuers.
Note:
Moody's appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category. National scale long-term ratings of D.ar and E.ar
may also be applied to Argentine obligations.
Description
of S&P Global Ratings' - Long-Term Issue Credit Ratings*
Issue
credit ratings are based, in varying degrees, on S&P Global Ratings'
analysis of the following considerations:
•Likelihood
of payment—capacity and willingness of the obligor to meet its financial
commitment on an obligation in accordance with the terms of the
obligation;
•Nature
and provisions of the obligation, and the promise S&P Global Ratings
imputes.
•Protection
afforded by, and relative position of, the financial obligation in the event of
a bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
Issue
ratings are an assessment of default risk, but may incorporate an assessment of
relative seniority or ultimate recovery in the event of default. Junior
obligations are typically rated lower than senior obligations, to reflect the
lower priority in bankruptcy, as noted above. (Such differentiation may apply
when an entity has both senior and subordinated obligations, secured and
unsecured obligations, or operating company and holding company
obligations.)
AAA:
An
obligation rated 'AAA' has the highest rating assigned by S&P Global
Ratings. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA:
An
obligation rated 'AA' differs from the highest-rated obligations only to a small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A:
An
obligation rated 'A' is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB:
An
obligation rated 'BBB' exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB;
B; CCC; CC; and C: Obligations
rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having significant
speculative characteristics. 'BB' indicates the least degree of speculation and
'C' the highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions.
BB:
An
obligation rated 'BB' is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the
obligation.
B:
An
obligation rated 'B' is more vulnerable to nonpayment than obligations rated
'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC:
An obligation rated 'CCC' is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the
obligation.
CC:
An
obligation rated 'CC' is currently highly vulnerable to nonpayment. The 'CC'
rating is used when a default has not yet occurred, but S&P Global Ratings
expects default to be a virtual certainty, regardless of the anticipated time to
default.
C:
An
obligation rated 'C' is currently highly vulnerable to nonpayment, and the
obligation is expected to have lower relative seniority or lower ultimate
recovery compared to obligations that are rated higher.
D:
An
obligation rated 'D' is in default or in breach of an imputed promise. For
non-hybrid capital instruments, the 'D' rating category is used when payments on
an obligation are not made on the date due, unless S&P Global Ratings
believes that such payments will be made within five business days in the
absence of a stated grace period or within the earlier of the stated grace
period or 30 calendar days. The 'D' rating also will be used upon the filing of
a bankruptcy petition or the taking of similar action and where default on an
obligation is a virtual certainty, for example due to automatic stay provisions.
A rating on an obligation is lowered to 'D' if it is subject to a distressed
exchange offer.
*The
ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating
categories.
Description
of DBRS - Long Term Obligation Ratings:
The
DBRS® long-term rating scale provides an opinion on the risk of default. That
is, the risk that an issuer will fail to satisfy its financial obligations in
accordance with the terms under which an obligation has been issued. Ratings are
based on quantitative and qualitative considerations relevant to the issuer, and
the relative ranking of claims. All rating categories other than AAA and D also
contain subcategories "(high)" and "(low)". The absence of either a "(high)" or
"(low)" designation indicates the rating is in the middle of the
category.
AAA:
Highest credit quality. The capacity for the payment of financial obligations is
exceptionally high and unlikely to be adversely affected by future
events.
AA:
Superior credit quality. The capacity for the payment of financial obligations
is considered high. Credit quality differs from AAA only to a small degree.
Unlikely to be significantly vulnerable to future events.
A:
Good credit quality. The capacity for the payment of financial obligations is
substantial, but of lesser credit quality than AA. May be vulnerable to future
events, but qualifying negative factors are considered manageable.
BBB:
Adequate credit quality. The capacity for the payment of financial obligations
is considered acceptable. May be vulnerable to future events.
BB:
Speculative, non-investment grade credit quality. The capacity for the payment
of financial obligations is uncertain. Vulnerable to future events.
B:
Highly speculative credit quality. There is a high level of uncertainty as to
the capacity to meet financial obligations.
CCC,
CC, C:
Very highly speculative credit quality. In danger of defaulting on financial
obligations. There is little difference between these three categories, although
CC and C ratings are normally applied to obligations that are seen as highly
likely to default, or subordinated to obligations rated in the CCC to B range.
Obligations in respect of which default has not technically taken place but is
considered inevitable may be rated in the C category.
D:
When
the issuer has filed under any applicable bankruptcy, insolvency or winding up
statute or there is a failure to satisfy an obligation after the exhaustion of
grace periods, a downgrade to D may occur. DBRS may also use SD (Selective
Default) in cases where only some securities are impacted, such as the case of a
"distressed exchange."