VANECK ETF TRUST
This
Statement of Additional Information (“SAI”) is not a prospectus. It should be
read in conjunction with the current prospectuses (each, a “Prospectus” and
together, the “Prospectuses”) of each fund (each, a “Fund” and together, the
“Funds”) listed below for the VanEck®
ETF Trust (the “Trust”), relating to each of the series of the Trust listed
below, as it may be revised from time to time.
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Fund |
Principal
U.S.
Listing
Exchange |
Ticker |
Fiscal
Year End* |
Prospectus
Date |
|
Statement
of Additional Information February 1, 2024, as revised on March 15,
2024, May 1, 2024, May 31, 2024, June 7, 2024, August 20, 2024 and
September 1, 2024 |
Biotech
ETF |
The
NASDAQ Stock Market LLC |
BBH |
September
30th |
February
1st |
Commodity
Strategy ETF |
Cboe
BZX Exchange, Inc. |
PIT |
September
30th |
February
1st |
Digital
Transformation ETF |
The
NASDAQ Stock Market LLC |
DAPP |
September
30th |
February
1st |
Durable
High Dividend ETF |
Cboe
BZX Exchange, Inc. |
DURA |
September
30th |
February
1st |
Energy
Income ETF |
NYSE
Arca, Inc. |
EINC |
September
30th |
February
1st |
Environmental
Services ETF |
NYSE
Arca, Inc. |
EVX |
September
30th |
February
1st |
Gaming
ETF |
The
NASDAQ Stock Market LLC |
BJK |
September
30th |
February
1st |
Green
Infrastructure ETF |
The
NASDAQ Stock Market LLC |
RNEW |
September
30th |
February
1st |
Inflation
Allocation ETF |
NYSE
Arca, Inc. |
RAAX |
September
30th |
February
1st |
Long/Flat
Trend ETF |
NYSE
Arca, Inc. |
LFEQ |
September
30th |
February
1st |
Morningstar
ESG Moat ETF |
Cboe
BZX Exchange, Inc. |
MOTE |
September
30th |
February
1st |
Morningstar
Global Wide Moat ETF |
Cboe
BZX Exchange, Inc. |
MOTG |
September
30th |
February
1st |
Morningstar
International Moat ETF |
Cboe
BZX Exchange, Inc. |
MOTI |
September
30th |
February
1st |
Morningstar
SMID Moat ETF |
Cboe
BZX Exchange, Inc. |
SMOT |
September
30th |
February
1st |
Morningstar
Wide Moat ETF |
Cboe
BZX Exchange, Inc. |
MOAT® |
September
30th |
February
1st |
Pharmaceutical
ETF |
The
NASDAQ Stock Market LLC |
PPH |
September
30th |
February
1st |
Retail
ETF |
The
NASDAQ Stock Market LLC |
RTH |
September
30th |
February
1st |
Robotics
ETF |
The
NASDAQ Stock Market LLC |
IBOT |
September
30th |
February
1st |
Semiconductor
ETF |
The
NASDAQ Stock Market LLC |
SMH |
September
30th |
February
1st |
Social
Sentiment ETF |
NYSE
Arca, Inc. |
BUZZ |
September
30th |
February
1st |
Video
Gaming and eSports ETF |
The
NASDAQ Stock Market LLC |
ESPO |
September
30th |
February
1st |
Statement
of Additional Information May 1, 2024, as revised on May 31, 2024,
June 7, 2024, August 20, 2024 and September 1, 2024 |
Africa
Index ETF |
NYSE
Arca, Inc. |
AFK |
December
31st |
May
1st |
Agribusiness
ETF |
NYSE
Arca, Inc. |
MOO® |
December
31st |
May
1st |
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Fund |
Principal
U.S.
Listing
Exchange |
Ticker |
Fiscal
Year End* |
Prospectus
Date |
Brazil
Small-Cap ETF |
NYSE
Arca, Inc. |
BRF |
December
31st |
May
1st |
ChiNext
ETF |
NYSE
Arca, Inc. |
CNXT |
December
31st |
May
1st |
CLO
ETF |
NYSE
Arca, Inc. |
CLOI |
December
31st |
May
1st |
CMCI
Commodity Strategy ETF |
Cboe
BZX Exchange, Inc. |
CMCI |
December
31st |
May
1st |
Digital
India ETF |
NYSE
Arca, Inc. |
DGIN |
December
31st |
May
1st |
Ethereum
Strategy ETF |
Cboe
BZX Exchange, Inc. |
EFUT |
December
31st |
May
1st |
Gold
Miners ETF |
NYSE
Arca, Inc. |
GDX® |
December
31st |
May
1st |
Green
Metals ETF |
NYSE
Arca, Inc. |
GMET |
December
31st |
May
1st |
India
Growth Leaders ETF |
NYSE
Arca, Inc. |
GLIN |
December
31st |
May
1st |
Indonesia
Index ETF |
NYSE
Arca, Inc. |
IDX |
December
31st |
May
1st |
Israel
ETF |
NYSE
Arca, Inc. |
ISRA |
December
31st |
May
1st |
Junior
Gold Miners ETF |
NYSE
Arca, Inc. |
GDXJ® |
December
31st |
May
1st |
Low
Carbon Energy ETF |
NYSE
Arca, Inc. |
SMOG |
December
31st |
May
1st |
Natural
Resources ETF |
NYSE
Arca, Inc. |
HAP |
December
31st |
May
1st |
Office
and Commercial REIT ETF |
NYSE
Arca, Inc. |
DESK |
December
31st |
May
1st |
Oil
Refiners ETF |
NYSE
Arca, Inc. |
CRAK |
December
31st |
May
1st |
Oil
Services ETF |
NYSE
Arca, Inc. |
OIH |
December
31st |
May
1st |
Rare
Earth and Strategic Metals ETF |
NYSE
Arca, Inc. |
REMX |
December
31st |
May
1st |
Russia
ETF1 |
Not
Applicable |
RSX |
December
31st |
May
1st |
Russia
Small-Cap ETF1 |
Not
Applicable |
RSXJ |
December
31st |
May
1st |
Steel
ETF |
NYSE
Arca, Inc. |
SLX |
December
31st |
May
1st |
Uranium
and Nuclear ETF |
NYSE
Arca, Inc. |
NLR |
December
31st |
May
1st |
Vietnam
ETF |
Cboe
BZX Exchange, Inc. |
VNM |
December
31st |
May
1st |
Statement
of Additional Information September 1, 2024 |
BDC
Income ETF |
NYSE
Arca, Inc. |
BIZD |
April
30th |
September
1st |
CEF
Muni Income ETF |
Cboe
BZX Exchange, Inc. |
XMPT |
April
30th |
September
1st |
China
Bond ETF |
NYSE
Arca, Inc. |
CBON |
April
30th |
September
1st |
Dynamic
High Income ETF |
NYSE
Arca, Inc. |
INC |
April
30th |
September
1st |
Emerging
Markets High Yield Bond ETF |
NYSE
Arca, Inc. |
HYEM |
April
30th |
September
1st |
Fallen
Angel High Yield Bond ETF |
The
NASDAQ Stock Market LLC |
ANGL |
April
30th |
September
1st |
Green
Bond ETF |
NYSE
Arca, Inc. |
GRNB |
April
30th |
September
1st |
High
Yield Muni ETF |
Cboe
BZX Exchange, Inc. |
HYD |
April
30th |
September
1st |
HIP
Sustainable
Muni ETF |
Cboe
BZX Exchange, Inc. |
SMI |
April
30th |
September
1st |
IG
Floating Rate ETF |
NYSE
Arca, Inc. |
FLTR |
April
30th |
September
1st |
Intermediate
Muni ETF |
Cboe
BZX Exchange, Inc. |
ITM |
April
30th |
September
1st |
International
High Yield Bond ETF |
NYSE
Arca, Inc. |
IHY |
April
30th |
September
1st |
J.P.
Morgan EM Local Currency Bond ETF |
NYSE
Arca, Inc. |
EMLC |
April
30th |
September
1st |
Long
Muni ETF |
Cboe
BZX Exchange, Inc. |
MLN |
April
30th |
September
1st |
Moody's
Analytics BBB Corporate Bond ETF |
Cboe
BZX Exchange, Inc. |
MBBB |
April
30th |
September
1st |
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Fund |
Principal
U.S.
Listing
Exchange |
Ticker |
Fiscal
Year End* |
Prospectus
Date |
Moody's
Analytics IG Corporate Bond ETF |
Cboe
BZX Exchange, Inc. |
MIG |
April
30th |
September
1st |
Mortgage
REIT Income ETF |
NYSE
Arca, Inc. |
MORT |
April
30th |
September
1st |
Preferred
Securities ex Financials ETF |
NYSE
Arca, Inc. |
PFXF |
April
30th |
September
1st |
Short
High Yield Muni ETF |
Cboe
BZX Exchange, Inc. |
SHYD |
April
30th |
September
1st |
Short
Muni ETF |
Cboe
BZX Exchange, Inc. |
SMB |
April
30th |
September
1st |
Statement
of Additional Information November 16, 2023, as revised on February 1,
2024, March 15, 2024, May 1, 2024, May 31, 2024, June 7, 2024, August 20,
2024 and September 1, 2024 |
Morningstar
Wide Moat Growth ETF |
Cboe
BZX Exchange, Inc. |
MGRO |
September
30th |
November
16th |
Morningstar
Wide Moat Value ETF |
Cboe
BZX Exchange, Inc. |
MVAL |
September
30th |
November
16th |
Statement
of Additional Information August 20, 2024, as revised on September 1,
2024 |
Fabless
Semiconductor ETF |
The
NASDAQ Stock Market LLC |
SMHX |
September
30th |
August
20th |
*
Certain information provided in this SAI is indicated to be as of the end of a
Fund’s last fiscal year or during a Fund’s last fiscal year. The term “last
fiscal year” means the most recently completed fiscal year for each Fund.
1
On
September 29, 2022, the Board unanimously voted to approve a Plan of Liquidation
and Termination of each of VanEck Russia ETF and VanEck Russia Small-Cap ETF
(together, the “Russia Funds”), contingent on receiving any necessary relief
from the SEC. On December 28, 2022, the Securities and Exchange Commission (the
“SEC”) granted exemptive relief to the Russia Funds permitting the Russia Funds
to suspend the right of redemption with respect to their shares and, if
necessary, postpone the date of payment of redemption proceeds with respect to
redemption orders received but not yet paid until the Russia Funds complete the
liquidation of their portfolios and distribute all their assets to remaining
shareholders. The process of paying any proceeds of the liquidation was
initiated on January 12, 2023. The Russia Funds will make one or more
liquidating distributions. It is possible that the liquidation of the Russia
Funds will take an extended period of time if circumstances involving Russian
securities do not improve. While the Russia Funds are in the process of
liquidating their portfolios, each of the Russia Funds will hold cash and
securities that may not be consistent with their investment objectives and
strategies and are likely to incur higher tracking error than is typical for
each Russia Fund. Furthermore, because of the delisting of the Russia Funds from
Cboe BZX Exchange, Inc., and the liquidation of the Russia Funds, the Russia
Funds are no longer exchange-traded funds, and there will be no trading market
for your shares. Upon payment of the final liquidating distribution, it is
anticipated that the Russia Funds will be terminated. MarketVector™ Indexes GmbH
discontinued the MVIS®
Russia
Index and the MVIS®
Russia
Small-Cap Index on July 31, 2023.
A
copy of each Prospectus may be obtained without charge by writing to the Trust
or the Distributor (defined herein). The Trust’s address is 666 Third Avenue,
9th Floor, New York, New York 10017. Capitalized terms used herein that are not
defined have the same meaning as in the Prospectuses, unless otherwise noted.
The audited financial statements, including the financial highlights, appearing
in the Trust’s most recent Annual Report to shareholders for each Fund’s
corresponding fiscal year end and filed electronically with the SEC, are
incorporated by reference into the section of this SAI entitled “Financial
Statements.” No other portions of any of the Trust’s Annual Reports or
Semi-Annual Reports are incorporated by reference or made part of this SAI.
TABLE
OF CONTENTS
GENERAL
DESCRIPTION OF THE TRUST
The
Trust is an open-end management investment company. The Trust currently consists
of 69 investment portfolios. This SAI relates to all Funds of the Trust as set
forth on the cover page. The Trust was organized as a Delaware statutory trust
on March 15, 2001. The shares of each Fund are referred to herein as
“Shares.”
Each
Fund that is classified as a “diversified” fund under the Investment Company Act
of 1940, as amended (the “1940 Act”) is required to meet certain diversification
requirements under the 1940 Act. Each Fund that is classified as a
“non-diversified” fund under the 1940 Act may invest a relatively high
percentage of its assets in a smaller number of issuers or may invest a larger
proportion of its assets in a single issuer. The following chart indicates the
diversification classification for each Fund:
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Fund |
Classification
as Diversified or Non-Diversified |
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Municipal
ETFs |
CEF
Muni Income ETF* |
Diversified |
High
Yield Muni ETF |
Diversified |
HIP
Sustainable Muni ETF |
Non-Diversified |
Intermediate
Muni ETF |
Diversified |
Long
Muni ETF |
Diversified |
Short
High Yield Muni ETF |
Diversified |
Short
Muni ETF |
Diversified |
CLO/Equity/Fixed
Income ETFs |
BDC
Income ETF |
Diversified |
China
Bond ETF |
Non-Diversified |
CLO
ETF |
Non-Diversified |
Durable
High Dividend ETF* |
Diversified |
Dynamic
High Income ETF |
Non-Diversified |
Emerging
Markets High Yield Bond ETF |
Diversified |
Energy
Income ETF |
Non-Diversified |
Fallen
Angel High Yield Bond ETF* |
Diversified
|
Green
Bond ETF |
Diversified |
IG
Floating Rate ETF |
Non-Diversified |
International
High Yield Bond ETF |
Diversified |
J.P.
Morgan EM Local Currency Bond ETF |
Non-Diversified |
Moody's
Analytics BBB Corporate Bond ETF |
Non-Diversified |
Moody's
Analytics IG Corporate Bond ETF |
Diversified |
Mortgage
REIT Income ETF |
Non-Diversified |
Preferred
Securities ex Financials ETF |
Non-Diversified |
Thematic/Strategic
Equity ETFs |
Biotech
ETF |
Non-Diversified |
Digital
Transformation ETF |
Non-Diversified |
Environmental
Services ETF |
Non-Diversified |
Fabless
Semiconductor ETF |
Non-Diversified |
Gaming
ETF |
Non-Diversified |
Green
Infrastructure ETF |
Non-Diversified |
Inflation
Allocation ETF |
Diversified |
Long/Flat
Trend ETF* |
Diversified |
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Fund |
Classification
as Diversified or Non-Diversified |
Morningstar
ESG Moat ETF |
Non-Diversified |
Morningstar
Global Wide Moat ETF* |
Diversified |
Morningstar
International Moat ETF* |
Diversified |
Morningstar
SMID Moat ETF |
Non-Diversified |
Morningstar
Wide Moat ETF* |
Diversified |
Morningstar
Wide Moat Growth ETF |
Non-Diversified |
Morningstar
Wide Moat Value ETF |
Non-Diversified |
Pharmaceutical
ETF |
Non-Diversified |
Retail
ETF |
Non-Diversified |
Robotics
ETF |
Non-Diversified |
Semiconductor
ETF |
Non-Diversified |
Social
Sentiment ETF |
Non-Diversified |
Video
Gaming and eSports ETF |
Non-Diversified |
Ethereum
Strategy/Commodity Strategy/Natural Resources ETFs |
Agribusiness
ETF |
Non-Diversified |
CMCI
Commodity Strategy ETF |
Non-Diversified |
Commodity
Strategy ETF |
Non-Diversified |
Ethereum
Strategy ETF |
Non-Diversified |
Gold
Miners ETF |
Non-Diversified |
Green
Metals ETF |
Non-Diversified |
Junior
Gold Miners ETF |
Non-Diversified |
Low
Carbon Energy ETF |
Non-Diversified |
Natural
Resources ETF |
Diversified |
Office
and Commercial REIT ETF |
Non-Diversified |
Oil
Refiners ETF |
Non-Diversified |
Oil
Services ETF |
Non-Diversified |
Rare
Earth and Strategic Metals ETF |
Non-Diversified |
Steel
ETF |
Non-Diversified |
Uranium
and Nuclear ETF |
Non-Diversified |
Country/Regional
ETFs |
Africa
Index ETF |
Diversified |
Brazil
Small-Cap ETF |
Diversified |
ChiNext
ETF* |
Diversified |
Digital
India ETF |
Non-Diversified |
India
Growth Leaders ETF* |
Diversified |
Indonesia
Index ETF |
Non-Diversified |
Israel
ETF |
Non-Diversified |
Russia
ETF |
Non-Diversified |
Russia
Small-Cap ETF |
Non-Diversified |
Vietnam
ETF |
Non-Diversified |
*Each
of VanEck CEF Muni Income ETF, VanEck ChiNext ETF, VanEck Durable High Dividend
ETF, VanEck Fallen Angel High Yield Bond ETF, VanEck India Growth Leaders ETF,
VanEck Long/Flat Trend ETF, VanEck Morningstar Global Wide Moat ETF, VanEck
Morningstar International Moat ETF and VanEck Morningstar Wide Moat ETF intends
to be diversified in approximately the same proportion as its underlying index
is diversified. Each of VanEck CEF Muni Income ETF, VanEck ChiNext ETF, VanEck
Durable High Dividend ETF, VanEck Fallen Angel High Yield Bond ETF, VanEck India
Growth Leaders ETF, VanEck Long/Flat Trend ETF, VanEck Morningstar Global Wide
Moat ETF, VanEck Morningstar International Moat ETF and VanEck Morningstar Wide
Moat ETF may become
non-diversified,
as defined in the 1940 Act, solely as a result of a change in relative market
capitalization or index weighting of one or more constituents of its underlying
index.
The
Funds offer and issue Shares at their net asset value (“NAV”) only in
aggregations of a specified number of Shares (each, a “Creation Unit”).
Similarly, Shares are redeemable by the Funds only in Creation Units, as further
described in the chart below. The Shares of the Funds are listed on either NYSE
Arca, Inc. (“NYSE Arca”), The NASDAQ Stock Market LLC (“NASDAQ”) or the Cboe BZX
Exchange, Inc. (“Cboe”) as set forth on the cover page of this SAI, and Shares
of each Fund trade in the secondary market at market prices that may differ from
the Shares’ NAV. NYSE Arca, NASDAQ and Cboe are each referred to as an
“Exchange” and collectively, the “Exchanges.” The Trust reserves the right to
permit or require a “cash” option for creations and redemptions of Shares
(subject to applicable legal requirements) to the extent Shares are not created
or redeemed wholly in cash.
Creation
and Redemption Features
The
chart below sets forth certain relevant information regarding the creation and
redemption features pertaining to each Fund.
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Fund
Name |
In Kind |
In Cash |
Partially
In Cash/Partially In Kind |
Primarily
in Cash/Partially In Kind |
Primarily
In Kind/Partially in Cash |
Standard
Transaction
Fee* |
|
Municipal
ETFs |
CEF
Muni Income ETF |
X |
|
|
|
|
$250 |
High
Yield Muni ETF |
X |
|
|
|
|
$250 |
HIP
Sustainable Muni ETF |
X |
|
|
|
|
$250 |
Intermediate
Muni ETF |
X |
|
|
|
|
$250 |
Long
Muni ETF |
X |
|
|
|
|
$250 |
Short
High Yield Muni ETF |
X |
|
|
|
|
$250 |
Short
Muni ETF |
X |
|
|
|
|
$250 |
CLO/Equity/Fixed
Income ETFs |
BDC
Income ETF |
X |
|
|
|
|
$250 |
China
Bond ETF |
|
X |
|
|
|
$100 |
CLO
ETF |
|
|
|
X |
|
$250 |
Durable
High Dividend ETF |
X |
|
|
|
|
$250 |
Dynamic
High Income ETF |
X |
|
|
|
|
$250 |
Emerging
Markets High Yield Bond ETF |
X |
|
|
|
|
$800 |
Energy
Income ETF |
X |
|
|
|
|
$250 |
Fallen
Angel High Yield Bond ETF |
X |
|
|
|
|
$450 |
Green
Bond ETF |
X |
|
|
|
|
$500 |
IG
Floating Rate ETF |
X |
|
|
|
|
$200 |
International
High Yield Bond ETF |
X |
|
|
|
|
$800 |
J.P.
Morgan EM Local Currency Bond ETF |
|
|
|
|
X |
$1,000 |
Moody's
Analytics BBB Corporate Bond ETF |
X |
|
|
|
|
$250 |
Moody's
Analytics IG Corporate Bond ETF |
X |
|
|
|
|
$250 |
Mortgage
REIT Income ETF |
X |
|
|
|
|
$250 |
Preferred
Securities ex Financials ETF |
X |
|
|
|
|
$250 |
Thematic/Strategic
Equity ETFs |
Biotech
ETF |
X |
|
|
|
|
$250 |
Digital
Transformation ETF |
X |
|
|
|
|
$400 |
Environmental
Services ETF |
X |
|
|
|
|
$250 |
Fabless
Semiconductor ETF |
X |
|
|
|
|
$250 |
Gaming
ETF |
|
|
|
|
X |
$500 |
Green
Infrastructure ETF |
X |
|
|
|
|
$250 |
Inflation
Allocation ETF |
|
|
|
|
X |
$250 |
Long/Flat
Trend ETF |
X |
|
|
|
|
$250 |
Morningstar
ESG Moat ETF |
X |
|
|
|
|
$250 |
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Fund
Name |
In Kind |
In Cash |
Partially
In Cash/Partially In Kind |
Primarily
in Cash/Partially In Kind |
Primarily
In Kind/Partially in Cash |
Standard
Transaction
Fee* |
Morningstar
Global Wide Moat ETF |
|
|
|
|
X |
$500 |
Morningstar
International Moat ETF |
|
|
|
|
X |
$750 |
Morningstar
SMID Moat ETF |
X |
|
|
|
|
$250 |
Morningstar
Wide Moat ETF |
X |
|
|
|
|
$250 |
Morningstar
Wide Moat Growth ETF |
X |
|
|
|
|
$250 |
Morningstar
Wide Moat Value ETF |
X |
|
|
|
|
$250 |
Pharmaceutical
ETF |
X |
|
|
|
|
$250 |
Retail
ETF |
X |
|
|
|
|
$250 |
Robotics
ETF |
X |
|
|
|
|
$400 |
Semiconductor
ETF |
X |
|
|
|
|
$300 |
Social
Sentiment ETF |
X |
|
|
|
|
$250 |
Video
Gaming and eSports ETF |
|
|
|
|
X |
$500 |
Commodity
Strategy/Natural Resources ETFs |
Agribusiness
ETF |
|
|
|
|
X |
$500 |
CMCI
Commodity Strategy ETF |
|
X |
|
|
|
$100 |
Commodity
Strategy ETF |
|
X |
|
|
|
$100 |
Ethereum
Strategy ETF |
|
X |
|
|
|
$100 |
Gold
Miners ETF |
X |
|
|
|
|
$500 |
Green
Metals ETF |
|
|
|
|
X |
$400 |
Junior
Gold Miners ETF |
X |
|
|
|
|
$750 |
Low
Carbon Energy ETF |
|
|
|
|
X |
$500 |
Natural
Resources ETF |
|
|
|
|
X |
$1,000 |
Office
and Commercial REIT ETF |
X |
|
|
|
|
$250 |
Oil
Refiners ETF |
|
|
|
|
X |
$500 |
Oil
Services ETF |
X |
|
|
|
|
$300 |
Rare
Earth and Strategic Metals ETF |
|
|
|
|
X |
$500 |
Steel
ETF |
X |
|
|
|
|
$250 |
Uranium
and Nuclear ETF |
|
|
|
|
X |
$500 |
Country/Regional
ETFs |
Africa
Index ETF |
|
|
|
|
X |
$750 |
Brazil
Small-Cap ETF |
|
|
|
X |
|
$500 |
ChiNext
ETF |
|
X |
|
|
|
$250 |
Digital
India ETF |
|
|
|
X |
|
$250 |
|
|
|
|
|
|
|
India
Growth Leaders ETF |
|
|
|
X |
|
$250 |
Indonesia
Index ETF |
X |
|
|
|
|
$750 |
Israel
ETF |
X |
|
|
|
|
$800 |
Russia
ETF |
X |
|
|
|
|
$500 |
Russia
Small-Cap ETF |
X |
|
|
|
|
$500 |
Vietnam
ETF |
|
|
|
X |
|
$250 |
*Standard
(fixed) Transaction Fee is payable to the Custodian (as defined herein);
however, the Custodian may increase the standard (fixed) transaction fee for
administration and settlement of non-standard orders requiring additional
administrative processing by the Custodian. The Trust may also impose variable
fees in connection with certain creation and redemption transactions. See the
“Creation and Redemption of Creation Units” section below for additional
information.
INVESTMENT
POLICIES AND RESTRICTIONS
General
Each
of VanEck Long/Flat Trend ETF (to the extent the Fund is holding shares of one
or more exchange-traded funds (“ETFs”) rather than investing directly in the
shares of the companies comprising the S&P 500 Index), VanEck CEF Muni
Income ETF and VanEck Inflation Allocation ETF is a “fund of funds.” Each of
VanEck CEF Muni Income ETF, VanEck Inflation Allocation ETF and VanEck Long/Flat
Trend ETF invests all or a portion of its assets in other funds it invests in
(the “Underlying Funds”). The performance of VanEck CEF Muni Income ETF is
dependent on the performance of the Underlying Funds. VanEck CEF Muni Income ETF
will be subject to the risks of the Underlying Funds’ investments. Because the
investment characteristics of VanEck CEF Muni Income ETF will correspond
directly to those of the Underlying Funds, the following applies to both VanEck
CEF Muni Income ETF and the Underlying Funds, as applicable, and except where
otherwise indicated, this SAI uses the term “Fund,” when referring to VanEck CEF
Muni Income ETF to mean VanEck CEF Muni Income ETF and the Underlying Funds, as
applicable. The VanEck Inflation Allocation ETF invests all or a portion of its
assets in exchange traded products that are registered under the federal
securities laws (“Exchange Traded Products”), including ETFs and exchange-traded
notes (“ETNs”). The performance of VanEck Inflation Allocation ETF is dependent
on the performance of the Exchange Traded Products. VanEck Inflation Allocation
ETF will be subject to the risks of the Exchange Traded Products’ investments.
The performance of VanEck Long/Flat Trend ETF (to the extent the Fund is holding
shares of one or more ETFs rather than investing directly in the shares of the
companies comprising the S&P 500 Index) is dependent on the performance of
the ETFs it invests in. VanEck Long/Flat Trend ETF will be subject to the risks
of the ETFs' investments.
VanEck
CEF Muni Income ETF, VanEck China Bond ETF, VanEck Emerging Markets High Yield
Bond ETF, VanEck Fallen Angel High Yield Bond ETF, VanEck Green Bond ETF, VanEck
High Yield Muni ETF, VanEck Intermediate Muni ETF, VanEck International High
Yield Bond ETF, VanEck IG Floating Rate ETF, VanEck J.P. Morgan EM Local
Currency Bond ETF, VanEck Long Muni ETF, VanEck Moody's Analytics BBB Corporate
Bond ETF, VanEck Moody's Analytics IG Corporate Bond ETF, VanEck Short High
Yield Muni ETF and VanEck Short Muni ETF are each defined as a “Fixed Income
Fund” and collectively as the “Fixed Income Funds.”
VanEck
India Growth Leaders ETF seeks to achieve its investment objective by investing
substantially all of its assets in a wholly-owned subsidiary in Mauritius, MV
SCIF Mauritius, a private company limited by shares incorporated in Mauritius
(the “Mauritius Subsidiary”), that has the same investment objective as VanEck
India Growth Leaders ETF. Because the investment characteristics of VanEck India
Growth Leaders ETF will correspond directly to those of the Mauritius Subsidiary
(which is managed by and its decisions are taken by its independent Board of
Directors), the following applies to both VanEck India Growth Leaders ETF and
the Mauritius Subsidiary, as applicable, and except where otherwise indicated,
this SAI uses the term “Fund” when referring to VanEck India Growth Leaders ETF
to mean VanEck India Growth Leaders ETF and/or the Mauritius Subsidiary, as
applicable.
VanEck
CLO ETF seeks to achieve its investment objective by investing, under normal
circumstances, primarily in investment grade-rated debt tranches of
collateralized loan obligations (“CLOs”) of any maturity. Investment grade CLOs
are rated inclusive and above BBB- by S&P Global Ratings or Baa3 Moody’s
Investors Service, Inc. (or equivalent rating issued by a nationally recognized
statistical rating organization (“NRSRO”)), or if unrated, determined to be of
comparable credit quality by the Adviser (as defined below) and/or PineBridge
Investments, LLC, the Fund’s sub-adviser (the “Sub-Adviser”).
VanEck
Commodity Strategy ETF seeks to achieve its investment objective by investing,
under normal circumstances, in exchange-traded commodity futures contracts,
exchange-traded and over-the-counter (“OTC”) commodity-linked instruments, and
pooled investment vehicles, including exchange-traded products that provide
exposure to commodities (“Commodities Instruments”) and cash and certain fixed
income investments.
VanEck
Dynamic High Income ETF is an actively managed ETF that seeks to achieve its
investment objective by investing, under normal circumstances, in
exchange-traded products (“ETPs”) that are registered under the applicable
federal securities laws and that invest in securities that generate income. The
Fund may also invest in U.S. Treasury securities under normal circumstances.
While Van Eck Associates Corporation (“VEAC”) currently anticipates that the
ETPs that the Fund may invest in will primarily be ETFs managed VEAC, Van Eck
Absolute Return Advisers Corporation (“VEARA”) or their affiliates, the Fund may
also invest in affiliated and unaffiliated ETPs, which could include ETFs and
closed-end funds that invest in income generating asset classes. The performance
of the Fund is largely dependent on the performance of, and the Fund will be
subject to the risks of, such other funds that the Fund invests in.
VanEck
CMCI Commodity Strategy ETF seeks to achieve its investment objective by
investing under normal circumstances in instruments that derive their value from
the performance of the Index. In seeking to replicate the Index, the Fund
invests in (i) commodity-linked derivative instruments, including commodity
index-linked notes, swap agreements, commodity futures contracts and options on
futures contracts that provide economic exposure to the investment returns of
the
commodities
markets, as represented by the Index and its constituents and in (ii) bonds,
debt securities and other fixed income instruments issued by various U.S.
public- or private-sector entities.
VanEck
Ethereum Strategy ETF pursues its investment strategy primarily by investing in
standardized, cash-settled Ether (“ETH”) futures contracts (“ETH Futures”)
traded on commodity exchanges registered with the Commodity Futures Trading
Commission (“CFTC”). Currently, the only ETH Futures the Fund intends to invest
in are those traded on the Chicago Mercantile Exchange (the “CME”). The Fund
seeks to invest in ETH Futures so that the total value of the ETH to which the
Fund has economic exposure is approximately 100% to 125% of the total assets of
the Fund (the “Target Exposure”) in order to account for the Fund’s accrued tax
liabilities. The Fund is not seeking a levered return to ETH. In addition, the
Fund expects to have significant holdings of U.S. Treasuries, other U.S.
government obligations, money market funds and funds that invest in short-term
bonds, cash and cash-like equivalents (e.g., high quality commercial paper and
similar instruments that are rated investment grade or, if unrated, of
comparable quality, as the Adviser determines), mortgage-backed securities
issued or guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises of the U.S. government (whether or not the securities are U.S.
government securities), municipal debt securities, Treasury inflation-protected
securities, sovereign debt obligations of non-U.S. countries, and repurchase
agreements. If the Fund is unable to achieve the Target Exposure because it is
approaching or has exceeded position limits or because of liquidity or other
constraints, the Fund may invest in equity securities of “ETH-related
companies.” For these purposes, ETH-related companies are companies, including
investment companies, listed on a U.S. stock exchange that the Adviser believes
provide returns that generally correspond, or are closely related, to the
performance of ETH or ETH Futures. For example, the Fund may invest in U.S.
listed companies engaged in digital asset mining or offering digital asset
trading platforms. The
Fund currently only intends to invest in the securities and instruments
discussed above. Any discussion in this SAI regarding any other type of
investment not included in this paragraph does not apply to the
Fund.
Municipal
Securities
Certain
Funds may invest in securities issued by states, municipalities and other
political subdivisions, agencies, authorities and instrumentalities of states
and multi-state agencies or authorities. Municipal securities share the
attributes of debt/fixed income securities in general, but are generally issued
by states, municipalities and other political subdivisions, agencies,
authorities and instrumentalities of states and multi-state agencies or
authorities. The municipal securities that each Fund may purchase include
general obligation bonds and limited obligation bonds (or revenue bonds),
including industrial development bonds issued pursuant to former federal tax
law. General obligation bonds are obligations involving the credit of an issuer
possessing taxing power and are payable from such issuer’s general revenues and
not from any particular source. Limited obligation bonds are payable only from
the revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise or other specific revenue
source. Tax-exempt industrial development bonds generally are also revenue bonds
and thus are not payable from the issuer’s general revenues. The credit and
quality of industrial development bonds are usually related to the credit of the
corporate user of the facilities. Payment of interest on and repayment of
principal of such bonds is the responsibility of the corporate user (and/or any
guarantor). In addition, certain Funds may invest in lease obligations. Lease
obligations may take the form of a lease or an installment purchase contract
issued by public authorities to acquire a wide variety of equipment and
facilities. The securities of state and municipal governments and their
political subdivisions are not considered to be issued by members of any
industry.
Investments
in municipal securities are subject to the risk that the issuer could default on
its obligations. Such a default could result from the inadequacy of the sources
or revenues from which interest and principal payments are to be made, including
property tax collections, sales tax revenue, income tax revenue and local, state
and federal government funding, or the assets collateralizing such obligations.
Municipal securities and their issuers may be more susceptible to downgrade,
default, and bankruptcy as a result of recent periods of economic stress. During
and following the economic downturn beginning in 2008, several municipalities
have filed for bankruptcy protection or have indicated that they may seek
bankruptcy protection in the future. In addition, many states and municipalities
have been adversely impacted by the COVID-19 pandemic as a result of declines in
revenues and increased expenditures required to manage and mitigate the
outbreak. Revenue bonds, including private activity bonds, are backed only by
specific assets or revenue sources and not by the full faith and credit of the
governmental issuer.
Repurchase
Agreements
The
Funds may invest in repurchase agreements with commercial banks, brokers or
dealers to generate income from their excess cash balances and to invest
securities lending cash collateral. A repurchase agreement is an agreement under
which a Fund acquires a money market instrument (generally a security issued by
the U.S. Government or an agency thereof, a banker’s acceptance or a certificate
of deposit) from a seller, subject to resale to the seller at an agreed-upon
price and date (normally, the next business day). A repurchase agreement may be
considered a loan collateralized by securities. The resale price reflects an
agreed upon interest rate effective for the period the instrument is held by a
Fund and is unrelated to the interest rate on the underlying
instrument.
In
these repurchase agreement transactions, the securities acquired by a Fund
(including accrued interest earned thereon) must have a total value at least
equal to the value of the repurchase agreement and are held by the Trust’s
custodian bank until repurchased. In addition, the Trust’s Board of Trustees
(“Board” or “Trustees”) has established guidelines and standards for review of
the creditworthiness of any bank, broker or dealer counterparty to a repurchase
agreement with each Fund. No more than an aggregate of 15% of each Fund’s net
assets will be invested in repurchase agreements having maturities longer than
seven days.
The
use of repurchase agreements involves certain risks. For example, if the other
party to the agreement defaults on its obligation to repurchase the underlying
security at a time when the value of the security has declined, the Funds may
incur a loss upon disposition of the security. If the other party to the
agreement becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code or other laws, a court may determine that the underlying
security is collateral not within the control of a Fund and, therefore, the Fund
may incur delays in disposing of the security and/or may not be able to
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement.
Reverse
Repurchase Agreements
The
Funds may enter into reverse repurchase agreements with respect to its portfolio
investments subject to the investment restrictions set forth herein. Reverse
repurchase agreements involve the sale of securities held by a Fund with an
agreement by the Fund to repurchase the securities at an agreed upon price, date
and interest payment. The use by a Fund of reverse repurchase agreements
involves the risks of leverage since the proceeds derived from such reverse
repurchase agreements may be invested in additional securities. Reverse
repurchase agreements involve the risk that the market value of the securities
acquired in connection with the reverse repurchase agreement may decline below
the price of the securities a Fund has sold but is obligated to repurchase.
Also, reverse repurchase agreements involve the risk that the market value of
the securities retained in lieu of sale by the Fund in connection with the
reverse repurchase agreement may decline in price.
If
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce a Fund's obligation
to repurchase the securities, and the Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision. Also,
a Fund would bear the risk of loss to the extent that the proceeds of the
reverse repurchase agreement are less than the value of the securities subject
to such agreement.
In
October 2020, the SEC adopted a final rule related to the use of derivatives,
short sales, reverse repurchase agreements and certain other transactions by
registered investment companies (the “derivatives rule”). Under the derivatives
rule, when a fund trades reverse repurchase agreements or similar financing
transactions, including certain tender option bonds, it needs to aggregate the
amount of indebtedness associated with the reverse repurchase agreements or
similar financing transactions with the aggregate amount of any other senior
securities representing indebtedness (e.g.,
bank borrowings, if applicable) when calculating a fund’s asset coverage ratio
or treat all such transactions as derivatives transactions. See “SEC Regulatory
Matters” below.
Futures
Contracts and Options
Futures
contracts generally provide for the future purchase or sale of a specified
instrument, index or commodity at a specified future time and at a specified
price. Stock or bond index futures contracts and other types of futures
contracts are settled daily with a payment by the Fund (or exchange) to an
exchange (or Fund) of a cash amount based on the difference between the level of
the stock or bond index or underlying instrument specified in the contract from
one day to the next. Futures contracts are standardized as to maturity date and
underlying instrument and are traded on futures exchanges. The Funds may use
futures contracts and options on futures contracts which (i) in the case of all
Funds other than VanEck CLO ETF, VanEck CMCI Commodity Strategy ETF, VanEck
Commodity Strategy ETF, VanEck Dynamic High Income ETF, VanEck Ethereum Strategy
ETF, VanEck HIP
Sustainable
Muni ETF and VanEck Inflation Allocation ETF, VEAC (the “Adviser” with respect
to all Funds other than VanEck BDC Income ETF, VanEck CMCI Commodity Strategy
ETF, VanEck Commodity Strategy ETF, VanEck Ethereum Strategy ETF and VanEck
Inflation Allocation ETF) or VEARA (the “Adviser” with respect to VanEck BDC
Income ETF, VanEck CMCI Commodity Strategy ETF, VanEck Commodity Strategy ETF,
VanEck Ethereum Strategy ETF and VanEck Inflation Allocation ETF and, together
with VEAC, the “Advisers”) believes to be representative of each Fund’s
respective benchmark index (each, an “Index”), (ii) in the case of VanEck CLO
ETF, VanEck Dynamic High Income ETF and VanEck HIP
Sustainable
Muni ETF, VEAC believes to be appropriate and (iii) in the case of VanEck CMCI
Commodity Strategy ETF, VanEck Commodity Strategy ETF, VanEck Ethereum Strategy
ETF and VanEck Inflation Allocation ETF, VEARA believes to be appropriate based
on other indices or combinations of indices.
An
option is a contract that provides the holder of the option the right to buy or
sell shares or other assets at a fixed price, within a specified period of time.
An American call option gives the option holder the right to buy the underlying
security from the option writer at the option exercise price at any time prior
to the expiration of the option. A European call option gives the option holder
the right to buy the underlying security from the option writer only on the
option expiration date. An American put option gives the option holder the right
to sell the underlying security to the option writer at the option exercise
price at any time prior to the expiration of the option. A European put option
gives the option holder the right to sell the underlying security to the option
writer at the option exercise price only on the option expiration
date.
Although
futures contracts (other than cash settled futures contracts, including most
stock or bond index futures contracts) by their terms call for actual delivery
or acceptance of the underlying instrument or commodity, in most cases the
contracts are closed out before the maturity date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position (buying the same contract which was previously sold or selling the same
contract previously purchased) in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract position is
opened or closed.
Futures
traders are required to make a margin deposit (typically in cash or government
securities) with a broker or custodian to initiate and maintain open positions
in futures contracts. A margin deposit is intended to assure completion of the
contract (delivery or acceptance of the underlying instrument or commodity or
payment of the cash settlement amount) if it is not terminated prior to the
specified delivery date. Brokers may establish deposit requirements that are
higher than the exchange minimums. Futures contracts are customarily purchased
and sold on margin deposits that may vary.
After
a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional “variation” margin will be required.
Conversely,
a change in the contract value may reduce the required margin, resulting in a
repayment of excess margin to the contract holder. Variation margin payments are
made to and from the futures broker for as long as the contract remains open.
The Funds expect to earn interest income on their margin deposits in the form of
cash.
The
Funds may use futures contracts and options thereon, together with positions in
cash and money market instruments, to simulate full investment in each Fund’s
respective Index. Under such circumstances, the Adviser may seek to utilize
other instruments that it believes to be correlated to the Fund’s Index
components or a subset of the components. Liquid futures contracts may not be
currently available for the Index of each Fund.
Positions
in futures contracts and options may be closed out only on an exchange that
provides a secondary market therefor. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract or option
at any specific time. Thus, it may not be possible to close a futures or options
position. In the event of adverse price movements, the Funds would continue to
be required to make daily cash payments to maintain its required margin. In such
situations, if a Fund has insufficient cash, it may have to sell portfolio
securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the Funds may be required to make
delivery of the instruments underlying futures contracts they have sold.
The
Funds may seek to minimize the risk that they will be unable to close out a
futures or options contract by only entering into futures and options for which
there appears to be a liquid secondary market.
The
risk of loss in trading futures contracts or uncovered call options in some
strategies (e.g.,
selling uncovered stock index futures contracts) is potentially unlimited. The
Funds do not plan to use futures and options contracts in this way. The risk of
a futures position may still be large as traditionally measured due to the low
margin deposits required. In many cases, a relatively small price movement in a
futures contract may result in immediate and substantial loss or gain to the
investor relative to the size of a required margin deposit.
Utilization
of futures transactions by certain Funds involves the risk of imperfect or even
negative correlation to each Fund’s respective Index if the index underlying the
futures contracts differs from the Index. There is also the risk of loss by the
Funds of margin deposits in the event of the bankruptcy or other similar
insolvency with respect to a broker with whom a Fund has an open position in the
futures contract or option.
Certain
financial futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day’s settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movements during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several
consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
future positions and subjecting some futures traders to substantial
losses.
Except
as otherwise specified in the Funds’ Prospectuses or this SAI, there are no
limitations on the extent to which the Funds may engage in transactions
involving futures and options thereon. With respect to certain Funds, under
applicable Indian securities regulations, there are position limits on foreign
portfolio investor (“FPI”) investments in index futures and index futures
contracts on a particular underlying index under the Foreign Portfolio Investors
Regulations, 2019 (“FPI Regulations”) of the Securities and Exchange Board of
India (“SEBI”). The Funds also are required to comply with the derivatives rule
when they engage in transactions involving futures and options thereon. See “SEC
Regulatory Matters” below.
Swaps
OTC
swap agreements are contracts between parties in which one party agrees to make
payments to the other party based on the change in market value or level of a
specified index or asset. In return, the other party agrees to make payments to
the first party based on the return of a different specified index or asset,
usually an interest rate. Although OTC swap agreements entail the risk that a
party will default on its payment obligations thereunder, each Fund seeks to
reduce this risk generally by receiving (or paying) collateral daily and
entering into agreements that involve payments no less frequently than
quarterly. The net amount of the excess, if any, of a Fund’s obligations over
its entitlements with respect to each swap is accrued on a daily basis and an
amount of cash or highly liquid securities having an aggregate value at least
equal to the accrued excess is maintained in an account at the Trust’s custodian
bank.
In
addition, certain Funds may enter into interest rate swaps and credit default
swaps. Interest rate swaps are typically exchange-traded contracts in which a
party agrees to make periodic payments on certain referenced interest rates
(e.g.,
a fixed rate or a floating rate) applied to a specified notional amount. A
credit default swap on a security is a bilateral contract that enables an
investor to buy or sell protection against a defined-issuer credit event. Credit
default swaps referencing fixed income indices are generally traded on
exchanges. Certain Funds may enter into credit default swap agreements either as
a buyer or a seller. A Fund may buy protection to attempt to mitigate the risk
of default or credit quality deterioration in one or more of its individual
holdings or in a segment of the fixed income securities market to which it has
exposure, or to take a “short” position in individual bonds or market segments
which it does not own. A Fund may sell protection in an attempt to gain exposure
to the credit quality characteristics of particular bonds or market segments
without investing directly in those bonds or market segments. As the protection
seller in a credit default swap, a Fund effectively adds economic leverage to
its portfolio because, in addition to being subject to investment exposure on
its total net assets, the Fund is subject to investment exposure on the notional
amount of the swap.
The
use of such swap agreements involves certain risks. For example, if the
counterparty under an OTC swap agreement defaults on its obligation to make
payments due from it as a result of its bankruptcy or otherwise, the Funds may
lose such payments altogether or collect only a portion thereof, which
collection could involve costs or delays.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)
and related regulatory developments require the clearing and exchange-trading of
certain standardized OTC derivative instruments that the CFTC and the SEC
defined as “swaps” and “security-based swaps,” respectively. Mandatory
exchange-trading and clearing is occurring on a phased-in basis based on the
type of market participant and CFTC approval of contracts for central clearing
and exchange trading. In a cleared swap, a Fund’s ultimate counterparty is a
central clearinghouse rather than a swap dealer, bank or other financial
institution. A Fund enters into cleared swaps through an executing broker. Such
transactions are then submitted for clearing and, if cleared, will be held at
regulated futures commission merchants (“FCMs”) that are members of the
clearinghouse that serves as the central counterparty. When a Fund enters into a
cleared swap, it must deliver to the central counterparty (via an FCM) an amount
referred to as “initial margin.” Initial margin requirements are determined by
the central counterparty, but an FCM may require additional initial margin above
the amount required by the central counterparty. During the term of the swap
agreement, a “variation margin” amount may also be required to be paid by a Fund
or may be received by the Fund in accordance with margin controls set for such
accounts, depending upon changes in the price of the underlying reference asset
subject to the swap agreement. At the conclusion of the term of the swap
agreement, if a Fund has a loss equal to or greater than the margin amount, the
margin amount is paid to the FCM along with any loss in excess of the margin
amount. If a Fund has a loss of less than the margin amount, the excess margin
is returned to the Fund. If a Fund has a gain, the full margin amount and the
amount of the gain is paid to the Fund.
Central
clearing is designed to reduce counterparty credit risk compared to uncleared
swaps because central clearing interposes the central clearinghouse as the
counterparty to each participant’s swap, but it does not eliminate those risks
completely. There is also a risk of loss by a Fund of the initial and variation
margin deposits in the event of bankruptcy of the FCM with which the Fund has an
open position in a swap contract. The assets of a Fund may not be fully
protected in the
event
of the bankruptcy of the FCM or central counterparty because the Fund might be
limited to recovering only a pro rata share of all available funds and margin
segregated on behalf of an FCM’s customers or central counterparty’s clearing
members. If the FCM does not provide accurate reporting, a Fund is also subject
to the risk that the FCM could use the Fund’s assets, which are held in an
omnibus account with assets belonging to the FCM’s other customers, to satisfy
its own financial obligations or the payment obligations of another customer to
the central counterparty. Certain swaps have begun trading on exchanges called
swap execution facilities. Exchange-trading is expected to, but may not
necessarily, increase the liquidity of swaps trading.
In
addition, with respect to cleared swaps, a Fund may not be able to obtain as
favorable terms as it would be able to negotiate for an uncleared swap. In
addition, an FCM may unilaterally impose position limits or additional margin
requirements for certain types of swaps in which a Fund may invest. Central
counterparties and FCMs generally can require termination of existing cleared
swap transactions at any time, and can also require increases in margin above
the margin that is required at the initiation of the swap agreement. Margin
requirements for cleared swaps vary on a number of factors, and the margin
required under the rules of the clearinghouse and FCM may be in excess of the
collateral required to be posted by a Fund to support its obligations under a
similar uncleared swap. However, regulators recently adopted rules imposing
certain margin requirements, including minimums and required daily margin
transfers on uncleared swaps.
The
Funds are also subject to the risk that, after entering into a cleared swap with
an executing broker, no FCM or central counterparty is willing or able to clear
the transaction. In such an event, the central counterparty would void the
trade. Before a Fund can enter into a new trade, market conditions may become
less favorable to the Fund.
The
Adviser will continue to monitor developments regarding trading and execution of
cleared swaps on exchanges, particularly to the extent regulatory changes affect
a Fund’s ability to enter into swap agreements and the costs and risks
associated with such investments.
SEBI
has prohibited FPIs (in their capacity as issuers of offshore derivative
instruments (“ODIs”)) from issuing ODIs that have derivatives as their
underlying instruments, unless such exposure is for hedging purposes. ODIs are
defined under the FPI Regulations as any instrument issued overseas by an FPI
against securities held by it that are listed or proposed to be listed on any
recognized stock exchange in India or unlisted debt securities or securitized
debt instruments as its underlying instrument.
SEC
Regulatory Matters
Subject
to certain exceptions, the derivatives rule requires a Fund to trade derivatives
and other transactions that create future payment or delivery obligations
subject to a value-at-risk (“VaR”) leverage limit and certain derivatives risk
management program and reporting requirements. Generally, these requirements
apply unless a fund satisfies a “limited derivatives users” exception that is
included in the derivatives rule. Under the derivatives rule, when a fund trades
reverse repurchase agreements or similar financing transactions, including
certain tender option bonds, it needs to aggregate the amount of indebtedness
associated with the reverse repurchase agreements or similar financing
transactions with the aggregate amount of any other senior securities
representing indebtedness (e.g.,
bank borrowings, if applicable) when calculating a Fund’s asset coverage ratio
or treat all such transactions as derivatives transactions. Reverse repurchase
agreements or similar financing transactions aggregated with other indebtedness
do not need to be included in the calculation of whether a fund satisfies the
limited derivatives users exception, but for funds subject to the VaR testing
requirement, reverse repurchase agreements and similar financing transactions
must be included for purposes of such testing whether treated as derivatives
transactions or not. In addition, under the derivatives rule, a Fund is
permitted to invest in a security on a when-issued or forward-settling basis, or
with a non-standard settlement cycle, and the transaction will be deemed not to
involve a senior security under the 1940 Act, provided that (i) the Fund intends
to physically settle the transaction and (ii) the transaction will settle within
35 days of its trade date (the “Delayed-Settlement Securities Provision”). A
Fund may otherwise engage in such transactions that do not meet the conditions
of the Delayed-Settlement Securities Provision so long as the Fund treats any
such transaction as a “derivatives transaction” for purposes of compliance with
the derivatives rule. Furthermore, under the derivatives rule, a Fund will be
permitted to enter into an unfunded commitment agreement, and such unfunded
commitment agreement will not be subject to the asset coverage requirements
under the 1940 Act, if the Fund reasonably believes, at the time it enters into
such agreement, that it will have sufficient cash and cash equivalents to meet
its obligations with respect to all such agreements as they come due. The
Advisers cannot predict the effects of these regulations on the Funds. The
Advisers intend to monitor developments and seek to manage each Fund in a manner
consistent with achieving the Fund’s investment objective.
Warrants
and Subscription Rights
Warrants
are equity securities in the form of options issued by a corporation which give
the holder the right, but not the obligation, to purchase stock, usually at a
price that is higher than the market price at the time the warrant is issued. A
purchaser
takes the risk that the warrant may expire worthless because the market price of
the common stock fails to rise above the price set by the warrant.
Currency
Forwards
A
currency forward transaction is a contract to buy or sell a specified quantity
of currency at a specified date in the future at a specified price which may be
any fixed number of days from the date of the contract agreed upon by the
parties at a price set at the time of the contract. Currency forward contracts
may be used to increase or reduce exposure to currency price
movements.
The
use of currency forward transactions involves certain risks. For example, if the
counterparty under the contract defaults on its obligation to make payments due
from it as a result of its bankruptcy or otherwise, a Fund may lose such
payments altogether or collect only a portion thereof, which collection could
involve costs or delays.
In
early 2018, SEBI and the Reserve Bank of India (the “RBI”) introduced new
regulation that permits FPIs to take long or short positions without having to
establish underlying exposure up to a single limit of $100 million or its
equivalent, across all currency pairs involving Indian rupees combined across
all stock exchanges in India. FPIs are required to ensure that their short
positions on all stock exchanges across all contracts in foreign currency-Indian
rupee (“FCY-INR”) pairs do not exceed $100 million. In the event an FPI breaches
the short position limit, a stock exchange shall restrict the FPI from
increasing its existing short positions or creating new short positions in the
currency pair until such time the FPI is in compliance with the existing
requirements. To take long positions in excess of $100 million in all contracts
in FCY-INR pairs, FPIs are required to have an underlying exposure in Indian
debt or equity securities, including units of equity or debt funds.
The
Funds also are required to comply with the derivatives rule when they engage in
currency forward transactions that create future Fund payment or delivery
obligations. See “SEC Regulatory Matters”above.
Convertible
Securities
A
convertible security is a bond, debenture, note, preferred stock, right, warrant
or other security that may be converted into or exchanged for a prescribed
amount of common stock or other security of the same or a different issuer or
into cash within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest paid or
accrued on debt securities or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities generally have characteristics similar to
both debt and equity securities. The value of convertible securities tends to
decline as interest rates rise and, because of the conversion feature, tends to
vary with fluctuations in the market value of the underlying securities.
Convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar issuers.
Convertible securities generally rank senior to common stock in a corporation’s
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities generally do not participate directly in any
dividend increases or decreases of the underlying securities although the market
prices of convertible securities may be affected by any dividend changes or
other changes in the underlying securities.
Initial
Public Offerings
A
Fund may invest in initial public offerings (“IPOs”) of common stock or other
primary or secondary syndicated offerings of equity or debt securities issued by
a corporate issuer. A purchase of IPO securities often involves higher
transaction costs than those associated with the purchase of securities already
traded on exchanges or markets. IPO securities are subject to market risk and
liquidity risk. The market value of recently issued IPO securities may fluctuate
considerably due to factors such as the absence of a prior public market,
unseasoned trading and speculation, a potentially small number of securities
available for trading, limited information about the issuer, and other factors.
A Fund may hold IPO securities for a period of time, or may sell them soon after
the purchase. Investments in IPOs could have a magnified impact – either
positive or negative – on a Fund’s performance while a Fund’s assets are
relatively small. The impact of an IPO on a Fund’s performance may tend to
diminish as a Fund’s assets grow. In circumstances when investments in IPOs make
a significant contribution to the Fund’s performance, there can be no assurance
that similar contributions from IPOs will continue in the future.
Special
Purpose Acquisition Companies
A
Fund may invest in stock, warrants, and other securities of special purpose
acquisition companies (“SPACs”) or similar special purpose entities. A SPAC is
typically a publicly traded company that raises investment capital via an IPO
for the
purpose
of acquiring the equity securities of one or more existing companies (or
interests therein) via merger, combination, acquisition or other similar
transactions. A Fund may acquire an interest in a SPAC in an IPO or a secondary
market transaction.
Unless
and until an acquisition is completed, a SPAC generally invests its assets (less
a portion retained to cover expenses) in U.S. government securities, money
market securities and cash. To the extent the SPAC is invested in cash or
similar securities, this may negatively affect a Fund’s performance. Because
SPACs and similar entities are in essence blank check companies without
operating history or ongoing business other than seeking acquisitions, the value
of their securities is particularly dependent on the ability of the entity’s
management to identify and complete a profitable acquisition. There is no
guarantee that the SPACs in which a Fund invests will complete an acquisition or
that any acquisitions that are completed will be profitable. Some SPACs may
pursue acquisitions only within certain industries or regions, which may
increase the volatility of their prices. In addition, these securities, which
are typically traded in the over-the-counter market, may be considered illiquid
and/or be subject to restrictions on resale.
Other
risks of investing in SPACs include that a significant portion of the monies
raised by the SPAC may be expended during the search for a target transaction;
an attractive transaction may not be identified at all (or any requisite
approvals may not be obtained) and the SPAC may dissolve and be required to
return any remaining monies to shareholders, causing a Fund to incur the
opportunity cost of missed investment opportunities a Fund otherwise could have
benefited from; a transaction once identified or effected may prove unsuccessful
and an investment in the SPAC may lose value; the warrants or other rights with
respect to the SPAC held by a Fund may expire worthless or may be repurchased or
retired by the SPAC at an unfavorable price; and an investment in a SPAC may be
diluted by additional later offerings of interests in the SPAC or by other
investors exercising existing rights to purchase shares of the SPAC. In
addition, a SPAC target company may have limited operating experience, a smaller
size, limited product lines, markets, distribution channels and financial and
managerial resources. Investing in the securities of smaller companies involves
greater risk, and portfolio price volatility.
Market
Risk
A
Fund could lose money over short periods due to short-term market movements and
over longer periods during more prolonged market downturns. The prices of
the securities in a Fund are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. Market risk arises mainly from uncertainty about
future values of financial instruments and may be influenced by price, currency
and interest rate movements. These risks may be magnified if certain social,
political, economic and other conditions and events (such as natural disasters,
epidemics and pandemics, terrorism, conflicts and social unrest) adversely
interrupt the global economy; in these and other circumstances, such events or
developments might affect companies world-wide. As global systems, economies and
financial markets are increasingly interconnected, events that occur in one
country, region or financial market will, more frequently, adversely impact
issuers in other countries, regions or markets. During a general market
downturn, multiple asset classes may be negatively affected. Changes in
market conditions and interest rates generally do not have the same impact on
all types of securities and instruments.
Economies
and financial markets throughout the world have experienced periods of increased
volatility, uncertainty and distress. To the extent these conditions continue,
the risks associated with an investment in the Fund, including those described
below, could be heightened and the Fund’s investments (and thus a shareholder’s
investment in the Fund) may be particularly susceptible to sudden and
substantial losses, reduced yield or income or other adverse
developments.
Structured
Notes
A
structured note is a derivative security for which the amount of principal
repayment and/or interest payments is based on the movement of one or more
“factors.” These factors include, but are not limited to, currency exchange
rates, interest rates (such as the prime lending rate), referenced bonds and
stock indices. Some of these factors may or may not correlate to the total rate
of return on one or more underlying instruments referenced in such notes.
Investments in structured notes involve risks including interest rate risk,
credit risk and market risk. Depending on the factor(s) used and the use of
multipliers or deflators, changes in interest rates and movement of such
factor(s) may cause significant price fluctuations. Structured notes may be less
liquid than other types of securities and more volatile than the reference
factor underlying the note.
Participation
Notes
Participation
notes (“P-Notes”) are issued by banks or broker-dealers and are designed to
offer a return linked to the performance of a particular underlying equity
security or market. P-Notes can have the characteristics or take the form of
various
instruments, including, but not limited to, certificates or warrants. The holder
of a P-Note that is linked to a particular underlying security may, among other
things, be entitled to receive any dividends paid in connection with the
underlying security. However, the holder of a P-Note generally does not receive
voting rights as it would if it directly owned the underlying security. P-Notes
constitute direct, general and unsecured contractual obligations of the banks or
broker-dealers that issue them, which therefore subject the subscriber to
counterparty risk, as discussed below. Investments in P-Notes involve certain
risks in addition to those associated with a direct investment in the underlying
foreign securities or foreign securities markets whose return they seek to
replicate. For instance, there can be no assurance that the trading price of a
P-Note will equal the value of the underlying foreign security or foreign
securities market that it seeks to replicate. As the purchaser of a P-Note, a
Fund is relying on the creditworthiness of the counterparty issuing the P-Note
and has no rights under a P-Note against the issuer of the underlying security.
Therefore, if such counterparty were to become insolvent, a Fund would lose its
investment. The risk that a Fund may lose its investments due to the insolvency
of a single counterparty may be amplified to the extent the Fund purchases
P-Notes issued by one issuer or a small number of issuers. P-Notes also include
transaction costs in addition to those applicable to a direct investment in
securities. In addition, a Fund’s use of P-Notes may cause the Fund’s
performance to deviate from the performance of the portion of the Index to which
the Fund is gaining exposure through subscription to P-Notes.
Due
to liquidity and transfer restrictions, the secondary markets on which P-Notes
are traded may be less liquid than the markets for other securities, which may
lead to the absence of readily available market quotations for securities in a
Fund’s portfolio and may cause the value of the P-Notes to decline. The ability
of a Fund to value its securities becomes more difficult and the Adviser’s
and/or Sub-Adviser’s judgment in the application of fair value procedures may
play a greater role in the valuation of a Fund’s securities due to reduced
availability of reliable objective pricing data. Consequently, while such
determinations will be made in good faith, it may nevertheless be more difficult
for a Fund to accurately assign a daily value to such securities.
P-Notes
in India eligible for subscription by certain Funds must be issued by banks or
broker-dealers that are registered with the SEBI as a Category I FPI as defined
under the SEBI FPI Regulations to issue offshore derivative instruments (“ODIs”)
and are subject to eligibility requirements and transfer restrictions. For more
information, please see “Investment Policies and Restrictions -
Swaps.”
Indian
SEBI Takeover Regulations
Under
the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 (“Takeover Code”), any acquirer who acquires, together with
persons acting in concert with him, 5% or more of the shares or voting rights of
a listed public Indian company, is required to notify the company and the stock
exchanges on which the shares of such company are listed about its holding
within the prescribed time period (including changes in holdings by more than
certain thresholds).
Upon
the acquisition of 25% or more of shares or voting rights or an acquisition of
control of the company, whether directly or indirectly, the acquirer is required
to make an open offer to the other shareholders offering to purchase at least
26% of all the outstanding shares of the company at an offer price as determined
pursuant to the provisions of the Takeover Code.
Collateralized
Loan Obligations
A
CLO is a type of structured credit typically organized as a trust or other
special purpose vehicle. The CLO issues debt and equity interests and uses the
proceeds from this issuance to acquire a portfolio of bank loans. The underlying
loans are generally senior-secured/first-priority loans; however, the CLO may
also include an allowance for second-lien and/or unsecured debt. Additionally,
the underlying loans may include domestic and foreign senior secured loans,
senior unsecured loans and subordinate corporate loans, some of which may
individually be below investment grade or the equivalent if unrated. The
portfolio of underlying loans is actively managed by the CLO manager for a fixed
period of time (“reinvestment period”). During the reinvestment period, the CLO
manager may buy and sell individual loans to create trading gains or mitigate
losses. The CLO portfolio will generally be required to adhere to certain
diversification rules established by the CLO issuer to mitigate against the risk
of concentrated defaults within a given industry or sector. After a specified
period of time, the majority owner of equity interests in the CLO may seek to
call the CLO’s outstanding debt or refinance its position. If not called or
refinanced, when the reinvestment period ends, the CLO uses cash flows from the
underlying loans to pay down the outstanding debt tranches and wind up the CLO’s
operations.
Interests
in the CLOs are divided into two or more separate debt and equity tranches, each
with a different credit rating and risk/return profile based upon its priority
of claim on the cashflows produced by the underlying loan pool. Tranches are
categorized as senior, mezzanine and subordinated/equity, according to their
degree of credit risk. If there are defaults or the
CLO’s
collateral otherwise underperforms, scheduled payments to senior tranches take
precedence over those of mezzanine tranches, and scheduled payments to mezzanine
tranches take precedence over those to subordinated/equity tranches. The
riskiest portion is the “Equity” tranche, which bears the bulk of defaults from
the loans in the CLO and serves to protect the other, more senior tranches from
default in all but the most severe circumstances. Senior and mezzanine tranches
are typically rated, with the former receiving ratings of A/A to AAA/Aaa and the
latter receiving ratings of B/B2 to BBB/Baa2. The ratings reflect both the
credit quality of underlying collateral as well as how much protection a given
tranche is afforded by tranches that are subordinate to it. Normally, CLOs are
privately offered and sold, and thus are not registered under the securities
laws. CLOs themselves, and the loan obligations underlying the CLOs, are
typically subject to certain restrictions on transfer and sale, potentially
making them less liquid than other types of securities. Additionally, when
VanEck CLO ETF purchases a newly issued CLO directly from the issuer (rather
than from the secondary market), there will be a delayed settlement period,
during which time the liquidity of the CLO may be further reduced. During
periods of limited liquidity and higher price volatility, VanEck CLO ETF’s
ability to acquire or dispose of CLOs at a price and time VanEck CLO ETF deems
advantageous may be severely impaired. CLOs are generally considered to be
long-term investments and there is no guarantee that an active secondary market
will exist or be maintained for any given CLO. CLOs are typically structured
such that, after a specified period of time, the majority investor in the equity
tranche can call (i.e.,
redeem) the security in full. VanEck CLO ETF may not be able to accurately
predict when or which of VanEck CLO ETF’s CLO investments will be called,
resulting in VanEck CLO ETF having to reinvest the proceeds in unfavorable
circumstances, resulting in a decline in VanEck CLO ETF’s income. As interest
rates decrease, issuers of the underlying loan obligations may refinance any
floating rate loans, which will result in a reduction in the principal value of
the CLO’s portfolio and require VanEck CLO ETF to reinvest cash at inopportune
times. Conversely, as interest rates rise, borrowers with floating rate loans
may experience difficulty in making payments, resulting and delinquencies and
defaults, which will result in a reduction in cash flow to the CLO and the CLO’s
investors.
Future
Developments
The
Funds may take advantage of opportunities in the area of options, futures
contracts, options on futures contracts, warrants, swaps and any other
investments which are not presently contemplated for use or which are not
currently available, but which may be developed, to the extent such investments
are considered suitable for a Fund by the Advisers or Sub-Adviser.
Investment
Restrictions
The
Trust and the Board of Directors of the Mauritius Subsidiary (to the extent that
such restrictions are applicable to the VanEck India Growth Leaders ETF) have
adopted the following investment restrictions as fundamental policies with
respect to each Fund (and the Mauritius Subsidiary), unless otherwise noted.
These restrictions cannot be changed with respect to a Fund (or the Mauritius
Subsidiary) without the approval of the holders of a majority of such Fund’s (or
Mauritius Subsidiary’s) outstanding voting securities. For purposes of the 1940
Act, a majority of the outstanding voting securities of a Fund means the vote,
at an annual or a special meeting of the security holders of the Trust, of the
lesser of (1) 67% or more of the voting securities of the Fund present at such
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy, or (2) more than 50% of the
outstanding voting securities of the Fund. Similar voting requirements apply
with respect to a change in the fundamental investment policies of the Mauritius
Subsidiary. If VanEck India Growth Leaders ETF, as an investor in the Mauritius
Subsidiary, is requested to vote on a change in the fundamental investment
policies of the Mauritius Subsidiary, the Fund will either call a meeting of its
shareholders and will vote its shares in the Mauritius Subsidiary in accordance
with instructions it receives from its shareholders or otherwise vote as
required under the 1940 Act.
The
following investment restrictions are applicable to each Fund (unless otherwise
noted) except the VanEck Energy Income ETF:
1.Each
Fund may not make loans, except that a Fund may (i) lend portfolio securities,
(ii) enter into repurchase agreements, (iii) purchase all or a portion of an
issue of debt securities, bank loan or participation interests, bank
certificates of deposit, bankers’ acceptances, debentures or other securities,
whether or not the purchase is made upon the original issuance of the securities
and (iv) participate in an interfund lending program with other registered
investment companies;
2.Each
Fund may not borrow money, except as permitted under the 1940 Act, and as
interpreted or modified by regulation from time to time;
3.Each
Fund may not issue senior securities except as permitted under the 1940 Act, and
as interpreted or modified by regulation from time to time;
4.Each
of VanEck Africa Index ETF, VanEck BDC Income ETF, VanEck Brazil Small-Cap ETF,
VanEck CEF Muni Income ETF, VanEck ChiNext ETF, VanEck Durable High Dividend
ETF, VanEck Emerging
Markets
High Yield Bond ETF, VanEck Fallen Angel High Yield Bond ETF, VanEck High Yield
Muni ETF, VanEck India Growth Leaders ETF, VanEck Inflation Allocation ETF,
VanEck Intermediate Muni ETF, VanEck International High Yield Bond ETF, VanEck
Long/Flat Trend ETF, VanEck Long Muni ETF, VanEck Moody’s Analytics IG Corporate
Bond ETF, VanEck Morningstar Global Wide Moat ETF, VanEck Morningstar
International Moat ETF, VanEck Morningstar Wide Moat ETF, VanEck Natural
Resources ETF, VanEck Short High Yield Muni ETF and VanEck Short Muni ETF may
not invest in a manner inconsistent with its classification as a “diversified
company” as provided by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief applicable to the Fund from
the provisions of the 1940 Act, as amended from time to time;
5.VanEck
Africa Index ETF, VanEck Agribusiness ETF, VanEck Brazil Small-Cap ETF, VanEck
Environmental Services ETF, VanEck Gaming ETF, VanEck Gold Miners ETF, VanEck
High Yield Muni ETF, VanEck Indonesia ETF, VanEck Intermediate Muni ETF, VanEck
Long Muni ETF, VanEck Low Carbon Energy ETF, VanEck Natural Resources ETF,
VanEck Russia ETF, VanEck Short Muni ETF, VanEck Steel ETF, VanEck Uranium and
Nuclear ETF and VanEck Vietnam ETF may not purchase a security (other than
obligations of the U.S. Government, its agencies or instrumentalities) if, as a
result, 25% or more of its total assets would be invested in a single
issuer;
6.Each
Fund may not purchase or sell real estate, except that a Fund may (i) invest in
securities of issuers that invest in real estate or interests therein; (ii)
invest in mortgage-related securities and other securities that are secured by
real estate or interests therein; and (iii) hold and sell real estate acquired
by the Fund as a result of the ownership of securities;
7.Each
Fund may not engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be considered an underwriter within the
meaning of the Securities Act of 1933, as amended (the “Securities Act”), in the
disposition of restricted securities or in connection with its investments in
other investment companies;
8.Each
Fund may not purchase or sell commodities, unless acquired as a result of owning
securities or other instruments, but it may purchase, sell or enter into
financial options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments and may
invest in securities or other instruments backed by commodities. In addition,
VanEck Gold Miners ETF may invest up to 25% of its total assets in gold and
silver coins, which are legal tender in the country of issue and gold and silver
bullion, and palladium and platinum group metals bullion; and
9.Each
Fund (except VanEck BDC Income ETF, VanEck Biotech ETF, VanEck CLO ETF, VanEck
CMCI Commodity Strategy ETF, VanEck Commodity Strategy ETF, VanEck Digital India
ETF, VanEck Digital Transformation ETF, VanEck Ethereum Strategy ETF, VanEck
Gold Miners ETF, VanEck Green Infrastructure ETF, VanEck Green Metals ETF,
VanEck HIP Sustainable Muni ETF, VanEck Low Carbon Energy ETF, VanEck Moody's
Analytics BBB Corporate Bond ETF, VanEck Moody's Analytics IG Corporate Bond
ETF, VanEck Morningstar ESG Moat ETF, VanEck Morningstar SMID Moat ETF, VanEck
Morningstar Wide Moat Growth ETF, VanEck Morningstar Wide Moat Value ETF, VanEck
Mortgage REIT Income ETF, VanEck Office and Commercial REIT ETF, VanEck Oil
Services ETF, VanEck Pharmaceutical ETF, VanEck Inflation Allocation ETF, VanEck
Retail ETF, VanEck Robotics ETF, VanEck Semiconductor ETF and VanEck Social
Sentiment ETF) may not purchase any security if, as a result of that purchase,
25% or more of its total assets would be invested in securities of issuers
having their principal business activities in the same industry, except that the
Fund may invest 25% or more of the value of its total assets in securities of
issuers in any one industry or group of industries if the index that the Fund
replicates concentrates in an industry or group of industries. Each of VanEck
HIP Sustainable Muni ETF and VanEck Inflation Allocation ETF may not purchase
any security if, as a result of that purchase, 25% or more of its total assets
would be invested in securities of issuers having their principal business
activities in the same industry. VanEck Gold Miners ETF may not purchase any
security if, as a result of that purchase, 25% or more of its total assets would
be invested in securities of issuers having their principal business activities
in the same industry except that the Fund will invest 25% or more of its total
assets in the gold-mining industry. VanEck Low Carbon Energy ETF may not
purchase any security if, as a result of that purchase, 25% or more of its total
assets would be invested in securities of issuers having their principal
business activities in the same industry except that the Fund will invest 25% or
more of its total assets in the alternative energy industry. Each of VanEck BDC
Income ETF, VanEck Biotech ETF, VanEck Mortgage REIT Income ETF, VanEck Oil
Services ETF, VanEck Pharmaceutical ETF, VanEck Retail ETF and VanEck
Semiconductor ETF may not purchase any security if, as a result of that
purchase, 25% or more of its total assets would be invested in securities of
issuers having their principal business activities in the same
industry,
except that the Fund will invest 25% or more of the value of its total assets in
securities of issuers in any one industry or group of industries if the index
that the Fund replicates concentrates in an industry or group of industries.
Each of VanEck CMCI Commodity Strategy ETF, VanEck Digital India ETF, VanEck
Digital Transformation ETF, VanEck Green Infrastructure ETF, VanEck Green Metals
ETF, VanEck Moody's Analytics BBB Corporate Bond ETF, VanEck Moody's Analytics
IG Corporate Bond ETF, VanEck Morningstar ESG Moat ETF, VanEck Morningstar SMID
Moat ETF, VanEck Morningstar Wide Moat Growth ETF, VanEck Morningstar Wide Moat
Value ETF, VanEck Office and Commercial REIT ETF, VanEck Robotics ETF and VanEck
Social Sentiment ETF may not purchase any security if, as a result of that
purchase, 25% or more of its total assets would be invested in securities of
issuers having their principal business activities in the same industry, except
that the Fund may invest 25% or more of the value of its total assets in
securities of issuers in any one industry or group of industries if the index
that the Fund tracks concentrates in an industry or group of industries. VanEck
CLO ETF and VanEck Dynamic High Income ETF may not purchase any security if, as
a result of that purchase, 25% or more of its total assets would be invested in
securities of issuers having their principal business activities in the same
industry or group of industries. VanEck Commodity Strategy ETF may not purchase
any security if, as a result of that purchase, 25% or more of its total assets
would be invested in securities of issuers having their principal business
activities in the same industry or group of industries, except that the Fund may
invest 25% or more of its total assets in investments that provide exposure to
commodities. VanEck Ethereum Strategy ETF may not purchase any security if, as a
result of that purchase, 25% or more of its total assets would be invested in
securities of issuers having their principal business activities in one or more
industries, except that the Fund will invest more than 25% of its total assets
in investments that provide exposure to ETH and/or ETH Futures. These limits do
not apply to securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
In
addition, each of VanEck High Yield Muni ETF, VanEck Intermediate Muni ETF,
VanEck Long Muni ETF, VanEck Short High Yield Muni ETF and VanEck Short Muni ETF
(collectively, the “Municipal Funds”) has adopted a fundamental investment
policy to invest at least 80% of its assets in investments suggested by its
name. For purposes of this policy, the term “assets” means net assets plus the
amount of borrowings for investment purposes. Accordingly, each Municipal Fund
will invest at least 80% of its assets in municipal securities. Each of VanEck
CEF Muni Income ETF and VanEck HIP Sustainable Muni ETF has adopted a
fundamental investment policy to invest at least 80% of its total assets in
investments the income from which is exempt from U.S. federal income tax (other
than the Alternative Minimum Tax (“AMT”)). For purposes of this policy, the term
“total assets” means net assets plus the amount of any borrowings for investment
purposes. Each of VanEck CEF Muni Income ETF and VanEck HIP Sustainable Muni ETF
may count securities that generate income subject to the AMT toward the 80%
investment requirement.
In
addition to the investment restrictions (and with respect to the Municipal
Funds, VanEck CEF Muni Income ETF and VanEck HIP Sustainable Muni ETF, the
applicable policy) adopted as fundamental policies as set forth above, each Fund
(except the VanEck Energy Income ETF) observes the following non-fundamental
investment restrictions, which may be changed by the Board without a shareholder
vote. Under these restrictions:
1.Each
Fund will not invest in securities which are “illiquid” securities if the result
is that more than 15% of the Fund’s net assets would be invested in such
securities.
2.Each
Fund will not make short sales of securities.
3.Each
Fund (except for VanEck HIP Sustainable Muni ETF and VanEck Inflation Allocation
ETF) will not purchase any security on margin, except for such short-term loans
as are necessary for clearance of securities transactions. The deposit or
payment by a Fund of initial or variation margin in connection with futures
contracts or related options thereon is not considered the purchase of a
security on margin. Each of VanEck HIP Sustainable Muni ETF and VanEck Inflation
Allocation ETF will not purchase any security on margin, except for such
short-term loans as are necessary for clearance of securities transactions. The
deposit or payment by each of VanEck HIP Sustainable Muni ETF and VanEck
Inflation Allocation ETF of initial or variation margin in connection with
futures contracts, options on futures contracts or other derivative instruments
shall not constitute the purchase of a security on margin.
4.Each
Fund will not participate in a joint or joint-and-several basis in any trading
account in securities, although transactions for the Funds and any other account
under common or affiliated management may be combined or allocated between a
Fund and such account.
In
addition to the fundamental and non-fundamental investment restrictions set
forth above, each of VanEck Agribusiness ETF, VanEck Biotech ETF, VanEck Brazil
Small-Cap ETF, VanEck Emerging Markets High Yield Bond ETF, VanEck Gold Miners
ETF, VanEck Green Bond ETF, VanEck Indonesia Index ETF, VanEck International
High Yield Bond ETF, VanEck J.P. Morgan EM Local Currency Bond ETF, VanEck
Junior Gold Miners ETF, VanEck Moody's Analytics
BBB
Corporate Bond ETF, VanEck Moody's Analytics IG Corporate Bond ETF, VanEck
Morningstar Wide Moat ETF, VanEck Natural Resources ETF, VanEck Oil Services
ETF, VanEck Pharmaceutical ETF, VanEck Preferred Securities ex Financials ETF,
VanEck Rare Earth and Strategic Metals ETF, VanEck Russia ETF, VanEck Steel ETF
and VanEck Semiconductor ETF observes the following additional restrictions,
which may be changed by the Board without a shareholder vote: under normal
market conditions (i) any borrowings by the Fund will be on a temporary basis
and will not exceed 10% of the Fund’s net assets; and (ii) the Fund’s
investments in the securities of other pooled investment vehicles will not
exceed 10% of the Fund’s net assets. For purposes of restriction (ii), real
estate investment trusts are not considered to be pooled investment vehicles. In
addition, each of VanEck Gold Miners ETF, VanEck India Growth Leaders ETF,
VanEck Junior Gold Miners ETF, VanEck Low Carbon Energy ETF and VanEck
Semiconductor ETF will invest at least 51% of its net assets in equity
securities. This may be changed by the Board without a shareholder
vote.
If
a percentage limitation is adhered to at the time of investment or contract, a
later increase or decrease in percentage resulting from any change in value or
total or net assets will not result in a violation of such restriction, except
that the percentage limitation with respect to the borrowing of money described
above in fundamental restriction 2 will be continuously complied
with.
With
respect to fundamental restriction 2, the 1940 Act permits each Fund to borrow
money from banks in an amount up to one-third of its total assets (including the
amount borrowed) less its liabilities (not including any borrowings but
including the fair market value at the time of computation of any other senior
securities then outstanding). Each Fund may also borrow an additional 5% of its
total assets without regard to the foregoing limitation for temporary purposes
such as clearance of portfolio transactions. Practices and investments that may
involve leverage but are not considered to be borrowings are not subject to the
policy.
With
respect to fundamental restriction 3, the 1940 Act prohibits each Fund from
issuing senior securities, except that the Fund may borrow money in amounts of
up to one-third of the Fund’s total assets from banks for any purpose. Each Fund
may also borrow money or engage in economically similar transactions if those
transactions do not constitute “senior securities” under the 1940 Act. The
policy above will be interpreted not to prevent collateral arrangements with
respect to swaps, options, forward or futures contracts or other derivatives, or
the posting of initial or variation margin.
With
respect to fundamental restriction 4, each of VanEck CEF Muni Income ETF, VanEck
ChiNext ETF, VanEck Durable High Dividend ETF, VanEck Fallen Angel High Yield
Bond ETF, VanEck India Growth Leaders ETF, VanEck Long/Flat Trend ETF, VanEck
Morningstar Global Wide Moat ETF, VanEck Morningstar International Moat ETF and
VanEck Morningstar Wide Moat ETF intends to be diversified in approximately the
same proportion as its underlying index is diversified. Each of VanEck CEF Muni
Income ETF, VanEck ChiNext ETF, VanEck Durable High Dividend ETF, VanEck Fallen
Angel High Yield Bond ETF, VanEck India Growth Leaders ETF, VanEck Long/Flat
Trend ETF, VanEck Morningstar Global Wide Moat ETF, VanEck Morningstar
International Moat ETF and VanEck Morningstar Wide Moat ETF may become
non-diversified, as defined in the 1940 Act, solely as a result of a change in
relative market capitalization or index weighting of one or more constituents of
its underlying index. With respect to fundamental restriction 9, investment
companies are not considered to be part of an industry. Additionally, the
securities of state and municipal governments and their political subdivisions
are not considered to be issued by members of any industry. With respect to
VanEck Ethereum Strategy ETF, to the extent such Fund invests in a private
activity municipal security whose principal and interest payments are derived
principally from the assets and revenues of a non-government issuer, the Fund
will seek to determine the industry to which such private activity municipal
investment should be allocated when determining the Fund’s compliance with its
concentration policy. In accordance with each of VanEck CLO ETF’s, VanEck
Dynamic High Income ETF’s, VanEck Inflation Allocation ETF’s and VanEck
Long/Flat Trend ETF’s principal investment strategies as set forth in its
Prospectus, each of VanEck CLO ETF, VanEck Dynamic High Income ETF, VanEck
Inflation Allocation ETF and VanEck Long/Flat Trend ETF may invest its assets in
underlying investment companies. Although each of VanEck CLO ETF, VanEck Dynamic
High Income ETF, VanEck Inflation Allocation ETF and VanEck Long/Flat Trend ETF
does not have a policy to concentrate its investments in a particular industry,
25% or more of VanEck CLO ETF’s, VanEck Dynamic High Income ETF’s, VanEck
Inflation Allocation ETF’s and VanEck Long/Flat Trend ETF’s total assets may be
indirectly exposed to a particular industry or group of related industries
through its investment in one or more underlying investment companies.
Each
of VanEck CLO ETF, VanEck Dynamic High Income ETF and VanEck Inflation
Allocation ETF may invest its remaining assets in securities, which may include
but may not be limited to, money market instruments or funds which reinvest
exclusively in money market instruments, stocks that are in the relevant market
and/or in combinations of certain stock index futures contracts, options on such
futures contracts, stock options, stock index options, options on the Shares,
and stock index swaps and swaptions. These investments may be made to invest
uncommitted cash balances or, in limited circumstances, to assist in meeting
shareholder redemptions of Creation Units. Each of VanEck CLO ETF, VanEck
Dynamic High Income ETF and VanEck Inflation Allocation ETF may also invest in
money market instruments for cash management purposes or as part of a temporary
defensive strategy to protect against potential stock market
declines.
VanEck
Commodity Strategy ETF expects to invest its assets in any one or more of the
following to provide liquidity, serve as margin or collateralize the Fund’s
investments in certain Commodities Instruments: U.S. Treasuries, other U.S.
government obligations, money market funds and funds that invest in short-term
bonds, cash and cash-like equivalents (e.g.,
high quality commercial paper and similar instruments that are rated investment
grade or, if unrated, of comparable quality, as the Adviser determines),
mortgage-backed securities issued or guaranteed by U.S. government agencies,
instrumentalities or sponsored enterprises of the U.S. government (whether or
not the securities are U.S. government securities), municipal debt securities,
Treasury inflation-protected securities, sovereign debt obligations of non-U.S.
countries, and repurchase agreements.
VanEck
Ethereum Strategy ETF expects to invest its remaining assets in any one or more
of the following to provide liquidity, serve as margin or collateralize the
Fund’s investments in ETH Futures: U.S. Treasuries, other U.S. government
obligations, money market funds and funds that invest in short-term bonds, cash
and cash-like equivalents (e.g., high quality commercial paper and similar
instruments that are rated investment grade or, if unrated, of comparable
quality, as the Adviser determines), mortgage-backed securities issued or
guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises of the U.S. government (whether or not the securities are U.S.
government securities), municipal debt securities, Treasury inflation-protected
securities, sovereign debt obligations of non-U.S. countries, and repurchase
agreements.
Each
Fixed Income Fund may invest its remaining assets in securities not included in
its respective Index, municipal bonds (with respect to VanEck CEF Muni Income
ETF), money market instruments, repurchase agreements or funds which reinvest
exclusively in money market instruments, convertible securities (with respect to
VanEck Green Bond ETF), structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement of one or more
specified factors, such as the movement of a particular stock or stock index)
(with respect to VanEck Green Bond ETF), certain derivatives (with respect to
VanEck Green Bond ETF), in bonds that are in the relevant market but not the
Fund’s respective Index and/or in combinations of certain bond index futures
contracts, options on such futures contracts, bond options, bond index options,
options on the Shares, and bond index swaps and swaptions, each with a view
towards providing each Fund with exposure to the securities in its respective
Index.
Each
Fund (other than the Fixed Income Funds, VanEck CLO ETF, VanEck Commodity
Strategy ETF, VanEck Dynamic High Income ETF, VanEck Ethereum Strategy ETF,
VanEck HIP
Sustainable
Muni ETF and VanEck Inflation Allocation ETF) may invest its remaining assets in
securities not included in its respective Index, which may include but is not
limited to money market instruments or funds which reinvest exclusively in money
market instruments, in stocks that are in the relevant market but not its Index,
and/or in combinations of certain stock index futures contracts, options on such
futures contracts, stock options, stock index options, options on the Shares,
and stock index swaps and swaptions, each with a view towards providing each
Fund with exposure to the securities in its respective Index.
These
investments may be made to invest uncommitted cash balances or, in limited
circumstances, to assist in meeting shareholder redemptions of Creation Units.
Each Fund (except VanEck CLO ETF, VanEck Commodity Strategy ETF, VanEck Dynamic
High Income ETF, VanEck Ethereum Strategy ETF, VanEck HIP
Sustainable
Muni ETF and VanEck Inflation Allocation ETF) does not take temporary defensive
positions that are inconsistent with its investment objective of seeking to
replicate/track (as applicable) its Index.
The
following fundamental investment restrictions are applicable to only the VanEck
Energy Income ETF. The VanEck Energy Income ETF may not:
1.Concentrate
its investments in an industry or group of industries (i.e.,
hold 25% or more of its total assets in the stocks of a particular industry or
group of industries), except that the Fund will concentrate to approximately the
same extent that its Index concentrates in the stocks of such particular
industry or group of industries. For purposes of this limitation, securities of
the U.S. government (including its agencies and instrumentalities), repurchase
agreements collateralized by U.S. government securities and securities of state
or municipal governments and their political subdivisions are not considered to
be issued by members of any industry.
2.Borrow
money or issue senior securities (as defined under the 1940 Act), except to the
extent permitted under the 1940 Act, the rules and regulations thereunder or any
exemption therefrom, as such statute, rules or regulations may be amended or
interpreted from time to time.
3.Make
loans, except to the extent permitted under the 1940 Act, the rules and
regulations thereunder or any exemption therefrom, as such statute, rules or
regulations may be amended or interpreted from time to time.
4.Purchase
or sell commodities or real estate, except to the extent permitted under the
1940 Act, the rules and regulations thereunder or any exemption therefrom, as
such statute, rules or regulations may be amended or interpreted from time to
time.
5.Underwrite
securities issued by other persons, except to the extent permitted under the
1940 Act, the rules and regulations thereunder or any exemption therefrom, as
such statute, rules or regulations may be amended or interpreted from time to
time.
In
addition to the investment restrictions adopted as fundamental policies as set
forth above, the VanEck Energy Income ETF observes the following non-fundamental
investment restrictions, which may be changed by the Board without a shareholder
vote. Under these restrictions:
1.The
Fund will not invest in securities which are “illiquid” securities if the result
is that more than 15% of a Fund’s net assets would be invested in such
securities.
If
a percentage limitation is adhered to at the time of investment or contract, a
later increase or decrease in percentage resulting from any change in value or
total or net assets will not result in a violation of such restriction, except
that the percentage limitation with respect to the borrowing of money described
above in fundamental restriction 2 will be continuously complied
with.
With
respect to fundamental restriction 2, the 1940 Act permits the Fund to borrow
money from banks in an amount up to one-third of its total assets (including the
amount borrowed) less its liabilities (not including any borrowings but
including the fair market value at the time of computation of any other senior
securities then outstanding). The Fund may also borrow an additional 5% of its
total assets without regard to the foregoing limitation for temporary purposes
such as clearance of portfolio transactions. Practices and investments that may
involve leverage but are not considered to be borrowings are not subject to the
policy.
With
respect to fundamental restriction 2, the 1940 Act prohibits the Fund from
issuing senior securities, except that a Fund may borrow money in amounts of up
to one-third of the Fund’s total assets from banks for any purpose. The Fund may
also borrow money or engage in economically similar transactions if those
transactions do not constitute “senior securities” under the 1940 Act. The
policy above will be interpreted not to prevent collateral arrangements with
respect to swaps, options, forward or futures contracts or other derivatives, or
the posting of initial or variation margin.
The
VanEck Energy Income ETF may invest its remaining assets in securities not
included in its Index, which may include but is not limited to money market
instruments or funds which reinvest exclusively in money market instruments, in
stocks that are in the relevant market but not the Fund’s Index, and/or in
combinations of certain stock index futures contracts, options on such futures
contracts, stock options, stock index options, options on the Shares, and stock
index swaps and swaptions, each with a view towards providing the Fund with
exposure to the securities in its Index. These investments may be made to invest
uncommitted cash balances or, in limited circumstances, to assist in meeting
shareholder redemptions of Creation Units. The Fund does not take temporary
defensive positions that are inconsistent with its investment objective of
seeking to replicate its Index.
Indian
Investment Restrictions
The
investment restrictions described below only apply to investments in Indian
issuers made by VanEck India Growth Leaders ETF (or the Mauritius Subsidiary)
and VanEck Digital India ETF.
Each
of the Mauritius Subsidiary and VanEck Digital India ETF is registered as a
Category I FPI with the SEBI. As such, the universe of permissible investments
for these entities is limited pursuant to FPI Regulations and other applicable
regulations.
FPIs
are not allowed to short sell in the Indian market except in certain limited
circumstances as specified by the SEBI. Further, sales against open purchases
are not permitted for FPIs and FPIs can sell such securities only after their
settlement.
The
extent to which percentage positions may be taken in index options and index
futures by the Mauritius Subsidiary and VanEck Digital India ETF would be
restricted to the limits prescribed by applicable regulators from time to time.
Separately, there are multiple restrictions including regarding ownership and
use of derivatives as a result of applicable Indian regulations.
SPECIAL
CONSIDERATIONS AND RISKS
A
discussion of the risks associated with an investment in each Fund is contained
in each Fund’s Prospectus under the headings “Summary Information—Principal
Risks of Investing in the Fund” with respect to the applicable Fund and
“Additional Information About the Funds’ Investment Strategies and Risks—Risks
of Investing in the Funds.” The discussion below supplements, and should be read
in conjunction with, such sections of each Fund’s Prospectus.
General
An
investment in each Fund should be made with an understanding that the value of
the Fund’s portfolio securities may fluctuate in accordance with changes in the
financial condition of the issuers of the portfolio securities, the value of
securities generally and other factors.
(All
Funds except VanEck CLO ETF, VanEck CMCI Commodity Strategy ETF, VanEck
Commodity Strategy ETF, VanEck Dynamic High Income ETF,
VanEck
Ethereum Strategy ETF,
VanEck
HIP
Sustainable
Muni ETF and VanEck Inflation Allocation ETF)
An
investment in each Fixed Income Fund should be made with an understanding of the
risks inherent in an investment in fixed income securities. An issuer may have
the right to redeem or “call” a bond before maturity, in which case the investor
may have to reinvest the proceeds at lower market rates. Most bonds bear
interest income at a “coupon” rate that is fixed for the life of the bond. The
value of a fixed rate bond usually rises when market interest rates fall, and
falls when market interest rates rise. Accordingly, a fixed rate bond’s yield
(income as a percent of the bond’s current value) may differ from its coupon
rate as its value rises or falls. Other types of bonds bear income at an
interest rate that is adjusted periodically. Because of their adjustable
interest rates, the values of “floating-rate” or “variable-rate” bonds generally
fluctuate less in response to market interest rate movements than the value of
similar fixed rate bonds. The Fixed Income Funds may treat some of these bonds
as having a shorter maturity for purposes of calculating the weighted average
maturity of its investment portfolio. Generally, prices of higher quality issues
tend to fluctuate more with changes in market interest rates than prices of
lower quality issues and prices of longer maturity issues tend to fluctuate more
than prices of shorter maturity issues. Bonds may be senior or subordinated
obligations. Senior obligations generally have the first claim on a
corporation’s earnings and assets and, in the event of liquidation, are paid
before subordinated obligations. Bonds may be unsecured (backed only by the
issuer’s general creditworthiness) or secured (also backed by specified
collateral).
An
investment in each Fund (other than the Fixed Income Funds) should be made with
an understanding of the risks inherent in an investment in equity securities,
including the risk that the financial condition of issuers may become impaired
or that the general condition of the stock market may deteriorate (either of
which may cause a decrease in the value of the portfolio securities and thus in
the value of Shares). Common stocks are susceptible to general stock market
fluctuations and to volatile increases and decreases in value as market
confidence in and perceptions of their issuers change. These investor
perceptions are based on various and unpredictable factors, including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic and banking crises. Holders of common stocks incur
more risk than holders of preferred stocks and debt obligations because common
stockholders, as owners of the issuer, have generally inferior rights to receive
payments from the issuer in comparison with the rights of creditors of, or
holders of debt obligations or preferred stocks issued by, the issuer. Further,
unlike debt securities which typically have a stated principal amount payable at
maturity (whose value, however, will be subject to market fluctuations prior
thereto), or preferred stocks which typically have a liquidation preference and
which may have stated optional or mandatory redemption provisions, common stocks
have neither a fixed principal amount nor a maturity. Common stock values are
subject to market fluctuations as long as the common stock remains outstanding.
In the event that the securities in a Fund’s Index (except with respect to the
Fixed Income Funds) are not listed on a national securities exchange, the
principal trading market for some may be in the over the counter market.
The
existence of a liquid trading market for certain securities may depend on
whether dealers will make a market in such securities. There can be no assurance
that a market will be made or maintained or that any such market will be or
remain liquid. The price at which securities may be sold and the value of a
Fund’s Shares will be adversely affected if trading markets for a Fund’s
portfolio securities are limited or absent or if bid/ask spreads are
wide.
With
the exception of VanEck CLO ETF, VanEck Commodity Strategy ETF, VanEck Dynamic
High Income ETF, VanEck Ethereum Strategy ETF, VanEck HIP
Sustainable
Muni ETF and VanEck Inflation Allocation ETF, the Funds are not actively managed
by traditional methods, and therefore the adverse financial condition of any one
issuer may not result in the elimination of its securities from the securities
held by a Fund unless the securities of such issuer are removed from its
respective Index.
An
investment in each Fund should be made with an understanding that the Fund will
not be able to replicate/track (as applicable) exactly the performance of its
respective Index because the total return generated by the securities will be
reduced by transaction costs incurred in adjusting the actual balance of the
securities and other Fund expenses, whereas such transaction costs and expenses
are not included in the calculation of its respective Index. In addition,
certain Funds’ use of a representative sampling approach may cause each such
Fund to not be as well correlated with the return of its respective Index as
would be the case if the Fund purchased all of the securities in its respective
Index in the proportions represented in such Index. The risk of non-correlation
may be higher than other ETFs which utilize a sampling approach to the extent
that a
Fund
invests a portion of its assets in securities that have economic characteristics
that are substantially identical to the securities comprising its respective
Index, but which are not included in such Index. It is also possible that for
periods of time, a Fund may not fully replicate the performance of its
respective Index due to the temporary unavailability of certain Index securities
in the secondary market or due to other extraordinary circumstances. Such events
are unlikely to continue for an extended period of time because the Fund is
required to correct such imbalances by means of adjusting the composition of the
securities. It is also possible that the composition of a Fund may not exactly
replicate the composition of its respective Index if the Fund has to adjust its
portfolio holdings in order to continue to qualify as a regulated investment
company (“RIC”) under the U.S. Internal Revenue Code of 1986, as amended (the
“Internal Revenue Code”), or, in the case of VanEck BDC Income ETF, to comply
with the provisions of the 1940 Act that limit the amount the Fund and its
affiliates, in the aggregate, can invest in any one business development
company.
Each
Fund is subject to the risks of an investment in an economic sector or industry
in which the Fund’s Index is highly concentrated. In addition, because it is the
policy of each Fund to generally invest in the securities that comprise the
Fund’s respective Index, the portfolio of securities (“Fund Securities”) held by
such Fund also will be concentrated in that economic sector or
industry.
Regulatory
developments affecting the exchange-traded and OTC derivatives markets may
impair a Fund’s ability to manage or hedge its investment portfolio through the
use of derivatives. The Dodd-Frank Act and the rules promulgated thereunder may
limit the ability of a Fund to enter into one or more exchange-traded or OTC
derivatives transactions.
(All
Funds except VanEck BDC Income ETF, VanEck CEF Muni Income ETF, VanEck CMCI
Commodity
Strategy
ETF, VanEck Commodity Strategy ETF, VanEck Ethereum Strategy ETF, VanEck
Inflation Allocation ETF, VanEck Mortgage REIT Income ETF and VanEck Office and
Commercial REIT ETF)
VEAC,
on behalf of the Funds, has filed a notice of eligibility with the National
Futures Association claiming an exclusion from the definition of the term
“commodity pool operator” (“CPO”) pursuant to CFTC Regulation 4.5, as
promulgated under the Commodity Exchange Act (“CEA”), with respect to the Funds’
operations. Therefore, neither the Funds nor VEAC (with respect to the Funds) is
subject to registration or regulation as a commodity pool or CPO under the CEA.
If a Fund becomes subject to these requirements, a Fund may incur additional
compliance and other expenses.
Each
Fund’s use of derivatives may also be limited by the requirements of the
Internal Revenue Code for qualification as a RIC for U.S. federal income tax
purposes.
With
respect to investments in swap transactions, commodity futures, commodity
options or certain other derivatives used for purposes other than bona fide
hedging purposes, an investment company must meet one of the following tests
under the amended regulations in order to claim an exemption from being
considered a “commodity pool” or CPO. First, the aggregate initial margin and
premiums required to establish an investment company’s positions in such
investments may not exceed five percent (5%) of the liquidation value of the
investment company’s portfolio (after accounting for unrealized profits and
unrealized losses on any such investments). Alternatively, the aggregate net
notional value of such instruments, determined at the time of the most recent
position established, may not exceed one hundred percent (100%) of the
liquidation value of the investment company’s portfolio (after accounting for
unrealized profits and unrealized losses on any such positions). In addition to
meeting one of the foregoing trading limitations, the investment company may not
market itself as a commodity pool or otherwise as a vehicle for trading in the
commodity futures, commodity options or swaps and derivatives markets. In the
event that an Adviser is required to register as a CPO, the disclosure and
operations of the Funds would need to comply with all applicable CFTC
regulations. Compliance with these additional registration and regulatory
requirements would increase operational expenses. Other potentially adverse
regulatory initiatives could also develop.
(VanEck
BDC Income ETF, VanEck CEF Muni Income ETF, VanEck Mortgage REIT Income ETF and
VanEck Office and Commercial REIT ETF only)
Each
of VanEck BDC Income ETF, VanEck CEF Muni Income ETF, VanEck Mortgage REIT
Income ETF and VanEck Office and Commercial REIT ETF has claimed a temporary
exemption from the definition of the term CPO under the CEA, and therefore, is
not currently subject to registration or regulation as commodity pools under the
CEA. When the temporary exemption expires, to the extent VanEck BDC Income ETF,
VanEck CEF Muni Income ETF, VanEck Mortgage REIT Income ETF or VanEck Office and
Commercial REIT ETF are not otherwise eligible to claim an exclusion from CFTC
regulation, VanEck BDC Income ETF, VanEck CEF Muni Income ETF, VanEck Mortgage
REIT Income ETF or VanEck Office and Commercial REIT ETF, as applicable, may
determine to operate subject to CFTC regulation and may incur additional
expenses.
Specific
Risks Applicable to the Municipal Funds, VanEck CEF Muni Income ETF and VanEck
HIP
Sustainable
Muni ETF
Municipal
Securities Risk.
Municipal securities are subject to the risk that litigation, legislation or
other political events, local business or economic conditions, credit rating
downgrades or the bankruptcy, of the issuer could have a significant effect on
an issuer’s ability to make payments of principal and/or interest or otherwise
affect the value of such securities. In addition, there is a risk that, as a
result of the recent economic crisis, the ability of any issuer to pay, when
due, the principal or interest on its municipal bonds may be materially
affected. Certain municipalities may have difficulty meeting their obligations
due to, among other reasons, changes in underlying demographics.
Municipal
securities can be significantly affected by political changes as well as
uncertainties in the municipal market related to government regulation,
taxation, legislative changes or the rights of municipal security holders.
Because many municipal securities are issued to finance similar projects,
especially those relating to education, health care, transportation, utilities
and water and sewer, conditions in those sectors can affect the overall
municipal market. In addition, changes in the financial condition of an
individual municipal insurer can affect the overall municipal market. Municipal
instruments may be susceptible to periods of economic stress, which could affect
the market values and marketability of many or all municipal obligations of
issuers in a state, U.S. territory, or possession. A number of municipalities
have had significant financial problems recently, and these and other
municipalities could, potentially, continue to experience significant financial
problems resulting from lower tax revenues and/or decreased aid from state and
local governments in the event of an economic downturn. This could potentially
decrease the Fund’s income or hurt its ability to preserve capital and
liquidity. Municipal securities may include revenue bonds, which are generally
backed by revenue from a specific project or tax. The issuer of a revenue bond
makes interest and principal payments from revenues generated from a particular
source or facility, such as a tax on particular property or revenues generated
from a municipal water or sewer utility or an airport. Revenue bonds generally
are not backed by the full faith and credit and general taxing power of the
issuer. Municipal securities backed by current or anticipated revenues from a
specific project or specific assets can be negatively affected by the
discontinuance of the taxation supporting the project or assets or the inability
to collect revenues for the project or from the assets due to factors such as
lower property tax collections as a result of lower home values, lower sales tax
revenues as a result of consumers cutting back spending and lower income tax
revenue as a result of a higher unemployment rate. In addition, since some
municipal obligations may be secured or guaranteed by banks and other
institutions, the risk to the Fund could increase if the banking or financial
sector suffers an economic downturn and/or if the credit ratings of the
institutions issuing the guarantee are downgraded or at risk of being downgraded
by a national rating organization.
If
the IRS determines that an issuer of a municipal security has not complied with
applicable tax requirements, interest from the security could become taxable and
the security could decline significantly in value.
The
market for municipal bonds may be less liquid than for taxable bonds. There may
also be less publicly available information on the financial condition of
issuers of municipal securities than for public corporations. This means that it
may be harder to buy and sell municipal securities, especially on short notice,
and municipal securities may be more difficult for a Fund (and the Underlying
Funds in which VanEck CEF Muni Income ETF invest) to value accurately than
securities of public corporations. Since the Fund (and the Underlying Funds in
which VanEck CEF Muni Income ETF invest) invest a significant portion of their
portfolio in municipal securities, each Fund’s (and each Underlying Fund’s)
portfolio may have greater exposure to liquidity risk than a fund that invests
in non-municipal securities. In addition, the value and liquidity of many
municipal securities have decreased as a result of the recent financial crisis,
which has also adversely affected many municipal securities issuers and may
continue to do so. The markets for many credit instruments, including municipal
securities, have experienced periods of illiquidity and extreme volatility since
the latter half of 2007. In response to the global economic downturn,
governmental cost burdens may be reallocated among federal, state and local
governments. In addition, issuers of municipal securities may seek protection
under the bankruptcy or similar laws. For example, Chapter 9 of the Bankruptcy
Code provides a financially distressed municipality protection from its
creditors while it develops and negotiates a plan for reorganizing its debts.
“Municipality” is defined broadly by the Bankruptcy Code as a “political
subdivision or public agency or instrumentality of a state” and may include
various issues of securities in which the Fund invests. The reorganization of a
municipality’s debts may include extending debt maturities, reducing the amount
of principal or interest, refinancing the debt or taking other measures, which
may significantly affect the rights of creditors and the value of the securities
issued by the municipality and the value of a Fund’s investments.
Many
state and local governments that issue municipal securities are currently under
significant economic and financial stress and may not be able to satisfy their
obligations. The taxing power of any governmental entity may be limited and an
entity’s credit may depend on factors which are beyond the entity’s
control.
Education
Bond Risk.
In general, there are two types of education-related bonds: those issued to
finance projects for public and private colleges and universities, and those
representing pooled interests in student loans. Bonds issued to supply
educational institutions with funds are subject to the risk of unanticipated
revenue decline, primarily the result of decreasing
student
enrollment or decreasing state and federal funding. Among the factors that may
lead to declining or insufficient revenues are restrictions on students’ ability
to pay tuition, availability of state and federal funding, and general economic
conditions. Student loan revenue bonds are generally offered by state (or
sub-state) authorities or commissions and are backed by pools of student loans.
Underlying student loans may be guaranteed by state guarantee agencies and may
be subject to reimbursement by the United States Department of Education through
its guaranteed student loan program. Others may be private, uninsured loans made
to parents or students which are supported by reserves or other forms of credit
enhancement. Recoveries of principal due to loan defaults may be applied to
redemption of bonds or may be used to re-lend, depending on program latitude and
demand for loans. Cash flows supporting student loan revenue bonds are impacted
by numerous factors, including the rate of student loan defaults, seasoning of
the loan portfolio and student repayment deferral periods of forbearance. Other
risks associated with student loan revenue bonds include potential changes in
federal legislation regarding student loan revenue bonds, state guarantee agency
reimbursement and continued federal interest and other program subsidies
currently in effect.
Electric
Utilities Bond Risk.
The electric utilities industry has been experiencing, and may continue to
experience, increased competitive pressures. Federal legislation may open
transmission access to any electricity supplier, although it is not presently
known to what extent competition will evolve. Other risks include: (a) the
availability and cost of fuel; (b) the availability and cost of capital; (c) the
effects of conservation on energy demand; (d) the effects of rapidly changing
environmental, safety and licensing requirements, and other federal, state and
local regulations, (e) timely and sufficient rate increases and governmental
limitations on rates charged to customers; (f) the effects of opposition to
nuclear power; (g) increases in operating costs; and (h) obsolescence of
existing equipment, facilities and products.
General
Obligation Bond Risk.
General obligation bonds are not backed by revenues from a specific project or
source. Instead, general obligation bonds are backed by the “full faith and
credit” of the issuer, which has the power to tax residents to pay bondholders.
Timely payments depend on the issuer’s credit quality, ability to raise tax
revenues and ability to maintain an adequate tax base.
Health
Care Bond Risk.
The health care industry is subject to regulatory action by a number of private
and governmental agencies, including federal, state and local governmental
agencies. A major source of revenues for the health care industry is payments
from Medicare and Medicaid programs. As a result, the industry is sensitive to
legislative changes and reductions in governmental spending for such programs.
Numerous other factors may also affect the industry and the value and credit
quality of health care bonds, such as general and local economic conditions,
demand for services, expenses (including malpractice insurance premiums) and
competition among health care providers. The following elements may adversely
affect health care facility operations: the implementation of national and/or
state-specific health insurance exchanges; other national, state or local health
care reform measures; medical and technological advances which dramatically
alter the need for health services or the way in which such services are
delivered; changes in medical coverage which alter the traditional
fee-for-service revenue stream; efforts by employers, insurers, and governmental
agencies to reduce the costs of health insurance and health care services; and
increases and decreases in the cost and availability of medical
products.
Housing
Bond Risk.
Housing revenue bonds are generally issued by a state, county, city, local
housing authority or other public agency. They generally are secured by the
revenues derived from mortgages purchased with the proceeds of the bond issue.
It is extremely difficult to predict the supply of available mortgages to be
purchased with the proceeds of an issue or the future cash flow from the
underlying mortgages. Consequently, there are risks that proceeds will exceed
supply, resulting in early retirement of bonds, or that homeowner repayments
will create an irregular cash flow. Many factors may affect the financing of
multi-family housing projects, including acceptable completion of construction,
proper management, occupancy and rent levels, economic conditions and changes to
current laws and regulations.
Industrial
Development Bond Risk.
Industrial development bonds are revenue bonds issued by or on behalf of public
authorities to obtain funds to finance various public and/or privately operated
facilities, including those for business and manufacturing, housing, sports,
pollution control, airport, mass transit, port and parking facilities. These
bonds are normally secured only by the revenues from the project and not by
state or local government tax payments. Consequently, the credit quality of
these securities is dependent upon the ability of the user of the facilities
financed by the bonds and any guarantor to meet its financial obligations.
Payment of interest on and repayment of principal of such bonds are the
responsibility of the user and/or any guarantor. These bonds are subject to a
wide variety of risks, many of which relate to the nature of the specific
project. Generally, the value and credit quality of these bonds are sensitive to
the risks related to an economic slowdown.
There
is no guarantee that a Fund’s income will be exempt from federal or state income
taxes. Events occurring after the date of issuance of a municipal bond or after
a Fund’s acquisition of a municipal bond may result in a determination that
interest on that bond is includible in gross income for U.S. federal income tax
purposes retroactively to its date of issuance. Such a determination may cause a
portion of prior distributions by a Fund to its shareholders to be taxable to
those
shareholders
in the year of receipt. Federal or state changes in income or alternative
minimum tax rates or in the tax treatment of municipal bonds may make municipal
bonds less attractive as investments and cause them to lose value.
Lease
Obligations Risk.
Lease obligations may have risks not normally associated with general obligation
or other revenue bonds. Leases and installment purchase or conditional sale
contracts (which may provide for title to the leased asset to pass eventually to
the issuer) have developed as a means for governmental issuers to acquire
property and equipment without the necessity of complying with the
constitutional statutory requirements generally applicable for the issuance of
debt. Certain lease obligations contain “non-appropriation” clauses that provide
that the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for that purpose by the
appropriate legislative body on an annual or other periodic basis. Consequently,
continued lease payments on those lease obligations containing
“non-appropriation” clauses are dependent on future legislative actions. If
these legislative actions do not occur, the holders of the lease obligation may
experience difficulty in exercising their rights, including disposition of the
property. In such circumstances, a Fund might not recover the full principal
amount of the obligation.
Municipal
Market Disruption Risk.
The value of municipal securities may be affected by uncertainties in the
municipal market related to legislation or litigation involving the taxation of
municipal securities or the rights of municipal securities holders in the event
of a bankruptcy. Proposals to restrict or eliminate the federal income tax
exemption for interest on municipal securities are introduced before Congress
from time to time. Proposals also may be introduced before state legislatures
that would affect the state tax treatment of a municipal fund’s distributions.
If such proposals were enacted, the availability of municipal securities and the
value of a municipal fund’s holdings would be affected. Municipal bankruptcies
are relatively rare, and certain provisions of the U.S. Bankruptcy Code
governing such bankruptcies are unclear and remain untested. Further, the
application of state law to municipal issuers could produce varying results
among the states or among municipal securities issuers within a state. These
legal uncertainties could affect the municipal securities market generally,
certain specific segments of the market, or the relative credit quality of
particular securities. There is also the possibility that as a result of
litigation or other conditions, the power or ability of issuers to meet their
obligations for the payment of interest and principal on their municipal
securities may be materially affected or their obligations may be found to be
invalid or unenforceable. Such litigation or conditions may from time to time
have the effect of introducing uncertainties in the market for municipal
securities or certain segments thereof, or of materially affecting the credit
risk with respect to particular bonds. Adverse economic, business, legal or
political developments might affect all or a substantial portion of the Funds’
municipal securities in the same manner. Any of these effects could have a
significant impact on the prices of some or all of the municipal securities held
by a Fund.
Resource
Recovery Bond Risk.
Resource recovery bonds are a type of revenue bond issued to build facilities
such as solid waste incinerators or waste-to-energy plants. Typically, a private
corporation is involved, at least during the construction phase, and the revenue
stream is secured by fees or rents paid by municipalities for use of the
facilities. These bonds are normally secured only by the revenues from the
project and not by state or local government tax receipts. Consequently, the
credit quality of these securities is dependent upon the ability of the user of
the facilities financed by the bonds and any guarantor to meet its financial
obligations. The viability of a resource recovery project, environmental
protection regulations, and project operator tax incentives may affect the value
and credit quality of resource recovery bonds.
Special
Tax Bond Risk.
Special tax bonds are usually backed and payable through a single tax, or series
of special taxes such as incremental property taxes. The failure of the tax levy
to generate adequate revenue to pay the debt service on the bonds may cause the
value of the bonds to decline. Adverse conditions and developments affecting a
particular project may result in lower revenues to the issuer of the municipal
securities, which may adversely affect the value of a Fund’s
portfolio.
Tobacco
Bond Risk.
Tobacco settlement revenue bonds are generally neither general nor legal
obligations of a state or any of its political subdivisions and neither the full
faith and credit nor the taxing power nor any other assets or revenues of a
state or of any political subdivision will be pledged to the payment of any such
bonds. In addition, tobacco companies’ profits from the sale of tobacco products
are inherently variable and difficult to estimate. There can be no guarantee
that tobacco companies will earn enough revenues to cover the payments due under
tobacco bonds. The revenues of tobacco companies may be adversely affected by
the adoption of new legislation and/or by litigation.
Transportation
Bond Risk.
Transportation debt may be issued to finance the construction of airports, toll
roads, highways or other transit facilities. Airport bonds are dependent on the
general stability of the airline industry and on the stability of a specific
carrier who uses the airport as a hub. Air traffic generally follows broader
economic trends and is also affected by the price and availability of fuel. Toll
road bonds are also affected by the cost and availability of fuel as well as
toll levels, the presence of competing roads and the general economic health of
an area. Fuel costs and availability also affect other transportation-related
securities, as do the presence of alternate forms of transportation, such as
public transportation. Municipal securities that are issued to finance a
particular transportation project often depend solely on revenues from that
project
to make principal and interest payments. Adverse conditions and developments
affecting a particular project may result in lower revenues to the issuer of the
municipal securities.
Water
and Sewer Bond Risk.
Water and sewer revenue bonds are often considered to have relatively secure
credit as a result of their issuer’s importance, monopoly status and generally
unimpeded ability to raise rates. Despite this, lack of water supply due to
insufficient rain, run-off or snow pack is a concern that has led to past
defaults. Further, public resistance to rate increases, costly environmental
litigation, and federal environmental mandates are challenges faced by issuers
of water and sewer bonds.
Specific
Risks Applicable to the VanEck Russia ETF and VanEck Russia Small-Cap
ETF
Risks
Related to Russian Invasion of Ukraine. In
late February 2022, Russian military forces invaded Ukraine, significantly
amplifying already existing geopolitical tensions among Russia, Ukraine, Europe,
NATO, and the West. Russia’s invasion, the responses of countries and political
bodies to Russia’s actions, and the potential for wider conflict may increase
financial market volatility and could have severe adverse effects on regional
and global economic markets, including the markets for certain securities and
commodities such as oil and natural gas. Following Russia’s actions, various
countries, including the U.S., Canada, the United Kingdom, Germany, and France,
as well as the European Union, issued broad-ranging economic sanctions against
Russia. The sanctions consist of the prohibition of trading in certain Russian
securities and engaging in certain private transactions, the prohibition of
doing business with certain Russian corporate entities, large financial
institutions, officials and oligarchs, and the freezing of Russian assets. The
sanctions include a commitment by certain countries and the European Union to
remove selected Russian banks from the Society for Worldwide Interbank Financial
Telecommunications, commonly called “SWIFT,” the electronic network that
connects banks globally, and imposed restrictive measures to prevent the Russian
Central Bank from undermining the impact of the sanctions. A number of large
corporations and U.S. states have also announced plans to divest interests or
otherwise curtail business dealings with certain Russian
businesses.
The
imposition of these current sanctions (and potential further sanctions in
response to continued Russian military activity) and other actions undertaken by
countries and businesses may adversely impact various sectors of the Russian
economy, including but not limited to, the financials, energy, metals and
mining, engineering, and defense and defense-related materials sectors. Such
actions also may result in a weakening of the ruble, a downgrade of Russia’s
credit rating, and the decline of the value and liquidity of Russian securities,
and could impair the ability of a Fund to buy, sell, receive, or deliver those
securities. Moreover, the measures could adversely affect global financial and
energy markets and thereby negatively affect the value of a Fund's investments
beyond any direct exposure to Russian issuers or those of adjoining geographic
regions. In response to sanctions, Russia has taken and may take additional
counter measures or retaliatory actions, which may impair the value and
liquidity of Russian securities and Fund investments. Such actions could, for
example, include restricting gas exports to other countries, seizure of U.S. and
European residents' assets, conducting cyberattacks on other governments,
corporations or individuals, or undertaking or provoking other military conflict
elsewhere in Europe, any of which could exacerbate negative consequences on
global financial markets and the economy. The actions discussed above could have
a negative effect on the performance of Funds that have exposure to Russia. The
conflict between Russia and Ukraine is currently unpredictable and has the
potential to result in broadened military actions. The duration of ongoing
hostilities and corresponding sanctions and related events cannot be predicted
and may result in a negative impact on performance and the value of Fund
investments, particularly as it relates to Russia exposure.
The
Funds are in the process of liquidating their assets and winding up their
business pursuant to the Plan of Liquidation and Termination and will be unable
to meet their investment objectives. Due to difficulties transacting in impacted
securities, a Fund may experience challenges liquidating the applicable
positions as part of the Fund’s liquidation. Additionally, due to current and
potential future sanctions or potential market closure impacting the ability to
trade Russian securities, a Fund may experience higher transaction costs.
Furthermore, any exposure that a Fund may have to Russian counterparties or
counterparties that are otherwise impacted by sanctions also could negatively
impact the Fund’s portfolio.
Tax
Risks
As
with any investment, you should consider how your investment in Shares of a Fund
will be taxed. The tax information in the Prospectus and SAI is provided as
general information. You should consult your own tax professional about the tax
consequences of an investment in Shares of a Fund.
U.S.
Federal Tax Treatment of Certain Futures Contracts and Option
Contracts
Each
Fund may be required for federal income tax purposes to mark-to-market and
recognize as income for each taxable year its net unrealized gains and losses on
certain regulated futures contracts and option contracts (“Section 1256
Contracts”) as of the end of the year as well as those actually realized during
the year. Gain or loss from Section 1256 Contracts will be 60% long-term and 40%
short-term capital gain or loss. Application of this rule may alter the timing
and character of distributions to shareholders. Each Fund may be required to
defer the recognition of losses on futures contracts or certain option contracts
to the extent of any unrecognized gains on related positions held by the
Fund.
In
order for a Fund to continue to qualify for U.S. federal income tax treatment as
a RIC, at least 90% of its gross income for a taxable year must be derived from
qualifying income, i.e.,
dividends, interest, income derived from loans of securities, income derived
from interests in qualified publicly traded partnerships (which generally are
partnerships that are traded on an established securities market or readily
tradable on a secondary market (or the substantial equivalent thereof), other
than partnerships that derive 90% of their income from interest, dividends and
other permitted RIC income), gains from the sale of securities or of foreign
currencies or other income derived with respect to the Fund’s business of
investing in securities. It is anticipated that any net gain realized from the
closing out of futures contracts or certain option contracts will be considered
gain from the sale of securities and therefore will be qualifying income for
purposes of the 90% requirement.
Each
Fund (except for VanEck Ethereum Strategy ETF) distributes to shareholders
annually any net capital gains which have been recognized for U.S. federal
income tax purposes (including unrealized gains at the end of the Fund’s fiscal
year on certain futures transactions and certain option contracts). Such
distributions are combined with distributions of capital gains realized on each
Fund’s other investments and shareholders are advised on the nature of the
distributions.
For
VanEck Ethereum Strategy ETF, the Fund may be required for federal income tax
purposes to mark-to-market and recognize as income for each taxable year its net
unrealized gains and losses on certain futures contracts and option contracts as
of the end of the year as well as those actually realized during the year. Gain
or loss from futures contracts required to be marked-to-market will be 60%
long-term and 40% short-term capital gain or loss, although all of the Fund's
income and gains will be taxed at the same rate. Application of this rule may
alter the timing and character of distributions to shareholders. The VanEck
Ethereum Strategy ETF may be required to defer the recognition of losses on ETH
Futures, to the extent of any unrecognized gains on related positions held by
the Fund.
Concentration
Considerations
To
the extent that a Fund’s investments are concentrated in a particular sector or
sectors or industry or group of industries, the Fund will be subject to the risk
that economic, political or other conditions that have a negative effect on that
sector or industry will negatively impact the Fund to a greater extent than if
the Fund’s assets were invested in a wider variety of sectors or industries. The
securities of state and municipal governments and their political subdivisions
are not considered to be issued by members of any industry.
(VanEck
Ethereum Strategy ETF only)
Since
VanEck Ethereum Strategy ETF's assets will have concentrated economic exposure
to ETH and ETH Futures, the Fund's performance may be disproportionately
affected by poor performance in ETH. By having concentrated economic exposure to
ETH and ETH Futures, the Fund is subject to the risk that economic, political,
regulatory or other conditions that have a negative effect on ETH, ETH Futures
and/or the digital asset industry may negatively impact the Fund.
Cyber
Security
The
Funds, their service providers, each Exchange and Authorized Participants
(defined below) are susceptible to cyber security risks that include, among
other things, theft, unauthorized monitoring, release, misuse, loss, destruction
or corruption of confidential and highly restricted data; denial of service
attacks; unauthorized access to relevant systems, compromises to networks or
devices that the Funds and their service providers use to service the Fund’s
operations; or operational disruption or failures in the physical infrastructure
or operating systems that support the Funds and their service providers. Cyber
attacks against or security breakdowns of the Funds, their service providers, an
Exchange or Authorized Participants may adversely impact the Funds and their
shareholders, potentially resulting in, among other things, financial losses;
the inability of Fund shareholders to transact business and the Fund to process
transactions; inability to calculate the Fund’s NAV; violations of applicable
privacy and other laws; regulatory fines, penalties, reputational damage,
reimbursement or other compensation costs; and/or additional compliance costs.
The Fund may incur additional costs for cyber security risk management and
remediation purposes. In addition, cyber security risks may also impact issuers
of securities in which a Fund invests, which may cause the Fund’s investment in
such issuers to lose value. There can be no
assurance
that the Funds, their service providers, an Exchange or Authorized Participants
will not suffer losses relating to cyber attacks or other information security
breaches in the future.
Securities
Lending
The
Funds, except VanEck Ethereum Strategy ETF, may lend securities to approved
borrowers, including affiliates of the Fund’s securities lending agent, State
Street Bank and Trust Company (“State Street”). VanEck Ethereum Strategy ETF may
only lend its investments in ETH-related companies, U.S. Treasuries and other
U.S. government obligations. Securities lending allows a Fund to retain
ownership of the securities loaned and, at the same time, earn additional
income. The borrower provides cash or non-cash collateral equal to at least 102%
(105% for foreign securities) of the value of the securities loaned. Collateral
is maintained by State Street on behalf of the Fund. Cash received as collateral
through loan transactions is generally invested in shares of a money market
fund. Investing this cash subjects that investment, as well as the securities
loaned, to market appreciation or depreciation. Non-cash collateral consists of
securities issued or guaranteed by the United States government or one of its
agencies and cannot be re-hypothecated by the Fund. The SEC provided
guidance in connection with the derivatives rule discussed above regarding the
use of securities lending collateral that may limit the Funds from engaging in
certain uses of cash and non-cash collateral. The Fund maintains the ability to
vote or consent on proxy proposals involving material events affecting
securities loaned. If the borrower defaults on its obligation to return the
securities loaned because of insolvency or other reasons, a Fund could
experience delays and costs in recovering the securities loaned or in gaining
access to the collateral. These delays and costs could be greater for foreign
securities. If a Fund is not able to recover the securities loaned, the
collateral may be sold and a replacement investment may be purchased in the
market. The value of the collateral could decrease below the value of the
replacement investment by the time the replacement investment is purchased.
Inability
to Pass Through Deduction from MLPs
(VanEck Energy Income ETF only)
Individuals
and certain other non-corporate entities are generally eligible for a 20%
deduction with respect to certain taxable income from master limited
partnerships (“MLPs”) through 2025. The VanEck Energy Income ETF does not have
the regulatory authority to pass through MLP net income, if any, or the 20%
deduction to Fund shareholders. As a result, in comparison, investors investing
directly in MLPs would be eligible for the 20% deduction for MLP net income from
these investments while investors investing in MLPs held indirectly through the
Fund would not be eligible for the 20% deduction for their share of such taxable
income.
Risks
Relating to VanEck Digital India ETF and VanEck India Growth Leaders ETF
Tax
Risks.
The taxation of income and capital gains of the VanEck Digital India ETF and
VanEck India Growth Leaders ETF is subject to the fiscal laws and practices of
different jurisdictions. Any of those jurisdictions may change their fiscal laws
and practices (or interpretation thereof) and enforcement policies, possibly
with retroactive effect. The VanEck India Growth Leaders ETF’s investment in the
Mauritius Subsidiary involves certain tax risks. Changes to the Double Taxation
Avoidance Treaty (the “Treaty”) between Mauritius and India (or its
interpretation) may adversely affect the ability of the Mauritius Subsidiary to
realize efficiently income or capital gains. Consequently, it is possible that
Mauritius Subsidiary may face unfavorable tax treatment, which may materially
adversely affect the value of its investments or the feasibility of making
investments in India.
The
Mauritius Subsidiary is a wholly-owned subsidiary of the Trust in Mauritius. The
following tax risks are relevant to the Mauritius Subsidiary and, where
indicated, to VanEck Digital India ETF.
a.Indirect
Transfer Risk:
Indian capital gains tax can be imposed on income arising from the transfer of
shares in a company registered outside India which derives, directly or
indirectly, its value substantially from the assets located in India. For more
information about this issue, please see “Taxation of Indirect Transfer of
Indian Assets” in the “Taxes” section of this SAI. Being a Category I FPI, the
Mauritius Subsidiary and VanEck Digital India ETF are currently exempt from the
application of these rules. In case of loss of the Mauritius Subsidiary's and/or
VanEck Digital India ETF's registration as a Category I FPI or changes in Indian
rules, the Mauritius Subsidiary, VanEck India Growth Leaders ETF, VanEck Digital
India ETF and their investors could be subject to the indirect transfer tax
provisions in the future.
b.Exposure
to Permanent Establishment (“PE”):
While the Fund believes that the activities of the Mauritius Subsidiary or
VanEck Digital India ETF should not create a PE of the Mauritius Subsidiary or
VanEck Digital India ETF in India, the Indian tax authorities may claim that
these activities have resulted in a PE of the Mauritius Subsidiary or VanEck
Digital India ETF in India. Under such circumstances, the profits of the
Mauritius
Subsidiary or VanEck Digital India ETF to the extent attributable to the PE
would be subject to taxation in India.
c.General
Anti-Avoidance Rules (“GAAR”):
GAAR, as contained in the Indian Income Tax Act, 1961 (“ITA 1961”), became
effective April 1, 2017. GAAR empowers the tax authorities to investigate and
declare an arrangement as an “impermissible avoidance arrangement” and,
consequently, the authorities can disregard entities in a structure, reallocate
income and expenditure between parties to the arrangement, alter the tax
residence of such entities and the legal situs of assets involved, treat debt as
equity and vice versa. An “impermissible avoidance arrangement” is an
arrangement entered into with the main purpose of obtaining a tax benefit and
satisfying one or more of the following: (a) non-arm’s length dealings; (b)
misuse or abuse of the provisions of the domestic income tax provisions; (c)
lack of commercial substance; or (d) arrangement similar to that employed for
non-bona fide purposes.
If
the Indian Tax authorities deem the Mauritius Subsidiary’s structure to be an
“impermissible avoidance arrangement,” then the
Mauritius Subsidiary may not be able to claim benefits under the Treaty.
Inability of the Mauritius Subsidiary to claim the tax benefits under the Treaty
could have an adverse impact on the tax liabilities of the Mauritius Subsidiary,
and would likely have an adverse impact on the returns to the Fund.
d.Renegotiation
of the India-Mauritius Double Taxation Avoidance Treaty:
India and Mauritius signed a protocol (“2016 Protocol”) on May 10, 2016 amending
the Treaty. The 2016 Protocol gives India a source-based right to tax capital
gains which arise from alienation of shares of an Indian resident company
acquired by a Mauritian tax resident (as opposed to the previous residence-based
tax regime under the Treaty). However, the 2016 Protocol provides for
grandfathering of investments and stipulates that the revised position shall
only be applicable to investments made on or after April 1, 2017. There can be
no assurance that the terms of the Treaty will not be further amended in the
future or be subject to a different interpretation or that the Mauritius
Subsidiary will continue to be deemed a tax resident by Mauritius, allowing it
favorable tax treatment. Any further changes in the provisions of the Treaty or
in its applicability to the Mauritius Subsidiary could result in the imposition
of withholding and other taxes on the Mauritius Subsidiary by India, which would
reduce the return to the Fund on its investments.
e.Exposure
to Place of Effective Management (“POEM”) risk:
While
the VanEck Digital India ETF and Mauritius Subsidiary believe that their
activities or the activities of the Adviser described in the Prospectus or this
SAI should not lead to a situation where the POEM of the VanEck Digital India
ETF, Mauritius Subsidiary or the Adviser is considered to be in India, there may
be a risk that the Indian tax authorities will claim that these activities have
resulted in a POEM of the VanEck Digital India ETF, Mauritius Subsidiary and/or
the Adviser in India. If for any reason the activities are held to be a POEM of
the VanEck Digital India ETF, Mauritius Subsidiary and/or the Adviser in India,
then the worldwide profits of the VanEck Digital India ETF or Mauritius
Subsidiary would be subject to taxation in India.
f.Limitations
on the Mauritius Subsidiary’s Ability to Make Distributions or Pay Redemption
Proceeds to the Fund.
Certain limitations under the Mauritius Companies Act 2001 may adversely affect
the ability of the Mauritius Subsidiary and the VanEck India Growth Leaders ETF
to make distributions or pay the redemption proceeds to the investors. If VanEck
India Growth Leaders ETF’s ability to make distributions is adversely affected,
VanEck India Growth Leaders ETF may be unable to satisfy distribution
requirements applicable to RICs under the Internal Revenue Code, and be subject
to income and/or excise tax at the Fund level. See “Taxes.”
g.Mauritius
Subsidiary Risks.
The Fund may cease utilizing the Mauritius Subsidiary in the future or the use
of the Subsidiary as intended may not be possible. Ceasing to utilize the
Mauritius Subsidiary could result in realized gains for the Fund, in capital
gains tax liability and other tax liability in India and Mauritius and in other
associated liabilities.
Special
Risk Considerations of Investing in China (VanEck
China Bond ETF and VanEck ChiNext ETF (together, the “China Funds”) only)
Investments
in securities of Chinese issuers involve risks and special considerations not
typically associated with investments in the U.S. securities markets, including
the following:
Political
and Economic Risk. The
economy of China differs from the economies of most developed countries in many
respects, including the level of government involvement, its state of
development, its growth rate, control of foreign exchange, and allocation of
resources. The economy of China’s growth has been uneven both geographically and
among various sectors of the economy. Economic growth has also been accompanied
by periods of high inflation. The PRC government has implemented various
measures from time to time to control inflation and restrain the rate of
economic growth.
For
more than 30 years, the PRC government has carried out economic reforms to
achieve decentralization and utilization of market forces to develop the economy
of the PRC. These reforms have resulted in significant economic growth and
social progress. There can, however, be no assurance that the PRC government
will continue to pursue such economic policies or, if it does, that those
policies will continue to be successful. Any such adjustment and modification of
those economic policies may have an adverse impact on the securities market in
the PRC as well as the underlying securities of a Fund’s Index. Further, the PRC
government may from time to time adopt corrective measures to control the growth
of the PRC economy which may also have an adverse impact on the capital growth
and performance of a Fund.
Political
changes, social instability and adverse diplomatic developments in the PRC could
result in the imposition of additional government restrictions including
expropriation of assets, confiscatory taxes or nationalization of some or all of
the property held by the issuers of a Fund’s investments or contained in a
Fund’s Index.
Market
volatility caused by potential regional or territorial conflicts, including
military conflicts, either in response to internal social unrest or conflicts
with other countries, popular unrest associated with demands for improved
political, economic and social conditions, the impact of regional conflict on
the economy and hostile relations with neighboring countries, or natural or
other disasters, may have an adverse impact on the performance of the
Fund.
The
laws, regulations, government policies and political and economic climate in
China may change with little or no advance notice. Any such change could
adversely affect market conditions and the performance of the Chinese economy
and, thus, the value of the A-shares in a Fund’s portfolio.
Since
1949, the PRC has been a socialist state controlled by the Communist party.
China has only recently opened up to foreign investment and has only begun to
permit private economic activity. There is no guarantee that the Chinese
government will not revert from its current open-market economy to the economic
policy of central planning that it implemented prior to 1978.
Under
the economic reforms implemented by the Chinese government, the Chinese economy
has experienced tremendous growth, developing into one of the largest economies
in the world. There is no assurance, however, that such growth will be sustained
in the future.
The
Chinese government continues to be an active participant in many economic
sectors through ownership positions and regulation. The allocation of resources
in China is subject to a high level of government control. The Chinese
government strictly regulates the payment of foreign currency denominated
obligations and sets monetary policy. Through its policies, the government may
provide preferential treatment to particular industries or companies. The
policies set by the government could have a substantial adverse effect on the
Chinese economy and a Fund’s investments.
The
Chinese economy is export-driven and highly reliant on trade, and much of
China’s growth in recent years has been the result of focused investments in
economic sectors intended to produce goods and services for export purposes. The
performance of the Chinese economy may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rate of
inflation, currency revaluation, capital reinvestment, resource self-sufficiency
and balance of payments position. Adverse changes to the economic conditions of
its primary trading partners, such as the United States, Japan and South Korea,
would adversely impact the Chinese economy and a Fund’s investments.
International trade tensions involving China and its trading counterparties may
arise from time to time which can result in trade tariffs, embargoes, sanctions,
investment restrictions, trade limitations, trade wars and other negative
consequences. Such actions and consequences may ultimately result in a
significant reduction in international trade, an oversupply of certain
manufactured goods, devaluations of existing inventories and potentially the
failure of individual companies and/or large segments of China’s export industry
with a potentially severe negative impact to a Fund.
Moreover,
the current slowdown or any future recessions in other significant economies of
the world, such as the United States, the European Union and certain Asian
countries, may adversely affect economic growth in China. An economic downturn
in China would adversely impact a Fund’s investments.
Inflation.
Economic
growth in China has also historically been accompanied by periods of high
inflation. Rising inflation may, in the future, adversely affect the performance
of the Chinese economy and a Fund’s investments.
Tax
Changes. The
Chinese system of taxation is not as well settled as that of the United States.
China has implemented a number of tax reforms in recent years and may amend or
revise its existing tax laws and/or procedures in the future,
possibly
with retroactive effect. Changes in applicable Chinese tax law, such as the
cessation of tax exemptions in respect of investments in A-shares via Stock
Connect, could reduce the after-tax profits of the Fund, directly or indirectly,
including by reducing the after-tax profits of companies in China in which a
Fund invests. Uncertainties in Chinese tax rules could result in unexpected tax
liabilities for the Fund. Should legislation limit U.S. investors’ ability to
invest in specific Chinese companies through A-shares or other share class
listings that are part of the underlying holdings, these shares may be excluded
from Fund holdings. In addition, changes in the Chinese tax system may have
retroactive effects.
Nationalization
and Expropriation. After
the formation of the Chinese socialist state in 1949, the Chinese government
renounced various debt obligations and nationalized private assets without
providing any form of compensation. There can be no assurance that the Chinese
government will not take similar actions in the future. Accordingly, an
investment in a Fund involves a risk of a total loss.
Hong
Kong Policy. As
part of Hong Kong’s transition from British to Chinese sovereignty in 1997,
China agreed to allow Hong Kong to maintain a high degree of autonomy with
regard to its political, legal and economic systems for a period of at least 50
years. China controls matters that relate to defense and foreign affairs. Under
the agreement, China does not tax Hong Kong, does not limit the exchange of the
Hong Kong dollar for foreign currencies and does not place restrictions on free
trade in Hong Kong. However, there is no guarantee that China will continue to
honor the agreement, and China may change its policies regarding Hong Kong at
any time. As of July 2020, the Chinese Standing Committee of the National
People's Congress enacted the Law of the People's Republic of China on
Safeguarding National Security in the Hong Kong Special Administrative Region.
As of the same month, Hong Kong is no longer afforded preferential economic
treatment by the United States under US law, and there is uncertainty as to how
the economy of Hong Kong will be affected. Any further changes in PRC’s policies
could adversely affect market conditions and the performance of the Hong Kong
economy and, thus, the value of securities in the Fund’s portfolio.
Any
such change could adversely affect market conditions and the performance of the
Chinese economy and, thus, the value of securities in the Fund’s portfolio.
Furthermore, as demonstrated by Hong Kong protests in recent years over
political, economic, and legal freedoms, and the Chinese government's response
to them, there continues to exist political uncertainty within Hong
Kong.
Chinese
Securities Markets. The
securities markets in China have a limited operating history and are not as
developed as those in the United States. These markets tend to have had greater
volatility than markets in the United States and some other countries. In
addition, there is less regulation and monitoring of Chinese securities markets
and the activities of investors, brokers and other participants than in the
United States. Accordingly, issuers of securities in China are not subject to
the same degree of regulation as are U.S. issuers with respect to such matters
as insider trading rules, tender offer regulation, stockholder proxy
requirements and the requirements mandating timely disclosure of information.
During periods of significant market volatility, the Chinese government has,
from time to time, intervened in its domestic securities markets to a greater
degree than would be typical in more developed markets. Stock markets in China
are in the process of change and further development. This may lead to trading
volatility, unpredictable trading suspensions, difficulty in the settlement and
recording of transactions and difficulty in interpreting and applying the
relevant regulations. These risks may be more pronounced for the A-share market
than for Chinese securities markets generally because the A-share market is
subject to greater government restrictions and control, including trading
suspensions, as described in greater detail above.
Available
Disclosure About Chinese Companies.
Disclosure and regulatory standards in emerging market countries, such as China,
are in many respects less stringent than U.S. standards. There is substantially
less publicly available information about Chinese issuers than there is about
U.S. issuers. The Chinese government has taken positions that prevent the United
States Public Company Accounting Oversight Board (“PCAOB”) from inspecting the
audit work and practices of accounting firms in mainland China and Hong Kong for
compliance with U.S. law and professional standards. Audits performed by
PCAOB-registered accounting firms in mainland China and Hong Kong may be less
reliable than those performed by firms subject to PCAOB inspection. Therefore,
disclosure of certain material information may not be made, and less information
may be available to a Fund and other investors than would be the case if a
Fund’s investments were restricted to securities of U.S. issuers. Chinese
issuers are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of a Chinese issuer may not reflect its financial position or results
of operations in the way they would be reflected had such financial statements
been prepared in accordance with U.S. Generally Accepted Accounting Principles.
As a result, there is substantially greater risk that disclosures will be
incomplete or misleading and, in the event of investor harm, that there will be
substantially less access to recourse, in comparison to U.S. domestic companies.
Furthermore, under amendments to the Sarbanes-Oxley Act enacted in December
2020, which requires that the PCAOB be permitted to inspect the accounting firm
of a U.S.-listed Chinese issuer, Chinese companies with securities listed on
U.S. exchanges may be delisted if the PCAOB is unable to inspect the accounting
firm.
Chinese
Corporate and Securities Law. The
regulations on investments and repatriation of capital are relatively new. As a
result, the application and interpretation of such investment regulations are
relatively untested. In addition, PRC authorities have broad discretion in this
regard. A Fund’s rights with respect to its investments in A-shares through
Stock Connect will not be governed by U.S. law, and instead will be governed by
Chinese law. China operates under a civil law system, in which court precedent
is not binding. Because there is no binding precedent to interpret existing
statutes, there is uncertainty regarding the implementation of existing
law.
Legal
principles relating to corporate affairs and the validity of corporate
procedures, directors’ fiduciary duties and liabilities and stockholders’ rights
often differ from those that may apply in the United States and other countries.
Chinese laws providing protection to investors, such as laws regarding the
fiduciary duties of officers and directors, are undeveloped and will not provide
investors, such as a Fund, with protection in all situations where protection
would be provided by comparable law in the United States. China lacks a national
set of laws that address all issues that may arise with regard to a foreign
investor such as a Fund.
It
may therefore be difficult for a Fund to enforce its rights as an investor under
Chinese corporate and securities laws, and it may be difficult or impossible for
a Fund to obtain a judgment in court. Moreover, as Chinese corporate and
securities laws continue to develop, these developments may adversely affect
foreign investors, such as a Fund.
Special
Risk Considerations of Investing in Chinese-Issued A-shares
(VanEck
ChiNext ETF only)
The
Fund’s investments in A-shares via Stock Connect are limited by the market-wide
quotas imposed by Stock Connect. Currently, there are two stock exchanges in
mainland China, the Shanghai and Shenzhen Stock Exchanges, and there is one
stock exchange in Hong Kong. The Shanghai and Shenzhen Stock Exchanges are
supervised by the China Securities Regulatory Commission and are highly
automated with trading and settlement executed electronically. The Shanghai and
Shenzhen Stock Exchanges are more volatile than the major securities markets in
the United States. In comparison to the mainland Chinese securities markets, the
securities markets in Hong Kong are relatively well developed and active.
The
Shanghai and Shenzhen Stock Exchanges divide listed shares into two classes:
A-shares and B-shares. Companies whose shares are traded on the Shanghai and
Shenzhen Stock Exchanges that are incorporated in mainland China may issue both
A-shares and B-shares. In China, the A-shares and B-shares of an issuer may only
trade on one exchange. A-shares and B-shares may both be listed on either the
Shanghai or Shenzhen Stock Exchanges. Both classes represent an ownership
interest
comparable
to a share of common stock and all shares are entitled to substantially the same
rights and benefits associated with ownership. A-shares are traded on the
Shanghai and Shenzhen Stock Exchanges in RMB.
Because
restrictions continue to exist and capital therefore cannot flow freely into the
A-share market, it is possible that in the event of a market disruption, the
liquidity of the A-share market and trading prices of A-shares could be more
severely affected than the liquidity and trading prices of markets where
securities are freely tradable and capital therefore flows more freely. The Fund
cannot predict the nature or duration of such a market disruption or the impact
that it may have on the A-share market and the short-term and long-term
prospects of its investments in the A-share market.
The
Chinese government has in the past taken actions that benefited holders of
A-shares. As A-shares become more available to foreign investors, such as the
Fund, the Chinese government may be less likely to take action that would
benefit holders of A-shares.
From
time to time, certain of the companies in which the Fund expects to invest may
operate in, or have dealings with, countries subject to sanctions or embargoes
imposed by the U.S. Government and the United Nations and/or countries
identified by the U.S. Government as state sponsors of terrorism. A company may
suffer damage to its reputation if it is identified as a company which operates
in, or has dealings with, countries subject to sanctions or embargoes imposed by
the U.S. Government and the United Nations and/or countries identified by the
U.S. Government as state sponsors of terrorism. As an investor in such
companies, the Fund will be indirectly subject to those risks.
Investment
and Repatriation Restrictions. Investments
by the Fund in A-shares and other Chinese financial instruments regulated by the
China Securities Regulatory Commission, including warrants and open- and
closed-end investment companies, are subject to governmental pre-approval
limitations on the quantity that the Fund may purchase or limits on the classes
of securities in which the Fund may invest.
The
Chinese government limits foreign investment in the securities of certain
Chinese issuers entirely if foreign investment is banned in respect of the
industry in which the relevant Chinese issuers are conducting their business.
These restrictions or limitations may have adverse effects on the liquidity and
performance of the Fund
holdings
as compared to the performance of its Index. This may increase the risk of
tracking error and may adversely affect the Fund’s ability to pursue its
investment objective.
Risk
of Loss of Favorable U.S. Tax Treatment. The
Fund intends to distribute annually all or substantially all of its investment
company taxable income and net capital gain. However, if the Fund does not
repatriate funds associated with direct investment in A-shares on a timely
basis, it may be unable to satisfy the distribution requirements required to
qualify for the favorable tax treatment otherwise generally afforded to
regulated investment companies under the Internal Revenue Code. If the Fund
fails to qualify for any taxable year as a regulated investment company, the
Fund would be treated as a corporation subject to U.S. federal income tax,
thereby subjecting any income earned by the Fund to tax at the corporate level
(currently at a 21% U.S. federal tax rate) and, when such income is distributed,
to a further tax at the shareholder level to the extent of the Fund’s current or
accumulated earnings and profits. In addition, the Fund would not be eligible
for a deduction for dividends paid to shareholders. In addition, the Fund could
be required to recognize unrealized gains, pay taxes and make distributions (any
of which could be subject to interest charges) before re-qualifying for taxation
as a regulated investment company. See the Fund’s Prospectus entitled
“Shareholder Information—Tax Information—Taxes on Distributions” for more
information.
Tax
on Retained Income and Gains.
To the extent the Fund does not distribute to shareholders all of its investment
company taxable income and net capital gain in a given year, it will be required
to pay U.S. federal income and excise tax on the retained income and gains,
thereby reducing the Fund’s return. The Fund may elect to treat its net capital
gain as having been distributed to shareholders. In that case, shareholders of
record on the last day of the Fund’s taxable year will be required to include
their attributable share of the retained gain in income for the year as a
long-term capital gain despite not actually receiving the dividend, and will be
entitled to a tax credit or refund for the tax deemed paid on their behalf by
the Fund as well as an increase in the basis of their shares to reflect the
difference between their attributable share of the gain and the related credit
or refund.
Foreign
Exchange Control.
The Chinese government heavily regulates the domestic exchange of foreign
currencies within China. Chinese law requires that all domestic transactions
must be settled in RMB, places significant restrictions on the remittance of
foreign currency and strictly regulates currency exchange from RMB. These
restrictions may adversely affect the Fund and its investments. There may not be
sufficient amounts of RMB for the Fund to be fully invested. It should also be
noted that the PRC government’s policies on exchange control and repatriation
restrictions are subject to change, and any such change may adversely impact the
Fund. There can be no assurance that the RMB exchange rate will not fluctuate
widely against the US dollar or any other foreign currency in the future. Under
exceptional circumstances, payment of redemptions and/or dividend payment in RMB
may be delayed due to the exchange controls and restrictions applicable to RMB.
Custody
Risks of Investing
in
A-shares.
Custody arrangements for investments in China are subject to the rules and
regulations of the China Securities Regulatory Commission and the People’s Bank
of China, which may materially differ from custody arrangements in other
jurisdictions. The Fund’s investments in China are subject to the risks of such
arrangements, including the risk of a liquidation or bankruptcy by the Chinese
sub-custodian, which may result in losses to the Fund.
Foreign
Currency Considerations.
Emerging markets such as China can experience high rates of inflation, deflation
and currency devaluation. The value of the RMB may be subject to a high degree
of fluctuation due to, among other things, changes in interest rates, the
effects of monetary policies issued by the PRC, the United States, foreign
governments, central banks or supranational entities, the imposition of currency
controls or other national or global political or economic developments. The
Fund invests a significant portion of its assets in investments denominated in
RMB and the income received by the Fund will principally be in RMB. The Fund’s
exposure to the RMB and changes in value of the RMB versus the U.S. dollar may
result in reduced returns for the Fund. Moreover, the Fund may incur costs in
connection with conversions between U.S. dollars and RMB. The RMB is currently
not a freely convertible currency. The value of the RMB is based on a managed
floating exchange rate based on market supply and demand with reference to a
basket of foreign currencies. The daily trading price of the RMB is allowed to
float within a narrow band around the central parity published by the People’s
Bank of China. The Chinese government’s imposition of restrictions on the
repatriation of RMB out of mainland China may limit the depth of the offshore
RMB market and reduce the liquidity of the Fund’s investments. These
restrictions as well as any accelerated appreciation or depreciation of RMB may
adversely affect the Fund and its investments. The Fund may be required to
liquidate certain positions in order to make distributions if the Fund has
insufficient cash in U.S. dollars to meet distribution requirements under the
Internal Revenue Code due to currency convertibility. The liquidation of
investments, if required, may also have an adverse impact on the Fund’s
performance.
Furthermore,
the Fund may incur costs in connection with conversions between U.S. dollars and
RMB. Foreign exchange dealers realize a profit based on the difference between
the prices at which they are buying and selling various currencies. Thus, a
dealer normally will offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire immediately to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot
rate
prevailing
in the foreign currency exchange market, or through entering into forward,
futures or options contracts to purchase or sell foreign currencies.
RMB
can be further categorized into onshore RMB (CNY), which can be traded only in
the PRC, and offshore RMB (CNH), which can be traded outside the PRC. CNY and
CNH are traded at different exchange rates and their exchange rates may not move
in the same direction. The Fund may also be adversely affected by the exchange
rates between CNY and CNH. In addition, there may not be sufficient amounts of
RMB for the Fund to be fully invested. Moreover, the trading and settlement of
RMB-denominated securities are recent developments in Hong Kong and there is no
assurance that problems will not be encountered with the systems or that other
logistical problems will not arise.
Currently,
there is no market in China in which the Fund may engage in hedging transactions
to minimize RMB foreign exchange risk, and there can be no guarantee that
instruments suitable for hedging currency will be available to the Fund in China
at any time in the future. In the event that in the future it becomes possible
to hedge RMB currency risk in China, the Fund may seek to protect the value of
some portion or all of its portfolio holdings against currency risks by engaging
in hedging transactions. In that case, such Fund may enter into forward currency
exchange contracts and currency futures contracts and options on such futures
contracts, as well as purchase put or call options on currencies, in China.
Currency hedging would involve special risks, including possible default by the
other party to the transaction, illiquidity and, to the extent the Adviser’s
view as to certain market movements is incorrect, the risk that the use of
hedging could result in losses greater than if they had not been used. The use
of currency transactions could result in the Fund’s incurring losses as a result
of the imposition of exchange controls, exchange rate regulation, suspension of
settlements or the
inability
to deliver or receive a specified currency.
China-Related
Index Tracking Risk.
To the extent the Fund is unable to invest in A-shares or enter into swaps or
other derivatives linked to the performance of its Index or securities
comprising its Index, it may enter into swaps or other derivatives linked to the
performance of other funds that seek to track the performance of its Index.
These funds may trade at a premium or discount to net asset value, which may
result in additional tracking error for the Fund. Moreover, the ability of the
Fund to track its Index may be affected by foreign exchange fluctuations as
between the U.S. dollar and the RMB. Additionally, the terms of the swaps
require the payment of the U.S. dollar equivalent of the RMB distributions and
dividends, meaning that the Fund is exposed to foreign exchange risk and
fluctuations in value between the U.S. dollar and the RMB. The Fund will be
required to remit RMB to settle the purchase of A-shares and repatriate RMB to
U.S. dollars to settle redemption orders. In the event such remittance is
delayed or disrupted, the Fund will not be able to fully replicate the Index by
investing in the relevant A-shares, which may lead to increased tracking error,
and may need to rely on borrowings to meet redemptions, which may lead to
increased expenses. Because the Index is priced in Chinese RMB and the Fund is
priced in U.S. dollars, the ability of the Fund to track the Index is in part
subject to foreign exchange fluctuations as between the U.S. dollar and the RMB.
The Fund may underperform the Index when the value of the U.S. dollar increases
relative to the value of the RMB.
PRC
Custodian Risks
Custody
arrangements for investments in China are subject to the rules and regulations
of the China Securities Regulatory Commission and the People’s Bank of China,
which may materially differ from custody arrangements in other jurisdictions.
The Fund’s investments in China are subject to the risks of such arrangements,
including the risk of a liquidation or bankruptcy by the Chinese sub-custodian,
which may result in losses to the Fund.
Stock
Connect Program Risks (VanEck
ChiNext ETF, VanEck Green Metals ETF and VanEck Rare Earth and Strategic Metals
ETF only)
VanEck
ChiNext ETF, VanEck Green Metals ETF and VanEck Rare Earth and Strategic Metals
ETF may invest in A-shares listed and traded on the Shanghai Stock Exchange and
the Shenzhen Stock Exchange through the Shanghai-Hong Kong Stock Connect Program
and the Shenzhen-Hong Kong Stock Connect Program (together, “Stock Connect”), or
on such
other
stock exchanges in China which participate in Stock Connect from time to time or
in the future. Trading through Stock Connect is subject to a number of
restrictions that may affect a Fund’s investments and returns. For example,
purchases of A-shares through Stock Connect are subject to a daily quota which
does not belong to the Fund and can only be utilised on a first-come-first-serve
basis. Once the daily quota is exceeded, buy orders may be rejected. The Fund's
ability to invest in A-shares may therefore be limited. In addition, investments
made through Stock Connect are subject to trading, clearance and settlement
procedures that are relatively untested in the PRC, which could pose risks to a
Fund. Furthermore, securities purchased via Stock Connect will be held via a
book entry omnibus account in the name of Hong Kong Securities Clearing Company
Limited (“HKSCC”), Hong Kong’s clearing entity, at the China Securities
Depository and Clearing Corporation Limited (“CSDCC”). A Fund’s ownership
interest in Stock Connect securities will not be reflected directly in book
entry with CSDCC and will instead only be reflected on the books of its Hong
Kong sub-custodian. A Fund may therefore depend on HKSCC’s ability or
willingness as record-holder of Stock Connect securities to enforce the Fund’s
shareholder rights. PRC law did not historically recognize the concept of
beneficial ownership; while PRC regulations and the Hong Kong Stock Exchange
have issued clarifications and guidance supporting the concept of beneficial
ownership via Stock Connect, the interpretation of beneficial ownership in the
PRC by regulators and courts may continue to evolve. Moreover, Stock Connect
A-shares generally may not be sold, purchased or otherwise transferred other
than through Stock Connect in accordance with applicable rules.
A
primary feature of Stock Connect is the application of the home market’s laws
and rules applicable to investors in A-shares. Therefore, a Fund’s investments
in Stock Connect A-shares are generally subject to PRC securities regulations
and listing rules, among other restrictions. The Stock Exchange of Hong Kong,
Shenzhen Stock Exchange (“SZSE”) and Shanghai Stock Exchange (“SSE”) reserve the
right to suspend trading if necessary for ensuring an orderly and fair market
and managing risks prudently, which could adversely affect a Fund’s ability to
access the mainland China market. A stock may be recalled from the scope of
eligible SSE securities or SZSE securities for trading via the Stock Connects
for various reasons, and in such event, the stock can only be sold but is
restricted from being bought. Stock Connect is only available on days when
markets in both the PRC and Hong Kong are open, which may limit the Fund’s
ability to trade when it would be otherwise attractive to do so.
Uncertainties
in permanent PRC tax rules governing the taxation of income and gains from
investments in Stock Connect A-shares could result in unexpected tax liabilities
for the Fund. Please refer to the section titled “PRC taxation” below.
A
Fund may, through Stock Connect, access securities listed on the ChiNext Market
and STAR Board of the SZSE. Listed companies on the ChiNext Market and STAR
Board are usually of an emerging nature with smaller operating scale. Listed
companies on the ChiNext Market and STAR Board are subject to wider price
fluctuation limits and due to higher entry thresholds for investors, may have
limited liquidity, compared to other boards. They are subject to higher
fluctuation in stock prices and liquidity and have higher risks and turnover
ratios than companies listed on the main board of the SZSE. Securities listed on
the ChiNext Market may be overvalued and such exceptionally high valuation may
not be sustainable. Stock prices may be more susceptible to manipulation due to
fewer circulating shares. It may be more common and faster for companies listed
on the ChiNext Market to delist. This may have an adverse impact on a Fund if
the companies that they invest in are delisted. Also, the rules and regulations
regarding companies listed on the ChiNext Market and STAR Board are less
stringent in terms of profitability and share capital than those on the main
board. Investments in the ChiNext Market and STAR Board may result in
significant losses for a Fund and its investors. STAR Board is a newly
established board and may have a limited number of listed companies during the
initial stage. Investments in STAR board may be concentrated in a small number
of stocks and subject the Fund to higher concentration risk.
Stock
Connect only operates on days when both the PRC and Hong Kong markets are open
for trading and when banks in both markets are open on the corresponding
settlement days. So it is possible that there are occasions when it is a normal
trading day for the PRC market but the Fund cannot carry out any China A-shares
trading via Stock Connect. The Fund may be subject to a risk of price
fluctuations in China A-shares during the time when any of Stock Connect is not
trading as a result.
PRC
regulations require that before an investor sells any share, there should be
sufficient shares in the account; otherwise the SSE or SZSE will reject the sell
order concerned. SEHK will carry out pre-trade checking on China A-shares sell
orders of its participants (i.e.
the stock brokers) to ensure there is no over-selling. If the Fund intends to
sell certain China A-shares it holds, it must transfer those China A-shares to
the respective accounts of its broker(s) before the market opens on the day of
selling (“trading day”). If it fails to meet this deadline, it will not be able
to sell those shares on the trading day. Because of this requirement, the Fund
may not be able to dispose of its holdings of China A-shares in a timely
manner.
The
Stock Connect program is a relatively new program and may be subject to further
interpretation and guidance. There can be no assurance as to the program’s
continued existence or whether future developments regarding the program may
restrict or adversely affect a Fund’s investments or returns. In addition, the
application and interpretation of the laws and
regulations
of Hong Kong and the PRC, and the rules, policies or guidelines published or
applied by relevant regulators and exchanges in respect of the Stock Connect
program are uncertain, and they may have a detrimental effect on a Fund’s
investments and returns. Moreover, the rules and regulations may have potential
retrospective effect. There can be no assurance that the Stock Connects will not
be abolished. Investments in mainland China markets through the Stock Connects
may adversely affect the Fund as a result of such changes.
Bond
Connect Risks (VanEck
China Bond ETF only)
The
“Mutual Bond Market Access between mainland China and Hong Kong” (“Bond
Connect”) program is an initiative established to facilitate investors from
mainland China and Hong Kong to trade in each other’s bond markets through
connection between the mainland China and Hong Kong financial
institutions.
Under
the prevailing PRC regulations, eligible foreign investors will be allowed to
invest in the bonds available on the China Interbank Bond Market (“CIBM”)
through the northbound trading of Bond Connect (“Northbound Trading Link”).
There will be no investment quota for the Northbound Trading Link.
Under
the Northbound Trading Link, eligible foreign investors are required to appoint
the China Foreign Exchange Trade System & National Interbank Funding Centre
(“CFETS”) or other institutions recognized by the PBOC as registration agents to
apply for registration with the PBOC.
Eligible
foreign investors may submit trade requests for bonds circulated in the CIBM
through the Northbound Trading Link provided by offshore electronic bond trading
platforms, which will in turn transmit their requests for quotation to CFETS.
CFETS will send the requests for quotation to a number of approved onshore
dealers (including market makers and others engaged in the market-making
business) in mainland China. The approved onshore dealers will respond to the
requests for quotation via CFETS, and CFETS will send their responses to those
eligible foreign investors through the same offshore electronic bond trading
platforms. Once the eligible foreign investor accepts the quotation, the trade
is concluded on CFETS.
On
the other hand, the settlement and custody of bond securities traded in the CIBM
under Bond Connect will be done through the settlement and custody link between
an offshore custody agent and onshore custodian and clearing institutions in
mainland China. In August 2018, Bond Connect enhanced its settlement system to
fully implement real-time delivery-versus-payment settlement of trades, which
has resulted in increased adoption of Bond Connect by investors. However, there
is a risk that Chinese regulators may alter all or part of the structure and
terms of, as well as a China Fund’s access to, Bond Connect in the future or
eliminate it altogether, which may limit or prevent the Fund from investing
directly in or selling its bond securities. Pursuant to the prevailing
regulations in mainland China, all bonds traded by eligible foreign investors
will be registered in the name of the Central Moneymarkets Unit of the Hong Kong
Monetary Authority (“CMU”), which will hold such bonds as a nominee
owner.
Bond
Connect is relatively new. Laws, rules, regulations, policies, notices,
circulars or guidelines relating to Bond Connect as published or applied by any
of the Bond Connect Authorities (as defined below) are untested and are subject
to change from time to time. There can be no assurance that Bond Connect will
not be restricted, suspended or abolished. If such event occurs, the Fund’s
ability to invest in the CIBM through Bond Connect will be adversely affected,
and if the Fund is unable to adequately access the CIBM through other means, the
Fund’s ability to achieve its investment objective will be adversely affected.
Under
the prevailing regulations, eligible foreign investors who wish to participate
in Bond Connect may do so through an offshore custody agent, registration agent
or other third parties (as the case may be), who would be responsible for making
the relevant filings and account opening with the relevant authorities. The Fund
is therefore subject to the risk of default or errors on the part of such
agents.
Trading
through Bond Connect is performed through newly developed trading platforms and
operational systems. There is no assurance that such systems will function
properly (in particular, under extreme market conditions) or will continue to be
adapted to changes and developments in the market. In the event that the
relevant systems fails to function properly, trading through Bond Connect may be
disrupted. The Fund’s ability to trade through Bond Connect (and hence to pursue
its investment strategy) may therefore be adversely affected. In addition, where
the Fund invests in the CIBM through Bond Connect, it may be subject to risks of
delays inherent in the order placing and/or settlement.
The
CMU (i.e.
the HKMA) is the “nominee holder” of the bonds acquired by the Fund through Bond
Connect. Whilst the Bond Connect Authorities have expressly stated that
investors will enjoy the rights and interests of the bonds acquired through Bond
Connect in accordance with applicable laws, the exercise and the enforcement of
beneficial ownership rights over such bonds in the courts in China is yet to be
tested. In addition, in the event that the nominee holder becomes
insolvent,
such bonds may form part of the pool of assets of the nominee holder available
for distribution to its creditors and the Fund, as a beneficial owner, may have
no rights whatsoever in respect thereof.
Chinese
Variable Interest Entities Risks
Chinese
operating companies sometimes rely on variable interest entity (“VIE”)
structures to raise capital from non-Chinese investors. In a VIE structure, a
China-based operating company establishes an entity (typically offshore) that
enters into service and other contracts with the Chinese company designed to
provide economic exposure to the company. The offshore entity then issues
exchange-traded shares that are sold to the public, including non-Chinese
investors (such as a Fund). Shares of the offshore entity are not equity
ownership interests in the Chinese operating company and therefore the ability
of the offshore entity to control the activities of the Chinese company are
limited and the Chinese company may engage in activities that negatively impact
investment value. The VIE structure is designed to provide the offshore entity
(and in turn, investors in the entity) with economic exposure to the Chinese
company that replicates equity ownership, without actual equity ownership. VIE
structures are used due to Chinese government prohibitions on foreign ownership
of companies in certain industries and it is not clear that the contracts are
enforceable or that the structures will otherwise work as intended.
Intervention
by the Chinese government with respect to VIE structures could adversely affect
the Chinese operating company’s performance, the enforceability of the offshore
entity’s contractual arrangements with the Chinese company and the value of the
offshore entity’s shares. Further, if the Chinese government determines that the
agreements establishing the VIE structure do not comply with Chinese law and
regulations, including those related to prohibitions on foreign ownership, the
Chinese government could subject the Chinese company to penalties, revocation of
business and operating licenses or forfeiture of ownership interests. The
offshore entity’s control over the Chinese company may also be jeopardized if
certain legal formalities are not observed in connection with the agreements, if
the agreements are breached or if the agreements are otherwise determined not to
be enforceable. If any of the foregoing were to occur, the market value of a
Fund’s associated portfolio holdings would likely fall, causing substantial
investment losses for the Fund.
In
addition, Chinese companies listed on U.S. exchanges, including ADRs and
companies that rely on VIE structures, may be delisted if they do not meet U.S.
accounting standards and auditor oversight requirements. Delisting could
significantly decrease the liquidity and value of the securities of these
companies, decrease the ability of a Fund to invest in such securities and
increase the cost of the Fund if it is required to seek alternative markets in
which to invest in such securities.
Specific
Risks Applicable to VanEck Ethereum Strategy ETF
Under
normal circumstances, the Fund will invest in ETH Futures traded on commodity
exchanges registered with the CFTC. Currently, the only ETH Futures the Fund
intends to invest in are those traded on the CME.
The
Fund is an actively managed ETF that does not seek to replicate the performance
of a specified index.
ETH
Futures. Futures
contracts are financial contracts the value of which depends on, or is derived
from, the underlying reference asset. In the case of ETH Futures, the underlying
reference asset is ETH. Futures contracts may be physically-settled or
cash-settled. The only futures contracts in which the Fund invests are
cash-settled ETH Futures. “Cash-settled” means that when the relevant futures
contract expires, if the value of the underlying asset exceeds the futures
contract price, the seller pays to the purchaser cash in the amount of that
excess, and if the futures contract price exceeds the value of the underlying
asset, the purchaser pays to the seller cash in the amount of that excess. In a
cash-settled futures contract on ETH, the amount of cash to be paid is equal to
the difference between the value of the ETH underlying the futures contract at
the close of the last trading day of the contract and the futures contract price
specified in the agreement. The CME has specified that the value of ETH
underlying ETH Futures traded on the CME will be determined by reference to a
volume-weighted average of ETH trading prices on multiple trading
platforms.
Margin
requirements for ETH Futures traded on the CME or other futures exchanges may be
substantially higher than margin requirements for many other types of futures
contracts. If the Fund is unable to meet its investment objective, the Fund’s
returns may be lower than expected. Additionally, these collateral requirements
may require the Fund to liquidate its position when it otherwise would not do
so.
Futures
contracts exhibit “futures basis,” which refers to the difference between the
current market value of the underlying ETH (the “spot” price) and the price of
the cash-settled futures contracts. A negative futures basis exists when
cash-settled ETH futures contracts generally trade at a premium to the current
market value of ETH. If a negative futures basis exists, the Fund’s investments
in ETH futures contracts will generally underperform a direct investment in ETH,
and, therefore, it may be more difficult for the Fund to maintain the Target
Exposure.
ETH
Reference Rate.
ETH Futures commenced trading on the CME Globex electronic trading platform on
February 8, 2021 under the ticker symbol "ETH". CME-traded Ether Futures are
cash-settled in U.S. dollars, based on the CME CF Ether
Reference
Rate. The CME CF Ether Reference Rate is a volume-weighted composite of U.S.
dollar-ether trading activity on the constituent trading platforms. The
constituent trading platforms are selected by CF Benchmarks based on the
constituent trading platform criteria.
Each
constituent trading platform is reviewed annually by an oversight committee
established by CF Benchmarks to confirm that the constituent trading platform
continues to meet all criteria. CF Benchmarks and the CME CF Ether Reference
Rate are subject to United Kingdom Financial Conduct Authority
Regulation.
Regulatory
Aspects of Investments in Futures.
VEARA has registered as a CPO with the CFTC. VEARA’s investment decisions may
need to be modified, and commodity contract positions held by the Fund may have
to be liquidated at disadvantageous times or prices, to avoid exceeding position
limits established by the CFTC, potentially subjecting the Fund to substantial
losses. The regulation of commodity transactions in the United States is subject
to ongoing modification by government, self-regulatory and judicial action. The
effect of any future regulatory change on the Fund is impossible to predict, but
could be substantial and adverse to the Fund.
Derivatives
Rule.
The
Fund is required to comply with the derivatives rule when it engages in
transactions involving futures and other derivatives involving future Fund
payment or delivery obligations. See “SEC Regulatory Matters”
above.
Specific
Risks Applicable to VanEck CMCI Commodity Strategy ETF, VanEck Commodity
Strategy ETF and VanEck Inflation Allocation ETF
Under
normal circumstances, VanEck Inflation Allocation ETF, through a wholly-owned
subsidiary of the Fund, invests in Exchange Traded Products that invest in
commodities and Commodities Instruments. Under normal circumstances, each of
VanEck CMCI Commodity Strategy ETF and VanEck Commodity Strategy ETF invests in
certain Commodities Instruments through a wholly-owned subsidiary. The Funds’
wholly-owned subsidiaries are collectively referred to as the “Cayman
Subsidiaries.”
Cayman
Subsidiaries. Each
Fund’s investment in its Cayman Subsidiary will generally not exceed 25% of the
value of the Fund’s total assets at each quarter-end of the Fund's fiscal year.
Each Cayman Subsidiary may invest in Commodities Instruments, as described under
“Commodities Instruments” below. Because each Fund may invest a substantial
portion of its assets in its Cayman Subsidiary, which may hold certain of the
investments described in the Fund’s Prospectus and this SAI, each Fund may be
considered to be investing indirectly in those investments through its Cayman
Subsidiary. Therefore, except as otherwise noted, for purposes of this
disclosure, references to a Fund’s investments strategies and risks include
those of its Cayman Subsidiary.
The
Cayman Subsidiaries are not registered under the 1940 Act and are not directly
subject to its investor protections, except as noted in each Fund’s Prospectus
or this SAI. However, each Cayman Subsidiary is wholly-owned and controlled by
its Fund and is advised by VEARA. The Trust’s Board of Trustees has oversight
responsibility for the investment activities of the Funds, including its
investment in the Cayman Subsidiaries, and each Fund’s role as the sole
shareholder of its Cayman Subsidiary. The Cayman Subsidiaries will also enter
into separate contracts for the provision of custody, transfer agency, and
accounting agent services with the same service providers or with affiliates of
the same service providers that provide those services to its Fund.
Changes
in the laws of the United States (where the Funds are organized) and/or the
Cayman Islands (where the Cayman Subsidiaries are incorporated) could prevent a
Fund and/or its Cayman Subsidiary from operating as described in its Prospectus
and this SAI and could negatively affect the Fund and its shareholders. For
example, the Cayman Islands currently does not impose certain taxes on the
Cayman Subsidiaries, including income and capital gains tax, among others. If
Cayman Islands laws were changed to require the Cayman Subsidiaries to pay
Cayman Islands taxes, the investment returns of the Funds would likely
decrease.
The
financial statements of each Cayman Subsidiary will be consolidated with its
Fund’s financial statements in the Fund’s filings on Form N-CSR with the SEC.
Commodities
Instruments. Each
Fund gains exposure to Commodities Instruments primarily through its Cayman
Subsidiary. Additional information on the Cayman Subsidiaries is set forth under
“Cayman Subsidiaries” above. Additional information regarding specific
Commodities Instruments is set forth below. The Funds, either directly or
through the Cayman Subsidiaries, may also gain exposure to Commodities
Instruments through investment in certain investment companies, including ETFs,
and in ETNs.
Each
Fund may invest up to 25% of its total assets in its Cayman Subsidiary, portions
of which will be committed as “initial” and “variation” margin to secure the
Cayman Subsidiary’s positions in Commodities Instruments. These assets are
placed in accounts maintained by the Fund’s Cayman Subsidiary at the Cayman
Subsidiary’s clearing broker or FCM, and are
held
in cash or invested in U.S. Treasury bills and other direct or guaranteed debt
obligations of the U.S. government maturing within less than one year at the
time of investment.
In
the event that the securities are not listed on a national securities exchange,
the principal trading market for some may be in the OTC market. The existence of
a liquid trading market for certain securities may depend on whether dealers
will make a market in such securities. There can be no assurance that a market
will be made or maintained or that any such market will be or remain liquid. The
price at which securities may be sold and the value of the Funds’ Shares will be
adversely affected if trading markets for the Funds’ portfolio securities are
limited or absent or if bid/ask spreads are wide.
Each
Fund may also invest in securities issued by other investment companies, equity
securities, fixed income securities and money market instruments, including
repurchase agreements. For temporary defensive purposes, each Fund may invest
without limit in money market instruments, including repurchase agreements or
other funds which invest exclusively in money market instruments.
Each
Fund except VanEck CMCI Commodity Strategy ETF is an actively managed ETF that
does not seek to replicate the performance of a specified index.
Regulatory
developments affecting the exchange-traded and OTC derivatives markets may
impair a Fund’s ability to manage or hedge its investment portfolio through the
use of derivatives. The Dodd-Frank Act and the rules promulgated thereunder may
limit the ability of a Fund to enter into one or more exchange-traded or OTC
derivatives transactions.
Changes
in the laws or regulations of the United States or the Cayman Islands, including
any changes to applicable tax laws and regulations, could impair the ability of
a Fund to achieve its investment objective and could increase the operating
expenses of the Fund or its Cayman Subsidiary. CFTC regulations require an
investment adviser of a registered investment company to register with the CFTC
as a CPO if the investment company either markets itself as a vehicle for
trading commodity interests or conducts more than a de minimis amount of
speculative trading in commodity interests. Based on each Fund’s and its Cayman
Subsidiary’s current investment strategies, each Fund and its Cayman Subsidiary
are each a “commodity pool” and VEARA, which is currently registered with the
CFTC as a CPO and commodity trading adviser under the CEA, is considered a CPO
with respect to each Fund and its Cayman Subsidiary. Accordingly, each Fund and
VEARA are subject to dual regulation by the CFTC and the SEC. Pursuant to
certain CFTC regulations, each Fund and VEARA have elected to meet the
requirements of certain CFTC regulations by complying with specific SEC rules
and regulations relating to disclosure and reporting requirements. The CFTC
could deem a Fund or VEARA in violation of an applicable CFTC regulation if the
Fund or VEARA failed to comply with a related SEC regulatory requirement. In
addition, the Funds and VEARA will remain subject to certain CFTC-mandated
disclosure, reporting and recordkeeping regulations with respect to the Funds
and the Cayman Subsidiaries. Compliance with the CFTC regulations could increase
a Fund’s expenses, adversely affecting the Fund’s total return.
In
addition, the CFTC or the SEC could at any time alter the regulatory
requirements governing the use of commodity index-linked notes, commodity
futures, options on commodity futures or swap transactions by investment
companies, which could result in the inability of a Fund to achieve its
investment objective through its current strategies. Amendments to position
limits rules the CFTC has adopted that establish certain new and amended
position limits for 25 specified physical commodity futures and related options
contracts traded on exchanges, other futures contracts and related options
directly or indirectly linked to such 25 specified contracts, and any OTC
transactions that are economically equivalent to the 25 specified contracts have
become effective. VEARA will need to consider whether the exposure created under
these contracts (if applicable) might exceed the new and amended limits, and the
limits may constrain the ability of the Fund to use such contracts. The
amendments also modify the bona fide hedging exemption for which certain swap
dealers were previously eligible, which could limit the amount of speculative
OTC transaction capacity each such swap dealer would have available for a
Fund.
Each
Fund and its Cayman Subsidiary may utilize futures contracts. The use of futures
is subject to applicable regulations of the SEC, the several exchanges upon
which they are traded, the CFTC and various state regulatory
authorities.
Futures
Contracts. Each
Fund may purchase and sell futures contracts. Each Fund (directly or through its
Cayman Subsidiary) may invest in commodity futures contracts. Commodity futures
contracts are generally based upon commodities within the six principal
commodity groups: energy, industrial metals, agriculture, precious metals, foods
and fibers, and livestock. The price of a commodity futures contract will
reflect the storage costs of purchasing the commodity. These storage costs
include the time value of money invested in the commodity plus the actual costs
of storing the commodity less any benefits from ownership of the commodity that
are not obtained by the holder of a futures contract (this is sometimes referred
to as the “convenience yield”). To the extent that these storage costs change
for an underlying commodity while the Fund is in a long position on that
commodity, the value of the futures contract may change
proportionately.
Commodity
futures contracts are traded on futures exchanges. These futures exchanges offer
a central marketplace in which to transact futures contracts, a clearing
corporation to process trades, a standardization of expiration dates and
contract sizes, and the availability of a secondary market. Futures markets also
specify the terms and conditions of delivery as well as
the
maximum permissible price movement during a trading session. Additionally, the
commodity futures exchanges may have position limit rules that limit the amount
of futures contracts that any one party may hold in a particular commodity at
any point in time. These position limit rules are designed to prevent any one
participant from controlling a significant portion of the market. In the
commodity futures markets, the exchange clearing corporation takes the other
side in all transactions, either buying or selling directly to the market
participants. The clearinghouse acts as the counterparty to all exchange-traded
futures contracts, that is, a Fund’s or its Cayman Subsidiary’s obligation is to
the clearinghouse, and the Fund or its Cayman Subsidiary will look to the
clearinghouse to satisfy the Fund’s or its Cayman Subsidiary’s rights under a
commodity futures contract.
Transaction
costs are incurred when a futures contract is bought or sold and margin deposits
must be maintained. A futures contract may be satisfied by delivery or purchase,
as the case may be, of the instrument or by payment of the change in the cash
value of the index. More commonly, futures contracts are closed out prior to
delivery by entering into an offsetting transaction in a matching futures
contract. Although the value of an index might be a function of the value of
certain specified securities, no physical delivery of those securities is made.
If the offsetting purchase price is less than the original sale price, a gain
will be realized; if it is more, a loss will be realized. Conversely, if the
offsetting sale price is more than the original purchase price, a gain will be
realized; if it is less, a loss will be realized. The transaction costs must
also be included in these calculations. There can be no assurance, however, that
a Fund or its Cayman Subsidiary will be able to enter into an offsetting
transaction with respect to a particular futures contract at a particular time.
If a Fund or its Cayman Subsidiary is not able to enter into an offsetting
transaction, the Fund or its Cayman Subsidiary will continue to be required to
maintain the margin deposits on the futures contract.
Margin
is the amount of funds that must be deposited by a Fund or its Cayman Subsidiary
with its custodian or FCM in a segregated account in the name of the FCM in
order to initiate futures trading and to maintain the Fund’s or its Cayman
Subsidiary’s open positions in futures contracts. A margin deposit is intended
to ensure a Fund’s or its Cayman Subsidiary’s performance of the futures
contract. The margin required for a particular futures contract is set by the
exchange on which the futures contract is traded and may be significantly
modified from time to time by the exchange during the term of the futures
contract. Futures contracts are customarily purchased and sold on margins that
may vary.
If
the price of an open futures contract changes (by increase in the case of a sale
or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to a Fund or its Cayman Subsidiary. In computing daily net asset
value, a Fund or its Cayman Subsidiary will mark to market the current value of
its open futures contracts. A Fund and its Cayman Subsidiary expect to earn
interest income on their margin deposits.
Because
of the low margin deposits required, futures trading involves an extremely high
degree of leverage. As a result, a relatively small price movement in a futures
contract may result in immediate and substantial loss, as well as gain, to the
investor. For example, if at the time of purchase, 10% of the value of the
futures contract is deposited as margin, a subsequent 10% decrease in the value
of the futures contract would result in a total loss of the margin deposit,
before any deduction for the transaction costs, if the account were then closed
out. A 15% decrease would result in a loss equal to 150% of the original margin
deposit, if the futures contract were closed out. Thus, a purchase or sale of a
futures contract may result in losses in excess of the amount initially invested
in the futures contract. However, a Fund or its Cayman Subsidiary would
presumably have sustained comparable losses if, instead of investing in the
futures contract, it had invested in the underlying financial instrument and
sold it after the decline.
Most
U.S. futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day’s settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of futures contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. Despite the daily price limits on various
futures exchanges, the price volatility of commodity futures contracts has been
historically greater than that for traditional securities such as stocks and
bonds. To the extent that a Fund or its Cayman Subsidiary invests in commodity
futures contracts, the assets of the Fund and the Cayman Subsidiary, and
therefore the prices of Fund shares, may be subject to greater
volatility.
There
can be no assurance that a liquid market will exist at a time when a Fund or its
Cayman Subsidiary seeks to close out a futures contract. A Fund or its Cayman
Subsidiary would continue to be required to meet margin requirements until the
position is closed, possibly resulting in a decline in the Fund’s net asset
value. There can be no assurance that an active secondary market will develop or
continue to exist.
Regulatory
Aspects of Investments in Futures. VEARA
has registered as a CPO with the CFTC. VEARA’s investment decisions may need to
be modified, and commodity contract positions held by a Fund and/or its Cayman
Subsidiary may have to be liquidated at disadvantageous times or prices, to
avoid exceeding position limits established by the CFTC, potentially subjecting
the Fund to substantial losses. The regulation of commodity transactions in the
United States is subject to ongoing modification by government, self-regulatory
and judicial action. The effect of any future regulatory change on a Fund is
impossible to predict, but could be substantial and adverse to the
Fund.
Derivatives
Rule. The
Fund is required to comply with the derivatives rule when it engages in
transactions involving futures and other derivatives involving future Fund
payment or delivery obligations. VEARA cannot predict the effects of these
requirements on the Fund. VEARA intends to monitor developments and seek to
manage the Fund in a manner consistent with achieving the Fund’s investment
objective. See “SEC Regulatory Matters” above.
Federal
Income Tax Treatment of Investments in the Cayman Subsidiaries.
Each Fund must derive at least 90% of its gross income from certain qualifying
sources of income in order to qualify as a RIC under the Internal Revenue Code.
The IRS issued a revenue ruling in December 2005 which concluded that income and
gains from certain commodity-linked derivatives are not qualifying income under
subchapter M of the Internal Revenue Code. As a result, a Fund’s ability to
invest directly in commodity-linked futures contracts or swaps or in certain
exchange-traded trusts that hold commodities as part of its investment strategy
is limited by the requirement that it receive no more than ten percent (10%) of
its gross income from such investments. The IRS has issued private letter
rulings to other taxpayers in which the IRS specifically concluded that income
derived from a fund’s investment in a controlled foreign corporation (“CFC”)
also will constitute qualifying income to the fund, even if the CFC itself owns
commodity-linked futures contracts or swaps. A private letter ruling cannot be
used or cited as precedent and is binding on the IRS only for the taxpayer that
receives it. The Funds have not obtained a ruling from the IRS with respect to
their investments or their structure. The IRS has currently suspended the
issuance of private letter rulings relating to the tax treatment of income
generated by investments in a subsidiary. The IRS has issued regulations that
generally treat a fund’s income inclusion with respect to an investment in a
non-U.S. company generating investment income as qualifying income if there is a
current-year distribution out of the earnings and profits of the non-U.S.
company that are attributable to such income inclusion, or if the income
inclusion is derived with respect to the fund’s business of investing in stocks
and securities. Each Fund intends to treat its income from its Cayman Subsidiary
as qualifying income without any such ruling from the IRS. There can be no
assurance that the IRS will not change its position with respect to some or all
of these issues or if the IRS did so, that a court would not sustain the IRS’s
position. Furthermore, the tax treatment of each Fund’s investments in its
Cayman Subsidiary may be adversely affected by future legislation, court
decisions, future IRS guidance or Treasury regulations. If the IRS were to
change its position or otherwise determine that income derived from a Fund’s
investment in its Cayman Subsidiary does not constitute qualifying income and if
such positions were upheld, or if future legislation, court decisions, future
IRS guidance or Treasury regulations were to adversely affect the tax treatment
of such investments, the Fund might cease to qualify as a RIC and would be
required to reduce its exposure to such investments which could result in
difficulty in implementing its investment strategy. If a Fund did not qualify as
a RIC for any taxable year, the Fund’s taxable income would be subject to tax at
the Fund level at regular corporate tax rates (without reduction for
distributions to shareholders) and to a further tax at the shareholder level
when such income is distributed. In such event, in order to re-qualify for
taxation as a RIC, the Fund may be required to recognize unrealized gains, pay
substantial taxes and interest and make certain distributions.
Cayman
Subsidiaries. Investments
in the Cayman Subsidiaries are expected to provide the Funds with exposure to
the commodity markets within the limitations of subchapter M of the Internal
Revenue Code and recent IRS revenue rulings and regulations, as discussed above
under “Federal Income Tax Treatment of Investments in the Cayman Subsidiaries”
and below under “Taxes.” Each Cayman Subsidiary is a company organized under the
laws of the Cayman Islands and is overseen by its own board of directors. Each
Fund is the sole shareholder of its Cayman Subsidiary, and it is not currently
expected that shares of the Cayman Subsidiaries will be sold or offered to other
investors. It is expected that the Cayman Subsidiaries will primarily invest in
Commodities Instruments. To the extent that a Fund invests in its Cayman
Subsidiary, the Fund may be subject to the risks associated with such
Commodities Instruments.
While
the Cayman Subsidiaries may be considered similar to investment companies, they
are not registered under the 1940 Act and, unless otherwise noted in each Fund’s
Prospectus and this SAI, are not subject to all of the investor protections of
the 1940 Act and other U.S. regulations. Changes in the laws of the United
States and/or the Cayman Islands could result in the inability of a Fund and/or
its Cayman Subsidiary to operate as described in the Fund’s Prospectus and this
SAI and could eliminate or severely limit the Fund’s ability to invest in its
Cayman Subsidiary which may adversely affect the Fund and its
shareholders.
EXCHANGE
LISTING AND TRADING
A
discussion of exchange listing and trading matters associated with an investment
in each Fund is contained in each Fund’s Prospectus under the headings “Summary
Information—Principal Risks of Investing in the Fund” with respect to the
applicable Fund, “Additional Information About the Funds’ Investment Strategies
and Risks—Risks of Investing in the Funds,” “Shareholder
Information—Determination of NAV” and “Shareholder Information—Buying and
Selling Exchange-Traded Shares.” The discussion below supplements, and should be
read in conjunction with, such sections of each Fund’s Prospectus.
The
Shares of each Fund are listed on NYSE Arca, NASDAQ or Cboe and trade in the
secondary market at prices that may differ to some degree from their NAV. An
Exchange may but is not required to remove the Shares of the Funds from listing
if: (1) following the initial twelve-month period beginning upon the
commencement of trading of the Funds, there are fewer than 50 beneficial holders
of the Shares, (2) the Exchange becomes aware that the Funds are no longer
eligible to operate in reliance on Rule 6c-11 under the 1940 Act, (3) the Funds
no longer comply with certain listing exchange rules, or (4) such other event
shall occur or condition exists that, in the opinion of the Exchange, makes
further dealings on the Exchange inadvisable. In addition, the Exchange will
remove the Shares from listing and trading upon termination of the Trust. There
can be no assurance that the requirements of the Exchange necessary to maintain
the listing of Shares of the Funds will continue to be met.
As
in the case of other securities traded on an Exchange, brokers’ commissions on
secondary market transactions in Shares of each of the Funds will be based on
negotiated commission rates at customary levels.
In
order to provide investors with a basis to gauge whether the market price of the
Shares on the Exchange is approximately consistent with the current value of the
assets of a Fund on a per Share basis, an “intra-day indicative value” (“IIV”
and also known as the Indicative Optimized Portfolio Value) for a Fund may be
disseminated through the facilities of the Consolidated Tape Association’s
Network B. IIVs are disseminated during regular Exchange trading hours. The
Funds are not involved in or responsible for the calculation or dissemination of
the IIVs and make no warranty as to the accuracy of the IIVs.
The
IIV has a securities component and a cash component reflecting cash and other
assets that may be held by the Funds. The securities values included in the IIV
are the values of the Deposit Securities (as defined below under the heading
“Creation and Redemption of Creation Units—Fund Deposit”) for the Funds. While
the IIV reflects the approximate current value of the Deposit Securities
required to be deposited in connection with the purchase of a Creation Unit, it
does not necessarily reflect the precise composition of the current portfolio of
securities held by the Funds at a particular point in time because the current
portfolio of each Fund may include securities that are not a part of the current
Deposit Securities. Therefore, while each Fund’s IIV may be disseminated during
the Exchange trading hours, it should not be viewed as a real-time update of the
Fund’s NAV, which is calculated only once a day.
The
cash component included in the IIV could consist of estimated accrued interest,
dividends and other income, less expenses. If applicable, the IIV also reflects
changes in currency exchange rates between the U.S. dollar and the applicable
currency.
BOARD
OF TRUSTEES OF THE TRUST
Trustees
and Officers of the Trust
The
Board of the Trust consists of six Trustees, five of whom are not “interested
persons” (as defined in the 1940 Act) of the Trust (the “Independent Trustees”).
Mr. Peter J. Sidebottom, an Independent Trustee, serves as Chairperson of the
Board. The Board is responsible for overseeing the management and operations of
the Trust, including general supervision of the duties performed by the Advisers
and other service providers to the Trust. The Advisers are responsible for the
day-to-day administration and business affairs of the Trust.
The
Board believes that each Trustee’s experience, qualifications, attributes or
skills on an individual basis and in combination with those of the other
Trustees lead to the conclusion that the Board possesses the requisite skills
and attributes to carry out its oversight responsibilities with respect to the
Trust. The Board believes that the Trustees’ ability to review, critically
evaluate, question and discuss information provided to them, to interact
effectively with the Advisers, other service providers, counsel and independent
auditors, and to exercise effective business judgment in the performance of
their duties, support this conclusion. The Board also has considered the
following experience, qualifications, attributes and/or skills, among others, of
its members in reaching its conclusion: such person’s character and integrity;
length of service as a board member of the Trust; such person’s willingness to
serve and willingness and ability to commit the time necessary to perform the
duties of a Trustee; and, as to each Trustee other than Mr. van Eck, his status
as not being an “interested person” (as defined in the 1940 Act) of the Trust.
In addition, the following specific experience, qualifications, attributes
and/or skills
apply
as to each Trustee: Mr. Chow, significant business and financial experience,
particularly in the investment management industry, experience with trading and
markets through his involvement with the Pacific Stock Exchange, and service as
a chief executive officer, board member, partner or executive officer of various
businesses and non-profit organizations; Ms. Hesslein, business and financial
experience, particularly in the investment management industry, and service as a
president, board member and/or executive officer of various businesses; Mr.
Short, business and financial experience, particularly in the investment
management industry, and service as a president, board member or executive
officer of various businesses; Mr. Sidebottom, business and financial
experience, particularly in the investment management industry, and service as
partner and/or executive officer of various businesses; Mr. Stamberger,
extensive business and financial experience as founder, president and CEO of
SmartBrief, Inc., and previous service as the Senior Vice President of B2B,
Future Plc, a global media company; and Mr. van Eck, business and financial
experience, particularly in the investment management industry, and service as a
president, executive officer and/or board member of various businesses,
including VEAC, Van Eck Securities Corporation (“VESC”), and VEARA. References
to the experience, qualifications, attributes and skills of Trustees are
pursuant to requirements of the SEC, do not constitute holding out of the Board
or any Trustee as having any special expertise or experience, and shall not
impose any greater responsibility or liability on any such person or on the
Board by reason thereof.
The
Trustees of the Trust, their addresses, positions with the Trust, year of birth,
term of office and length of time served, principal occupations during the past
five years, the number of portfolios in the Fund Complex overseen by each
Trustee and other directorships, if any, held by the Trustees, are set forth
below.
Independent
Trustees
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Name,
Address1
and
Year of Birth |
Position(s)
Held
with
the
Trust |
Term
of Office2
and
Length of
Time
Served |
Principal
Occupation(s)
During
Past Five Years |
Number
of
Portfolios
in
Fund
Complex3
Overseen |
Other
Directorships
Held
Outside the Fund Complex3
During
Past Five Years |
David
H. Chow, 1957*† |
Trustee
|
Since
2006
|
Founder
and CEO, DanCourt Management LLC (financial/strategy consulting firm and
Registered Investment Adviser), March 1999 to present. |
69 |
Trustee,
Berea College of Kentucky, May 2009 to present and currently Chairman of
the Investment Committee; Trustee, MainStay Fund
Complex4,
January 2016 to present and currently Chairman of the Investment
Committee. Formerly, Member of the Governing Council of the Independent
Directors Council, October 2012 to September 2020. |
Laurie
A. Hesslein, 1959*†
|
Trustee
|
Since
2019 |
Citigroup,
Managing Director and Business Head, Local Consumer Lending North America,
and CEO and President, CitiFinancial Servicing LLC (2013 -
2017). |
69 |
Formerly,
Trustee, First Eagle Senior Loan Fund, March 2017 to December 2021; and
Trustee, Eagle Growth and Income Opportunities Fund, March 2017 to
December 2020. |
R.
Alastair Short, 1953*† |
Trustee |
Since
2006 |
President,
Apex Capital Corporation (personal investment vehicle). |
79 |
Chairman
and Independent Director, EULAV Asset Management; Lead Independent
Director, Total Fund Solution; Independent Director, Contingency Capital,
LLC; Trustee, Kenyon Review; Trustee, Children's Village. Formerly,
Independent Director, Tremont offshore funds. |
Peter
J. Sidebottom, 1962*† |
Chairperson Trustee |
Since
2022 Since 2012 |
Global
Lead Partner, Financial Services Strategy, Accenture, January 2021 to
present; Lead Partner, North America Banking and Capital Markets Strategy,
Accenture, May 2017 to December 2021. |
69 |
Formerly,
Board Member, Special Olympics, New Jersey, November 2011 to September
2013; Director, The Charlotte Research Institute, December 2000 to 2009;
Board Member, Social Capital Institute, University of North Carolina
Charlotte, November 2004 to January 2012; Board Member, NJ- CAN, July 2014
to 2016. |
Richard
D. Stamberger, 1959*† |
Trustee |
Since
2006 |
Senior
Vice President, B2B, Future Plc (a global media company), July 2020 to
August 2022; President, CEO and co-founder, SmartBrief, Inc., 1999 to
2020. |
79 |
Director,
Food and Friends, Inc., 2013 to present; Board Member, The Arc Foundation
of the US, 2022 to present; Chairman, Lifetime Care Services, LLC, 2023 to
present. |
________________________
1The
address for each Trustee and officer is 666 Third Avenue, 9th Floor, New York,
New York 10017.
2Each
Trustee serves until resignation, death, retirement or removal. Officers are
elected yearly by the Trustees.
3The
Fund Complex consists of the VanEck Funds, VanEck VIP Trust and the
Trust.
4The
MainStay Fund Complex consists of MainStay Funds, MainStay Funds Trust, MainStay
VP Funds Trust and MainStay MacKay Defined Term Municipal Opportunities
Fund.
* Member
of the Audit Committee.
† Member
of the Nominating and Corporate Governance Committee.
Interested
Trustee
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Name,
Address1
and
Year of Birth |
Position(s)
Held
with
the
Trust |
Term
of Office2
and
Length of
Time
Served |
Principal
Occupation(s)
During
Past Five Years |
Number
of
Portfolios
in
Fund
Complex3
Overseen |
Other
Directorships
Held
Outside the Fund Complex3
During
Past Five Years |
Jan
F. van Eck, 19634 |
Trustee,
Chief Executive Officer and President |
Trustee
(Since 2006); Chief Executive Officer and President (Since 2009) |
Director,
President and Chief Executive Officer of VEAC, VEARA and
VESC; Officer and/or Director of other companies
affiliated with VEAC and/or the Trust. |
79 |
Director,
National Committee on US-China Relations. |
____________________
1The
address for each Trustee and officer is 666 Third Avenue, 9th Floor, New York,
New York 10017.
2Each
Trustee serves until resignation, death, retirement or removal. Officers are
elected yearly by the Trustees.
3The
Fund Complex consists of the VanEck Funds, VanEck VIP Trust and the
Trust.
4“Interested
person” of the Trust within the meaning of the 1940 Act. Mr. van Eck is an
officer of VEAC, VEARA and VESC.
Officer
Information
The
Officers of the Trust, their addresses, positions with the Trust, year of birth
and principal occupations during the past five years are set forth
below.
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|
Officer’s
Name, Address1
and
Year of Birth |
Position(s)
Held with the Trust |
Term
of
Office2
and
Length
of
Time
Served |
Principal
Occupation(s) During Past Five Years |
Lawrence
G. Altadonna, 1966 |
Vice
President and Treasurer |
Since
2024 |
Vice
President of VEAC and VEARA; Officer of other investment companies advised
by VEAC and VEARA. Formerly, Fund Assistant Treasurer and Vice President
of Credit Suisse Asset Management, LLC (June 2022- January
2024). |
Matthew
A. Babinsky, 1983 |
Vice
President and Assistant Secretary |
Vice
President (Since 2023); Assistant Secretary (Since 2016) |
Vice
President, Associate General Counsel and Assistant Secretary of VEAC,
VEARA and VESC; Officer of other investment companies advised by VEAC and
VEARA. Formerly, Assistant Vice President of VEAC, VEARA and
VESC. |
Russell
G. Brennan, 1964 |
Assistant
Vice President and Assistant Treasurer |
Since
2008 |
Assistant
Vice President of VEAC; Officer of other investment companies advised by
VEAC and VEARA. |
Charles
T. Cameron, 1960 |
Vice
President |
Since
2006 |
Portfolio
Manager of VEAC; Officer and/or Portfolio Manager of other investment
companies advised by VEAC and VEARA. Formerly, Director of Trading of
VEAC. |
John
J. Crimmins, 1957 |
Vice
President, Chief Financial Officer and Principal Accounting
Officer |
Vice
President, Chief Financial Officer and Principal Accounting Officer (Since
2012) |
Vice
President of VEAC and VEARA; Officer of other investment companies advised
by VEAC and VEARA. Formerly, Vice President of VESC. Formerly, Treasurer
of other investment companies advised by VEAC and VEARA. |
Susan
Curry, 1966 |
Assistant
Vice President |
Since
2022 |
Assistant
Vice President of VEAC, VEARA and VESC; Formerly, Managing Director, Legg
Mason, Inc. |
Eduardo
Escario, 1975 |
Vice
President |
Since
2012 |
Regional
Director, Business Development/Sales for Southern Europe and South America
of VEAC. |
F.
Michael Gozzillo, 1965 |
Chief
Compliance Officer |
Since
2018 |
Vice
President and Chief Compliance Officer of VEAC and VEARA; Chief Compliance
Officer of VESC; Officer of other investment companies advised by VEAC and
VEARA. Formerly, Chief Compliance Officer of City National Rochdale, LLC
and City National Rochdale Funds. |
Laura
Hamilton, 1977 |
Vice
President |
Since
2019 |
Assistant
Vice President of VEAC and VESC; Officer of other investment companies
advised by VEAC and VEARA. Formerly, Operations Manager of Royce &
Associates. |
Nicholas
Jackson, 1974 |
Assistant
Vice President |
Since
2018 |
Director,
Business Development of VanEck Australia Pty Ltd. Formerly, Vice
President, Business Development of VanEck Australia Pty Ltd.
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Laura
I. Martínez, 1980 |
Vice
President and Assistant Secretary |
Vice
President (Since 2016); Assistant Secretary (Since 2008) |
Vice
President, Associate General Counsel and Assistant Secretary of VEAC,
VEARA and VESC; Officer of other investment companies advised by VEAC and
VEARA. |
Matthew
McKinnon, 1970 |
Assistant
Vice President |
Since
2018 |
Head
of Asia - Business Development of VanEck Australia Pty Ltd. Formerly,
Director, Intermediaries and Institutions of VanEck Australia Pty
Ltd. |
Lisa
A. Moss, 1965 |
Assistant
Vice President and Assistant Secretary |
Since
2022 |
Assistant
Vice President of VEAC, VEARA and VESC; Officer of other investment
companies advised by VEAC and VEARA. Formerly Senior Counsel, Perkins Coie
LLP. |
Arian
Neiron, 1979 |
Vice
President |
Since
2018 |
CEO
(since 2021) & Managing Director and Head of Asia Pacific of VanEck
Australia Pty Ltd.; Officer and/or Director of other companies affiliated
with VEAC and/or the Trust. |
James
Parker, 1969 |
Assistant
Treasurer |
Since
2014 |
Assistant
Vice President of VEAC and VEARA; Manager, Portfolio Administration of
VEAC and VEARA. Officer of other investment companies advised by VEAC and
VEARA. |
Adam
Phillips, 1970 |
Vice
President |
Since
2018 |
ETF
Chief Operating Officer of VEAC; Director of other companies affiliated
with VEAC. |
Philipp
Schlegel, 1974 |
Vice
President |
Since
2016 |
Managing
Director of Van Eck Switzerland AG. |
Jonathan
R. Simon, 1974 |
Senior
Vice President, Secretary and Chief Legal Officer |
Senior
Vice President (Since 2016); Secretary and Chief Legal Officer (Since
2014) |
Senior
Vice President, General Counsel and Secretary of VEAC, VEARA and VESC;
Officer and/or Director of other companies affiliated with VEAC and/or the
Trust. Formerly, Vice President of VEAC, VEARA and VESC. |
Andrew
Tilzer, 1972 |
Assistant
Vice President |
Since
2021 |
Vice
President of VEAC and VEARA; Vice President of Portfolio Administration of
VEAC. Formerly, Assistant Vice President, Portfolio Operations of
VEAC. |
_____________________
1The
address for each Trustee and officer is 666 Third Avenue, 9th Floor, New York,
New York 10017.
2Officers
are elected yearly by the Trustees.
The
Board has an Audit Committee consisting of five Trustees who are Independent
Trustees. Ms. Hesslein and Messrs. Chow, Short, Sidebottom and Stamberger
currently serve as members of the Audit Committee and each of Ms. Hesslein and
Messrs. Chow, Short, Sidebottom and Stamberger has been designated as an “audit
committee financial expert” as defined under Item 407 of Regulation S-K of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Ms. Hesslein
is the Chairperson of the Audit Committee. The Audit Committee has the
responsibility, among other things, to: (i) oversee the accounting and financial
reporting processes of the Trust and its internal control over financial
reporting; (ii) oversee the quality and integrity of the Trust’s financial
statements and the independent audit thereof; (iii) oversee or, as appropriate,
assist the Board’s oversight of the Trust’s compliance with legal and regulatory
requirements that relate to the Trust’s accounting and financial reporting,
internal control over financial reporting and independent audit; (iv) approve
prior to appointment the engagement of the Trust’s independent registered public
accounting firm and, in connection therewith, to review and evaluate the
qualifications, independence and performance of the Trust’s independent
registered public accounting firm; and (v) act as a liaison between the Trust’s
independent registered public accounting firm and the full Board.
The
Board also has a Nominating and Corporate Governance Committee consisting of
five Independent Trustees. Ms. Hesslein and Messrs. Chow, Short, Sidebottom and
Stamberger currently serve as members of the Nominating and Corporate Governance
Committee. Mr. Short is the Chairperson of the Nominating and Corporate
Governance Committee. The Nominating and Corporate Governance Committee has the
responsibility, among other things, to: (i) evaluate, as necessary, the
composition of the Board, its committees and sub-committees and make such
recommendations to the Board as deemed appropriate by the Committee; (ii) review
and define Independent Trustee qualifications; (iii) review the qualifications
of individuals serving as Trustees on the Board and its committees; (iv)
evaluate, recommend and nominate qualified individuals for election or
appointment as members of the Board and recommend the appointment of members and
chairs of each Board committee and subcommittee; and (v) review and assess, from
time to time, the performance of the committees and subcommittees of the Board
and report the results to the Board.
Board
of Trustees and Committee Meetings
The
Board, as well as its Audit and Nominating and Corporate Governance Committees
held meetings as set forth below:
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Fiscal
Year |
Number
of Regular Meetings of the Board of Trustees |
Number
of Audit Committee Meetings |
Number
of Nominating and Corporate Governance Committee
Meetings |
October
1, 2022 - September 30, 2023 |
5 |
4 |
3 |
January
1, 2023 - December 31, 2023 |
5 |
4 |
4 |
May
1, 2023 - April 30, 2024 |
5 |
4 |
4 |
The
Board has determined that its leadership structure is appropriate given the
business and nature of the Trust. In connection with its determination, the
Board considered that the Chairperson of the Board is an Independent Trustee.
The Chairperson of the Board can play an important role in setting the agenda of
the Board and also serves as a key point person for dealings between management
and the other Independent Trustees. The Independent Trustees believe that the
Chairperson’s independence facilitates meaningful dialogue between the Advisers
and the Independent Trustees. The Board also considered that the Chairperson of
each Board committee is an Independent Trustee, which yields similar benefits
with respect to the functions and activities of the various Board committees.
The Independent Trustees also regularly meet outside the presence of management
and are advised by independent legal counsel. The Board has determined that its
committees help ensure that the Trust has effective and independent governance
and oversight. The Board also believes that its leadership structure facilitates
the orderly and efficient flow of information to the Independent Trustees from
management of the Trust, including the Advisers. The Board reviews its structure
on an annual basis.
As
an integral part of its responsibility for oversight of the Trust in the
interests of shareholders, the Board, as a general matter, oversees risk
management of the Trust’s investment programs and business affairs. The function
of the Board with respect to risk management is one of oversight and not active
involvement in, or coordination of, day-to-day risk management activities for
the Trust. The Board recognizes that not all risks that may affect the Trust can
be identified, that it may not be practical or cost-effective to eliminate or
mitigate certain risks, that it may be necessary to bear certain risks (such as
investment-related risks) to achieve the Trust’s goals, and that the processes,
procedures and controls employed to address certain risks may be limited in
their effectiveness. Moreover, reports received by the Trustees that may relate
to risk management matters are typically summaries of the relevant
information.
The
Board exercises oversight of the risk management process. The Trust faces a
number of risks, such as investment-related and compliance risks. The Advisers’
personnel seek to identify and address risks, i.e.,
events or circumstances that could have material adverse effects on the
business, operations, shareholder services, investment performance or reputation
of the Trust. Under the overall supervision of the Board or the applicable
Committee of the Board, the Trust, the Advisers and the affiliates of the
Advisers employ a variety of processes, procedures and controls to identify such
possible events or circumstances, to lessen the probability of their occurrence
and/or to mitigate the effects of such events or circumstances if they do occur.
Different processes, procedures and controls are employed with respect to
different types of risks. Various personnel, including the Trust’s Chief
Compliance Officer, as well as various personnel of the Advisers and other
service providers such as the Trust’s independent accountants, may report to the
Audit Committee and/or to the Board with respect to various aspects of risk
management, as well as events and circumstances that have arisen and responses
thereto.
The
officers and Trustees of the Trust, in the aggregate, owned less than 1% of the
Shares of VanEck Fabless Semiconductor ETF as of August 20, 2024.
The
officers and Trustees of the Trust, in the aggregate, owned less than 1% of the
Shares of VanEck Morningstar Wide Moat Growth ETF as of March 15,
2024.
The
officers and Trustees of the Trust, in the aggregate, owned less than 1% of the
Shares of VanEck Morningstar Wide Moat Value ETF as of March 15, 2024.
For
each Fund with a fiscal year end of April 30, 2024, except as follows, the
officers and Trustees of the Trust, in the aggregate, owned less than 1% of the
Shares of each Fund as of July 31, 2024. The officers and Trustees of the Trust,
in the aggregate, owned 11.00% of the Shares of VanEck Dynamic High Income
ETF.
For
each Fund with a fiscal year end of September 30, 2023, the officers and
Trustees of the Trust, in the aggregate, owned less than 1% of the Shares of
each Fund as of December 31, 2023.
For
each Fund with a fiscal year end of December 31, 2023, except as follows, the
officers and Trustees of the Trust, in the aggregate, owned less than 1% of the
Shares of each Fund as of March 31, 2023. The officers and Trustees of the
Trust, in the aggregate, owned 1.69% of VanEck Brazil Small Cap Index ETF and
16.67% of VanEck Office and Commercial REIT ETF.
The
general management of the Mauritius Subsidiary is the responsibility of its
Board of Directors, a majority of which are also Trustees of the
Trust.
For
each Trustee, the dollar range of equity securities beneficially owned
(including ownership through the Trust’s Deferred Compensation Plan) by the
Trustee in the Trust and in all registered investment companies advised by the
Advisers (“Family of Investment Companies”) that are overseen by the Trustee is
shown below. With respect to the Funds with a fiscal year end of September 30,
2023, December 31, 2023, and April 30, 2024, the dollar range of equity
securities in such Funds is provided as of December 31, 2023.
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Funds
with Fiscal Year Ended 9/30/2023 |
|
Independent
Trustees |
Interested
Trustee |
|
David
H.
Chow |
Laurie
A. Hesslein |
R.
Alastair
Short |
Peter
J.
Sidebottom |
Richard
D.
Stamberger |
Jan
F. van Eck |
VanEck
Biotech ETF |
None |
None |
None |
None |
None |
None |
VanEck
Commodity Strategy ETF |
None |
None |
None |
None |
None |
None |
VanEck
Digital Transformation ETF |
None |
None |
None |
None |
None |
None |
VanEck
Durable High Dividend ETF |
None |
None |
None |
None |
None |
None |
VanEck
Energy Income ETF |
None |
None |
None |
None |
None |
None |
VanEck
Environmental Services ETF |
None |
None |
None |
None |
None |
None |
VanEck
Fabless Semiconductor ETF* |
None |
None |
None |
None |
None |
None |
VanEck
Gaming ETF |
None |
None |
None |
None |
$10,001-$50,000 |
$1-$10,000 |
VanEck
Green Infrastructure ETF |
None |
None |
None |
None |
None |
None |
VanEck
Inflation Allocation ETF |
None |
None |
None |
None |
None |
None |
VanEck
Long/Flat Trend ETF |
None |
None |
None |
None |
None |
None |
VanEck
Morningstar ESG Moat ETF |
None |
None |
None |
None |
None |
None |
VanEck
Morningstar Global Wide Moat ETF |
None |
None |
None |
None |
None |
None |
VanEck
Morningstar International Moat ETF |
None |
None |
None |
None |
Over
$100,000 |
None |
VanEck
Morningstar SMID Moat ETF |
None |
None |
None |
None |
None |
None |
VanEck
Morningstar Wide Moat ETF |
Over
$100,000 |
$10,001-$50,000 |
None |
Over
$100,000 |
Over
$100,000 |
None |
VanEck
Morningstar Wide Moat Growth ETF |
None |
None |
None |
None |
None |
None |
VanEck
Morningstar Wide Moat Value ETF |
None |
None |
None |
None |
None |
None |
VanEck
Pharmaceutical ETF |
None |
None |
None |
None |
None |
None |
VanEck
Retail ETF |
None |
None |
None |
None |
None |
None |
VanEck
Robotics ETF |
None |
None |
None |
None |
None |
None |
VanEck
Semiconductor ETF |
None |
None |
None |
None |
None |
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VanEck
Social Sentiment ETF |
None |
None |
None |
None |
None |
None |
VanEck
Video Gaming and eSports ETF |
None |
None |
None |
None |
None |
None |
Funds
with Fiscal Year Ended 12/31/2023 |
|
Independent
Trustees |
Interested
Trustee |
|
David
H.
Chow |
Laurie
A. Hesslein |
R.
Alastair
Short |
Peter
J.
Sidebottom |
Richard
D.
Stamberger |
Jan
F. van Eck |
VanEck
Africa Index ETF |
None |
None |
None |
None |
None |
$1-$10,000 |
VanEck
Agribusiness ETF |
None |
None |
None |
None |
None |
None |
VanEck
Brazil Small-Cap ETF |
None |
None |
None |
None |
$10,001-$50,000 |
Over
$100,000 |
VanEck
ChiNext ETF |
None |
None |
None |
None |
None |
$50,001-$100,000 |
VanEck
CLO ETF |
None |
None |
None |
None |
None |
Over
$100,000 |
VanEck
CMCI Commodity Strategy ETF |
None |
None |
None |
None |
None |
None |
VanEck
Digital India ETF |
None |
None |
None |
None |
None |
None |
VanEck
Ethereum Strategy ETF |
None |
None |
None |
None |
None |
None |
VanEck
Gold Miners ETF |
None |
None |
None |
$10,001-$50,000 |
None |
None |
VanEck
Green Metals ETF |
None |
None |
None |
None |
None |
Over
$100,000 |
VanEck
India Growth Leaders Index ETF |
None |
None |
None |
$1-$10,000 |
None |
None |
VanEck
Indonesia Index ETF |
None |
None |
None |
None |
None |
$10,001-$50,000 |
VanEck
Israel ETF |
None |
None |
None |
None |
None |
None |
VanEck
Junior Gold Miners ETF |
None |
None |
None |
None |
None |
None |
VanEck
Low Carbon Energy ETF |
None |
None |
None |
None |
None |
None |
VanEck
Natural Resources ETF |
None |
None |
None |
None |
$50,001-$100,000 |
None |
VanEck
Office and Commercial REIT ETF |
None |
None |
None |
None |
None |
None |
VanEck
Oil Refiners ETF |
None |
None |
None |
None |
None |
$10,001-$50,000 |
VanEck
Oil Services ETF |
None |
None |
None |
None |
None |
None |
VanEck
Rare Earth and Strategic Metals ETF |
None |
None |
None |
None |
None |
None |
VanEck
Russia ETF |
None |
None |
None |
$1-$10,000 |
None |
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VanEck
Russia Small-Cap ETF |
None |
None |
None |
None |
None |
$1-$10,000 |
VanEck
Steel ETF |
None |
None |
None |
None |
None |
None |
VanEck
Uranium and Nuclear ETF |
None |
None |
None |
None |
None |
None |
VanEck
Vietnam ETF |
None |
None |
None |
$1-$10,000 |
None |
None |
Funds
with Fiscal Year Ended 4/30/2024 |
|
Independent
Trustees |
Interested
Trustee |
|
David
H.
Chow |
Laurie
A. Hesslein |
R.
Alastair
Short |
Peter
J.
Sidebottom |
Richard
D.
Stamberger |
Jan
F. van Eck |
VanEck
BDC Income ETF |
None |
None |
None |
None |
None |
$50,001-$100,000 |
VanEck
CEF Muni Income ETF |
None |
None |
None |
None |
None |
Over
$100,000 |
VanEck
China Bond ETF |
None |
None |
None |
None |
None |
$10,001-$50,000 |
VanEck
Dynamic High Income ETF |
None |
None |
None |
None |
None |
$50,001-$100,000 |
VanEck
Emerging Markets High Yield Bond ETF |
None |
None |
None |
None |
None |
Over
$100,000 |
VanEck
Fallen Angel High Yield Bond ETF |
None |
None |
None |
None |
$50,001-$100,000 |
$10,001-$50,000 |
VanEck
Green Bond ETF |
None |
None |
None |
None |
None |
$1-$10,000 |
VanEck
High Yield Muni ETF |
None |
None |
None |
None |
Over
$100,000 |
None |
VanEck
HIP Sustainable Muni ETF |
None |
None |
None |
None |
None |
None |
VanEck
IG Floating Rate ETF |
None |
None |
None |
None |
Over
$100,000 |
Over
$100,000 |
VanEck
Intermediate Muni ETF |
None |
None |
None |
None |
None |
$10,001-$50,000 |
VanEck
International High Yield Bond ETF |
None |
None |
None |
None |
None |
None |
VanEck
J.P. Morgan EM Local Currency Bond ETF |
None |
None |
None |
None |
None |
None |
VanEck
Moody's Analytics BBB Corporate Bond ETF |
None |
None |
None |
None |
None |
$1-$10,000 |
VanEck
Moody's Analytics IG Corporate Bond ETF |
None |
None |
None |
None |
None |
$10,001-$50,000 |
VanEck
Long Muni ETF |
None |
None |
None |
None |
None |
$1-$10,000 |
VanEck
Mortgage REIT Income ETF |
None |
None |
None |
None |
None |
$10,001-$50,000 |
VanEck
Preferred Securities ex Financials ETF |
None |
None |
None |
None |
None |
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VanEck
Short High Yield Muni ETF |
None |
None |
None |
None |
None |
Over
$100,000 |
VanEck
Short Muni ETF |
None |
None |
None |
None |
None |
$10,001-$50,000 |
Aggregate
Dollar Range of Equity Securities in all Registered Investment Companies
Overseen By Trustee In Family of Investment Companies (as of December 31,
2023) |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
________________________
*
VanEck Fabless Semiconductor ETF commenced operations after December 31,
2023.
As
to each Independent Trustee and his immediate family members, no person owned
beneficially or of record securities in an investment manager or principal
underwriter of the Funds, or a person (other than a registered investment
company) directly or indirectly controlling, controlled by or under common
control with the investment manager or principal underwriter of the
Funds.
Remuneration
of Trustees
Each
Independent Trustee receives an annual retainer of $150,000 and a per meeting
fee of $30,000 for scheduled meetings of the Board. Additionally, the
Chairperson of the Board receives an annual retainer of $62,000, the Chairperson
of the Audit Committee receives an annual retainer of $26,000 Chairperson of the
Governance Committee receives an annual retainer of $26,000. Independent
Trustees are also reimbursed for travel and other out-of-pocket expenses
incurred in attending such meetings. No pension or retirement benefits are
accrued as part of Trustee compensation.
The
table below shows the compensation paid to the Trustees for the fiscal years
ended as set forth in the charts below. Annual Trustee fees may be reviewed
periodically and changed by the Trust’s Board.(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Name
of Trustee |
|
Aggregate Compensation From
the Trust |
|
Deferred Compensation From
the Trust |
|
Pension
or Retirement Benefits Accrued as Part of
the Trust’s Expenses |
|
Estimated Annual Benefits Upon Retirement |
|
Total
Compensation
From
the Trust
and
the Fund
Complex(2)
Paid to Trustee |
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2023 |
|
David
H. Chow |
|
$256,875 |
|
$0 |
|
N/A |
|
N/A |
|
$256,875 |
|
|
Laurie
A. Hesslein |
|
$278,542 |
|
$0 |
|
N/A |
|
N/A |
|
$278,542 |
|
|
R.
Alastair Short |
|
$274,208 |
|
$0 |
|
N/A |
|
N/A |
|
$404,208 |
|
|
Peter
J. Sidebottom |
|
$318,875 |
|
$0 |
|
N/A |
|
N/A |
|
$318,875 |
|
|
Richard
D. Stamberger |
|
$269,875 |
|
$53,975 |
|
N/A |
|
N/A |
|
$414,875 |
|
|
Jan
F. van Eck(3) |
|
$0 |
|
$0 |
|
N/A |
|
N/A |
|
$0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Name
of Trustee |
|
Aggregate Compensation From
the Trust |
|
Deferred Compensation From
the Trust |
|
Pension
or Retirement Benefits Accrued as Part of
the Trust’s Expenses |
|
Estimated Annual Benefits Upon Retirement |
|
Total
Compensation
From
the Trust
and
the Fund
Complex(2)
Paid to
Trustee |
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2023 |
|
David
H. Chow |
|
$290,000 |
|
$0 |
|
N/A |
|
N/A |
|
$290,000 |
|
|
Laurie
A. Hesslein |
|
$291,000 |
|
$0 |
|
N/A |
|
N/A |
|
$291,000 |
|
|
R.
Alastair Short |
|
$284,500 |
|
$0 |
|
N/A |
|
N/A |
|
$414,500 |
|
|
Peter
J. Sidebottom |
|
$327,000 |
|
$0 |
|
N/A |
|
N/A |
|
$327,000 |
|
|
Richard
D. Stamberger |
|
$217,200 |
|
$54,300 |
|
N/A |
|
N/A |
|
$416,500 |
|
|
Jan
F. van Eck(3) |
|
$0 |
|
$0 |
|
N/A |
|
N/A |
|
$0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
Name
of Trustee |
|
Aggregate Compensation From
the Trust |
|
Deferred Compensation From
the Trust |
|
Pension
or Retirement Benefits Accrued as Part of
the Trust’s Expenses |
|
Estimated Annual Benefits Upon Retirement |
|
Total
Compensation
From
the Trust
and
the Fund
Complex(2)
Paid to
Trustee |
|
|
|
|
|
|
|
|
|
|
|
|
|
April
30, 2024 |
|
David
H. Chow |
|
$272,500 |
|
$0 |
|
N/A |
|
N/A |
|
$272,500 |
|
|
Laurie
A. Hesslein |
|
$298,500 |
|
$0 |
|
N/A |
|
N/A |
|
$298,500 |
|
|
R.
Alastair Short |
|
$298,500 |
|
$0 |
|
N/A |
|
N/A |
|
$428,500 |
|
|
Peter
J. Sidebottom |
|
$334,500 |
|
$0 |
|
N/A |
|
N/A |
|
$334,500 |
|
|
Richard
D. Stamberger |
|
$218,000 |
|
$54,500 |
|
N/A |
|
N/A |
|
$417,500 |
|
|
Jan
F. van Eck(3) |
|
$0 |
|
$0 |
|
N/A |
|
N/A |
|
$0 |
(1)For
each Fund that pays the Adviser a unitary management fee, the Adviser pays such
Fund’s allocable portion of Trustee compensation.
(2)The
“Fund Complex” consists of VanEck Funds, VanEck VIP Trust and the
Trust.
(3)“Interested
person” under the 1940 Act.
PORTFOLIO
HOLDINGS DISCLOSURE
Each
Fund’s portfolio holdings are publicly disseminated each day the Fund is open
for business through financial reporting and news services, including publicly
accessible Internet web sites, such as www.vaneck.com. In addition, a basket
composition file, which includes the security names and share quantities to
deliver in exchange for Creation Units, together with estimates and actual cash
components is publicly disseminated daily prior to the opening of the Exchange
via the National Securities Clearing Corporation (the “NSCC”), a clearing agency
that is registered with the SEC. The basket represents one Creation Unit of each
Fund. The Trust, Advisers, Custodian (defined below) and Distributor (defined
below) will not disseminate non-public information concerning the
Trust.
QUARTERLY
PORTFOLIO SCHEDULE
The
Trust is required to disclose, after its first and third fiscal quarters, the
complete schedule of the Funds’ portfolio holdings with the SEC on Form N-PORT.
The Trust's Form N-PORT filings are available on the SEC’s website at
http://www.sec.gov. You can write or email the SEC's Public Reference section
and ask them to mail you information about the Funds. They will charge you a fee
for this service. Each Fund’s complete schedule of portfolio holdings is also
available through the Funds’ website, at www.vaneck.com or by calling
800.826.2333.
POTENTIAL
CONFLICTS OF INTEREST
The
Advisers (and their principals, affiliates or employees) may serve as investment
adviser to other client accounts and conduct investment activities for their own
accounts. Such “Other Clients” may have investment objectives or may implement
investment strategies similar to those of the Funds, and may track the same
index a Fund tracks. When an Adviser implements investment strategies for Other
Clients that are similar or directly contrary to the positions taken by a Fund,
the prices of the Fund’s securities may be negatively affected. For example,
when purchase or sales orders for a Fund are aggregated with those of other
funds and/or Other Clients and allocated among them, the price that the Fund
pays or receives
may
be more in the case of a purchase or less in a sale than if the Advisers served
as adviser to only the Fund. When Other Clients are selling a security that a
Fund owns, the price of that security may decline as a result of the sales. The
compensation that each Adviser receives from Other Clients may be higher than
the compensation paid by a Fund to the Adviser. The Advisers have implemented
procedures to monitor trading across the Funds and their Other Clients.
Furthermore, an Adviser may recommend a Fund purchase securities of issuers to
which it, or its affiliate, acts as adviser, manager, sponsor, distributor,
marketing agent, or in another capacity and for which it receives advisory or
other fees. While this practice may create conflicts of interest, the Adviser
has adopted procedures to minimize such conflicts.
VanEck
CLO ETF only
The
portfolio manager at the Sub-Adviser manages other funds and mandates that
purchase investment grade and below-investment grade CLO securities, which
creates conflicts of interest with respect to portfolio management decisions and
execution. The Sub-Adviser recognizes that it may be subject to a conflict of
interest with respect to allocations of investment opportunities and
transactions among its clients. To mitigate these conflicts, the Sub-Adviser’s
policies and procedures seek to provide that investment decisions are made in
accordance with the fiduciary duties owed to such accounts and without
consideration of the Sub-Adviser’s economic, investment or other financial
interests.
CODE
OF ETHICS
The
Fund, the Advisers, the Sub-Adviser (with respect to VanEck CLO ETF) and the
Distributor have each adopted a Code of Ethics pursuant to Rule 17j-1 under the
1940 Act (“Rule 17j-1”). Such Codes of Ethics require, among other things, that
“access persons” (as defined in Rule 17j-1) conduct personal securities
transactions in a manner that avoids any actual or potential conflict of
interest or any abuse of a position of trust and responsibility. The Codes of
Ethics allow such access persons to invest in securities or instruments that may
be purchased and held by a Fund, provided such investments are done consistently
with the provisions of the Codes of Ethics.
PROXY
VOTING POLICIES AND PROCEDURES
The
Funds’ proxy voting record and information regarding how each Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available upon request, by calling 800.826.2333, on or through each
Fund's website at www.vaneck.com, and on the SEC’s website at http://www.sec.gov.
Proxies for each Fund’s portfolio securities are voted in accordance with the
Adviser’s proxy voting policies and procedures, which are set forth in Appendix
A to this SAI.
The
Trust is required to disclose annually each Fund’s complete proxy voting record
on Form N-PX covering the period July 1 through June 30 and file it with the SEC
no later than August 31. Form N-PX for the Funds is available by calling
800.826.2333 or by writing to 666 Third Avenue, 9th Floor, New York, New York
10017. The Funds’ Form N-PX is also available on the SEC’s website at
www.sec.gov.
MANAGEMENT
The
following information supplements and should be read in conjunction with the
“Management of the Funds” section of each Prospectus.
Investment
Advisers and Sub-Adviser
Van
Eck Associates Corporation
(All Funds except VanEck BDC Income ETF, VanEck CLO ETF, VanEck CMCI Commodity
Strategy ETF, VanEck Commodity Strategy ETF, VanEck Ethereum Strategy ETF and
VanEck Inflation Allocation ETF).
VEAC
acts as investment adviser to the Trust and, subject to the general supervision
of the Board, is responsible for the day-to-day investment management of the
Funds. VEAC is a private company with headquarters in New York and manages
numerous pooled investment vehicles and separate accounts. VEAC has been wholly
owned by members of the van Eck family since its founding in 1955 and its shares
are held by VEAC’s Chief Executive Officer, Jan van Eck, and his family. Mr. van
Eck’s positions with the Trust and each Adviser are discussed
above.
VEAC
serves as investment adviser to VanEck Gold Miners ETF pursuant to an investment
management agreement between VanEck Gold Miners ETF and VEAC (the “Gold Miners
Investment Management Agreement”) and also serves as investment adviser to each
of the other Funds except VanEck CMCI Commodity Strategy ETF, VanEck Commodity
Strategy ETF, VanEck Ethereum Strategy ETF and VanEck Inflation Allocation ETF,
pursuant to various investment management
agreements
between the Trust and VEAC (each a “Trust Investment Management Agreement” and,
together with the Gold Miners Investment Management Agreement, the “VEAC
Investment Management Agreement”). Under the VEAC Investment Management
Agreement, VEAC, subject to the supervision of the Board and in conformity with
the stated investment policies of each Fund, manages the investment of the
Funds’ assets. VEAC is responsible for placing purchase and sale orders and
providing continuous supervision of the investment portfolio of the Funds. All
investment decisions relating to the VanEck India Growth Leaders ETF will be
made outside of India.
Investments
in the securities of other investment companies (“underlying funds”) may involve
duplication of advisory fees and certain other expenses. By investing in an
underlying fund, the VanEck Dynamic High Income ETF becomes a shareholder of
that underlying fund. As a result, the VanEck Dynamic High Income ETF’s
shareholders will indirectly bear the VanEck Dynamic High Income ETF’s
proportionate share of the fees and expenses paid by shareholders of the
underlying fund, in addition to the fees and expenses the VanEck Dynamic High
Income ETF’s shareholders directly bear in connection with the VanEck Dynamic
High Income ETF’s own operations.
VanEck
CLO ETF. VEAC
acts as investment adviser to VanEck CLO ETF and, subject to the general
supervision of the Board, is responsible for overseeing the activities of the
Sub-Adviser and for the day-to-day investment management of VanEck CLO ETF’s
assets allocated to it. The Sub-Adviser acts as investment sub-adviser to VanEck
CLO ETF and, subject to the oversight of VEAC, is responsible for the day-to-day
investment management of VanEck CLO ETF’s assets allocated to it.
VEAC
serves as investment adviser to VanEck CLO ETF pursuant to the VEAC investment
management agreement between the Trust and the Adviser. Under the VEAC
Investment Management Agreement, VEAC, subject to the supervision of the Board
and in conformity with the stated investment policies of VanEck CLO ETF, manages
and administers the Trust and oversees the Sub-Adviser with respect to the
duties it has delegated to the Sub-Adviser regarding the investment and
reinvestment of VanEck CLO ETF’s assets. The Sub-Adviser serves as investment
sub-adviser to VanEck CLO ETF pursuant to investment sub-advisory agreement
between the Adviser and the Sub-Adviser (the “Investment Sub-Advisory Agreement”
). The Sub-Adviser is responsible for placing purchase and sale orders and
providing continuous supervision of VanEck CLO ETF’s assets allocated to
it.
In
rendering investment sub-advisory services to VanEck CLO ETF, the Sub-Adviser
may use portfolio management, research and other services of an affiliate of the
Sub-Adviser subject to supervision by the Sub-Adviser. Such affiliate may not be
registered with the SEC as an investment adviser under the Investment Advisers
Act of 1940, as amended. In such instances, the affiliate is considered a
“participating affiliate” of the Sub-Adviser as that term is used in relief
granted by the staff of the SEC allowing U.S. registered investment advisers to
use portfolio management or research resources of advisory affiliates subject to
the supervision of a registered adviser.
Van
Eck Absolute Return Advisers Corporation
(VanEck BDC Income ETF*, VanEck CMCI Commodity Strategy ETF, VanEck Commodity
Strategy ETF, VanEck Ethereum Strategy ETF and VanEck Inflation Allocation ETF
only.)
VEARA
acts as investment adviser to the VanEck BDC Income ETF, VanEck CMCI Commodity
Strategy ETF, VanEck Commodity Strategy ETF, VanEck Ethereum Strategy ETF,
VanEck Inflation Allocation ETF and the Cayman Subsidiaries and, subject to the
general supervision of the Board, is responsible for the day-to-day investment
management of the VanEck BDC Income ETF, VanEck CMCI Commodity Strategy ETF,
VanEck Commodity Strategy ETF, VanEck Ethereum Strategy ETF, VanEck Inflation
Allocation ETF and the Cayman Subsidiaries. VEARA is a private company with
headquarters in New York and manages numerous pooled investment vehicles and
separate accounts. VEARA is a wholly owned subsidiary of VEAC and is registered
with the SEC as an investment adviser under the Investment Advisers Act of 1940,
as amended, and with the CFTC as a CPO and commodity trading advisor under the
CEA. VEARA serves as investment adviser to the Funds pursuant to investment
management agreements between the Trust and VEARA (each a “VEARA Investment
Management Agreement” and together with the VEAC Investment Management
Agreement, the “Investment Management Agreements”). Under each VEARA Investment
Management Agreement, VEARA, subject to the supervision of the Board and in
conformity with the stated investment policies of the VanEck BDC Income ETF,
VanEck CMCI Commodity Strategy ETF, VanEck Commodity Strategy ETF, VanEck
Ethereum Strategy ETF and VanEck Inflation Allocation ETF, manages the
investment of the VanEck BDC Income ETF’s, VanEck CMCI Commodity Strategy ETF’s,
VanEck Commodity Strategy ETF's, VanEck Ethereum Strategy ETF’s and VanEck
Inflation Allocation ETF’s assets. VEARA is responsible for placing purchase and
sale orders and providing continuous supervision of the investment portfolio of
the VanEck BDC Income ETF, VanEck CMCI Commodity Strategy ETF, VanEck Commodity
Strategy ETF, VanEck Ethereum Strategy ETF and VanEck Inflation Allocation ETF.
Investments in underlying funds may involve duplication of advisory fees and
certain other expenses. By investing in an underlying fund, the VanEck BDC
Income ETF and VanEck Inflation Allocation ETF becomes a shareholder of that
underlying fund. As a result, the VanEck BDC Income ETF’s and VanEck Inflation
Allocation ETF’s shareholders will indirectly bear the VanEck BDC Income ETF’s
and VanEck Inflation Allocation ETF’s proportionate share of the fees and
expenses paid by shareholders of the underlying fund, in addition to the fees
and expenses the VanEck BDC Income ETF’s and VanEck Inflation Allocation ETF’s
shareholders directly bear in connection with the VanEck BDC Income ETF’s and
VanEck Inflation Allocation ETF’s own operations. To minimize the duplication of
fees, VEARA has agreed to waive the management fee it charges to the VanEck
Inflation Allocation ETF by any amount it collects as a management fee from an
underlying fund managed by the VEARA or VEAC, as a result of an investment of
the VanEck Inflation Allocation ETF’s assets in such underlying
fund.
*
On March 6, 2024, the Board considered and unanimously approved the assumption
by VEARA of the investment management agreement between the Trust and VEAC with
respect to the VanEck BDC Income ETF. Accordingly, effective on March 7, 2024,
VEARA began acting as investment adviser to the VanEck BDC Income
ETF.
All
Funds
Indemnification.
Pursuant to the Investment Management Agreements, the Trust has agreed to
indemnify VEAC and VEARA for certain liabilities, including certain liabilities
arising under the federal securities laws, unless such loss or liability results
from willful misfeasance, bad faith or gross negligence in the performance of
its duties or the reckless disregard of its obligations and duties. With respect
to VanEck CLO ETF, pursuant to the Investment Sub-Advisory Agreement, the
Adviser has agreed to indemnify the Sub-Adviser for certain liabilities,
including certain liabilities arising under the federal securities laws, unless
such loss or liability results from willful misfeasance, bad faith or gross
negligence in the performance of its duties or the reckless disregard of its
obligations and duties.
Compensation.
As compensation for its services under each Investment Management Agreement,
each Adviser is paid a monthly fee based on a percentage of each applicable
Fund's average daily net assets at the annual rate set forth below.
From
time to time, the applicable Adviser may waive all or a portion of its fees for
certain Funds. Until at least each date set forth below, the applicable Adviser
has agreed to waive fees and/or pay certain Fund expenses to the extent
necessary to prevent the operating expenses of each Fund except for VanEck
Inflation Allocation ETF and VanEck India Growth Leaders ETF (excluding acquired
fund fees and expenses, interest expense, trading expenses, taxes and
extraordinary expenses) from exceeding the percentage set forth below of such
Fund’s average daily net assets per year. Until at least the date set forth
below, VEAC has agreed to waive fees and/or pay Fund and Mauritius Subsidiary
expenses to the extent necessary to prevent the operating expenses of VanEck
India Growth Leaders ETF (excluding acquired fund fees and expenses, interest
expense, trading expenses, taxes and extraordinary expenses of the Fund and the
Mauritius Subsidiary) from exceeding the percentage set forth below of its
average daily net assets per year. Until at least the date set forth below,
VEARA has agreed to waive fees and/or pay Fund (inclusive of any Cayman
Subsidiary expenses) to the extent necessary to prevent the operating expenses
of VanEck Inflation Allocation ETF (excluding acquired fund fees and expenses,
interest expense, trading expenses, taxes and extraordinary expenses of the
Funds) from exceeding the percentages set forth below of their average daily net
assets per year.
Under
the VEAC Investment Management Agreement for the Municipal Funds and VanEck CEF
Muni Income ETF, VEAC is responsible for all expenses of the Municipal Funds,
including the costs of transfer agency, custody, fund administration, legal,
audit and other services, except for the fee payment under the VEAC Investment
Management Agreement, acquired fund fees and expenses, interest expense,
offering costs, trading expenses, taxes and extraordinary expenses. For its
services to each applicable Municipal Fund and VanEck CEF Muni Income ETF, each
applicable Fund has agreed to pay VEAC an annual unitary management fee equal to
the percentage of each Fund’s average daily net assets as set forth below.
Offering costs excluded from the annual unitary management fee are: (a) legal
fees pertaining to a Fund’s Shares offered for sale; (b) SEC and state
registration fees; and (c) initial fees paid for Shares of a Fund to be listed
on an exchange. Notwithstanding the foregoing, VEAC has agreed to pay all such
offering costs until at least September 1, 2025.
Under
the VEAC Investment Management Agreement for VanEck Dynamic High Income ETF,
VanEck Emerging Markets High Yield Bond ETF, VanEck Fallen Angel High Yield Bond
ETF, VanEck Green Bond ETF, VanEck International High Yield Bond ETF, VanEck IG
Floating Rate ETF, VanEck Moody's Analytics BBB Corporate Bond ETF, VanEck
Moody's Analytics IG Corporate Bond ETF, VanEck Mortgage REIT Income ETF and
VanEck Preferred Securities ex Financials ETF, VEAC is responsible for all
expenses of each Fund, including the costs of transfer agency, custody, fund
administration, legal, audit and other services, except for the fee payment
under the VEAC Investment Management Agreement, acquired fund fees and expenses,
interest expense, offering costs, trading expenses, taxes and extraordinary
expenses. Offering costs excluded from the annual unitary management fee are:
(a) legal fees pertaining to the Fund’s Shares offered for sale; (b) SEC and
state registration fees; and (c) initial fees paid for Shares of the Fund to be
listed on an exchange. Notwithstanding the foregoing, the Adviser has agreed to
pay such offering costs until at least September 1, 2025.
Under
the VEAC Investment Management Agreement for VanEck Biotech ETF, VanEck Digital
Transformation ETF, VanEck Durable High Dividend ETF, VanEck Energy Income ETF,
VanEck Green Infrastructure ETF, VanEck Pharmaceutical ETF, VanEck Retail ETF,
VanEck Robotics ETF, VanEck Semiconductor ETF and VanEck Social Sentiment ETF,
VEAC is responsible for all expenses of the VanEck Biotech ETF, VanEck Digital
Transformation ETF, VanEck Durable High Dividend ETF, VanEck Energy Income ETF,
VanEck Green Infrastructure ETF, VanEck Pharmaceutical ETF, VanEck Retail ETF,
VanEck Robotics ETF, VanEck Semiconductor ETF and VanEck Social Sentiment ETF,
including the costs of transfer agency, custody, fund administration, legal,
audit and other services, except for the fee payment under the VEAC Investment
Management Agreement, acquired fund fees and expenses, interest expense,
offering costs, trading expenses, taxes (including accrued deferred tax
liability) and extraordinary expenses. Offering costs excluded from the annual
unitary management fee are: (a) legal fees pertaining to the Fund’s Shares
offered for sale; (b) SEC and state registration fees; and (c) initial fees paid
for Shares of the Fund to be listed on an exchange. Notwithstanding the
foregoing, VEAC has agreed to pay such offering costs until at least February 1,
2025.
Under
the VEAC Investment Management Agreement for VanEck CLO ETF, VanEck Digital
India ETF, VanEck Green Metals ETF and VanEck Oil Services ETF, VEAC is
responsible for all expenses of the Fund, including the costs of transfer
agency, custody, fund administration, legal, audit and other services, except
for the fee payment under the VEAC Investment Management Agreement, acquired
fund fees and expenses, interest expense, offering costs, trading expenses,
taxes and extraordinary expenses. Offering costs excluded from the annual
unitary management fee are: (a) legal fees pertaining to the Fund’s Shares
offered for sale; (b) SEC and state registration fees; and (c) initial fees paid
for Shares of the Fund to be listed on an exchange. Notwithstanding the
foregoing, the Adviser has agreed to pay such offering costs until at least May
1, 2025.
Under
the VEARA Investment Management Agreement for VanEck Commodity Strategy ETF,
VEARA is responsible for all expenses of VanEck Commodity Strategy ETF
(inclusive of any Cayman Subsidiary expense), including the costs of transfer
agency, custody, fund administration, legal, audit and other services, except
for the fee payment under the VEARA Investment Management Agreement, acquired
fund fees and expenses, interest expense, offering costs, trading expenses,
taxes and extraordinary expenses. Offering costs excluded from the annual
unitary management fee are: (a) legal fees pertaining to the Fund’s Shares
offered for sale; (b) SEC and state registration fees; and (c) initial fees paid
for Shares of the Fund to be listed on an exchange. Notwithstanding the
foregoing, the Adviser has agreed to pay and/or reimburse the Fund for such
offering costs and trading expenses that are net account or similar fees charged
by FCMs until at least February 1, 2025.
Under
the VEARA Investment Management Agreement for VanEck CMCI Commodity Strategy
ETF, VEARA has agreed to waive fees and reimburse VanEck CMCI Commodity Strategy
ETF expenses (inclusive of any Cayman Subsidiary expenses), excluding acquired
fund fees and expenses, interest expense, trading expenses, taxes and
extraordinary expenses, to the extent necessary to prevent the operating
expenses of the Fund and its Cayman Subsidiary from exceeding the percentage set
forth below of the Fund's average daily net assets per year until at least May
1, 2025.
Under
the VEAC Investment Management Agreement for VanEck Office and Commercial REIT
ETF, VEAC is responsible for all expenses of VanEck Office and Commercial REIT
ETF, except for the fee payment under the investment
management
agreement, acquired fund fees and expenses, interest expense, offering costs,
trading expenses, taxes and extraordinary expenses. Notwithstanding the
foregoing, the Adviser has agreed to pay the offering costs until at least May
1, 2025.
Under
the VEARA Investment Management Agreement for VanEck Ethereum Strategy ETF,
VEARA is responsible for all expenses of VanEck Ethereum Strategy ETF, including
the costs of transfer agency, custody, fund administration, legal, audit and
other services, except for the fee payment under the VEARA Investment Management
Agreement, acquired fund fees and expenses, interest expense, offering costs,
trading expenses, taxes (including accrued deferred tax liability) and
extraordinary expenses. Offering costs excluded from the annual unitary
management fee are: (a) legal fees pertaining to the Fund’s Shares offered for
sale; (b) SEC and state registration fees; and (c) initial fees paid for Shares
of the Fund to be listed on an exchange. Notwithstanding the foregoing, the
Adviser has agreed to pay such offering costs and trading expenses that are net
account or similar fees charged by FCMs until at least May 1, 2025.
Under
the VEAC Investment Management Agreement for VanEck Natural Resources ETF, VEAC
is responsible for all expenses of VanEck Natural Resources ETF including the
costs of transfer agency, custody, fund administration, legal, audit and other
services, except for the fee payment under the VEAC Investment Management
Agreement, acquired fund fees and expenses, interest expense, offering costs,
trading expenses, taxes and extraordinary expenses. Offering costs excluded from
the annual unitary management fee are: (a) legal fees pertaining to the Fund’s
Shares offered for sale; (b) SEC and state registration fees; and (c) initial
fees paid for Shares of the Fund to be listed on an exchange. Notwithstanding
the foregoing, the Adviser has agreed to pay such offering costs until at least
May 1, 2025.
Under
the VEAC Investment Management Agreement for VanEck Fallen Angel High Yield Bond
ETF and VanEck Intermediate Muni ETF, VEAC is responsible for all expenses of
VanEck Fallen Angel High Yield Bond ETF and VanEck Intermediate Muni ETF
including the costs of transfer agency, custody, fund administration, legal,
audit and other services, except for the fee payment under the VEAC Investment
Management Agreement, acquired fund fees and expenses, interest expense,
offering costs, trading expenses, taxes and extraordinary expenses. Offering
costs excluded from the annual unitary management fee are: (a) legal fees
pertaining to a Fund’s Shares offered for sale; (b) SEC and state registration
fees; and (c) initial fees paid for Shares of a Fund to be listed on an
exchange. Notwithstanding the foregoing, the Adviser has agreed to pay such
offering costs until at least September 1, 2025.
Under
the VEARA Investment Management Agreement for VanEck BDC Income ETF, VEARA is
responsible for all expenses of VanEck BDC Income ETF including the costs of
transfer agency, custody, fund administration, legal, audit and other services,
except for the fee payment under the VEARA Investment Management Agreement,
acquired fund fees and expenses, interest expense, offering costs, trading
expenses, taxes and extraordinary expenses. Offering costs excluded from the
annual unitary management fee are: (a) legal fees pertaining to the Fund’s
Shares offered for sale; (b) SEC and state registration fees; and (c) initial
fees paid for Shares of the Fund to be listed on an exchange. Notwithstanding
the foregoing, the Adviser has agreed to pay such offering costs until at least
September 1, 2025.
Under
the VEAC Investment Management Agreement for VanEck Fabless Semiconductor ETF,
VEAC is responsible for all expenses of VanEck Fabless Semiconductor ETF,
including the costs of transfer agency, custody, fund administration, legal,
audit and other services, except for the fee payment under the VEAC Investment
Management Agreement, acquired fund fees and expenses, interest expense,
offering costs, trading expenses, taxes (including accrued deferred tax
liability) and extraordinary expenses. Offering costs excluded from the annual
unitary management fee are: (a) legal fees pertaining to the Fund’s Shares
offered for sale; (b) SEC and state registration fees; and (c) initial fees paid
for Shares of the Fund to be listed on an exchange. Notwithstanding the
foregoing, VEAC has agreed to pay such offering costs until at least February 1,
2026.
|
|
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|
|
|
|
|
|
|
|
|
Fund |
Management
Fee |
Expense
Cap |
Fee
Arrangement Duration Date |
BDC
Income ETF |
0.40% |
N/A |
September
1, 2025 |
CEF
Muni Income ETF |
0.40% |
N/A |
September
1, 2025 |
China
Bond ETF |
0.40% |
0.50% |
September
1, 2025 |
Dynamic
High Income ETF |
0.10% |
N/A |
September
1, 2025 |
Emerging
Markets High Yield Bond ETF |
0.40% |
N/A |
September
1, 2025 |
Fallen
Angel High Yield Bond ETF 1
|
0.25% |
N/A |
September
1, 2025 |
Green
Bond ETF |
0.20% |
N/A |
September
1, 2025 |
High
Yield Muni ETF |
0.32% |
N/A |
September
1, 2025 |
HIP
Sustainable Muni ETF |
0.24% |
N/A |
September
1, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund |
Management
Fee |
Expense
Cap |
Fee
Arrangement Duration Date |
IG
Floating Rate ETF |
0.14% |
N/A |
September
1, 2025 |
Intermediate
Muni ETF 2 |
0.18% |
N/A |
September
1, 2025 |
International
High Yield Bond ETF |
0.40% |
N/A |
September
1, 2025 |
J.P.
Morgan EM Local Currency Bond ETF |
0.27% |
0.30% |
September
1, 2025 |
Long
Muni ETF |
0.24% |
N/A |
September
1, 2025 |
Moody's
Analytics BBB Corporate Bond ETF |
0.25% |
N/A |
September
1, 2025 |
Moody's
Analytics IG Corporate Bond ETF |
0.20% |
N/A |
September
1, 2025 |
Mortgage
REIT Income ETF |
0.40% |
N/A |
September
1, 2025 |
Preferred
Securities ex Financials ETF |
0.40% |
N/A |
September
1, 2025 |
Short
High Yield Muni ETF |
0.35% |
N/A |
September
1, 2025 |
Short
Muni ETF |
0.07% |
N/A |
September
1, 2025 |
|
Biotech
ETF |
0.35% |
N/A |
February
1, 2025 |
Commodity
Strategy ETF 3 |
0.55% |
N/A |
February
1, 2025 |
Digital
Transformation ETF |
0.50% |
N/A |
February
1, 2025 |
Durable
High Dividend ETF |
0.29% |
N/A |
February
1, 2025 |
Energy
Income ETF |
0.45% |
N/A |
February
1, 2025 |
Environmental
Services ETF |
0.50% |
0.55% |
February
1, 2025 |
Fabless
Semiconductor ETF |
0.35% |
N/A |
February
1, 2026 |
Gaming
ETF |
0.50% |
0.65% |
February
1, 2025 |
Green
Infrastructure ETF |
0.45% |
N/A |
February
1, 2025 |
Inflation
Allocation ETF 3 |
0.50% |
0.55% |
February
1, 2025 |
Long/Flat
Trend ETF |
0.50% |
0.55% |
February
1, 2025 |
Morningstar
ESG Moat ETF |
0.45% |
0.49% |
February
1, 2025 |
Morningstar
Global Wide Moat ETF |
0.45% |
0.52% |
February
1, 2025 |
Morningstar
International Moat ETF |
0.50% |
0.56% |
February
1, 2025 |
Morningstar
SMID Moat ETF |
0.45% |
0.49% |
February
1, 2025 |
Morningstar
Wide Moat ETF |
0.45% |
0.49% |
February
1, 2025 |
Morningstar
Wide Moat Growth ETF |
0.45% |
0.49% |
February
1, 2025 |
Morningstar
Wide Moat Value ETF |
0.45% |
0.49% |
February
1, 2025 |
Pharmaceutical
ETF |
0.35% |
N/A |
February
1, 2025 |
Retail
ETF |
0.35% |
N/A |
February
1, 2025 |
Robotics
ETF |
0.47% |
N/A |
February
1, 2025 |
Semiconductor
ETF |
0.35% |
N/A |
February
1, 2025 |
Social
Sentiment ETF |
0.75% |
N/A |
February
1, 2025 |
Video
Gaming and eSports ETF |
0.50% |
0.55% |
February
1, 2025 |
|
Africa
Index ETF |
0.50% |
0.78% |
May
1, 2025 |
Agribusiness
ETF |
0.50% |
0.56% |
May
1, 2025 |
Brazil
Small-Cap ETF |
0.50% |
0.59% |
May
1, 2025 |
ChiNext
ETF |
0.50% |
0.65% |
May
1, 2025 |
CLO
ETF |
0.40% |
N/A |
May
1, 2025 |
CMCI
Commodity Strategy ETF |
0.65% |
0.65% |
May
1, 2025 |
Digital
India ETF |
0.70% |
N/A |
May
1, 2025 |
Ethereum
Strategy ETF |
0.65% |
N/A |
May
1, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund |
Management
Fee |
Expense
Cap |
Fee
Arrangement Duration Date |
Gold
Miners ETF |
0.50% |
0.53% |
May
1, 2025 |
Green
Metals ETF |
0.59% |
N/A |
May
1, 2025 |
India
Growth Leaders ETF |
0.50% |
0.70% |
May
1, 2025 |
Indonesia
Index ETF |
0.50% |
0.57% |
May
1, 2025 |
Israel
ETF |
0.50% |
0.59% |
May
1, 2025 |
Junior
Gold Miners ETF |
0.50% |
0.56% |
May
1, 2025 |
Low
Carbon Energy ETF |
0.50% |
0.62% |
May
1, 2025 |
Natural
Resources ETF 4
|
0.40% |
N/A |
May
1, 2025 |
Office
and Commercial REIT ETF |
0.50% |
N/A |
May
1, 2025 |
Oil
Refiners ETF |
0.50% |
0.59% |
May
1, 2025 |
Oil
Services ETF |
0.35% |
N/A |
May
1, 2025 |
Rare
Earth and Strategic Metals ETF |
0.50% |
0.57% |
May
1, 2025 |
Russia
ETF |
0.50% |
0.62% |
December
31, 2027 |
Russia
Small-Cap ETF |
0.50% |
0.67% |
December
31, 2027 |
Steel
ETF |
0.50% |
0.55% |
May
1, 2025 |
Uranium
and Nuclear ETF |
0.50% |
0.60% |
May
1, 2025 |
Vietnam
ETF |
0.50% |
0.76% |
May
1, 2025 |
1
Effective
March 7, 2024, VanEck Fallen Angel High Yield Bond ETF's management fee was
reduced from 0.35% to 0.25%.
2
Effective March 7, 2024, VanEck Intermediate Muni ETF's management fee was
reduced from 0.24% to 0.18%.
3
For
purposes of calculating the fees for the VanEck Commodity Strategy ETF and
VanEck Inflation Allocation ETF, the net assets of VanEck Commodity Strategy ETF
and VanEck Inflation Allocation ETF include the value of VanEck Commodity
Strategy ETF’s and VanEck Inflation Allocation ETF’s interest in the Cayman
Subsidiary.
4
Effective March 15, 2024, VanEck Natural Resources ETF’s management fee was
reduced from 0.49% to 0.40%.
The
management fees paid by each Fund and the expenses waived or assumed by the
applicable Adviser during the Funds’ last three fiscal years, or, if the Fund
has not been in existence for a full fiscal year, since the commencement of
operations of that Fund, are set forth in the chart below.
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|
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Fund |
Fiscal
Year End |
Management
Fees Paid During the Fiscal Year |
Expenses
Waived or Assumed by the Adviser During the Fiscal Year |
|
|
|
2022 |
2023 |
2024 |
2022 |
2023 |
2024 |
|
|
|
VanEck
BDC Income ETF |
April
30th |
$2,070,800 |
$2,197,290 |
$3,097,821 |
$0 |
$0 |
$0 |
|
VanEck
CEF Muni Income ETF |
April
30th |
$811,918 |
$656,019 |
$860,118 |
$0 |
$0 |
$0 |
|
VanEck
China Bond ETF |
April
30th |
$520,949 |
$326,972 |
$132,524 |
$13,281 |
$6,002 |
$91,634 |
|
VanEck
Dynamic High Income ETF(1) |
April
30th |
N/A |
$258 |
$753 |
N/A |
$0 |
$0 |
|
VanEck
Emerging Markets High Yield Bond ETF |
April
30th |
$4,778,794 |
$2,133,780 |
$1,502,499 |
$0 |
$0 |
$0 |
|
VanEck
Fallen Angel High Yield Bond ETF* |
April
30th |
$17,079,449 |
$10,586,530 |
$9,336,776 |
$0 |
$0 |
$0 |
|
VanEck
Green Bond ETF |
April
30th |
$195,123 |
$157,689 |
$164,439 |
$0 |
$0 |
$0 |
|
VanEck
High Yield Muni ETF |
April
30th |
$12,684,417 |
$10,546,251 |
$9,221,777 |
$0 |
$0 |
$0 |
|
VanEck
HIP Sustainable Muni ETF(2) |
April
30th |
$20,951 |
$40,877 |
$43,719 |
$0 |
$0 |
$0 |
|
|
|
|
|
|
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|
Fund |
Fiscal
Year End |
Management
Fees Paid During the Fiscal Year |
Expenses
Waived or Assumed by the Adviser During the Fiscal Year |
|
VanEck
IG Floating Rate ETF |
April
30th |
$1,082,404 |
$1,564,521 |
$1,751,440 |
$0 |
$0 |
$0 |
|
VanEck
Intermediate Muni ETF** |
April
30th |
$4,495,019 |
$4,272,569 |
$4,275,649 |
$0 |
$0 |
$0 |
|
VanEck
International High Yield Bond ETF |
April
30th |
$407,619 |
$242,537 |
$167,682 |
$0 |
$0 |
$0 |
|
VanEck
J.P. Morgan EM Local Currency Bond ETF |
April
30th |
$9,396,110 |
$7,993,895 |
$8,435,661 |
$599,324 |
$356,765 |
$358,443 |
|
VanEck
Long Muni ETF |
April
30th |
$576,431 |
$587,826 |
$1,013,976 |
$0 |
$0 |
$0 |
|
VanEck
Moody's Analytics BBB Corporate Bond ETF |
April
30th |
$24,438 |
$20,792 |
$20,731 |
$0 |
$0 |
$0 |
|
VanEck
Moody's Analytics IG Corporate Bond ETF |
April
30th |
$29,210 |
$25,043 |
$24,846 |
$0 |
$0 |
$0 |
|
VanEck
Mortgage REIT Income ETF |
April
30th |
$1,213,758 |
$726,235 |
$895,665 |
$0 |
$0 |
$0 |
|
VanEck
Preferred Securities ex Financials ETF |
April
30th |
$4,123,634 |
$3,952,219 |
$5,266,563
|
$0 |
$0 |
$0 |
|
VanEck
Short High Yield Muni ETF |
April
30th |
$1,420,161 |
$1,449,750 |
$1,267,376 |
$0 |
$0 |
$0 |
|
VanEck
Short Muni ETF |
April
30th |
$643,677 |
$658,675 |
$223,495 |
$0 |
$0 |
$0 |
|
|
|
|
|
2021 |
2022 |
2023 |
2021 |
2022 |
2023 |
|
VanEck
Biotech ETF† |
September
30th |
$1,851,610 |
$1,707,698 |
$1,720,048 |
$154,118 |
N/A |
N/A |
|
VanEck
Commodity Strategy ETF(3) |
September
30th |
N/A |
N/A |
$119,666 |
N/A |
N/A |
N/A |
|
VanEck
Digital Transformation ETF(4) |
September
30th |
$92,680 |
$232,411 |
$171,468 |
N/A |
N/A |
N/A |
|
VanEck
Durable High Dividend ETF† |
September
30th |
$129,126 |
$184,775 |
$265,758 |
$106,447 |
N/A |
N/A |
|
VanEck
Energy Income ETF |
September
30th |
$131,441 |
$141,251 |
$141,251 |
$0 |
$0 |
$0 |
|
VanEck
Environmental Services ETF |
September
30th |
$251,107 |
$360,586 |
$367,860 |
$78,229 |
$50,019 |
$67,530 |
|
VanEck
Fabless Semiconductor ETF(5) |
September
30th |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
|
VanEck
Gaming ETF |
September
30th |
$584,280 |
$420,428 |
$405,066 |
N/A |
N/A |
$14,282 |
|
VanEck
Green Infrastructure ETF(6) |
September
30th |
N/A |
N/A |
$6,275 |
N/A |
N/A |
N/A |
|
VanEck
Inflation Allocation ETF |
September
30th |
$54,195 |
$428,583 |
$594,907 |
$113,306 |
$98,801 |
$226,801 |
|
VanEck
Long/Flat Trend ETF |
September
30th |
$162,038 |
$217,594 |
$146,854 |
$86,726 |
$55,641 |
$69,451 |
|
VanEck
Morningstar ESG Moat ETF(7) |
September
30th |
N/A |
$9,178 |
$20,723 |
N/A |
N/A |
$78,572 |
|
VanEck
Morningstar Global Wide Moat ETF |
September
30th |
70,997 |
$83,985 |
$85,127 |
106,704 |
$82,836 |
$105,288
|
|
VanEck
Morningstar International Moat ETF |
September
30th |
$324,991 |
$353,033 |
$837,255 |
$123,821 |
$65,416 |
$74,555 |
|
VanEck
Morningstar SMID Moat ETF(8) |
September
30th |
N/A |
N/A |
$312,440
|
N/A |
N/A |
$67,356
|
|
VanEck
Morningstar Wide Moat ETF |
September
30th |
$23,313,143 |
$30,836,907 |
$36,450,354 |
$0 |
$0 |
$0 |
|
VanEck
Morningstar Wide Moat Growth ETF(9) |
September
30th |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
|
|
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|
Fund |
Fiscal
Year End |
Management
Fees Paid During the Fiscal Year |
Expenses
Waived or Assumed by the Adviser During the Fiscal Year |
|
VanEck
Morningstar Wide Moat Value ETF(9) |
September
30th |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
|
VanEck
Pharmaceutical ETF† |
September
30th |
$891,904 |
$1,489,021 |
$1,598,103 |
$131,784 |
N/A |
N/A |
|
VanEck
Retail ETF† |
September
30th |
$754,573 |
$691,330 |
$533,025 |
$140,149 |
N/A |
N/A |
|
VanEck
Robotics ETF(10) |
September
30th |
N/A |
N/A |
$5,375 |
N/A |
N/A |
N/A |
|
VanEck
Semiconductor ETF† |
September
30th |
$16,978,049 |
$25,764,670 |
$27,780,972 |
$629,776 |
N/A |
N/A |
|
VanEck
Social Sentiment ETF(11) |
September
30th |
$1,166,411 |
$828,108 |
$441,044 |
N/A |
$452,219 |
$47,781 |
|
VanEck
Video Gaming and eSports ETF |
September
30th |
$3,743,207 |
$2,280,361 |
$1,364,139 |
N/A |
$886 |
$80,104 |
|
|
|
|
|
2021 |
2022 |
2023 |
2021 |
2022 |
2023 |
|
VanEck
Africa Index ETF |
December
31st |
$301,959 |
$265,905 |
$226,942 |
$0 |
$0 |
$69,506 |
|
VanEck
Agribusiness ETF |
December
31st |
$5,628,329 |
$7,590,170 |
$5,649,364 |
$0 |
$0 |
$0 |
|
VanEck
Brazil Small-Cap ETF |
December
31st |
$222,441 |
$147,700 |
$145,838 |
$107,578 |
$69,706 |
$114,419 |
|
VanEck
ChiNext ETF |
December
31st |
$237,417 |
$124,671 |
$103,333 |
$113,686 |
$150,748 |
$257,078 |
|
VanEck
CLO ETF(12) |
December
31st |
N/A |
$53,044 |
$445,735 |
N/A |
$0 |
$0 |
|
VanEck
CMCI Commodity Strategy ETF(13) |
December
31st |
N/A |
N/A |
$5,907 |
N/A |
N/A |
$51,512 |
|
VanEck
Digital India ETF(14) |
December
31st |
N/A |
$10,128 |
$19,501 |
N/A |
$0 |
$0 |
|
VanEck
Ethereum Strategy ETF(15) |
December
31st |
N/A |
N/A |
$18,152 |
N/A |
N/A |
$3,844 |
|
VanEck
Gold Miners ETF |
December
31st |
$71,948,299 |
$60,561,304 |
$62,507,929 |
$0 |
$0 |
$0 |
|
VanEck
Green Metals ETF(16) |
December
31st |
$7,463 |
$134,921 |
$149,115 |
$0 |
$0 |
$0 |
|
VanEck
India Growth Leaders ETF
|
December
31st |
$368,180 |
$281,518 |
$297,274 |
$72,692 |
$0 |
$131,971 |
|
VanEck
Indonesia Index ETF |
December
31st |
$188,448 |
$281,236 |
$154,887 |
$94,463 |
$56,101 |
$126,398 |
|
VanEck
Israel ETF |
December
31st |
$405,775 |
$339,749 |
$284,753 |
$95,203 |
$29,747 |
$106,015 |
|
VanEck
Junior Gold Miners ETF |
December
31st |
$25,816,105 |
$19,460,452 |
$19,836,611 |
$0 |
$0 |
$0 |
|
VanEck
Low Carbon Energy ETF |
December
31st |
$1,520,022 |
$1,175,675 |
$938,357 |
$0 |
$0 |
$0 |
|
VanEck
Natural Resources ETF***†† |
December
31st |
$385,384 |
$668,971 |
$667,995 |
$223,899 |
$0 |
$0 |
|
VanEck
Office and Commercial REIT ETF(17) |
December
31st |
N/A |
N/A |
$1,293 |
N/A |
N/A |
$0 |
|
VanEck
Oil Refiners ETF |
December
31st |
$102,017 |
$173,888 |
$172,536 |
$87,835 |
$61,342 |
$81,096 |
|
VanEck
Oil Services ETF†† |
December
31st |
$6,974,591 |
$9,982,726 |
$8,385,442 |
$200,786 |
$0 |
$0 |
|
VanEck
Rare Earth and Strategic Metals ETF |
December
31st |
$4,059,556 |
$4,261,430 |
$2,821,557 |
$0 |
$0 |
$0 |
|
VanEck
Russia ETF |
December
31st |
$8,429,436 |
$1,089,445 |
$0 |
$0 |
$0 |
$0 |
|
VanEck
Russia Small-Cap ETF |
December
31st |
$157,417 |
$20,102 |
$0 |
$103,861 |
$37,039 |
$83,536 |
|
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|
Fund |
Fiscal
Year End |
Management
Fees Paid During the Fiscal Year |
Expenses
Waived or Assumed by the Adviser During the Fiscal Year |
|
VanEck
Steel ETF |
December
31st |
$796,411 |
$547,396 |
$609,918 |
$7,626 |
$21,645 |
$13,818 |
|
VanEck
Uranium and Nuclear ETF |
December
31st |
$129,291 |
$237,947 |
$402,573 |
$74,174 |
$32,334 |
$25,286 |
|
VanEck
Vietnam ETF |
December
31st |
$2,658,482 |
$2,120,507 |
$2,714,061 |
$0 |
$0 |
$0 |
|
†
Effective October 1, 2021, each of VanEck Biotech ETF, VanEck Durable High
Dividend ETF, VanEck Pharmaceutical ETF, VanEck Retail ETF and VanEck
Semiconductor ETF has adopted a unitary management fee.
††
Effective January 1, 2022, each of VanEck Natural Resources ETF and VanEck Oil
Services ETF has adopted a unitary management fee.
*
Effective
March 7, 2024, VanEck Fallen Angel High Yield Bond ETF's management fee was
reduced from 0.35% to 0.25%.
**
Effective March 7, 2024, VanEck Intermediate Muni ETF's management fee was
reduced from 0.24% to 0.18%.
***
Effective March 15, 2024, VanEck Natural Resources ETF’s management fee was
reduced from 0.49% to 0.40%.
(1)
VanEck Dynamic High Income ETF did not commence operations until November 1,
2022.
(2)
VanEck HIP Sustainable Muni ETF did not commence operations until September 8,
2021.
(3)
VanEck Commodity Strategy ETF did not commence operations until December 20,
2022.
(4)
VanEck Digital Transformation ETF did not commence operations until April 12,
2021.
(5)
VanEck Fabless Semiconductor ETF did
not commence operations until August 27, 2024.
(6)
VanEck Green Infrastructure ETF did not commence operations until October 18,
2022.
(7)
VanEck Morningstar ESG Moat ETF did not commence operations until October 4,
2021.
(8)
VanEck Morningstar SMID Moat ETF did not commence operations until October 5,
2022.
(9)
Each of VanEck Morningstar Wide Moat Growth ETF and VanEck Morningstar Wide Moat
Value ETF did not commence operations until March 26, 2024.
(10)
VanEck Robotics ETF did not commence operations until April 6,
2023.
(11)
VanEck Social Sentiment ETF did not commence operations until March 2,
2021.
(12)
VanEck CLO ETF did not commence operations until June 22, 2022.
(13)
VanEck CMCI Commodity Strategy ETF did not commence operations until August 22,
2023.
(14)
VanEck Digital India ETF did not commence operations until February 16,
2022.
(15)
VanEck Ethereum Strategy ETF did not commence operations until October 3,
2023.
(16)
VanEck Green Metals ETF did not commence operations until November 10,
2021.
(17)
VanEck Office and Commercial REIT ETF did not commence operations until
September 20, 2023.
With
respect to VanEck CLO ETF, for the services provided and the expenses assumed by
the Sub-Adviser pursuant to the Investment Sub-Advisory Agreement, VEAC (not
VanEck CLO ETF) will pay a monthly fee to the Sub-Adviser based on a percentage
of the management fee paid to the Adviser after taking into account certain
expenses paid by the Adviser.
The
following table sets forth the aggregate investment sub-advisory fees paid by
VEAC to PineBridge Investments, LLC and the percentage of the Fund’s average
daily net assets represented by such fees, in each case during the Fund’s last
three fiscal years, as applicable.
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|
|
Fees
Paid During the Fiscal Year Ended December 31, |
Percentage
of the Fund's Average Daily Net Assets for Fiscal Year Ended
December 31, |
Fund |
2021 |
2022 |
2023 |
2021 |
2022 |
2023 |
VanEck
CLO ETF |
N/A |
$0 |
$99,695.27 |
N/A |
0.00% |
0.09% |
|
|
|
|
|
|
|
Prior
to January 12, 2024, China Asset Management (Hong Kong) Limited served as a
sub-adviser to the China Funds. The following table sets forth the aggregate
investment sub-advisory fees paid by VEAC to China Asset Management (Hong Kong)
Limited and the percentage of the Fund’s average daily net assets represented by
such fees, in each case during the Funds’ last three fiscal years, as
applicable.
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|
|
Fees
Paid During the Fiscal Year Ended April 30, |
Percentage
of the Fund's Average Daily Net Assets for Fiscal Year Ended
April 30, |
Fund |
2022 |
2023 |
2024 |
2022 |
2023 |
2024 |
VanEck
China Bond ETF |
$0 |
$0 |
$0 |
N/A |
N/A |
N/A |
|
|
|
|
|
|
|
|
Fees
Paid During the Fiscal Year Ended December 31, |
Percentage
of the Fund's Average Daily Net Assets for Fiscal Year
Ended December 31, |
Fund |
2021 |
2022 |
2023 |
2021 |
2022 |
2023 |
VanEck
ChiNext ETF |
$0 |
$0 |
$0 |
0.00% |
0.00% |
0.00% |
Term.
Each Investment Management Agreement is subject to annual approval by (1) the
Board or (2) a vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of each Fund, provided that in either event such
continuance also is approved by a majority of the Board who are not interested
persons (as defined in the 1940 Act) of the Trust by a vote cast in person at a
meeting called for the purpose of voting on such approval. Each Investment
Management Agreement is terminable without penalty, on 60 days’ notice, by the
Board or by a vote of the holders of a majority (as defined in the 1940 Act) of
a Fund’s outstanding voting securities. Each Investment Management Agreement is
also terminable upon 60 days’ notice by the applicable Adviser and will
terminate automatically in the event of its assignment (as defined in the 1940
Act). The Investment Sub-Advisory Agreement terminates automatically upon
assignment and is terminable at any time without penalty as to VanEck CLO ETF by
the Board, or by vote of the holders of a majority of VanEck CLO ETF’s
outstanding voting securities on 60 days’ written notice to the Sub-Adviser, by
VEAC on sixty days’ written notice to the Sub-Adviser or by the Sub-Adviser on
120 days’ written notice to VEAC and the Trust.
Mauritius
Subsidiary Investment Management Agreement.
VEAC provides an investment program for the Mauritius Subsidiary and manages the
investment of the Mauritius Subsidiary’s assets under the overall supervision of
the Board of Directors of the Mauritius Subsidiary. Pursuant to a management
agreement between VEAC and the Mauritius Subsidiary (the “Mauritius Subsidiary
Investment Management Agreement”), VEAC does not receive any fees from the
Mauritius Subsidiary.
The
Mauritius Subsidiary Investment Management Agreement terminates automatically
upon assignment and is terminable at any time without penalty as to the
Mauritius Subsidiary by the Board of Directors of the Mauritius Subsidiary, the
Trust’s Independent Trustees or by vote of the holders of a majority of the
Mauritius Subsidiary’s outstanding voting securities on 60 days’ written notice
to VEAC, or by VEAC on 60 days’ written notice to the Mauritius Subsidiary.
Pursuant to the Mauritius Subsidiary Investment Management Agreement, VEAC will
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Mauritius Subsidiary in connection with the performance of the
Mauritius Subsidiary Investment Agreement, except a loss resulting from willful
misfeasance, bad faith, fraud or gross negligence on the part of VEAC in the
performance of its duties or from reckless disregard of its duties and
obligations thereunder.
Cayman
Subsidiary Investment Management Agreements.
VEARA provides investment programs for the Cayman Subsidiaries and manages the
investment of the Cayman Subsidiaries’ assets under the overall supervision of
the Boards of Directors of the Cayman Subsidiaries. Pursuant to a management
agreement between VEARA and the Cayman Subsidiary for VanEck Inflation
Allocation ETF, VEARA may receive certain fees for managing the Cayman
Subsidiary’s assets and will waive or credit such amounts, if applicable,
against the fees payable to VEARA by VanEck Inflation Allocation
ETF.
Each
of the management agreements between VEARA and the Cayman Subsidiaries (the
“Cayman Subsidiary Investment Management Agreements”) terminates automatically
upon assignment and is terminable at any time without penalty as to the
respective Cayman Subsidiary by the Board of Directors of such Cayman
Subsidiary, the Trust’s Independent Trustees or by vote of the holders of a
majority of such Cayman Subsidiary’s outstanding voting securities on 60 days’
written notice to VEARA, or by VEARA on 60 days’ written notice to such Cayman
Subsidiary. Pursuant to the Cayman Subsidiary Investment Management Agreements,
VEARA will not be liable for any error of judgment or mistake of law or for any
loss suffered by a Cayman Subsidiary in connection with the performance of its
Cayman Subsidiary Investment Management Agreement, except a loss resulting from
willful misfeasance, bad faith, fraud or gross negligence on the part of VEARA
in the performance of its duties or from reckless disregard of its duties and
obligations thereunder.
The
Administrators
VEAC
and VEARA, as applicable, also serve as administrators (in such capacity, each,
an “Administrator”) for the Trust pursuant to each respective Investment
Management Agreement. Under each Investment Management Agreement, each Adviser
is obligated on a continuous basis to provide such administrative services as
the Board of the Trust reasonably deems necessary for the proper administration
of the Trust and the Funds. Each Adviser will generally assist in all aspects of
the
Trust’s
and the Funds’ operations; supply and maintain office facilities, statistical
and research data, data processing services, clerical, accounting (only with
respect to VanEck Gold Miners ETF), bookkeeping and record keeping services
(including without limitation the maintenance of such books and records as are
required under the 1940 Act and the rules thereunder, except as maintained by
other agents), internal auditing, executive and administrative services, and
stationery and office supplies; prepare reports to shareholders or investors;
prepare and file tax returns; supply financial information and supporting data
for reports to and filings with the SEC and various state Blue Sky authorities;
supply supporting documentation for meetings of the Board; provide monitoring
reports and assistance regarding compliance with the Declaration of Trust,
by-laws, investment objectives and policies and with federal and state
securities laws; arrange for appropriate insurance coverage; calculate NAVs, net
income and realized capital gains or losses; and negotiate arrangements with,
and supervise and coordinate the activities of, agents and others to supply
services. VEAC owns 100% of the common stock of Van Eck Securities Corporation
(the “Distributor”).
Mauritius
Administrator
IQ
EQ Fund Services (Mauritius) Ltd. (“IQ-EQ”), located at 33, Edith Cavell Street,
Port-Louis, Mauritius, serves as the Mauritius Subsidiary’s Mauritius
administrator. The Mauritius Subsidiary pays IQ-EQ a fee for its services and
for preparing management accounts; acting as registrar in relation to the shares
of the Mauritius Subsidiary; organizing board and shareholder meetings and
keeping minutes and the statutory books and records of the Mauritius Subsidiary
in order to comply with requirements of the Mauritian Companies Act 2001, the
Financial Services Act 2007 and applicable law; preparing and filing certain
regulatory filings; and providing taxation and regulatory advisory services. The
Mauritius Subsidiary also reimburses IQ-EQ for all reasonable out-of-pocket
expenses reasonably incurred by it in the performance of its
duties.
Custodian
and Transfer Agent
State
Street, located at One Lincoln Street, Boston, MA 02111, serves as custodian (in
such capacity, the “Custodian”) for the Funds, the Mauritius Subsidiary and the
Cayman Subsidiaries pursuant to a custodian agreement. As Custodian, State
Street holds the Funds’, the Mauritius Subsidiary’s and the Cayman Subsidiaries’
assets. As compensation for these custodial services, State Street receives,
among other items, transaction fees, asset-based safe keeping fees and overdraft
charges and may be reimbursed by a Fund for its out-of-pocket expenses. State
Street serves as the Funds’ transfer agent (in such capacity, the “Transfer
Agent”) pursuant to a transfer agency agreement. In addition, State Street
provides various accounting services to each of the Funds, except VanEck Gold
Miners ETF, pursuant to a fund accounting agreement. VEAC pays a portion of the
fee that it receives from VanEck Gold Miners ETF to State Street for providing
fund accounting services to VanEck Gold Miners ETF.
The
Distributor
Van
Eck Securities Corporation is the principal underwriter and distributor of
Shares. Its principal address is 666 Third Avenue, New York, New York 10017 and
investor information can be obtained by calling 800.826.2333. The Distributor
has entered into an agreement with the Trust which will continue from its
effective date unless terminated by either party upon 60 days’ prior written
notice to the other party by the Trust and the Advisers, or by the Distributor,
or until termination of the Trust or each Fund offering its Shares, and which is
renewable annually thereafter (the “Distribution Agreement”), pursuant to which
it distributes Shares. Shares will be continuously offered for sale by the Trust
through the Distributor only in Creation Units, as described below under
“Creation and Redemption of Creation Units—Procedures for Creation of Creation
Units.” Shares in less than Creation Units are not distributed by the
Distributor. The Distributor will deliver a prospectus to persons purchasing
Shares in Creation Units and will maintain records of both orders placed with it
and confirmations of acceptance furnished by it. The Distributor is a
broker-dealer registered under the Exchange Act and a member of the Financial
Industry Regulatory Authority (“FINRA”). The Distributor has no role in
determining the investment policies of the Trust or which securities are to be
purchased or sold by the Trust.
The
Distributor may also enter into sales and investor services agreements with
broker-dealers or other persons that are Participating Parties and DTC
Participants (as defined below) to provide distribution assistance, including
broker-dealer and shareholder support and educational and promotional services
but must pay such broker-dealers or other persons, out of its own
assets.
The
Distribution Agreement provides that it may be terminated at any time, without
the payment of any penalty: (i) by vote of a majority of the Independent
Trustees or (ii) by vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Funds, on at least 60 days written notice
to the Distributor. The Distribution Agreement is also
terminable
upon 60 days’ notice by the Distributor and will terminate automatically in the
event of its assignment (as defined in the 1940 Act).
Affiliated
Index Provider
The
MVIS®
Africa Index (the “Africa Index”), BlueStar Israel Global IndexTM
(the
“Israel Index”), MVIS®
Brazil Small-Cap Index (the “Brazil Small-Cap Index”), MVIS®
Digital India Index (the “Digital India Index”), MVIS®
Global Digital Assets Equity Index (the “Digital Transformation Index”),
MVIS®
Global Agribusiness Index (the “Agribusiness Index”), MVIS®
Global
Clean-Tech Metals Index (the “Clean-Tech Metals Index”), MVIS®
Global Gaming Index (the “Gaming Index”), MVIS®
Global Junior Gold Miners Index (the “Junior Gold Miners Index”),
MVIS®
Global Low Energy Index (the “Low Carbon Energy Index”), MVIS®
US Mortgage REITs Index (the “Mortgage REITs Index”), MVIS®
Global Oil Refiners Index (the “Oil Refiners Index”), MVIS®
Global Rare Earth/Strategic Metals Index (the “Rare Earth/Strategic Metals
Index”), MVIS®
Global Uranium & Nuclear Energy Index (the “Nuclear Energy Index”),
MVIS®
Global Video Gaming & eSports Index (the “eSports Index”), MVIS®
Indonesia Index (the “Indonesia Index”), MVIS®
Moody's Analytics®
US BBB Corporate Bond Index (the “BBB Index”), MVIS®
Moody's Analytics®
US Investment Grade Corporate Bond Index (the “US IG Index”), MVIS®
North America Energy Infrastructure Index (the “Energy Income Index”),
MVIS®
US Listed Pharmaceutical 25 Index (the “Pharmaceutical Index”),
BlueStar®
Robotics Index (the “Robotics Index”), MVIS®
US Business Development Companies Index (the “BDC Index”), MVIS®
US Investment Grade Floating Rate Index (the “Floating Rate Index”),
MVIS®
US
Listed Biotech 25 Index (the “Biotech Index”), MVIS®
US Listed Oil Services 25 Index (the “Oil Services Index”), MVIS®
US Listed Retail 25 Index (the “Retail Index”), MVIS®
US
Listed Semiconductor 25 Index (the “Semiconductor Index”),
MarketVectorTM
Global Natural Resources Index (the “Natural Resources Index”),
MarketVectorTM
US Listed Office and Commercial REITs Index (the “Office and Commercial REITs
Index”), MarketVector™ US Listed Fabless Semiconductor Index (the “Fabless
Index”)
and
MarketVectorTM
Vietnam Local Index (the “Vietnam Index”) (each a “MarketVector Index,” and
collectively, the “MarketVector Indexes”) are published by MarketVector Indexes
GmbH (“MarketVector”), which is an indirectly wholly-owned subsidiary of VEAC.
In order to minimize any potential for conflicts caused by the fact that VEAC or
its affiliates act as the index provider to a Fund that tracks a MarketVector
Index, MarketVector has retained an unaffiliated third party (the “Calculation
Agent”), to calculate the MarketVector Indexes. The Calculation Agent, using a
rules-based methodology, will calculate, maintain and disseminate each of the
MarketVector Indexes on a daily basis. MarketVector will monitor the results
produced by the Calculation Agent to help ensure that the MarketVector Indexes
are being calculated in accordance with the applicable rules-based methodology.
In addition, VEAC and MarketVector have established policies and procedures
designed to prevent non-public information about pending changes to a
MarketVector Index from being used or disseminated in an improper manner.
Securities
Lending
Pursuant
to a securities lending agreement (the “Securities Lending Agreement”) between
the Funds and State Street (in such capacity, the “Securities Lending Agent”),
certain Funds may lend their securities through the Securities Lending Agent to
certain qualified borrowers. The Securities Lending Agent administers the Funds’
securities lending program. These services include arranging the securities
loans with approved borrowers and collecting fees and rebates due to the Funds
from each borrower. The Securities Lending Agent maintains records of loans made
and income derived therefrom and makes available such records that the Funds
deem necessary to monitor the securities lending program.
Each
of the Funds listed below earned income and incurred the following costs and
expenses, during its respective fiscal year, as a result of its securities
lending activities.
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|
Fund |
Fiscal
Year |
Gross
Income
(1) |
Revenue
Split(2) |
Cash
Collateral
Management
Fees(3) |
Administrative
Fees(4) |
Indemnification
Fees(5) |
Rebates
to Borrowers |
Other Fees |
Total
Costs of the Securities Lending Activities |
Net Income from
the Securities Lending Activities |
VanEck
Biotech ETF |
9/30/2023 |
$31,972 |
$1,718 |
$0 |
$0 |
$0 |
$14,791 |
$0 |
$16,509 |
$15,463 |
VanEck
Digital Transformation ETF |
9/30/2023 |
$1,291,460 |
$125,073 |
$0 |
$0 |
$0 |
$41,189 |
$0 |
$166,262 |
$1,125,198 |
VanEck
Durable High Dividend ETF |
9/30/2023 |
$3,782 |
$2 |
$0 |
$0 |
$0 |
$0 |
$0 |
$2 |
$3,780 |
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VanEck
Environmental Services ETF |
9/30/2023 |
$521,557 |
$43,907 |
$0 |
$0 |
$0 |
$81,754 |
$0 |
$125,661 |
$395,896 |
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|
Fund |
Fiscal
Year |
Gross
Income
(1) |
Revenue
Split(2) |
Cash
Collateral
Management
Fees(3) |
Administrative
Fees(4) |
Indemnification
Fees(5) |
Rebates
to Borrowers |
Other Fees |
Total
Costs of the Securities Lending Activities |
Net Income from
the Securities Lending Activities |
VanEck
Gaming ETF |
9/30/2023 |
$43,825 |
$2,556 |
$0 |
$0 |
$0 |
$18,223 |
$0 |
$20,779 |
$23,046 |
VanEck
Green Infrastructure ETF |
9/30/2023 |
$6,409 |
$477 |
$0 |
$0 |
$0 |
$1,603 |
$0 |
$2,080 |
$4,329 |
VanEck
Inflation Allocation ETF |
9/30/2023 |
$641,018 |
$16,298 |
$0 |
$0 |
$0 |
$478,791 |
$0 |
$495,089 |
$145,929 |
VanEck
Long/Flat Trend ETF |
9/30/2023 |
$8,330 |
$466 |
$0 |
$0 |
$0 |
$3,824 |
$0 |
$4,290 |
$4,040 |
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VanEck
Morningstar Global Wide Moat ETF |
9/30/2023 |
$8,457 |
$182 |
$0 |
$0 |
$0 |
$6,649 |
$0 |
$6,831 |
$1,626 |
VanEck
Morningstar International Moat ETF |
9/30/2023 |
$94,750 |
$4,230 |
$0 |
$0 |
$0 |
$52,553 |
$0 |
$56,783 |
$37,967 |
VanEck
Morningstar SMID Moat ETF |
9/30/2023 |
$10,644 |
$663 |
$0 |
$0 |
$0 |
$4,020 |
$0 |
$4,683 |
$5,961 |
VanEck
Morningstar Wide Moat ETF |
9/30/2023 |
$433,304 |
$3,281 |
$0 |
$0 |
$0 |
$3,130 |
$0 |
$6,411 |
$426,893 |
VanEck
Pharmaceutical ETF |
9/30/2023 |
$1,137,613 |
$21,497 |
$0 |
$0 |
$0 |
$923,566 |
$0 |
$945,063 |
$192,550 |
VanEck
Retail ETF |
9/30/2023 |
$7,187 |
$199 |
$0 |
$0 |
$0 |
$5,198 |
$0 |
$5,397 |
$1,790 |
VanEck
Robotics ETF |
9/30/2023 |
$207 |
$9 |
$0 |
$0 |
$0 |
$117 |
$0 |
$126 |
$81 |
VanEck
Semiconductor ETF |
9/30/2023 |
$1,137,079 |
$9,018 |
$0 |
$0 |
$0 |
$1,046,901 |
$0 |
$1,055,919 |
$81,160 |
VanEck
Social Sentiment ETF |
9/30/2023 |
$201,569 |
$17,365 |
$0 |
$0 |
$0 |
$27,537 |
$0 |
$44,902 |
$156,667 |
VanEck
Video Gaming and eSports ETF |
9/30/2023 |
$717,194 |
$41,167 |
$0 |
$0 |
$0 |
$305,654 |
$0 |
$346,821 |
$370,373 |
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VanEck
Africa Index ETF |
12/31/2023 |
$92,115 |
$2,551 |
$0 |
$0 |
$0 |
$63,472 |
$0 |
$66,023 |
$26,092 |
VanEck
Agribusiness ETF |
12/31/2023 |
$2,343,035 |
$199,686 |
$0 |
$0 |
$0 |
$340,666 |
$0 |
$540,352 |
$1,802,683 |
VanEck
Brazil Small-Cap ETF |
12/31/2023 |
$95,777 |
$6,083 |
$0 |
$0 |
$0 |
$34,689 |
$0 |
$40,772 |
$55,005 |
VanEck
CMCI Commodity Strategy ETF |
12/31/2023 |
$101 |
$3 |
$0 |
$0 |
$0 |
$67 |
$0 |
$70 |
$31 |
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Fund |
Fiscal
Year |
Gross
Income
(1) |
Revenue
Split(2) |
Cash
Collateral
Management
Fees(3) |
Administrative
Fees(4) |
Indemnification
Fees(5) |
Rebates
to Borrowers |
Other Fees |
Total
Costs of the Securities Lending Activities |
Net Income from
the Securities Lending Activities |
VanEck
Gold Miners ETF |
12/31/2023 |
$6,247,803 |
$82,977 |
$0 |
$0 |
$0 |
$5,463,394 |
$0 |
$5,546,371 |
$701,432 |
VanEck
Green Metals ETF |
12/31/2023 |
$46,137 |
$1,168 |
$0 |
$0 |
$0 |
$34,448 |
$0 |
$35,616 |
$10,521 |
VanEck
Indonesia Index ETF |
12/31/2023 |
$16,506 |
$524 |
$0 |
$0 |
$0 |
$11,246 |
$0 |
$11,770 |
$4,736 |
VanEck
Israel ETF |
12/31/2023 |
$187,040 |
$12,156 |
$0 |
$0 |
$0 |
$65,274 |
$0 |
$77,430 |
$109,610 |
VanEck
Junior Gold Miners ETF |
12/31/2023 |
$5,762,762 |
$263,694 |
$0 |
$0 |
$0 |
$3,118,334 |
$0 |
$3,382,028 |
$2,380,734 |
VanEck
Low Carbon Energy ETF |
12/31/2023 |
$961,692 |
$68,134 |
$0 |
$0 |
$0 |
$278,541 |
$0 |
$346,675 |
$615,017 |
VanEck
Natural Resources ETF |
12/31/2023 |
$157,170 |
$6,878 |
$0 |
$0 |
$0 |
$88,001 |
$0 |
$94,879 |
$62,291 |
VanEck
Oil Refiners ETF |
12/31/2023 |
$6,283 |
$126 |
$0 |
$0 |
$0 |
$5017 |
$0 |
$5143 |
$1,140 |
VanEck
Oil Services ETF |
12/31/2023 |
$1,098,840 |
$21,575 |
$0 |
$0 |
$0 |
$882,664 |
$0 |
$904,239 |
$194,601 |
VanEck
Rare Earth and Strategic Metals ETF |
12/31/2023 |
$4,266,926 |
$376,078 |
$0 |
$0 |
$0 |
$491,429 |
$0 |
$867,507 |
$3,399,419 |
VanEck
Russia ETF |
12/31/2023 |
$128,696 |
$3,086 |
$0 |
$0 |
$0 |
$97,727 |
$0 |
$100,813 |
$27,883 |
VanEck
Steel ETF |
12/31/2023 |
$303,006 |
$12,315 |
$0 |
$0 |
$0 |
$179,677 |
$0 |
$191,992 |
$111,014 |
VanEck
Uranium and Nuclear ETF |
12/31/2023 |
$404,380 |
$15,923 |
$0 |
$0 |
$0 |
$245,021 |
$0 |
$260,944 |
$143,436 |
VanEck
Vietnam ETF |
12/31/2023 |
$18,143 |
$1,457 |
$0 |
$0 |
$0 |
$3,407 |
$0 |
$4,864 |
$13,279 |
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VanEck
BDC Income ETF |
4/30/2024 |
$6,662,863 |
$423,852 |
$0 |
$0 |
$0 |
$2,420,886 |
$0 |
$2,844,738 |
$3,818,125 |
VanEck
Emerging Markets High Yield Bond ETF |
4/30/2024 |
$1,015,622 |
$23,423 |
$0 |
$0 |
$0 |
$781,374 |
$0 |
$804,797 |
$210,825 |
VanEck
Fallen Angel High Yield Bond ETF |
4/30/2024 |
$6,968,932 |
$196,442 |
$0 |
$0 |
$0 |
$5,003,944 |
$0 |
$5,200,386 |
$1,768,546 |
VanEck
Green Bond ETF |
4/30/2024 |
$103,272 |
$1,878 |
$0 |
$0 |
$0 |
$84,449 |
$0 |
$86,327 |
$16,945 |
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Fund |
Fiscal
Year |
Gross
Income
(1) |
Revenue
Split(2) |
Cash
Collateral
Management
Fees(3) |
Administrative
Fees(4) |
Indemnification
Fees(5) |
Rebates
to Borrowers |
Other Fees |
Total
Costs of the Securities Lending Activities |
Net Income from
the Securities Lending Activities |
VanEck
IG Floating Rate ETF |
4/30/2024 |
$135,847 |
$9,280 |
$0 |
$0 |
$0 |
$43,016 |
$0 |
$52,296 |
$83,551 |
VanEck
International High Yield Bond ETF |
4/30/2024 |
$100,370 |
$2,414 |
$0 |
$0 |
$0 |
$76,218 |
$0 |
$78,632 |
$21,738 |
VanEck
J.P. Morgan EM Local Currency Bond ETF |
4/30/2024 |
$1,026,048 |
$7,009 |
$0 |
$0 |
$0 |
$952,818 |
$0 |
$959,827 |
$66,221 |
VanEck
Moody's Analytics BBB Corporate Bond ETF |
4/30/2024 |
$5,047 |
$42 |
$0 |
$0 |
$0 |
$4,610 |
$0 |
$4,652 |
$395 |
VanEck
Moody's Analytics IG Corporate Bond ETF |
4/30/2024 |
$4,976 |
$90 |
$0 |
$0 |
$0 |
$4,062 |
$0 |
$4,152 |
$824 |
VanEck
Mortgage REIT Income ETF |
4/30/2024 |
$1,003,215 |
$37,378 |
$0 |
$0 |
$0 |
$629,201 |
$0 |
$666,579 |
$336,636 |
VanEck
Preferred Securities ex Financials ETF |
4/30/2024 |
$1,171,987 |
$74,105 |
$0 |
$0 |
$0 |
$430,743 |
$0 |
$504,848 |
$667,139 |
1Gross
income includes income from the reinvestment of cash collateral and rebates paid
by the borrower.
2Revenue
split represents the share of revenue generated by the securities lending
program and paid to the Securities Lending Agent.
3Cash
collateral management fees include fees deducted from a pooled cash collateral
reinvestment vehicle that are not included in the revenue split.
4These
administrative fees are not included in the revenue split.
5These
indemnification fees are not included in the revenue split.
Other
Accounts Managed by the Portfolio Managers
Van
Eck Associates Corporation and Van Eck Absolute Return Advisers
Corporation
The
following table lists the number and types of other accounts (excluding the
Funds) advised by each Fund’s portfolio manager(s) and assets under management
in those accounts as of the end of the last fiscal year of the Funds that they
manage. If a portfolio manager is a primary portfolio manager for multiple Funds
with different fiscal year ends, information is provided as of the most recent
fiscal year end of the relevant Funds, except as otherwise indicated.
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Portfolio
Manager |
Other
Accounts Managed |
Applicable
Fiscal Year End |
Category
of Account |
Number
of Accounts in Category |
Total
Assets in Accounts in Category |
|
Peter
H. Liao |
Registered
Investment Companies |
47 |
$60,414.68
million |
4/30/2024 |
Other
Pooled Investment Vehicles |
0 |
$0 |
4/30/2024 |
Other
Accounts |
0 |
$0 |
4/30/2024 |
Stephanie
Wang |
Registered
Investment Companies |
0 |
$0 |
4/30/2024 |
Other
Pooled Investment Vehicles |
0 |
$0 |
4/30/2024 |
Other
Accounts |
0 |
$0 |
4/30/2024 |
Francis
G. Rodilosso |
Registered
Investment Companies |
9 |
$8,076.25
million |
4/30/2024 |
Other
Pooled Investment Vehicles |
0 |
$0 |
4/30/2024 |
Other
Accounts |
0 |
$0 |
4/30/2024 |
David
Schassler |
Registered
Investment Companies |
3 |
$130,593.87
million |
4/30/2024 |
Other
Pooled Investment Vehicles |
0 |
$0 |
4/30/2024 |
Other
Accounts |
0 |
$0 |
4/30/2024 |
John
Lau
(Deputy
Portfolio Manager)
|
Registered
Investment Companies |
2 |
$105,132.50
million |
4/30/2024 |
Other
Pooled Investment Vehicles |
0 |
$0 |
4/30/2024 |
Other
Accounts |
0 |
$0 |
4/30/2024 |
Roland
Morris |
Registered
Investment Companies |
1 |
$496,330.69
million |
12/31/2023 |
Other
Pooled Investment Vehicles |
0 |
$0 |
12/31/2023 |
Other
Accounts |
0 |
$0 |
12/31/2023 |
Griffin
Driscoll (Deputy
Portfolio Manager) |
Registered
Investment Companies |
24 |
$38,502.07
million |
4/30/2024 |
Other
Pooled Investment Vehicles |
0 |
$0 |
4/30/2024 |
Other
Accounts |
0 |
$0 |
4/30/2024 |
Ralph
Lasta*
(Deputy Portfolio Manager) |
Registered
Investment Companies |
0 |
$0 |
12/31/2023 |
Other
Pooled Investment Vehicles |
0 |
$0 |
12/31/2023 |
Other
Accounts |
0 |
$0 |
12/31/2023 |
Joseph
Schafer** (Deputy
Portfolio Manager) |
Registered
Investment Companies |
0 |
$0 |
9/30/2024 |
Other
Pooled Investment Vehicles |
0 |
$0 |
9/30/2024 |
Other
Accounts |
0 |
$0 |
9/30/2024 |
Chris
Mailloux* |
Registered
Investment Companies |
0 |
$0 |
12/31/2023 |
Other
Pooled Investment Vehicles |
0 |
$0 |
12/31/2023 |
Other
Accounts |
0 |
$0 |
12/31/2023 |
*
Information for Messrs. Lasta and Mailloux is provided as of March 31,
2024.
**
Information for Mr. Schafer is provided as of December 31, 2023.
None
of the portfolio managers manage accounts that are subject to performance-based
advisory fees.
Although
the Funds in the Trust that are managed by Ms. Wang and Messrs. Driscoll, Lasta,
Lau, Liao, Mailloux, Rodilosso and Schassler may have different investment
strategies, each Fund (except VanEck CLO ETF, VanEck Commodity Strategy ETF,
VanEck Dynamic High Income ETF, VanEck Ethereum Strategy ETF, VanEck
HIP
Sustainable
Muni ETF and VanEck Inflation Allocation ETF) has an investment objective of
seeking to replicate as closely as possible, before fees and expenses, the price
and yield performance of its respective underlying index. The Advisers do not
believe that management of the various accounts presents a material conflict of
interest for Ms. Wang and Messrs. Driscoll, Lasta, Lau, Liao, Mailloux,
Rodilosso and Schassler or the Advisers.
PineBridge
Investments LLC (relating to VanEck CLO ETF only).
The
following table lists the number and types of other accounts advised by the
portfolio manager at the Sub-Adviser and assets under management in those
accounts as of the end of the last fiscal year of the funds she manages. If a
portfolio
manager
is a primary portfolio manager for multiple funds with different fiscal year
ends, information is provided as of the most recent fiscal year end of the
relevant funds, except if otherwise indicated.
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|
Portfolio
Manager |
Other
Accounts Managed |
Applicable
Fiscal Year End |
Category
of Account |
Number
of Accounts in Category |
Total
Assets in Accounts in Category |
|
Laila
Kollmorgen |
Registered
Investment Companies* |
2 |
$445
million |
12/31/2023 |
Other
Pooled Investment Vehicles** |
3 |
$949
million |
12/31/2023 |
Other
Accounts |
19 |
$1.69
billion |
12/31/2023 |
*This
category represents CLO sleeves of registered investment companies managed by
the Sub-Adviser.
**
This category represents pooled investment vehicle allocations into the
Sub-Adviser’s CLO tranche strategies.
Performance-Based
Accounts (The number of accounts and the total assets in the accounts managed by
the portfolio manager with respect to which the advisory fee is based on the
performance of the account.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
Other
Accounts Managed |
Applicable
Fiscal Year End |
Category
of Account |
Number
of Accounts in Category |
Total
Assets in Accounts in Category |
|
Laila
Kollmorgen |
Registered
Investment Companies* |
1 |
$116
million |
12/31/2023 |
Other
Pooled Investment Vehicles |
0 |
$0 |
12/31/2023 |
Other
Accounts |
0 |
$0 |
12/31/2023 |
*This
category represents CLO sleeves of registered investment companies managed by
the Sub-Adviser.
The
portfolio manager at the Sub-Adviser manages other funds and mandates that
purchase investment grade and below-investment grade CLO securities, which
creates conflicts of interest with respect to portfolio management decisions and
execution. The Sub-Adviser recognizes that it may be subject to a conflict of
interest with respect to allocations of investment opportunities and
transactions among its clients. To mitigate these conflicts, the Sub-Adviser’s
policies and procedures seek to provide that investment decisions are made in
accordance with the fiduciary duties owed to such accounts and without
consideration of the Sub-Adviser’s economic, investment or other financial
interests.
Portfolio
Manager Compensation
Van
Eck Associates Corporation and Van Eck Absolute Return Advisers
Corporation
The
portfolio managers are paid a fixed base salary and a bonus. The bonus is based
upon the quality of investment analysis and the management of the funds. The
quality of management of the funds includes issues of replication, rebalancing,
portfolio monitoring and efficient operation, among other factors. Portfolio
managers who oversee accounts with significantly different fee structures are
generally compensated by discretionary bonus rather than a set formula to help
reduce potential conflicts of interest. At times, the Advisers and their
affiliates manage accounts with incentive fees. The portfolio managers may serve
as portfolio managers to other clients. Such “Other Clients” may have investment
objectives or may implement investment strategies similar to those of the Funds,
or, except for VanEck CLO ETF, VanEck Commodity Strategy ETF, VanEck Dynamic
High Income ETF, VanEck Ethereum Strategy ETF, VanEck HIP
Sustainable
Muni ETF or VanEck Inflation Allocation ETF, may track the same index a Fund
tracks. When the portfolio managers implement investment strategies for Other
Clients that are similar or directly contrary to the positions taken by a Fund,
the prices of the Fund’s securities may be negatively affected. The compensation
that the Funds’ portfolio managers receive for managing other client accounts
may be higher than the compensation the portfolio managers receive for managing
the Funds. VEAC and VEARA have implemented procedures to monitor trading across
funds and its Other Clients.
PineBridge
Invetsments, LLC (relating to VanEck CLO ETF only).
Compensation
for all the Sub-Adviser portfolio managers consists of both a salary and a bonus
component. The salary component is a fixed base salary, and does not vary based
on a portfolio manager’s performance. Generally, salary is based upon several
factors, including experience and market levels of salary for such position. The
bonus component is generally discretionally determined based both on a portfolio
manager’s individual performance and the overall performance of the Sub-Adviser.
In assessing individual performance of portfolio managers, both qualitative
performance measures and also quantitative performance measures assessing the
management of a portfolio manager’s funds are considered. A portfolio manager
may be offered a long-term incentive/performance unit plan (“LTI”) to share in
the long-term growth of the company. The LTI plan allows for the granting of
incentive units representing equity interests in the company with the main
objective of
attracting
and retaining talent, incentivizing employee long-term performance and ensuring
employee alignment of interests with the firm’s long-term vision and
goals.
Portfolio
Manager Share Ownership
The
following table lists the dollar range of any Fund Shares beneficially owned by
the primary portfolio manager(s) as of the end of each applicable Fund’s last
fiscal year, except if otherwise indicated.
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
Fund |
Fiscal
Year End |
Dollar
Range
Beneficially
Owned |
Peter
H. Liao |
VanEck
Biotech ETF |
September
30, 2023 |
None |
VanEck
Digital Transformation ETF |
September
30, 2023 |
None |
VanEck
Durable High Dividend ETF |
September
30, 2023 |
None |
VanEck
Energy Income ETF |
September
30, 2023 |
None |
VanEck
Environmental Services ETF |
September
30, 2023 |
$10,001
to $50,000 |
VanEck
Fabless Semiconductor ETF |
September
30, 2024 |
None§ |
VanEck
Gaming ETF |
September
30, 2023 |
None |
VanEck
Green Infrastructure ETF |
September
30, 2023 |
None |
VanEck
Morningstar ESG Moat ETF |
September
30, 2023 |
None |
VanEck
Morningstar Global Wide Moat ETF |
September
30, 2023 |
None |
VanEck
Morningstar International Moat ETF |
September
30, 2023 |
$50,001
to $100,000 |
VanEck
Morningstar SMID Moat ETF |
September
30, 2023 |
None |
VanEck
Morningstar Wide Moat ETF |
September
30, 2023 |
$10,001
to $50,000 |
VanEck
Morningstar Wide Moat Growth ETF |
September
30, 2024 |
None†† |
VanEck
Morningstar Wide Moat Value ETF |
September
30, 2024 |
None†† |
VanEck
Pharmaceutical ETF |
September
30, 2023 |
None |
VanEck
Retail ETF |
September
30, 2023 |
None |
VanEck
Robotics ETF |
September
30, 2023 |
None |
VanEck
Semiconductor ETF |
September
30, 2023 |
$10,001
to $50,000 |
VanEck
Social Sentiment ETF |
September
30, 2023 |
None |
VanEck
Video Gaming and eSports ETF |
September
30, 2023 |
None |
|
|
|
VanEck
Africa ETF |
December
31, 2023 |
None |
VanEck
Agribusiness ETF |
December
31, 2023 |
$1
to $10,000 |
VanEck
Brazil Small-Cap ETF |
December
31, 2023 |
None |
VanEck
ChiNext ETF |
December
31, 2023 |
None |
VanEck
Digital India ETF |
December
31, 2023 |
None |
VanEck
Gold Miners ETF |
December
31, 2023 |
$100,001
to $500,000
|
VanEck
Green Metals ETF |
December
31, 2023 |
None |
VanEck
India Growth Leaders ETF |
December
31, 2023 |
None |
VanEck
Indonesia Index ETF |
December
31, 2023 |
None |
VanEck
Israel ETF |
December
31, 2023 |
None |
VanEck
Junior Gold Miners ETF |
December
31, 2023 |
None |
VanEck
Low Carbon Energy ETF |
December
31, 2023 |
None |
VanEck
Natural Resources ETF |
December
31, 2023 |
None |
VanEck
Office and Commercial REIT ETF |
December
31, 2023 |
None |
VanEck
Oil Refiners ETF |
December
31, 2023 |
None |
VanEck
Oil Services ETF |
December
31, 2023 |
None |
VanEck
Rare Earth and Strategic Metals ETF |
December
31, 2023 |
None |
VanEck
Russia ETF |
December
31, 2023 |
None |
VanEck
Russia Small-Cap ETF |
December
31, 2023 |
None |
VanEck
Steel ETF |
December
31, 2023 |
None |
VanEck
Uranium and Nuclear ETF |
December
31, 2023 |
None |
VanEck
Vietnam ETF |
December
31, 2023 |
None |
|
|
|
VanEck
BDC Income ETF |
April
30, 2024 |
None |
VanEck
CEF Muni Income ETF |
April
30, 2024 |
$1
to $10,000 |
VanEck
Mortgage REIT Income ETF |
April
30, 2024 |
$1
to $10,000 |
VanEck
Preferred Securities ex Financials ETF |
April
30, 2024 |
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
Fund |
Fiscal
Year End |
Dollar
Range
Beneficially
Owned |
Chris
Mailloux |
VanEck
CMCI Commodity Strategy ETF (Deputy Portfolio Manager) |
December
31, 2023 |
None* |
VanEck
Ethereum Strategy ETF |
December
31, 2023 |
None* |
|
|
|
|
Stephanie
Wang |
VanEck
High Yield Muni ETF |
April
30, 2024 |
None |
VanEck
HIP Sustainable Muni ETF |
April
30, 2024 |
None |
VanEck
Intermediate Muni ETF |
April
30, 2024 |
None |
VanEck
Long Muni ETF |
April
30, 2024 |
None |
VanEck
Short High Yield Muni ETF |
April
30, 2024 |
None |
VanEck
Short Muni ETF |
April
30, 2024 |
$1
to $10,000 |
|
|
|
|
Francis
G. Rodilosso |
VanEck
China Bond ETF |
April
30, 2024 |
None |
VanEck
CLO ETF |
December
31, 2023 |
$10,001
to $50,000 |
VanEck
Emerging Markets High
Yield Bond ETF |
April
30, 2024 |
$10,001
to $50,000 |
VanEck
Fallen Angel High Yield Bond ETF |
April
30, 2024 |
$10,001
to $50,000 |
VanEck
Green Bond ETF |
April
30, 2024 |
None |
VanEck
IG Floating Rate ETF |
April
30, 2024 |
$10,001
to $50,000 |
VanEck
International High Yield Bond ETF |
April
30, 2024 |
$1
to $10,000 |
VanEck
J.P. Morgan EM Local Currency Bond ETF |
April
30, 2024 |
$1
to $10,000 |
VanEck
Moody's Analytics BBB Corporate Bond ETF |
April
30, 2024 |
$1
to $10,000 |
VanEck
Moody's Analytics IG Corporate Bond ETF |
April
30, 2024 |
$1
to $10,000 |
|
|
|
|
David
Schassler |
VanEck
Commodity Strategy ETF |
September
30, 2023 |
None |
VanEck
Dynamic High Income ETF |
April
30, 2024 |
$10,001
to $50,000 |
VanEck
Inflation Allocation ETF |
September
30, 2023 |
$10,001
to $50,000 |
VanEck
Long/Flat Trend ETF |
September
30, 2023 |
None††† |
|
|
|
|
John
Lau
(Deputy
Portfolio Manager) |
VanEck
Commodity Strategy ETF |
September
30, 2023 |
$1
to $10,000 |
VanEck
Dynamic High Income ETF |
April
30, 2024 |
$1
to $10,000 |
VanEck
Inflation Allocation ETF |
September
30, 2023 |
$1
to $10,000 |
|
|
|
|
Roland
Morris, Jr. |
VanEck
CMCI Commodity Strategy ETF |
December
31, 2023 |
None |
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
Fund |
Fiscal
Year End |
Dollar
Range
Beneficially
Owned |
Griffin
Driscoll (Deputy
Portfolio Manager) |
VanEck
Biotech ETF |
September
30, 2023 |
None†††
|
VanEck
Digital Transformation ETF |
September
30, 2023 |
None†††
|
VanEck
Durable High Dividend ETF |
September
30, 2023 |
None†††
|
VanEck
Energy Income ETF |
September
30, 2023 |
None†††
|
VanEck
Environmental Services ETF |
September
30, 2023 |
None†††
|
VanEck
Fabless Semiconductor ETF |
September
30, 2024 |
None§ |
VanEck
Gaming ETF |
September
30, 2023 |
None†††
|
VanEck
Green Infrastructure ETF |
September
30, 2023 |
None†††
|
VanEck
Morningstar ESG Moat ETF |
September
30, 2023 |
None†††
|
VanEck
Morningstar Global Wide Moat ETF |
September
30, 2023 |
None†††
|
VanEck
Morningstar International Moat ETF |
September
30, 2023 |
None†††
|
VanEck
Morningstar SMID Moat ETF |
September
30, 2023 |
None†††
|
VanEck
Morningstar Wide Moat ETF |
September
30, 2023 |
None†††
|
VanEck
Morningstar Wide Moat Growth ETF |
September
30, 2024 |
None† |
VanEck
Morningstar Wide Moat Value ETF |
September
30, 2024 |
None† |
VanEck
Pharmaceutical ETF |
September
30, 2023 |
None††† |
VanEck
Retail ETF |
September
30, 2023 |
None††† |
VanEck
Robotics ETF |
September
30, 2023 |
None††† |
VanEck
Semiconductor ETF |
September
30, 2023 |
None†††
|
VanEck
Social Sentiment ETF |
September
30, 2023 |
None†††
|
VanEck
Video Gaming and eSports ETF |
September
30, 2023 |
None††† |
|
|
|
VanEck
BDC Income ETF |
April
30, 2024 |
None |
VanEck
CEF Muni Income ETF |
April
30, 2024 |
None |
VanEck
Mortgage REIT Income ETF |
April
30, 2024 |
None |
VanEck
Preferred Securities ex Financials ETF |
April
30, 2024 |
None |
|
|
|
|
Ralph
Lasta (Deputy
Portfolio Manager) |
VanEck
Africa ETF |
December
31, 2023 |
None* |
VanEck
Agribusiness ETF |
December
31, 2023 |
None* |
VanEck
Brazil Small-Cap ETF |
December
31, 2023 |
None* |
VanEck
ChiNext ETF |
December
31, 2023 |
None* |
VanEck
Digital India ETF |
December
31, 2023 |
None* |
VanEck
Gold Miners ETF |
December
31, 2023 |
None* |
VanEck
Green Metals ETF |
December
31, 2023 |
None* |
VanEck
India Growth Leaders ETF |
December
31, 2023 |
None* |
VanEck
Indonesia Index ETF |
December
31, 2023 |
None* |
VanEck
Israel ETF |
December
31, 2023 |
None* |
VanEck
Junior Gold Miners ETF |
December
31, 2023 |
None* |
VanEck
Low Carbon Energy ETF |
December
31, 2023 |
None* |
VanEck
Natural Resources ETF |
December
31, 2023 |
None†††† |
VanEck
Office and Commercial REIT ETF |
December
31, 2023 |
None |
VanEck
Oil Refiners ETF |
December
31, 2023 |
None* |
VanEck
Oil Services ETF |
December
31, 2023 |
None* |
VanEck
Rare Earth and Strategic Metals ETF |
December
31, 2023 |
None* |
VanEck
Steel ETF |
December
31, 2023 |
None* |
VanEck
Uranium and Nuclear ETF |
December
31, 2023 |
None* |
VanEck
Vietnam ETF |
December
31, 2023 |
None* |
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
Fund |
Fiscal
Year End |
Dollar
Range
Beneficially
Owned |
|
|
|
|
Joseph
Schafer (Deputy
Portfolio Manager) |
VanEck
Long/Flat Trend ETF |
September
30, 2023 |
None†† |
*
Information for Messrs. Lasta and Mailloux is provided as of March 31, 2024.
†
Information
for Messrs. Liao and Driscoll is provided as of August 31, 2023.
††
Information
for Messrs. Schassler and Schafer is provided as of December 31,
2023.
†††
Information
for Mr. Driscoll is provided as of December 31, 2023.
††††
Information
for Mr. Lasta is provided as of January 31, 2024.
§
Information for Messrs. Liao and Driscoll is provided as of June 30,
2024.
Ms.
Kollmorgen owns $50,001 to $100,000 in Shares of VanEck CLO ETF, as of December
31, 2023.
BROKERAGE
TRANSACTIONS
When
selecting brokers and dealers to handle the purchase and sale of portfolio
securities, the Advisers and the Sub-Adviser (with respect to VanEck CLO ETF)
look for prompt execution of the order at a favorable price. Generally, the
Advisers and the Sub-Adviser work with recognized dealers in these securities,
except when a better price and execution of the order can be obtained elsewhere.
The Funds will not deal with affiliates in principal transactions unless
permitted by exemptive order or applicable rule or regulation. The Advisers and
the Sub-Adviser (as applicable) owe a duty to each of their clients to seek best
execution on trades effected. Since the investment objective of certain Funds is
investment performance that corresponds to that of an Index, the Advisers and
the Sub-Adviser (as applicable) do not intend to select brokers and dealers for
the purpose of receiving research services in addition to a favorable price and
prompt execution either from that broker or an unaffiliated third
party.
Each
Adviser assumes general supervision over placing orders on behalf of the Trust
for the purchase or sale of portfolio securities. If purchases or sales of
portfolio securities of the Trust and one or more other investment companies or
clients supervised by an Adviser are considered at or about the same time,
transactions in such securities are allocated among the several investment
companies and clients in a manner deemed equitable to all by the Adviser. In
some cases, this procedure could have a detrimental effect on the price or
volume of the security so far as the Trust is concerned. However, in other
cases, it is possible that the ability to participate in volume transactions and
to negotiate lower brokerage commissions will be beneficial to the Trust. The
primary consideration is best execution.
The
Sub-Adviser oversees placing orders on behalf of the assets of the VanEck CLO
ETF, allocated to them for the purchase or sale of portfolio securities. If
purchases or sales of portfolio securities of the assets of VanEck CLO ETF, as
applicable, allocated to them and one or more other investment companies or
clients supervised by the Sub-Adviser are considered at or about the same time,
transactions in such securities will be made among the several investment
companies and clients in a manner deemed appropriate by the Sub-Adviser
consistent with their duty to seek best execution.
Portfolio
turnover may vary from year to year, as well as within a year. High turnover
rates are likely to result in comparatively greater brokerage expenses,
additional taxable income at a Fund level and additional taxable distributions.
The overall reasonableness of brokerage commissions is evaluated by the Advisers
based upon their knowledge of available information as to the general level of
commissions paid by other institutional investors for comparable
services.
VanEck
ChiNext ETF experienced a significant increase in portfolio turnover for the
fiscal year ended December 31, 2023 related to changes to the Fund's investment
strategy and changes to the Fund's positioning in connection
therewith.
VanEck
Vietnam ETF may experience an increase in portfolio turnover for the fiscal year
ended December 31, 2023 in connection with the changes to the Fund's investment
objective and principal investment strategies which came into effect on March
17, 2023.
Each
of VanEck Moody's Analytics BBB Corporate Bond ETF and VanEck Moody's Analytics
IG Corporate Bond ETF experienced an increase in portfolio turnover for the
fiscal year ended April 30, 2023 due to an increase in the number of portfolio
transactions.
Because
VanEck Morningstar Wide Moat Growth ETF and VanEck Morningstar Wide Moat Value
ETF did not commence operations until March 26, 2024, any brokerage commissions
paid by the Fund are not reflected in this SAI.
Because
VanEck Fabless Semiconductor ETF did not commence operations until August 27,
2024, any brokerage commissions paid by the Fund are not reflected in this
SAI.
VanEck
Natural Resources ETF may experience an increase in portfolio turnover for the
fiscal year ending December 31, 2024 in connection with the changes to the
Fund’s investment objective, principal investment strategies and benchmark which
came into effect on March 15, 2024.
Due
to changes in the VanEck China Bond ETF’s principal investment strategies,
following May 31, 2024 the Fund may experience a higher level of portfolio
turnover in the current fiscal year than in previous fiscal years.
The
aggregate brokerage commissions paid by each Fund during its last three fiscal
years as applicable, are set forth in the charts below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
Commissions Paid During the Fiscal Year Ended December 31, |
|
|
|
|
|
|
|
Fund
|
|
2021 |
|
2022 |
|
2023 |
VanEck
Africa Index ETF |
|
$97,366 |
|
|
$63,166 |
|
|
$62,181 |
|
VanEck
Agribusiness ETF** |
|
$281,642 |
|
|
$520,102 |
|
|
$200,649 |
|
VanEck
Brazil Small-Cap ETF |
|
$54,763 |
|
|
$20,251 |
|
|
$15,474 |
|
VanEck
ChiNext ETF* |
|
$48,053 |
|
|
$10,513 |
|
|
$44,172 |
|
VanEck
CLO ETF(i) |
|
N/A |
|
$0 |
|
|
$0 |
|
VanEck
CMCI Commodity Strategy ETF(ii) |
|
N/A |
|
N/A |
|
$0 |
|
VanEck
Digital India ETF(iii) |
|
N/A |
|
$1,950 |
|
|
$6,005 |
|
VanEck
Ethereum Strategy ETF(iv) |
|
N/A |
|
N/A |
|
$0 |
|
VanEck
Gold Miners ETF |
|
$2,938,490 |
|
|
$2,862,493 |
|
|
$1,407,794 |
|
VanEck
Green Metals ETF***(v) |
|
$16,886
|
|
$26,769 |
|
|
$9,252 |
|
VanEck
India Growth Leaders ETF |
|
$106,532 |
|
|
$98,967 |
|
|
$55,955 |
|
VanEck
Indonesia Index ETF |
|
$26,036 |
|
|
$27,322 |
|
|
$12,452 |
|
VanEck
Israel ETF |
|
$36,765 |
|
|
$11,697 |
|
|
$10,502 |
|
VanEck
Junior Gold Miners ETF |
|
$1,759,305 |
|
|
$1,541,885 |
|
|
$1,172,844 |
|
VanEck
Low Carbon Energy ETF |
|
$214,002 |
|
|
$53,465 |
|
|
$44,686 |
|
VanEck
Natural Resources ETF*** |
|
$29,406 |
|
|
$48,511 |
|
|
$37,130 |
|
VanEck
Office and Commercial REIT ETF(vi) |
|
N/A |
|
N/A |
|
$57 |
|
VanEck
Oil Refiners ETF*** |
|
$5,653 |
|
|
$25,013 |
|
|
$11,261 |
|
VanEck
Oil Services ETF** |
|
$370,466 |
|
|
$558,173 |
|
|
$463,728 |
|
VanEck
Rare Earth and Strategic Metals ETF |
|
$1,806,484 |
|
|
$732,091 |
|
|
$281,055 |
|
VanEck
Russia ETF* |
|
$480,356 |
|
|
$24,346 |
|
|
$332,191 |
|
VanEck
Russia Small-Cap ETF |
|
$32,733 |
|
|
$7,287 |
|
|
$0 |
|
VanEck
Steel ETF |
|
$36,460 |
|
|
$27,675 |
|
|
$24,451 |
|
VanEck
Uranium and Nuclear ETF*** |
|
$9,185 |
|
|
$21,377 |
|
|
$41,089 |
|
VanEck
Vietnam ETF* |
|
$509,100 |
|
|
$503,786 |
|
|
$617,675 |
|
*VanEck
ChiNext ETF, VanEck Russia ETF and VanEck Vietnam ETF experienced increased
aggregate brokerage commissions for the fiscal year ended December 31, 2023 due
to an increase in the number and/cost of portfolio transactions.
**VanEck
Agribusiness ETF and VanEck Oil Services ETF experienced increased aggregate
brokerage commissions for the fiscal year ended December 31, 2022 due to an
increase in the number of portfolio transactions.
***VanEck
Green Metals ETF, VanEck Natural Resources ETF, VanEck Oil Refiners ETF ETF and
VanEck Uranium and Nuclear ETF experienced increased aggregate brokerage
commissions in 2022 due to an increase in the number of portfolio
transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
Commissions Paid During the Fiscal Year Ended April 30, |
|
|
|
|
|
|
|
Fund
|
|
2022 |
|
2023 |
|
2024 |
VanEck
BDC Income ETF |
|
$181,035 |
|
|
$121,260 |
|
|
$126,318 |
|
VanEck
CEF Muni Income ETF††† |
|
$37,648 |
|
|
$34,175 |
|
|
$43,017 |
|
VanEck
China Bond ETF |
|
$19,323 |
|
|
$12,830 |
|
|
$660 |
|
VanEck
Dynamic High Income ETF (vii) |
|
N/A |
|
$34 |
|
|
$206 |
|
VanEck
Emerging Markets High Yield Bond ETF |
|
$
– |
|
$
– |
|
$
– |
VanEck
Fallen Angel High Yield Bond ETF |
|
$
– |
|
$
– |
|
$
– |
VanEck
Green Bond ETF |
|
$
– |
|
$
– |
|
$
– |
VanEck
High Yield Muni ETF |
|
$
– |
|
$
– |
|
$
– |
VanEck
HIP Sustainable Muni ETF |
|
$
– |
|
$
– |
|
$
– |
VanEck
IG Floating Rate ETF |
|
$
– |
|
$
– |
|
$
– |
VanEck
Intermediate Muni ETF |
|
$
– |
|
$
– |
|
$
– |
VanEck
International High Yield Bond ETF |
|
$
– |
|
$5 |
|
|
$
– |
VanEck
J.P. Morgan EM Local Currency Bond ETF††† |
|
$
– |
|
$
– |
|
$32,719 |
VanEck
Long Muni ETF |
|
$
– |
|
$
– |
|
$
– |
VanEck
Moody's Analytics BBB Corporate Bond ETF |
|
$
– |
|
$
– |
|
$
– |
VanEck
Moody's Analytics IG Corporate Bond ETF |
|
$
– |
|
$
– |
|
$
– |
VanEck
Mortgage REIT Income ETF |
|
$50,532 |
|
|
$50,260 |
|
|
$50,488 |
|
VanEck
Preferred Securities ex Financials ETF |
|
$362,499 |
|
|
$194,462 |
|
|
$223,273 |
|
VanEck
Short High Yield Muni ETF |
|
$
– |
|
$
– |
|
$
– |
VanEck
Short Muni ETF |
|
$
– |
|
$
– |
|
$
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage
Commissions Paid During the Fiscal Year Ended September
30, |
|
|
|
|
|
|
|
Fund
|
|
2021 |
|
2022 |
|
2023 |
VanEck
Biotech ETF |
|
$154,657 |
|
|
$100,096 |
|
|
$64,762 |
|
VanEck
Commodity Strategy ETF(viii) |
|
N/A |
|
N/A |
|
$5,018 |
|
VanEck
Digital Transformation ETF(ix) |
|
$19,784 |
|
|
$33,958 |
|
|
$21,663 |
|
VanEck
Durable High Dividend ETF††
|
|
$9,830 |
|
|
$13,222 |
|
|
$22,838 |
|
VanEck
Energy Income ETF |
|
$8,239 |
|
|
$8,977 |
|
|
$8,183 |
|
VanEck
Environmental Services ETF |
|
$10,102 |
|
|
$17,734 |
|
|
$19,632 |
|
VanEck
Fabless Semiconductor ETF (x) |
|
N/A |
|
N/A |
|
N/A |
VanEck
Gaming ETF |
|
$34,952 |
|
|
$19,713 |
|
|
$17,810 |
|
VanEck
Green Infrastructure ETF(xi) |
|
N/A |
|
N/A |
|
$142 |
|
VanEck
Inflation Allocation ETF†† |
|
$3,139 |
|
|
$13,828 |
|
|
$67,605 |
|
VanEck
Long/Flat Trend ETF |
|
$492 |
|
|
$20,418 |
|
|
$18,532 |
|
VanEck
Morningstar ESG Moat ETF(xii) |
|
N/A |
|
$460 |
|
|
$771 |
|
VanEck
Morningstar Global Wide Moat ETF |
|
$7,004 |
|
|
$8,827 |
|
|
$8,792 |
|
VanEck
Morningstar International Moat ETF††
|
|
$63,417 |
|
|
$67,224 |
|
|
$114,874 |
|
VanEck
Morningstar SMID Moat ETF(xiii) |
|
N/A |
|
N/A |
|
$25,372 |
|
VanEck
Morningstar Wide Moat ETF† |
|
$1,243,588 |
|
|
$1,519,531 |
|
|
$1,773,064 |
|
VanEck
Morningstar Wide Moat Growth ETF(xiv) |
|
N/A |
|
N/A |
|
N/A |
VanEck
Morningstar Wide Moat Value ETF(xiv) |
|
N/A |
|
N/A |
|
N/A |
VanEck
Pharmaceutical ETF |
|
$69,986 |
|
|
$79,347 |
|
|
$88,581 |
|
VanEck
Retail ETF |
|
$38,685 |
|
|
$24,721 |
|
|
$21,768 |
|
VanEck
Robotics ETF(xv) |
|
N/A |
|
N/A |
|
$235 |
|
VanEck
Semiconductor ETF |
|
$953,017 |
|
|
$1,099,681 |
|
|
$1,141,976 |
|
VanEck
Social Sentiment ETF(xvi) |
|
$169,137 |
|
|
$117,725 |
|
|
$55,808 |
|
VanEck
Video Gaming and eSports ETF |
|
$354,411 |
|
|
$241,223 |
|
|
$122,296 |
|
(i)
VanEck CLO ETF did not commence operations until June 22, 2022.
(ii)
VanEck CMCI Commodity Strategy ETF did not commence operations until August 22,
2023.
(iii)
VanEck Digital India ETF did not commence operations until February 16,
2022.
(iv)
VanEck Ethereum Strategy ETF did not commenced operations until October 3,
2023.
(v)
VanEck Green Metals ETF did not commence operations until November 10,
2021.
(vi)
VanEck
Office and Commercial REIT ETF did not commence operations until September 20,
2023.
(vii)
VanEck Dynamic High Income ETF did not commence operations until November 1,
2022.
(viii)
VanEck Commodity Strategy ETF did not commence operations until December 20,
2022.
(ix)
VanEck Digital Transformation ETF did not commence operations until April 12,
2021.
(x)
VanEck
Fabless Semiconductor ETF did not commence operations until August 27,
2024.
(xi)
VanEck Green Infrastructure ETF did not commence operations until October 18,
2022.
(xii)
VanEck Morningstar ESG Moat ETF did not commence operations until October 5,
2021.
(xiii)
VanEck Morningstar SMID Moat ETF did not commence operations until October 4,
2022.
(xiv)
VanEck Morningstar Wide Moat Growth ETF and VanEck Morningstar Wide Moat Value
ETF did not
commence operations until March 26, 2024.
(xv)
VanEck
Robotics ETF did not commence operations until April 5, 2023.
(xvi)
VanEck Social Sentiment ETF did not commence operations until March 2,
2021.
†
VanEck Morningstar Wide ETF experienced increased aggregate brokerage
commissions for the fiscal years ended September 30, 2021, September 30, 2022
and September 30, 2023 due to an increase in the number of portfolio
transactions.
††
VanEck Durable High Dividend ETF, VanEck Inflation Allocation ETF and VanEck
Morningstar International Moat ETF experienced increased aggregate brokerage
commissions for the fiscal year ended September 30, 2023 due to an increase in
the number of portfolio transactions.
†††
VanEck CEF Muni Income ETF and VanEck J.P. Morgan EM Local Currency Bond ETF
experienced increased aggregate brokerage commissions for the fiscal year ended
April 30, 2024 due to an increase in the number of portfolio
transactions.
BOOK
ENTRY ONLY SYSTEM
The
following information supplements and should be read in conjunction with the
section in each Fund’s Prospectus entitled “Shareholder Information—Buying and
Selling Exchange-Traded Shares.”
The
Depository Trust Company (“DTC”) acts as securities depositary for the Shares.
Shares of the Funds are represented by securities registered in the name of DTC
or its nominee and deposited with, or on behalf of, DTC. Certificates will not
be issued for Shares.
DTC,
a limited-purpose trust company, was created to hold securities of its
participants (the “DTC Participants”) and to facilitate the clearance and
settlement of securities transactions among the DTC Participants in such
securities through electronic 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 owned by
a number of its DTC Participants and by the New York Stock Exchange (“NYSE”) and
FINRA. 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 (the
“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.
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 Shares holdings of each DTC
Participant. The Trust shall inquire of each such DTC Participant as to the
number of Beneficial Owners holding Shares, directly or indirectly, through such
DTC Participant. The Trust 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. 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 the Shares at
any time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action either to find a replacement for DTC
to perform its functions at a comparable cost or, if such 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.
CREATION
AND REDEMPTION OF CREATION UNITS
General
The
Funds issue and sell Shares only in Creation Units on a continuous basis through
the Distributor, without an initial sales load, at their NAV next determined
after receipt, on any Business Day (as defined herein), of an order in proper
form. An Authorized Participant that is not a “qualified institutional buyer,”
as such term is defined under Rule 144A of the Securities Act, will not be able
to receive, as part of a redemption, restricted securities eligible for resale
under Rule 144A.
A
“Business Day” with respect to the Funds 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, President’s Day
(Washington’s Birthday), Good Friday, Memorial Day, Juneteenth National
Independence Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. The times described below may change due to certain events such as the
early closing of trading on the NYSE.
Fund
Deposit
The
consideration for a purchase of Creation Units of certain Funds generally
consists of the in-kind deposit of a designated portfolio of securities (the
“Deposit Securities”) and an amount of cash computed as described below (the
“Cash Component”). The Cash Component together with the Deposit Securities, as
applicable, are referred to as the “Fund Deposit,” which represents the minimum
initial and subsequent investment amount for Shares. Due to various legal and
operational constraints in certain countries in which certain Funds invest,
Creation Units of these Funds as set forth in the table under the heading
“Creation and Redemption Features” are issued partially or principally for
cash.
The
Cash Component represents the difference between the NAV of a Creation Unit and
the market value of the Deposit Securities plus applicable transaction fees (as
described below).
Each
Administrator, through the NSCC, makes available on each Business Day, prior to
the opening of business on the NYSE (currently 9:30 a.m., Eastern time), a list
of the names and the required amounts of each Deposit Security that each Fund
would accept as Fund Deposit that day. Such Fund Deposit is applicable, subject
to any adjustments as described below, until such time as the next-announced
Fund Deposit composition is made available.
Each
Fund reserves the right to permit or require the substitution of an amount of
cash—referred to as “cash in lieu” to replace any Deposit Security. This may
occur, for example, if a Deposit Security is not available in sufficient
quantity for delivery, not eligible for transfer through the systems of DTC, the
Federal Reserve System or the clearing process through the Continuous Net
Settlement System of the NSCC, not permitted to be re-registered in the name of
the Trust as a result of an in-kind purchase order pursuant to local law or
market convention, restricted under the securities laws or not eligible for
trading by an Authorized Participant or the investor for which it is acting. In
such cases where the Trust makes Market Purchases (as defined below) because a
Deposit Security may not be permitted to be re-registered in the name of the
Trust as a result of an in-kind creation order pursuant to local law or market
convention, or for other reasons, the Authorized Participant will reimburse
the
Trust for, among other things, any difference between the market value at which
the securities were purchased by the Trust and the cash in lieu amount (which
amount, at the Advisers’ discretion, may be capped), applicable registration
fees and taxes. Brokerage commissions incurred in connection with the Trust’s
acquisition of Deposit Securities may be at the expense of each Fund and, to the
extent such commissions are at the expense of a Fund, will affect the value of
all Shares of the Fund, but the Advisers may adjust the transaction fee to
protect ongoing shareholders.
Each
Administrator, through the NSCC, also makes available on each Business Day the
estimated Cash Component effective through and including the previous Business
Day, per outstanding Shares of the Fund.
Procedures
for Creation of Creation Units
To
be eligible to place orders with the Distributor to create Creation Units of the
Funds, an entity or person must be an “Authorized Participant” which is a member
or participant of a clearing agency registered with the SEC, which has a written
agreement with a Fund that allows the Authorized Participant to place orders for
the purchase and redemption of Creation Units (as it may be amended from time to
time in accordance with its terms) (“Participant Agreement”).
All
orders to create Creation Units, whether through the Clearing Process or outside
the Clearing Process, must be received by the Distributor no later than the
closing time of the regular trading session on the NYSE (“Closing Time”)
(ordinarily 4:00 p.m., Eastern time) on the date such order is placed in order
for creation of Creation Units to be effected based on the NAV of a Fund as
determined on such date. The Business Day on which a creation order (or order to
redeem as discussed below) is placed is herein referred to as the “Transmittal
Date.” Orders must be transmitted by telephone or other transmission method
acceptable to the Distributor, as generally described below (see “—Placement of
Creation Orders Using Clearing Process”). Severe economic or market disruptions
or changes, or telephone or other communication failure, may impede the ability
to reach the Distributor or an Authorized Participant.
In
connection with all orders to create Creation Units for certain Funds that
invest in markets that require prefunding (including, for example, the China
Funds), the Authorized Participant will be required to post collateral with the
Trust consisting of cash in an amount up to 115% of the net asset value of the
Funds’ shares included in the order. The cash collateral will be used to cover
creation transaction fees and as collateral for securities which were not
available for purchase. The Trust will return any unused portion of the
collateral to the Authorized Participant.
Creation
Units may be created in advance of the receipt by the Trust of all or a portion
of the Fund Deposit. In such cases, the Authorized Participant will remain
liable for the full deposit of the missing portion(s) of the Fund Deposit and
will be required to post collateral with the Trust consisting of cash at least
equal to a percentage of the marked-to-market value of such missing portion(s).
The Trust may use such collateral to buy the missing portion(s) of the Fund
Deposit at any time and will subject such Authorized Participant to liability
for any shortfall between the cost to the Trust of purchasing such securities
and the value of such collateral. The Trust will have no liability for any such
shortfall. The Trust will return any unused portion of the collateral to the
Authorized Participant once the entire Fund Deposit has been properly received
by the Distributor and deposited into the Trust.
Orders
to create Creation Units of a Fund shall be placed with an Authorized
Participant, as applicable, in the form required by such Authorized Participant.
Investors should be aware that their particular broker may not have executed a
Participant Agreement, and that, therefore, orders to create Creation Units of
the Funds may have to be placed by the investor’s broker through an Authorized
Participant who has executed a Participant Agreement. At any given time there
may be only a limited number of broker-dealers that have executed a Participant
Agreement. Those placing orders to create Creation Units of a Fund through the
Clearing Process should afford sufficient time to permit proper submission of
the order to the Distributor prior to the Closing Time on the Transmittal
Date.
Orders
for creation that are effected outside the Clearing Process are likely to
require transmittal by the Authorized Participant earlier on the Transmittal
Date than orders effected using the Clearing Process. Those persons placing
orders outside the Clearing Process should ascertain the deadlines applicable to
DTC and the Federal Reserve Bank wire system by contacting the operations
department of the broker or depository institution effectuating such transfer of
Deposit Securities and Cash Component.
Orders
to create Creation Units of certain Funds may be placed through the Clearing
Process utilizing procedures applicable to funds holding domestic securities
(“Domestic Funds”) (see “—Placement of Creation Orders Using Clearing Process”)
or outside the Clearing Process utilizing the procedures applicable to either
Domestic Funds or funds holding foreign securities (“Foreign Funds”) (see
“—Placement of Creation Orders Outside Clearing Process—Domestic Funds” and
“—Placement of Creation Orders Outside Clearing Process—Foreign Funds”). In the
event that a Fund includes both domestic and foreign securities, the time for
submitting orders is as stated in the “Placement of Creation Orders Outside
Clearing Process—Foreign Funds” and “Placement of Redemption Orders Outside
Clearing Process—Foreign Funds” sections below shall operate.
Placement
of Creation Orders Using Clearing Process
Fund
Deposits created through the Clearing Process, if available, must be delivered
through an Authorized Participant that has executed a Participant
Agreement.
The
Participant Agreement authorizes the Distributor to transmit to NSCC on behalf
of the Authorized Participant such trade instructions as are necessary to effect
the Authorized Participant’s creation order. Pursuant to such trade instructions
from the Distributor to NSCC, the Authorized Participant agrees to transfer the
requisite Deposit Securities (or contracts to purchase such Deposit Securities
that are expected to be delivered in a “regular way” manner) and the Cash
Component to the Trust by the prescribed settlement date. An order to create
Creation Units of a Fund through the Clearing Process is deemed received by the
Distributor on the Transmittal Date if (i) such order is received by the
Distributor not later than the Closing Time on such Transmittal Date and (ii)
all other procedures set forth in the Participant Agreement are properly
followed. The delivery of Creation Units so created will occur by the prescribed
settlement date.
Placement
of Creation Orders Outside Clearing Process—Domestic Funds
Fund
Deposits created outside the Clearing Process must be delivered through an
Authorized Participant that has executed a Participant Agreement. An Authorized
Participant who wishes to place an order creating Creation Units of the Funds to
be effected outside the Clearing Process must state in such order that the
Authorized Participant is not using the Clearing Process and that the creation
of Creation Units will instead be effected through a transfer of securities and
cash. The Fund Deposit transfer must be ordered by the Authorized Participant in
a manner so as to ensure the timely delivery of the requisite amounts of Deposit
Securities through DTC to the account of the Trust.
All
questions as to the amounts of Deposit Securities to be delivered, and the
validity, form and eligibility (including time of receipt) for the deposit of
any tendered securities, will be determined by the Trust, whose determination
shall be final and binding. The cash equal to the Cash Component must be
transferred directly to the Distributor through the Federal Reserve wire system
in a timely manner. An order to create Creation Units of a Fund outside the
Clearing Process is deemed received by the Distributor on the Transmittal Date
if (i) such order is received by the Distributor not later than the Closing Time
on such Transmittal Date; and (ii) all other procedures set forth in the
Participant Agreement are properly followed. However, if the Distributor does
not receive both the requisite Deposit Securities and the Cash Component in a
timely fashion, such order may be cancelled. Upon written notice to the
Distributor, such cancelled order may be resubmitted the following Business Day
using the Fund Deposit as newly constituted to reflect the current NAV of the
applicable Fund. The delivery of Creation Units so created will occur by the
prescribed settlement date.
Additional
transaction fees may be imposed with respect to transactions effected outside
the Clearing Process (through an Authorized Participant) and in circumstances in
which any cash can be used in lieu of Deposit Securities to create
Creation Units. (See “Creation Transaction Fee” section
below.)
Placement
of Creation Orders Outside Clearing Process—Foreign Funds
The
following section does not apply to VanEck Ethereum Strategy ETF. For a
discussion regarding VanEck Ethereum Strategy ETF’s investments, see the
“Investment Policies and Restrictions—General” section above.
The
Distributor will inform the Transfer Agent, the Advisers and the Custodian upon
receipt of a Creation Order. The Custodian will then provide such information to
the appropriate sub-custodian. The Custodian will cause the sub-custodian of
such Fund to maintain an account into which the Deposit Securities (or the cash
value of all or part of such securities or “cash in lieu” amount) will be
delivered. Deposit Securities must be delivered to an account maintained at the
applicable local custodian. The Trust must also receive, on or before the
contractual settlement date, immediately available or same day funds estimated
by the Custodian to be sufficient to pay the Cash Component next determined
after receipt in proper form of the purchase order, together with the creation
transaction fee described below.
Once
the Transfer Agent has accepted a creation order, the Transfer Agent will
confirm the issuance of a Creation Unit of a Fund against receipt of payment, at
such NAV as will have been calculated after receipt in proper form of such
order. The Transfer Agent will then transmit a confirmation of acceptance of
such order.
Creation
Units 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 sub-custodian has confirmed to the Custodian that the required Deposit
Securities (or the cash value thereof) have been delivered to the account of the
relevant sub-custodian, the Distributor and the applicable Adviser will be
notified of such delivery and the Transfer Agent will issue and cause the
delivery of the Creation Units.
Acceptance
of Creation Orders
The
Trust reserves the right to reject a creation order transmitted to it by the
Distributor, including but not limited to the following: (a) the order is not in
proper form; (b) the creator or creators, upon obtaining the Shares, would own
80% or more of the currently outstanding Shares of a Fund; (c) the Deposit
Securities delivered are not as specified by the Administrators, as described
above; (d) the acceptance of the Fund 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 Advisers make it for all practical purposes
impossible to process creation orders.
Examples
of such circumstances include, without limitation, acts of God or public service
or utility problems such as earthquakes, fires, floods, extreme weather
conditions and power outages resulting in telephone, telecopy and computer
failures; wars; civil or military disturbances, including acts of civil or
military authority or governmental actions; terrorism; sabotage; epidemics;
riots; labor disputes; market conditions or activities causing trading halts;
systems failures involving computer or other information systems affecting the
Trust, the Advisers, the Distributor, DTC, the NSCC or any other participant in
the creation process, and similar extraordinary events. The Transfer Agent will
notify an Authorized Participant if an order is rejected. The Trust, the
Custodian, any sub-custodian, the Distributor and the Transfer Agent are under
no duty, however, to give notification of any defects or irregularities in the
delivery of Fund Deposits to Authorized Participants nor shall any of them incur
any liability to Authorized Participants for the failure to give any such
notification.
All
questions as to the amounts of the Deposit Securities and the validity, form,
eligibility and acceptance for deposit of any securities to be delivered shall
be determined by the Trust, and the Trust’s determination shall be final and
binding.
Creation
Transaction Fee
A
standard (fixed) creation transaction fee for each Fund payable to the
Custodian, in the amount set forth in the table found under the “General
Description of the Trust - Creation and Redemption Features” section of this
SAI, is imposed on each creation transaction regardless of the number of
Creation Units purchased in the transaction. However, the Custodian may increase
the standard (fixed) creation transaction fee for administration and settlement
of non-standard orders requiring additional administrative processing by the
Custodian.
In
addition, a variable charge for cash creations or for creations outside the
Clearing Process may be imposed. In the case of cash creations or where the
Trust permits or requires a creator to substitute cash in lieu of depositing a
portion of Deposit Securities, the creator may be assessed an additional
variable charge to compensate the Funds for the costs associated with purchasing
the applicable securities. (See “Fund Deposit” section above.) As a result, in
order to seek to replicate the in-kind creation order process, the Trust expects
to purchase, in the secondary market or 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 the Trust makes Market Purchases, the
Authorized Participant will reimburse the Trust for, among other things, any
difference between the market value at which the securities and/or financial
instruments were purchased by the Trust and the cash in lieu amount (which
amount, at the Adviser’s discretion, may be capped), the costs associated with
certain derivative transactions, applicable registration fees, brokerage
commissions and certain taxes. An 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. Creators of
Creation Units are responsible for the costs of transferring the securities
constituting the Deposit Securities to the account of the Trust. Each Fund may
adjust or waive all or a portion of its creation transaction fee (including both
the fixed and variable components) from time to time.
Redemption
of Creation Units
Shares
may be redeemed only in Creation Units at their NAV next determined after
receipt of a redemption request in proper form by the Distributor, only on a
Business Day and only through an Authorized Participant who has executed a
Participant Agreement. 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. See, with respect to each Fund, the
section entitled “Summary Information—Principal Risks of Investing in the Fund”
and “Additional Information About the Funds’ Investment Strategies and
Risks—Risks of Investing in the Funds” in the Prospectus.
The
Fund Securities that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form (as defined below)
are made available by each Administrator, through NSCC, prior to the opening of
business on the NYSE (currently 9:30 a.m., Eastern Time) on each day that the
NYSE is open for business. An Authorized Participant submitting a redemption
request is deemed to make certain representations to the Trust. The Trust
reserves the right to verify these representations at its discretion, and will
typically require verification with respect to a redemption request from
the
Fund in connection with higher levels of redemption activity and/or short
interest in the Fund. If the Authorized Participant, upon receipt of a
verification request, does not provide sufficient verification of its
representations as determined by the Trust, the redemption request will not be
considered to have been received in proper form, and may be rejected by the
Trust.
With
respect to Funds that are redeemed in kind (as denoted in the “General
Description of the Trust—Creation and Redemption Features” section of this SAI),
the redemption proceeds for a Creation Unit generally consist of Fund Securities
as announced by the relevant Administrator 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 Fund Securities, less the redemption
transaction fee and variable fees described below. Should the Fund Securities
have a value greater than the NAV of the Shares being redeemed, a compensating
cash payment to the Trust equal to the differential plus the applicable
redemption transaction fee will be required to be arranged for by or on behalf
of the redeeming shareholder. Due to various legal and operational constraints
in certain countries in which certain Funds invest, Creation Units of these
Funds as set forth in the table under the heading “Creation and Redemption
Features” are issued partially or principally for cash. For example, VanEck
Ethereum Strategy ETF intends to effect redemptions principally for cash. Each
Fund (other than VanEck Ethereum Strategy ETF) reserves the right to honor a
redemption request by delivering a basket of securities or cash that differs
from the Fund Securities. For the avoidance of doubt, such basket would not
include any digital assets.
Redemption
Transaction Fee
The
standard (fixed) redemption transaction fee for each Fund payable to the
Custodian, in the amount set forth in the chart found under the “General
Description of the Trust - Creation and Redemption Features” section of this
SAI, is imposed on each redemption transaction regardless of the number of
Creation Units redeemed in the transaction. However, the Custodian may increase
the standard (fixed) redemption transaction fee for administration and
settlement of non-standard orders requiring additional administrative processing
by the Custodian.
In
addition, a variable charge for cash redemptions or redemptions outside the
Clearing Process may be imposed. In the case of cash redemptions or partial cash
redemptions (when cash redemptions are permitted or required for a Fund), an
additional variable charge may also be imposed to compensate each applicable
Fund for the costs associated with selling the applicable securities. As a
result, in order to seek to replicate the in-kind redemption order process, the
Trust expects to sell, in the secondary market, the portfolio securities or
settle any financial instruments that may not be permitted to be re-registered
in the name of the Authorized Participant as a result of an in-kind redemption
order pursuant to local law or market convention, or for other reasons (“Market
Sales”). In such cases where the Trust makes Market Sales, the Authorized
Participant will reimburse the Trust for, among other things, any difference
between the market value at which the securities and/or financial instruments
were sold or settled by the Trust and the cash in lieu amount (which amount, at
the Adviser’s discretion, may be capped), the costs associated with certain
derivatives transactions, applicable registration fees, brokerage commissions
and certain taxes (“Transaction Costs”). An Adviser may adjust the transaction
fee to the extent the composition of the redemption securities changes or cash
in lieu is added to the Cash Component to protect ongoing shareholders. In no
event will the variable fees charged by a Fund in connection with a redemption
exceed 2% of the value of each Creation Unit. Investors who use the services of
a broker or other such intermediary may be charged a fee for such services. To
the extent a Fund cannot recoup the amount of Transaction Costs incurred in
connection with a redemption from the redeeming shareholder because of the 2%
cap or otherwise, those Transaction Costs will be borne by the Fund’s remaining
shareholders and negatively affect the Fund’s performance. Each Fund may adjust
or waive all or a portion of its redemption transaction fee (including both the
fixed and variable components) from time to time.
Portfolio
Trading by Authorized Participants
When
creation or redemption transactions consist of cash, the transactions may
require a Fund to contemporaneously transact with broker-dealers for purchases
or sales of portfolio securities, as applicable. Depending on the timing of the
transactions and certain other factors, such transactions may be placed with the
purchasing or redeeming Authorized Participant in its capacity as a
broker-dealer or with its affiliated broker-dealer and conditioned upon an
agreement with the Authorized Participant or its affiliated broker-dealer to
transact at guaranteed prices in order to reduce transaction costs incurred as a
consequence of settling creations or redemptions in cash rather than
in-kind.
Specifically,
following a Fund’s receipt of a creation or redemption order, to the extent such
purchases or redemptions consist of a cash portion, the Fund may enter an order
with the Authorized Participant or its affiliated broker-dealer to purchase or
sell the portfolio securities, as applicable. Such Authorized Participant or its
affiliated broker-dealer will be required to guarantee that the Fund will
achieve execution of its order at a price at least as favorable to the Fund as
the Fund’s valuation of the portfolio securities used for purposes of
calculating the NAV applied to the creation or redemption transaction giving
rise to the order. Whether the execution of the order is at a price at least as
favorable to the Fund will
depend
on the results achieved by the executing firm and will vary depending on market
activity, timing and a variety of other factors.
If
the broker-dealer executing the order achieves executions in market transactions
at a price more favorable than the Funds’ valuation of the Deposit Securities,
then the Authorized Participant generally may retain the benefit of the
favorable executions, and the Funds will return to the Authorized Participant
the execution performance deposit. If, however, the broker-dealer executing the
order is unable to achieve executions in market transactions at a price at least
equal to the Fund’s valuation of the securities, the Funds retain the portion of
the execution performance deposit equal to the full amount of the execution
shortfall (including any taxes, brokerage commissions or other costs) and may
require the Authorized Participant to deposit any additional amount required to
cover the full amount of the actual execution performance
guarantee.
Placement
of Redemption Orders Using Clearing Process
Orders
to redeem Creation Units of a Fund through the Clearing Process, if available,
must be delivered through an Authorized Participant that has executed a
Participant Agreement. An order to redeem Creation Units of a Fund using the
Clearing Process is deemed received on the Transmittal Date if (i) such order is
received by the Transfer Agent not later than 4:00 p.m., Eastern time on such
Transmittal Date; and (ii) all other procedures set forth in the Participant
Agreement are properly followed; such order will be effected based on the NAV of
the applicable Fund as next determined. An order to redeem Creation Units of a
Fund using the Clearing Process made in proper form but received by the Fund
after 4:00 p.m., Eastern time, will be deemed received on the next Business Day
immediately following the Transmittal Date. The requisite Fund Securities (or
contracts to purchase such Fund Securities which are expected to be delivered in
a “regular way” manner) and the applicable cash payment will be transferred by
the prescribed settlement date.
Placement
of Redemption Orders Outside Clearing Process—Domestic Funds
Orders
to redeem Creation Units of a Fund outside the Clearing Process must be
delivered through an Authorized Participant that has executed a Participant
Agreement. An Authorized Participant who wishes to place an order for redemption
of Creation Units of a Fund to be effected outside the Clearing Process must
state in such order that the Authorized Participant is not using the Clearing
Process and that redemption of Creation Units of the Fund will instead be
effected through transfer of Creation Units of the Fund directly through DTC. An
order to redeem Creation Units of a Fund outside the Clearing Process is deemed
received by the Transfer Agent on the Transmittal Date if (i) such order is
received by the Transfer Agent not later than 4:00 p.m. Eastern time on such
Transmittal Date; (ii) such order is preceded or accompanied by the requisite
number of Shares of Creation Units specified in such order, which delivery must
be made through DTC to the Transfer Agent, on such Transmittal Date; and (iii)
all other procedures set forth in the Participant Agreement are properly
followed.
After
the Transfer Agent has deemed an order for redemption outside the Clearing
Process received, the Transfer Agent will initiate procedures to transfer the
requisite Fund Securities (or contracts to purchase such Fund Securities) and
the cash redemption payment to the redeeming Beneficial Owner by the prescribed
settlement date. An additional variable redemption transaction fee may also be
imposed.
Placement
of Redemption Orders Outside Clearing Process—Foreign Funds
The
following section does not apply to VanEck Ethereum Strategy ETF. For a
discussion regarding VanEck Ethereum Strategy ETF’s investments, see the
“Investment Policies and Restrictions—General” section above.
Arrangements
satisfactory to the Trust must be in place for the Authorized Participant to
transfer the Creation Units through DTC on or before the settlement date.
Redemptions of Shares for Fund Securities will be subject to compliance with
applicable U.S. federal and state securities laws and a Fund reserves the right
to redeem Creation Units for cash to the extent that the Funds could not
lawfully deliver specific Fund Securities upon redemptions or could not do so
without first registering the Deposit Securities under such laws.
In
connection with taking delivery of Shares for Fund Securities upon redemption of
Creation Units, a redeeming shareholder or entity acting on behalf of a
redeeming shareholder must maintain appropriate custody arrangements with a
qualified broker-dealer, bank or other custody providers in each jurisdiction in
which any of the Fund Securities are customarily traded, to which account such
Fund Securities will be delivered. If neither the redeeming shareholder nor the
entity acting on behalf of a redeeming shareholder has appropriate arrangements
to take delivery of the Fund Securities in the applicable foreign jurisdiction
and it is not possible to make other such arrangements, or if it is not possible
to effect deliveries of the Fund Securities in such jurisdictions, the Trust
may, in its discretion, exercise its option to redeem such Shares in cash, and
the redeeming shareholder will be required to receive its redemption proceeds in
cash.
Due
to the schedule of holidays in certain countries or for other reasons, however,
the delivery of redemption proceeds may take longer than the normal settlement
periods. In such cases, the local market settlement procedures will not commence
until the end of the local holiday periods. Each of VanEck India Growth Leaders
ETF and VanEck China Bond ETF generally intends to settle redemption
transactions on the third (3rd)
Business Day following the date on which such request for redemption is deemed
received date (“T+3”).
The
Funds may effect deliveries of Creation Units and redemption proceeds on a basis
other than as described above in order to accommodate local holiday schedules,
to account for different treatment among foreign and U.S. markets of dividend
record dates and ex-dividend dates or under certain other circumstances. If
in-kind creations are permitted or required by the Fund, the ability of the
Trust to effect in-kind creations and redemptions as described above, of receipt
of an order in good form is subject to, among other things, 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 non-U.S.
market that are not holidays observed in the U.S. equity market, the redemption
settlement cycle may be extended by the number of such intervening holidays. In
addition to holidays, other unforeseeable closings in a non-U.S. market due to
emergencies may also prevent the Foreign Funds from delivering securities within
the normal settlement period.
The
securities delivery cycles currently practicable for transferring portfolio
securities to redeeming investors, coupled with non-U.S. market holiday
schedules, will require a delivery process longer than seven calendar days, in
certain circumstances. In such cases, the local market settlement procedures
will not commence until the end of the local holiday periods. The timing of
settlement may also be affected by the proclamation of new holidays, the
treatment by market participants of certain days as “informal holidays”
(e.g.,
days on which no or limited securities transactions occur, as a result of
substantially shortened trading hours), the elimination of existing holidays or
changes in local securities delivery practices.
DETERMINATION
OF NET ASSET VALUE
The
following information supplements and should be read in conjunction with the
section in each Fund’s Prospectus entitled “Shareholder
Information—Determination of NAV.”
The
NAV per Share for each Fund is computed by dividing the value of the net assets
of the Fund (i.e.,
the value of its total assets less total liabilities) by the total number of
Shares outstanding. Expenses and fees, including the management fee, are accrued
daily and taken into account for purposes of determining NAV. The NAV of each
Fund is determined each business day as of the close of trading (ordinarily 4:00
p.m., Eastern time) on the New York Stock Exchange.
The
values of each Fund’s portfolio securities are based on the securities’ closing
prices on the markets on which the securities trade, when available. Due to the
time differences between the United States and certain countries in which
certain Funds invest, securities on these exchanges may not trade at times when
Shares of the Fund will trade. In the absence of a last reported sales price, or
if no sales were reported, and for other assets for which market quotes are not
readily available, values may be based on quotes obtained from a quotation
reporting system, established market makers or by an outside independent pricing
service. Debt instruments with remaining maturities of more than 60 days are
valued at the evaluated mean price provided by an outside independent pricing
service. If an outside independent pricing service is unable to provide a
valuation, the instrument is valued at the mean of the highest bid and the
lowest asked quotes obtained from one or more brokers or dealers selected by the
Advisers. Prices obtained by an outside independent pricing service may use
information provided by market makers or estimates of market values obtained
from yield data related to investments or securities with similar
characteristics and may use a computerized grid matrix of securities and its
evaluations in determining what it believes is the fair value of the portfolio
securities. Short-term debt instruments having a maturity of 60 days or less are
valued at amortized cost. Any assets or liabilities denominated in currencies
other than the U.S. dollar are converted into U.S. dollars at the current market
rates on the date of valuation as quoted by one or more sources. If a market
quotation for a security or other asset is not readily available or the Advisers
believe it does not otherwise accurately reflect the market value of the
security or asset at the time a Fund calculates its NAV, the security or asset
will be fair valued by each Adviser in accordance with the Trust’s valuation
policies and procedures approved by the Board of Trustees. Each Fund may also
use fair value pricing in a variety of circumstances, including but not limited
to, situations when the value of a security in the Fund’s portfolio has been
materially affected by events occurring after the close of the market on which
the security is principally traded (such as a corporate action or other news
that may materially affect the price of a security) or trading in a security has
been suspended or halted. In addition, each Fund that holds foreign equity
securities currently expects that it will fair value certain of the foreign
equity securities held by the Fund each day the Fund calculates its NAV, except
those securities principally traded on exchanges that close at the same time the
Fund calculates its NAV.
Accordingly,
a Fund’s NAV may reflect certain portfolio securities’ fair values rather than
their market prices at the time the exchanges on which they principally trade
close. Fair value pricing involves subjective judgments and it is possible
that
a fair value determination for a security or other asset is materially different
than the value that could be realized upon the sale of such security or asset.
In addition, for certain Funds, fair value pricing could result in a difference
between the prices used to calculate a Fund’s NAV and the prices used by such
Fund’s Index. This may adversely affect certain Fund’s ability to track its
Index. With respect to securities that are principally traded on foreign
exchanges, the value of a Fund’s portfolio securities may change on days when
you will not be able to purchase or sell your Shares.
For
VanEck Ethereum Strategy ETF, the Fund is treated as a regular corporation, or
“C” corporation, for U.S. federal income tax purposes. Accordingly, the Fund is
subject to U.S. federal income tax on its taxable income at the corporate tax
rate as well as state and local income taxes. In calculating the Fund’s daily
NAV, the Fund will, among other things, account for its current taxes and
deferred tax liability and/or asset balances. The Fund may accrue a deferred
income tax liability balance at the corporate tax rate, plus an estimated state
and local income tax rate, for its future tax liability associated with the
capital appreciation of its investments and the distributions received by the
Fund and for any net operating gains. Any deferred tax liability balance will
reduce the Fund’s NAV. The Fund may also accrue a deferred tax asset balance,
which reflects an estimate of the Fund’s future tax benefit associated with net
operating losses and unrealized losses. Any deferred tax asset balance will
increase the Fund’s NAV. To the extent the Fund has a deferred tax asset
balance, consideration is given as to whether or not a valuation allowance,
which would offset the value of some or all of the deferred tax asset balance,
is required. The daily estimate of the Fund’s current taxes and deferred tax
liability and/or asset balances used to calculate the Fund’s NAV could vary
dramatically from the Fund’s actual tax liability or benefit, and, as a result,
the determination of the Fund’s actual tax liability or benefit may have a
material impact on the Fund’s NAV. From time to time, the Fund may modify its
estimates or assumptions regarding its current taxes and deferred tax liability
and/or asset balances as new information becomes available, which modifications
in estimates or assumptions may have a material impact on the Fund’s
NAV.
DIVIDENDS
AND DISTRIBUTIONS
The
following information supplements and should be read in conjunction with the
section in each Fund’s Prospectus entitled “Shareholder
Information—Distributions.”
General
Policies
Each
Fund (except VanEck Ethereum Strategy ETF)
Dividends
from net investment income, if any, are declared and paid monthly for VanEck CLO
ETF, VanEck Dynamic High Income ETF, VanEck Preferred Securities ex Financials
ETF and each Fixed Income Fund, quarterly for each of VanEck BDC Income ETF,
VanEck Durable High Dividend ETF, VanEck Energy Income ETF, VanEck Mortgage REIT
Income ETF, VanEck Office and Commercial REIT ETF and VanEck Pharmaceutical ETF,
and at least annually by each other Fund. Distributions of net realized capital
gains, if any, generally are declared and paid once a year, but the Trust may
make distributions on a more frequent basis for each Fund to improve its index
tracking (for each Fund except VanEck CLO ETF, VanEck Commodity Strategy ETF,
VanEck Dynamic High Income ETF, VanEck HIP Sustainable Muni ETF or VanEck
Inflation Allocation ETF) or to comply with the distribution requirements of the
Internal Revenue Code, in all events in a manner consistent with the provisions
of the 1940 Act. It is currently expected that virtually all net income
(interest less expenses) will be distributed annually for VanEck Morningstar
Global Wide Moat ETF and VanEck Video Gaming and eSports ETF, monthly for VanEck
Preferred Securities ex Financials ETF and each Fixed Income Fund and quarterly
for VanEck BDC Income ETF, VanEck Durable High Dividend ETF, VanEck Energy
Income ETF, VanEck Mortgage REIT Income ETF and VanEck Office and Commercial
REIT ETF, while capital gains distributions will generally occur annually in
December. In addition, in situations where the Fund acquired investment
securities after the beginning of the dividend period, the Fund may elect to
distribute at least annually amounts representing the full dividend yield on the
underlying portfolio securities of the Funds, net of expenses of the Funds, as
if each Fund owned such underlying portfolio securities for the entire dividend
period. If the Fund so elects, some portion of each distribution may result in a
return of capital, which, for tax purposes, is treated as a return of your
investment in Shares.
VanEck
Ethereum Strategy ETF
Distributions
(if any) by the Fund of cash or property in respect of the Shares, whether taken
in cash or reinvested in Shares, 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)
and will be includible in gross income by a U.S. Shareholder upon
receipt.
All
Funds
Dividends
and other distributions on Shares are distributed, as described below, on a pro
rata basis to Beneficial Owners of such Shares. Dividend payments are made
through DTC Participants and Indirect Participants to Beneficial
Owners
then of record with proceeds received from the Trust. With respect to all Funds
(except VanEck Ethereum Strategy ETF), the Trust makes additional distributions
to the minimum extent necessary (i) to distribute the entire annual taxable
income and, with respect to the Equity Income Funds and Fixed Income Funds, net
tax-exempt interest income, of the Trust, plus any net capital gains and (ii) to
avoid imposition of the excise tax imposed by Section 4982 of the Internal
Revenue Code. Management of the Trust reserves the right to declare special
dividends if, in its reasonable discretion, such action is necessary or
advisable to preserve the status of each Fund (except VanEck Ethereum Strategy
ETF) as a RIC or to avoid imposition of income or excise taxes on undistributed
income.
DIVIDEND
REINVESTMENT SERVICE
No
reinvestment service is provided by the Trust. Broker-dealers may make available
the DTC book-entry Dividend Reinvestment Service for use by Beneficial Owners of
the Funds through DTC Participants for reinvestment of their dividend
distributions. If this service is used, dividend distributions of both income
and realized gains will be automatically reinvested in additional whole Shares
of the Funds. 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. Distributions reinvested in additional Shares of the Funds will
nevertheless be taxable to Beneficial Owners acquiring such additional Shares to
the same extent as if such distributions had been received in cash.
CONTROL
PERSONS AND PRINCIPAL SHAREHOLDERS
As
of the date of this SAI, no information concerning the beneficial ownership of
shares for VanEck Fabless Semiconductor ETF, VanEck Morningstar Wide Moat Growth
ETF and VanEck Morningstar Wide Moat Value ETF has been obtained since these
Funds commenced operations on August 27, 2024, March 26, 2024 and March 26,
2024, respectively.
Although
the Trust does not have information concerning the beneficial ownership of
shares held in the names of DTC Participants, the name and percentage ownership
of each DTC Participant that owned of record 5% or more of the outstanding
Shares of a Fund, as of the dates indicated, were as follows:
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Date |
Fund |
Fiscal
Year End |
Name
and Address of Owner of Record |
Percentage
of Class of Fund Owned |
December
31, 2023 |
VanEck
Biotech ETF |
September
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
16.71% |
National
Financial Services, LLC 200 Liberty Street New York, NY 10281 |
13.19% |
Merrill
Lynch, Pierce, Fenner & Smith Inc. 101 Hudson Street, 9th Floor Jersey
City, NJ 07302-3997 |
9.13% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center Plaza II Jersey
City, NJ 07311 |
6.82% |
JP
Morgan Chase Bank, National Associate 14201 Dallas PKWY, Floor 12
Dallas, TX 75254 |
5.81% |
December
31, 2023 |
VanEck
Commodity Strategy ETF |
September
30 |
State
Street Bank & Trust/ State Street TOTAL ETF P.O. BOX 1631
Boston, MA 02105-1631 |
80.44% |
J.P.
Morgan Clearing Corp. 3 Chase Metrotech Center, Proxy Dept./NY1-H034
Brooklyn, NY 11245-0001 |
11.82% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
5.58% |
December
31, 2023 |
VanEck
Digital Transformation ETF |
September
30 |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
22.66% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
17.30% |
JP
Morgan Chase Bank, National Associate 14201 Dallas PKWY Floor 12 Dallas,
TX 75254 |
11.49% |
LPL
Financial Corp. 9785 Towne Center Drive San Diego, CA
92121-1968 |
9.29% |
Brown
Brothers Harriman & Co. 50 Milk Street Boston, MA
02109 |
5.03% |
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December
31, 2023 |
VanEck
Durable High Dividend ETF |
September
30 |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
24.86% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
14.31% |
Merrill
Lynch, Pierce, Fenner & Smith Inc 101 Hudson Street, 9th Floor Jersey
City, NJ 07302-3997 |
13.79% |
Pershing,
LLC One Pershing Plaza Jersey City, NJ 07399 |
13.14% |
LPL
Financial Corp. 9785 Towne Center Drive San Diego, CA
92121-1968 |
9.34% |
Raymond
James & Associates Inc. 880 Carilion Parkway Saint Petersburg, FL
33716 |
7.63% |
State
Street Bank and Trust Company 225 Franklin Street Boston, MA
02110 |
7.32% |
December
31, 2023 |
VanEck
Energy Income ETF |
September
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
38.87% |
State
Street Bank & Trust/ State Street TOTAL ETF P.O. BOX 1631
Boston, MA, 02105-1631 |
15.73% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
8.04% |
December
31, 2023 |
VanEck
Environmental Services ETF |
September
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
16.21% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
10.86% |
American
Enterprise Investment Service 901 3rd Ave South Minneapolis, MN
55474 |
10.79% |
J.P.
Morgan Clearing Corp. 3 Chase Metrotech Center Proxy Dept./NY1-H034
Brooklyn, NY 11245-0001 |
7.98% |
Merrill
Lynch, Pierce, Fenner & Smith Inc 101 Hudson Street, 9th Floor Jersey
City, NJ 07302-3997 |
7.26% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza
II Jersey City, NJ 07311 |
7.15% |
LPL
Financial Corp. 9785 Towne CTR Drive San Diego, CA 92121-1968 |
5.88% |
Citibank
3801 Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
5.81% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2023 |
VanEck
Gaming ETF |
September
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
18.26% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
16.53% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II Jersey
City, NJ 07311 |
12.95% |
LPL
Financial Corp. 9785 Towne CTR Drive, San Diego, CA 92121-1968 |
7.00% |
December
31, 2023 |
VanEck
Green Infrastructure ETF |
September
30 |
Goldman,
Sachs & Co. 30 Hudson Street, Jersey City, NJ 07302 |
48.19% |
BOFA
Securities Inc. One Bryant Park New York, NY 10036 |
15.66% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
15.08% |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
7.78% |
December
31, 2023 |
VanEck
Inflation Allocation ETF |
September
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
49.50% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
16.68% |
LPL
Financial Corp. 9785 Towne CTR Drive San Diego CA 92121-1968 |
14.79% |
Raymond
James & Associates Inc. 880 Carilion Parkway Saint Petersburg, FL
33716 |
9.37% |
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
6.11% |
December
31, 2023 |
VanEck
Long/Flat Trend ETF |
September
30 |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
35.44% |
Raymond
James & Associates Inc. 880 Carillon Parkway Saint Petersburg, FL
33716 |
16.65% |
LPL
Financial Corp. 9785 Towne Center Drive San Diego, CA
92121-1968 |
15.53% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
15.11% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2023 |
VanEck
Morningstar ESG Moat ETF |
September
30 |
RBC
Capital Markets Corporation 1 Liberty Street New York, NY
10006 |
29.37% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
26.65% |
State
Street Bank and Trust Company 225 Franklin Street Boston, MA
02110 |
22.22% |
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
7.92% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
5.87% |
December
31, 2023 |
VanEck
Morningstar Global Wide Moat ETF |
September
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
49.70% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
10.19% |
Goldman,
Sachs & Co. 30 Hudson Street Jersey City, NJ 07302 |
8.04% |
Pershing,
LLC One Pershing Plaza Jersey City, NJ 07399 |
7.33% |
Merrill
Lynch, Pierce, Fenner & Smith Inc. 101 Hudson Street, 9th Floor Jersey
City, NJ 07302-3997 |
7.18% |
December
31, 2023 |
VanEck
Morningstar International Moat ETF |
September
30 |
Robert
W. Baird & Co., Inc. 777 East Wisconsin Ave. Milwaukee, WI
53202 |
17.13% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza
II Jersey City, NJ 07311 |
15.84% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
13.72% |
Raymond
James & Associates Inc. 880 Carillon Parkway Saint Petersburg, FL
33716 |
10.96% |
TD
Ameritrade Clearing, Inc. 4211 South 102nd Street Omaha, NE
68127-1031 |
5.60% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
5.40% |
December
31, 2023 |
VanEck
Morningstar SMID Moat ETF |
September
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
40.19% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
27.97% |
LPL
Financial Corp. 9785 Towne CTR Drive San Diego, CA 92121-1968 |
8.06% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2023 |
VanEck
Morningstar Wide Moat ETF |
September
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
22.64% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
16.32% |
Merrill
Lynch, Pierce, Fenner & Smith Inc. 101 Hudson Street, 9th Floor Jersey
City, NJ 07302-3997 |
7.14% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza
II Jersey City, NJ 07311 |
7.05% |
LPL
Financial Corp. 9785 Towne CTR Drive San Diego, CA 92121-1968 |
6.66% |
Pershing,
LLC One Pershing Plaza Jersey City, NJ 07399 |
5.93% |
Raymond
James & Associates Inc. 880 Carillon Parkway Saint Petersburg, FL
33716 |
5.64% |
Edward
D. Jones & Co. 12555 Manchester Road St. Louis, MO 63131 |
5.58% |
December
31, 2023 |
VanEck
Pharmaceutical ETF |
September
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104 |
20.70% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
13.48% |
Goldman,
Sachs & Co. 30 Hudson Street, Jersey City, NJ 07302 |
8.07% |
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
8.06% |
Citibank
3801 Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
6.54% |
The
Bank of New York Mellon One Wall Street, 5th Floor New York, NY
10286-0001 |
6.42% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center Plaza II, Jersey
City, NJ 07311 |
5.45% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2023 |
VanEck
Retail ETF |
September
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
23.98% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
17.94% |
LPL
Financial Corp. 9785 Towne CTR Drive San Diego, CA 92121-1968 |
10.13% |
Merrill
Lynch, Pierce, Fenner & Smith Inc. 101 Hudson Street, 9th Floor Jersey
City, NJ 07302-3997 |
8.36% |
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
8.12% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II, Jersey
City, NJ 07311 |
7.28% |
December
31, 2023 |
VanEck
Robotics ETF |
September
30 |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
39.74% |
J.P.
Morgan Clearing Corp. 3 Chase Metrotech Center, Proxy Dept./NY1-H034
Brooklyn, NY 11245-0001 |
17.05% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
15.21% |
Brown
Brothers Harriman & Co. 50 Milk Street Boston, MA
02109 |
5.00% |
December
31, 2023 |
VanEck
Semiconductor ETF |
September
30 |
Merrill
Lynch, Pierce, Fenner & Smith Inc 101 Hudson Street, 9th Floor Jersey
City, NJ 07302-3997 |
16.03% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
15.94% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
14.47% |
December
31, 2023 |
VanEck
Social Sentiment ETF |
September
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
27.10% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
19.94% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center Plaza II Jersey
City, NJ 07311 |
11.72% |
Robinhood
Securities LLC 85 Willow Road Menlo Park, CA 94025 |
10.28% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2023 |
VanEck
Video Gaming and eSports ETF |
September
30 |
Citibank
3801 Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
14.66% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
9.70% |
Euroclear
Bank SA Boulevard du Rio Alvert II Brussels,Bruxelles-Capitale,
1210 |
8.60% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
7.04% |
Merrill
Lynch, Pierce, Fenner & Smith Inc. 101 Hudson Street, 9th Floor Jersey
City, NJ 07302-3997 |
6.30% |
|
March
31, 2024 |
VanEck
Africa Index ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
16.05% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
13.64% |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
11.79% |
Interactive
Brokers Retail Equity CL 8 Greenwich Office Park Greenwich, CT
06831 |
10.42% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza
II Jersey City, NJ 07311 |
6.59% |
J.P.
Morgan Chase Bank, National Associate 14201 Dallas Parkway, Floor 12
Dallas, TX 75254 |
6.52% |
Vanguard
Marketing Corp. 100 Vanguard Blvd Malvern, PA 19355 |
5.02% |
March
31, 2024 |
VanEck
Agribusiness ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
13.79% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
13.16% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza
II Jersey City, NJ 07311 |
6.75% |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
6.39% |
State
Street Bank and Trust Company 225 Franklin Street Boston, MA
02110 |
6.06% |
The
Bank of New York Mellon One Wall Street, 5th Floor New York, NY
10286-0001 |
5.79% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2024 |
VanEck
Brazil Small-Cap ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
15.81% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
12.56% |
Goldman,
Sachs & Co. 30 Hudson Street, Jersey City, NJ 07302 |
9.78% |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
9.11% |
Vanguard
Marketing Corp. 100 Vanguard Blvd Malvern, PA 19355 |
7.67% |
Merrill
Lynch, Pierce, Fenner & Smith Inc. 101 Hudson Street, 9th Floor
Jersey City, NJ 07302-3997 |
5.76% |
March
31, 2024 |
VanEck
ChiNext ETF |
December
31 |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
14.69% |
Interactive
Brokers Retail Equity CL 8 Greenwich Office Park Greenwich, CT
06831 |
13.68% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
13.16% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
11.67% |
Goldman,
Sachs & Co. 30 Hudson Street, Jersey City, NJ 07302 |
8.24% |
Brown
Brothers Harriman & Co. 50 Milk Street Boston, MA
02109 |
5.07% |
March
31, 2024 |
VanEck
CLO ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
36.87% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
17.33% |
The
Northern Trust Company/United Nation 801 S Canal Street Chicago, IL
60607 |
14.31% |
LPL
Financial Corp. 9785 Towne CTR Drive San Diego CA
92121-1968 |
13.95% |
U.S.
Bank N.A. 461 5th Avenue, 19th Floor New York, NY 10017 |
8.16% |
March
31, 2024 |
VanEck
CMCI Commodity Strategy ETF |
December
31 |
State
Street Bank and Trust Company 225 Franklin Street Boston, MA
02110 |
90.00% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2024 |
VanEck
Digital India ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
29.72% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
17.11% |
J.P.
Morgan Clearing Corp. 3 Chase Metrotech Center, Proxy Dept./NY1-H034
Brooklyn, NY 11245-0001 |
10.41% |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
7.14% |
BOFA
Securities Inc. One Bryant Park New York, NY 10036 |
6.79% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza
II Jersey City, NJ 07311 |
6.04% |
March
31, 2024 |
VanEck
Ethereum Strategy ETF |
December
31 |
State
Street Bank and Trust Company 225 Franklin Street Boston, MA
02110 |
40.91% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
19.06% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
17.58% |
March
31, 2024 |
VanEck
Gold Miners ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
12.72% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
9.30% |
J.P.
Morgan Chase Bank, National Associate 14201 Dallas Parkway, Floor 12
Dallas, TX 75254 |
8.98% |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
6.03% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza
II Jersey City, NJ 07311 |
5.22% |
March
31, 2024 |
VanEck
Green Metals ETF |
December
31 |
Brown
Brothers Harriman & Co. 50 Milk Street Boston, MA
02109 |
35.81% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
13.48% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
13.05% |
Pershing,
LLC One Pershing Plaza Jersey City, NJ 07399 |
10.23% |
Vanguard
Marketing Corp. 100 Vanguard Blvd Malvern, PA 19355 |
5.23% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2024 |
VanEck
India Growth Leaders ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
20.25% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
10.87% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza
II Jersey City, NJ 07311 |
10.51% |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
9.31% |
Interactive
Brokers Retail Equity CL 8 Greenwich Office Park Greenwich, CT
06831 |
6.76% |
Pershing,
LLC One Pershing Plaza Jersey City, NJ 07399 |
5.22% |
March
31, 2024 |
VanEck
Indonesia Index ETF |
December
31 |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza
II Jersey City, NJ 07311 |
14.20% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
11.40% |
J.P.
Morgan Chase Bank, National Associate 14201 Dallas Parkway, Floor 12
Dallas, TX 75254 |
11.24% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
10.24% |
J.P.
Morgan Clearing Corp. 3 Chase Metrotech Center, Proxy Dept./NY1-H034
Brooklyn, NY 11245-0001 |
6.87% |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
6.42% |
Interactive
Brokers Retail Equity CL 8 Greenwich Office Park Greenwich, CT
06831 |
6.10% |
March
31, 2024 |
VanEck
Israel ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
32.46% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza
II Jersey City, NJ 07311 |
12.20% |
RBC
Dominion Securities Inc./CDS 200 Bay Street Toronto, ON M5J 2J5
Canada |
8.46% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
8.26% |
Pershing,
LLC One Pershing Plaza Jersey City, NJ 07399 |
6.03% |
The
Huntington National Bank 7 Easton Oval Columbus, OH 43219 |
5.47% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2024 |
VanEck
Junior Gold Miners ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
13.02% |
The
Bank of New York Mellon One Wall Street, 5th Floor New York, NY
10286-0001 |
8.93% |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
8.22% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
7.97% |
Morgan
Stanley & Co. LLC 1585 Broadway New York, NY 10036 |
6.92% |
March
31, 2024 |
VanEck
Low Carbon Energy ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
14.59% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
12.84% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza II, Jersey
City, NJ 07311 |
9.00% |
Edward
D. Jones & Co., 12555 Manchester Road, St. Louis, MO
63131 |
6.49% |
State
Street Bank and Trust Company 225 Franklin Street Boston, MA
02110 |
6.39% |
LPL
Financial Corp. 9785 Towne CTR Drive San Diego CA
92121-1968 |
5.20% |
March
31, 2024 |
VanEck
Natural Resources ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
23.91% |
LPL
Financial Corp. 9785 Towne CTR Drive San Diego CA
92121-1968 |
16.73% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
12.02% |
American
Enterprise Investment Service 901 3rd Ave South Minneapolis, MN
55474 |
11.08% |
Raymond
James & Associates Inc. 880 Carilion Parkway Saint Petersburg, FL
33716 |
7.39% |
March
31, 2024 |
VanEck
Office and Commercial REIT ETF |
December
31 |
BOFA
Securities Inc. One Bryant Park New York, NY 10036 |
46.82% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
27.50% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
16.84% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2024 |
VanEck
Oil Refiners ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
45.60% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
13.08% |
Citibank
3801 Citibank Center B/3RD Floor/Zone 12, Tampa, FL 33610 |
9.36% |
March
31, 2024 |
VanEck
Oil Services ETF |
December
31 |
Citibank
3801 Citibank Center B/3RD Floor/Zone 12, Tampa, FL 33610 |
16.74% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
11.83% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
7.99% |
J.P.
Morgan Chase Bank, National Associate 14201 Dallas Parkway, Floor 12
Dallas, TX 75254 |
7.40% |
March
31, 2024 |
VanEck
Rare Earth and Strategic Metals ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
13.25% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
13.24% |
UBS
Financial Services Inc. 1000 Harbor Boulevard, Weehawken, NJ
07086-6790 |
12.68% |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
11.06% |
Merrill
Lynch, Pierce, Fenner & Smith Inc. 101 Hudson Street, 9th Floor
Jersey City, NJ 07302-3997 |
5.76% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza
II Jersey City, NJ 07311 |
5.11% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2024 |
VanEck
Russia ETF |
December
31 |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
12.12% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
10.93% |
State
Street Bank and Trust Company 225 Franklin Street, Boston, MA
02110 |
10.66% |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
8.58% |
Brown
Brothers Harriman & Co. 50 Milk Street Boston, MA
02109 |
5.84% |
Interactive
Brokers Retail Equity CL 8 Greenwich Office Park Greenwich, CT
06831 |
5.40% |
Goldman,
Sachs & Co. 30 Hudson Street, Jersey City, NJ 07302 |
5.33% |
TD
Ameritrade Clearing, Inc. 4211 South 102nd Street Omaha, NE
68127-1031 |
5.26% |
March
31, 2024 |
VanEck
Russia Small-Cap ETF |
December
31 |
Interactive
Brokers Retail Equity CL 8 Greenwich Office Park Greenwich, CT
06831 |
22.16% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
16.31% |
Vanguard
Marketing Corp. 100 Vanguard Blvd Malvern, PA 19355 |
12.74% |
National
Financial Services LLC 200 Liberty Street New York, NY 10281 |
9.66% |
Citibank
3801 Citibank Center B/3RD Floor/Zone 12, Tampa, FL 33610 |
7.54% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza
II, Jersey City, NJ 07311 |
5.01% |
March
31, 2024 |
VanEck
Steel ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
20.69% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
14.51% |
UBS
Financial Services Inc. 1000 Harbor Boulevard, Weehawken, NJ
07086-6790 |
13.56% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center, Plaza
II, Jersey City, NJ 07311 |
1.10% |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
5.07% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2024 |
VanEck
Uranium and Nuclear ETF |
December
31 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
18.71% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
15.58% |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
9.72% |
Jane
Street LLC 250 Vessey Street New York, NY 10281 |
6.05% |
Merrill
Lynch, Pierce, Fenner & Smith Inc. 101 Hudson Street, 9th
Floor Jersey City, NJ 07302-3997 |
5.54% |
March
31, 2024 |
VanEck
Vietnam ETF |
December
31 |
Citibank 3801
Citibank Center B/3RD Floor/Zone 12 Tampa, FL 33610 |
17.59% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
12.68% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
8.21% |
Interactive
Brokers Retail Equity CL 8 Greenwich Office Park Greenwich, CT
06831 |
6.61% |
The
Bank of New York Mellon One Wall Street, 5th Floor New York, NY
10286-0001 |
5.95% |
|
July
31, 2024 |
VanEck
BDC Income ETF |
April
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
22.98% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
17.57% |
Morgan
Stanley Smith Barney LLC
1
Harborside Financial Center
Plaza
II
Jersey
City, NJ 07311 |
12.36% |
Pershing,
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
5.97% |
Merrill
Lynch, Pierce, Fenner & Smith, Inc.
World
Financial Center
North
Tower
New
York, NY 10080
|
5.57% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
31, 2024 |
VanEck
CEF Muni Income ETF |
April
30 |
UBS
Financial Services, Inc. 1000 Harbor Boulevard Weehawken, NJ
07086-6790 |
23.15% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
20.90% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
13.13% |
Fifth
Third Bank, NA
5050
Kingssley Dr.
PO
Box 740789
Cincinnati,
OH 45274-0789 |
9.71% |
Merrill
Lynch, Pierce, Fenner & Smith, Inc.
World
Financial Center
North
Tower
New
York, NY 10080 |
7.47% |
Morgan
Stanley Smith Barney LLC - 1 Harborside Financial Center
Plaza
II
Jersey
City, NJ 07311
|
6.36% |
July
31, 2024 |
VanEck
China Bond ETF |
April
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
24.17% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
15.06% |
Interactive
Brokers Retail Equity CL
8
Greenwich Office Park Greenwich, CT 06831 |
10.99% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center
Plaza
II
Jersey
City, NJ 07311 |
10.81% |
Vanguard
Marketing Corp. 100 Vanguard Blvd Malvern, PA 19355 |
5.69% |
Brown
Brothers Harriman & Co. 50 Milk Street Boston, MA
02109 |
5.22% |
July
31, 2024 |
VanEck
Dynamic High Income ETF |
April
30 |
Charles
Schwab & Co., Inc.
101
Montgomery Street
San
Francisco, CA 94104 |
41.57% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
29.59% |
Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399
|
10.45% |
BOFA
Securities, Inc.
One
Bryant Park
New
York, NY 10036
|
5.49% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
31, 2024 |
VanEck
Emerging Markets High Yield Bond ETF |
April
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
30.67% |
Euroclear
Bank SA Boulevard du Rio Alvert II Brussels Bruxelles-Capitale,
1210 |
11.76% |
Wells
Fargo Clearing Services, LLC 2801 Market Street H0006-09B St. Louis,
Missouri 63103 |
9.12% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
7.81% |
July
31, 2024 |
VanEck
Fallen Angel High Yield Bond ETF |
April
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
25.98% |
National
Financial Services, LLC
200
Liberty Street
New
York, NY 10281 |
10.29% |
Merrill
Lynch, Pierce, Fenner & Smith, Inc.
World
Financial Center
North
Tower
New
York, NY 10080 |
9.18% |
State
Street Bank and Trust Company
225
Franklin Street
Boston,
MA 02110 |
7.09% |
U.S.
Bank N.A. 461 5th Avenue, 19th Floor New York, NY 10017 |
5.39% |
LPL
Financial Corp.
9785
Towne CTR Drive
San
Diego CA 92121-1968 |
5.17% |
July
31, 2024 |
VanEck
Green Bond ETF |
April
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
36.53% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
20.82% |
LPL
Financial Corp.
9785
Towne CTR Drive
San
Diego CA 92121-1968 |
14.72% |
July
31, 2024 |
VanEck
High Yield Muni ETF |
April
30 |
Charles
Schwab & Co., Inc.
101
Montgomery Street
San
Francisco, CA 94104 |
18.76% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
17.17% |
Merrill
Lynch, Pierce, Fenner & Smith, Inc.
World
Financial Center
North
Tower
New
York, NY 10080 |
15.58% |
SEI
Private Trust Company Co. 1 Freedom Valley Drive Oaks, PA
19456 |
9.38% |
Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
5.65% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
31, 2024 |
VanEck
HIP Sustainable Muni ETF |
April
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
34.42% |
State
Street Bank and Trust Company
225
Franklin Street
Boston,
MA 02110 |
20.00% |
J.P.
Morgan Clearing Corp.
3
Chase Metrotech Center
Proxy
Dept./NY1-H034
Brooklyn
NY 11245-0001 |
16.36% |
National
Financial Services, LLC 200 Liberty Street New York, NY 10281 |
15.58% |
Stonex
Financial, Inc. 155 East 44th Street, Suite 900 New York City, New York,
10017 |
8.83% |
July
31, 2024 |
VanEck
Intermediate Muni ETF |
April
30 |
Merrill
Lynch, Pierce, Fenner & Smith, Inc.
World
Financial Center
North
Tower
New
York, NY 10080 |
42.77% |
National
Financial Services, LLC 200 Liberty Street New York, NY 10281 |
11.72% |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
10.13% |
Pershing
LLC One Pershing Plaza Jersey City, NJ 07399 |
8.96% |
July
31, 2024 |
VanEck
International High Yield Bond ETF |
April
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
38.39% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
9.75% |
July
31, 2024 |
VanEck
IG Floating Rate ETF |
April
30 |
Charles
Schwab & Co., Inc.
101
Montgomery Street
San
Francisco, CA 94104 |
34.88% |
National
Financial Services, LLC
200
Liberty Street
New
York, NY 10281 |
12.70% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center
Plaza
II
Jersey
City, NJ 07311 |
7.33% |
LPL
Financial Corp.
9785
Towne CTR Drive
San
Diego CA 92121-1968 |
5.54% |
The
Bank of New York Mellon
One
Wall Street, 5th Floor
New
York, NY 10286-0001 |
5.35% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
31, 2024 |
VanEck
J.P. Morgan EM Local Currency Bond ETF |
April
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
17.00% |
UBS
Financial Services, Inc. 1000 Harbor Boulevard Weehawken, NJ
07086-6790 |
13.19% |
The
Bank of New York Mellon
One
Wall Street, 5th Floor
New
York, NY 10286-0001 |
10.44% |
SEI
Private Trust Company
1
Freedom Valley Drive
Oaks,
PA 19456 |
8.33% |
Brown
Brothers Harriman & Co.
50
Milk Street
Boston,
MA 02109 |
6.69% |
Citibank
3801
Citibank Center B
3RD
Floor/Zone 12
Tampa,
FL 33610 |
5.84% |
July
31, 2024 |
VanEck
Long Muni ETF |
April
30 |
Charles
Schwab & Co., Inc.
101
Montgomery Street
San
Francisco, CA 94104 |
25.68% |
Merrill
Lynch, Pierce, Fenner & Smith, Inc.
World
Financial Center
North
Tower
New
York, NY 10080 |
14.57% |
Raymond
James & Associates, Inc. 880 Carilion Parkway St. Petersburg, FL
33716 |
11.46% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
11.23% |
BNY
Mellon Wealth Management 200 Park Ave
New
York, NY 10116 |
10.67% |
Morgan
Stanley Smith Barney LLC Harborside Financial Center Plaza II Jersey City,
NJ 07311 |
5.60% |
July
31, 2024 |
VanEck
Moody's Analytics BBB Corporate Bond ETF |
April
30 |
State
Street Bank and Trust Company
225
Franklin Street
Boston,
MA 02110 |
81.75% |
Charles
Schwab & Co., Inc.
101
Montgomery Street
San
Francisco, CA 94104
|
9.88% |
July
31, 2024 |
VanEck
Moody's Analytics IG Corporate Bond ETF |
April
30 |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
83.52% |
State
Street Bank and Trust Company
225
Franklin Street
Boston,
MA 02110 |
13.51% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
31, 2024 |
VanEck
Mortgage REIT Income ETF |
April
30 |
Charles
Schwab & Co., Inc.
101
Montgomery Street
San
Francisco, CA 94104 |
24.97% |
National
Financial Services LLC
200
Liberty Street
New
York, NY 10281
|
18.30% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center
Plaza
II
Jersey
City, NJ 07311 |
6.69% |
Merrill
Lynch, Pierce, Fenner & Smith, Inc.
World
Financial Center
North
Tower
New
York, NY 10080 |
6.61% |
July
31, 2024 |
VanEck
Preferred Securities ex Financals ETF |
April
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
42.01% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
13.86% |
Merrill
Lynch, Pierce, Fenner & Smith, Inc.
World
Financial Center
North
Tower
New
York, NY 10080 |
7.39% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center
Plaza
II
Jersey
City, NJ 07311 |
6.21% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
31, 2024 |
VanEck
Short High Yield Muni ETF |
April
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
22.60% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
15.28% |
Morgan
Stanley Smith Barney LLC 1 Harborside Financial Center Plaza II
Jersey
City, NJ 07311 |
8.84% |
Wells
Fargo Clearing Services, LLC 2801 Market Street, H0006-09B
St
Louis, MO Missouri 63103 |
7.68% |
Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
6.86% |
Merrill
Lynch, Pierce, Fenner & Smith, Inc.
World
Financial Center
North
Tower
New
York, NY 10080 |
5.53% |
July
31, 2024 |
VanEck
Short Muni ETF |
April
30 |
Charles
Schwab & Co., Inc. 101 Montgomery Street San Francisco, CA
94104 |
24.44% |
Merrill
Lynch, Pierce, Fenner & Smith, Inc.
101
Hudson Street, 9th Floor
Jersey
City, NJ 07302-3997 |
19.62% |
National
Financial Services, LLC 200 Liberty Street New York, NY
10281 |
12.43% |
Wells
Fargo Clearing Services, LLC
2801
Market Street, H0006-09B
St
Louis, MO 63103 |
6.72% |
Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
6.16% |
LPL
Financial Corp.
9785
Towne CTR Drive
San
Diego CA 92121-1968 |
5.79% |
American
Enterprise Investment Service 901 3rd Ave South Minneapolis, MN
55474 |
5.25% |
TAXES
The
following information also supplements and should be read in conjunction with
the section in each Fund’s Prospectus entitled “Shareholder Information—Tax
Information” and the section in this Statement of Additional Information
entitled “Special Considerations and Risks.” The following summary of certain
relevant tax provisions is subject to change, and does not constitute legal or
tax advice.
The
following general discussion of certain U.S. federal income tax consequences is
based on provisions of the Internal Revenue Code and the regulations issued
thereunder as in effect on the date of this SAI. New legislation, as well as
administrative changes or court decisions, may significantly change the
conclusions expressed herein, and may have a retroactive effect with respect to
the transactions contemplated herein.
Shareholders
are urged to consult their own tax advisers regarding the application of the
provisions of tax law described in this SAI in light of the particular tax
situations of the shareholders and regarding specific questions as to foreign,
federal, state, or local taxes.
For
purposes of this summary, the term “U.S. Shareholder” means a beneficial owner
of Shares that, for U.S. federal income tax purposes, is one of the
following:
•an
individual who is a citizen or resident of the United States;
•a
corporation or other entity taxable as a corporation created in or organized
under the laws of the United States, 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 (i) if a U.S. court is able to exercise primary supervision over the
administration of such trust and one or more U.S. persons have the authority to
control all substantial decisions of such trust or (ii) that has a valid
election in effect under applicable U.S. Treasury regulations to be treated as a
U.S. person.
A
“Non-U.S. Shareholder” is a beneficial owner of Shares that is neither a U.S.
Shareholder nor a partnership for U.S. federal income tax purposes. If a
partnership (including any other entity treated as a partnership for U.S.
federal income tax purposes) holds Shares, the U.S. federal income tax treatment
of a partner in such partnership generally will depend upon the status of the
partner and the activities of the partnership. Partners of partnerships that
hold Shares should consult their tax advisors.
Tax
Status of the Funds (Each
Fund except VanEck Ethereum Strategy ETF)
Each
Fund intends to qualify for and to elect treatment as a RIC under Subchapter M
of the Internal Revenue Code. As a RIC, each Fund will not be subject to U.S.
federal income tax on the portion of its taxable investment income and capital
gains that it distributes to its shareholders. To qualify for treatment as a
RIC, a company must annually distribute at least 90% of its net investment
company taxable income (which includes dividends, interest, net short-term
capital gains and net ordinary income from certain MLPs) and at least 90% of its
tax-exempt interest income, for each tax year, if any, to its shareholders and
meet several other requirements relating to the nature of its income and the
diversification of its assets, among others. If a Fund fails to qualify for any
taxable year as a RIC, all of its taxable income will be subject to tax at
regular corporate income tax rates without any deduction for distributions to
shareholders, and such distributions generally will be taxable to shareholders
as ordinary dividends to the extent of the Fund’s current and accumulated
earnings and profits.
To
the extent VanEck ChiNext ETF invests directly in the A-share market, or VanEck
China Bond ETF invests directly in RMB Bonds, the Funds may not be able to
repatriate funds associated with such direct investment on a timely basis and
may be unable to meet the distribution requirements required to qualify for the
favorable tax treatment otherwise generally afforded to RICs under the Internal
Revenue Code.
Each
of VanEck BDC Income ETF, VanEck CEF Muni Income ETF, VanEck Dynamic High Income
ETF, VanEck Long/Flat Trend ETF (to the extent the Fund is holding shares of one
or more exchange-traded funds rather than investing directly in the shares of
the companies comprising the S&P 500 Index) and VanEck Inflation Allocation
ETF is treated as a separate corporation for U.S. federal income tax purposes
from the Underlying Funds. Each of VanEck BDC Income ETF, VanEck CEF Muni Income
ETF, VanEck Dynamic High Income ETF, VanEck Long/Flat Trend ETF (to the extent
the Fund is holding shares of one or more exchange-traded funds rather than
investing directly in the shares of the companies comprising the S&P 500
Index) and VanEck Inflation Allocation ETF, therefore, is considered to be a
separate entity in determining its treatment under the rules for RICs described
herein and in the Prospectus. Distributions of short-term capital gains by an
Underlying Fund will be recognized as ordinary income by the Fund and would not
be offset by the Fund's capital loss carryforwards, if any. Capital loss
carryforwards of an Underlying Fund, if any, would not offset net capital gains
of the Fund. Losses in an Underlying Fund do not generally offset gains or
distributions of another Underlying Fund. Redemptions of shares in an Underlying
Fund could also result in a gain and/or income. The Fund’s use of the
fund-of-funds structure could therefore affect the amount, timing and character
of distributions to shareholders. Redemptions of shares in an Underlying Fund
could also cause additional distributable gains to shareholders.
Each
Fund will be subject to a 4% excise tax on certain undistributed income if it
does not distribute to its shareholders in each calendar year an amount at least
equal to the sum of 98% of its ordinary income (taking into account certain
deferrals and elections) for the calendar year, 98.2% of its capital gain net
income for the twelve months ended October 31 of such year, and 100% of any
undistributed amounts on which the Fund paid no corporate-level U.S. federal
income tax from the prior years. Although each Fund generally intends to declare
and distribute dividends and distributions in the amounts and at the times
necessary to avoid the application of this 4% excise tax, the Fund may elect to
retain a portion of its income and gains, and in such a case, the Fund may be
subject to excise tax.
Tax
Status of VanEck Ethereum Strategy ETF
VanEck
Ethereum Strategy ETF is treated as a regular corporation, or “C” corporation,
for U.S. federal income tax purposes. Accordingly, the Fund generally is subject
to U.S. federal income tax on its taxable income at the rates applicable to
corporations (currently 21%). In addition, as a regular corporation, the Fund is
subject to state and local income tax. The extent
to
which the Fund is required to pay U.S. corporate income tax could materially
reduce the Fund’s cash available to make distributions on the Shares. The
Fund
will recognize gain or loss on the sale, exchange or other taxable disposition
of its assets equal to the difference between the amount realized by the Fund on
the sale, exchange or other taxable disposition and the Fund’s adjusted tax
basis in such asset. Any such gain will be subject to U.S. federal income tax at
regular corporate rates, regardless of how long the Fund has held such asset.
The Fund will also recognize gain on in-kind redemptions of appreciated
positions held by the Fund. To the extent that the Fund has a net capital loss
in any tax year, the net capital loss can be carried back three years and
forward five years to reduce the Fund’s current taxes payable, subject to
certain limitations. The use of ordinary net operating loss carryforwards is
subject to limitation under the Internal Revenue Code. In the event a capital
loss carryover or net operating loss carryforward cannot be utilized in the
carryover periods, the Fund’s federal income tax liability may be higher than
expected which will result in less cash available to distribute to shareholders.
The Fund’s transactions in ETH Futures and certain other investments, to the
extent permitted, will be subject to special provisions of the Internal Revenue
Code that, among other things, may affect the character of gains and losses
recognized by the Fund (i.e.,
may affect whether gains or losses are ordinary versus capital or short-term
versus long-term), accelerate recognition of income to the Fund and defer Fund
losses. These provisions also (i) will require the Fund to mark-to-market
certain types of the positions in its portfolio (i.e.,
treat them as if they were closed out at the end of each year) including ETH
Futures, as applicable, purchased on U.S. platforms and (ii) may cause the Fund
to recognize income without receiving the corresponding amount of
cash.
Tax
Consequences of Commodity-Linked Investments (VanEck
CMCI Commodity Strategy ETF, VanEck Commodity Strategy ETF and VanEck Inflation
Allocation ETF only)
The
IRS issued a revenue ruling in December 2005 which concluded that income and
gains from certain commodity-linked derivatives are not qualifying income under
subchapter M of the Internal Revenue Code. As a result, the ability for each
Fund to invest directly in commodity-linked futures contracts or swaps and in
certain exchange traded trusts that hold commodities as part of its investment
strategy is limited by the requirement that it receive no more than ten percent
(10%) of its gross income from such investments.
The
IRS has issued private letter rulings to other taxpayers in which the IRS
specifically concluded that income derived from a fund’s investment in a CFC
also will constitute qualifying income to the fund, even if the CFC itself owns
commodity-linked futures contracts or swaps. A private letter ruling cannot be
used or cited as precedent and is binding on the IRS only for the taxpayer that
receives it. Each Fund has not obtained a ruling from the IRS with respect to
its investments or its structure. The IRS has currently suspended the issuance
of private letter rulings relating to the tax treatment of income generated by
investments in a subsidiary. The IRS has issued regulations that generally treat
a fund’s income inclusion with respect to an investment in a non-U.S. company
generating investment income as qualifying income if there is a current-year
distribution out of the earnings and profits of the non-U.S. company that are
attributable to such income inclusion, or if the fund’s income inclusion is
derived with respect to the fund’s business of investing in stocks or
securities. Each Fund intends to treat its income from its Cayman Subsidiary as
qualifying income without any such ruling from the IRS. There can be no
assurance that the IRS will not change its position with respect to some or all
of these issues or if the IRS did so, that a court would not sustain the IRS’s
position. Furthermore, the tax treatment of a Fund’s investments in its Cayman
Subsidiary may be adversely affected by future legislation, court decisions,
future IRS guidance or Treasury regulations. If the IRS were to change its
position or otherwise determine that income derived from a Fund’s investment in
its Cayman Subsidiary does not constitute qualifying income and if such
positions were upheld, or if future legislation, court decisions, future IRS
guidance or Treasury regulations were to adversely affect the tax treatment of
such investments, the Fund might cease to qualify as a RIC and would be required
to reduce its exposure to such investments which could result in difficulty in
implementing its investment strategy. If a Fund does not qualify as a RIC for
any taxable year, the Fund’s taxable income would be subject to tax at the Fund
level at regular corporate tax rates (without reduction for distributions to
shareholders) and to a further tax at the shareholder level when such income is
distributed. In such event, in order to re-qualify for taxation as a RIC, a Fund
may be required to recognize unrealized gains, pay substantial taxes and
interest and make certain distributions.
A
foreign corporation, such as a Fund’s Cayman Subsidiary, generally is not
subject to U.S. federal income taxation on its business income unless it is
engaged in, or deemed to be engaged in, a U.S. trade or business. It is expected
that each subsidiary will conduct its activities so as to satisfy the
requirements of a safe harbor set forth in the Internal Revenue Code, under
which each subsidiary may engage in certain commodity-related investments
without being treated as engaged in a U.S. trade or business. However, if a
subsidiary’s activities were determined not to be of the type described in the
safe harbor, its activities may be subject to U.S. federal income
taxation.
A
foreign corporation, such as a Fund’s Cayman Subsidiary, that does not conduct a
U.S. trade or business is nonetheless subject to a U.S. withholding tax at a
flat 30% rate (or lower treaty rate, if applicable) on certain U.S. source gross
income. No tax treaty is in force between the United States and the Cayman
Islands that would reduce the 30% rate of
withholding
tax. However, it is not expected that the Cayman Subsidiary of either Fund will
derive income subject to U.S. withholding taxes.
Each
Cayman Subsidiary will be treated as a CFC for U.S. federal income tax purposes.
As a result, a Fund must include in gross income for such purposes all of its
Cayman Subsidiary’s “subpart F” income when its Cayman Subsidiary recognizes
that income, whether or not its Cayman Subsidiary distributes such income to the
Fund. It is expected that all of each Fund’s Cayman Subsidiary’s income will be
subpart F income. A Fund’s tax basis in its Cayman Subsidiary will be increased
as a result of the Fund’s recognition of its Cayman Subsidiary’s subpart F
income. Each Fund will not be taxed on distributions received from its Cayman
Subsidiary to the extent of its Cayman Subsidiary’s previously-undistributed
subpart F income although its tax basis in its Cayman Subsidiary will be
decreased by such amount. All subpart F income will be taxed as ordinary income,
regardless of the nature of the transactions that generate it. Subpart F income
does not qualify for treatment as qualified dividend income. If a Fund’s Cayman
Subsidiary recognizes a net loss, the net loss will not be available to offset
income recognized by the Fund and such loss cannot be carried forward to offset
taxable income of the Fund or its Cayman Subsidiary in future
periods.
With
respect to VanEck Inflation Allocation ETF only, the Fund may also gain
commodity exposure through investment in ETFs that are treated as “qualified
publicly traded partnerships” or grantor trusts for U.S. federal income tax
purposes. The Fund may also invest in certain MLPs that are treated as
“qualified publicly traded partnerships.” Investments by the Fund in “qualified
publicly traded partnerships” and grantor trusts that engage in commodity
trading must be monitored and limited so as to enable the Fund to satisfy
certain asset diversification and qualifying income tests for qualification as a
RIC. Failure to satisfy either test would jeopardize the Fund’s status as a RIC.
Loss of such status could materially adversely affect the Fund.
Tax
Status of Underlying Funds (VanEck
BDC Income ETF, VanEck CEF Muni Income ETF, VanEck Dynamic High Income ETF,
VanEck Inflation Allocation ETF and VanEck Long/Flat Trend ETF
only)
Certain
ETFs and other investment companies in which VanEck BDC Income ETF, VanEck CEF
Muni Income ETF, VanEck Dynamic High Income ETF, VanEck Inflation Allocation ETF
and VanEck Long/Flat Trend ETF may invest seek to qualify as RICs for tax
purposes (“Underlying RICs”). To qualify and remain eligible for the special tax
treatment accorded to RICs, such funds must meet certain source-of-income, asset
diversification and annual distribution requirements. If a fund in which VanEck
BDC Income ETF, VanEck CEF Muni Income ETF, VanEck Dynamic High Income ETF,
VanEck Inflation Allocation ETF or VanEck Long/Flat Trend ETF, invests fails to
qualify as a RIC, such fund would be liable for federal, and possibly state,
corporate taxes on its taxable income and gains. Such failure by a fund would
subject the Fund to certain asset diversification limitations with respect to
investment in such fund, and could substantially reduce the net assets of the
Fund and the amount of income available for distribution to the Fund, which
would in turn decrease the total return of the Fund in respect of such
investment. Distributions of short-term capital gains by an Underlying RIC will
be recognized as ordinary income by the Fund and would not be offset by the
Fund's capital loss carryforwards, if any. Capital loss carryforwards of an
Underlying RIC, if any, would not offset net capital gains of the Fund. The Fund
will not be able to offset gains distributed by one Underlying RIC in which it
invests against losses in another Underlying RIC in which the Fund invests.
Redemptions of shares in an Underlying RIC, including those resulting from
changes in the allocation among Underlying RICs, could also cause additional
distributable gains to shareholders of the Fund. A portion of any such gains may
be short-term capital gains that would be distributable as ordinary income to
shareholders of the Fund. Further, a portion of losses on redemptions of shares
in the Underlying RICs may be deferred indefinitely under the wash sale rules.
As a result of these factors, the use of the fund of funds structure by the Fund
could therefore affect the amount, timing and character of distributions to
shareholders.
Tax
Consequences of Investment in MLPs (VanEck
Energy Income ETF only)
The
VanEck Energy Income ETF invests in MLPs, which generally are treated as
partnerships for federal income tax purposes. MLPs are publicly traded
partnerships under the Internal Revenue Code. The Fund, as a RIC, must limit its
total investment in certain types of MLPs to less than 25% of total assets, on a
quarterly basis. The Internal Revenue Code generally requires publicly traded
partnerships to be treated as corporations for U.S. federal income tax purposes.
If, however, a publicly traded partnership satisfies certain requirements, it
will be treated as a partnership for U.S. federal income tax purposes.
Specifically, if a publicly traded partnership receives 90% or more of its
income from qualifying sources, such as interest, dividends, real estate rents,
gain from the sale or disposition of real property, income and gain from certain
mineral or natural resources activities, income and gain from the transportation
or storage of certain fuels, gain from the sale or disposition of a capital
asset held for the production of such income, and, in certain circumstances,
income and gain from commodities or futures, forwards and options with respect
to commodities, then the publicly traded partnership will be treated as a
partnership for federal income tax purposes. Mineral or natural resources
activities include exploration, development, production, mining,
processing,
refining, marketing and transportation (including pipelines), of oil and gas,
minerals, geothermal energy, fertilizers, timber or industrial source carbon
dioxide.
Any
distribution by an MLP treated as a partnership to the VanEck Energy Income ETF
in excess of the Fund’s allocable share of such MLP’s net taxable income will
decrease the Fund’s tax basis in its MLP investment and will therefore increase
the amount of gain (or decrease the amount of loss) that will be recognized on
the sale of an equity security in the MLP by the Fund. A portion of any gain or
loss recognized by the Fund on a disposition of an MLP equity security (or by an
MLP on a disposition of an underlying asset) may be separately computed and
treated as ordinary income or loss under the Internal Revenue Code to the extent
attributable to assets of the MLP that give rise to depreciation recapture,
intangible drilling and development cost recapture, or other “unrealized
receivables” or “inventory items” under the Internal Revenue Code. Any such gain
may exceed net taxable gain realized on the disposition and will be recognized
even if there is a net taxable loss on the disposition. The Fund’s net capital
losses may only be used to offset capital gains and therefore cannot be used to
offset gains that are treated as ordinary income. Thus, the Fund could recognize
both gain that is treated as ordinary income and a capital loss on a disposition
of an MLP equity security (or on an MLP’s disposition of an underlying asset)
and would not be able to use the capital loss to offset that gain. The Fund will
recognize gain or loss on the sale, exchange or other taxable disposition of its
portfolio assets, including equity securities of MLPs, equal to the difference
between the amount realized by the Fund on the sale, exchange or other taxable
disposition and the Fund’s adjusted tax basis in such assets. The amount
realized by the Fund in any case generally will be the amount paid by the
purchaser of the asset plus, in the case of MLP equity securities, the Fund’s
allocable share, if any, of the MLP’s debt that will be allocated to the
purchaser as a result of the sale, exchange or other taxable disposition. The
Fund’s tax basis in its equity securities in an MLP treated as a partnership is
generally equal to the amount the Fund paid for the equity securities, (x)
increased by the Fund’s allocable share of the MLP’s net taxable income and
certain MLP debt, if any, and (y) decreased by the Fund’s allocable share of the
MLP’s net losses and any distributions received by the Fund from the MLP. Each
MLP will be treated as a separate passive activity so that losses of one MLP may
not be netted against profits from elsewhere in the portfolio. Any such losses
will be suspended until the MLP is sold.
Any
capital losses that the VanEck Energy Income ETF recognizes on a disposition of
an equity security of an MLP can only be used to offset capital gains that the
Fund recognizes. Any capital losses that the Fund is unable to use may be
carried forward to reduce the Fund’s capital gains in later years.
Tax
Considerations with respect to Investments and Dividends (Each
Fund except VanEck Ethereum Strategy ETF)
As
a result of U.S. federal income tax requirements, the Trust, on behalf of the
Funds, has the right to reject an order for a creation of Shares if the creator
(or group of creators) would, upon obtaining the Shares so ordered, own 80% or
more of the outstanding Shares of a Fund and if, pursuant to Section 351 of the
Internal Revenue Code, the Funds would have a basis in the Deposit Securities
different from the market value of such securities on the date of deposit. The
Trust also has the right to require information necessary to determine
beneficial share ownership for purposes of the 80% determination. See “Creation
and Redemption of Creation Units—Acceptance of Creation Orders.”
Dividends,
interest and gains received by a Fund from a non-U.S. investment may give rise
to withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. If more than 50% of a Fund’s total assets at the end of its taxable year
consist of foreign stock or securities or if at least 50% of the value of a
Fund’s total assets at the close of each quarter of its taxable year is
represented by interests in RICs, the Fund may elect to “pass through” to its
investors certain foreign income taxes paid by the Fund, with the result that
each investor will (i) include in gross income, as an additional dividend, even
though not actually received, the investor’s pro rata share of the Fund’s
foreign income taxes, and (ii) either deduct (in calculating U.S. taxable
income) or credit (in calculating U.S. federal income), subject to certain
holding period and other limitations, the investor’s pro rata share of the
Fund’s foreign income taxes. Even if VanEck ChiNext ETF is qualified to make
that election and does so, however, this treatment will not apply with respect
to amounts the Fund reserves in anticipation of the imposition of withholding
taxes not currently in effect (if any). If these amounts are used to pay any tax
liability of VanEck ChiNext ETF in a later year, they will be treated as paid by
the stockholders in such later year, even if they are imposed with respect to
income of an earlier year.
With
respect to VanEck Africa Index ETF, VanEck Brazil Small-Cap ETF, VanEck ChiNext
ETF, VanEck Digital India ETF, VanEck Gaming ETF, VanEck Gold Miners ETF, VanEck
Green Metals ETF, VanEck India Growth Leaders ETF, VanEck Indonesia Index ETF,
VanEck Israel ETF, VanEck Junior Gold Miners ETF, VanEck Morningstar
International Moat ETF, VanEck Oil Refiners ETF, VanEck Rare Earth and Strategic
Metals ETF, VanEck Russia ETF, VanEck Russia Small-Cap ETF, VanEck Steel ETF,
VanEck Video Gaming and eSports ETF and VanEck Vietnam ETF, it is expected that
more than 50% of each Fund’s assets will consist of foreign securities that are
foreign-listed companies and/or foreign-domiciled companies, but that
expectation is subject to change depending on where the Fund invests. It is
expected that more than 50% of each of VanEck China Bond ETF’s, VanEck Emerging
Markets High Yield Bond ETF’s, VanEck Green Bond ETF, VanEck International High
Yield Bond ETF’s and VanEck J.P. Morgan EM Local Currency Bond ETF’s
assets
will consist of foreign securities that are sovereign debt, foreign-listed
companies and/or foreign-domiciled companies. Additionally, it is expected that
more than 50% of VanEck Dynamic High Income ETF and VanEck Inflation Allocation
ETF's assets will be represented by interests in RICs.
Under
Section 988 of the Internal Revenue Code, special rules are provided for certain
transactions in a foreign currency other than the taxpayer’s functional currency
(i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not “regulated futures contracts,” and from unlisted options
will be treated as ordinary income or loss under Section 988 of the Internal
Revenue Code. Also, certain foreign exchange gains or losses derived with
respect to foreign fixed income securities are also subject to Section 988
treatment. In general, therefore, Section 988 gains or losses will increase or
decrease the amount of each Fund’s investment company taxable income available
to be distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of each Fund’s net capital gain.
With
respect to VanEck Inflation Allocation ETF, if a portion of the Fund’s
investment income may be received in foreign currencies, the Fund will be
required to compute its income in U.S. dollars for distribution to shareholders.
When the Fund has distributed income, subsequent foreign currency losses may
result in the Fund having distributed more income in a particular fiscal period
than was available from investment income, which could result in a return of
capital to shareholders.
Special
tax rules may change the normal treatment of gains and losses recognized by a
Fund if the Fund makes certain investments such as investments in structured
notes, swaps, options, futures transactions, and non-U.S. corporations
classified as passive foreign investment companies (“PFICs”). Those special tax
rules can, among other things, affect the treatment of capital gain or loss as
long-term or short-term and may result in ordinary income or loss rather than
capital gain or loss and may accelerate when a Fund has to take these items into
account for U.S. federal income tax purposes. A Fund’s transactions in
derivatives are subject to special provisions of the Internal Revenue Code that,
among other things, (1) could affect the character, amount and timing of
distributions to shareholders of each Fund, (2) could require the Fund to “mark
to market” certain types of the positions in its portfolio (that is, treat them
as if they were closed out) and (3) may cause the Fund to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the 90% distribution requirement and the excise tax avoidance
requirements described above.
VanEck
ChiNext ETF’s investments may invest in swaps and other derivative instruments
that may generally be less tax-efficient than a direct investment in A-shares.
Furthermore, VanEck ChiNext ETF may be required to periodically adjust its
positions in these swaps or derivatives to comply with certain regulatory
requirements which may further cause these investments to be less efficient than
a direct investment in A-shares. The application of these special rules would
therefore also affect the timing and character of distributions made by a Fund.
See “U.S. Federal Tax Treatment of Certain Futures Contracts and Option
Contracts” for certain federal income tax rules regarding futures
contracts.
VanEck
China Bond ETF’s investments may invest in swaps and other derivative
instruments that may generally be less tax-efficient than a direct investment in
RMB Bonds. Furthermore, VanEck China Bond ETF may be required to periodically
adjust its positions in these swaps or derivatives to comply with certain
regulatory requirements which may further cause these investments to be less
efficient than a direct investment in RMB Bonds.
VanEck
BDC ETF’s investments may invest in swaps and other derivative instruments that
may generally be less tax-efficient than a direct investment in BDCs.
Furthermore, VanEck BDC ETF may be required to periodically adjust its positions
in these swaps or derivatives to comply with certain regulatory requirements
which may further cause these investments to be less efficient than a direct
investment in BDCs.
There
may be uncertainty as to the appropriate treatment of certain of a Fund’s
investments for U.S. federal income tax purposes. In particular, a Fund may
invest a portion of its net assets in below investment grade instruments.
Investments in these types of instruments may present special tax issues for
such Fund. U.S. federal income tax rules are not entirely clear about issues
such as when a Fund may cease to accrue interest, original issue discount or
market discount, when and to what extent deductions may be taken for bad debts
or worthless instruments, how payments received on obligations in default should
be allocated between principal and income and whether exchanges of debt
obligations in a bankruptcy or workout context are taxable. These and other
issues will be addressed by a Fund, to the extent necessary, in order to seek to
ensure that it distributes sufficient income to ensure that it does not become
subject to U.S. federal income or excise tax.
Certain
Funds may make investments, both directly and/or through swaps or other
derivative positions, in PFICs. Investments in PFICs are subject to special tax
rules which may result in adverse tax consequences to a Fund and its
shareholders. To the extent a Fund invests in PFICs, it generally intends to
elect to “mark to market” these investments at the end of each taxable year. By
making this election, the Fund will recognize as ordinary income any increase in
the value of such shares as of the close of the taxable year over their adjusted
basis and as ordinary loss any decrease in such investment (but only to the
extent of prior income from such investment under the mark to market rules).
Gains realized with respect to a disposition of a PFIC that a Fund has elected
to mark to market will be ordinary income. Alternatively, a Fund that invests in
PFICs
may elect to treat PFICs as “qualified electing funds” (or “QEFs”) under the
Internal Revenue Code if sufficient documentation and information is available.
By making this election, the Fund will be required to include in income each
year its proportionate share of the ordinary earnings and net capital gain of a
QEF, even if such income is not distributed by the QEF. By making the mark to
market or QEF election, a Fund may recognize income in excess of the
distributions that it receives from its investments. Accordingly, a Fund may
need to borrow money or dispose of some of its investments in order to meet its
distribution requirements. If a Fund does not make the mark to market or QEF
election with respect to an investment in a PFIC, the Fund could become subject
to U.S. federal income tax with respect to certain distributions from, and gain
on the dispositions of, the PFIC which cannot be avoided by distributing such
amounts to the Fund’s shareholders.
Certain
Funds or some of the REITs in which a Fund may invest may be permitted to hold
residual interests in real estate mortgage investment conduits (“REMICs”). Under
Treasury regulations not yet issued, but that may apply retroactively, a portion
of a Fund’s income from a REIT that is attributable to the REIT’s residual
interest in a REMIC (referred to in the Internal Revenue Code as an “excess
inclusion”) will be subject to federal income tax in all events. These
regulations are expected to provide that excess inclusion income of a RIC, such
as a Fund, will be allocated to shareholders of the RIC in proportion to the
dividends received by shareholders, with the same consequences as if
shareholders held the related REMIC residual interest directly.
Under
current law, certain Funds serve to block unrelated business taxable income
(“UBTI”) from being realized by their tax-exempt shareholders. Notwithstanding
the foregoing, a tax-exempt shareholder could realize 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 Internal Revenue Code. Certain types of income received by a Fund from
REITs, REMICs, taxable mortgage pools or other investments may cause the Fund to
report some or all of its distributions as “excess inclusion
income.”
In
general, excess inclusion income allocated to shareholders (i) cannot be offset
by net operating losses (subject to a limited exception for certain thrift
institutions), (ii) will constitute UBTI to entities (including a qualified
pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or
other tax-exempt entity) subject to tax on unrelated business income, thereby
potentially requiring such an entity that is allocated excess inclusion income,
and that otherwise might not be required to file a tax return, to file a tax
return and pay tax on such income, and (iii) in the case of a Non-U.S.
Shareholder, will not qualify for any reduction in U.S. federal withholding
tax.
If
at any time during any taxable year a “disqualified organization” (as defined in
the Internal Revenue Code) is a record holder of a share in a RIC, then the RIC
will be subject to a tax equal to that portion of its excess inclusion income
for the taxable year that is allocable to the disqualified organization,
multiplied by the highest federal income tax rate imposed on corporations. It is
not expected that a substantial portion of a Fund’s assets will be residual
interests in REMICs. Additionally, the Funds do not intend to invest in REITs in
which a substantial portion of the assets will consist of residual interests in
REMICs.
Each
Fund may make investments in which it recognizes income or gain prior to
receiving cash with respect to such investment. For example, under certain tax
rules, a Fund may be required to accrue a portion of any discount at which
certain securities are purchased as income each year even though the Fund
receives no payments in cash on the security during the year. To the extent that
a Fund makes such investments, it generally would be required to pay out such
income or gain as a distribution in each year to avoid taxation at the Fund
level.
Each
Fund will report to shareholders annually the amounts of dividends received from
ordinary income and the amount of distributions received from capital gains and
the portion of dividends, if any, which may qualify for the dividends received
deduction. Certain ordinary dividends paid to non-corporate shareholders may
constitute qualified dividend income eligible for taxation at a lower tax rate
applicable to long-term capital gains provided holding period and other
requirements are met at both the shareholder and Fund levels. In the event that
Funds receive such a dividend and report the distribution of such dividend as a
qualified dividend, the dividend may be taxed at maximum capital gains rates of
15% or 20%, provided holding period and other requirements are met at both the
shareholder and each Fund level.
If
the aggregate amount of qualified dividend income received by a Fund during any
taxable year is less than 95% of the Fund’s gross income (as specifically
defined for that purpose), qualified dividend treatment applies only if and to
the extent reported by the Fund as qualified dividend income. A Fund may report
such dividends as qualified dividend income only to the extent the Fund itself
has qualified dividend income for the taxable year with respect to which such
dividends are made. Qualified dividend income is generally 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 comprehensive tax treaties with the United States, or
whose stock is readily tradable on an established securities market in the
United States), provided the Fund has held the stock in such corporations for
more than 60 days during the 121-day period beginning on the date which is 60
days before the date on which such stock becomes ex-dividend with respect to
such dividend (or more than 90 days during the 181-day period beginning 90 days
before the ex-dividend date for the stock in the
case
of certain preferred stock dividends) (the “holding period requirement”). In
order to be eligible for the 20% maximum rate on dividends from the Fund
attributable to qualified dividends, shareholders must separately satisfy the
holding period requirement with respect to their Fund shares.
VanEck
CEF Muni Income ETF, VanEck CLO ETF, VanEck China Bond ETF, VanEck Commodity
Strategy ETF, VanEck Emerging Markets High Yield Bond ETF, VanEck Fallen Angel
High Yield Bond ETF, VanEck Green Bond ETF, VanEck High Yield Muni ETF, VanEck
HIP Sustainable Muni ETF, VanEck Intermediate Muni ETF, VanEck International
High Yield Bond ETF, VanEck IG Floating Rate ETF, VanEck J.P. Morgan EM Local
Currency Bond ETF, VanEck Long Muni ETF, VanEck Moody's Analytics BBB Corporate
Bond ETF, VanEck Moody's Analytics IG Corporate Bond ETF, VanEck Short High
Yield Muni ETF and VanEck Short Muni ETF do not expect that any of their
distributions will be qualified dividends eligible for lower tax rates or for
the corporate dividends received deduction. In the event that VanEck BDC Income
ETF, VanEck Dynamic High Income ETF, VanEck Energy Income ETF, VanEck Mortgage
REIT Income ETF and VanEck Preferred Securities ex Financials ETF receive such a
dividend and report the distribution of such dividend as a qualified dividend,
the dividend may be taxed at maximum capital gains rates of 15% or 20%, provided
holding period and other requirements are met at both the shareholder and the
Fund level. It is not expected that any significant portion of the VanEck BDC
Income ETF’s, VanEck Brazil Small-Cap ETF’s or VanEck Mortgage REIT Income ETF’s
distributions will be eligible for qualified dividend treatment.
Section
199A of the Internal Revenue Code allows a deduction through 2025 of up to 20%
on taxable ordinary dividends from REITs and certain other types of business
income for non-corporate taxpayers. Treasury regulations enable a RIC to
flow-through to its shareholders such taxable ordinary dividends from REITs if
received by the RIC. VanEck Mortgage REIT Income ETF and VanEck Preferred
Securities ex Financials ETF expect that some portion of their distributions may
be taxable ordinary dividends from REITs.
Certain
distributions reported by a Fund as Section 163(j) interest dividends may be
treated as interest income by shareholders for purposes of the tax rules
applicable to interest expense limitations under Internal Revenue Code Section
163(j). Such treatment by the shareholder is generally subject to holding period
requirements and other potential limitations, although the holding period
requirements are generally not applicable to dividends declared by money market
funds and certain other funds that declare dividends daily and pay such
dividends on a monthly or more frequent basis. The amount that a Fund is
eligible to report as a Section 163(j) dividend for a tax year is generally
limited to the excess of the Fund’s business interest income over the sum of the
Fund’s (i) business interest expense and (ii) other deductions properly
allocable to the Fund’s business interest income.
Distributions
from capital gains generally are made after applying any available capital loss
carryforwards. Capital loss carryforwards are reduced to the extent they offset
current-year net realized capital gains, whether the Fund retains or distributes
such gains. If a Fund incurs or has incurred capital losses in excess of capital
gains (“net capital losses”), those losses will be carried forward to one or
more subsequent taxable years; any such carryforward losses will retain their
character as short-term or long-term. In the event that the Fund were to
experience an ownership change as defined under the Internal Revenue Code, the
capital loss carryforwards and other favorable tax attributes of the Fund, if
any, may be subject to limitation.
In
determining its net capital gain, including in connection with determining the
amount available to support a capital gain dividend, its taxable income and its
earnings and profits, a Fund generally may also elect to treat part or all of
any post-October capital loss (defined as any net capital loss attributable to
the portion, if any, of the taxable year after October 31 or, if there is no
such loss, the net long-term capital loss or net short-term capital loss
attributable to any such portion of the taxable year) or late-year ordinary loss
(generally, the sum of its (i) net ordinary loss, if any, from the sale,
exchange or other taxable disposition of property, attributable to the portion,
if any, of the taxable year after October 31, and its (ii) other net ordinary
loss, if any, attributable to the portion, if any, of the taxable year after
December 31) as if incurred in the succeeding taxable year.
In
general, a sale of Shares results in capital gain or loss, and for individual
shareholders, is taxable at a federal rate dependent upon the length of time the
Shares were held. A redemption of a shareholder’s Fund Shares is normally
treated as a sale for tax purposes. Fund Shares held for a period of one year or
less at the time of such sale or redemption will, for tax purposes, generally
result in short-term capital gains or losses, and those held for more than one
year will generally result in long-term capital gains or losses. The maximum tax
rate on long-term capital gains available to a non-corporate shareholder
generally is 15% or 20%, depending on whether the shareholder’s income exceeds
certain threshold amounts (but the 25% capital gain tax rate will remain
applicable to 25% rate gain distributions received by VanEck Mortgage REIT
Income ETF).
If
at the end of each quarter of the taxable year of a RIC, 50% or more of the
assets, by value, of the RIC are either (i) state, municipal and other bonds
that pay interest that is exempt from federal income tax, or (ii) interests in
other RICs, the RIC may report a portion of its dividends as exempt-interest
dividends. As VanEck CEF Muni Income ETF and VanEck Dynamic High Income ETF
invest in underlying funds, in order to report exempt-interest dividends, at the
end of each
quarter
of its taxable year, 50% of more of its assets would need to be represented by
interests in other RICs. The Municipal Funds and VanEck CEF Muni Income ETF
expect to be eligible to make such reports with respect to a substantial amount
of the income each receives. The portion of the dividends that are reported as
being exempt-interest dividends generally will be exempt from federal income tax
and may be exempt from state and local taxation. Depending on a shareholder’s
state of residence, exempt-interest dividends paid by the Funds from interest
earned on municipal securities of that state, or its political subdivision, may
be exempt in the hands of such shareholder from income tax in that state and its
localities. However, income from municipal securities of states other than the
shareholder’s state of residence generally will not qualify for this
treatment.
Interest
on indebtedness incurred by a shareholder to purchase or carry shares of the
Municipal Funds or VanEck CEF Muni Income ETF will not be deductible for U.S.
federal income tax purposes. In addition, the IRS may require a shareholder in a
Fund that receives exempt-interest dividends to treat as taxable income a
portion of certain otherwise non-taxable social security and railroad retirement
benefit payments. In addition, the receipt of dividends and distributions from
the Funds may affect a foreign corporate shareholder’s federal “branch profits”
tax liability and the federal “excess net passive income” tax liability of a
shareholder of a Subchapter S corporation. Shareholders should consult their own
tax advisers as to whether they are (i) “substantial users” with respect to a
facility or “related” to such users within the meaning of the Internal Revenue
Code or (ii) subject to the federal “branch profits” tax, or the deferral
“excess net passive income” tax.
Shares
of the Municipal Funds and VanEck CEF Muni Income ETF generally would not be
suitable for tax-exempt institutions or tax-deferred retirement plans
(e.g.,
plans qualified under Section 401 of the Internal Revenue Code, and individual
retirement accounts). Such retirement plans would not gain any benefit from the
tax-exempt nature of a Municipal Fund’s, or VanEck CEF Muni Income ETF’s
dividend because such dividend would be ultimately taxable to beneficiaries when
distributed to them.
Any
market discount recognized on a bond is taxable as ordinary income. A market
discount bond is a bond acquired in the secondary market at a price below
redemption value or adjusted issue price if issued with original issue discount.
Absent an election by the Funds to include the market discount in income as it
accrues, gain on the Funds’ disposition of such an obligation will be treated as
ordinary income rather than capital gain to the extent of the accrued market
discount.
The
Tax Cuts and Jobs Act (the “Act”), enacted in 2017, contained certain provisions
that may affect the Municipal Funds. Under prior law, the tax exemption for
interest from state and local bonds generally applied to refunded bonds with
certain limitations on advance refunding bonds. Advance refunding bonds are
bonds that are issued more than 90 days before the redemption of the refunded
bond. Under the Act, interest income from advance refunding bonds will now be
considered to be taxable interest income for any advance refundings that occur
after December 31, 2017. This provision may affect the supply of municipal bonds
available for purchase in the market.
Certain
Treasury regulations and government guidance indicate that the Act’s provisions
that required that certain undistributed earnings of foreign corporations be
recognized as income by U.S. owners with significant interests in foreign
corporations with historical undistributed earnings may affect calculations in
prior years of distributable investment income for VanEck Junior Gold Miners ETF
which owned relevant percentages of certain foreign corporations in its
portfolio during certain periods affected by the Act’s provisions potentially
resulting in additional dividends by and excise tax and other tax penalties and
charges on VanEck Junior Gold Miners ETF’s undistributed investment income.
Gain
or loss on the sale or redemption of Fund Shares is measured by the difference
between the amount of cash received (or the fair market value of any property
received) and the adjusted tax basis of the Shares. Shareholders should keep
records of investments made (including Shares acquired through reinvestment of
dividends and distributions) so they can compute their tax basis in their Fund
Shares. Reporting to the IRS and to taxpayers is required with respect to
adjusted cost basis information for covered securities, which generally include
shares of a RIC acquired after January 1, 2012. Shareholders should contact
their financial intermediaries with respect to reporting of cost basis and
available elections for their accounts.
A
loss realized on a sale or exchange of Shares of a Fund may be disallowed if
other Fund Shares or substantially identical shares are acquired (whether
through the automatic reinvestment of dividends or otherwise) within a sixty-one
(61) day period beginning thirty (30) days before and ending thirty (30) days
after the date that the Shares are disposed of. In such a case, the basis of the
Shares acquired will be adjusted to reflect the disallowed loss. Any loss upon
the sale or exchange of Shares held for six (6) months or less will be treated
as long-term capital loss to the extent of any capital gain dividends received
by the shareholders.
Distribution
of ordinary income and capital gains may also be subject to foreign, state and
local taxes.
Certain
Funds may invest a portion of their assets in certain “private activity bonds.”
As a result, a portion of the exempt-interest dividends paid by such Funds will
be an item of tax preference to non-corporate shareholders subject to the
alternative minimum tax. However, the alternative minimum tax consequences
discussed in this paragraph do not apply with respect to interest paid on bonds
issued after December 31, 2008 and before January 1, 2011 (including refunding
bonds issued during that period to refund bonds originally issued after December
31, 2003 and before January 1, 2009).
Distributions
reinvested in additional Fund Shares through the means of a dividend
reinvestment service (see “Dividend Reinvestment Service”) will nevertheless be
taxable dividends to Beneficial Owners acquiring such additional Shares to the
same extent as if such dividends had been received in cash.
An
additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from a
Fund and net gains from redemptions or other taxable dispositions of Fund
Shares) of U.S. individuals, estates and trusts to the extent that such person’s
“modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold
amounts.
Some
shareholders may be subject to a withholding tax on distributions of ordinary
income, capital gains and any cash received on redemption of Creation Units
(“backup withholding”). The backup withholding rate for individuals is currently
24%. Generally, shareholders subject to backup withholding will be those for
whom no certified taxpayer identification number is on file with a Fund or who,
to the Fund’s knowledge, have furnished an incorrect number. When establishing
an account, an investor must certify under penalty of perjury that such number
is correct and that such investor is not otherwise subject to backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
will be allowed as a credit against shareholders’ U.S. federal income tax
liabilities, and may entitle them to a refund, provided that the required
information is timely furnished to the IRS.
Distributions
of ordinary income paid to shareholders who are nonresident aliens or foreign
entities will generally be subject to a 30% U.S. withholding tax unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Prospective investors are urged to consult their tax
advisors regarding such withholding.
Tax
Considerations with respect to Investments and Dividends (VanEck
Ethereum Strategy ETF only)
With
respect to VanEck Ethereum Strategy ETF, special tax rules can, among other
things, affect the treatment of capital gain or loss as long‑term or short‑term
and may result in ordinary income or loss rather than capital gain or loss and
may accelerate when the Fund has to take these items into account for U.S.
federal income tax purposes. The application of these special rules would
therefore also affect the timing and character of distributions made by the
Fund.
See
“U.S. Federal Tax Treatment of Certain Futures Contracts and Option Contracts”
for certain U.S. federal income tax rules regarding futures contracts.
Under
current law, the Fund may serve to block unrelated business taxable income
(“UBTI”) from being realized by their tax-exempt shareholders. Notwithstanding
the foregoing, a tax-exempt shareholder could realize UBTI by virtue of its
investment in the 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 Internal Revenue Code.
The
Fund may make investments in which it recognizes income or gain prior to
receiving cash with respect to such investment.
For
example, under certain tax rules, the Fund may be required to accrue a portion
of any discount at which certain securities are purchased as income each year
even though the Fund receives no payments in cash on the security during the
year.
Distributions
by the Fund of cash or property in respect of the Shares, whether taken in cash
or reinvested in Shares, 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) and will be
includible in gross income by a U.S. Shareholder upon receipt. Any such dividend
will be eligible for the dividends received deduction if received by an
otherwise qualifying corporate U.S. Shareholder that meets the holding period
and other requirements for the dividends received deduction. Dividends paid by
the Fund to certain non-corporate U.S. Shareholders (including individuals) are
eligible for U.S. federal income taxation at the rates generally applicable to
long-term capital gains for individuals, provided that the U.S. Shareholder
receiving the dividend satisfies applicable holding period and other
requirements.
If
the amount of the Fund distribution exceeds the Fund’s current and accumulated
earnings and profits, such excess will be treated first as a tax-free return of
capital to the extent of the U.S. Shareholder’s tax basis in the Shares
(reducing that basis accordingly), and thereafter as capital gain. Any such
capital gain will be long-term capital gain if such U.S. Shareholder has held
the applicable Shares for more than one year. A distribution will be wholly or
partially taxable to a shareholder if the Fund has current earnings and profits
(as determined for U.S. federal income tax purposes) in the taxable year of the
distribution,
even if the Fund has an overall deficit in the Fund’s accumulated earnings and
profits and/or net operating loss or capital loss carryforwards that reduce or
eliminate corporate income taxes in that taxable year.
Under
recent proposed Treasury regulations, a federal excise tax on stock repurchases
is expected to apply to the Fund with respect to net share redemptions occurring
on or after January 1, 2023. The excise tax is one-percent (1%) of the fair
market value of Fund share redemptions less the fair market value of Fund share
issuances (in excess of $1 million of fair market value) annually on a taxable
year basis.
Non-U.S.
Shareholders
If
you are not a citizen or resident alien of the United States or if you are a
non-U.S. entity, a Fund’s ordinary income dividends (which include distributions
of net short-term capital gains) will generally be subject to a 30% U.S.
withholding tax, unless a lower treaty rate applies or unless such income is
effectively connected with a U.S. trade or business.
A
Non-U.S. Shareholder who wishes to claim the benefits of an applicable income
tax treaty for dividends will be required (a) to complete Form W-8BEN or Form
W-8BEN-E (or other applicable form) and certify under penalty of perjury that
such holder is not a United States person as defined under the Internal Revenue
Code and is eligible for treaty benefits or (b) if Shares are held through
certain foreign intermediaries, to satisfy the relevant certification
requirements of applicable United States Treasury regulations. A Non-U.S.
Shareholder eligible for a reduced rate of United States withholding tax
pursuant to an income tax treaty may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund with the IRS.
If
the amount of a distribution to a Non-U.S. Shareholder exceeds the Fund’s
current and accumulated earnings and profits, such excess will be treated first
as a tax-free return of capital to the extent of the Non-U.S. Shareholder’s tax
basis in the Shares, and then as capital gain. Capital gain recognized by a
Non-U.S. Shareholder as a consequence of a distribution by the Fund in excess of
its current and accumulated earnings and profits will generally not be subject
to United States federal income tax, except as described below.
Any
capital gain realized by a Non-U.S. Shareholder upon a sale of shares of a Fund
will generally not be subject to U.S. federal income or withholding tax unless
(i) the gain is effectively connected with the shareholder’s trade or business
in the United States, or in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the United States for 183 days or more
during the taxable year and certain other conditions are met or (ii) a Fund is
or has been a U.S. real property holding corporation, as defined below, at any
time within the five-year period preceding the date of disposition of the Fund’s
Shares or, if shorter, within the period during which the Non-U.S. Shareholder
has held the Shares. Generally, a corporation is a U.S. real property holding
corporation if the fair market value of its U.S. real property interests, as
defined in the Internal Revenue Code and applicable regulations issued
thereunder, equals or exceeds 50% of the aggregate fair market value of its
worldwide real property interests and its other assets used or held for use in a
trade or business. A Fund may be, or may prior to a Non-U.S. Shareholder’s
disposition of Shares become, a U.S. real property holding corporation. If a
Fund is or becomes a U.S. real property holding corporation, so long as the
Fund’s Shares are regularly traded on an established securities market, a
Non-U.S. Shareholder who holds or held (at any time during the shorter of the
five-year period preceding the date of disposition or the holder’s holding
period) more than 5% (directly or indirectly as determined under applicable
attribution rules of the Internal Revenue Code) of the Fund’s Shares will be
subject to U.S. federal income tax on the disposition of Shares. Any Non-U.S.
Shareholder who is described in one of the foregoing cases is urged to consult
his, her or its own tax advisor regarding the U.S. federal income tax
consequences of the redemption, sale, exchange or other disposition of Shares of
a Fund.
Except
with respect to VanEck Ethereum Strategy ETF, properly reported dividends
received by a nonresident alien or foreign entity are generally exempt from U.S.
federal withholding tax when they (i) are paid in respect of the Fund’s
“qualified net interest income” (generally, the Fund’s U.S. source interest
income, reduced by expenses that are allocable to such income), or (ii) are paid
in connection with the Fund’s “qualified short-term capital gains” (generally,
the excess of the Fund’s net short-term capital gain over the Fund’s long-term
capital loss for such taxable year). However, depending on the circumstances,
the Fund may report all, some or none of the Fund’s potentially eligible
dividends as such qualified net interest income or as qualified short-term
capital gains, and a portion of the Fund’s distributions (e.g.,
interest from non-U.S. sources, subpart F income with respect to VanEck CMCI
Commodity Strategy ETF, VanEck Commodity Strategy ETF and VanEck Inflation
Allocation ETF’s investment in the Cayman Subsidiaries and any foreign currency
gains) would be ineligible for this potential exemption from withholding. With
respect to VanEck CMCI Commodity Strategy ETF, VanEck Commodity Strategy ETF and
VanEck Inflation Allocation ETF, a financial intermediary may in fact withhold
even if the Funds do so report.
As
part of the Foreign Account Tax Compliance Act (“FATCA”), the Funds may be
required to withhold 30% on certain types of U.S.-sourced income (e.g.,
dividends, interest, and other types of passive income), paid to (i) foreign
financial institutions (“FFIs”), including non-U.S. investment funds, unless
they agree to collect and disclose to the IRS information
regarding
their direct and indirect U.S. account holders and (ii) certain nonfinancial
foreign entities (“NFFEs”), unless they certify certain information regarding
their direct and indirect U.S. owners. To avoid possible withholding, FFIs will
need to enter into agreements with the IRS which state that they will provide
the IRS information, including the names, account numbers and balances,
addresses and taxpayer identification numbers of U.S. account holders and comply
with due diligence procedures with respect to the identification of direct and
indirect U.S. accounts as well as agree to withhold tax on certain types of
withholdable payments made to non-compliant FFIs or to applicable foreign
account holders who fail to provide the required information to the IRS, or
similar account information and required documentation to a local revenue
authority, should an applicable intergovernmental agreement be implemented.
NFFEs will need to provide certain information regarding each substantial U.S.
owner or certifications of no substantial U.S. ownership, unless certain
exceptions apply, or agree to provide certain information to the
IRS.
The
Funds may be subject to the FATCA withholding obligation, and also will be
required to perform extensive due diligence reviews to classify foreign entity
investors for FATCA purposes. Investors are required to agree to provide
information necessary to allow the Funds to comply with the FATCA rules. If the
Funds are required to withhold amounts from payments pursuant to FATCA,
investors will receive distributions that are reduced by such withholding
amounts.
Non-U.S.
Shareholders are advised to consult their tax advisors with respect to the
particular tax consequences to them of an investment in a Fund, including the
possible applicability of the U.S. estate tax.
The
foregoing discussion is a summary only and is not intended as a substitute for
careful tax planning. Purchasers of Shares of the Trust should consult their own
tax advisers as to the tax consequences of investing in such Shares, including
under state, local and other tax laws. Finally, the foregoing discussion is
based on applicable provisions of the Internal Revenue Code, regulations,
judicial authority and administrative interpretations in effect on the date
hereof. Changes in applicable authority could materially affect the conclusions
discussed above and could adversely affect the Funds, and such changes often
occur.
Reportable
Transactions
Under
promulgated Treasury regulations, if a shareholder recognizes a loss on a
disposition of a Fund’s Shares of $2 million or more in any one taxable year (or
$4 million or more over a period of six taxable years) for an individual
shareholder or $10 million or more in any taxable year (or $20 million or more
over a period of six taxable years) for a corporate shareholder, the shareholder
must file with the IRS a disclosure statement on Form 8886. Direct owners of
portfolio securities are in many cases excepted from this reporting requirement,
but under current guidance, shareholders of a RIC that engaged in a reportable
transaction are not excepted. Future guidance may extend the current exception
from this reporting requirement to shareholders of most or all RICs. In
addition, significant penalties may be imposed for the failure to comply with
the reporting requirements. 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.
Mauritius
and India Tax Matters
(VanEck
Digial India ETF and VanEck India Growth Leaders ETF only)
Please
note that the tax implications in this section are based on the current
provisions of the tax laws, and the regulations thereunder, and the judicial and
administrative interpretations thereof, which are subject to change or
modification by subsequent legislative, regulatory, administrative or judicial
decisions. Any such changes could have adverse tax consequences for the VanEck
Digital India ETF and VanEck India Growth Leaders ETF and its wholly-owned
subsidiary located in the Republic of Mauritius (the “Mauritius Subsidiary”), as
the case may be, and thus reduce the return to Fund shareholders.
Each
Fund and the Mauritius Subsidiary may be subject to Indian income tax on income
earned from or with respect to Indian securities, and securities transaction tax
in respect of dealings in Indian securities purchased or sold on the Indian
stock exchanges. If Indian General Anti-Avoidance Rules are held to be
applicable to any transaction pertaining to the either Fund or the Mauritius
Subsidiary, it could have an adverse impact on their taxation in
India.
Indian
capital gains tax can be imposed on income arising from the transfer of shares
in a company established outside India which derives, directly or indirectly,
its value substantially from the assets located in India. Being a Category I
FPI, the VanEck Digital India ETF and Mauritius Subsidiary are currently exempt
from the application of these rules. In case of loss of the VanEck Digital India
ETF's and Mauritius Subsidiary's registration as Category I FPIs or changes in
Indian rules, the Mauritius Subsidiary, VanEck Digital India ETF, VanEck India
Growth Leaders ETF and the investors could be subject to the indirect transfer
tax provisions in the future.
An
investor in VanEck Digital India ETF and VanEck India Growth Leaders ETF will
not be subject to taxation in India unless such investor is a resident of India
or, if a non-resident, has an Indian source income or income received (whether
accrued or otherwise) in India or triggers the indirect transfer provisions
(discussed above).
(VanEck
India Growth Leaders ETF only)
Mauritius.
The Mauritius Subsidiary is regulated by the Financial Services Commission in
Mauritius (“FSC”), which has issued a Global Business License to the Mauritius
Subsidiary to conduct the business of “investment holding”. The Mauritius
Subsidiary will apply for a tax residence certificate (“TRC”) from the Mauritius
Revenue Authority (the “MRA”) through the FSC to benefit from the network of tax
treaties in Mauritius. The TRC is issued by the MRA subject to the Mauritius
Subsidiary meeting certain tests and conditions and is renewable on an annual
basis.
The
Mauritius Subsidiary generally will be taxable in Mauritius on income derived
from its investments in the portfolio companies at the rate of 15%. Effective
January 1, 2019, a partial exemption regime has been introduced in Mauritius,
under which a corporation holding a Global Business License will be granted an
exemption of 80% on certain specified income, subject to meeting certain
additional substance requirements.
The
Mauritius Subsidiary intends to comply with the substance and other requirements
prescribed under applicable Mauritius law, however it is possible that the
Mauritius Subsidiary may not continue to satisfy these requirements of Mauritius
in the future, which may have adverse Mauritius tax consequences.
Mauritius
and United States have entered into a Model 1 Inter-Governmental Agreement to
improve international tax compliance and to implement FATCA. On June 23, 2015,
Mauritius also signed the Convention on Mutual Administrative Assistance in Tax
Matters to enable the implementation of the common reporting standard (“CRS”).
As a result of FATCA, CRS or any other legislation under which disclosure may be
necessary or desirable which may apply to the Mauritius Subsidiary, investors
may be required to provide the Board of Directors of the Mauritius Subsidiary
(the “Mauritius Subsidiary Board”) with all information and documents as the
Mauritius Subsidiary Board may require. The Mauritius Subsidiary may disclose
such information regarding the investors as may be required by the Government of
Mauritius pursuant to FATCA, CRS or applicable laws or regulations in connection
therewith (including, without limitation, the disclosure of certain non-public
personal information regarding the investors to the extent
required).
India-Mauritius
Tax Treaty.
The taxation of the Mauritius Subsidiary in India is governed by the provisions
of the ITA 1961, read with India-Mauritius tax treaty.
In
order to claim the beneficial provisions of the India-Mauritius tax treaty, the
Mauritius Subsidiary must be a tax resident of Mauritius and should obtain a TRC
pertaining to the relevant period from the FSC. The Mauritius Subsidiary has to
provide to the Indian tax authorities such other documents and information, as
are or may be prescribed.
Following
the changes to the India-Mauritius tax treaty in 2016, capital gains of the
Mauritius Subsidiary from sale of shares of an Indian company are taxable in
India with the exception of gains on sale of shares of an Indian company
acquired by a Mauritius tax resident before April 1, 2017 (“Grandfathered
Investments”) which continue to be exempt from Indian capital gains tax
irrespective of the date on which such shares are sold. If the Mauritius
Subsidiary qualifies as a Mauritius resident entity under Mauritius income tax
laws, has a valid TRC and is eligible for benefits under the India-Mauritius tax
treaty, the Mauritius Subsidiary will not be subject to Indian tax on capital
gains derived from Grandfathered Investments.
In
the event that the benefits of the Treaty are not available to the Subsidiary,
or the Subsidiary is held to have a permanent establishment in India, its income
from India will be taxed in accordance with Indian tax rules.
PRC
Taxation
(VanEck
ChiNext ETF, VanEck Green Metals ETF and VanEck Rare Earth and Strategic Metals
ETF only)
The
Funds’ investments in A-shares will be subject to a number of PRC tax rules and
the application of many of those rules is at present uncertain. PRC taxes that
may apply to the Funds’ investments include withholding taxes on dividends
earned by a Fund, withholding taxes on capital gains, value-added tax
(previously, business tax) and stamp tax.
Non-PRC
tax resident enterprises (without permanent establishment in the PRC), such as
the Funds, are generally subject to a withholding income tax of 10% on any
PRC-sourced income (including dividends, distributions and capital gains) they
derive from their investment in PRC securities unless exempt or reduced under
PRC law or a relevant tax treaty. The application of such treaties to a foreign
investor is uncertain and would depend on the approval of PRC tax authorities.
With
respect to Stock Connect, foreign investors (including the Funds) investing
through Stock Connect would be temporarily exempt from the corporate income tax
and value-added tax on the gains on disposal of such A-shares until further
notice.
Dividends would be subject to corporate income tax on a withholding basis at
10%, unless reduced under a double tax treaty with PRC upon application to and
obtaining approval from the competent tax authority.
The
current PRC tax laws and regulations and interpretations thereof may be revised
or amended in the future. Any revision or amendment in tax laws and regulations
may adversely affect the Fund.
Each
Fund, prior to December 22, 2014, reserved 10% of its realized and unrealized
gains from its A-share investments to apply towards withholding tax liability
with respect to realized and unrealized gains from the Fund’s investments in
A-shares of “land-rich” enterprises, which are companies that have greater than
50% of their assets in land or real properties in the PRC. Each Fund could be
subject to tax liability for any tax payments for which reserves have not been
made or that were not previously withheld. The impact of any such tax liability
on the Funds’ return could be substantial.
The
Funds may also potentially be subject to PRC value-added tax at the rate of 6%
on capital gains derived from trading of A-shares.
(VanEck
China Bond ETF and VanEck J.P. Morgan EM Local Currency Bond ETF
only)
There
are still some uncertainties in the PRC tax rules governing taxation of income
and gains from investments in the PRC due to the lack of formal guidance from
the PRC’s tax authorities that could result in unexpected tax liabilities for
VanEck China Bond ETF and VanEck J.P. Morgan EM Local Currency Bond ETF. Non-PRC
tax resident enterprises (without permanent establishment in the PRC), such as
the Funds, are generally subject to a withholding income tax of 10% on any
PRC-sourced income (including dividends, distributions and capital gains). On
November 7, 2018, the PRC Ministry of Finance (MOF) and PRC State Administration
of Taxation (SAT) jointly issued Caishui [2018] 108 (Circular 108) which
provided a temporary three-year tax exemption from withholding income tax and
value added tax with respect to bond interest derived by foreign institutional
investors (FIIs) derived in the domestic bond market (via CIBM and Hong Kong
Bond Connect) from November 7, 2018 to November 6, 2021. On November 26, 2021,
the tax exemption period provided in Circular 108 was extended by Caishui [2021]
No. 34 (“Circular 34”) to December 31, 2025.
Under
the PRC Corporate Income Tax regime, PRC also imposes WHT at a rate of 10%
(subject to treaty relief) on PRC-sourced capital gains derived by nonresident
enterprises, provided that the nonresident enterprises (i) do not have places of
business, establishments or permanent establishments in the PRC; and (ii) are
not PRC tax resident enterprises. VanEck China Bond ETF and VanEck J.P. Morgan
EM Local Currency Bond ETF currently consider capital gains derived from bonds
issued by PRC entities to be non PRC-sourced income, and thus nonresident
enterprises should not be subject to WHT on such gains. Gains derived by
nonresidents from the trading of bonds issued by PRC entities should be exempt
from value-added tax.
PRC
rules for taxation of nonresidents trading bonds via Bond Connect are evolving,
and the PRC tax regulations to be issued by the PRC State Administration of
Taxation and/or PRC MOF to clarify the subject matter may apply retrospectively,
even if such rules are adverse to the nonresident investors. If the PRC tax
authorities were to issue differing formal guidance or tax rules regarding the
taxation of interest and capital gains derived by nonresident investors from PRC
bonds, and/or begin collecting WHT on gains from such investments, VanEck China
Bond ETF and VanEck J.P. Morgan EM Local Currency Bond ETF could be subject to
additional tax liabilities. The impact of any such tax liability, as well as the
potential late payment interest and penalties associated with the underpaid PRC
taxes, on a Fund’s return could be substantial.
Other
Issues
(VanEck
Energy Income ETF only)
The
Fund may be subject to tax or taxes in certain states where MLPs do business.
Furthermore, in those states which have income tax laws, the tax treatment of
the Fund and its Fund shareholders with respect to distributions by the Fund may
differ from federal tax treatment.
CAPITAL
STOCK AND SHAREHOLDER REPORTS
The
Trust currently is comprised of 69 investment portfolios. The Trust issues
Shares of beneficial interest with no par value. The Board may designate
additional funds of the Trust.
Each
Share issued by the Trust has a pro rata interest in the assets of the
corresponding Fund. Shares have no pre-emptive, exchange, subscription or
conversion rights and are freely transferable. Each Share is entitled to
participate equally in dividends and distributions declared by the Board with
respect to the relevant Fund, and in the net distributable assets of such Fund
on liquidation. A Fund may liquidate and terminate at any time and for any
reason, including as a result of the termination of the license agreement
between the Fund’s Adviser and the Fund’s Index Provider, without shareholder
approval.
Each
Share has one vote with respect to matters upon which a shareholder vote is
required consistent with the requirements of the 1940 Act and the rules
promulgated thereunder and each fractional Share has a proportional fractional
vote. Shares of all funds vote together as a single class except that if the
matter being voted on affects only a particular fund it will be voted on only by
that fund, and if a matter affects a particular fund differently from other
funds, that fund will vote separately on such matter. Under Delaware law, the
Trust is not required to hold an annual meeting of shareholders unless required
to do so under the 1940 Act. The policy of the Trust is not to hold an annual
meeting of shareholders unless required to do so under the 1940 Act. All Shares
of the Trust have noncumulative voting rights for the election of Trustees.
Under Delaware law, Trustees of the Trust may be removed by vote of the
shareholders.
Under
Delaware law, the shareholders of a Fund are not generally subject to liability
for the debts or obligations of the Trust. Similarly, Delaware law provides that
a Fund will not be liable for the debts or obligations of any other series of
the Trust. However, no similar statutory or other authority limiting statutory
trust shareholder liability may exist in other states. As a result, to the
extent that a Delaware statutory trust or a shareholder is subject to the
jurisdiction of courts of such other states, the courts may not apply Delaware
law and may thereby subject the Delaware statutory trust’s shareholders to
liability for the debts or obligations of the Trust. The Trust’s Amended and
Restated Declaration of Trust (the “Declaration of Trust”) provides for
indemnification by the relevant Fund for all loss suffered by a shareholder as a
result of an obligation of the Fund. The Declaration of Trust also provides that
a Fund shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any judgment
thereon.
The
Trust will issue through DTC Participants to its shareholders semi-annual
reports, annual reports and such other information as may be required by
applicable laws, rules and regulations. Beneficial Owners also receive annually
notification as to the Trust’s distributions.
Shareholder
inquiries may be made by writing to the Trust, c/o Van Eck Associates
Corporation, 666 Third Avenue, 9th Floor, New York, New York 10017.
COUNSEL
AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Dechert
LLP, 1095 Avenue of the Americas, New York, New York 10036, is counsel to the
Trust and has passed upon the validity of each Fund’s Shares.
Another
independent public accounting firm was the Trust's independent registered public
accounting firm for the fiscal years ended September 30, 2021, December 31, 2021
and April 30, 2022. PricewaterhouseCoopers LLP, 300 Madison Ave, New York, NY
10017, has been appointed as the Trust's independent registered public
accounting firm for the fiscal years subsequent to April 30, 2022 and audits the
Funds' financial statements and perform other related audit services.
FINANCIAL
STATEMENTS
Pursuant
to an agreement and plan of reorganization between the Trust, on behalf of the
VanEck Energy Income ETF, and Exchange Traded Concepts Trust, on behalf of
Yorkville High Income MLP ETF (the “Predecessor Fund”), on February 22, 2016 the
VanEck Energy Income ETF acquired all of the assets and liabilities of the
Predecessor Fund in exchange for shares of beneficial interest of the VanEck
Energy Income ETF (the “Reorganization”). As a result of the Reorganization, the
VanEck Energy Income ETF adopted the financial and performance history of the
Predecessor Fund.
The
audited financial statements, including the financial highlights, the report of
PricewaterhouseCoopers LLP, each Fund’s independent registered public
accountant, appearing in the Trust’s most recent Annual Report to shareholders
for each Fund’s corresponding fiscal year end and filed electronically with the
SEC on Form N-CSR, are incorporated by reference in and made part of this SAI.
No other portions of any of the Trust’s Annual Reports or Semi-Annual Reports
are incorporated by reference or made part of this SAI. You may request a copy
of the Trust’s Annual Reports and Semi-Annual Reports for the Funds at no charge
by calling 800.826.2333 during normal business hours.
For
each Fund with a fiscal year end of September 30, 2023, the Trust's most recent
Annual Reports to shareholders are accessible HERE.
For
each Fund with a fiscal year end of December 31, 2023, the Trust's most recent
Annual Reports to shareholders are accessible HERE.
For
each Fund with a fiscal year end of April 30, 2024, the Trust's most recent
Annual Reports to shareholders are accessible HERE.
LICENSE
AGREEMENTS AND DISCLAIMERS1
1
Unless
otherwise defined in the relevant disclosure, defined terms shall have the
meaning as set forth in each Fund’s prospectus.
Source
ICE Data, is used with permission. “ICE” is a registered trademark of ICE Data
or its affiliates. “NYSE”, “NYSE Arca Gold Miners Index” and “NYSE Arca” are
registered trademarks of NYSE Group, Inc., and are used by ICE Data with
permission and under a license. “BofA”®
is a registered trademark of Bank of America Corporation licensed by Bank of
America Corporation and its affiliates ("BofA") and may not be used without
BofA's prior written approval.
These
trademarks have been licensed, along with the NYSE Arca Environmental Services
Index, the NYSE Arca Gold Miners Index and the NYSE Arca Steel Index, the Fallen
Angel Index, the Emerging Markets High Yield Index, the Preferred Securities
Index, the High Yield Index, the Intermediate Index, the Long Index, the Short
High Yield Index, the Short Index and the International High Yield Index (the
“ICE Indices”) for use by the Adviser in connection with the relevant funds (the
“VE Products”). Neither the Adviser, the Trust nor the VE Products, as
applicable, are sponsored, endorsed, sold or promoted by ICE Data, its
affiliates or its and their 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 VE
Products particularly, the Trust or the ability of the ICE Indices to track
general market performance. Past performance of an Index is not an indicator of
or a guarantee of future results.
ICE
Data’s only relationship to the Adviser is the licensing of certain trademarks
and trade names and the ICE Indices or components thereof. The ICE Indices are
determined, composed and calculated by ICE Data without regard to the Adviser or
the VE Products or their holders. ICE Data has no obligation to take the needs
of the Adviser or the holders of the VE Products into consideration in
determining, composing or calculating the ICE Indices. ICE Data is not
responsible for and has not participated in the determination of the timing of,
prices of, or quantities of the VE Products to be issued or in the determination
or calculation of the equation by which the VE Products are 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 the Adviser 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 VE Products. 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 ICE 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 ICE INDICES
AND THE INDEX DATA, WHICH ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT
YOUR OWN RISK.
Morningstar
Disclaimer
The
Adviser has entered into a licensing agreement with Morningstar, Inc.
(“Morningstar”) pursuant to which the Adviser has the right to use the
Morningstar®
Global Markets ex-US Moat Focus Index℠, the Morningstar®
Global Wide Moat Focus Index℠, the Morningstar®
Wide Moat Focus Index℠, the Morningstar®
US Broad Growth Wide Moat Focus Index℠, the Morningstar®
US Broad Value Wide Moat Focus Index℠, the Morningstar®
US Dividend Valuation Index℠, the Morningstar®
US Small-Mid Cap Moat Focus Index℠ and the Morningstar®
US
Sustainability Moat Focus Index℠ (collectively the “Morningstar Indices”) as the
underlying indices for the VanEck Durable High Dividend ETF, VanEck Morningstar
ESG Moat ETF, VanEck Morningstar Global Wide Moat ETF, VanEck Morningstar
International Moat ETF, VanEck Morningstar SMID Moat ETF, VanEck Morningstar
Wide Moat ETF, VanEck Morningstar Wide Moat Growth ETF and VanEck Morningstar
Wide Moat Value ETF (each a “VanEck Index ETF,” and collectively, the “VanEck
Index ETFs”).
The
VanEck Index ETFs are not sponsored, endorsed, sold or promoted by Morningstar.
Morningstar makes no representation or warranty, express or implied, to the
shareholders of the VanEck Index ETFs or any member of the public regarding the
advisability of investing in securities generally or in the VanEck Index ETFs in
particular or the ability of the Morningstar Indices to track general stock
market performance. Morningstar’s only relationship to the Adviser is the
licensing of certain service marks and service names of Morningstar and of the
Morningstar Indices, which are determined, composed and calculated by
Morningstar without regard to the Adviser or the VanEck Index ETFs. Morningstar
has no obligation to take the needs of the Adviser or the shareholders of the
VanEck Index ETFs into consideration in determining, composing or calculating
the Morningstar Indices. Morningstar is not responsible for and has not
participated in the determination of the prices and amount of the VanEck Index
ETFs or the timing of the issuance or sale of the VanEck Index ETFs or in the
determination
or calculation of the equation by which the VanEck Index ETFs are converted into
cash. Morningstar has no obligation or liability in connection with the
administration, marketing or trading of the VanEck Index ETFs.
MORNINGSTAR
DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE MORNINGSTAR
INDICES OR ANY DATA INCLUDED THEREIN AND MORNINGSTAR SHALL HAVE NO LIABILITY FOR
ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. MORNINGSTAR MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ADVISER, SHAREHOLDERS OF
THE VANECK INDEX ETFS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
MORNINGSTAR INDICES OR ANY DATA INCLUDED THEREIN. MORNINGSTAR MAKES NO EXPRESS
OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE MORNINGSTAR
INDICES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN
NO EVENT SHALL MORNINGSTAR HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
VanEck
CEF Muni Income ETF is not sponsored, endorsed, sold or promoted by VettaFi.
VettaFi makes no representation or warranty, express or implied, to the owners
of VanEck CEF Muni Income ETF, or any member of the public regarding the
advisability of investing in securities generally or in VanEck CEF Muni Income
ETF particularly or the ability of the S-Network Municipal Bond Closed-End Fund
Index (the “CEFMX Index”) to track the performance of the federally tax-exempt
annual yield sector of the closed-end fund market. VettaFi’s only relationship
to the Adviser is the licensing of certain service marks and trade names of
S-Network and of the CEFMX Index that is determined, composed and calculated by
VettaFi without regard to the Adviser or VanEck CEF Muni Income ETF. VettaFi has
no obligation to take the needs of the Adviser or the owners of VanEck CEF Muni
Income ETF, into consideration in determining, composing or calculating the
CEFMX Index. VettaFi is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of VanEck CEF Muni
Income ETF to be issued or in the determination or calculation of the equation
by which VanEck CEF Muni Income ETF is to be converted into cash. VettaFi has no
obligation or liability in connection with the administration, marketing or
trading of VanEck CEF Muni Income ETF.
VETTAFI
DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE CEFMX INDEX OR
ANY DATA INCLUDED THEREIN AND THE INDEX PROVIDER SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. VETTAFI MAKES NO WARRANTY, EXPRESS
OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF VANECK CEF
MUNI INCOME ETF, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE CEFMX INDEX
OR ANY DATA INCLUDED THEREIN. S-NETWORK MAKES NO EXPRESS OR IMPLIED WARRANTIES,
AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE CEFMX INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CEFMX
INDEX PROVIDER HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
The
Adviser has entered into a licensing agreement with MarketVector Indexes GmbH
(“MarketVector”) to use each of the Africa Index, Agribusiness Index, BBB Index,
BDC Index, Biotech Index, Brazil Small-Cap Index, Clean-Tech Metals Index,
Digital India Index, Digital Transformation Index, Energy Income Index, eSports
Index, Fabless Index, Floating Rate Index, Gaming Index, Indonesia Index, Israel
Index, Junior Gold Miners Index, Low Carbon Energy Index, Mortgage REITs Index,
Natural Resources Index, Nuclear Energy Index, Office and Commercial REITs
Index, Oil Refiners Index, Oil Services Index, Pharmaceutical Index, Rare
Earth/Strategic Metals Index, Retail Index, Robotics Index, Semiconductor Index,
US IG Index, and Vietnam Index, (the “MarketVector Indexes”). Each of the funds
that seeks to track a MarketVector Index (each an “Index ETF,” and collectively,
the “Index ETFs”) is entitled to use its Index pursuant to a sub-licensing
arrangement with the Adviser.
Shares
of the Index ETFs are not sponsored, endorsed, sold or promoted by MarketVector.
MarketVector makes no representation or warranty, express or implied, to the
owners of the Shares of the Index ETFs or any member of the public regarding the
advisability of investing in securities generally or in the Shares of the Index
ETFs particularly or the ability of the MarketVector Indexes to track the
performance of its respective securities markets. Each of the MarketVector
Indexes is determined and composed by MarketVector without regard to the Adviser
or the Shares of the Index ETFs. MarketVector has no obligation to take the
needs of the Adviser or the owners of the Shares of the Index ETFs into
consideration in determining or composing the respective Index. MarketVector is
not responsible for and has not participated in the determination of the timing
of, prices at, or quantities of the Shares of the Index ETFs to be issued or in
the determination or calculation of the
equation
by which the Shares of the Index ETFs are to be converted into cash.
MarketVector has no obligation or liability in connection with the
administration, marketing or trading of the Shares of the Index ETFs.
MARKETVECTOR
DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA
INCLUDED THEREIN AND MARKETVECTOR SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. MARKETVECTOR MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF SHARES OF THE
FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA
INCLUDED THEREIN. MARKETVECTOR MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MARKETVECTOR
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
Shares
of the Index ETFs are not sponsored, promoted, sold or supported in any other
manner by Solactive AG nor does Solactive AG offer any express or implicit
guarantee or assurance either with regard to the results of using the
MarketVector Indexes and/or its trade mark or its price at any time or in any
other respect. The MarketVector Indexes are calculated and maintained by
Solactive AG. Solactive AG uses its best efforts to ensure that the MarketVector
Indexes are calculated correctly. Irrespective of its obligations towards
MarketVector Indexes, Solactive AG has no obligation to point out errors in the
MarketVector Indexes to third parties including but not limited to investors
and/or financial intermediaries of the Index ETFs. Neither publication of the
MarketVector Indexes by Solactive AG nor the licensing of the MarketVector
Indexes or its trade mark for the purpose of use in connection with the Index
ETFs constitutes a recommendation by Solactive AG to invest capital in the Index
ETFs nor does it in any way represent an assurance or opinion of Solactive AG
with regard to any investment in the Index ETFs. Solactive AG is not responsible
for fulfilling the legal requirements concerning the accuracy and completeness
of the prospectus of the Index ETFs.
The
Adviser has entered into a licensing agreement with Moody’s Analytics, Inc. to
use certain Moody’s Analytics credit risk models, data and trademarks. Moody’s
Analytics is a registered trademark of Moody’s Analytics, Inc. and/or its
affiliates and is used under license.
Moody's
Analytics IG Corporate Bond ETF and VanEck Moody's Analytics BBB Corporate Bond
ETF are not sponsored, promoted, sold or supported in any manner by Moody’s
Analytics nor does Moody’s Analytics offer any express or implicit guarantee or
assurance either with regard to the results of using the US IG Index or BBB
Index, as applicable, and/or the Moody’s Analytics trademark or data at any time
or in any other respect. Certain quantitative financial data used in calculating
and publishing the US IG Index or BBB Index is licensed to the Adviser by
Moody’s Analytics. Moody’s Analytics has no obligation to point out errors in
the data to third parties including but not limited to investors and/or
financial intermediaries of the Fund. The licensing of data or the Moody’s
Analytics trademark for the purpose of use in connection with the US IG Index or
BBB Index, as applicable, and Fund does not constitutes a recommendation by
Moody’s Analytics to invest capital in the Fund nor does it in any way represent
an assurance or opinion of Moody’s Analytics with regard to any investment in
this financial instrument. Moody’s Analytics bears no liability with respect to
the Fund or any security. The VanEck Moody’s Analytics IG Corporate Bond ETF and
the VanEck Moody's Analytics BBB Corporate Bond ETF, which are based on the US
IG Index and the BBB Index, respectively, are not issued, sponsored, endorsed,
sold or marketed by ICE Data, and ICE Data makes no representation regarding the
advisability of investing in such
product.
The
VanEck IG Floating Rate ETF, which is based on the Floating Rate Index, the
Moody's Analytics IG Corporate Bond ETF which is based on the US IG Index, and
the VanEck Moody's Analytics BBB Corporate Bond ETF, which is based on the BBB
Index, are not issued, sponsored, endorsed, sold or marketed by ICE Data, and
ICE Data makes no representation regarding the advisability of investing in such
products.
ICE
Data’s only relationship to the Licensee is the licensing of certain trademarks
and trade names and the IG Floating Rate Index, the US IG Index and the BBB
Index (collectively, the “ICE Calculated Indices”) or components thereof. The
ICE Calculated Indices are determined, composed and calculated by ICE Data
without regard to the Adviser or the Products or its holders. ICE Data has no
obligation to take the needs of the Adviser or the holders of the Products into
consideration in determining, composing or calculating the ICE Calculated
Indices. ICE Data is not responsible for and has not participated in the
determination of the timing of, prices of, or quantities of the Products to be
issued or in the determination or calculation of the equation by which the
Products are 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 the Adviser 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 Products. 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 ICE CALCULATED 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 ICE CALCULATED INDICES AND THE INDEX DATA, WHICH ARE PROVIDED ON AN “AS IS”
BASIS AND YOUR USE IS AT YOUR OWN RISK.
VanEck
India Growth Leaders ETF (the “MarketGrader Index ETF,”) is not sponsored,
endorsed, sold or promoted by MarketGrader.com Corp. (“MarketGrader”).
MarketGrader's only relationship to the Adviser is the licensing of the
MarketGrader India All-Cap Growth Leaders Index, the (“MarketGrader Index”)
which is determined, composed and calculated by MarketGrader and Solactive AG,
as Index Calculation Agent, without regard to the Adviser. MarketGrader has no
obligation to take the needs of the Adviser or the owners of the MarketGrader
Index ETF into consideration in determining, composing or calculating the
MarketGrader Index.
MARKETGRADER
SHALL NOT BE A PARTY TO THE TRANSACTION CONTEMPLATED HEREBY, AND IS NOT
PROVIDING ANY ADVICE, RECOMMENDATION, REPRESENTATION OR WARRANTY REGARDING THE
ADVISABILITY OF THIS TRANSACTION OR THE MARKETGRADER INDEX ETF OR THE ABILITY OF
THE MARKETGRADER INDEX TO TRACK INVESTMENT PERFORMANCE. MARKETGRADER HEREBY
EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, REGARDING
THIS TRANSACTION AND ANY USE OF THE MARKETGRADER INDEX, INCLUDING BUT NOT
LIMITED TO ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR USE, AND NON-INFRINGEMENT AND ALL WARRANTIES ARISING FROM COURSE OF
PERFORMANCE, COURSE OF DEALING AND USAGE OF TRADE OR THEIR EQUIVALENTS UNDER THE
LAWS OF ANY JURISDICTION. UNDER NO CIRCUMSTANCES AND UNDER NO THEORY OF LAW,
TORT, CONTRACT, STRICT LIABILITY OR OTHERWISE, SHALL MARKETGRADER OR ANY OF ITS
AFFILIATES BE LIABLE TO ANY PERSON FOR ANY DAMAGES, REGARDLESS OF WHETHER THEY
ARE DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY
CHARACTER, INCLUDING DAMAGES FOR TRADING LOSSES OR LOST PROFITS, OR FOR ANY
CLAIM OR DEMAND BY ANY THIRD PARTY, EVEN IF MARKETGRADER KNEW OR HAD REASON TO
KNOW OF THE POSSIBILITY OF SUCH DAMAGES, CLAIM OR DEMAND.
The
MarketGrader Index is not sponsored, promoted, sold or supported in any other
manner by Solactive AG nor does Solactive AG offer any express or implicit
guarantee or assurance either with regard to the results of using the
MarketGrader Index ETF and/or the Index Price at any time or in any other
respect. The MarketGrader Index is calculated and published by Solactive AG.
Solactive AG uses its best efforts to ensure that the MarketGrader Index is
calculated correctly. Irrespective of its obligations towards MarketGrader,
Solactive AG has no obligation to point out errors in the MarketGrader Index to
third parties including but not limited to investors and/or financial
intermediaries of the financial instrument. Neither publication of the
MarketGrader Index by Solactive AG nor the licensing of the MarketGrader Index
or for the purpose of use in connection with the financial instrument
constitutes a recommendation by Solactive AG to invest capital in said financial
instrument nor does it in any way represent an assurance or opinion of Solactive
AG with regard to any investment in this financial instrument.
The
VanEck India Growth Leaders ETF invests substantially all of its assets in the
Mauritius Subsidiary, MV SCIF Mauritius, a private company limited by shares
incorporated in Mauritius. The Mauritius Subsidiary is regulated by the
Mauritius Financial Services Commission which has issued a GBL1 License to the
Mauritius Subsidiary to conduct the business of “investment holding.” Neither
investors in the Mauritius Subsidiary nor investors in the Fund are protected by
any statutory compensation arrangements in Mauritius in the event of the
Mauritius Subsidiary’s or the Fund’s failure.
The
Mauritius Financial Services Commission does not vouch for the financial
soundness of the Mauritius Subsidiary or the Fund or for the correctness of any
statements made or opinions expressed with regard to it in any offering document
or other similar document of the Mauritius Subsidiary or the Fund.
The
information contained herein regarding the ChiNext Index was provided by
Shenzhen Securities Information Co., Ltd (“Shenzhen Securities”).
Shares
of the VanEck ChiNext ETF are not sponsored, endorsed, sold or promoted by the
Shenzhen Securities. Shenzhen Securities makes no representation or warranty,
express or implied, to the owners of the Shares of VanEck ChiNext ETF or any
member of the public regarding the advisability of investing in securities
generally or in the Shares of VanEck ChiNext ETF particularly or the ability of
the ChiNext Index to track the performance of the securities markets. The
ChiNext Index is determined and composed by Shenzhen Securities without regard
to the Adviser or the Shares of VanEck ChiNext ETF. Shenzhen Securities has no
obligation to take the needs of the Adviser or the owners of the Shares of
VanEck ChiNext ETF into consideration in determining or composing the ChiNext
Index. Shenzhen Securities is not responsible for and has not participated in
the determination of the timing of, prices at, or quantities of the Shares of
VanEck ChiNext ETF to be issued or in the determination or calculation of the
equation by which the Shares of VanEck ChiNext ETF are to be converted into
cash. Shenzhen Securities has no obligation or liability in connection with the
administration, marketing or trading of the Shares of VanEck ChiNext
ETF.
SHENZHEN
SECURITIES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
CHINEXT INDEX OR ANY DATA INCLUDED THEREIN AND SHENZHEN SECURITIES SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. SHENZHEN
SECURITIES MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED
BY THE ADVISER, OWNERS OF THE SHARES OF VANECK CHINEXT ETF, OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE CHINEXT INDEX OR ANY DATA INCLUDED THEREIN.
SHENZHEN SECURITIES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE CHINEXT INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL SHENZHEN SECURITIES HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
J.P.
Morgan is the marketing name for JPMorgan Chase & Co., and its subsidiaries
and affiliates worldwide. J.P. Morgan Securities Inc. is a member of NYSE and
SIPC. JPMorgan Chase Bank, National Association is a member of FDIC. J.P. Morgan
Futures Inc. is a member of the NFA. J.P. Morgan Securities Ltd. and J.P. Morgan
plc are authorized by the FSA and members of the LSE. J.P. Morgan Europe Limited
is authorized by the FSA. J.P. Morgan Equities Limited is a member of the
Johannesburg Securities Exchange and is regulated by the FSB. J.P. Morgan
Securities (Asia Pacific) Limited is registered as an investment adviser with
the Securities & Futures Commission in Hong Kong and its CE number is
AAJ321. J.P. Morgan Securities Singapore Private Limited is a member of
Singapore Exchange Securities Trading Limited and is regulated by the Monetary
Authority of Singapore ("MAS"). J.P. Morgan Securities Asia Private Limited is
regulated by the MAS and the Financial Services Agency in Japan. J.P. Morgan
Australia Limited (ABN 52 002 888 011) is a licensed securities dealer.
The
Shares of VanEck J.P. Morgan EM Local Currency Bond ETF are not sponsored,
endorsed, sold or promoted by J.P. Morgan. J.P. Morgan makes no representation
or warranty, express or implied, to the owners of the Shares of VanEck J.P.
Morgan EM Local Currency Bond ETF or any member of the public regarding the
advisability of investing in securities generally, or in the Shares of VanEck
J.P. Morgan EM Local Currency Bond ETF particularly or the Emerging Markets
Global Core Index to track general bond market performance. J.P. Morgan's only
relationship to the Adviser is the licensing of the Emerging Markets Global Core
Index which is determined, composed and calculated by J.P. Morgan without regard
to the Adviser or the Shares of VanEck J.P. Morgan EM Local Currency Bond ETF.
J.P. Morgan has no obligation to take the needs of the Adviser or the owners of
the Shares of VanEck J.P. Morgan EM Local Currency Bond ETF into consideration
in determining, composing or calculating the Emerging Markets Global Core Index.
J.P. Morgan is not responsible for and has not participated in the determination
of the timing of, prices at, or quantities of the Shares of VanEck J.P. Morgan
EM Local Currency Bond ETF to be issued or in the determination or calculation
of the equation by which the Shares of VanEck J.P. Morgan EM Local Currency Bond
ETF are to be converted into cash. J.P. Morgan has no obligation or liability in
connection with the administration, marketing or trading of the Shares of VanEck
J.P. Morgan EM Local Currency Bond ETF.
THE
EMERGING MARKETS GLOBAL CORE INDEX AND/OR SHARES OF THE VANECK J.P. MORGAN EM
LOCAL CURRENCY BOND ETF, IS PROVIDED "AS IS" WITH ANY AND ALL FAULTS. J.P.
MORGAN DOES NOT GUARANTEE THE AVAILABILITY, SEQUENCE, TIMELINESS, QUALITY,
ACCURACY AND/OR THE COMPLETENESS OF THE EMERGING MARKETS GLOBAL CORE INDEX
AND/OR SHARES OF THE VANECK J.P. MORGAN EM LOCAL CURRENCY BOND ETF AND/OR ANY
DATA INCLUDED THEREIN, OR OTHERWISE OBTAINED BY THE ADVISER, OWNERS OF THE
VANECK J.P. MORGAN EM LOCAL CURRENCY BOND ETF OR BY ANY OTHER PERSON OR ENTITY,
FROM ANY USE OF THE EMERGING MARKETS GLOBAL CORE INDEX AND/OR THE SHARES OF THE
VANECK J.P. MORGAN EM LOCAL CURRENCY BOND ETF. J.P. MORGAN MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OF FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
EMERGING
MARKETS
GLOBAL CORE INDEX OR ANY DATA INCLUDED THEREIN, OR OTHERWISE OBTAINED BY THE
ADVISER, OWNERS OF SHARES OF THE VANECK J.P. MORGAN EM LOCAL CURRENCY BOND ETF
OR BY ANY OTHER PERSON OR ENTITY, FROM ANY USE OF THE EMERGING MARKETS GLOBAL
CORE INDEX AND/OR SHARES OF THE VANECK J.P. MORGAN EM LOCAL CURRENCY BOND ETF.
THERE ARE NO REPRESENTATIONS OR WARRANTIES WHICH EXTEND BEYOND THE DESCRIPTION
ON THE FACE OF THIS DOCUMENT, IF ANY. ALL WARRANTIES AND REPRESENTATIONS OF ANY
KIND WITH REGARD TO THE EMERGING MARKETS GLOBAL CORE INDEX AND/OR SHARES OF THE
VANECK J.P. MORGAN LOCAL CURRENCY BOND ETF, ARE DISCLAIMED INCLUDING ANY IMPLIED
WARRANTIES OF MERCHANTABILITY, QUALITY, ACCURACY, FITNESS FOR A PARTICULAR
PURPOSE AND/OR AGAINST INFRINGEMENT AND/OR WARRANTIES AS TO ANY RESULTS TO BE
OBTAINED BY AND/OR FROM THE USE OF THE EMERGING MARKETS GLOBAL CORE
INDEX.
The
indexes may not be copied, used, or distributed without J.P. Morgan's prior
written approval. J.P. Morgan and the J.P. Morgan index names are service
mark(s) of J.P. Morgan or its affiliates and have been licensed for use for
certain purposes by VanEck. No purchaser, seller or holder of this security,
product or fund, or any other person or entity, should use or refer to any J.P.
Morgan trade name, trademark or service mark to sponsor, endorse, market or
promote this Financial Product or any other financial product without first
contacting J.P. Morgan to determine whether J.P. Morgan's permission is
required. Under no circumstances may any person or entity claim any affiliation
with J.P. Morgan without the prior written permission of J.P. Morgan.
Information has been obtained from sources believed to be reliable but J.P.
Morgan does not warrant its completeness or accuracy. Copyright 2024, J.P.
Morgan Chase & Co. All rights reserved.
The
VanEck China Bond ETF has been developed solely by the Adviser. The VanEck China
Bond ETF is not in any way connected to or sponsored, endorsed, sold or promoted
by the London Stock Exchange Group plc and its group undertakings (collectively,
the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group
companies.
All
rights in the FTSE Chinese Broad Bond 0-10 Years Diversified Select Index vest
in the relevant LSE Group company which owns the FTSE Chinese Broad Bond 0-10
Years Diversified Select Index. “FTSE®”
is a trademark of the relevant LSE Group company and is used by any other LSE
Group company under license.
The
FTSE Chinese Broad Bond 0-10 Years Diversified Select Index is calculated by or
on behalf of FTSE Fixed Income, LLC or its affiliate, agent or partner. The LSE
Group does not accept any liability whatsoever to any person arising out of (a)
the use of, reliance on, or any error in, the FTSE Chinese Broad Bond 0-10 Years
Diversified Select Index or (b) investment in or operation of the VanEck China
Bond ETF. The LSE Group makes no claim, prediction, warranty or representation
either as to the results to be obtained from the VanEck China Bond
ETF.
The
information contained herein regarding the Green Bond Index was provided by
S&P Dow Jones Indices LLC. The information contained herein regarding the
securities markets and DTC was obtained from publicly available
sources.
The
Adviser has entered into a licensing agreement with S&P Dow Jones Indices
LLC or its affiliates (“SPDJI”) to use the Green Bond Index. VanEck Green Bond
ETF is entitled to use the Green Bond Index pursuant to a sub-licensing
arrangement with the Adviser.
The
Green Bond Index is a product of SPDJI and has been licensed for use by the
Adviser. S&P®, S&P 500®, US 500, The 500, iBoxx®, iTraxx® and CDX® are
trademarks of S&P Global, Inc. or its affiliates (“S&P”); Dow Jones® is
a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); These
trademarks have been licensed for use by SPDJI and sublicensed for certain
purposes by the Adviser. It is not possible to invest directly in an index.
VanEck Green Bond ETF is not sponsored, endorsed, sold or promoted by SPDJI, Dow
Jones, S&P, any of their respective affiliates (collectively, “S&P Dow
Jones Indices”). S&P Dow Jones Indices does not make any representation or
warranty, express or implied, to the owners of the VanEck Green Bond ETF or any
member of the public regarding the advisability of investing in securities
generally or in VanEck Green Bond ETF particularly or the ability of the Green
Bond Index to track general market performance. Past performance of an index is
not an indication or guarantee of future results. S&P Dow Jones Indices’
only relationship to the Adviser with respect to the Green Bond Index is the
licensing of the Green Bond Index and certain trademarks, service marks and/or
trade names of S&P Dow Jones Indices and/or its licensors. The Green Bond
Index is determined, composed and calculated by S&P Dow Jones Indices
without regard to the Adviser or the VanEck Green Bond ETF. S&P Dow Jones
Indices has no obligation to take the needs of the Adviser or the owners of
VanEck Green Bond ETF into consideration in determining, composing or
calculating the Green Bond Index. S&P Dow Jones Indices has no obligation or
liability in connection with the administration, marketing or trading of the
VanEck Green Bond ETF. There is no assurance that investment products based on
the Green Bond Index will accurately track index performance or provide positive
investment returns. S&P Dow Jones Indices LLC is not an investment adviser,
commodity trading advisory, commodity pool operator,
broker
dealer, fiduciary, “promoter” (as defined in the Investment Company Act of
1940), “expert” as enumerated within 15 U.S.C. § 77k(a) or tax advisor.
Inclusion of a security, commodity, crypto currency or other asset within an
index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold
such security, commodity, crypto currency or other asset, nor is it considered
to be investment advice or commodity trading advice.
NEITHER
S&P DOW JONES INDICES NOR THIRD PARTY LICENSOR GUARANTEES THE ADEQUACY,
ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE GREEN BOND INDEX OR ANY DATA
RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT
THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR
LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES
INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS
TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF THE VANECK GREEN BOND ETF,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE GREEN BOND INDEX OR WITH
RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN
NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT,
SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT
LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY
HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT,
STRICT LIABILITY, OR OTHERWISE. S&P DOW JONES INDICES HAS NOT REVIEWED,
PREPARED AND/OR CERTIFIED ANY PORTION OF, NOR DOES S&P DOW JONES INDICES
HAVE ANY CONTROL OVER, THE VANECK GREEN BOND ETF REGISTRATION STATEMENT,
PROSPECTUS OR OTHER OFFERING MATERIALS. THERE ARE NO THIRD-PARTY BENEFICIARIES
OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND THE
ADVISER, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
The
information contained herein regarding the NDR CMG Index was provided by Ned
Davis Research, Inc. (“NDR”).“NDR CMG Index,” “Ned Davis Research,” “Ned Davis,”
and “NDR” are trademarks of NDR, and “CMG” and “CMG Capital Management Group”
are trademarks of CMG Capital Management Group, Inc. (“CMG”). These trademarks
have been licensed for use for certain purposes by Van Eck Associates
Corporation. VanEck Long/Flat Trend ETF is based on the NDR CMG Index and is not
issued, sponsored, endorsed, sold, promoted or advised by Ned Davis Research,
Inc., CMG Capital Management Group, or their affiliates. Ned Davis Research,
Inc. and CMG Capital Management Group make no representation or warranty,
expressed or implied, regarding whether VanEck Long/Flat Trend ETF is suitable
for investors generally or the advisability of trading in such product. Ned
Davis Research, Inc. and CMG Capital Management Group do not guarantee that the
NDR CMG Index referenced by the VanEck Long/Flat Trend ETF has been accurately
calculated or that the NDR CMG Index appropriately represents a particular
investment strategy. The NDR CMG Index is heavily dependent on quantitative
models and data from one or more third parties, and there is no guarantee that
these models will perform as expected. While the NDR CMG Index is designed to
reduce risk from adverse market conditions, there is a risk that actual
performance could be worse than a buy-and-hold strategy. Ned Davis Research,
Inc., CMG Capital Management Group, and their affiliates shall not have any
liability for any error in the NDR CMG Index calculation or for any infirmity in
the VanEck Long/Flat Trend ETF.
NEITHER
NDR NOR CMG GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE NDR CMG INDEX
OR ANY DATA INCLUDED THEREIN AND NEITHER NDR NOR CMG SHALL HAVE ANY LIABILITY
WHATSOEVER FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. NDR AND CMG MAKE
NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE,
OWNERS OF THE VANECK LONG/FLAT TREND ETF OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE NDR CMG INDEX OR ANY DATA INCLUDED THEREIN. NDR AND CMG MAKE NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
NDR CMG INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL NDR OR CMG HAVE ANY LIABILITY, JOINTLY OR
SEVERALLY, FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
The
NDR CMG Index is the property of Ned Davis Research, Inc.(“NDR”), which has
contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices
LLC) to calculate and maintain the NDR CMG Index. The NDR CMG Index is not
sponsored by S&P Dow Jones Indices LLC or its affiliates or its third party
licensors, including Standard & Poor’s Financial Services LLC and Dow Jones
Trademark Holdings LLC (collectively, “S&P Dow Jones Indices”). S&P Dow
Jones Indices will not be liable for any errors or omissions in calculating the
Index. “Calculated by S&P Dow Jones Indices” and the related stylized
mark(s) are service marks of S&P Dow Jones Indices and have been licensed
for use by Ned Davis Research,
Inc.
S&P®
is a registered trademark of Standard & Poor’s Financial Services LLC, and
Dow Jones®
is a registered trademark of Dow Jones Trademark Holdings LLC.
The
VanEck Long/Flat Trend ETF based on the NDR CMG Index is not sponsored,
endorsed, sold or promoted by S&P Dow Jones Indices. S&P Dow Jones
Indices does not make any representation or warranty, express or implied, to the
owners of the VanEck Long/Flat Trend ETF or any member of the public regarding
the advisability of investing in securities generally or in the NDR CMG Index or
the VanEck Long/Flat Trend ETF particularly or the ability of the NDR CMG Index
or the VanEck Long/Flat Trend ETF to track general market performance. S&P
Dow Jones Indices’ only relationship to Ned Davis Research, Inc. with respect to
the NDR CMG Index is the licensing of the S&P 500 Index, certain trademarks,
service marks and trade names of S&P Dow Jones Indices, and the provision of
the calculation services on behalf of Ned Davis Research, Inc. related to the
NDR CMG Index without regard to Ned Davis Research, Inc. or the VanEck Long/Flat
Trend ETF. S&P Dow Jones Indices is not responsible for and has not
participated in the creation of the VanEck Long/Flat Trend ETF, the
determination of the prices and amount of the VanEck Long/Flat Trend ETF or the
timing of the issuance or sale of the VanEck Long/Flat Trend ETF or in the
determination or calculation of the equation by which the VanEck Long/Flat Trend
ETF may be converted into cash or other redemption mechanics. S&P Dow Jones
Indices has no obligation or liability in connection with the administration,
marketing or trading of the VanEck Long/Flat Trend ETF. There is no assurance
that investment products based on the NDR CMG Index will accurately track index
performance or provide positive investment returns. S&P Dow Jones Indices
LLC is not an investment advisor. Inclusion or exclusion of a security within
the NDR CMG Index is not a recommendation by S&P Dow Jones Indices to buy,
sell, or hold such security, nor is it investment advice. S&P Dow Jones
Indices does not act nor shall be deemed to be acting as a fiduciary in
providing the S&P 500 Index.
S&P
DOW JONES INDICES DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR
THE COMPLETENESS OF THE GREEN BOND INDEX OR THE NDR CMG INDEX, OR ANY DATA
RELATED THERETO, OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT
THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR
LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES
INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS
TO RESULTS TO BE OBTAINED BY NDR, OWNERS OF THE VANECK GREEN BOND ETF OR VANECK
LONG/FLAT TREND ETF, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR
WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING,
IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT
NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME, OR GOODWILL, EVEN IF
THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT,
TORT, STRICT LIABILITY, OR OTHERWISE. S&P DJI HAS NOT PREPARED, REVIEWED
AND/OR CERTIFIED ANY PORTION OF, NOR DOES S&P HAVE ANY CONTROL OVER, THE
VANECK GREEN BOND ETF REGISTRATION STATEMENT, PROSPECTUS OR OTHER OFFERING
MATERIALS. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR
ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND NDR OR VEAC, OTHER THAN THE
LICENSORS OF S&P DOW JONES INDICES.
The
Adviser has entered into a licensing agreement with BUZZ Holdings ULC (“BUZZ
Holdings”) to use the Sentiment Leaders Index. VanEck Social Sentiment ETF is
entitled to use the Sentiment Leaders Index pursuant to a sub-licensing
arrangement with the Adviser.
The
Sentiment Leaders Index is a product of BUZZ Holdings, and has been licensed to
the Adviser for use in connection with VanEck Social Sentiment ETF.
VanEck
Social Sentiment ETF is not sponsored, endorsed, sold or promoted by BUZZ
Holdings, or its shareholders, or the licensor of the Sentiment Leaders Index
and/or its affiliates and third party licensors. BUZZ Holdings makes no
representation or warranty, express or implied, to the owners of VanEck Social
Sentiment ETF or any member of the public regarding the advisability of
investing in securities generally or in VanEck Social Sentiment ETF
particularly, or the ability of the Sentiment Leaders Index to track general
market performance. BUZZ Holdings’ only relationship to the Adviser with respect
to the Sentiment Leaders Index is the licensing of the Sentiment Leaders Index
and certain trademarks of BUZZ Holdings. The BUZZ indices are determined and
composed by BUZZ Holdings without regard to the Adviser or VanEck Social
Sentiment ETF. BUZZ Holdings has no obligation to take the needs of the Adviser
or the owners of VanEck Social Sentiment ETF into consideration in determining
and composing the Sentiment Leaders Index.
BUZZ
Holdings is not responsible for and have not participated in the determination
of the prices of VanEck Social Sentiment ETF or the timing of the issuance or
sale of securities of VanEck Social Sentiment ETF or in the determination or
calculation of the equation by which VanEck Social Sentiment ETF securities may
be converted into cash, surrendered, or redeemed, as the case may be. BUZZ
Holdings have no obligation or liability in connection with the administration,
marketing or trading of VanEck Social Sentiment ETF. There is no assurance that
investment products based on the Sentiment Leaders Index will accurately track
index performance or provide positive investment returns. BUZZ Holdings is not
an investment advisor and the inclusion of a security in the Sentiment Leaders
Index is not a recommendation by BUZZ Holdings to buy, sell, or hold such
security, nor should it be considered investment advice.
BUZZ
Holdings is not responsible for fulfilling the legal requirements concerning the
accuracy and completeness of the VanEck Social Sentiment ETF’s
Prospectus.
BUZZ
HOLDINGS DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE
COMPLETENESS OF THE SENTIMENT LEADERS INDEX OR ANY DATA RELATED THERETO OR ANY
COMMUNICATION WITH RESPECT THERETO, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS). BUZZ HOLDINGS SHALL
NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS
THEREIN. BUZZ HOLDINGS MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE OR AS TO RESULTS TO BE OBTAINED BY VAN ECK ASSOCIATES CORPORATION, OWNERS
OF VANECK SOCIAL SENTIMENT ETF, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE SENTIMENT LEADERS INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL BUZZ HOLDINGS BE
LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES
INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR
GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD
PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN BUZZ HOLDINGS AND
VAN ECK ASSOCIATES CORPORATION, OTHER THAN THE LICENSORS OF BUZZ HOLDINGS.
VanEck
Social Sentiment ETF is not sponsored, promoted, sold or supported in any other
manner by Solactive AG nor does Solactive AG offer any express or implicit
guarantee or assurance either with regard to the results of using the Sentiment
Leaders Index and/or its trade mark or its price at any time or in any other
respect. The Sentiment Leaders Index is calculated and maintained by Solactive
AG. Solactive AG uses its best efforts to ensure that the Sentiment Leaders
Index is calculated correctly. Irrespective of its obligations towards BUZZ
Holdings, Solactive AG has no obligation to point out errors in the Sentiment
Leaders Index to third parties including but not limited to investors and/or
financial intermediaries of VanEck Social Sentiment ETF. Neither the publication
of the Sentiment Leaders Index by Solactive AG nor the licensing of the
Sentiment Leaders Index or its trade marks for the purpose of use in connection
with VanEck Social Sentiment ETF constitutes a recommendation by Solactive AG to
invest capital in VanEck Social Sentiment ETF nor does it in any way represent
an assurance or opinion of Solactive AG with regard to any investment in VanEck
Social Sentiment ETF. Solactive AG is not responsible for fulfilling the legal
requirements concerning the accuracy and completeness of VanEck Social Sentiment
ETF’s Prospectus.
“HIP
Investor Inc.,” “HIP Investor,” “HIP,” “HIP Ratings,” “HIP SDG Ratings,” “HIP
Climate Threat Resilience Ratings,” “Be More HIP,” and “HIP = Human Impact +
Profit” are service marks of HIP Investor Inc. (“HIP”). These marks have been
licensed for use for certain purposes by Van Eck Associates Corporation. VanEck
HIP Sustainable Muni ETF may make determinations based on HIP Investor’s data,
metrics, pillars, and ratings of ESG, SDGs, climate, and opportunity zones; and
the ETF is not issued, sponsored, endorsed, promoted or advised by HIP Investor
Inc. or their affiliates. HIP Investor Inc. makes no representation or warranty,
expressed or implied, regarding whether VanEck HIP Sustainable Muni ETF is
suitable for investors generally or the advisability of trading in such product.
HIP
INVESTOR INC. DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
RATINGS, PILLARS, METRICS, OR ANY DATA INCLUDED IN THE ETF, AND HIP INVESTOR
INC. SHALL NOT HAVE ANY LIABILITY WHATSOEVER FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN.
HIP
INVESTOR INC. MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY LICENSEE, OWNERS OF THE VANECK HIP SUSTAINABLE MUNI ETF, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE HIP INVESTOR RATINGS OR ANY DATA
INCLUDED THEREIN. HIP INVESTOR INC. MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RATINGS OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL HIP
INVESTOR
INC. HAVE ANY LIABILITY, JOINTLY OR SEVERALLY, FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
The
Adviser has entered into a licensing agreement with Indxx to use the Green
Infrastructure Index. VanEck Green Infrastructure ETF is entitled to use the
Green Infrastructure Index pursuant to a sub-licensing arrangement with the
Adviser.
Shares
of the VanEck Green Infrastructure ETF are not sponsored, endorsed, sold or
promoted by Indxx. Indxx makes no representation or warranty, express or
implied, to the owners of Shares of the VanEck Green Infrastructure ETF or any
member of the public regarding the advisability of investing in securities
generally or in the Shares of the VanEck Green Infrastructure ETF particularly
or the ability of the Green Infrastructure Index to track the performance of its
respective securities market. The Green Infrastructure Index is determined and
composed by Indxx without regard to the Adviser or the Shares of the VanEck
Green Infrastructure ETF. Indxx has no obligation to take the needs of the
Adviser or the owners of Shares of the VanEck Green Infrastructure ETF into
consideration in determining and composing the Green Infrastructure
Index.
Indxx
is not responsible for and has not participated in the determination of the
timing of prices at, or quantities of the Shares of the VanEck Green
Infrastructure ETF to be issued or in the determination or calculation of the
equation by which the Shares of the VanEck Green Infrastructure ETF are to be
converted into cash. Indxx has no obligation or liability in connection with the
administration, marketing or trading of the Shares of the VanEck Green
Infrastructure ETF.
“Indxx”
is a service mark of Indxx and has been licensed for use for certain purposes by
the Adviser.
INDXX
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY ANY
PERSON OR ENTITY FROM THE USE OF THE GREEN INFRASTRUCTURE INDEX, TRADING BASED
ON THE GREEN INFRASTRUCTURE INDEX, OR ANY DATA INCLUDED THEREIN IN CONNECTION
WITH THE PRODUCTS, OR FOR ANY OTHER USE. INDXX EXPRESSLY DISCLAIMS ALL
WARRANTIES AND CONDITIONS, EXPRESS, STATUTORY, OR IMPLIED INCLUDING WARRANTIES
AND CONDITIONS OF MERCHANTABILITY, TITLE, OR FITNESS FOR A PARTICULAR PURPOSE OR
USE WITH RESPECT TO THE GREEN INFRASTRUCTURE INDEX OR ANY DATA INCLUDED
THEREIN.
INDXX
DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF ANY DATA SUPPLIED BY
IT OR ANY DATA INCLUDED THEREIN. INDXX MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS
TO RESULTS TO BE OBTAINED BY THE FUNDS, ITS SHAREHOLDERS OR AFFILIATES, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE DATA SUPPLIED BY INDXX OR ANY DATA
INCLUDED THEREIN. INDXX MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE DATA SUPPLIED BY INDXX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL INDXX HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
VEAC
has
also
entered
into
a
licensing
agreement
with UBS to use the UBS Constant Maturity Commodity Total Return Index. The
VanEck CMCI Commodity Strategy ETF is entitled to use the UBS Constant Maturity
Commodity Total Return Index pursuant to a sub-licensing arrangement with
VEAC.
UBS
owns or exclusively licenses all proprietary rights with respect to the UBS
Constant Maturity Commodity Total Return Index. Any third-party product based on
or related to the VanEck CMCI Commodity Strategy ETF (“Product”) may only be
issued upon the prior joint written approval of UBS and upon the execution of a
license agreement between UBS and the party intending to launch a Product (a
“Licensee”). In no way does UBS sponsor or endorse, nor is it otherwise involved
in the issuance and offering of a Product nor does it make any representation or
warranty, express or implied, to the holders of the Product or any member of the
public regarding the advisability of investing in the Product or commodities
generally or in futures particularly, or as to results to be obtained from the
use of the VanEck CMCI Commodity Strategy ETF or from the Product. Further, UBS
does not provide investment advice to any Licensee specific to the Product,
other than providing the VanEck CMCI Commodity Strategy ETF as agreed in the
license agreement with the Licensee, and which will be done without
consideration of the particular needs of the Product or the Licensee. UBS
specifically disclaims any liability to any party for any inaccuracy in the data
on which the VanEck CMCI Commodity Strategy ETF is based, for any mistakes,
errors, omissions or interruptions in the calculation and/or dissemination of
the VanEck CMCI Commodity Strategy ETF, or for the manner in
which
such is applied in connection with the issuance and offering of a Product. In no
event shall UBS have any liability to any party for any lost profits or
indirect, punitive, special or consequential damages or losses.
THIS
IS NOT AN OFFER OR SOLICITATION BY UBS OF AN OFFER TO BUY OR SELL ANY SECURITY
OR INVESTMENT. PAST PERFORMANCE OF THE UBS CONSTANT MATURITY COMMODITY TOTAL
RETURN INDEX IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
APPENDIX
A
VANECK
PROXY VOTING POLICIES
VanEck
(the “Adviser”) has adopted the following policies and procedures which are
reasonably designed to ensure that proxies are voted in a manner that is
consistent with the best interests of its clients in accordance with its
fiduciary duties and Rule 206(4)-6 under the Investment Advisers Act of 1940.
When an adviser has been granted proxy voting authority by a client, the adviser
owes its clients the duties of care and loyalty in performing this service on
their behalf. The duty of care requires the adviser to monitor corporate actions
and vote client proxies. The duty of loyalty requires the adviser to cast the
proxy votes in a manner that is consistent with the best interests of the
client.
Rule
206(4)-6 also requires the Adviser to disclose information about the proxy
voting procedures to its clients and to inform clients how to obtain information
about how their proxies were voted. Additionally, Rule 204-2 under the Advisers
Act requires the Adviser to maintain certain proxy voting records.
An
adviser that exercises voting authority without complying with Rule 206(4)-6
will be deemed to have engaged in a “fraudulent, deceptive, or manipulative”
act, practice or course of business within the meaning of Section 206(4) of the
Advisers Act.
The
Adviser intends to vote all proxies in accordance with applicable rules and
regulations, and in the best interests of clients without influence by real or
apparent conflicts of interest. To assist in its responsibility for voting
proxies and the overall voting process, the Adviser has engaged an independent
third party proxy voting specialist, Glass Lewis & Co., LLC. The services
provided by Glass Lewis include in-depth research, global issuer analysis, and
voting recommendations as well as vote execution, reporting and
recordkeeping.
Resolving
Material Conflicts of Interest
When
a material conflict of interest exists, proxies will be voted in the following
manner:
1.Strict
adherence to the Glass Lewis guidelines, or
2.The
potential conflict will be disclosed to the client:
a. with
a request that the client vote the proxy,
b. with
a recommendation that the client engage another party to determine how the proxy
should be voted or
c. if
the foregoing are not acceptable to the client, disclosure of how VanEck intends
to vote and a written consent to that vote by the client.
Any
deviations from the foregoing voting mechanisms must be approved by the Chief
Compliance Officer with a written explanation of the reason for the
deviation.
A
material
conflict of interest
means the existence of a business relationship between a portfolio company or an
affiliate and the Adviser, any affiliate or subsidiary, or an “affiliated
person” of a VanEck mutual fund. Examples of when a material conflict of
interest exists include a situation where the adviser provides significant
investment advisory, brokerage or other services to a company whose management
is soliciting proxies; an officer of the Adviser serves on the board of a
charitable organization that receives charitable contributions from the
portfolio company and the charitable organization is a client of the Adviser; a
portfolio company that is a significant selling agent of the Adviser’s products
and services solicits proxies; a broker-dealer or insurance company that
controls 5% or more of the Adviser’s assets solicits proxies; the Adviser serves
as an investment adviser to the pension or other investment account of the
portfolio company; the Adviser and the portfolio company have a lending
relationship. In each of these situations voting against management may cause
the Adviser a loss of revenue or other benefit.
Client
Inquiries
All
inquiries by clients as to how the Adviser has voted proxies must immediately be
forwarded to Portfolio Administration.
Disclosure
to Clients
1.Notification
of Availability of Information
a. Client
Brochure - The Client Brochure or Part II of Form ADV will inform clients that
they can obtain information from the Adviser on how their proxies were voted.
The Client Brochure or Part II of Form ADV will be mailed to each client
annually. The Legal Department will be responsible for coordinating the mailing
with Sales/Marketing Departments.
2.Availability
of Proxy Voting Information
a. At
the client’s request or if the information is not available on the Adviser’s
website, a hard copy of the account’s proxy votes will be mailed to each
client.
Recordkeeping
Requirements
1.VanEck
will retain the following documentation and information for each matter relating
to a portfolio security with respect to which a client was entitled to
vote:
a. proxy
statements received;
b. identifying
number for the portfolio security;
c. shareholder
meeting date;
d. brief
identification of the matter voted on;
e. whether
the vote was cast on the matter;
f. how
the vote was cast (e.g.,
for or against proposal, or abstain; for or withhold regarding election of
directors);
g. records
of written client requests for information on how the Adviser voted proxies on
behalf of the client;
h. a
copy of written responses from the Adviser to any written or oral client request
for information on how the Adviser voted proxies on behalf of the client; and
any documents prepared by the Adviser that were material to the decision on how
to vote or that memorialized the basis for the decision, if such documents were
prepared.
2.Copies
of proxy statements filed on EDGAR, and proxy statements and records of proxy
votes maintained with a third party (i.e.,
proxy voting service) need not be maintained. The third party must agree in
writing to provide a copy of the documents promptly upon request.
3.If
applicable, any document memorializing that the costs of voting a proxy exceed
the benefit to the client or any other decision to refrain from voting, and that
such abstention was in the client’s best interest.
4.Proxy
voting records will be maintained in an easily accessible place for five years,
the first two at the office of the Adviser. Proxy statements on file with EDGAR
or maintained by a third party and proxy votes maintained by a third party are
not subject to these particular retention requirements.
Voting
Foreign Proxies
At
times the Adviser may determine that, in the best interests of its clients, a
particular proxy should not be voted. This may occur, for example, when the cost
of voting a foreign proxy (translation, transportation, etc.) would exceed the
benefit of voting the proxy or voting the foreign proxy may cause an
unacceptable limitation on the sale of the security. Any such instances will be
documented by the Portfolio Manager and reviewed by the Chief Compliance
Officer.
Securities
Lending
Certain
portfolios managed by the Adviser participate in securities lending programs to
generate additional revenue. Proxy voting rights generally pass to the borrower
when a security is on loan. The Adviser will use its best efforts to recall a
security on loan and vote such securities if the Portfolio Manager determines
that the proxy involves a material event.
Proxy
Voting Policy
The
Adviser has reviewed the Glass Lewis Proxy Guidelines (“Guidelines”) and has
determined that the Guidelines are consistent with the Adviser’s proxy voting
responsibilities and its fiduciary duty with respect to its clients. The Adviser
will review any material amendments to the Guidelines.
While
it is the Adviser’s policy to generally follow the Guidelines, the Adviser
retains the right, on any specific proxy, to vote differently from the
Guidelines, if the Adviser believes it is in the best interests of its clients.
Any such exceptions will be documented by the Adviser and reviewed by the Chief
Compliance Officer.
The
portfolio manager or analyst covering the security is responsible for making
proxy voting decisions. Portfolio Administration, in conjunction with the
portfolio manager and the custodian, is responsible for monitoring corporate
actions and ensuring that corporate actions are timely voted.
Table
of Contents
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About
Glass Lewis
Glass
Lewis is the world’s choice for governance solutions. We enable
institutional investors and publicly listed companies to make informed decisions
based on research and data. We cover 30,000+ meetings each year, across
approximately 100 global markets. Our team has been providing in-depth
analysis of companies since 2003, relying solely on publicly available
information to inform its policies, research, and voting
recommendations.
Our
customers include the majority of the world’s largest pension plans, mutual
funds, and asset
managers, collectively managing over $40 trillion in
assets. We have teams located across the United States, Europe, and
Asia-Pacific giving us global reach with a local perspective on the important
governance issues.
Investors
around the world depend on Glass Lewis’ Viewpoint
platform to manage their proxy voting, policy implementation, recordkeeping, and
reporting. Our industry leading Proxy
Paper
product provides comprehensive environmental, social, and governance research
and voting recommendations weeks ahead of voting deadlines. Public companies can
also use our innovative Report
Feedback Statement
to deliver their opinion on our proxy research directly to the voting decision
makers at every investor client in time for voting decisions to be made or
changed.
The
research team engages extensively with public companies, investors, regulators,
and other industry stakeholders to gain relevant context into the realities
surrounding companies, sectors, and the market in general. This enables us to
provide the most comprehensive and pragmatic insights to our customers.
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Benchmark Policy Guidelines — United States 6
Guidelines
Introduction
Summary
of Changes for 2024
Glass
Lewis evaluates these guidelines on an ongoing basis and formally updates them
on an annual basis. This year we’ve made noteworthy revisions in the following
areas, which are summarized below but discussed in greater detail in the
relevant section of this document:
Material
Weaknesses
We
have included a new discussion on our approach to material weaknesses. Effective
internal controls over financial reporting should ensure the integrity of
companies’ accounting and financial reporting. A material weakness occurs when a
company identifies a deficiency, or a combination of deficiencies, in internal
controls over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company's annual or interim financial
statements will not be prevented or detected on a timely basis.
We
believe it is the responsibility of audit committees to ensure that material
weaknesses are remediated in a timely manner and that companies disclose
remediation plans that include detailed steps to resolve a given material
weakness.
When
a material weakness is reported and the company has not disclosed a remediation
plan, or when a material weakness has been ongoing for more than one year and
the company has not disclosed an updated remediation plan that clearly outlines
the company’s progress toward remediating the material weakness, we will
consider recommending that shareholders vote against all members of a company’s
audit committee who served on the committee during the time when the material
weakness was identified.
Cyber
Risk Oversight
We
have updated our discussion on our approach to cyber risk oversight. On July 26,
2023, the U.S. Securities and Exchange Commission (SEC) announced rules
requiring public companies to report cybersecurity incidents deemed material
within four days of identifying them; furthermore, in annual reports, they must
disclose their processes for assessing, identifying, and managing material
cybersecurity risks, along with their material effects and past incidents'
impacts. Similar rules were also adopted for foreign private issuers. The final
rules became effective on September 5, 2023. Given the continued regulatory
focus on and the potential adverse outcomes from cyber-related issues, it is our
view that cyber risk is material for all companies.
In
the absence of material cybersecurity incidents, we will generally not make
voting recommendations on the basis of a company’s oversight or disclosure
concerning cyber-related issues. However, in instances where cyber-attacks have
caused significant harm to shareholders, we will closely evaluate the board’s
oversight of cybersecurity as well as the company’s response and
disclosures.
Moreover,
in instances where a company has been materially impacted by a cyber-attack, we
believe shareholders can reasonably expect periodic updates from the company
communicating its ongoing progress towards resolving and remediating the impact
of the cyber-attack. These disclosures should focus on the company’s response to
address the impacts to affected stakeholders and should not reveal specific
and/or
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technical
details that could impede the company’s response or remediation of the incident
or that could assist threat actors.
In
instances where a company has been materially impacted by a cyber-attack, we may
recommend against appropriate directors should we find the board’s oversight,
response or disclosures concerning cybersecurity-related issues to be
insufficient or are not provided to shareholders.
Board
Oversight of Environmental and Social Issues
We
have updated our discussion of board oversight of environmental and social
issues. Given the importance of the board’s role in overseeing environmental and
social risks, we believe that this responsibility should be formally designated
and codified in the appropriate committee charters or other governing
documents.
When
evaluating the board’s role in overseeing environmental and/or social issues, we
will examine a company’s committee charters and governing documents to determine
if the company has codified a meaningful level of oversight of and
accountability for a company’s material environmental and social
impacts.
Board
Accountability for Climate-Related Issues
We
have updated our discussion of board accountability for climate-related issues,
and how our policy is applied. In 2023, our policy on this topic was applied to
the largest, most significant emitters; however beginning in 2024, Glass Lewis
will apply this policy to companies in the S&P 500 index operating in
industries where the Sustainability Accounting Standards Board (SASB) has
determined that the companies’ GHG emissions represent a financially material
risk, as well as companies where we believe emissions or climate impacts, or
stakeholder scrutiny thereof, represent an outsized, financially material risk.
We
will assess whether such companies have produced disclosures in line with the
recommendations of the Task Force on Climate-related Financial Disclosures
(TCFD). We have further clarified that we will also assess whether these
companies have disclosed explicit and clearly defined board-level oversight
responsibilities for climate-related issues. In instances where we find either
of these disclosures to be absent of significantly lacking, we may recommend
voting against responsible directors.
Clawback
Provisions
In
light of new NYSE and Nasdaq listing requirements to comply with SEC Rule 10D-1
under the Securities Exchange Act of 1934, Glass Lewis has updated our views on
the utility of clawback provisions. Although the negative impacts of excessive
risk-taking do not always result in financial restatements, they may nonetheless
prove harmful to shareholder value. In addition to meeting listing requirements,
effective clawback policies should provide companies with the power to recoup
incentive compensation from an executive when there is evidence of
problematic decisions or actions, such as material misconduct, a material
reputational failure, material risk management failure, or a material
operational failure, the consequences of which have not already been reflected
in incentive payments and where recovery is warranted. Such power to recoup
should be provided regardless of whether the employment of the executive
officer was terminated
with or without cause.
In these circumstances, rationale should be provided if the company determines
ultimately to refrain from recouping compensation as well as disclosure of
alternative measures that are instead pursued, such as the exercise of negative
discretion on future payments.
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Executive
Ownership Guidelines
We
have added a discussion to formally outline our approach to executive ownership
guidelines. We believe that companies should facilitate an alignment between the
interests of the executive leadership with those of long-term shareholders by
adopting and enforcing minimum share ownership rules for their named executive
officers. Companies should provide clear disclosure in the Compensation
Discussion and Analysis section of the proxy statement of their executive share
ownership requirements and how various outstanding equity awards are treated
when determining an executive’s level of ownership.
In
the process of determining an executive’s level of share ownership, counting
unearned performance-based full value awards and/or unexercised stock options is
inappropriate. Companies should provide a cogent rationale should they count
these awards towards shares held by an executive.
Proposals
for Equity Awards for Shareholders
Regarding
proposals seeking approval for individual equity awards, we have included new
discussion of provisions that require a non-vote, or vote of abstention, from a
shareholder if the shareholder is also the recipient of the proposed grant. Such
provisions help to address potential conflict of interest issues and provide
disinterested shareholders with more meaningful say over the proposal. The
inclusion of such provisions will be viewed positively during our holistic
analysis, especially when a vote from the recipient of the proposed grant would
materially influence the passage of the proposal.
Net
Operating Loss (NOL) Pills
We
have updated our discussion of NOL pills to include our concerns with acting in
concert provisions. Over the past several years, the terms and structures of NOL
pills have evolved to include features such as acting in concert provisions,
among other concerning terms, that may disempower shareholders and insulate the
board and management. When acting in concert provisions are present within the
terms of a NOL pill, we believe this may raise concerns as to the true objective
of the pill.
Acting
in concert provisions broaden the definition of beneficial ownership to prohibit
parallel conduct, or multiple shareholders party to a formal or informal
agreement collaborating to influence the board and management of a company, and
aggregate the ownership of such shareholders towards the triggering threshold.
As
such, we have added the inclusion of an acting in concert provision and whether
the pill is implemented following the filing of a Schedule 13D by a shareholder
or there is evidence of hostile activity or shareholder activism as part of our
considerations to recommend shareholders vote against a management proposed NOL
pill.
Control
Share Statutes
We
have added a new discussion outlining our approach to control share statutes.
Certain states, including Delaware, have adopted control share acquisition
statutes as an anti-takeover defense for certain closed-end investment companies
and business development companies. Control share statutes may prevent changes
in control by limiting voting rights of a person that acquires the ownership of
“control shares.” Control shares are shares of stock equal to or exceeding
specified percentages of company voting power, and a control share statute
prevents shares in excess of the specified percentage from being voted, unless:
(i) the board approves
2024
Benchmark Policy Guidelines — United States 9
them
to be voted; or (ii) the holder of the “control shares” receives approval from a
supermajority of “non-interested” shareholders.
Depending
on the state of incorporation, companies may automatically rely on control share
statutes unless the fund’s board of trustees eliminates the application of the
control share statute to any or all fund share acquisitions, through adoption of
a provision in the fund's governing instrument or by fund board action alone. In
certain other states, companies must adopt control share
statutes.
In
our view, control share statues disenfranchise shareholders by reducing their
voting power to a level less than their economic interest and effectively
function as an anti-takeover device. We believe all shareholders should have an
opportunity to vote all of their shares. Moreover, we generally believe
anti-takeover measures prevent shareholders from receiving a buy-out premium for
their stock.
As
such, we will generally recommend voting for proposals to opt out of control
share acquisition statutes, unless doing so would allow the completion of a
takeover that is not in the best interests of shareholders; and recommend voting
against proposals to amend the charter to include control share acquisition
provisions.
Further,
in cases where a closed-end fund or business development company has received a
public buyout offer and has relied on a control share statute as a defense
mechanism in the prior year, we will generally recommend shareholders vote
against the chair of the nominating and governance committee, absent a
compelling rationale as to why a rejected acquisition was not in the best
interests of shareholders.
Clarifying
Amendments
The
following clarifications of our existing policies are included this year:
Board
Responsiveness
We
have clarified our discussion of board responsiveness to remove a reference to
shareholder proposals from our discussion of when 20% or more of shareholders
vote contrary to management. In addition, we have clarified that our calculation
of opposition includes votes cast as either AGAINST and/or ABSTAIN.
Interlocking
Directorships
We
have clarified our policy on interlocking directorships to reference that, on a
case-by-case basis, we evaluate other types of interlocking relationships, such
as interlocks with close family members of executives or within group
companies.
Board
Gender Diversity
We
have clarified our policy on board gender diversity to emphasize that when
making these voting recommendations, we will carefully review a company’s
disclosure of its diversity considerations and may refrain from recommending
that shareholders vote against directors when boards have provided a sufficient
rationale or plan to address the lack of diversity on the board, including a
timeline of when the board intends to appoint additional gender diverse
directors (generally by the next annual meeting or as soon as is reasonably
practicable).
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Underrepresented
Community Diversity
We
have clarified our policy on underrepresented community diversity to emphasize
that when making these voting recommendations, we will carefully review a
company’s disclosure of its diversity considerations and may refrain from
recommending that shareholders vote against directors when boards have provided
a sufficient rationale or plan to address the lack of diversity on the board,
including a timeline of when the board intends to appoint additional directors
from an underrepresented community (generally by the next annual meeting or as
soon as is reasonably practicable).
Furthermore,
we have revised our definition of “underrepresented community director” to
replace our reference to an individual who self-identifies as gay, lesbian,
bisexual, or transgender with an individual who self-identifies as a member of
the LGBTQIA+ community.
Non-GAAP
to GAAP Reconciliation Disclosure
We
have expanded the discussion of our approach to the use of non-GAAP measures in
incentive programs in order to emphasize the need for thorough and transparent
disclosure in the proxy statement that will assist shareholders in reconciling
the difference between non-GAAP results used for incentive payout determinations
and reported GAAP results. Particularly in situations where significant
adjustments were applied and materially impacts incentive pay outcomes, the lack
of such disclosure will impact Glass Lewis’ assessment of the quality of
executive pay disclosure and may be a factor in our recommendation for the
say-on-pay.
Pay-Versus-Performance
Disclosure
We
have revised our discussion of the pay-for-performance analysis to note that the
pay-versus-performance disclosure mandated by the SEC may be used as part of our
supplemental quantitative assessments supporting our primary pay-for-performance
grade.
Company
Responsiveness for Say-on-Pay Opposition
For
increased clarity, we amended our discussion of company responsiveness to
significant levels of say-on-pay opposition to note that our calculation of
opposition includes votes cast as either AGAINST and/or ABSTAIN, with opposition
of 20% or higher treated as significant.
A
Board of Directors that Serves Shareholder Interest
Election
of Directors
The
purpose of Glass Lewis’ proxy research and advice is to facilitate shareholder
voting in favor of governance structures that will drive performance, create
shareholder value and maintain a proper tone at the top. Glass Lewis looks for
talented boards with a record of protecting shareholders and delivering value
over the medium- and long-term. We believe that a board can best protect and
enhance the interests of shareholders if it is
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sufficiently
independent, has a record of positive performance, and consists of individuals
with diverse backgrounds and a breadth and depth of relevant
experience.
Independence
The
independence of directors, or lack thereof, is ultimately demonstrated through
the decisions they make. In assessing the independence of directors, we will
take into consideration, when appropriate, whether a director has a track record
indicative of making objective decisions. Likewise, when assessing the
independence of directors we will also examine when a director’s track record on
multiple boards indicates a lack of objective decision-making. Ultimately, we
believe the determination of whether a director is independent or not must take
into consideration both compliance with the applicable independence listing
requirements as well as judgments made by the director.
We
look at each director nominee to examine the director’s relationships with the
company, the company’s executives, and other directors. We do this to evaluate
whether personal, familial, or financial relationships (not including director
compensation) may impact the director’s decisions. We believe that such
relationships make it difficult for a director to put shareholders’ interests
above the director’s or the related party’s interests. We also believe that a
director who owns more than 20% of a company can exert disproportionate
influence on the board, and therefore believe such a director’s independence may
be hampered, in particular when serving on the audit committee.
Thus,
we put directors into three categories based on an examination of the type of
relationship they have with the company:
Independent
Director
— An independent director has no material financial, familial or other current
relationships with the company, its executives, or other board members, except
for board service and standard fees paid for that service. Relationships that
existed within three to five years1
before the inquiry are usually considered “current” for purposes of this test.
For material financial relationships with the company, we apply a three-year
look back, and for former employment relationships with the company, we apply a
five-year look back.
Affiliated
Director
— An affiliated director has, (or within the past three years, had) a material
financial, familial or other relationship with the company or its executives,
but is not an employee of the company.2
This includes directors whose employers have a material financial relationship
with the company.3
1
NASDAQ originally proposed a five-year look-back period but both it and the NYSE
ultimately settled on a three-year look-back prior to finalizing their rules. A
five-year standard for former employment relationships is more appropriate, in
our view, because we believe that the unwinding of conflicting relationships
between former management and board members is more likely to be complete and
final after five years. However, Glass Lewis does not apply the five-year
look-back period to directors who have previously served as executives of the
company on an interim basis for less than one year.
2
If a company does not consider a non-employee director to be independent, Glass
Lewis will classify that director as an affiliate.
3
We allow a five-year grace period for former executives of the company or merged
companies who have consulting agreements with the surviving company. (We do not
automatically recommend voting against directors in such cases for the first
five years.) If the consulting agreement persists after
this five-year grace
period, we apply the materiality thresholds outlined in the definition of
“material.”
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In
addition, we view a director who either owns or controls 20% or more of the
company’s voting stock, or is an employee or affiliate of an entity that
controls such amount, as an affiliate.4
We
view 20% shareholders as affiliates because they typically have access to and
involvement with the management of a company that is fundamentally different
from that of ordinary shareholders. More importantly, 20% holders may have
interests that diverge from those of ordinary holders, for reasons such as the
liquidity (or lack thereof) of their holdings, personal tax issues, etc.
Glass
Lewis applies a three-year look back period to all directors who have an
affiliation with the company other than former employment, for which we apply a
five-year look back.
Definition
of “Material”:
A material relationship is one in which the dollar value exceeds:
•$50,000
(or where no amount is disclosed) for directors who are paid for a service they
have agreed
to perform for the company, outside of their service as a
director, including professional or other services. This threshold also applies
to directors who are the majority or principal owner of a firm that receives
such payments; or
•$120,000
(or where no amount is disclosed) for those directors employed by a professional
services firm such as a law firm, investment bank, or consulting firm and the
company pays the firm, not the individual, for services.5
This dollar limit would also apply to charitable contributions to schools where
a board member is a professor; or charities where a director serves on the board
or is an executive;6
and any aircraft and real estate dealings between the company and the director’s
firm; or
•1%
of either company’s consolidated gross revenue for other business relationships
(e.g., where the director is an executive officer of a company that provides
services or products to or receives services or products from the
company).7
Definition
of “Familial”
— Familial relationships include a person’s spouse, parents, children, siblings,
grandparents, uncles, aunts, cousins, nieces, nephews, in-laws, and anyone
(other than domestic employees) who shares such person’s home. A director is an
affiliate if: i) he or she has a family member who is employed by
4
This includes a director who serves on a board as a representative (as part of
his or her basic responsibilities) of an investment firm with greater than 20%
ownership. However, while we will generally consider him/her to be affiliated,
we will not recommend voting against unless (i) the investment firm has
disproportionate board representation or (ii) the director serves on the audit
committee.
5
We may deem such a transaction to be immaterial where the amount represents less
than 1% of the firm’s annual revenues and the board provides a compelling
rationale as to why the director’s independence is not affected by the
relationship.
6
We will generally take into consideration the size and nature of such charitable
entities in relation to the company’s size and industry along with any other
relevant factors such as the director’s role at the charity. However, unlike for
other types of related party transactions, Glass Lewis generally does not apply
a look-back period to affiliated relationships involving charitable
contributions; if the relationship between the director and the school or
charity ceases, or if the company discontinues its donations to the entity, we
will consider the director to be independent.
7
This includes cases where a director is employed by, or closely affiliated with,
a private equity firm that profits from an acquisition made by the company.
Unless disclosure suggests otherwise, we presume the director is
affiliated.
8
Pursuant
to SEC rule Item 404 of Regulation S-K under the Securities Exchange Act,
compensation exceeding $120,000 is the minimum threshold deemed material for
disclosure of transactions involving family members of directors.
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Benchmark Policy Guidelines — United States 13
the
company and receives more than $120,0008
in annual compensation; or, ii) he or she has a family member who is employed by
the company and the company does not disclose this individual’s
compensation.
Definition
of “Company”
— A company includes any parent or subsidiary in a group with the company or any
entity that merged with, was acquired by, or acquired the company.
Inside
Director —
An inside director simultaneously serves as a director and as an employee of the
company. This category may include a board chair who acts as an employee of the
company or is paid as an employee of the company. In our view, an inside
director who derives a greater amount of income as a result of affiliated
transactions with the company rather than through compensation paid by the
company (i.e., salary, bonus, etc. as a company employee) faces a conflict
between making decisions that are in the best interests of the company versus
those in the director’s own best interests. Therefore, we will recommend voting
against such a director.
Additionally,
we believe a director who is currently serving in an interim management position
should be considered an insider, while a director who previously served in an
interim management position for less than one year and is no longer serving in
such capacity is considered independent. Moreover, a director who previously
served in an interim management position for over one year and is no longer
serving in such capacity is considered an affiliate for five years following the
date of the director’s resignation or departure from the interim management
position.
Voting
Recommendations on the Basis of Board Independence
Glass
Lewis believes a board will be most effective in protecting shareholders’
interests if it is at least two-thirds independent. We note that each of the
Business Roundtable, the Conference Board, and the Council of Institutional
Investors advocates that two-thirds of the board be independent. Where more than
one-third of the members are affiliated or inside directors, we
typically8
recommend voting against some of the inside and/or affiliated directors in order
to satisfy the two-thirds threshold.
In
the case of a less than two-thirds independent board, Glass Lewis strongly
supports the existence of a
presiding or lead director with authority to set
the meeting agendas and to lead sessions outside the insider chair’s presence.
In
addition, we scrutinize avowedly “independent” chairs and lead directors. We
believe that they should be unquestionably independent, or the company should
not tout them as such.
Committee
Independence
We
believe that only independent directors should serve on a company’s audit,
compensation, nominating, and governance committees.9
We typically recommend that shareholders vote against any affiliated or inside
director seeking appointment to an audit, compensation, nominating, or
governance committee, or who has served in that capacity in the past year.
8
With a staggered board, if the affiliates or insiders that we believe should not
be on the board are not up for election, we will express our concern regarding
those directors, but we will not recommend voting against the other affiliates
or insiders who are up for election just to achieve two-thirds independence.
However, we will consider recommending voting against the directors subject to
our concern at their next election if the issue giving rise to the concern is
not resolved.
9
We will recommend voting against an audit committee member who owns 20% or more
of the company’s stock, and we believe that there should be a maximum of one
director (or no directors if the committee is composed of less than three
directors) who owns 20% or more of the company’s stock on the compensation,
nominating, and governance committees.
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Pursuant
to Section 952 of the Dodd-Frank Act, as of January 11, 2013, the U.S.
Securities and Exchange Commission (SEC) approved new listing requirements for
both the NYSE and NASDAQ which require that boards apply enhanced standards of
independence when making an affirmative determination of the independence of
compensation committee members. Specifically, when making this determination, in
addition to the factors considered when assessing general director independence,
the board’s considerations must include: (i) the source of compensation of the
director, including any consulting, advisory or other compensatory fee paid by
the listed company to the director (the “Fees Factor”); and (ii) whether the
director is affiliated with the listing company, its subsidiaries, or affiliates
of its subsidiaries (the “Affiliation Factor”).
Glass
Lewis believes it is important for boards to consider these enhanced
independence factors when assessing compensation committee members. However, as
discussed above in the section titled Independence, we apply our own standards
when assessing the independence of directors, and these standards also take into
account consulting and advisory fees paid to the director, as well as the
director’s affiliations with the company and its subsidiaries and affiliates. We
may recommend voting against compensation committee members who are not
independent based on our standards.
Independent
Chair
Glass
Lewis believes that separating the roles of CEO (or, more rarely, another
executive position) and chair creates a better governance structure than a
combined CEO/chair position. An executive manages the business according to a
course the board charts. Executives should report to the board regarding their
performance in achieving goals set by the board. This is needlessly complicated
when a CEO chairs the board, since a CEO/chair presumably will have a
significant influence over the board.
While
many companies have an independent lead or presiding director who performs many
of the same functions of an independent chair (e.g., setting the board meeting
agenda), we do not believe this alternate form of independent board leadership
provides as robust protection for shareholders as an independent
chair.
It
can become difficult for a board to fulfill its role of overseer and policy
setter when a CEO/chair controls the agenda and the boardroom discussion. Such
control can allow a CEO to have an entrenched position, leading to
longer-than-optimal terms, fewer checks on management, less scrutiny of the
business operation, and limitations on independent, shareholder-focused
goal-setting by the board.
A
CEO should set the strategic course for the company, with the board’s approval,
and the board should enable the CEO to carry out the CEO’s vision for
accomplishing the board’s objectives. Failure to achieve the board’s objectives
should lead the board to replace that CEO with someone in whom the board has
confidence.
Likewise,
an independent chair can better oversee executives and set a pro-shareholder
agenda without the management conflicts that a CEO and other executive insiders
often face. Such oversight and concern for shareholders allows for a more
proactive and effective board of directors that is better able to look out for
the interests of shareholders.
Further,
it is the board’s responsibility to select a chief executive who can best serve
a company and its shareholders and to replace this person when his or her duties
have not been appropriately fulfilled. Such a replacement becomes more difficult
and happens less frequently when the chief executive is also in the position of
overseeing the board.
Glass
Lewis believes that the installation of an independent chair is almost always a
positive step from a corporate governance perspective and promotes the best
interests of shareholders. Further, the presence of an independent chair fosters
the creation of a thoughtful and dynamic board, not dominated by the views of
senior
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management.
Encouragingly, many companies appear to be moving in this direction — one study
indicates that only 10 percent of incoming CEOs in 2014 were awarded the chair
title, versus 48 percent in 2002.10
Another study finds that 53 percent of S&P 500 boards now separate the CEO
and chair roles, up from 37 percent in 2009, although the same study found that
only 34 percent of S&P 500 boards have truly independent chairs.11
We
do not recommend that shareholders vote against CEOs who chair the board.
However, we typically recommend that our clients support separating the roles of
chair and CEO whenever that question is posed in a proxy (typically in the form
of a shareholder proposal), as we believe that it is in the long-term best
interests of the company and its shareholders.
Further,
where the company has neither an independent chair nor independent lead
director, we will recommend voting against the chair of the governance
committee.
Performance
The
most crucial test of a board’s commitment to the company and its shareholders
lies in the actions of the board and its members. We look at the performance of
these individuals as directors and executives of the company and of other
companies where they have served.
We
find that a director’s past conduct is often indicative of future conduct and
performance. We often find directors with a history of overpaying executives or
of serving on boards where avoidable disasters have occurred serving on the
boards of companies with similar problems. Glass Lewis has a proprietary
database of directors serving at over 8,000 of the most widely held U.S.
companies. We use this database to track the performance of directors across
companies.
Voting
Recommendations on the Basis of Performance
We
typically recommend that shareholders vote against directors who have served on
boards or as executives of companies with records of poor performance,
inadequate risk oversight, excessive compensation, audit- or accounting-related
issues, and/or other indicators of mismanagement or actions against the
interests of
shareholders. We will reevaluate such directors based on, among
other factors, the length of time passed since the incident giving rise to the
concern, shareholder support for the director, the severity of the issue, the
director’s role (e.g., committee membership), director tenure at the subject
company, whether ethical lapses accompanied the oversight lapse, and evidence of
strong oversight at other companies.
Likewise,
we examine the backgrounds of those who serve on key board committees to ensure
that they have the required skills and diverse backgrounds to make informed
judgments about the subject matter for which the committee is
responsible.
We
believe shareholders should avoid electing directors who have a record of not
fulfilling their responsibilities to shareholders at any company where they have
held a board or executive position. We typically recommend voting
against:
10
Ken Favaro, Per-Ola Karlsson and Gary L. Nelson. “The $112 Billion CEO
Succession Problem.” (Strategy+Business,
Issue 79, Summer 2015).
11
Spencer Stuart Board Index, 2019, p. 6.
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1.A
director who fails to attend a minimum of 75% of board and applicable committee
meetings, calculated in the aggregate.12
2.A
director who belatedly filed a significant form(s) 4 or 5, or who has a pattern
of late filings if the late filing was the director’s fault (we look at these
late filing situations on a case-by-case basis).
3.A
director who is also the CEO of a company where a serious and material
restatement has occurred after the CEO had previously certified the
pre-restatement financial statements.
4.A
director who has received two against recommendations from Glass Lewis for
identical reasons within the prior year at different companies (the same
situation must also apply at the company being analyzed).
Furthermore,
with consideration given to the company’s overall corporate governance,
pay-for-performance alignment and board responsiveness to shareholders, we may
recommend voting against directors who served throughout a period in which the
company performed significantly worse than peers and the directors have not
taken reasonable steps to address the poor performance.
Board
Responsiveness
Glass
Lewis believes that boards should be responsive to shareholders when a
significant percentage of shareholders vote contrary to the recommendation of
management, depending on the issue.
When
20% of more of shareholders vote contrary to management (which occurs when more
than 20% of votes on the proposal are cast as AGAINST and/or ABSTAIN), we
believe that boards should engage with shareholders on the issue and demonstrate
some initial level of responsiveness. These include instances when 20% or more
of shareholders:
(i)withhold
votes from (or vote against) a director nominee; or
(ii)vote
against a management-sponsored proposal.
In
our view, a 20% threshold is significant enough to warrant a close examination
of the underlying issues and an evaluation of whether the board responded
appropriately following the vote, particularly in the case of a compensation or
director election proposal. While the 20% threshold alone will not automatically
generate a negative vote recommendation from Glass Lewis on a future proposal
(e.g., to recommend against a director nominee, against a say-on-pay proposal,
etc.), it may be a contributing factor to our recommendation to vote against
management’s recommendation in the event we determine that the board did not
respond appropriately.
When
a majority of shareholders vote contrary to management, we believe that boards
should engage with shareholders on the issue and provide a more robust response
to fully address shareholder concerns. These include instances when a majority
or more of shareholders:
(i)withhold
votes from (or vote against) a director nominee;
(ii)vote
against a management-sponsored proposal; or
(iii)vote
for a shareholder proposal.
12
However, where a director has served for less than one full year, we will
typically not recommend voting against for failure to attend 75% of meetings.
Rather, we will note the poor attendance with a recommendation to track this
issue going forward. We will also refrain from recommending to vote against
directors when the proxy discloses that the director missed the meetings due to
serious illness or other extenuating circumstances.
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In
the case of shareholder proposals, we believe clear action is warranted when
such proposals receive support from a majority of votes cast (excluding
abstentions and broker non-votes). In our view, this may include fully
implementing the request of the shareholder proposal and/or engaging with
shareholders on the issue and providing sufficient disclosures to address
shareholder concerns.
At
controlled companies and companies that have multi-class share structures with
unequal voting rights, we will carefully examine the level of approval or
disapproval attributed to unaffiliated shareholders when determining whether
board responsiveness is warranted. In the case of companies that have
multi-class share structures with unequal voting rights, we will generally
examine the level of approval or disapproval attributed to unaffiliated
shareholders on a “one share, one vote” basis. At controlled and multi-class
companies, when at least 20% or more of unaffiliated shareholders vote contrary
to management, we believe that boards should engage with shareholders and
demonstrate some initial level of responsiveness, and when a majority or more of
unaffiliated shareholders vote contrary to management, we believe that boards
should engage with shareholders and provide a more robust response to address
shareholder concerns.
As
a general framework, our evaluation of board responsiveness involves a review of
publicly available disclosures (e.g., the proxy statement, annual report, 8-Ks,
company website, etc.) released following the date of the company’s last annual
meeting up through the publication date of our most current Proxy Paper.
Depending on the specific issue, our focus typically includes, but is not
limited to, the following:
•At
the board level, any changes in directorships, committee memberships, disclosure
of related party transactions, meeting attendance, or other
responsibilities;
•Any
revisions made to the company’s articles of incorporation, bylaws or other
governance documents;
•Any
press or news releases indicating changes in, or the adoption of, new company
policies, business practices or special reports; and
•Any
modifications made to the design and structure of the company’s compensation
program, as well as an assessment of the company’s engagement with shareholders
on compensation issues as discussed in the Compensation Discussion &
Analysis (CD&A), particularly following a material vote against a company’s
say-on-pay.
•Proxy
statement disclosure discussing the board’s efforts to engage with shareholders
and the actions taken to address shareholder concerns.
Our
Proxy Paper analysis will include a case-by-case assessment of the specific
elements of board responsiveness that we examined along with an explanation of
how that assessment impacts our current voting recommendations.
The
Role of a Committee Chair
Glass
Lewis believes that a designated committee chair maintains primary
responsibility for the actions of his or her respective committee. As such, many
of our committee-specific voting recommendations are against the applicable
committee chair rather than the entire committee (depending on the seriousness
of the issue). In cases where the committee chair is not up for election due to
a staggered board, and where we have identified multiple concerns, we will
generally recommend voting against other members of the committee who are up for
election, on a case-by-case basis.
In
cases where we would ordinarily recommend voting against a committee chair but
the chair is not specified, we apply the following general rules, which apply
throughout our guidelines:
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•If
there is no committee chair, we recommend voting against the longest-serving
committee member or, if the longest-serving committee member cannot be
determined, the longest-serving board member serving on the committee (i.e., in
either case, the “senior director”); and
•If
there is no committee chair, but multiple senior directors serving on the
committee, we recommend voting against both (or all) such senior
directors.
In
our view, companies should provide clear disclosure of which director is charged
with overseeing each committee. In cases where that simple framework is ignored
and a reasonable analysis cannot determine which committee member is the
designated leader, we believe shareholder action against the longest serving
committee member(s) is warranted. Again, this only applies if we would
ordinarily recommend voting against the committee chair but there is either no
such position or no designated director in such role.
Audit
Committees and Performance
Audit
committees play an integral role in overseeing the financial reporting process
because stable capital markets depend on reliable, transparent, and objective
financial information to support an efficient and effective capital market
process. Audit committees play a vital role in providing this disclosure to
shareholders.
When
assessing an audit committee’s performance, we are aware that an audit committee
does not prepare financial statements, is not responsible for making the key
judgments and assumptions that affect the financial statements, and does not
audit the numbers or the disclosures provided to investors. Rather, an audit
committee member monitors and oversees the process and procedures that
management and auditors perform. The 1999 Report and Recommendations of the Blue
Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees
stated it best:
A
proper and well-functioning system exists, therefore, when the three main groups
responsible for financial reporting — the full board including the audit
committee, financial management including the internal auditors, and the outside
auditors — form a ‘three legged stool’ that supports responsible financial
disclosure and active participatory oversight. However, in the view of the
Committee, the audit committee must be ‘first among equals’ in this process,
since the audit committee is an extension of the full board and hence the
ultimate monitor of the process.
Standards
for Assessing the Audit Committee
For
an audit committee to function effectively on investors’ behalf, it must include
members with sufficient knowledge to diligently carry out their
responsibilities. In its audit and accounting recommendations, the Conference
Board Commission on Public Trust and Private Enterprise said “members of the
audit committee must be independent and have both knowledge and experience in
auditing financial matters.”13
We
are skeptical of audit committees where there are members that lack expertise as
a Certified Public Accountant (CPA), Chief Financial Officer (CFO) or corporate
controller, or similar experience. While we will not necessarily recommend
voting against members of an audit committee when such expertise is lacking, we
are more likely to recommend voting against committee members when a problem
such as a restatement occurs and such expertise is lacking.
Glass
Lewis generally assesses audit committees against the decisions they make with
respect to their oversight and monitoring role. The quality and integrity of the
financial statements and earnings reports, the
13
Commission on Public Trust and Private Enterprise. The Conference Board.
2003.
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Benchmark Policy Guidelines — United States 19
completeness
of disclosures necessary for investors to make informed decisions, and the
effectiveness of the internal controls should provide reasonable assurance that
the financial statements are materially free from errors. The independence of
the external auditors and the results of their work all provide useful
information by which to assess the audit committee.
When
assessing the decisions and actions of the audit committee, we typically defer
to its judgment and generally recommend voting in favor of its members. However,
we will consider recommending that shareholders vote against the
following:
1.All
members of the audit committee when options were backdated, there is a lack of
adequate controls in place, there was a resulting restatement, and disclosures
indicate there was a lack of documentation with respect to the option
grants.
2.The
audit committee chair, if the audit committee does not have a financial expert
or the committee’s financial expert does not have a demonstrable financial
background sufficient to understand the financial issues unique to public
companies.
3.The
audit committee chair, if the audit committee did not meet at least four times
during the year.
4.The
audit committee chair, if the committee has less than three
members.
5.Any
audit committee member who sits on more than three public company audit
committees, unless the audit committee member is a retired CPA, CFO, controller
or has similar experience, in which case the limit shall be four committees,
taking time and availability into consideration including a review of the audit
committee member’s attendance at all board and committee meetings.14
6.All
members of an audit committee who are up for election and who served on the
committee at the time of the audit, if audit and audit-related fees total
one-third or less of the total fees billed by the auditor.
7.The
audit committee chair when tax and/or other fees are greater than audit and
audit-related fees paid to the auditor for more than one year in a row (in which
case we also recommend against ratification of the auditor).
8.The
audit committee chair when fees paid to the auditor are not
disclosed.
9.All
members of an audit committee where non-audit fees include fees for tax services
(including, but not limited to, such things as tax avoidance or shelter schemes)
for senior executives of the company. Such services are prohibited by the Public
Company Accounting Oversight Board (PCAOB).
10.All
members of an audit committee that reappointed an auditor that we no longer
consider to be independent for reasons unrelated to fee
proportions.
11.All
members of an audit committee when audit fees are excessively low, especially
when compared with other companies in the same industry.
12.The
audit committee chair if the committee failed to put auditor ratification on the
ballot for shareholder approval. However, if the non-audit fees or tax fees
exceed audit plus audit-related fees in either the current or the prior year,
then Glass Lewis will recommend voting against the entire audit
committee.
14
Glass Lewis may exempt certain audit committee members from the above threshold
if, upon further analysis of relevant factors such as the director’s experience,
the size, industry-mix and location of the companies involved and the director’s
attendance at all the companies, we can reasonably determine that the audit
committee member is likely not hindered by multiple audit committee
commitments.
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13.All
members of an audit committee where the auditor has resigned and reported that a
section 10A15
letter has been issued.
14.All
members of an audit committee at a time when material accounting fraud occurred
at the company.16
15.All
members of an audit committee at a time when annual and/or multiple quarterly
financial statements had to be restated, and any of the following factors
apply:17
a.The
restatement involves fraud or manipulation by insiders;
b.The
restatement is accompanied by an SEC inquiry or investigation;
c.The
restatement involves revenue recognition;
d.The
restatement results in a greater than 5% adjustment to costs of goods sold,
operating expense, or operating cash flows; or
e.The
restatement results in a greater than 5% adjustment to net income, 10%
adjustment to assets or shareholders equity, or cash flows from financing or
investing activities.
16.All
members of an audit committee if the company repeatedly fails to file its
financial reports in a timely fashion. For example, the company has filed two or
more quarterly or annual financial statements late within the last five
quarters.
17.All
members of an audit committee when it has been disclosed that a law enforcement
agency
has charged the company and/or its employees with a violation of the
Foreign Corrupt Practices
Act (FCPA).
18.All
members of an audit committee when the company has aggressive accounting
policies and/or poor disclosure or lack of sufficient transparency in its
financial statements.
19.All
members of the audit committee when there is a disagreement with the auditor and
the auditor resigns or is dismissed (e.g., the company receives an adverse
opinion on its financial statements from the auditor).
20.All
members of the audit committee if the contract with the auditor specifically
limits the auditor’s liability to the company for damages.18
21.All
members of the audit committee who served since the date of the company’s last
annual meeting if, since the last annual meeting, the company has reported a
material weakness that has not yet been corrected and the company has not
disclosed a remediation plan; or when a material weakness has been ongoing for
more than one year and the company has not disclosed an updated remediation plan
that clearly outlines the company’s progress toward remediating the material
weakness.
Material
Weaknesses
15
Auditors are required to report all potential illegal acts to management and the
audit committee unless they are clearly inconsequential in nature. If the audit
committee or the board fails to take appropriate action on an act that has been
determined to be a violation of the law, the independent auditor is required to
send a section 10A letter to the SEC. Such letters are rare and therefore we
believe should be taken seriously.
16
Research indicates that revenue fraud now accounts for over 60% of SEC fraud
cases, and that companies that engage in fraud experience significant negative
abnormal stock price declines—facing bankruptcy, delisting, and material asset
sales at much higher rates than do non-fraud firms (Committee of Sponsoring
Organizations of the Treadway Commission. “Fraudulent Financial Reporting:
1998-2007.” May 2010).
17
The SEC issued guidance in March 2021 related to classification of warrants as
liabilities at special purpose acquisition companies (SPACs). We will generally
refrain from recommending against audit committee members when the restatement
in question is solely as a result of the aforementioned SEC
guidance.
18
The Council of Institutional Investors. “Corporate Governance Policies,” p. 4,
April 5, 2006; and “Letter from Council of Institutional Investors to the
AICPA,” November 8, 2006.
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Effective
internal controls over financial reporting should ensure the integrity of
companies’ accounting and financial reporting.
The
SEC guidance regarding Management's Report on Internal Control Over Financial
Reporting requires that reports on internal control should include: (i) a
statement of management's responsibility for establishing and maintaining
adequate internal control over financial reporting for the company; (ii)
management's assessment of the effectiveness of the company's internal control
over financial reporting as of the end of the company's most recent fiscal year;
(iii) a statement identifying the framework used by management to evaluate the
effectiveness of the company's internal control over financial reporting; and
(iv) a statement that the registered public accounting firm that audited the
company's financial statements included in the annual report has issued an
attestation report on management's assessment of the company's internal control
over financial reporting.
A
material weakness occurs when a company identifies a deficiency, or a
combination of deficiencies, in internal controls over financial reporting, such
that there is a reasonable possibility that a material misstatement of the
company's annual or interim financial statements will not be prevented or
detected on a timely basis. Failure to maintain effective internal controls can
create doubts regarding the reliability of financial reporting and the
preparation of financial statements in accordance with U.S. GAAP and may lead to
companies publishing financial statements that are not free of errors or
misstatements.
We
believe it is the responsibility of audit committees to ensure that material
weaknesses are remediated in a timely manner and that companies disclose
remediation plans that include detailed steps to resolve a given material
weakness. In cases where a material weakness has been ongoing for more than one
fiscal year, we expect the company to disclose an updated remediation plan at
least annually thereafter. Updates to existing remediation plans should state
the progress the company has made toward remediating the material weakness and
the remaining actions the company plans to take until the material weakness is
fully remediated. As such, we are critical of audit committees when companies
disclose remediation plans that remain unchanged from a prior
period.
When
a material weakness is reported and the company has not disclosed a remediation
plan, or when a material weakness has been ongoing for more than one year and
the company has not disclosed an updated remediation plan that clearly outlines
the company’s progress toward remediating the material weakness, we will
consider recommending that shareholders vote against all members of a company’s
audit committee who served on the committee during the time when the material
weakness was identified.
We
also take a dim view of audit committee reports that are boilerplate, and which
provide little or no information or transparency to investors. When a problem
such as a material weakness, restatement or late filings occurs, in forming our
judgment with respect to the audit committee we take into consideration the
transparency of the audit committee report.
Compensation
Committee Performance
Compensation
committees have a critical role in determining the compensation of executives.
This includes deciding the basis on which compensation is determined, as well as
the amounts and types of compensation
to be paid. This process begins with
the hiring and initial establishment of employment agreements, including the
terms for such items as pay, pensions and severance arrangements. It is
important in establishing compensation arrangements that compensation be
consistent with, and based on the long-term economic performance of, the
business’s long-term shareholders returns.
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Compensation
committees are also responsible for the oversight of the transparency of
compensation. This oversight includes disclosure of compensation arrangements,
the matrix used in assessing pay for performance, and the use of compensation
consultants. In order to ensure the independence of the board’s compensation
consultant, we believe the compensation committee should only engage a
compensation consultant that is not
also providing any services to the
company or management apart from their contract with the compensation committee.
It is important to investors that they have clear and complete disclosure of all
the significant terms of compensation arrangements in order to make informed
decisions with respect to the oversight and decisions of the compensation
committee.
Finally,
compensation committees are responsible for oversight of internal controls over
the executive compensation process. This includes controls over gathering
information used to determine compensation, establishment of equity award plans,
and granting of equity awards. For example, the use of a compensation consultant
who maintains a business relationship with company management may cause the
committee to make decisions based on information that is compromised by the
consultant’s conflict of interests. Lax controls can also contribute to improper
awards of compensation such as through granting of backdated or spring-loaded
options, or granting of bonuses when triggers for bonus payments have not been
met.
Central
to understanding the actions of compensation committee is a careful review of
the CD&A report included in each company’s proxy. We review the CD&A in
our evaluation of the overall compensation practices of a company, as overseen
by the compensation committee. The CD&A is also integral to the evaluation
of compensation proposals at companies, such as advisory votes on executive
compensation, which allow shareholders to vote on the compensation paid to a
company’s top executives.
When
assessing the performance of compensation committees, we will consider
recommending that shareholders vote against the following:
1.All
members of a compensation committee during whose tenure the committee failed to
address shareholder concerns following majority shareholder rejection of the
say-on-pay proposal in the previous year. Where the proposal was approved but
there was a significant shareholder vote (i.e., greater than 20% of votes cast)
against the say-on-pay proposal in the prior year, if the board did not respond
sufficiently to the vote including actively engaging shareholders on this issue,
we will also consider recommending voting against the chair of the compensation
committee or all members of the compensation committee, depending on the
severity and history of the compensation problems and the level of shareholder
opposition.
2.All
members of the compensation committee who are up for election and served when
the company failed to align pay with performance if shareholders are not
provided with an advisory vote on executive compensation at the annual
meeting.19
3.Any
member of the compensation committee who has served on the compensation
committee of at least two other public companies that have consistently failed
to align pay with performance and whose oversight of compensation at the company
in question is suspect.
4.All
members of the compensation committee (during the relevant time period) if the
company entered into excessive employment agreements and/or severance
agreements.
19
If a company provides shareholders with a say-on-pay proposal, we will initially
only recommend voting against the company's say-on-pay proposal and will not
recommend voting against the members of the compensation committee unless there
is a pattern of failing to align pay and performance and/or the company exhibits
egregious compensation practices. For cases in which the disconnect between pay
and performance is marginal and the company has outperformed its peers, we will
consider not recommending against compensation committee members.
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5.All
members of the compensation committee when performance goals were changed (i.e.,
lowered) when employees failed or were unlikely to meet original goals, or
performance-based compensation was paid despite goals not being
attained.
6.All
members of the compensation committee if excessive employee perquisites and
benefits
were allowed.
7.The
compensation committee chair if the compensation committee did not meet during
the year.
8.All
members of the compensation committee when the company repriced options or
completed a “self tender offer” without shareholder approval within the past two
years.
9.All
members of the compensation committee when vesting of in-the-money options is
accelerated.
10.All
members of the compensation committee when option exercise prices were
backdated. Glass Lewis will recommend voting against an executive director who
played a role in and participated in
option backdating.
11.All
members of the compensation committee when option exercise prices were
spring-loaded or otherwise timed around the release of material
information.
12.All
members of the compensation committee when a new employment contract is given to
an executive that does not include a clawback provision and the company had a
material restatement, especially if the restatement was due to
fraud.
13.The
chair of the compensation committee where the CD&A provides insufficient or
unclear information about performance metrics and goals, where the CD&A
indicates that pay is not tied to performance, or where the compensation
committee or management has excessive discretion to alter performance terms or
increase amounts of awards in contravention of previously defined targets.
14.All
members of the compensation committee during whose tenure the committee failed
to implement a shareholder proposal regarding a compensation-related issue,
where the proposal received the affirmative vote of a majority of the voting
shares at a shareholder meeting, and when a reasonable
analysis suggests
that the compensation committee (rather than the governance committee) should
have taken steps to implement the request.20
15.All
members of the compensation committee when the board has materially decreased
proxy statement disclosure regarding executive compensation policies and
procedures in a manner which substantially impacts shareholders’ ability to make
an informed assessment of the company’s executive pay practices.
16.All
members of the compensation committee when new excise tax gross-up provisions
are adopted in employment agreements with executives, particularly in cases
where the company previously committed not to provide any such entitlements in
the future.
17.All
members of the compensation committee when the board adopts a frequency for
future advisory votes on executive compensation that differs from the frequency
approved by shareholders.
18.The
chair of the compensation committee when” mega-grants” have been granted and the
awards present concerns such as excessive quantum, lack of sufficient
performance conditions, and/or are excessively dilutive, among others.
Nominating
and Governance Committee Performance
The
nominating and governance committee is responsible for the governance by the
board of the company and its executives. In performing this role, the committee
is responsible and accountable for selection of objective and competent board
members. It is also responsible for providing leadership on governance policies
adopted by the company, such as decisions to implement shareholder proposals
that have received a majority vote. At
20
In all other instances (i.e., a non-compensation-related shareholder proposal
should have been implemented) we recommend that shareholders vote against the
members of the governance committee.
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most
companies, a single committee is charged with these oversight functions; at
others, the governance and nominating responsibilities are apportioned among two
separate committees.
Consistent
with Glass Lewis’ philosophy that boards should have diverse backgrounds and
members with a
breadth and depth of relevant experience, we believe that
nominating and governance committees should
consider diversity when making
director nominations within the context of each specific company and its
industry. In our view, shareholders are best served when boards make an
effort to ensure a constituency that is
not only reasonably diverse on the
basis of age, race, gender and ethnicity, but also on the basis of geographic
knowledge, industry experience, board tenure and culture.
Regarding
the committee responsible for governance, we will consider recommending that
shareholders vote against the following:
1.All
members of the governance committee21
during whose tenure a shareholder proposal relating to important shareholder
rights received support from a majority of the votes cast (excluding abstentions
and broker non-votes) and the board has not begun to implement or enact the
proposal’s subject matter.22
Examples of such shareholder proposals include those seeking a declassified
board structure, a majority vote standard for director elections, or a right to
call a special meeting. In determining whether a board has sufficiently
implemented such a proposal, we will examine the quality of the right enacted or
proffered by the board for any conditions that may unreasonably interfere with
the shareholders’ ability to exercise the right (e.g., overly restrictive
procedural requirements for calling a special meeting).
2.All
members of the governance committee when a shareholder resolution is excluded
from the meeting agenda but the SEC has declined to state a view on whether such
resolution should be excluded, or when the SEC has verbally permitted a company
to exclude a shareholder proposal but there is no written record provided by the
SEC about such determination and the company has not provided any disclosure
concerning this no-action relief.
3.The
governance committee chair when the chair is not independent and an independent
lead or presiding director has not been appointed.23
4.The
governance committee chair at companies with a multi-class share structure and
unequal voting rights when the company does not provide for a reasonable sunset
of the multi-class share structure (generally seven years or less).
5.In
the absence of a nominating committee, the governance committee chair when there
are fewer than five, or the whole governance committee when there are more than
20 members on the board.
6.The
governance committee chair when the committee fails to meet at all during the
year.
7.The
governance committee chair, when for two consecutive years the company provides
what we consider to be “inadequate” related party transaction disclosure (i.e.,
the nature of such transactions
21
If the board does not have a committee responsible for governance oversight and
the board did not implement a shareholder proposal that received the requisite
support, we will recommend voting against the entire board. If the shareholder
proposal at issue requested that the board adopt a declassified structure, we
will recommend voting against all director nominees up for
election.
22
Where a compensation-related shareholder proposal should have been implemented,
and when a reasonable analysis suggests that the members of the compensation
committee (rather than the governance committee) bear the responsibility for
failing to implement the request, we recommend that shareholders only vote
against members of the compensation committee.
23
We believe that one independent individual should be appointed to serve as the
lead or presiding director. When such a position is rotated among directors from
meeting to meeting, we will recommend voting against the governance committee
chair as we believe the lack of fixed lead or presiding director means that,
effectively, the board does not have an independent board leader.
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Benchmark Policy Guidelines — United States 25
and/or
the monetary amounts involved are unclear or excessively vague, thereby
preventing a share-
holder from being able to reasonably interpret the
independence status of multiple directors above and beyond what the company
maintains is compliant with SEC or applicable stock exchange listing
requirements).
8.The
governance committee chair, when during the past year the board adopted a forum
selection clause (i.e., an exclusive forum provision)24
designating either a state's courts for intra-corporate disputes, and/or federal
courts for matters arising under the Securities Act of 1933 without shareholder
approval,25
or if the board is currently seeking shareholder approval of a forum selection
clause pursuant to a bundled bylaw amendment rather than as a separate proposal.
9.All
members of the governance committee during whose tenure the board adopted,
without shareholder approval, provisions in its charter or bylaws that, through
rules on director compensation, may inhibit the ability of shareholders to
nominate directors.
10.The
governance committee chair when the board takes actions to limit shareholders’
ability to vote on matters material to shareholder rights (e.g., through the
practice of excluding a shareholder proposal by means of ratifying a management
proposal that is materially different from the shareholder
proposal).
11.The
governance committee chair when directors’ records for board and committee
meeting attendance are not disclosed, or when it is indicated that a director
attended less than 75% of board and committee meetings but disclosure is
sufficiently vague that it is not possible to determine which specific
director’s attendance was lacking.
12.The
governance committee chair when a detailed record of proxy voting results from
the prior annual meeting has not been disclosed.
13.The
governance committee chair when a company does not clearly disclose the identity
of a shareholder proponent (or lead proponent when there are multiple filers) in
their proxy statement. For a detailed explanation of this policy, please refer
to our comprehensive Proxy
Paper Guidelines for Shareholder Proposals & ESG-Related Issues,
available at www.glasslewis.com/voting-policies-current/.
In
addition, we may recommend that shareholders vote against the chair of the
governance committee, or the entire committee, where the board has amended the
company’s governing documents to reduce or remove important shareholder rights,
or to otherwise impede the ability of shareholders to exercise such right, and
has done so without seeking shareholder approval. Examples of board actions that
may cause such a recommendation include: the elimination of the ability of
shareholders to call a special meeting or to act by written consent; an increase
to the ownership threshold required for shareholders to call a special meeting;
an increase to vote requirements for charter or bylaw amendments; the adoption
of provisions that limit the ability of shareholders to pursue full legal
recourse — such as bylaws that require arbitration of shareholder claims
or
that require shareholder plaintiffs to pay the company’s legal expenses in the
absence of a court victory
(i.e., “fee-shifting” or “loser pays” bylaws);
the adoption of a classified board structure; and the elimination of the ability
of shareholders to remove a director without cause.
Regarding
the nominating committee, we will consider recommending that shareholders vote
against the following:
24
A forum selection clause is a bylaw provision stipulating that a certain state
or federal jurisdiction is the exclusive forum for specified legal matters. Such
a clause effectively limits a shareholder's legal remedy regarding appropriate
choice of venue and related relief.
25
Glass Lewis will evaluate the circumstances surrounding the adoption of any
forum selection clause as well as the general provisions contained therein.
Where it can be reasonably determined that a forum selection clause is narrowly
crafted to suit the particular circumstances facing the company and/or a
reasonable sunset provision is included, we may make an exception to this
policy.
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1.All
members of the nominating committee, when the committee nominated or renominated
an individual who had a significant conflict of interest or whose past
actions demonstrated a lack of integrity or inability to represent shareholder
interests.
2.The
nominating committee chair, if the nominating committee did not meet during the
year.
3.In
the absence of a governance committee, the nominating committee chair when the
chair is not independent, and an independent lead or presiding director has not
been appointed.
4.The
nominating committee chair, when there are fewer than five, or the whole
nominating committee when there are more than 20 members on the
board.
5.The
nominating committee chair, when a director received a greater than 50% against
vote the prior year and not only was the director not removed, but the issues
that raised shareholder concern were not corrected.26
6.The
chair of the nominating committee of a board that is not at least 30 percent
gender diverse,27
or all members of the nominating committee of a board with no gender diverse
directors, at companies within the Russell 3000 index. For companies outside of
the Russell 3000 index, we will recommend voting against the chair of the
nominating committee if there are no gender diverse directors.
7.The
chair of the nominating committee of a board with fewer than one director from
an underrepresented community on the board, at companies within the Russell 1000
index.
8.The
nominating committee chair when, alongside other governance or board performance
concerns, the average tenure of non-executive directors is 10 years or more and
no new independent directors have joined the board in the past five years. We
will not be making voting recommendations solely on this basis; rather,
insufficient board refreshment may be a contributing factor in our
recommendations when additional board-related concerns have been
identified.
In
addition, we may consider recommending shareholders vote against the chair of
the nominating committee where the board’s failure to ensure the board has
directors with relevant experience, either through periodic director assessment
or board refreshment, has contributed to a company’s poor performance. Where
these issues warrant an against vote in the absence of both a governance and a
nominating committee, we will recommend voting against the board chair, unless
the chair also serves as the CEO, in which case we will recommend voting against
the longest-serving director.
Board-Level
Risk Management Oversight
Glass
Lewis evaluates the risk management function of a public company board on a
strictly case-by-case basis. Sound risk management, while necessary at all
companies, is particularly important at financial firms which inherently
maintain significant exposure to financial risk. We believe such financial firms
should have a chief risk officer reporting directly to the board and a dedicated
risk committee or a committee of the board charged with risk oversight.
Moreover, many non-financial firms maintain strategies which involve a high
level of exposure to financial risk. Similarly, since many non-financial firms
have complex hedging or trading strategies, those firms should also have a chief
risk officer and a risk committee.
Our
views on risk oversight are consistent with those expressed by various
regulatory bodies. In its December 2009 Final Rule release on Proxy Disclosure
Enhancements, the SEC noted that risk oversight is a key
26
Considering that shareholder disapproval clearly relates to the director who
received a greater than 50% against vote rather than the nominating chair, we
review the severity of the issue(s) that initially raised shareholder concern as
well as company responsiveness to such matters, and will only recommend voting
against the nominating chair if a reasonable analysis suggests that it would be
most appropriate. In rare cases, we will consider recommending against the
nominating chair when a director receives a substantial (i.e., 20% or more) vote
against based on the same analysis.
27
Women and directors that identify with a gender other than male or
female.
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Benchmark Policy Guidelines — United States 27
competence
of the board and that additional disclosures would improve investor and
shareholder understanding of the role of the board in the organization’s risk
management practices. The final rules, which became effective on February 28,
2010, now explicitly require companies and mutual funds to describe (while
allowing for some degree of flexibility) the board’s role in the oversight of
risk.
When
analyzing the risk management practices of public companies, we take note of any
significant losses or writedowns on financial assets and/or structured
transactions. In cases where a company has disclosed a sizable loss or
writedown, and where we find that the company’s board-level risk committee’s
poor oversight contributed to the loss, we will recommend that shareholders vote
against such committee members on that basis. In addition, in cases where a
company maintains a significant level of financial risk exposure but fails to
disclose any explicit form of board-level risk oversight (committee or
otherwise),28
we will consider recommending to vote against the board chair on that basis.
However, we generally would not recommend voting against a combined chair/CEO,
except in egregious cases.
Board
Oversight of Environmental and Social Issues
Glass
Lewis recognizes the importance of ensuring the sustainability of companies’
operations. We believe that insufficient oversight of material environmental and
social issues can present direct legal, financial, regulatory and reputational
risks that could serve to harm shareholder interests. Therefore, we believe that
these issues should be carefully monitored and managed by companies, and that
all companies should have an appropriate oversight structure in place to ensure
that they are mitigating attendant risks and capitalizing on related
opportunities to the best extent possible.
To
that end, Glass Lewis believes that companies should ensure that boards maintain
clear oversight of material risks to their operations, including those that are
environmental and social in nature. These risks could include, but are not
limited to, matters related to climate change, human capital management,
diversity, stakeholder relations, and health, safety & environment. Given
the importance of the board’s role in overseeing environmental and social risks,
we believe this responsibility should be formally designated and codified in the
appropriate committee charters or other governing documents.
While
we believe that it is important that these issues are overseen at the board
level and that shareholders are afforded meaningful disclosure of these
oversight responsibilities, we believe that companies should determine the best
structure for this oversight. In our view, this oversight can be effectively
conducted by specific directors, the entire board, a separate committee, or
combined with the responsibilities of a key committee.
For
companies in the Russell 3000 index and in instances where we identify material
oversight concerns, Glass Lewis will review a company’s overall governance
practices and identify which directors or board-level committees have been
charged with oversight of environmental and/or social issues. Furthermore, given
the importance of the board’s role in overseeing environmental and social risks,
Glass Lewis will generally recommend voting against the governance committee
chair of a company in the Russell 1000 index that fails to provide explicit
disclosure concerning the board’s role in overseeing these issues.
When
evaluating the board’s role in overseeing environmental and/or social issues, we
will examine a company’s committee charters and governing documents to determine
if the company has codified and
28
A committee responsible for risk management could be a dedicated risk committee,
the audit committee, or the finance committee, depending on a given company’s
board structure and method of disclosure. At some companies, the entire board is
charged with risk management.
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Benchmark Policy Guidelines — United States 28
maintained
a meaningful level of oversight of and accountability for a company’s material
environmental and social impacts.
Cyber
Risk Oversight
Companies
and consumers are exposed to a growing risk of cyber-attacks. These attacks can
result in customer or employee data breaches, harm to a company’s reputation,
significant fines or penalties, and interruption to a company’s operations.
Further, in some instances, cyber breaches can result in national security
concerns, such as those impacting companies operating as utilities, defense
contractors, and energy companies.
In
response to these issues, regulators have increasingly been focused on ensuring
companies are providing appropriate and timely disclosures and protections to
stakeholders that could have been adversely impacted by a breach in a company’s
cyber infrastructure.
On
July 26, 2023, the SEC approved final rules requiring public companies to report
cybersecurity incidents deemed material within four days of identifying them,
detailing their nature, scope, timing, and material impact under Item 1.05 on
Form 8-K.
Furthermore,
in annual reports, companies must disclose their processes for assessing,
identifying, and managing material cybersecurity risks, along with their
material effects; and describe whether any risks from prior incidents have
materially affected its business strategy, results of operations, or financial
condition (or are reasonably likely to), pursuant to Regulation S-K Item 106.
Item 106 will also require registrants to describe the board of directors’
oversight of risks from cybersecurity threats and management’s role and
expertise in assessing and managing material risks from cybersecurity threats.
Similar rules were also adopted for foreign private issuers. The final rules
became effective on September 5, 2023.
Given
the regulatory focus on, and the potential adverse outcomes from, cyber-related
issues, it is our view that cyber risk is material for all companies. We
therefore believe that it is critical that companies evaluate and mitigate these
risks to the greatest extent possible. With that view, we encourage all issuers
to provide clear disclosure concerning the role of the board in overseeing
issues related to cybersecurity, including how companies are ensuring directors
are fully versed on this rapidly evolving and dynamic issue. We believe such
disclosure can help shareholders understand the seriousness with which companies
take this issue.
In
the absence of material cyber incidents, we will generally not make voting
recommendations on the basis of a company’s oversight or disclosure concerning
cyber-related issues. However, in instances where cyber-attacks have caused
significant harm to shareholders we will closely evaluate the board’s oversight
of cybersecurity as well as the company’s response and disclosures.
Moreover,
in instances where a company has been materially impacted by a cyber-attack, we
believe shareholders can reasonably expect periodic updates communicating the
company’s ongoing progress towards resolving and remediating the impact of the
cyber-attack. We generally believe shareholders are best served when such
updates include (but are not necessarily limited to) details such as when the
company has fully restored its information systems, when the company has
returned to normal operations, what resources the company is providing for
affected stakeholders, and any other potentially relevant information, until the
company considers the impact of the cyber-attack to be fully remediated. These
disclosures should focus on the company’s response to address the impacts to
affected stakeholders and should not reveal specific and/or technical details
that could impede the company’s response or remediation of the incident or that
could assist threat actors.
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Benchmark Policy Guidelines — United States 29
In
such instances, we may recommend against appropriate directors should we find
the board’s oversight, response or disclosure concerning cybersecurity-related
issues to be insufficient, or are not provided to shareholders.
Board
Accountability for Environmental and Social Performance
Glass
Lewis carefully monitors companies’ performance with respect to environmental
and social issues, including those related to climate and human capital
management. In situations where we believe that a company has not properly
managed or mitigated material environmental or social risks to the detriment of
shareholder value, or when such mismanagement has threatened shareholder value,
Glass Lewis may recommend that shareholders vote against the members of the
board who are responsible for oversight of environmental and social risks. In
the absence of explicit board oversight of environmental and social issues,
Glass Lewis may recommend that shareholders vote against members of the audit
committee. In making these determinations, Glass Lewis will carefully review the
situation, its effect on shareholder value, as well as any corrective action or
other response made by the company.
For
more information on how Glass Lewis evaluates environmental and social issues,
please see Glass Lewis’ Overall Approach to ESG as well as our comprehensive
Proxy
Paper Guidelines for Shareholder Proposals & ESG-Related Issues,
available at www.glasslewis.com/voting-policies-current/.
Board
Accountability for Climate-related Issues
Given
the exceptionally broad impacts of a changing climate on companies, the economy,
and society in general, we view climate risk as a material risk for all
companies. We therefore believe that boards should be considering and evaluating
their operational resilience under lower-carbon scenarios. While all companies
maintain exposure to climate-related risks, we believe that additional
consideration should be given to, and that disclosure should be provided by
those companies whose GHG emissions represent a financially material risk.
We
believe that companies with this increased risk exposure should provide clear
and comprehensive disclosure regarding these risks, including how they are being
mitigated and overseen. We believe such information is crucial to allow
investors to understand the company’s management of this issue, as well as the
impact of a lower carbon future on the company’s operations.
In
line with this view, Glass Lewis will carefully examine the climate-related
disclosures provided by companies in the S&P 500 index with material
exposure to climate risk stemming from their own operations29,
as well as companies where we believe emissions or climate impacts, or
stakeholder scrutiny thereof, represent an outsized, financially material risk,
in order to assess whether they have produced disclosures in line with the
recommendations of the Task Force on Climate-related Financial Disclosures
(TCFD). We will also assess whether these companies have disclosed explicit and
clearly defined board-level oversight responsibilities for climate-related
issues. In instances where we find either (or both) of these disclosures to be
absent or significantly lacking, we may recommend voting against the chair of
the committee (or board) charged with oversight of climate-related issues, or if
no committee has been charged with such oversight, the chair of the governance
committee. Further, we may extend our recommendation on this basis to additional
members of the responsible committee
29
This policy will generally apply to companies in the following SASB-defined
industries: agricultural products, air freight & logistics, airlines,
chemicals, construction materials, containers & packaging, cruise lines,
electric utilities & power generators, food retailers & distributors,
health care distributors, iron & steel producers, marine transportation,
meat, poultry & dairy, metals & mining, non-alcoholic beverages, oil
& gas, pulp & paper products, rail transportation, road transportation,
semiconductors, waste management.
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Benchmark Policy Guidelines — United States 30
in
cases where the committee chair is not standing for election due to a classified
board, or based on other factors, including the company’s size, industry and its
overall governance profile.
Director
Commitments
We
believe that directors should have the necessary time to fulfill their duties to
shareholders. In our view, an overcommitted director can pose a material risk to
a company’s shareholders, particularly during periods of crisis. In addition,
recent research indicates that the time commitment associated with being a
director has been on a significant upward trend in the past decade.30
As a result, we generally recommend that shareholders vote against a director
who serves as an executive officer (other than executive chair) of any public
company31
while serving on more than one external public company board, a director who
serves as an executive chair of any public company while serving on more than
two external public company boards, and any other director who serves on more
than five public company boards.
Because
we believe that executives will primarily devote their attention to executive
duties, we generally will not recommend that shareholders vote against
overcommitted directors at the companies where they serve as an
executive.
When
determining whether a director’s service on an excessive number of boards may
limit the ability of the director to devote sufficient time to board duties, we
may consider relevant factors such as the size and location of the other
companies where the director serves on the board, the director’s board roles at
the companies in question, whether the director serves on the board of any large
privately-held companies, the director’s tenure on the boards in question, and
the director’s attendance record at all companies. In the case of directors who
serve in executive roles other than CEO (e.g., executive chair), we will
evaluate the specific duties and responsibilities of that role in determining
whether an exception is warranted.
We
may also refrain from recommending against certain directors if the company
provides sufficient rationale for their continued board service. The rationale
should allow shareholders to evaluate the scope of the directors’ other
commitments, as well as their contributions to the board including specialized
knowledge of the company’s industry, strategy or key markets, the diversity of
skills, perspective and background they provide, and other relevant factors. We
will also generally refrain from recommending to vote against a director who
serves on an excessive number of boards within a consolidated group of companies
in related industries, or a director that represents a firm whose sole purpose
is to manage a portfolio of investments which include the company.
Other
Considerations
In
addition to the three key characteristics — independence, performance,
experience — that we use to evaluate board members, we consider
conflict-of-interest issues as well as the size of the board of directors when
making voting recommendations.
Conflicts
of Interest
30
For example, the 2015-2016 NACD Public Company Governance Survey states that, on
average, directors spent a total of 248.2 hours annual on board-related matters
during the past year, which it describes as a “historically high level” that is
significantly above the average hours recorded in 2006. Additionally, the 2020
Spencer Stuart Board Index indicates that, while 39% of S&P 500 CEOs serve
on one additional public board, just 2% of S&P 500 CEOs serve on two
additional public boards and only one CEO serves on three.
31
When the executive officer in question serves only as an executive at a special
purpose acquisition company (SPAC) we will generally apply the higher threshold
of five public company directorships.
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Benchmark Policy Guidelines — United States 31
We
believe board members should be wholly free of identifiable and substantial
conflicts of interest, regardless of the overall level of independent directors
on the board. Accordingly, we recommend that shareholders vote against the
following types of directors:
1.A
CFO who is on the board: In our view, the CFO holds a unique position relative
to financial reporting and disclosure to shareholders. Due to the critical
importance of financial disclosure and reporting, we believe the CFO should
report to the board and not be a member of it.
2.A
director who provides — or a director who has an immediate family member who
provides — material consulting or other material professional services to the
company. These services may include legal, consulting,32
or financial services. We question the need for the company to have consulting
relationships with its directors. We view such relationships as creating
conflicts for directors, since they may be forced to weigh their own interests
against shareholder interests when making board decisions. In addition, a
company’s decisions regarding where to turn for the best professional
services may be compromised when doing business with the professional
services firm of one of the company’s directors.
3.A
director, or a director who has an immediate family member, engaging in
airplane, real estate, or similar deals, including perquisite-type grants from
the company, amounting to more than $50,000. Directors who receive these sorts
of payments from the company will have to make unnecessarily complicated
decisions that may pit their interests against shareholder interests.
4.Interlocking
directorships: CEOs or other top executives who serve on each other’s boards
create an interlock that poses conflicts that should be avoided to ensure the
promotion of shareholder interests above all else.33
5.All
board members who served at a time when a poison pill with a term of longer than
one year was adopted without shareholder approval within the prior twelve
months.34
In the event a board is classified and shareholders are therefore unable to vote
against all directors, we will recommend voting against the remaining directors
the next year they are up for a shareholder vote. If a poison pill with a term
of one year or less was adopted without shareholder approval, and without
adequate justification, we will consider recommending that shareholders vote
against all members of the governance committee. If the board has, without
seeking shareholder approval, and without adequate justification, extended the
term of a poison pill by one year or less in two consecutive years, we will
consider recommending that shareholders vote against the entire
board.
Size
of the Board of Directors
While
we do not believe there is a universally applicable optimal board size, we do
believe boards should have at least five directors to ensure sufficient
diversity in decision-making and to enable the formation of key board committees
with independent directors. Conversely, we believe that boards with more than 20
members will typically suffer under the weight of “too many cooks in the
kitchen” and have difficulty reaching consensus and
making timely decisions.
Sometimes the presence of too many voices can make it difficult to draw on the
32
We will generally refrain from recommending against a director who provides
consulting services for the company if the director is excluded from membership
on the board’s key committees and we have not identified significant governance
concerns with the board.
33
We do not apply a look-back period for this situation. The interlock policy
applies to both public and private companies. On a case-by-case basis, we
evaluate other types of interlocking relationships, such as interlocks with
close family members of executives or within group companies. Further, we will
also evaluate multiple board interlocks among non-insiders (i.e., multiple
directors serving on the same boards at other companies), for evidence of a
pattern of poor oversight.
34
Refer to the “Governance Structure and the Shareholder Franchise” section for
further discussion of our policies regarding anti-takeover measures, including
poison pills.
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Benchmark Policy Guidelines — United States 32
wisdom
and experience in the room by virtue of the need to limit the discussion so that
each voice may be heard.
To
that end, we typically recommend voting against the chair of the nominating
committee (or the governance committee, in the absence of a nominating
committee) at a board with fewer than five directors or more than 20
directors.
Controlled
Companies
We
believe controlled companies warrant certain exceptions to our independence
standards. The board’s function is to protect shareholder interests; however,
when an individual, entity (or group of shareholders party to a formal
agreement) owns more than 50% of the voting shares, the interests of the
majority of shareholders are the interests of that entity or individual.
Consequently, Glass Lewis does not apply our usual two-thirds board independence
rule and therefore we will not recommend voting against boards whose composition
reflects the makeup of the shareholder population.
Independence
Exceptions
The
independence exceptions that we make for controlled companies are as follows:
1.We
do not require that controlled companies have boards that are at least
two-thirds independent. So long as the insiders and/or affiliates are connected
with the controlling entity, we accept the presence of non-independent board
members.
2.The
compensation committee and nominating and governance committees do not need to
consist solely of independent directors.
a.We
believe that standing nominating and corporate governance committees at
controlled companies are unnecessary. Although having a committee charged with
the duties of searching for, selecting, and nominating independent directors can
be beneficial, the unique composition of a controlled company’s shareholder base
makes such committees weak and irrelevant.
b.Likewise,
we believe that independent compensation committees at controlled companies are
unnecessary. Although independent directors are the best choice for approving
and monitoring
senior executives’ pay, controlled companies serve a unique
shareholder population whose voting power ensures the protection of its
interests. As such, we believe that having affiliated directors on a controlled
company’s compensation committee is acceptable. However, given that a controlled
company has certain obligations to minority shareholders we feel that an insider
should not serve on the compensation committee. Therefore, Glass Lewis will
recommend voting against any insider (the CEO or otherwise) serving on the
compensation committee.
3.Controlled
companies do not need an independent chair or an independent lead or presiding
director. Although an independent director in a position of authority on the
board — such as chair or presiding director — can best carry out the board’s
duties, controlled companies serve a unique shareholder population whose voting
power ensures the protection of its interests.
Size
of the Board of Directors
We
have no board size requirements for controlled companies.
Audit
Committee Independence
Despite
a controlled company’s status, unlike for the other key committees, we
nevertheless believe that audit committees should consist solely of independent
directors. Regardless of a company’s controlled status, the
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Benchmark Policy Guidelines — United States 33
interests
of all shareholders must be protected by ensuring the integrity and accuracy of
the company’s financial statements. Allowing affiliated directors to oversee the
preparation of financial reports could create an insurmountable conflict of
interest.
Board
Responsiveness at Multi-Class Companies
At
controlled companies and companies that have multi-class share structures with
unequal voting rights, we will carefully examine the level of approval or
disapproval attributed to unaffiliated shareholders when determining whether
board responsiveness is warranted. In the case of companies that have
multi-class share structures with unequal voting rights, we will generally
examine the level of approval or disapproval attributed to unaffiliated
shareholders on a “one share, one vote” basis. At controlled and multi-class
companies, when at least 20% or more of unaffiliated shareholders vote contrary
to management, we believe that boards should engage with shareholders and
demonstrate some initial level of responsiveness, and when a majority or more of
unaffiliated shareholders vote contrary to management we believe that boards
should engage with shareholders and provide a more robust response to fully
address shareholder concerns.
Significant
Shareholders
Where
an individual or entity holds between 20-50% of a company’s voting power, we
believe it is reasonable to allow proportional representation on the board and
committees (excluding the audit committee) based on the individual or entity’s
percentage of ownership.
Governance
Following an IPO, Spin-Off, or Direct Listing
We
believe companies that have recently completed an initial public offering (IPO),
spin-off, or direct listing should be allowed adequate time to fully comply with
marketplace listing requirements and meet basic corporate governance standards.
Generally speaking, we refrain from making recommendations on the basis of
governance standards (e.g., board independence, committee membership and
structure, meeting attendance, etc.) during the one-year period following an
IPO.
However,
some cases warrant shareholder action against the board of a company that have
completed an IPO, spin-off, or direct listing within the past year. When
evaluating companies that have recently gone public, Glass Lewis will review the
terms of the applicable governing documents in order to determine whether
shareholder rights are being severely restricted indefinitely. We believe boards
that approve highly restrictive governing documents have demonstrated that they
may subvert shareholder interests following the IPO. In conducting this
evaluation, Glass Lewis will consider:
1.The
adoption of anti-takeover provisions such as a poison pill or classified
board
2.Supermajority
vote requirements to amend governing documents
3.The
presence of exclusive forum or fee-shifting provisions
4.Whether
shareholders can call special meetings or act by written consent
5.The
voting standard provided for the election of directors
6.The
ability of shareholders to remove directors without cause
7.The
presence of evergreen provisions in the company’s equity compensation
arrangements
8.The
presence of a multi-class share structure which does not afford common
shareholders voting power that is aligned with their economic
interest
In
cases where Glass Lewis determines that the board has approved overly
restrictive governing documents, we will generally recommend voting against
members of the governance committee. If there is no governance
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Benchmark Policy Guidelines — United States 34
committee,
or if a portion of such committee members are not standing for election due to a
classified board structure, we will expand our recommendations to additional
director nominees, based on who is standing for election.
In
cases where, preceding an IPO, the board adopts a multi-class share structure
where voting rights are not aligned with economic interest, or an anti-takeover
provision, such as a poison pill or classified board, we will generally
recommend voting against all members of the board who served at the time of the
IPO if the board: (i) did not also commit to submitting these provisions to a
shareholder vote at the company’s first shareholder meeting following the IPO;
or (ii) did not provide for a reasonable sunset of these provisions (generally
three to five years in the case of a classified board or poison pill; or seven
years or less in the case of a multi-class share structure). In the case of a
multi-class share structure, if these provisions are put to a shareholder vote,
we will examine the level of approval or disapproval attributed to unaffiliated
shareholders when determining the vote outcome.
In
our view, adopting an anti-takeover device unfairly penalizes future
shareholders who (except for electing to buy or sell the stock) are unable to
weigh in on a matter that could potentially negatively impact their ownership
interest. This notion is strengthened when a board adopts a classified board
with an infinite duration or a poison pill with a five- to ten-year term
immediately prior to going public, thereby insulating management for a
substantial amount of time.
In
addition, shareholders should also be wary of companies that adopt supermajority
voting requirements before their IPO. Absent explicit provisions in the articles
or bylaws stipulating that certain policies will be phased out over a certain
period of time, long-term shareholders could find themselves in the predicament
of having to attain a supermajority vote to approve future proposals seeking to
eliminate such policies.
Governance
Following a Business Combination with a Special Purpose Acquisition
Company
The
business combination of a private company with a publicly traded special purpose
acquisition company (SPAC) facilitates the private entity becoming a publicly
traded corporation. Thus, the business combination represents the private
company’s de-facto IPO. We believe that some cases warrant shareholder action
against the board of a company that have completed a business combination with a
SPAC within the past year.
At
meetings where shareholders vote on the business combination of a SPAC with a
private company, shareholders are generally voting on a new corporate charter
for the post-combination company as a condition to approval of the business
combination. In many cases, shareholders are faced with the dilemma of having to
approve corporate charters that severely restrict shareholder rights to
facilitate the business combination. Therefore, when shareholders are required
to approve binding charters as a condition to approval of a business combination
with a SPAC, we believe shareholders should also be provided with advisory votes
on material charter amendments as a means to voice their opinions on such
restrictive governance provisions.
When
evaluating companies that have recently gone public via business combination
with a SPAC, Glass Lewis will review the terms of the applicable governing
documents to determine whether shareholder rights are being severely restricted
indefinitely and whether these restrictive provisions were put forth for a
shareholder vote on an advisory basis at the prior meeting where shareholders
voted on the business combination.
In
cases where, prior to the combined company becoming publicly traded, the board
adopts a multi-class share structure where voting rights are not aligned with
economic interest, or an anti-takeover provision, such as a poison pill or
classified board, we will generally recommend voting against all members of the
board who served
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at
the time of the combined company becoming publicly traded if the board: (i) did
not also submit these provisions to a shareholder vote on an advisory basis at
the prior meeting where shareholders voted on the business combination; (ii) did
not also commit to submitting these provisions to a shareholder vote at the
company’s first shareholder meeting following the company becoming publicly
traded; or (iii) did not provide for a reasonable sunset of these provisions
(generally three to five years in the case of a classified board or poison pill;
or seven years or less in the case of a multi-class share
structure).
Consistent
with our view on IPOs, adopting an anti-takeover device unfairly penalizes
future shareholders who (except for electing to buy or sell the stock) are
unable to weigh in on a matter that could potentially negatively impact their
ownership interest.
Dual-Listed
or Foreign-Incorporated Companies
For
companies that trade on multiple exchanges or are incorporated in foreign
jurisdictions but trade only in the U.S., we will apply the governance standard
most relevant in each situation. We will consider a number of factors in
determining which Glass Lewis country-specific policy to apply, including but
not limited to: (i) the corporate governance structure and features of the
company including whether the board structure is unique to a particular market;
(ii) the nature of the proposals; (iii) the location of the company’s primary
listing, if one can be determined; (iv) the regulatory/governance regime that
the board is reporting against; and (v) the availability and completeness of the
company’s SEC filings.
OTC-listed
Companies
Companies
trading on the OTC Bulletin Board are not considered “listed companies” under
SEC rules and therefore not subject to the same governance standards as listed
companies. However, we believe that more stringent corporate governance
standards should be applied to these companies given that their shares are still
publicly traded.
When
reviewing OTC companies, Glass Lewis will review the available disclosure
relating to the shareholder meeting to determine whether shareholders are able
to evaluate several key pieces of information, including: (i) the composition of
the board’s key committees, if any; (ii) the level of share ownership of company
insiders or directors; (iii) the board meeting attendance record of directors;
(iv) executive and non-employee director compensation; (v) related-party
transactions conducted during the past year; and (vi) the board’s leadership
structure and determinations regarding director independence.
We
are particularly concerned when company disclosure lacks any information
regarding the board’s key committees. We believe that committees of the board
are an essential tool for clarifying how the responsibilities of the board are
being delegated, and specifically for indicating which directors are accountable
for ensuring: (i) the independence and quality of directors, and the
transparency and integrity of the nominating process; (ii) compensation programs
that are fair and appropriate; (iii) proper oversight of the company’s
accounting, financial reporting, and internal and external audits; and (iv)
general adherence to principles of good corporate governance.
In
cases where shareholders are unable to identify which board members are
responsible for ensuring oversight of the above-mentioned responsibilities, we
may consider recommending against certain members of the board. Ordinarily, we
believe it is the responsibility of the corporate governance committee to
provide thorough disclosure of the board’s governance practices. In the absence
of such a committee, we believe it is appropriate
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Benchmark Policy Guidelines — United States 36
to
hold the board’s chair or, if such individual is an executive of the company,
the longest-serving non-executive board member accountable.
Mutual
Fund Boards
Mutual
funds, or investment companies, are structured differently from regular public
companies (i.e., operating companies). Typically, members of a fund’s advisor
are on the board and management takes on a different role from that of regular
public companies. Thus, we focus on a short list of requirements, although many
of our guidelines remain the same.
The
following mutual fund policies are similar to the policies for regular public
companies:
1.Size
of the board of directors
— The board should be made up of between five and twenty directors.
2.The
CFO on the board
— Neither the CFO of the fund nor the CFO of the fund’s registered investment
advisor should serve on the board.
3.Independence
of the audit committee
— The audit committee should consist solely of independent
directors.
4.Audit
committee financial expert
— At least one member of the audit committee should be designated as the audit
committee financial expert.
The
following differences from regular public companies apply at mutual funds:
1.Independence
of the board
— We believe that three-fourths of an investment company’s board should be made
up of independent directors. This is consistent with a proposed SEC rule on
investment company boards. The Investment Company Act requires 40% of the board
to be independent, but in 2001, the SEC amended the Exemptive Rules to require
that a majority of a mutual fund board be independent. In 2005, the SEC proposed
increasing the independence threshold to 75%. In 2006, a federal appeals court
ordered that this rule amendment be put back out for public comment, putting it
back into “proposed rule” status. Since mutual fund boards play a vital role in
overseeing the relationship between the fund and its investment manager, there
is greater need for independent oversight than there is for an operating company
board.
2.When
the auditor is not up for ratification
— We do not recommend voting against the audit committee if the auditor is not
up for ratification. Due to the different legal structure of an investment
company compared to an operating company, the auditor for the investment company
(i.e., mutual fund) does not conduct the same level of financial review for each
investment company as for an
operating company.
3.Non-independent
chair
— The SEC has proposed that the chair of the fund board be independent. We agree
that the roles of a mutual fund’s chair and CEO should be separate. Although we
believe this would be best at all companies, we recommend voting against the
chair of an investment company’s nominating committee as well as the board chair
if the chair and CEO of a mutual fund are the same person and the fund does not
have an independent lead or presiding director. Seven former SEC commissioners
support the appointment of an independent chair and we agree with them that “an
independent board chair would be better able to create conditions favoring the
long-term interests of fund shareholders than would a chair who is an executive
of the advisor.” (See the comment letter sent to the SEC in support of the
proposed rule at http://www.sec.gov/news/studies/indchair.pdf.)
4.Multiple
funds overseen by the same director
— Unlike service on a public company board, mutual fund boards require much less
of a time commitment. Mutual fund directors typically serve on dozens of other
mutual fund boards, often within the same fund complex. The Investment Company
Institute’s
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Benchmark Policy Guidelines — United States 37
(ICI)
Overview of Fund Governance Practices, 1994-2012, indicates that the average
number of funds served by an independent director in 2012 was 53. Absent
evidence that a specific director is hindered from being an effective board
member at a fund due to service on other funds’ boards, we refrain from
maintaining a cap on the number of outside mutual fund boards that we believe a
director can serve on.
Declassified
Boards
Glass
Lewis favors the repeal of staggered boards and the annual election of
directors. We believe staggered boards are less accountable to shareholders than
boards that are elected annually. Furthermore, we feel the annual election of
directors encourages board members to focus on shareholder
interests.
Empirical
studies have shown: (i) staggered boards are associated with a reduction in a
firm’s valuation; and (ii) in the context of hostile takeovers, staggered boards
operate as a takeover defense, which entrenches management, discourages
potential acquirers, and delivers a lower return to target
shareholders.
In
our view, there is no evidence to demonstrate that staggered boards improve
shareholder returns in a takeover context. Some research has indicated that
shareholders are worse off when a staggered board blocks a transaction; further,
when a staggered board negotiates a friendly transaction, no statistically
significant difference in premium occurs.35
Additional research found that charter-based staggered boards “reduce the market
value of a firm by 4% to 6% of its market capitalization” and that “staggered
boards bring about and not merely reflect this reduction in market
value.”36
A subsequent study reaffirmed that classified boards reduce shareholder value,
finding “that the ongoing process of dismantling staggered boards, encouraged by
institutional investors, could well contribute to increasing shareholder
wealth.”37
Shareholders
have increasingly come to agree with this view. In 2019, 90% of S&P 500
companies had declassified boards, up from 68% in 2009.38
Management proposals to declassify boards are approved with near unanimity and
shareholder proposals on the topic also receive strong shareholder support; in
2014, shareholder proposals requesting that companies declassify their boards
received average support of 84% (excluding abstentions and broker non-votes),
whereas in 1987, only 16.4% of votes cast favored board
declassification.39
Further, a growing number of companies, nearly half of all those targeted by
shareholder proposals requesting that all directors stand for election annually,
either recommended shareholders support the proposal or made no recommendation,
a departure from the more traditional management recommendation to vote against
shareholder proposals.
Given
our belief that declassified boards promote director accountability, the
empirical evidence suggesting staggered boards reduce a company’s value and the
established shareholder opposition to such a structure, Glass Lewis supports the
declassification of boards and the annual election of directors.
35
Lucian Bebchuk, John Coates IV, Guhan Subramanian, “The Powerful Antitakeover
Force of Staggered Boards: Further Findings and a Reply to Symposium
Participants,” 55 Stanford Law Review 885-917 (2002).
36
Lucian Bebchuk, Alma Cohen, “The Costs of Entrenched Boards”
(2004).
37
Lucian Bebchuk, Alma Cohen and Charles C.Y. Wang, “Staggered Boards and the
Wealth of Shareholders: Evidence from a Natural Experiment,”
SSRN:
http://ssrn.com/abstract=1706806
(2010), p. 26.
38
Spencer Stuart Board Index, 2019, p. 15.
39
Lucian Bebchuk, John Coates IV and Guhan Subramanian, “The Powerful Antitakeover
Force of Staggered Boards: Theory, Evidence, and Policy”.
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Benchmark Policy Guidelines — United States 38
Board
Composition and Refreshment
Glass
Lewis strongly supports routine director evaluation, including independent
external reviews, and periodic board refreshment to foster the sharing of
diverse perspectives in the boardroom and the generation of new ideas and
business strategies. Further, we believe the board should evaluate the need for
changes to board composition based on an analysis of skills and experience
necessary for the company, as well as the results of
the director
evaluations, as opposed to relying solely on age or tenure limits. When
necessary, shareholders can address concerns regarding proper board composition
through director elections.
In
our view, a director’s experience can be a valuable asset to shareholders
because of the complex, critical issues that boards face. This said, we
recognize that in rare circumstances, a lack of refreshment can contribute to a
lack of board responsiveness to poor company performance.
We
will note as a potential concern instances where the average tenure of
non-executive directors is 10 years or more and no new directors have joined the
board in the past five years. While we will be highlighting this as a potential
area of concern, we will not be making voting recommendations strictly on this
basis, unless we have identified other governance or board performance
concerns.
On
occasion, age or term limits can be used as a means to remove a director for
boards that are unwilling to police their membership and enforce turnover. Some
shareholders support term limits as a way to force change in such circumstances.
While
we understand that age limits can aid board succession planning, the long-term
impact of age limits restricts experienced and potentially valuable board
members from service through an arbitrary means. We believe that shareholders
are better off monitoring the board’s overall composition, including the
diversity of its members, the alignment of the board’s areas of expertise with a
company’s strategy, the board’s approach to corporate governance, and its
stewardship of company performance, rather than imposing inflexible rules that
don’t necessarily correlate with returns or benefits for
shareholders.
However,
if a board adopts term/age limits, it should follow through and not waive such
limits. In cases where the board waives its term/age limits for two or more
consecutive years, Glass Lewis will generally recommend that shareholders vote
against the nominating and/or governance committee chair, unless a compelling
rationale is provided for why the board is proposing to waive this rule, such as
consummation of a corporate transaction.
Board
Diversity
Glass
Lewis recognizes the importance of ensuring that the board is composed of
directors who have a diversity of skills, thought and experience, as such
diversity benefits companies by providing a broad range of perspectives and
insights. Glass Lewis closely reviews the composition of the board for
representation of diverse director candidates.
Board
Gender Diversity
We
consider the nominating and governance committee to be responsible for ensuring
sufficient board diversity, or for publicly communicating its rationale or a
plan for increasing diversity. As such, we will generally recommend voting
against the chair of the nominating committee of a board that is not at least 30
percent gender diverse, or all members of the nominating committee of a board
with no gender diverse directors, at
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companies
within the Russell 3000 index. For companies outside the Russell 3000 index, our
policy requires a minimum of one gender diverse director.
When
making these voting recommendations, we will carefully review a company’s
disclosure of its diversity considerations and may refrain from recommending
that shareholders vote against directors when boards have provided sufficient
rationale for the lack of diversity or a plan to address the lack of diversity,
including a timeline of when the board intends to appoint additional gender
diverse directors (generally by the next annual meeting or as soon as reasonably
practicable).
We
may extend our gender diversity recommendations to additional members of the
nominating committee in cases where the committee chair is not standing for
election due to a classified board, or based on other factors, including the
company’s size and industry, applicable laws in its state of headquarters, and
its overall governance profile.
Board
Underrepresented Community Diversity
We
will generally recommend against the chair of the nominating committee of a
board with fewer than one director from an underrepresented community on the
board at companies within the Russell 1000 index.
We
define “underrepresented community director” as an individual who
self-identifies as Black, African American, North African, Middle Eastern,
Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or
Alaskan Native, or who self-identifies as a member of the LGBTQIA+ community.
For the purposes of this evaluation, we will rely solely on self-identified
demographic information as disclosed in company proxy statements.
When
making these voting recommendations, we will carefully review a company’s
disclosure of its diversity considerations and may refrain from recommending
that shareholders vote against directors when boards have provided a sufficient
rationale or plan to address the lack of diversity on the board, including a
timeline to appoint additional directors from an underrepresented community
(generally by the next annual meeting or as soon as reasonably
practicable).
We
may extend our underrepresented community diversity recommendations to
additional members of the nominating committee in cases where the committee
chair is not standing for election due to a classified board, or based on other
factors, including the company’s size and industry, applicable laws in its state
of headquarters, and its overall governance profile.
State
Laws on Diversity
Several
states have begun to encourage board diversity through legislation. Some state
laws imposed mandatory board composition requirements, while other states have
enacted or are considering legislation that encourages companies to diversify
their boards but does not mandate board composition requirements. Furthermore,
several states have enacted or are considering enacting certain disclosure or
reporting requirements in filings made with each respective state
annually.
Glass
Lewis will recommend in accordance with mandatory board composition requirements
set forth in applicable state laws when they come into effect. We will generally
refrain from recommending against directors when applicable state laws do not
mandate board composition requirements, are non-binding, or solely impose
disclosure or reporting requirements.
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We
note that during 2022, California’s Senate Bill 826 and Assembly Bill 979
regarding board gender and “underrepresented community” diversity, respectively,
were both deemed to violate the equal protection clause of the California state
constitution. These laws are currently in the appeals process.
Accordingly,
where we previously recommended in accordance with mandatory board composition
requirements set forth in California’s SB 826 and AB 979, we will refrain from
providing recommendations pursuant to these state board composition requirements
until further notice while we continue to monitor the appeals process. However,
we will continue to monitor compliance with these requirements.
Disclosure
of Director Diversity and Skills
Because
company disclosure is critical when measuring the mix of diverse attributes and
skills of directors, Glass Lewis assesses the quality of such disclosure in
companies’ proxy statements. Accordingly, we reflect how a company’s proxy
statement presents: (i) the board’s current percentage of racial/ethnic
diversity; (ii) whether the board’s definition of diversity explicitly includes
gender and/or race/ethnicity; (iii) whether the board has adopted a policy
requiring women and minorities to be included in the initial pool of candidates
when selecting new director nominees (aka “Rooney Rule”); and (iv) board skills
disclosure. Such ratings will help inform our assessment of a company’s overall
governance and may be a contributing factor in our recommendations when
additional board-related concerns have been identified.
At
companies in the Russell 1000 index that have not provided any disclosure in any
of the above categories, we will generally recommend voting against the chair of
the nominating and/or governance committee. Further, when companies in the
Russell 1000 index have not provided any disclosure of individual or aggregate
racial/ethnic minority board demographic information, we will generally
recommend voting against the chair of the nominating and/or governance
committee.
Stock
Exchange Diversity Disclosure Requirements
On
August 6, 2021, the SEC approved new listing rules regarding board diversity and
disclosure for Nasdaq-listed companies. Beginning in 2022, companies listed on
the Nasdaq stock exchange are required to disclose certain board diversity
statistics annually in a standardized format in the proxy statement or on the
company's website. Nasdaq-listed companies are required to provide this
disclosure by the later of (i) August 8, 2022, or (ii) the date the company
files its proxy statement for its 2022 annual meeting. Accordingly, for annual
meetings held after August 8, 2022, of applicable Nasdaq-listed companies, we
will recommend voting against the chair of the governance committee when the
required disclosure has not been provided.
Proxy
Access
In
lieu of running their own contested election, proxy access would not only allow
certain shareholders to nominate directors to company boards but the shareholder
nominees would be included on the company’s ballot, significantly enhancing the
ability of shareholders to play a meaningful role in selecting their
representatives. Glass Lewis generally supports affording shareholders the right
to nominate director candidates to management’s proxy as a means to ensure that
significant, long-term shareholders have an ability to nominate candidates to
the board.
Companies
generally seek shareholder approval to amend company bylaws to adopt proxy
access in response to shareholder engagement or pressure, usually in the form of
a shareholder proposal requesting proxy access,
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although
some companies may adopt some elements of proxy access without prompting. Glass
Lewis considers several factors when evaluating whether to support proposals for
companies to adopt proxy access including the specified minimum ownership and
holding requirement for shareholders to nominate one or more directors, as well
as company size, performance and responsiveness to shareholders.
For
a discussion of recent regulatory events in this area, along with a detailed
overview of the Glass Lewis approach to shareholder proposals regarding Proxy
Access, refer to Glass Lewis’ Proxy
Paper Guidelines for Shareholder Proposals & ESG-Related Issues,
available at www.glasslewis.com.
Majority
Vote for Election of Directors
Majority
voting for the election of directors is fast becoming the de facto standard in
corporate board elections. In our view, the majority voting proposals are an
effort to make the case for shareholder impact on director elections on a
company-specific basis.
While
this proposal would not give shareholders the opportunity to nominate directors
or lead to elections where shareholders have a choice among director candidates,
if implemented, the proposal would allow shareholders to have a voice in
determining whether the nominees proposed by the board should actually serve as
the overseer-representatives of shareholders in the boardroom. We believe this
would be a favorable outcome for shareholders.
The
number of shareholder proposals requesting that companies adopt a majority
voting standard has declined significantly during the past decade, largely as a
result of widespread adoption of majority voting or director
resignation
policies at U.S. companies. In 2019, 89% of the S&P 500 Index had
implemented a resignation policy for directors failing to receive majority
shareholder support, compared to 65% in 2009.40
The
Plurality Vote Standard
Today,
most U.S. companies still elect directors by a plurality vote standard. Under
that standard, if one shareholder holding only one share votes in favor of a
nominee (including that director, if the director is a shareholder), that
nominee “wins” the election and assumes a seat on the board. The common concern
among companies with a plurality voting standard is the possibility that one or
more directors would not receive a majority of votes, resulting in “failed
elections.”
Advantages
of a Majority Vote Standard
If
a majority vote standard were implemented, a nominee would have to receive the
support of a majority of the shares voted in order to be elected. Thus,
shareholders could collectively vote to reject a director they believe will not
pursue their best interests. Given that so few directors (less than 100 a year)
do not receive majority support from shareholders, we think that a majority vote
standard is reasonable since it will neither result in many failed director
elections nor reduce the willingness of qualified, shareholder-focused directors
to serve in the future. Further, most directors who fail to receive a majority
shareholder vote in favor of their election do not step down, underscoring the
need for true majority voting.
We
believe that a majority vote standard will likely lead to more attentive
directors. Although shareholders only rarely fail to support directors, the
occasional majority vote against a director’s election will likely deter the
40
Spencer Stuart Board Index, 2019, p. 15.
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Benchmark Policy Guidelines — United States 42
election
of directors with a record of ignoring shareholder interests. Glass Lewis will
therefore generally support proposals calling for the election of directors by a
majority vote, excepting contested director elections.
In
response to the high level of support majority voting has garnered, many
companies have voluntarily taken steps to implement majority voting or modified
approaches to majority voting. These steps range from a modified approach
requiring directors that receive a majority of withheld votes to resign (i.e., a
resignation policy) to actually requiring a majority vote of outstanding shares
to elect directors.
We
feel that the modified approach does not go far enough because requiring a
director to resign is not the same as requiring a majority vote to elect a
director and does not allow shareholders a definitive voice in the election
process. Further, under the modified approach, the corporate governance
committee could reject a resignation and, even if it accepts the resignation,
the corporate governance committee decides on the director’s replacement. And
since the modified approach is usually adopted as a policy by the board or a
board committee, it could be altered by the same board or committee at any
time.
Conflicting
and Excluded Proposals
SEC
Rule 14a-8(i)(9) allows companies to exclude shareholder proposals “if the
proposal directly conflicts with one of the company’s own proposals to be
submitted to shareholders at the same meeting.” On October 22, 2015, the SEC
issued Staff Legal Bulletin No. 14H (SLB 14H) clarifying its rule concerning the
exclusion of certain shareholder proposals when similar items are also on the
ballot. SLB 14H increased the burden on companies to prove to SEC staff that a
conflict exists; therefore, many companies still chose to place management
proposals alongside similar shareholder proposals in many cases.
During
the 2018 proxy season, a new trend in the SEC’s interpretation of this rule
emerged. Upon submission of shareholder proposals requesting that companies
adopt a lower special meeting threshold, several companies petitioned the SEC
for no-action relief under the premise that the shareholder proposals conflicted
with management’s own special meeting proposals, even though the management
proposals set a higher threshold than those requested by the proponent.
No-action relief was granted to these companies; however, the SEC stipulated
that the companies must state in the rationale for the management proposals that
a vote in favor of management’s proposal was tantamount to a vote against the
adoption of a lower special meeting threshold. In certain instances, shareholder
proposals to lower an existing special meeting right threshold were excluded on
the basis that they conflicted with management proposals seeking to ratify the
existing special meeting rights. We find the exclusion of these shareholder
proposals to be especially problematic as, in these instances, shareholders are
not offered any enhanced shareholder right, nor would the approval (or
rejection) of the ratification proposal initiate any type of meaningful change
to shareholders’ rights.
In
instances where companies have excluded shareholder proposals, such as those
instances where special meeting shareholder proposals are excluded as a result
of “conflicting” management proposals, Glass Lewis will take a case-by-case
approach, taking into account the following issues:
•The
threshold proposed by the shareholder resolution;
•The
threshold proposed or established by management and the attendant rationale for
the threshold;
•Whether
management’s proposal is seeking to ratify an existing special meeting right or
adopt a bylaw that would establish a special meeting right; and
•The
company’s overall governance profile, including its overall responsiveness to
and engagement with shareholders.
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Glass
Lewis generally favors a 10-15% special meeting right. Accordingly, Glass Lewis
will generally recommend voting for management or shareholder proposals that
fall within this range. When faced with conflicting proposals, Glass Lewis will
generally recommend in favor of the lower special meeting right and will
recommend voting against the proposal with the higher threshold. However, in
instances where there are conflicting management and shareholder proposals and a
company has not established a special meeting right, Glass Lewis may recommend
that shareholders vote in favor of the shareholder proposal and that they
abstain from a management-proposed bylaw amendment seeking to establish a
special meeting right. We believe that an abstention is appropriate in this
instance in order to ensure that shareholders are sending a clear signal
regarding their preference for the appropriate threshold for a special meeting
right, while not directly opposing the establishment of such a right.
In
cases where the company excludes a shareholder proposal seeking a reduced
special meeting right by means of ratifying a management proposal that is
materially different from the shareholder proposal, we will generally recommend
voting against the chair or members of the governance committee.
In
other instances of conflicting management and shareholder proposals, Glass Lewis
will consider the following:
•The
nature of the underlying issue;
•The
benefit to shareholders of implementing the proposal;
•The
materiality of the differences between the terms of the shareholder proposal and
management proposal;
•The
context of a company’s shareholder base, corporate structure and other relevant
circumstances; and
•A
company’s overall governance profile and, specifically, its responsiveness to
shareholders as evidenced by a company’s response to previous shareholder
proposals and its adoption of progressive shareholder rights
provisions.
In
recent years, we have seen the dynamic nature of the considerations given by the
SEC when determining whether companies may exclude certain shareholder
proposals. We understand that not all shareholder proposals serve the long-term
interests of shareholders, and value and respect the limitations placed on
shareholder proponents, as certain shareholder proposals can unduly burden
companies. However, Glass Lewis believes that shareholders should be able to
vote on issues of material importance.
We
view the shareholder proposal process as an important part of advancing
shareholder rights and encouraging responsible and financially sustainable
business practices. While recognizing that certain proposals cross the line
between the purview of shareholders and that of the board, we generally believe
that companies should not limit investors’ ability to vote on shareholder
proposals that advance certain rights or promote beneficial disclosure.
Accordingly, Glass Lewis will make note of instances where a company has
successfully petitioned the SEC to exclude shareholder proposals. If after
review we believe that the exclusion of a shareholder proposal is detrimental to
shareholders, we may, in certain very limited circumstances, recommend against
members of the governance committee.
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Transparency
and Integrity in Financial Reporting
Auditor
Ratification
The
auditor’s role as gatekeeper is crucial in ensuring the integrity and
transparency of the financial information necessary for protecting shareholder
value. Shareholders rely on the auditor to ask tough questions and to do a
thorough analysis of a company’s books to ensure that the information provided
to shareholders is complete, accurate, fair, and that it is a reasonable
representation of a company’s financial position. The only way shareholders can
make rational investment decisions is if the market is equipped with accurate
information about a company’s fiscal health. As stated in the October 6, 2008
Final Report of the Advisory Committee on the Auditing Profession to the U.S.
Department of the Treasury:
“The
auditor is expected to offer critical and objective judgment on the financial
matters under consideration, and actual and perceived absence of conflicts is
critical to that expectation. The Committee believes that auditors, investors,
public companies, and other market participants must understand the independence
requirements and their objectives, and that auditors must adopt a mindset of
skepticism when facing situations that may compromise their independence.”
As
such, shareholders should demand an objective, competent and diligent auditor
who performs at or above professional standards at every company in which the
investors hold an interest. Like directors, auditors should be free from
conflicts of interest and should avoid situations requiring a choice between the
auditor’s interests and the public’s interests. Almost without exception,
shareholders should be able to annually review an auditor’s performance and to
annually ratify a board’s auditor selection. Moreover, in October 2008, the
Advisory Committee on the Auditing Profession went even further, and recommended
that “to further enhance audit committee oversight and auditor accountability
... disclosure in the company proxy statement regarding shareholder ratification
[should] include the name(s) of the senior auditing partner(s) staffed on the
engagement.”41
On
August 16, 2011, the PCAOB issued a Concept Release seeking public comment on
ways that auditor independence, objectivity and professional skepticism could be
enhanced, with a specific emphasis on mandatory audit firm rotation. The PCAOB
convened several public roundtable meetings during 2012 to further discuss such
matters. Glass Lewis believes auditor rotation can ensure both the independence
of the auditor and the integrity of the audit; we will typically recommend
supporting proposals to require auditor rotation when the proposal uses a
reasonable period of time (usually not less than 5-7 years), particularly at
companies with a history of accounting problems.
On
June 1, 2017, the PCAOB adopted new standards to enhance auditor reports by
providing additional important information to investors. For companies with
fiscal year end dates on or after December 15, 2017, reports were required to
include the year in which the auditor began serving consecutively as the
company’s auditor. For large accelerated filers with fiscal year ends of June
30, 2019 or later, and for all other companies with fiscal year ends of December
15, 2020 or later, communication of critical audit matters (CAMs) will also be
41
“Final Report of the Advisory Committee on the Auditing Profession to the U.S.
Department of the Treasury.” p. VIII:20, October 6, 2008.
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required.
CAMs are matters that have been communicated to the audit committee, are related
to accounts or disclosures that are material to the financial statements, and
involve especially challenging, subjective, or complex auditor judgment.
Glass
Lewis believes the additional reporting requirements are beneficial for
investors. The additional disclosures can provide investors with information
that is critical to making an informed judgment about an auditor’s independence
and performance. Furthermore, we believe the additional requirements are an
important step toward enhancing the relevance and usefulness of auditor reports,
which too often are seen as boilerplate compliance documents that lack the
relevant details to provide meaningful insight into a particular
audit.
Voting
Recommendations on Auditor Ratification
We
generally support management’s choice of auditor except when we believe the
auditor’s independence or audit integrity has been compromised. Where a board
has not allowed shareholders to review and ratify an auditor, we typically
recommend voting against the audit committee chair. When there have been
material restatements of annual financial statements or material weaknesses in
internal controls, we usually recommend voting against the entire audit
committee.
Reasons
why we may not recommend ratification of an auditor include:
1.When
audit fees plus audit-related fees total less than the tax fees and/or other
non-audit fees.
2.Recent
material restatements of annual financial statements, including those resulting
in the reporting of material weaknesses in internal controls and including late
filings by the company where the auditor bears some responsibility for the
restatement or late filing.42
3.When
the auditor performs prohibited services such as tax-shelter work, tax services
for the CEO or CFO, or contingent-fee work, such as a fee based on a percentage
of economic benefit to the company.
4.When
audit fees are excessively low, especially when compared with other companies in
the same industry.
5.When
the company has aggressive accounting policies.
6.When
the company has poor disclosure or lack of transparency in its financial
statements.
7.Where
the auditor limited its liability through its contract with the company or the
audit contract requires the corporation to use alternative dispute resolution
procedures without adequate justification.
8.We
also look for other relationships or concerns with the auditor that might
suggest a conflict between the auditor’s interests and shareholder
interests.
9.In
determining whether shareholders would benefit from rotating the company’s
auditor, where relevant we will consider factors that may call into question an
auditor’s effectiveness, including auditor tenure, a pattern of inaccurate
audits, and any ongoing litigation or significant controversies. When Glass
Lewis considers ongoing litigation and significant controversies, it is mindful
that such matters may involve unadjudicated allegations. Glass Lewis does not
assume the truth of such allegations or that the law has been violated. Instead,
Glass Lewis focuses more broadly on whether, under the particular facts and
circumstances presented, the nature and number of such lawsuits or other
significant controversies reflects on the risk profile of the company or
suggests that appropriate risk mitigation measures may be
warranted.”
42
An auditor does not audit interim financial statements. Thus, we generally do
not believe that an auditor should be opposed due to a restatement of interim
financial statements unless the nature of the misstatement is clear from a
reading of the incorrect financial statements.
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Pension
Accounting Issues
A
pension accounting question occasionally raised in proxy proposals is what
effect, if any, projected returns on employee pension assets should have on a
company’s net income. This issue often arises in the executive-compensation
context in a discussion of the extent to which pension accounting should be
reflected in business performance for purposes of calculating payments to
executives.
Glass
Lewis believes that pension credits should not be included in measuring income
that is used to award performance-based compensation. Because many of the
assumptions used in accounting for retirement plans are subject to the company’s
discretion, management would have an obvious conflict of interest if pay were
tied to pension income. In our view, projected income from pensions does not
truly reflect a company’s performance.
The
Link Between Compensation and Performance
Glass
Lewis carefully reviews the compensation awarded to senior executives, as we
believe that this is an important area in which the board’s priorities are
revealed. Glass Lewis strongly believes executive compensation should be linked
directly with the performance of the business the executive is charged with
managing. We believe the most effective compensation arrangements provide for an
appropriate mix of performance-based short- and long-term incentives in addition
to fixed pay elements while promoting a prudent and sustainable level of
risk-taking.
Glass
Lewis believes that comprehensive, timely and transparent disclosure of
executive pay is critical to allowing shareholders to evaluate the extent to
which pay is aligned with company performance. When reviewing proxy materials,
Glass Lewis examines whether the company discloses the performance metrics used
to determine executive compensation. We recognize performance metrics must
necessarily vary depending on the company and industry, among other factors, and
may include a wide variety of financial measures as well as industry-specific
performance indicators. However, we believe companies should disclose why the
specific performance metrics were selected and how the actions they are designed
to incentivize will lead to better corporate performance.
Moreover,
it is rarely in shareholders’ interests to disclose competitive data about
individual salaries below the senior executive level. Such disclosure could
create internal personnel discord that would be counterproductive for the
company and its shareholders. While we favor full disclosure for senior
executives and we view pay disclosure at the aggregate level (e.g., the number
of employees being paid over a certain amount or in certain categories) as
potentially useful, we do not believe shareholders need or will benefit from
detailed reports about individual management employees other than the most
senior executives.
Advisory
Vote on Executive Compensation
(Say-on-Pay)
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The
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)
required companies to hold an advisory vote on executive compensation at the
first shareholder meeting that occurs six months after enactment of the bill
(January 21, 2011).
This
practice of allowing shareholders a non-binding vote on a company’s compensation
report is standard practice in many non-U.S. countries, and has been a
requirement for most companies in the United Kingdom since 2003 and in Australia
since 2005. Although say-on-pay proposals are non-binding, a high level of
“against” or “abstain” votes indicates substantial shareholder concern about
a company’s compensation policies
and procedures.
Given
the complexity of most companies’ compensation programs, Glass Lewis applies a
highly nuanced approach when analyzing advisory votes on executive compensation.
We review each company’s compensation on a case-by-case basis, recognizing that
each company must be examined in the context of industry, size, maturity,
performance, financial condition, its historic pay for performance practices,
and any other relevant internal or external factors.
We
believe that each company should design and apply specific compensation policies
and practices that are appropriate to the circumstances of the company and, in
particular, will attract and retain competent executives and other staff, while
motivating them to grow the company’s long-term shareholder value.
Where
we find those specific policies and practices serve to reasonably align
compensation with performance, and such practices are adequately disclosed,
Glass Lewis will recommend supporting the company’s approach. If, however, those
specific policies and practices fail to demonstrably link compensation with
performance, Glass Lewis will generally recommend voting against the say-on-pay
proposal.
Glass
Lewis reviews say-on-pay proposals on both a qualitative basis and a
quantitative basis, with a focus on several main areas:
•The
overall design and structure of the company’s executive compensation programs
including selection and challenging nature of performance metrics;
•The
implementation and effectiveness of the company’s executive compensation
programs including pay mix and use of performance metrics in determining pay
levels;
•The
quality and content of the company’s disclosure;
•The
quantum paid to executives; and
•The
link between compensation and performance as indicated by the company’s current
and past pay-for-performance grades.
We
also review any significant changes or modifications, including post fiscal
year-end changes and one-time awards, particularly where the changes touch upon
issues that are material to Glass Lewis recommendations. Additionally, while we
recognize their rarity in the U.S. market, beneficial features such as but not
limited to post-vesting and/or post-termination holding requirements may be
viewed positively in our holistic analysis.
Say-on-Pay
Voting Recommendations
In
cases where we find deficiencies in a company’s compensation program’s design,
implementation or management, we will recommend that shareholders vote against
the say-on-pay proposal. Generally, such instances include:
•Evidence
of a pattern of poor pay-for-performance practices (i.e., deficient or failing
pay-for-performance grades),
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•Unclear
or questionable disclosure regarding the overall compensation structure (e.g.,
limited information regarding benchmarking processes, limited rationale for
bonus performance metrics and targets, etc.),
•Questionable
adjustments to certain aspects of the overall compensation structure (e.g.,
limited rationale for significant changes to performance targets or metrics, the
payout of guaranteed bonuses or sizable retention grants, etc.), and/or
•Other
egregious compensation practices.
Although
not an exhaustive list, the following issues when weighed together may cause
Glass Lewis to recommend voting against a say-on-pay vote:
•Inappropriate
or outsized self-selected peer groups and/or benchmarking issues such as
compensation targets set well above the median without adequate
justification;
•Egregious
or excessive bonuses, equity awards or severance payments, including golden
handshakes and golden parachutes;
•Insufficient
response to low shareholder support;
•Problematic
contractual payments, such as guaranteed bonuses;
•Insufficiently
challenging performance targets and/or high potential payout
opportunities;
•Performance
targets lowered without justification;
•Discretionary
bonuses paid when short- or long-term incentive plan targets were not
met;
•High
executive pay relative to peers that is not justified by outstanding company
performance; and
•The
terms of the long-term incentive plans are inappropriate (please see “Long-Term
Incentives”).
The
aforementioned issues may also influence Glass Lewis’ assessment of the
structure of a company’s compensation program. We evaluate structure on a “Good,
Fair, Poor” rating scale whereby a “Good” rating represents a compensation
program with little to no concerns, a “Fair” rating represents a compensation
program with some concerns and a “Poor” rating represents a compensation program
that deviates significantly from best practice or contains one or more egregious
compensation practices.
We
believe that it is important for companies to provide investors with clear and
complete disclosure of all the significant terms of compensation arrangements.
Similar to structure, we evaluate disclosure on a “Good, Fair, Poor” rating
scale whereby a “Good” rating represents a thorough discussion of all elements
of compensation, a “Fair” rating represents an adequate discussion of all or
most elements of compensation and a “Poor” rating represents an incomplete or
absent discussion of compensation. In instances where a company has simply
failed to provide sufficient disclosure of its policies, we may recommend
shareholders vote against this proposal solely on this basis, regardless of the
appropriateness of compensation levels.
In
general, most companies will fall within the “Fair” range for both structure and
disclosure, and Glass Lewis largely uses the “Good” and “Poor” ratings to
highlight outliers.
Where
we identify egregious compensation practices, we may also recommend voting
against the compensation committee based on the practices or actions of its
members during the year. Such practices may include approving large one-off
payments, the inappropriate, unjustified use of discretion, or sustained poor
pay for performance practices. (Refer to the section on "Compensation Committee
Performance" for more information.)
Company
Responsiveness
When
companies receive a significant level of shareholder opposition to a say-on-pay
proposal, which occurs when more than 20% of votes on the proposal are cast as
AGAINST and/or ABSTAIN. we believe the board
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should
demonstrate a commensurate level of engagement and responsiveness to the
concerns behind the disapproval, with a particular focus on responding to
shareholder feedback. When assessing the level of opposition to say-on-pay
proposals, we may further examine the level of opposition among disinterested
shareholders as an independent group. While we recognize that sweeping changes
cannot be made to a compensation program without due consideration, and that
often a majority of shareholders may have voted in favor of the proposal, given
that the average approval rate for say-on-pay proposals is about 90%, we believe
the compensation committee should provide some level of response to a
significant vote against. In general, our expectations regarding the minimum
appropriate levels of responsiveness will correspond with the level of
shareholder opposition, as expressed both through the magnitude of opposition in
a single year, and through the persistence of shareholder disapproval over time.
Responses
we consider appropriate include engaging with large shareholders, especially
dissenting shareholders, to identify their concerns, and, where reasonable,
implementing changes and/or making commitments that directly address those
concerns within the company’s compensation program. In cases where particularly
egregious pay decisions caused the say on pay proposal to fail, Glass Lewis will
closely consider whether any changes were made directly relating to the pay
decision that may address structural concerns that shareholders have. In the
absence of any evidence in the disclosure that the board is actively engaging
shareholders on these issues and responding accordingly, we may recommend
holding compensation committee members accountable for failing to adequately
respond to shareholder opposition. Regarding such recommendations, careful
consideration will be given to the level of shareholder protest and the severity
and history of compensation practices.
Pay
for Performance
Glass
Lewis believes an integral part of a well-structured compensation package is a
successful link between pay and performance. Our proprietary pay-for-performance
model was developed to better evaluate the link between pay and performance.
Generally, compensation and performance are measured against a peer group of
appropriate companies that may overlap, to a certain extent, with a company’s
self-disclosed peers. This quantitative analysis provides a consistent framework
and historical context for our clients to determine how well companies link
executive compensation to relative performance. Companies that demonstrate a
weaker link are more likely to receive a negative recommendation; however, other
qualitative factors such as overall incentive structure, significant forthcoming
changes to the compensation program or reasonable long-term payout levels may
mitigate our concerns to a certain extent.
While
we assign companies a letter grade of A, B, C, D or F based on the alignment
between pay and performance, the grades derived from the Glass Lewis
pay-for-performance analysis do not follow the traditional U.S. school letter
grade system. Rather, the grades are generally interpreted as
follows:
Grade
of A:
The company’s percentile rank for pay is significantly less than its percentile
rank for performance
Grade
of B:
The company’s percentile rank for pay is moderately less than its percentile
rank for performance
Grade
of C:
The company’s percentile rank for pay is approximately aligned with its
percentile rank for
performance
Grade
of D:
The company’s percentile rank for pay is higher than its percentile rank for
performance
Grade
of F:
The company’s percentile rank for pay is significantly higher than its
percentile rank for performance
Separately,
a specific comparison between the company’s executive pay and its peers’
executive pay levels may be discussed in the analysis for additional insight
into the grade. Likewise, a specific comparison between the company’s
performance and its peers’ performance is reflected in the analysis for further
context.
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We
also use this analysis to inform our voting decisions on say-on-pay proposals.
As such, if a company receives a “D” or “F” from our proprietary model, we are
more likely to recommend that shareholders vote against the say-on-pay proposal.
However, supplemental quantitative factors like analyses of realized pay levels
and the “compensation actually paid” data mandated by the SEC’s 2022 final rule
regarding pay versus performance may be considered, and other qualitative
factors such as an effective overall incentive structure, the relevance of
selected performance metrics, significant forthcoming enhancements or reasonable
long-term payout levels may give us cause to recommend in favor of a proposal
even when we have identified a disconnect between pay and
performance.
In
determining the peer groups used in our A-F pay-for-performance letter grades,
Glass Lewis utilizes a proprietary methodology that considers both market and
industry peers, along with each company’s network of self-disclosed peers. Each
component is considered on a weighted basis and is subject to size-based ranking
and screening. The peer groups used are provided to Glass Lewis by Diligent
Intel based on Glass Lewis’ methodology and using Diligent Intel’s data.
Selecting
an appropriate peer group to analyze a company’s compensation program is a
subjective determination, requiring significant judgment and on which there is
not a “correct” answer. Since the peer group used is based on an independent,
proprietary technique, it will often differ from the one used by the company
which, in turn, will affect the resulting analyses. While Glass Lewis believes
that the independent, rigorous methodology it uses provides a valuable
perspective on the company’s compensation program, the company’s self-selected
peer group may also presented in the Proxy Paper for comparative
purposes.
Short-Term
Incentives
A
short-term bonus or incentive (STI) should be demonstrably tied to performance.
Whenever possible, we believe a mix of corporate and individual performance
measures is appropriate. We would normally expect performance measures for STI
plans to be based on company-wide or divisional financial measures as well as
non-financial, qualitative or non-formulaic factors such as those related to
safety, environmental issues, and customer satisfaction. While we recognize that
companies operating in different sectors or markets may seek to utilize a wide
range of metrics, we expect such measures to be appropriately tied to a
company’s business drivers.
Further,
the threshold, target and maximum performance goals and corresponding payout
levels that can be achieved under STI plans should be disclosed. Shareholders
should expect stretching performance targets for the maximum award to be
achieved. Any increase in the potential target and maximum award should be
clearly justified to shareholders, as should any decrease in target and maximum
performance levels from the previous year.
Glass
Lewis recognizes that disclosure of some measures or performance targets may
include commercially confidential information. Therefore, we believe it may be
reasonable to exclude such information in some cases as long as the company
provides sufficient justification for non-disclosure. However, where a
short-term bonus has been paid, companies should disclose the extent to which
performance has been achieved against relevant targets, including disclosure of
the actual target achieved.
Where
management has received significant short-term incentive payments but overall
performance and/or the shareholder experience over the measurement year prima
facie appears to be poor or negative, we believe the company should provide a
clear explanation of why these significant short-term payments were made. We
also believe any significant changes to the program structure should be
accompanied by rationalizing disclosure. Further, where a company has applied
upward discretion, which includes lowering goals mid-year, increasing
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calculated
payouts or retroactively pro-rating performance periods, we expect a robust
discussion of why the decision was necessary. In addition, we believe that where
companies use non-GAAP or bespoke metrics, clear reconciliations between these
figures and GAAP figures in audited financial statements should be provided.
Adjustments to GAAP figures may be considered in Glass Lewis’ assessment of the
effectiveness of the incentive at tying executive pay with performance.
Moreover, Glass Lewis believes that in circumstances where significant
adjustments were applied to performance results, thorough, detailed discussion
of adjustments akin to a GAAP-to-non-GAAP reconciliation and their impact on
payouts within the proxy statement is warranted. The absence of such enhanced
disclosure for significant adjustments will impact Glass Lewis' assessment of
the quality of disclosure and, in turn, may play a role in the overall
recommendation for the advisory vote on executive compensation. Glass Lewis
recognizes the importance of the compensation committee’s judicious and
responsible exercise of discretion over incentive pay outcomes to account for
significant, material events that would otherwise be excluded from performance
results of selected metrics of incentive programs. For instance, major
litigation settlement charges may be removed from non-GAAP results before the
determination of formulaic incentive payouts, or health and safety failures may
not be reflected in performance results where companies do not expressly include
health and safety metrics in incentive plans; such events may nevertheless be
consequential to corporate performance results, impact the shareholder
experience, and, in some cases, may present material risks. Conversely, certain
events may adversely impact formulaic payout results despite being outside
executives' control. We believe that companies should provide thorough
discussion of how such events were considered in the committee’s decisions to
exercise discretion or refrain from applying discretion over incentive pay
outcomes. The inclusion of this disclosure may be helpful when we consider
concerns around the exercise or absence of committee discretion.
We
do not generally recommend against a pay program due to the use of a
non-formulaic plan. If a company has chosen to rely primarily on a subjective
assessment or the board’s discretion in determining short-term bonuses, we
believe that the proxy statement should provide a meaningful discussion of the
board’s rationale in determining the bonuses paid as well as a rationale for the
use of a non-formulaic mechanism. Particularly where the aforementioned
disclosures are substantial and satisfactory, such a structure will not provoke
serious concern in our analysis on its own. However, in conjunction with other
significant issues in a program’s design or operation, such as a disconnect
between pay and performance, the absence of a cap on payouts, or a lack of
performance-based long-term awards, the use of a non-formulaic bonus may help
drive a negative recommendation.
Long-Term
Incentives
Glass
Lewis recognizes the value of equity-based incentive programs, which are often
the primary long-term incentive for executives. When used appropriately, they
can provide a vehicle for linking an executive’s pay to company performance,
thereby aligning their interests with those of shareholders. In addition,
equity-based compensation can be an effective way to attract, retain and
motivate key employees.
There
are certain elements that Glass Lewis believes are common to most
well-structured long-term incentive (LTI) plans. These include:
•No
re-testing or lowering of performance conditions;
•Performance
metrics that cannot be easily manipulated by management;
•Two
or more performance metrics;
•At
least one relative performance metric that compares the company’s performance to
a relevant peer group or index;
•Performance
periods of at least three years;
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•Stretching
metrics that incentivize executives to strive for outstanding performance while
not encouraging excessive risk-taking;
•Reasonable
individual award limits; and
•Equity
granting practices that are clearly disclosed.
In
evaluating long-term incentive grants, Glass Lewis generally believes that at
least half of the grant should consist of performance-based awards, putting a
material portion of executive compensation at-risk and demonstrably linked to
the performance of the company. While we will consistently raise concern with
programs that do not meet this criterion, we may refrain from a negative
recommendation in the absence of other significant issues with the program’s
design or operation. However, in cases where performance-based awards are
significantly rolled back or eliminated from a company’s long-term incentive
plan, such decisions will generally be viewed negatively outside of exceptional
circumstances and may lead to a recommendation against the proposal.
As
with the short-term incentive, Glass Lewis recognizes the importance of the
compensation committee’s judicious and responsible exercise of discretion over
incentive pay outcomes to account for significant events that would otherwise be
excluded from performance results of selected metrics of incentive programs. We
believe that companies should provide thorough discussion of how such events
were considered in the committee’s decisions to exercise discretion or refrain
from applying discretion over incentive pay outcomes. Furthermore,
considerations related to the use of non-GAAP metrics under the STI plan
similarly apply to the long-term incentive program.
Performance
measures should be carefully selected and should relate to the specific
business/industry in which the company operates and, especially, to the key
value drivers of the company’s business. As with short-term incentive plans, the
basis for any adjustments to metrics or results should be clearly explained, as
should the company’s judgment on the use of discretion and any significant
changes to the performance program structure.
While
cognizant of the inherent complexity of certain performance metrics, Glass Lewis
generally believes that measuring a company’s performance with multiple metrics
serves to provide a more complete picture of the company’s performance than a
single metric. Further, reliance on just one metric may focus too much
management attention on a single target and is therefore more susceptible to
manipulation. When utilized for relative measurements, external benchmarks such
as a sector index or peer group should be disclosed and transparent. The
rationale behind the selection of a specific index or peer group should also be
disclosed. Internal performance benchmarks should also be disclosed and
transparent, unless a cogent case for confidentiality is made and fully
explained. Similarly, actual performance and vesting levels for previous grants
earned during the fiscal year should be disclosed.
We
also believe shareholders should evaluate the relative success of a company’s
compensation programs, particularly with regard to existing equity-based
incentive plans, in linking pay and performance when evaluating potential
changes to LTI plans and determining the impact of additional stock awards. We
will therefore review the company’s pay-for-performance grade (see above for
more information) and specifically the proportion of total compensation that is
stock-based.
Grants
of Front-Loaded Awards
Many
U.S. companies have chosen to provide large grants, usually in the form of
equity awards, that are intended to serve as compensation for multiple years.
This practice, often called front-loading, is taken up either in the regular
course of business or as a response to specific business conditions and with a
predetermined objective. The so-called “mega-grant”, an outsized award to one
individual sometimes valued at over $100
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million
is sometimes but not always provided as a front-loaded award. We believe
shareholders should generally be wary of this approach, and we accordingly weigh
these grants with particular scrutiny.
While
the use of front-loaded awards is intended to lock-in executive service and
incentives, the same rigidity also raises the risk of effectively tying the
hands of the compensation committee. As compared with a more responsive annual
granting schedule program, front-loaded awards may preclude improvements or
changes to reflect evolving business strategies or to respond to other
unforeseen factors. Additionally, if structured poorly, early vesting of such
awards may reduce or eliminate the retentive power at great cost to
shareholders. The considerable emphasis on a single grant can place intense
pressures on every facet of its design, amplifying any potential perverse
incentives and creating greater room for unintended consequences. In particular,
provisions around changes of control or separations of service must ensure that
executives do not receive excessive payouts that do not reflect shareholder
experience or company performance.
We
consider a company’s rationale for granting awards under this structure and also
expect any front-loaded awards to include a firm commitment not to grant
additional awards for a defined period, as is commonly associated with this
practice. Even when such a commitment is provided, unexpected circumstances may
lead the board to make additional payments or awards for retention purposes, or
to incentivize management towards more realistic goals or a revised strategy. If
a company breaks its commitment not to grant further awards, we may recommend
against the pay program unless a convincing rationale is provided. In situations
where the front-loaded award was meant to cover a certain portion of the regular
long-term incentive grant for each year during the covered period, our analysis
of the value of the remaining portion of the regular long-term incentives
granted during the period covered by the award will account for the annualized
value of the front-loaded portion, and we expect no supplemental grant be
awarded during the vesting period of the front-loaded portion.
The
multiyear nature of these awards generally lends itself to significantly higher
compensation figures in the year of grant than might otherwise be expected. In
our qualitative analysis of the grants of front-loaded awards to executives,
Glass Lewis considers the quantum of the award on an annualized basis and may
compare this result to the prior practice and peer data, among other benchmarks.
Additionally, for awards that are granted in the form of equity, Glass Lewis may
consider the total potential dilutive effect of such award on
shareholders.
Linking
Executive Pay to Environmental and Social Criteria
Glass
Lewis believes that explicit environmental and/or social (E&S) criteria in
executive incentive plans, when used appropriately, can serve to provide both
executives and shareholders a clear line of sight into a company’s ESG strategy,
ambitions, and targets. Although we are strongly supportive of companies’
incorporation of material E&S risks and opportunities in their long-term
strategic planning, we believe that the inclusion of E&S metrics in
compensation programs should be predicated on each company’s unique
circumstances. In order to establish a meaningful link between pay and
performance, companies must consider factors including their industry, size,
risk profile, maturity, performance, financial condition, and any other relevant
internal or external factors.
When
a company is introducing E&S criteria into executive incentive plans, we
believe it is important that companies provide shareholders with sufficient
disclosure to allow them to understand how these criteria align with its
strategy. Additionally, Glass Lewis recognizes that there may be situations
where certain E&S performance criteria are reasonably viewed as
prerequisites for executive performance, as opposed to behaviors and conditions
that need to be incentivized. For example, we believe that shareholders should
interrogate the use of metrics that award executives for ethical behavior or
compliance with policies and regulations. It is our
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view
that companies should provide shareholders with disclosures that clearly lay out
the rationale for selecting specific E&S metrics, the target-setting
process, and corresponding payout opportunities. Further, particularly in the
case of qualitative metrics, we believe that shareholders should be provided
with a clear understanding of the basis on which the criteria will be assessed.
Where quantitative targets have been set, we believe that shareholders are best
served when these are disclosed on an ex-ante basis, or the board should outline
why it believes it is unable to do so.
While
we believe that companies should generally set long-term targets for their
environmental and social ambitions, we are mindful that not all compensation
schemes lend themselves to the inclusion of E&S metrics. We also are of the
view that companies should retain flexibility in not only choosing to
incorporate E&S metrics in their compensation plans, but also in the
placement of these metrics. For example, some companies may resolve that
including E&S criteria in the annual bonus may help to incentivize the
achievement of short-term milestones and allow for more maneuverability in
strategic adjustments to long-term goals. Other companies may determine that
their long-term sustainability targets are best achieved by incentivizing
executives through metrics included in their long-term incentive
plans.
One-Time
Awards
Glass
Lewis believes shareholders should generally be wary of awards granted outside
of the standard incentive schemes, as such awards have the potential to
undermine the integrity of a company’s regular incentive plans or the link
between pay and performance, or both. We generally believe that if the existing
incentive programs fail to provide adequate incentives to executives, companies
should redesign their compensation programs rather than make additional
grants.
However,
we recognize that in certain circumstances, additional incentives may be
appropriate. In these cases, companies should provide a thorough description of
the awards, including a cogent and convincing explanation of their necessity and
why existing awards do not provide sufficient motivation and a discussion of how
the quantum of the award and its structure were determined. Further, such awards
should be tied to future service and performance whenever possible.
Additionally,
we believe companies making supplemental or one-time awards should also describe
if and how the regular compensation arrangements will be affected by these
additional grants. In reviewing a company’s use of supplemental awards, Glass
Lewis will evaluate the terms and size of the grants in the context of the
company’s overall incentive strategy and granting practices, as well as the
current operating environment.
Contractual
Payments and Arrangements
Beyond
the quantum of contractual payments, Glass Lewis will also consider the design
of any entitlements. Certain executive employment terms may help to drive a
negative recommendation, including, but not limited to:
•Excessively
broad change in control triggers;
•Inappropriate
severance entitlements;
•Inadequately
explained or excessive sign-on arrangements;
•Guaranteed
bonuses (especially as a multiyear occurrence); and
•Failure
to address any concerning practices in amended employment agreements.
In
general, we are wary of terms that are excessively restrictive in favor of the
executive, or that could potentially incentivize behaviors that are not in a
company’s best interest.
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Sign-on
Awards and Severance Benefits
We
acknowledge that there may be certain costs associated with transitions at the
executive level. In evaluating the size of severance and sign-on arrangements,
we may consider the executive’s regular target compensation level, or the sums
paid to other executives (including the recipient’s predecessor, where
applicable) in evaluating the appropriateness of such an arrangement.
We
believe sign-on arrangements should be clearly disclosed and accompanied by a
meaningful explanation of the payments and the process by which the amounts were
reached. Further, the details of and basis for any “make-whole” payments (paid
as compensation for awards forfeited from a previous employer) should be
provided.
With
respect to severance, we believe companies should abide by predetermined payouts
in most circumstances. While in limited circumstances some deviations may not be
inappropriate, we believe shareholders should be provided with a meaningful
explanation of any additional or increased benefits agreed upon outside of
regular arrangements. However, where Glass Lewis determines that such
predetermined payouts are particularly problematic or unfavorable to
shareholders, we may consider the execution of such payments in a negative
recommendation for the advisory vote on executive compensation.
In
the U.S. market, most companies maintain severance entitlements based on a
multiple of salary and, in many cases, bonus. In almost all instances we see,
the relevant multiple is three or less, even in the case of a change in control.
We believe the basis and total value of severance should be reasonable and
should not exceed the upper limit of general market practice. We consider the
inclusion of long-term incentives in cash severance calculations to be
inappropriate, particularly given the commonality of accelerated vesting and the
proportional weight of long-term incentives as a component of total pay.
Additional considerations, however, will be accounted for when reviewing
atypically structured compensation approaches.
Change
in Control
Glass
Lewis considers double-trigger change in control arrangements, which require
both a change in control and termination or constructive termination, to be best
practice. Any arrangement that is not explicitly double-trigger may be
considered a single-trigger or modified single-trigger arrangement.
Further,
we believe that excessively broad definitions of change in control are
potentially problematic as they may lead to situations where executives receive
additional compensation where no meaningful change in status or duties has
occurred.
Excise
Tax Gross-ups
Among
other entitlements, Glass Lewis is strongly opposed to excise tax gross-ups
related to IRC § 4999 and their expansion, especially where no consideration is
given to the safe harbor limit. We believe that under no normal circumstance is
the inclusion of excise tax gross-up provisions in new agreements or the
addition of such provisions to amended agreements acceptable. In consideration
of the fact that minor increases in change-in-control payments can lead to
disproportionately large excise taxes, the potential negative impact of tax
gross-ups far outweighs any retentive benefit.
Depending
on the circumstances, the addition of new gross-ups around this excise tax may
lead to negative recommendations for a company’s say-on-pay proposal, the chair
of the compensation committee, or the entire committee, particularly in cases
where a company had committed not to provide any such entitlements in the
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future.
For situations in which the addition of new excise tax gross ups will be
provided in connection with a specific change-in-control transaction, this
policy may be applied to the say-on-pay proposal, the golden parachute proposal
and recommendations related to the compensation committee for all involved
corporate parties, as appropriate.
Amended
Employment Agreements
Any
contractual arrangements providing for problematic pay practices which are not
addressed in materially amended employment agreements will potentially be viewed
by Glass Lewis as a missed opportunity on the part of the company to align its
policies with current best practices. Such problematic pay practices include,
but are not limited to, excessive change in control entitlements, modified
single-trigger change in control entitlements, excise tax gross-ups, and
multi-year guaranteed awards.
Recoupment
Provisions (Clawbacks)
On
October 26, 2022, the SEC adopted Rule 10D-1 under the Securities Exchange Act
of 1934. The rule mandates national securities exchanges and associations to
promulgate new listing standards requiring companies to maintain recoupment
policies (“clawback provisions”). The final clawback listing standards were
approved by the SEC, effective October 2, 2023 and required listed companies to
adopt a compliant policy by December 1, 2023. Glass Lewis believes that clawback
provisions play an important role in mitigating excessive risk-taking that may
be encouraged by poorly structured variable incentive programs. Current listing
standards require recoupment of erroneously awarded payouts to current and
former executive officers in the event of an accounting restatement or
correction to previous financial statements that is material to the current
period, regardless of fault or misconduct.
Glass
Lewis recognizes that excessive risk-taking that can materially and adversely
impact shareholders may not necessarily result in such restatements. We
believe that clawback policies should allow recovery from current and former
executive officers in the event of a restatement of financial results or similar
revision of performance indicators upon which the awards were based.
Additionally, recoupment policies should provide companies with the ability
to claw back variable incentive payments (whether time-based or
performance-based) when there is evidence of problematic decisions or
actions, such as material misconduct, a material reputational failure, material
risk management failure, or a material operational failure, the consequences of
which have not already been reflected in incentive payments and where recovery
is warranted.
In
situations where the company ultimately determines not to follow through with
recovery, Glass Lewis will assess the appropriateness of such determination for
each case. A thorough, detailed discussion of the company's decision to not
pursue recoupment and, if applicable, how the company has otherwise rectified
the disconnect between executive pay outcomes and negative impacts of their
actions on the company and the shareholder experience will be considered. The
absence of such enhanced disclosure may impact Glass Lewis' assessment of the
quality of disclosure and, in turn, may play a role in Glass Lewis' overall
recommendation for the advisory vote on executive compensation. The clawback
policy should provide recoupment authority regardless of whether the
employment of the executive officer was terminated with or without
cause.
Hedging
of Stock
Glass
Lewis believes that the hedging of shares by executives in the shares of the
companies where they are employed severs the alignment of interests of the
executive with shareholders. We believe companies should
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adopt
strict policies to prohibit executives from hedging the economic risk associated
with their share ownership in the company.
Pledging
of Stock
Glass
Lewis believes that shareholders should examine the facts and circumstances of
each company rather than apply a one-size-fits-all policy regarding employee
stock pledging. Glass Lewis believes that shareholders benefit when employees,
particularly senior executives, have meaningful financial interest in the
success of the company under their management, and therefore we recognize the
benefits of measures designed to encourage employees to both buy shares out of
their own pocket and to retain shares they have been granted; blanket policies
prohibiting stock pledging may discourage executives and employees from doing
either.
However,
we also recognize that the pledging of shares can present a risk that, depending
on a host of factors, an executive with significant pledged shares and limited
other assets may have an incentive to take steps to avoid a forced sale of
shares in the face of a rapid stock price decline. Therefore, to avoid
substantial losses from a forced sale to meet the terms of the loan, the
executive may have an incentive to boost the stock price in the short term in a
manner that is unsustainable, thus hurting shareholders in the long-term. We
also recognize concerns regarding pledging may not apply to less senior
employees, given the latter group’s significantly more limited influence over a
company’s stock price. Therefore, we believe that the issue of pledging shares
should be reviewed in that context, as should policies that distinguish between
the two groups.
Glass
Lewis believes that the benefits of stock ownership by executives and employees
may outweigh the risks of stock pledging, depending on many factors. As such,
Glass Lewis reviews all relevant factors in evaluating proposed policies,
limitations and prohibitions on pledging stock, including:
•The
number of shares pledged;
•The
percentage executives’ pledged shares are of outstanding shares;
•The
percentage executives’ pledged shares are of each executive’s shares and total
assets;
•Whether
the pledged shares were purchased by the employee or granted by the company;
•Whether
there are different policies for purchased and granted shares;
•Whether
the granted shares were time-based or performance-based;
•The
overall governance profile of the company;
•The
volatility of the company’s stock (in order to determine the likelihood of a
sudden stock price drop);
•The
nature and cyclicality, if applicable, of the company’s industry;
•The
participation and eligibility of executives and employees in pledging;
•The
company’s current policies regarding pledging and any waiver from these policies
for employees and executives; and
•Disclosure
of the extent of any pledging, particularly among senior executives.
Executive
Ownership Guidelines
The
alignment between shareholder interests and those of executives represents an
important assurance to disinterested shareholders that executives are acting in
their best long-term interests. Companies should facilitate this relationship
through the adoption and enforcement of minimum executive share ownership
requirements. Companies should clearly disclose their executive ownership
requirements in their Compensation Discussion and Analysis section and how the
various types of outstanding equity awards are counted or excluded from the
ownership level calculation.
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In
determining whether executives have met the requirements or not, the inclusion
of unearned performance-based full value awards and/or unexercised stock options
without cogent rationale may be viewed as problematic. While Glass Lewis views
the inclusion of unearned performance-based equity in the ownership
determination as problematic, we continue to believe that performance-based
equity compensation plays an important role in aligning executive pay with
performance.
Compensation
Consultant Independence
As
mandated by Section 952 of the Dodd-Frank Act, as of January 11, 2013, the SEC
approved listing requirements for both the NYSE and NASDAQ which require
compensation committees to consider six factors
(https://www.sec.gov/rules/final/2012/33-9330.pdf, p.31-32) in assessing
compensation advisor independence. According to the SEC, “no one factor should
be viewed as a determinative factor.” Glass Lewis believes this six-factor
assessment is an important process for every compensation committee to undertake
but believes companies employing a consultant for board compensation, consulting
and other corporate services should provide clear disclosure beyond just a
reference to examining the six points, in order to allow shareholders to review
the specific aspects of the various consultant relationships.
We
believe compensation consultants are engaged to provide objective,
disinterested, expert advice to the compensation committee. When the consultant
or its affiliates receive substantial income from providing other services to
the company, we believe the potential for a conflict of interest arises and the
independence of the consultant may be jeopardized. Therefore, Glass Lewis will,
when relevant, note the potential for a conflict of interest when the fees paid
to the advisor or its affiliates for other services exceed those paid for
compensation consulting.
CEO
Pay Ratio
As
mandated by Section 953(b) of the Dodd-Frank Wall Street Consumer and Protection
Act, beginning in 2018, issuers will be required to disclose the median annual
total compensation of all employees except the CEO, the total annual
compensation of the CEO or equivalent position, and the ratio between the two
amounts. Glass Lewis will display the pay ratio as a data point in our Proxy
Papers, as available. While we recognize that the pay ratio has the potential to
provide additional insight when assessing a company’s pay practices, at this
time it will not be a determinative factor in our voting
recommendations.
Frequency
of Say-on-Pay
The
Dodd-Frank Act also requires companies to allow shareholders a non-binding vote
on the frequency of say-on-pay votes (i.e., every one, two or three years).
Additionally, Dodd-Frank requires companies to hold such votes on the frequency
of say-on-pay votes at least once every six years.
We
believe companies should submit say-on-pay votes to shareholders every year. We
believe that the time and financial burdens to a company with regard to an
annual vote are relatively small and incremental and are outweighed by the
benefits to shareholders through more frequent accountability. Implementing
biannual or triennial votes on executive compensation limits shareholders’
ability to hold the board accountable for its compensation practices through
means other than voting against the compensation committee. Unless a company
provides a compelling rationale or unique circumstances for say-on-pay votes
less frequent than annually, we will generally recommend that shareholders
support annual votes on compensation.
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Vote
on Golden Parachute Arrangements
The
Dodd-Frank Act also requires companies to provide shareholders with a separate
non-binding vote on approval of golden parachute compensation arrangements in
connection with certain change-in-control transactions. However, if the golden
parachute arrangements have previously been subject to a say-on-pay vote which
shareholders approved, then this required vote is waived.
Glass
Lewis believes the narrative and tabular disclosure of golden parachute
arrangements benefits all shareholders. Glass Lewis analyzes each golden
parachute arrangement on a case-by-case basis, taking into account, among other
items: the nature of the change-in-control transaction, the ultimate value of
the payments particularly compared to the value of the transaction, any excise
tax gross-up obligations, the tenure and position of the executives in question
before and after the transaction, any new or amended employment agreements
entered into in connection with the transaction, and the type of triggers
involved (i.e., single vs. double). In cases where new problematic features,
such as excise tax gross-up obligations, are introduced in a golden parachute
proposal, such features may contribute to a negative recommendation not only for
the golden parachute proposal under review, but for the next say-on-pay proposal
of any involved corporate parties, as well as recommendations against their
compensation committee as appropriate.
Equity-Based
Compensation Proposals
We
believe that equity compensation awards, when not abused, are useful for
retaining employees and providing an incentive for them to act in a way that
will improve company performance. Glass Lewis recognizes that equity-based
compensation plans are critical components of a company’s overall compensation
program, and we analyze such plans accordingly based on both quantitative and
qualitative factors.
Our
quantitative analysis assesses the plan’s cost and the company’s pace of
granting utilizing a number of different analyses, comparing the program with
absolute limits we believe are key to equity value creation and with a carefully
chosen peer group. In general, our model seeks to determine whether the proposed
plan is either absolutely excessive or is more than one standard deviation away
from the average plan for the peer group on a range of criteria, including
dilution to shareholders and the projected annual cost relative to the company’s
financial performance. Each of the analyses (and their constituent parts) is
weighted and the plan is scored in accordance with that weight.
We
compare the program’s expected annual expense with the business’s operating
metrics to help determine whether the plan is excessive in light of company
performance. We also compare the plan’s expected annual cost to the enterprise
value of the firm rather than to market capitalization because the employees,
managers and directors of the firm contribute to the creation of enterprise
value but not necessarily market capitalization (the biggest difference is seen
where cash represents the vast majority of market capitalization). Finally, we
do not rely exclusively on relative comparisons with averages because, in
addition to creeping averages serving to inflate compensation, we believe that
some absolute limits are warranted.
We
then consider qualitative aspects of the plan such as plan administration, the
method and terms of exercise, repricing history, express or implied rights to
reprice, and the presence of evergreen provisions. We also closely review the
choice and use of, and difficulty in meeting, the awards’ performance metrics
and targets, if any. We believe significant changes to the terms of a plan
should be explained for shareholders and clearly indicated. Other factors such
as a company’s size and operating environment may also be relevant in assessing
the severity of concerns or the benefits of certain changes. Finally, we may
consider a company’s executive compensation practices in certain situations, as
applicable.
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We
evaluate equity plans based on certain overarching principles:
•Companies
should seek more shares only when needed;
•Requested
share amounts or share reserves should be conservative in size so that companies
must seek shareholder approval every three to four years (or more
frequently);
•If
a plan is relatively expensive, it should not grant options solely to senior
executives and board members;
•Dilution
of annual net share count or voting power, along with the “overhang” of
incentive plans, should be limited;
•Annual
cost of the plan (especially if not shown on the income statement) should be
reasonable as a percentage of financial results and should be in line with the
peer group;
•The
expected annual cost of the plan should be proportional to the business’s
value;
•The
intrinsic value that option grantees received in the past should be reasonable
compared with the business’s financial results;
•Plans
should not permit repricing of stock options without shareholder
approval;
•Plans
should not contain excessively liberal administrative or payment
terms;
•Plans
should not count shares in ways that understate the potential dilution, or cost,
to common shareholders. This refers to “inverse” full-value award multipliers;
•Selected
performance metrics should be challenging and appropriate, and should be subject
to relative performance measurements; and
•Stock
grants should be subject to minimum vesting and/or holding periods sufficient to
ensure sustainable performance and promote retention.
Meanwhile,
for individual equity award proposals where the recipient of the proposed grant
is also a large shareholder of the company whose vote can materially affect the
passage of the proposal, we believe that the company should strongly consider
the level of approval from disinterested shareholders before proceeding with the
proposed grant. Glass Lewis recognizes potential conflicts of interests when
vote outcomes can be heavily influenced by the recipient of the grant. A
required abstention vote or non-vote from the recipient for an equity award
proposal in these situations can help to avoid such conflicts. This favorable
feature will be weighed alongside the structure, disclosure, dilution, provided
rationale, and other provisions related to the individual award to assess the
award’s alignment with long-term shareholder interests.
Option
Exchanges and Repricing
Glass
Lewis is generally opposed to the repricing of employee and director options
regardless of how it is accomplished. Employees should have some downside risk
in their equity-based compensation program and repricing eliminates any such
risk. As shareholders have substantial risk in owning stock, we believe that the
equity compensation of employees and directors should be similarly situated to
align their interests with those of shareholders. We believe this will
facilitate appropriate risk- and opportunity-taking for the company by
employees.
We
are concerned that option grantees who believe they will be “rescued” from
underwater options will be more inclined to take unjustifiable risks. Moreover,
a predictable pattern of repricing or exchanges substantially alters a stock
option’s value because options that will practically never expire deeply out of
the money are worth far more than options that carry a risk of
expiration.
In
short, repricings and option exchange programs change the bargain between
shareholders and employees after the bargain has been struck.
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There
is one circumstance in which a repricing or option exchange program may be
acceptable: if macroeconomic or industry trends, rather than specific company
issues, cause a stock’s value to decline dramatically and the repricing is
necessary to motivate and retain employees. In viewing the company’s stock
decline as part of a larger trend, we would expect the impact to approximately
reflect the market or industry price decline in terms of timing and magnitude.
In this circumstance, we think it fair to conclude that option grantees may be
suffering from a risk that was not foreseeable when the original “bargain” was
struck. In such a scenario, we may opt to support a repricing or option exchange
program only if sufficient conditions are met. We are largely concerned with the
inclusion of the following features:
•Officers
and board members cannot participate in the program; and
•The
exchange is value-neutral or value-creative to shareholders using very
conservative assumptions.
•In
our evaluation of the appropriateness of the program design, we also consider
the inclusion of the following features:
•The
vesting requirements on exchanged or repriced options are extended beyond one
year;
•Shares
reserved for options that are reacquired in an option exchange will permanently
retire (i.e., will not be available for future grants) so as to prevent
additional shareholder dilution in the future; and
•Management
and the board make a cogent case for needing to motivate and retain existing
employees, such as being in a competitive employment market.
Option
Backdating, Spring-Loading and Bullet-Dodging
Glass
Lewis views option backdating, and the related practices of spring-loading and
bullet-dodging, as egregious actions that warrant holding the appropriate
management and board members responsible. These practices are similar to
repricing options and eliminate much of the downside risk inherent in an option
grant that is designed to induce recipients to maximize shareholder return.
Backdating
an option is the act of changing an option’s grant date from the actual grant
date to an earlier date when the market price of the underlying stock was lower,
resulting in a lower exercise price for the option. In past studies, Glass Lewis
identified over 270 companies that have disclosed internal or government
investigations into their past stock-option grants.
Spring-loading
is granting stock options while in possession of material, positive information
that has not been disclosed publicly. Bullet-dodging is delaying the grants of
stock options until after the release of material, negative information. This
can allow option grants to be made at a lower price either before the release of
positive news or following the release of negative news, assuming the stock’s
price will move up or down in response to the information. This raises a concern
similar to that of insider trading, or the trading on material non-public
information.
The
exercise price for an option is determined on the day of grant, providing the
recipient with the same market risk as an investor who bought shares on that
date. However, where options were backdated, the executive or the board (or the
compensation committee) changed the grant date retroactively. The new date may
be at or near the lowest price for the year or period. This would be like
allowing an investor to look back and select the lowest price of the year at
which to buy shares.
A
2006 study of option grants made between 1996 and 2005 at 8,000 companies found
that option backdating can be an indication of poor internal controls. The study
found that option backdating was more likely to occur at companies without a
majority independent board and with a long-serving CEO; both factors, the study
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concluded,
were associated with greater CEO influence on the company’s compensation and
governance practices.43
Where
a company granted backdated options to an executive who is also a director,
Glass Lewis will recommend voting against that executive/director, regardless of
who decided to make the award. In addition, Glass Lewis will recommend voting
against those directors who either approved or allowed the backdating. Glass
Lewis feels that executives and directors who either benefited from backdated
options or authorized the practice have failed to act in the best interests of
shareholders.
Given
the severe tax and legal liabilities to the company from backdating, Glass Lewis
will consider recommending voting against members of the audit committee who
served when options were backdated, a restatement occurs, material weaknesses in
internal controls exist and disclosures indicate there was a lack of
documentation. These committee members failed in their responsibility to ensure
the integrity of the company’s financial reports.
When
a company has engaged in spring-loading or bullet-dodging, Glass Lewis will
consider recommending voting against the compensation committee members where
there has been a pattern of granting options at or near historic lows. Glass
Lewis will also recommend voting against executives serving on the board who
benefited from the spring-loading or bullet-dodging.
Director
Compensation Plans
Glass
Lewis believes that non-employee directors should receive reasonable and
appropriate compensation for the time and effort they spend serving on the board
and its committees. However, a balance is required. Fees should be competitive
in order to retain and attract qualified individuals, but excessive fees
represent a financial cost to the company and potentially compromise the
objectivity and independence of non-employee directors. We will consider
recommending support for compensation plans that include option grants or other
equity-based awards that help to align the interests of outside directors with
those of shareholders. However, to ensure directors are not incentivized in the
same manner as executives but rather serve as a check on imprudent risk-taking
in executive compensation plan design, equity grants to directors should not be
performance-based. Where an equity plan exclusively or primarily covers
non-employee directors as participants, we do not believe that the plan should
provide for performance-based awards in any capacity.
When
non-employee director equity grants are covered by the same equity plan that
applies to a company’s broader employee base, we will use our proprietary model
and analyst review of this model to guide our voting recommendations. If such a
plan broadly allows for performance-based awards to directors or explicitly
provides for such grants, we may recommend against the overall plan on this
basis, particularly if the company has granted performance-based awards to
directors in past.
Employee
Stock Purchase Plans
Glass
Lewis believes that employee stock purchase plans (ESPPs) can provide employees
with a sense of ownership in their company and help strengthen the alignment
between the interests of employees and shareholders. We evaluate ESPPs by
assessing the expected discount, purchase period, expected purchase
43
Lucian Bebchuk, Yaniv Grinstein and Urs Peyer. “LUCKY CEOs.” November,
2006.
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activity
(if previous activity has been disclosed) and whether the plan has a “lookback”
feature. Except for the most extreme cases, Glass Lewis will generally support
these plans given the regulatory purchase limit of $25,000 per employee per
year, which we believe is reasonable. We also look at the number of shares
requested to see if a ESPP will significantly contribute to overall shareholder
dilution or if shareholders will not have a chance to approve the program for an
excessive period of time. As such, we will generally recommend against ESPPs
that contain “evergreen” provisions that automatically increase the number of
shares available under the ESPP each year.
Executive
Compensation Tax Deductibility — Amendment to IRC 162(M)
The
“Tax Cut and Jobs Act” had significant implications on Section 162(m) of the
Internal Revenue Code, a provision that allowed companies to deduct compensation
in excess of $1 million for the CEO and the next three most highly compensated
executive officers, excluding the CFO, if the compensation is performance-based
and is paid under shareholder-approved plans. Glass Lewis does not generally
view amendments to equity plans and changes to compensation programs in response
to the elimination of tax deductions under 162(m) as problematic. This
specifically holds true if such modifications contribute to the maintenance of a
sound performance-based compensation program.
As
grandfathered contracts may continue to be eligible for tax deductions under the
transition rule for Section 162(m), companies may therefore submit incentive
plans for shareholder approval to take of advantage of the tax deductibility
afforded under 162(m) for certain types of compensation.
We
believe the best practice for companies is to provide robust disclosure to
shareholders so that they can make fully informed judgments about the
reasonableness of the proposed compensation plan. To allow for meaningful
shareholder review, we prefer that disclosure should include specific
performance metrics, a maximum award pool, and a maximum award amount per
employee. We also believe it is important to analyze the estimated grants to see
if they are reasonable and in line with the company’s peers.
We
typically recommend voting against a 162(m) proposal where: (i) a company fails
to provide at least a list of performance targets; (ii) a company fails to
provide one of either a total maximum or an individual maximum; or (iii) the
proposed plan or individual maximum award limit is excessive when compared with
the plans of the company’s peers.
The
company’s record of aligning pay with performance (as evaluated using our
proprietary pay-for-performance model) also plays a role in our recommendation.
Where a company has a record of setting reasonable pay relative to business
performance, we generally recommend voting in favor of a plan even if the plan
caps seem large relative to peers because we recognize the value in special pay
arrangements for continued
exceptional performance.
As
with all other issues we review, our goal is to provide consistent but
contextual advice given the specifics of the company and ongoing performance.
Overall, we recognize that it is generally not in shareholders’ best interests
to vote against such a plan and forgo the potential tax benefit since
shareholder rejection of such plans will not curtail the awards; it will only
prevent the tax deduction associated with them.
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Governance
Structure and the Shareholder Franchise
Anti-Takeover
Measures
Poison
Pills (Shareholder Rights Plans)
Glass
Lewis believes that poison pill plans are not generally in shareholders’ best
interests. They can reduce management accountability by substantially limiting
opportunities for corporate takeovers. Rights plans can thus prevent
shareholders from receiving a buy-out premium for their stock. Typically we
recommend that shareholders vote against these plans to protect their financial
interests and ensure that they have an opportunity to consider any offer for
their shares, especially those at a premium.
We
believe boards should be given wide latitude in directing company activities and
in charting the company’s course. However, on an issue such as this, where the
link between the shareholders’ financial interests and their right to consider
and accept buyout offers is substantial, we believe that shareholders should be
allowed to vote on whether they support such a plan’s implementation. This issue
is different from other matters that are typically left to board discretion. Its
potential impact on and relation to shareholders is direct and substantial. It
is also an issue in which management interests may be different from those of
shareholders; thus, ensuring that shareholders have a voice is the only way to
safeguard their interests.
In
certain circumstances, we will support a poison pill that is limited in scope to
accomplish a particular objective, such as the closing of an important merger,
or a pill that contains what we believe to be a reasonable qualifying offer
clause. We will consider supporting a poison pill plan if the qualifying offer
clause includes each of the following attributes:
•The
form of offer is not required to be an all-cash transaction;
•The
offer is not required to remain open for more than 90 business days;
•The
offeror is permitted to amend the offer, reduce the offer, or otherwise change
the terms;
•There
is no fairness opinion requirement; and
•There
is a low to no premium requirement.
Where
these requirements are met, we typically feel comfortable that shareholders will
have the opportunity to voice their opinion on any legitimate offer.
NOL
Poison Pills
Similarly,
Glass Lewis may consider supporting a limited poison pill in the event that a
company seeks shareholder approval of a rights plan for the express purpose of
preserving Net Operating Losses (NOLs). While companies with NOLs can generally
carry these losses forward to offset future taxable income, Section 382
of
the Internal Revenue Code limits companies’ ability to use NOLs in the event of
a “change of ownership.”44
In this case, a company may adopt or amend a poison pill (NOL pill) in order to
prevent an inadvertent change of ownership
44
Section 382 of the Internal Revenue Code refers to a “change of ownership” of
more than 50 percentage points by one or more 5% shareholders within a
three-year period. The statute is intended to deter the “trafficking” of net
operating losses.
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by
multiple investors purchasing small chunks of stock at the same time, and
thereby preserve the ability to carry the NOLs forward. Often such NOL pills
have trigger thresholds much lower than the common 15% or 20% thresholds, with
some NOL pill triggers as low as 5%.
In
many cases, companies will propose the adoption of bylaw amendments specifically
restricting certain share transfers, in addition to proposing the adoption of a
NOL pill. In general, if we support the terms of a particular NOL pill, we will
generally support the additional protective amendment in the absence of
significant concerns with the specific terms of that proposal.
As
with traditional poison pills, NOL pills may deter shareholders and potentially
serve as entrenchment mechanisms. Certain features such as low thresholds
combined with acting in concert provisions, among other concerning terms, may
disempower shareholders and insulate the board and management. When acting in
concert provisions are present within the terms of a NOL pill, we believe this
may raise concerns as to the true objective of the pill.
Acting
in concert provisions broaden the definition of beneficial ownership to prohibit
parallel conduct, or multiple shareholders party to a formal or informal
agreement collaborating to influence the board and management of a company, and
aggregate the ownership of such shareholders towards the triggering threshold.
In our view, acting in concert provisions broadly limit the voice of
shareholders and may diminish their ability to engage in a productive dialogue
with the company and with other shareholders. When a board adopts defensive
measures without engaging with shareholders, we take a dim view of the board and
the overall governance of the company.
As
such, Glass Lewis evaluates NOL pills on a strictly case-by-case basis, taking
into consideration, among other factors: (i) the value of the NOLs to the
company; (ii) the likelihood of a change of ownership based on the size of the
holdings and the nature of the larger shareholders; (iii) the trigger threshold;
(iv) the duration of the plan (i.e., whether it contains a reasonable “sunset”
provision, generally one year or less); (v) the inclusion of an acting in
concert provision; (vi) whether the pill is implemented following the filing of
a Schedule 13D by a shareholder or there is evidence of hostile activity or
shareholder activism; and (vii) if the pill is subject to periodic board review
and/or shareholder ratification.
We
believe that shareholders should be offered the opportunity to vote on any
adoption or renewal of a NOL pill regardless of any potential tax benefit that
it offers a company. As such, we will consider recommending voting against those
members of the board who served at the time when an NOL pill was adopted without
shareholder approval within the prior twelve months and where the NOL pill is
not subject to shareholder ratification.
Fair
Price Provisions
Fair
price provisions, which are rare, require that certain minimum price and
procedural requirements be observed by any party that acquires more than a
specified percentage of a corporation’s common stock. The provision is intended
to protect minority shareholder value when an acquirer seeks to accomplish a
merger or other transaction which would eliminate or change the interests of the
minority shareholders. The provision is generally applied against the acquirer
unless the takeover is approved by a majority of “continuing directors” and
holders of a majority, in some cases a supermajority as high as 80%, of the
combined voting power of all stock entitled to vote to alter, amend, or repeal
the above provisions.
The
effect of a fair price provision is to require approval of any merger or
business combination with an “interested shareholder” by 51% of the voting stock
of the company, excluding the shares held by the interested
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shareholder.
An interested shareholder is generally considered to be a holder of 10% or more
of the company’s outstanding stock, but the trigger can vary.
Generally,
provisions are put in place for the ostensible purpose of preventing a back-end
merger where the interested shareholder would be able to pay a lower price for
the remaining shares of the company than he or she paid to gain control. The
effect of a fair price provision on shareholders, however, is to limit their
ability to gain a premium for their shares through a partial tender offer or
open market acquisition which typically raise the share price, often
significantly. A fair price provision discourages such transactions because of
the potential costs of seeking shareholder approval and because of the
restrictions on purchase price for completing a merger or other transaction at a
later time.
Glass
Lewis believes that fair price provisions, while sometimes protecting
shareholders from abuse in a takeover situation, more often act as an impediment
to takeovers, potentially limiting gains to shareholders from a variety of
transactions that could significantly increase share price. In some cases, even
the independent directors of the board cannot make exceptions when such
exceptions may be in the best interests of shareholders. Given the existence of
state law protections for minority shareholders such as Section 203 of the
Delaware Corporations Code, we believe it is in the best interests of
shareholders to remove fair price provisions.
Control
Share Statutes
Certain
states, including Delaware, have adopted control share acquisition statutes as
an anti-takeover defense for certain closed-end investment companies and
business development companies. Control share statutes may prevent changes in
control by limiting voting rights of a person that acquires the ownership of
“control shares.” Control shares are shares of stock equal to or exceeding
specified percentages of company voting power, and a control share statute
prevents shares in excess of the specified percentage from being voted, unless:
(i) the board approves them to be voted; or (ii) the holder of the “control
shares” receives approval from a supermajority of “non-interested”
shareholders.
Depending
on the state of incorporation, companies may automatically rely on control share
statutes unless the fund’s board of trustees eliminates the application of the
control share statute to any or all fund share acquisitions, through adoption of
a provision in the fund's governing instrument or by fund board action alone. In
certain other states, companies must adopt control share
statutes.
In
our view, control share statues disenfranchise shareholders by reducing their
voting power to a level less than their economic interest and effectively
function as an anti-takeover device. We believe all shareholders should have an
opportunity to vote all of their shares. Moreover, anti-takeover measures may
prevent shareholders from receiving a buy-out premium for their
stock.
As
such, we will generally recommend voting for proposals to opt out of control
share acquisition statutes, unless doing so would allow the completion of a
takeover that is not in the best interests of shareholders; and against
proposals to amend the charter to include control share acquisition
provisions.
Further,
in cases where a closed-end fund or business development company has received a
public buyout offer and has relied on a control share statute as a defense
mechanism in the prior year, we will generally recommend shareholders vote
against the chair of the nominating and governance committee, absent a
compelling rationale as to why a rejected acquisition was not in the best
interests of shareholders.
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Quorum
Requirements
Glass
Lewis believes that a company’s quorum requirement should be set at a level high
enough to ensure that a broad range of shareholders are represented in person or
by proxy, but low enough that the company can transact necessary business.
Companies in the U.S. are generally subject to quorum requirements under the
laws of their specific state of incorporation. Additionally, those companies
listed on the NASDAQ Stock Market are required to specify a quorum in their
bylaws, provided however that such quorum may not be less than one-third of
outstanding shares. Prior to 2013, the New York Stock Exchange required a quorum
of 50% for listed companies, although this requirement was dropped in
recognition of individual state requirements and potential confusion for
issuers. Delaware, for example, required companies to provide for a quorum of no
less than one-third of outstanding shares; otherwise such quorum shall default
to a majority.
We
generally believe a majority of outstanding shares entitled to vote is an
appropriate quorum for the transaction of business at shareholder meetings.
However, should a company seek shareholder approval of a lower quorum
requirement we will generally support a reduced quorum of at least one-third of
shares entitled to vote, either in person or by proxy. When evaluating such
proposals, we also consider the specific facts and circumstances of the company,
such as size and shareholder base.
Director
and Officer Indemnification
While
Glass Lewis strongly believes that directors and officers should be held to the
highest standard when carrying out their duties to shareholders, some protection
from liability is reasonable to protect them against certain suits so that these
officers feel comfortable taking measured risks that may benefit shareholders.
As such, we find it appropriate for a company to provide indemnification and/or
enroll in liability insurance to cover its directors and officers so long as the
terms of such agreements are reasonable.
Officer
Exculpation
In
August 2022, the Delaware General Assembly amended Section 102(b)(7) of the
Delaware General Corporation Law (“DGCL”) to authorize corporations to adopt a
provision in their certificate of incorporation to eliminate or limit monetary
liability of certain corporate officers for breach of fiduciary duty of care.
Previously, the DGCL allowed only exculpation of corporate directors from breach
of fiduciary duty of care claims if the corporation’s certificate of
incorporation includes an exculpation provision.
The
amendment authorizes corporations to provide for exculpation of the following
officers: (i) the corporation’s president, chief executive officer, chief
operating officer, chief financial officer, chief legal officer, controller,
treasurer or chief accounting officer, (ii) “named executive officers”
identified in the corporation’s SEC filings, and (iii) individuals who have
agreed to be identified as officers of the corporation.
Corporate
exculpation provisions under the DGCL only apply to claims for breach of the
duty of care, and not to breaches of the duty of loyalty. Exculpation provisions
also do not apply to acts or omissions not in good faith or that involve
intentional misconduct, knowing violations of the law, or transactions involving
the receipt of any improper personal benefits. Furthermore, officers may not be
exculpated from claims brought against them by, or in the right of, the
corporation (i.e., derivative actions).
Under
Section 102(b)(7), a corporation must affirmatively elect to include an
exculpation provision in its certificate of incorporation. We will closely
evaluate proposals to adopt officer exculpation provisions on a case-by-case
basis. We will generally recommend voting against such proposals eliminating
monetary liability for
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breaches
of the duty of care for certain corporate officers, unless compelling rationale
for the adoption is provided by the board, and the provisions are
reasonable.
Reincorporation
In
general, Glass Lewis believes that the board is in the best position to
determine the appropriate jurisdiction of incorporation for the company. When
examining a management proposal to reincorporate to a different state or
country, we review the relevant financial benefits, generally related to
improved corporate tax treatment, as well as changes in corporate governance
provisions, especially those relating to shareholder rights, resulting from the
change in domicile. Where the financial benefits are de minimis and there is a
decrease in shareholder rights, we will recommend voting against the
transaction.
However,
costly, shareholder-initiated reincorporations are typically not the best route
to achieve the furtherance of shareholder rights. We believe shareholders are
generally better served by proposing specific shareholder resolutions addressing
pertinent issues which may be implemented at a lower cost, and perhaps even with
board approval. However, when shareholders propose a shift into a jurisdiction
with enhanced shareholder rights, Glass Lewis examines the significant ways
would the company benefit from shifting jurisdictions including the
following:
•Is
the board sufficiently independent?
•Does
the company have anti-takeover protections such as a poison pill or classified
board in place?
•Has
the board been previously unresponsive to shareholders (such as failing to
implement a shareholder proposal that received majority shareholder
support)?
•Do
shareholders have the right to call special meetings of
shareholders?
•Are
there other material governance issues of concern at the company?
•Has
the company’s performance matched or exceeded its peers in the past one and
three years?
•How
has the company ranked in Glass Lewis’ pay-for-performance analysis during the
last three years?
•Does
the company have an independent chair?
We
note, however, that we will only support shareholder proposals to change a
company’s place of incorporation in exceptional circumstances.
Exclusive
Forum and Fee-Shifting Bylaw Provisions
Glass
Lewis recognizes that companies may be subject to frivolous and opportunistic
lawsuits, particularly in conjunction with a merger or acquisition, that are
expensive and distracting. In response, companies have sought ways to prevent or
limit the risk of such suits by adopting bylaws regarding where the suits must
be brought or shifting the burden of the legal expenses to the plaintiff, if
unsuccessful at trial.
Glass
Lewis believes that charter or bylaw provisions limiting a shareholder’s choice
of legal venue are not in the best interests of shareholders. Such clauses may
effectively discourage the use of shareholder claims by increasing their
associated costs and making them more difficult to pursue. As such, shareholders
should be wary about approving any limitation on their legal recourse including
limiting themselves to a single jurisdiction (e.g., Delaware or federal courts
for matters arising under the Securities Act of 1933) without compelling
evidence that it will benefit shareholders.
For
this reason, we recommend that shareholders vote against any bylaw or charter
amendment seeking to adopt an exclusive forum provision unless the company: (i)
provides a compelling argument on why the
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provision
would directly benefit shareholders; (ii) provides evidence of abuse of legal
process in other, non-favored jurisdictions; (iii) narrowly tailors such
provision to the risks involved; and (iv) maintains a strong record of good
corporate governance practices.
Moreover,
in the event a board seeks shareholder approval of a forum selection clause
pursuant to a bundled bylaw amendment rather than as a separate proposal, we
will weigh the importance of the other bundled provisions when determining the
vote recommendation on the proposal. We will nonetheless recommend voting
against the chair of the governance committee for bundling disparate proposals
into a single proposal (refer to our discussion of nominating and governance
committee performance in Section I of the guidelines).
Similarly,
some companies have adopted bylaws requiring plaintiffs who sue the company and
fail to receive a judgment in their favor pay the legal expenses of the company.
These bylaws, also known as “fee-shifting” or “loser pays” bylaws, will likely
have a chilling effect on even meritorious shareholder lawsuits as shareholders
would face an strong financial disincentive not to sue a company. Glass Lewis
therefore strongly opposes the adoption of such fee-shifting bylaws and, if
adopted without shareholder approval, will recommend voting against the
governance committee. While we note that in June of 2015 the State of Delaware
banned the adoption of fee-shifting bylaws, such provisions could still be
adopted by companies incorporated in other states.
Authorized
Shares
Glass
Lewis believes that adequate capital stock is important to a company’s
operation. When analyzing a
request for additional shares, we typically
review four common reasons why a company might need additional capital
stock:
1.Stock
Split
— We typically consider three metrics when evaluating whether we think a stock
split is likely or necessary: The historical stock pre-split price, if any; the
current price relative to the company’s most common trading price over the past
52 weeks; and some absolute limits on stock price that, in our view, either
always make a stock split appropriate if desired by management or would almost
never be a reasonable price at which to split a stock.
2.Shareholder
Defenses
— Additional authorized shares could be used to bolster takeover defenses such
as a poison pill. Proxy filings often discuss the usefulness of additional
shares in defending against or discouraging a hostile takeover as a reason for a
requested increase. Glass Lewis is typically against such defenses and will
oppose actions intended to bolster such defenses.
3.Financing
for Acquisitions
— We look at whether the company has a history of using stock for acquisitions
and attempt to determine what levels of stock have typically been required to
accomplish such transactions. Likewise, we look to see whether this is discussed
as a reason for additional shares in the proxy.
4.Financing
for Operations
— We review the company’s cash position and its ability to secure financing
through borrowing or other means. We look at the company’s history of
capitalization and whether the company has had to use stock in the recent past
as a means of raising capital.
Issuing
additional shares generally dilutes existing holders in most circumstances.
Further, the availability of additional shares, where the board has discretion
to implement a poison pill, can often serve as a deterrent to interested
suitors. Accordingly, where we find that the company has not detailed a plan for
use of the proposed shares, or where the number of shares far exceeds those
needed to accomplish a detailed plan, we typically recommend against the
authorization of additional shares. Similar concerns may also lead us to
recommend
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against
a proposal to conduct a reverse stock split if the board does not state that it
will reduce the number of authorized common shares in a ratio proportionate to
the split.
With
regard to authorizations and/or increases in preferred shares, Glass Lewis is
generally against such authorizations, which allow the board to determine the
preferences, limitations and rights of the preferred shares (known as
“blank-check preferred stock”). We believe that granting such broad discretion
should be of concern to common shareholders, since blank-check preferred stock
could be used as an anti-takeover device or in some other fashion that adversely
affects the voting power or financial interests of common shareholders.
Therefore, we will generally recommend voting against such requests, unless the
company discloses a commitment to not use such shares as an anti-takeover
defense or in a shareholder rights plan, or discloses a commitment to submit any
shareholder rights plan to a shareholder vote prior to its
adoption.
While
we think that having adequate shares to allow management to make quick decisions
and effectively operate the business is critical, we prefer that, for
significant transactions, management come to shareholders to justify their use
of additional shares rather than providing a blank check in the form of a large
pool of unallocated shares available for any purpose.
Advance
Notice Requirements
We
typically recommend that shareholders vote against proposals that would require
advance notice of shareholder proposals or of director nominees.
These
proposals typically attempt to require a certain amount of notice before
shareholders are allowed to place proposals on the ballot. Notice requirements
typically range between three to six months prior to the annual meeting. Advance
notice requirements typically make it impossible for a shareholder who misses
the deadline to present a shareholder proposal or a director nominee that might
be in the best interests of the company and its shareholders.
We
believe shareholders should be able to review and vote on all proposals and
director nominees. Shareholders can always vote against proposals that appear
with little prior notice. Shareholders, as owners of a business, are capable of
identifying issues on which they have sufficient information and ignoring issues
on which they have insufficient information. Setting arbitrary notice
restrictions limits the opportunity for shareholders to raise issues that may
come up after the window closes.
Virtual
Shareholder Meetings
A
growing contingent of companies have elected to hold shareholder meetings by
virtual means only. Glass Lewis believes that virtual meeting technology can be
a useful complement to a traditional, in-person shareholder meeting by expanding
participation of shareholders who are unable to attend a shareholder meeting in
person (i.e., a “hybrid meeting”). However, we also believe that virtual-only
meetings have the potential to curb the ability of a company’s shareholders to
meaningfully communicate with the company’s management.
Prominent
shareholder rights advocates, including the Council of Institutional Investors,
have expressed concerns that such virtual-only meetings do not approximate an
in-person experience and may serve to reduce the board’s accountability to
shareholders. When analyzing the governance profile of companies that choose to
hold virtual-only meetings, we look for robust disclosure in a company’s proxy
statement which assures
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shareholders
that they will be afforded the same rights and opportunities to participate as
they would at an in-person meeting.
Examples
of effective disclosure include: (i) addressing the ability of shareholders to
ask questions during the meeting, including time guidelines for shareholder
questions, rules around what types of questions are allowed, and rules for how
questions and comments will be recognized and disclosed to meeting participants;
(ii) procedures, if any, for posting appropriate questions received during the
meeting and the company’s answers, on the investor page of their website as soon
as is practical after the meeting; (iii) addressing technical and logistical
issues related to accessing the virtual meeting platform; and (iv) procedures
for accessing technical support to assist in the event of any difficulties
accessing the virtual meeting.
We
will generally recommend voting against members of the governance committee
where the board is planning to hold a virtual-only shareholder meeting and the
company does not provide such disclosure.
Voting
Structure
Multi-Class
Share Structures
Glass
Lewis believes multi-class voting structures are typically not in the best
interests of common shareholders. Allowing one vote per share generally operates
as a safeguard for common shareholders by ensuring that those who hold a
significant minority of shares are able to weigh in on issues set forth by the
board.
Furthermore,
we believe that the economic stake of each shareholder should match their voting
power and that no small group of shareholders, family or otherwise, should have
voting rights different from those of other shareholders. On matters of
governance and shareholder rights, we believe shareholders should have the power
to speak and the opportunity to effect change. That power should not be
concentrated in the hands of a few for reasons other than economic
stake.
We
generally consider a multi-class share structure to reflect negatively on a
company’s overall corporate governance. Because we believe that companies should
have share capital structures that protect the interests of non-controlling
shareholders as well as any controlling entity, we typically recommend that
shareholders vote in favor of recapitalization proposals to eliminate dual-class
share structures. Similarly, we will generally recommend against proposals to
adopt a new class of common stock. We will generally recommend voting against
the chair of the governance committee at companies with a multi-class share
structure and unequal voting rights when the company does not provide for a
reasonable sunset of the multi-class share structure (generally seven years or
less).
In
the case of a board that adopts a multi-class share structure in connection with
an IPO, spin-off, or direct listing within the past year, we will generally
recommend voting against all members of the board who served at the time of the
IPO if the board: (i) did not also commit to submitting the multi-class
structure to a shareholder vote at the company’s first shareholder meeting
following the IPO; or (ii) did not provide for a reasonable sunset of the
multi-class structure (generally seven years or less). If the multi-class share
structure is put to a shareholder vote, we will examine the level of approval or
disapproval attributed to unaffiliated shareholders when determining the vote
outcome.
At
companies that have multi-class share structures with unequal voting rights, we
will carefully examine the level of approval or disapproval attributed to
unaffiliated shareholders when determining whether board responsiveness is
warranted. In the case of companies that have multi-class share structures with
unequal voting
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rights,
we will generally examine the level of approval or disapproval attributed to
unaffiliated shareholders on a “one share, one vote” basis. At controlled and
multi-class companies, when at least 20% or more of unaffiliated shareholders
vote contrary to management, we believe that boards should engage with
shareholders and demonstrate some initial level of responsiveness, and when a
majority or more of unaffiliated shareholders vote contrary to management we
believe that boards should engage with shareholders and provide a more robust
response to fully address shareholder concerns.
Cumulative
Voting
Cumulative
voting increases the ability of minority shareholders to elect a director by
allowing shareholders to cast as many shares of the stock they own multiplied by
the number of directors to be elected. As companies generally have multiple
nominees up for election, cumulative voting allows shareholders to cast all of
their votes for a single nominee, or a smaller number of nominees than up for
election, thereby raising the likelihood of electing one or more of their
preferred nominees to the board. It can be important when a board is controlled
by insiders or affiliates and where the company’s ownership structure includes
one or more shareholders who control a majority-voting block of company
stock.
Glass
Lewis believes that cumulative voting generally acts as a safeguard for
shareholders by ensuring that those who hold a significant minority of shares
can elect a candidate of their choosing to the board. This allows the creation
of boards that are responsive to the interests of all shareholders rather than
just a small group of
large holders.
We
review cumulative voting proposals on a case-by-case basis, factoring in the
independence of the board and the status of the company’s governance structure.
But we typically find these proposals on ballots at companies where independence
is lacking and where the appropriate checks and balances favoring shareholders
are not in place. In those instances we typically recommend in favor of
cumulative voting.
Where
a company has adopted a true majority vote standard (i.e., where a director must
receive a majority of votes cast to be elected, as opposed to a modified policy
indicated by a resignation policy only), Glass Lewis will recommend voting
against cumulative voting proposals due to the incompatibility of the two
election methods. For companies that have not adopted a true majority voting
standard but have adopted some form of majority voting, Glass Lewis will also
generally recommend voting against cumulative voting proposals if the company
has not adopted anti-takeover protections and has been responsive to
shareholders.
Where
a company has not adopted a majority voting standard and is facing both a
shareholder proposal to adopt majority voting and a shareholder proposal to
adopt cumulative voting, Glass Lewis will support only the majority voting
proposal. When a company has both majority voting and cumulative voting in
place, there is a higher likelihood of one or more directors not being elected
as a result of not receiving a majority vote. This is because shareholders
exercising the right to cumulate their votes could unintentionally cause the
failed election of one or more directors for whom shareholders do not cumulate
votes.
Supermajority
Vote Requirements
Glass
Lewis believes that supermajority vote requirements impede shareholder action on
ballot items critical to shareholder interests. An example is in the takeover
context, where supermajority vote requirements can strongly limit the voice of
shareholders in making decisions on such crucial matters as selling the
business. This in turn degrades share value and can limit the possibility of
buyout premiums to shareholders. Moreover,
we believe that a supermajority
vote requirement can enable a small group of shareholders to overrule the will
2024
Benchmark Policy Guidelines — United States 73
of
the majority shareholders. We believe that a simple majority is appropriate to
approve all matters presented to shareholders.
Transaction
of Other Business
We
typically recommend that shareholders not give their proxy to management to vote
on any other business items that may properly come before an annual or special
meeting. In our opinion, granting unfettered discretion is unwise.
Anti-Greenmail
Proposals
Glass
Lewis will support proposals to adopt a provision preventing the payment of
greenmail, which would serve to prevent companies from buying back company stock
at significant premiums from a certain shareholder. Since a large or majority
shareholder could attempt to compel a board into purchasing its shares at a
large premium, the anti-greenmail provision would generally require that a
majority of shareholders other than the majority shareholder approve the
buyback.
Mutual
Funds: Investment Policies and Advisory Agreements
Glass
Lewis believes that decisions about a fund’s structure and/or a fund’s
relationship with its investment advisor or sub-advisors are generally best left
to management and the members of the board, absent a showing of egregious or
illegal conduct that might threaten shareholder value. As such, we focus our
analyses of such proposals on the following main areas:
•The
terms of any amended advisory or sub-advisory agreement;
•Any
changes in the fee structure paid to the investment advisor; and
•Any
material changes to the fund’s investment objective or strategy.
We
generally support amendments to a fund’s investment advisory agreement absent a
material change that is not in the best interests of shareholders. A significant
increase in the fees paid to an investment advisor would be reason for us to
consider recommending voting against a proposed amendment to an investment
advisory agreement or fund reorganization. However, in certain cases, we are
more inclined to support an increase in advisory fees if such increases result
from being performance-based rather than asset-based. Furthermore, we generally
support sub-advisory agreements between a fund’s advisor and sub-advisor,
primarily because the fees received by the sub-advisor are paid by the advisor,
and not by the fund.
In
matters pertaining to a fund’s investment objective or strategy, we believe
shareholders are best served when a fund’s objective or strategy closely
resembles the investment discipline shareholders understood and selected when
they initially bought into the fund. As such, we generally recommend voting
against amendments to a fund’s investment objective or strategy when the
proposed changes would leave shareholders with stakes in a fund that is
noticeably different than when originally purchased, and which could therefore
potentially negatively impact some investors’ diversification strategies.
Real
Estate Investment Trusts
2024
Benchmark Policy Guidelines — United States 74
The
complex organizational, operational, tax and compliance requirements of Real
Estate Investment Trusts (REITs) provide for a unique shareholder evaluation. In
simple terms, a REIT must have a minimum of 100 shareholders (the 100
Shareholder Test) and no more than 50% of the value of its shares can be held by
five or fewer individuals (the “5/50 Test”). At least 75% of a REITs’ assets
must be in real estate, it must derive 75% of its gross income from rents or
mortgage interest, and it must pay out 90% of its taxable earnings as dividends.
In addition, as a publicly traded security listed on a stock exchange, a REIT
must comply with the same general listing requirements as a publicly traded
equity.
In
order to comply with such requirements, REITs typically include percentage
ownership limitations in their organizational documents, usually in the range of
5% to 10% of the REITs outstanding shares. Given the complexities of REITs as an
asset class, Glass Lewis applies a highly nuanced approach in our evaluation of
REIT proposals, especially regarding changes in authorized share capital,
including preferred stock.
Preferred
Stock Issuances at REITs
Glass
Lewis is generally against the authorization of "blank-check preferred stock."
However, given the requirement that a REIT must distribute 90% of its net income
annually, it is inhibited from retaining capital to make investments in its
business. As such, we recognize that equity financing likely plays a key role in
a REIT’s growth and creation of shareholder value. Moreover, shareholder concern
regarding the use of preferred stock as an anti-takeover mechanism may be
allayed by the fact that most REITs maintain ownership limitations in their
certificates of incorporation. For these reasons, along with the fact that REITs
typically do not engage in private placements of preferred stock (which result
in the rights of common shareholders being adversely impacted), we may support
requests to authorize shares of blank-check preferred stock at
REITs.
Business
Development Companies
Business
Development Companies (BDCs) were created by the U.S. Congress in 1980; they are
regulated under the Investment Company Act of 1940 and are taxed as regulated
investment companies (RICs) under the Internal Revenue Code. BDCs typically
operate as publicly traded private equity firms that invest in early stage to
mature private companies as well as small public companies. BDCs realize
operating income when their investments are sold off, and therefore maintain
complex organizational, operational, tax and compliance requirements that are
similar to those of REITs—the most evident of which is that BDCs must distribute
at least 90% of their taxable earnings as dividends.
Authorization
to Sell Shares at a Price Below Net Asset Value
Considering
that BDCs are required to distribute nearly all their earnings to shareholders,
they sometimes need to offer additional shares of common stock in the public
markets to finance operations and acquisitions. However, shareholder approval is
required in order for a BDC to sell shares of common stock at a price below Net
Asset Value (NAV). Glass Lewis evaluates these proposals using a case-by-case
approach, but will recommend supporting such requests if the following
conditions are met:
•The
authorization to allow share issuances below NAV has an expiration date of one
year or less from the date that shareholders approve the underlying proposal
(i.e., the meeting date);
•The
proposed discount below NAV is minimal (ideally no greater than
20%);
•The
board specifies that the issuance will have a minimal or modest dilutive effect
(ideally no greater than 25% of the company’s then-outstanding common stock
prior to the issuance); and
2024
Benchmark Policy Guidelines — United States 75
•A
majority of the company’s independent directors who do not have a financial
interest in the issuance approve the sale.
In
short, we believe BDCs should demonstrate a responsible approach to issuing
shares below NAV, by proactively addressing shareholder concerns regarding the
potential dilution of the requested share issuance, and explaining if and how
the company’s past below-NAV share issuances have benefitted the company.
Auditor
Ratification and Below-NAV Issuances
When
a BDC submits a below-NAV issuance for shareholder approval, we will refrain
from recommending against the audit committee chair for not including auditor
ratification on the same ballot. Because of the unique way these proposals
interact, votes may be tabulated in a manner that is not in shareholders’
interests. In cases where these proposals appear on the same ballot, auditor
ratification is generally the only “routine proposal,” the presence of which
triggers a scenario where broker non-votes may be counted toward shareholder
quorum, with unintended consequences.
Under
the 1940 Act, below-NAV issuance proposals require relatively high shareholder
approval. Specifically, these proposals must be approved by the lesser of: (i)
67% of votes cast if a majority of shares are represented at the meeting; or
(ii) a majority of outstanding shares. Meanwhile, any broker non-votes counted
toward quorum will automatically be registered as “against” votes for purposes
of this proposal. The unintended result can be a case where the issuance
proposal is not approved, despite sufficient voting shares being cast in favor.
Because broker non-votes result from a lack of voting instruction by the
shareholder, we do not believe shareholders’ ability to weigh in on the
selection of auditor outweighs the consequences of failing to approve an
issuance proposal due to such technicality.
Special
Purpose Acquisition Companies
Special
Purpose Acquisition Companies (SPACs), also known as “blank check companies,”
are publicly traded entities with no commercial operations and are formed
specifically to pool funds in order to complete a merger or acquisition within a
set time frame. In general, the acquisition target of a SPAC is either not yet
identified or otherwise not explicitly disclosed to the public even when the
founders of the SPAC may have at least one target in mind. Consequently, IPO
investors often do not know what company they will ultimately be investing
in.
SPACs
are therefore very different from typical operating companies. Shareholders do
not have the same expectations associated with an ordinary publicly traded
company and executive officers of a SPAC typically do not continue in employment
roles with an acquired company.
Extension
of Business Combination Deadline
Governing
documents of SPACs typically provide for the return of IPO proceeds to common
shareholders if no qualifying business combination is consummated before a
certain date. Because the time frames for the consummation of such transactions
are relatively short, SPACs will sometimes hold special shareholder meetings at
which shareholders are asked to extend the business combination deadline. In
such cases, an acquisition target will typically have been identified, but
additional time is required to allow management of the SPAC to finalize the
terms of the deal.
2024
Benchmark Policy Guidelines — United States 76
Glass
Lewis believes management and the board are generally in the best position to
determine when the extension of a business combination deadline is needed. We
therefore generally defer to the recommendation of management and support
reasonable extension requests.
SPAC
Board Independence
The
board of directors of a SPAC’s acquisition target is in many cases already
established prior to the business combination. In some cases, however, the
board’s composition may change in connection with the business combination,
including the potential addition of individuals who served in management roles
with the SPAC. The role of a SPAC executive is unlike that of a typical
operating company executive. Because the SPAC’s only business is identifying and
executing an acquisition deal, the interests of a former SPAC executive are also
different. Glass Lewis does not automatically consider a former SPAC executive
to be affiliated with the acquired operating entity when their only position on
the board of the combined entity is that of an otherwise independent director.
Absent any evidence of an employment relationship or continuing material
financial interest in the combined entity, we will therefore consider such
directors to be independent.
Director
Commitments of SPAC Executives
We
believe the primary role of executive officers at SPACs is identifying
acquisition targets for the SPAC and consummating a business combination. Given
the nature of these executive roles and the limited business operations of
SPACs, when a directors’ only executive role is at a SPAC, we will generally
apply our higher limit for company directorships. As a result, we generally
recommend that shareholders vote against a director who serves in an executive
role only at a SPAC while serving on more than five public company
boards.
Shareholder
Proposals
Glass
Lewis believes that shareholders should seek to promote governance structures
that protect shareholders, support effective ESG oversight and reporting, and
encourage director accountability. Accordingly, Glass Lewis places a significant
emphasis on promoting transparency, robust governance structures and companies’
responsiveness to and engagement with shareholders. We also believe that
companies should be transparent on how they are mitigating material ESG risks,
including those related to climate change, human capital management, and
stakeholder relations.
To
that end, we evaluate all shareholder proposals on a case-by-case basis with a
view to promoting long-term shareholder value. While we are generally supportive
of those that promote board accountability, shareholder rights, and
transparency, we consider all proposals in the context of a company’s unique
operations and risk profile.
For
a detailed review of our policies concerning compensation, environmental,
social, and governance shareholder proposals, please refer to our comprehensive
Proxy
Paper Guidelines for Shareholder Proposals & ESG-Related Issues,
available at www.glasslewis.com/voting-policies-current/.
2024
Benchmark Policy Guidelines — United States 77
Overall
Approach to Environmental, Social & Governance Issues
Glass
Lewis evaluates all environmental and social issues through the lens of
long-term shareholder value. We believe that companies should be considering
material environmental and social factors in all aspects of their operations and
that companies should provide shareholders with disclosures that allow them to
understand how these factors are being considered and how attendant risks are
being mitigated. We also are of the view that governance is a critical factor in
how companies manage environmental and social risks and opportunities and that a
well-governed company will be generally managing these issues better than one
without a governance structure that promotes board independence and
accountability.
We
believe part of the board’s role is to ensure that management conducts a
complete risk analysis of company operations, including those that have material
environmental and social implications. We believe that directors should monitor
management’s performance in both capitalizing on environmental and social
opportunities and mitigating environmental and social risks related to
operations in order to best serve the interests of shareholders. Companies face
significant financial, legal and reputational risks resulting from poor
environmental and social practices, or negligent oversight thereof. Therefore,
in cases where the board or management has neglected to take action on a
pressing issue that could negatively impact shareholder value, we believe that
shareholders should take necessary action in order to effect changes that will
safeguard their financial interests.
Given
the importance of the role of the board in executing a sustainable business
strategy that allows for the realization of environmental and social
opportunities and the mitigation of related risks, relating to environmental
risks and opportunities, we believe shareholders should seek to promote
governance structures that protect shareholders and promote director
accountability. When management and the board have displayed disregard for
environmental or social risks, have engaged in egregious or illegal conduct, or
have failed to adequately respond to current or imminent environmental and
social risks that threaten shareholder value, we believe shareholders should
consider holding directors accountable. In such instances, we will generally
recommend against responsible members of the board that are specifically charged
with oversight of the issue in question.
When
evaluating environmental and social factors that may be relevant to a given
company, Glass Lewis does so in the context of the financial materiality of the
issue to the company’s operations. We believe that all companies face risks
associated with environmental and social issues. However, we recognize that
these risks manifest themselves differently at each company as a result of a
company’s operations, workforce, structure, and geography, among other factors.
Accordingly, we place a significant emphasis on the financial implications of a
company’s actions with regard to impacts on its stakeholders and the
environment.
When
evaluating environmental and social issues, Glass Lewis examines
companies’:
Direct
environmental and social risk
— Companies should evaluate financial exposure to direct environmental risks
associated with their operations. Examples of direct environmental risks include
those associated with oil or gas spills, contamination, hazardous leakages,
explosions, or reduced water or air quality, among others. Social risks may
include non-inclusive employment policies, inadequate human rights policies, or
issues that adversely affect the company’s stakeholders. Further, we believe
that firms should consider their exposure to risks
2024
Benchmark Policy Guidelines — United States 78
emanating
from a broad range of issues, over which they may have no or only limited
control, such as insurance companies being affected by increased storm severity
and frequency resulting from climate change
Risk
due to legislation and regulation —
Companies should evaluate their exposure to changes or potential changes in
regulation that affect current and planned operations. Regulation should be
carefully monitored in all jurisdictions in which the company operates. We look
closely at relevant and proposed legislation and evaluate whether the company
has responded proactively.
Legal
and reputational risk
— Failure to take action on important environmental or social issues may carry
the risk of inciting negative publicity and potentially costly litigation. While
the effect of high-profile campaigns on shareholder value may not be directly
measurable, we believe it is prudent for companies to carefully evaluate the
potential impacts of the public perception of their impacts on stakeholders and
the environment. When considering investigations and lawsuits, Glass Lewis is
mindful that such matters may involve unadjudicated allegations or other charges
that have not been resolved. Glass Lewis does not assume the truth of such
allegations or charges or that the law has been violated. Instead, Glass Lewis
focuses more broadly on whether, under the particular facts and circumstances
presented, the nature and number of such concerns, lawsuits or investigations
reflects on the risk profile of the company or suggests that appropriate risk
mitigation measures may be warranted.
Governance
risk
— Inadequate oversight of environmental and social issues carries significant
risks to companies. When leadership is ineffective or fails to thoroughly
consider potential risks, such risks are likely unmitigated and could thus
present substantial risks to the company, ultimately leading to loss of
shareholder value.
Glass
Lewis believes that one of the most crucial factors in analyzing the risks
presented to companies in the form of environmental and social issues is the
level and quality of oversight over such issues. When management and the board
have displayed disregard for environmental risks, have engaged in egregious or
illegal conduct, or have failed to adequately respond to current or imminent
environmental risks that threaten shareholder value, we believe shareholders
should consider holding directors accountable. When companies have not provided
for explicit, board-level oversight of environmental and social matters and/or
when a substantial environmental or social risk has been ignored or inadequately
addressed, we may recommend voting against members of the board. In addition, or
alternatively, depending on the proposals presented, we may also consider
recommending voting in favor of relevant shareholder proposals or against other
relevant management-proposed items, such as the ratification of auditor, a
company’s accounts and reports, or ratification of management and board
acts.
2024
Benchmark Policy Guidelines — United States 79
Connect
with Glass Lewis
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2024
Benchmark Policy Guidelines — United States 80
DISCLAIMER
©
2023 Glass, Lewis & Co., and/or its affiliates. All Rights
Reserved.
This
document is intended to provide an overview of Glass Lewis’ proxy voting
guidelines. It is not intended to be exhaustive and does not address all
potential voting issues. Glass Lewis’ proxy voting guidelines, as they apply to
certain issues or types of proposals, are further explained in supplemental
guidelines and reports that are made available on Glass Lewis’ website –
http://www.glasslewis.com.
These guidelines have not been set or approved by the U.S. Securities and
Exchange Commission or any other regulatory body. Additionally, none of the
information contained herein is or should be relied upon as investment advice.
The content of this document has been developed based on Glass Lewis’ experience
with proxy voting and corporate governance issues, engagement with clients and
issuers, and review of relevant studies and surveys, and has not been tailored
to any specific person or entity.
Glass
Lewis’ proxy voting guidelines are grounded in corporate governance best
practices, which often exceed minimum legal requirements. Accordingly, unless
specifically noted otherwise, a failure to meet these guidelines should not be
understood to mean that the company or individual involved has failed to meet
applicable legal requirements.
No
representations or warranties express or implied, are made as to the accuracy or
completeness of any information included herein. In addition, Glass Lewis shall
not be liable for any losses or damages arising from or in connection with the
information contained herein or the use, reliance on, or inability to use any
such information. Glass Lewis expects its subscribers to possess sufficient
experience and knowledge to make their own decisions entirely independent of any
information contained in this document.
All
information contained in this report is protected by law, including, but not
limited to, copyright law, and none of such information may be copied or
otherwise reproduced, repackaged, further transmitted, transferred,
disseminated, redistributed or resold, or stored for subsequent use for any such
purpose, in whole or in part, in any form or manner, or by any means whatsoever,
by any person without Glass Lewis’ prior written consent.
2024
Benchmark Policy Guidelines — United States 81
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Summary of 2024 Benchmark Policy Guideline
Updates 2
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Global
Summary of 2024 Benchmark Policy Guideline
Updates 3
About
Glass Lewis
Glass
Lewis is the world’s choice for governance solutions. We enable
institutional investors and publicly listed companies to make informed decisions
based on research and data. We cover 30,000+ meetings each year, across
approximately 100 global markets. Our team has been providing in-depth
analysis of companies since 2003, relying solely on publicly available
information to inform its policies, research, and voting
recommendations.
Our
customers include the majority of the world’s largest pension plans, mutual
funds, and asset
managers, collectively managing over $40 trillion in
assets. We have teams located across the United States, Europe, and
Asia-Pacific giving us global reach with a local perspective on the important
governance issues.
Investors
around the world depend on Glass Lewis’ Viewpoint
platform to manage their proxy voting, policy implementation, recordkeeping, and
reporting. Our industry leading Proxy
Paper
product provides comprehensive environmental, social, and governance research
and voting recommendations weeks ahead of voting deadlines. Public companies can
also use our innovative Report
Feedback Statement
to deliver their opinion on our proxy research directly to the voting decision
makers at every investor client in time for voting decisions to be made or
changed.
The
research team engages extensively with public companies, investors, regulators,
and other industry stakeholders to gain relevant context into the realities
surrounding companies, sectors, and the market in general. This enables us to
provide the most comprehensive and pragmatic insights to our customers.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 4
Introduction
& Process
This
document includes a summary of all key updates made to our market-based
benchmark policy guidelines for 2024, covering regions with a H1 “proxy season.”
A detailed overview of the policies we apply in each market is available on
our
website.
These
benchmark policy guidelines form the basis of our analysis and voting
recommendations for companies traded in each applicable geographic region. They
generally reflect the current, predominant views of institutional investor
clients on corporate governance best practices and incorporate the evaluation of
material environmental and social issues through the lens of long-term
shareholder value. In conducting our analysis, we also review each company and
proposal on a case-by-case basis, considering the company’s performance,
industry, stock exchange, place of incorporation and other factors.
Glass
Lewis Benchmark Policy Updates
Glass
Lewis evaluates the benchmark policy guidelines on an ongoing basis. We update
them annually, and when material changes to regulation or market practice occur
during the year. For markets that conduct their proxy season in the first half
of the calendar year, annual policy updates are published in November and
December, taking effect at the start of the next calendar year. For markets that
hold their proxy season later in the calendar year (Australia, India, New
Zealand and South Africa), annual policy updates are published one-to-two months
ahead of the season.
In
developing our policies, we consider a diverse range of perspectives and inputs,
with ongoing analysis of regulatory developments, academic research and evolving
market practices as a starting point. We incorporate insights gained from
discussions with institutional investors, trade groups and other market
participants, as well as meetings of the Glass Lewis Research Advisory Council.
Further, our public company engagement program helps to shape our guidelines by
adding essential market- and industry-specific context.
This
year, we augmented our policy review process by offering all Glass Lewis
institutional investor clients, as well as corporate and other subscribers to
our research, the opportunity to weigh in on various corporate governance
matters. The goal of this survey was to formalize our existing processes for
incorporating client and market perspectives, with a focus on policy areas where
we have recently observed new practices or where our previous discussions and
engagements with investors, corporate issuers and other stakeholders have not
yielded a clear consensus. We are pleased that in its first year, the Glass
Lewis Client Policy Survey generated strong interest from a range of market
participants, with over 500 total responses.
Beyond
the Benchmark
It
is important to note that the Glass Lewis benchmark policy is just one voting
option Glass Lewis clients can choose, either to adopt as their own or to use as
a starting point for the creation of their own custom policy.
Glass
Lewis serves a global client base with a broad range of views on corporate
governance issues. For this reason, Glass Lewis offers its clients a menu of
other “thematic” policy options, which are distinct from the benchmark policy,
and which reflect different perspectives on investment and share ownership
strategies.
For
more information on our thematic voting policy options or to inquire about
implementing your own custom policy, please contact
us.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 5
Americas
Argentina
Director
Accountability for Climate-Related Issues
As
of 2023, Glass Lewis included a new discussion on director accountability for
climate related issues. In particular, we believe that clear and comprehensive
disclosure regarding climate risks, including how they are being mitigated and
overseen, should be provided by those companies whose own GHG emissions
represent a financially material risk.
Accordingly,
for companies with material exposure to climate risk stemming from their own
operations, we believe they should provide thorough climate-related disclosures
in line with the recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD). We also believe the boards of these companies should have
explicit and clearly defined oversight responsibilities for climate-related
issues. As such, in instances where we find either of these disclosures to be
absent or significantly lacking, we may recommend voting against responsible
directors.
While
this policy was applied to the largest, most significant emitters in 2023,
beginning in 2024, Glass Lewis will apply this policy to the most large-cap
companies operating in industries where the Sustainability Accounting Standards
Board (SASB) has determined that companies’ GHG emissions represent a
financially material risk.
Cyber
Risk Oversight
We
have expanded our policy on cyber risk oversight to outline our belief that,
where a company has been materially impacted by a cyber-attack, shareholders can
reasonably expect periodic updates communicating the company’s ongoing process
towards resolving and remediating the impact of the attack.
In
instances where a company has been materially impacted by a cyber-attack, we may
recommend against appropriate directors should we find the board’s oversight,
response or disclosures concerning cybersecurity-related issues to be
insufficient, or not provided to shareholders.
Interlocking
Directorships
We
have expanded our policy on interlocking directorships to specify that we
consider both public and private companies. Further, we have specified that we
evaluate other types of interlocking relationships on a case-by-case basis, and
review multiple board interlocks among non-insiders for evidence of a pattern of
poor oversight.
Director
Attendance
We
have clarified that in our assessment of director attendance, we typically
recommend voting against the re-election of directors that attended fewer than
(i) 75% of board meetings; or (ii) an aggregate of 75% of board and applicable
committee meetings. We will continue to typically grant exceptions to directors
in their first year of service on a board or when the company discloses
mitigating circumstances for a director’s poor attendance record.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 6
Accounts
and Reports
We
have clarified that, on a case-by-case basis, we may recommend that shareholders
vote against proposals to approve or acknowledge a company’s accounts and
reports in instances where the statutory auditor has refused to provide an
unqualified opinion on the financial statements. In these circumstances, we will
assess the reasoning provided by the statutory auditor as well as any relevant
disclosure from the company.
Further,
we have clarified that in cases where the statutory auditor has included an
emphasis of matter or raised concerns regarding the going concern basis of a
company in its report on the financial statements, this will generally not lead
to a recommendation to vote against proposals to approve or acknowledge a
company’s accounts and reports unless there are other legitimate concerns
regarding the integrity of the financial statements and reports.
Brazil
Director
Accountability for Climate-Related Issues
Beginning
in 2023, Glass Lewis included a new discussion on director accountability for
climate related issues. In particular, we believe that clear and comprehensive
disclosure regarding climate risks, including how they are being mitigated and
overseen, should be provided by those companies whose own GHG emissions
represent a financially material risk.
For
companies with material exposure to climate risk stemming from their own
operations, we believe they should provide thorough climate-related disclosures
in line with the recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD). We also believe the boards of these companies should have
explicit and clearly defined oversight responsibilities for climate-related
issues. As such, in instances where we find either of these disclosures to be
absent or significantly lacking, we may recommend voting against responsible
directors.
While
this policy was applied to the largest, most significant emitters in 2023,
beginning in 2024, Glass Lewis will apply this policy to most large-cap
companies operating in industries where the Sustainability Accounting Standards
Board (SASB) has determined that companies’ GHG emissions represent a
financially material risk.
Cyber
Risk Oversight
We
have expanded our policy on cyber risk oversight to outline our belief that,
where a company has been materially impacted by a cyber-attack, shareholders can
reasonably expect periodic updates communicating the company’s ongoing process
towards resolving and remediating the impact of the attack.
In
instances where a company has been materially impacted by a cyber-attack, we may
recommend against appropriate directors should we find the board’s oversight,
response or disclosures concerning cybersecurity-related issues to be
insufficient, or not provided to shareholders.
Interlocking
Directorships
We
have expanded our policy on interlocking directorships to specify that we
consider both public and private companies. Further, we have specified that we
evaluate other types of interlocking relationships on a case-by-case basis, and
review multiple board interlocks among non-insiders for evidence of a pattern of
poor oversight.
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Director
Attendance
We
have clarified that in our assessment of director attendance, we typically
recommend voting against the re-election of directors that attended fewer than
(i) 75% of board meetings; or (ii) an aggregate of 75% of board and applicable
committee meetings. We will continue to typically grant exceptions to directors
in their first year of service on a board or when the company discloses
mitigating circumstances for a director’s poor attendance record.
Accounts
and Reports
We
have clarified that, on a case-by-case basis, we may recommend that shareholders
vote against proposals to approve or acknowledge a company’s accounts and
reports in instances where the statutory auditor has refused to provide an
unqualified opinion on the financial statements. In these circumstances, we will
assess the reasoning provided by the statutory auditor as well as any relevant
disclosure from the company.
Further,
we have clarified that in cases where the statutory auditor has included an
emphasis of matter or raised concerns regarding the going concern basis of a
company in its report on the financial statements, this will generally not lead
to a recommendation to vote against proposals to approve or acknowledge a
company’s accounts and reports unless there are other legitimate concerns
regarding the integrity of the financial statements and reports.
Canada
Board
Accountability for Climate-Related Issues
Beginning
in 2023, Glass Lewis included a new discussion on director accountability for
climate-related issues. In particular, we believe that clear and comprehensive
disclosure regarding climate risks, including how they are being mitigated and
overseen, should be provided by those companies whose own GHG emissions
represent a financially material risk.
Accordingly,
for companies with material exposure to climate risk stemming from their own
operations, we believe they should provide thorough climate-related disclosures
in line with the recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD). We also believe the boards of these companies should have
explicit and clearly defined oversight responsibilities for climate-related
issues. As such, in instances where we find either of these disclosures to be
absent or significantly lacking, we may recommend voting against responsible
directors.
While
this policy was applied to the largest, most significant emitters in 2023,
beginning in 2024, Glass Lewis will apply this policy to TSX 60 companies
operating in industries where the Sustainability Accounting Standards Board
(SASB) has determined that companies’ GHG emissions represent a financially
material risk.
Human
Capital Management
We
have updated our guidelines to state that in egregious cases where a board has
failed to respond to legitimate concerns with a company’s human capital
management practices, we may recommend voting against the chair of the committee
tasked with oversight of the company’s environmental and/or social issues, the
chair of the governance committee or the chair of the board, as
applicable.
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Cyber
Risk Oversight
We
have expanded our policy on cyber risk oversight to outline our belief that,
where a company has been materially impacted by a cyber-attack, shareholders can
reasonably expect periodic updates communicating the company’s ongoing process
towards resolving and remediating the impact of the attack.
In
instances where a company has been materially impacted by a cyber-attack, we may
recommend against appropriate directors should we find the board’s oversight,
response or disclosures concerning cybersecurity-related issues to be
insufficient or not clearly outlined to shareholders.
Interlocking
Directorships
We
have expanded our policy on interlocking directorships to specify that we
consider both public and private companies. Further, we have specified that we
evaluate other types of interlocking relationships on a case-by-case basis and
review multiple board interlocks among non-insiders for evidence of a pattern of
poor oversight.
Audit
Financial Expert Designation
We
have revised the criteria by which we designate a director as an “audit
financial expert”. Specifically, we would generally expect company disclosure of
such a director’s experience as one or more of the following: (i) a chartered
accountant; (ii) a certified public accountant; (iii) a former or current CFO of
a public company or corporate controller of similar experience; (iv) a current
or former partner of an audit company; or (v) having similar demonstrably
meaningful audit experience. We now consider the audit financial expert
designation distinctly from the financial skill in our skills matrix, which
encompasses more generalized financial professional experience beyond accounting
or audit experience.
Clawback
Provisions
We
have updated our policy on the utility of clawback provisions to reflect that
the negative impacts of excessive risk-taking do not always result in financial
restatements but may nonetheless prove harmful to shareholder value. We believe
effective clawback policies should provide companies with the power to recoup
incentive compensation from an executive when there
is evidence of problematic decisions or actions, such as material misconduct, a
material reputational failure, material risk management failure, or a material
operational failure, the consequences of which have not already been reflected
in incentive payments and where recovery is warranted.
Such power to recoup should be provided regardless of whether
the employment of the executive officer was terminated with or without
cause.
In these circumstances, rationale should be provided if the company determines
ultimately to refrain from recouping compensation as well as disclosure of
alternative measures that are instead pursued, such as the exercise of negative
discretion on future payments.
Executive
Ownership Guidelines
In
a new section of these guidelines, we have added a discussion to formally
outline our approach to executive ownership guidelines. We believe that
companies should facilitate an alignment between the interests of the executive
leadership with those of long-term shareholders by adopting and enforcing
minimum share ownership rules for its named executive officers. Companies should
provide clear disclosure in the Compensation Discussion and Analysis section of
the proxy statement of their executive share ownership requirements and how
various outstanding equity awards are treated when determining an executive’s
level of ownership.
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In
the process of determining an executive’s level of share ownership, counting
unearned performance-based full value awards and/or unvested/unexercised stock
options is inappropriate. Companies should provide a cogent rationale should
they count these awards towards shares held by an executive.
Proposals
for Equity Awards for Shareholders
Regarding
proposals seeking approval for individual equity awards, we have expanded our
section on front-loaded awards to include discussion on provisions requiring the
non-vote or vote of abstention from a shareholder if the shareholder is also the
recipient of the proposed grant. Such provisions help to address potential
conflict of interest issues and provide disinterested shareholders with more
equal say over the proposal. The inclusion of such provisions will be viewed
positively during our holistic analysis, especially when a vote from the
recipient of the proposed grant would materially influence the passage of the
proposal.
Clarifying
Amendments
The
following clarifications of our existing policies are included this year:
Nominating
and/or Corporate Governance Committees
In
Canada, the committees that are charged with nominating and corporate governance
responsibilities may be combined or separate. Therefore, to clearly delineate
our expectations for each committee in cases where they are not combined, we
have separated the previous “Nominating and Corporate Governance Committee
Performance” section into individual sections for “Nominating Committee
Performance” and “Corporate Governance Committee Performance”.
Governance
Following an IPO, Spin-Off or Direct Listing
We
have expanded our section on how we examine governance following an IPO,
spin-off or direct listing to note that, while we generally refrains from
issuing voting recommendations on the basis of corporate governance best
practices in such cases, where we determine that the board has approved overly
restrictive governing documents, we may recommend voting against members of the
governance committee (or the board chair, in the absence of this committee).
Moreover, we have clarified in this section that in the case of a board that
adopts a multi-class share structure in connection with an IPO, spin-off, or
direct listing within the past year, we will generally recommend against the
chair of the governance committee or most senior representative of the major
shareholder up for election if the board: (i) did not also commit to submitting
the multi-class structure to a shareholder vote at the company’s first
shareholder meeting following the IPO; or (ii) did not provide for a reasonable
sunset of the multi-class structure (generally seven years or
less).
Reconciliation
of Accounting Standards
We
have expanded the discussion of our approach to the use of non-IFRS/GAAP
measures in incentive programs to emphasize the need for thorough and
transparent disclosure in the proxy statement that will assist shareholders in
reconciling the difference between non-IFRS/GAAP results used for incentive
payout determinations and reported IFRS/GAAP results. Particularly in situations
where significant adjustments were applied, the lack of such disclosure will
impact Glass Lewis’ assessment of the quality of executive pay disclosure and
may be a factor in our recommendation for the say-on-pay.
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MILA
(Chile, Colombia, Mexico and Peru)
No
Material Changes
While
we have updated certain sections of these guidelines to reflect recent
regulatory developments, for the 2024 year we have made no noteworthy revisions
and will continue to apply our guidelines taking into account the market’s
regulations as well as international best practices.
United
States
Material
Weaknesses
We
have included a new discussion on our approach to material weaknesses. Effective
internal controls over financial reporting should ensure the integrity of
companies’ accounting and financial reporting. A material weakness occurs when a
company identifies a deficiency, or a combination of deficiencies, in internal
controls over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company's annual or interim financial
statements will not be prevented or detected on a timely basis.
We
believe it is the responsibility of audit committees to ensure that material
weaknesses are remediated in a timely manner and that companies disclose
remediation plans that include detailed steps to resolve a given material
weakness.
When
a material weakness is reported and the company has not disclosed a remediation
plan, or when a material weakness has been ongoing for more than one year and
the company has not disclosed an updated remediation plan that clearly outlines
the company’s progress toward remediating the material weakness, we will
consider recommending that shareholders vote against all members of a company’s
audit committee who served on the committee during the time when the material
weakness was identified.
Cyber
Risk Oversight
We
have updated our discussion on our approach to cyber risk oversight. On July 26,
2023, the U.S. Securities and Exchange Commission (SEC) announced rules
requiring public companies to report cybersecurity incidents deemed material
within four days of identifying them; furthermore, in annual reports, they must
disclose their processes for assessing, identifying, and managing material
cybersecurity risks, along with their material effects and past incidents'
impacts. Similar rules were also adopted for foreign private issuers. The final
rules became effective on September 5, 2023. Given the continued regulatory
focus on and the potential adverse outcomes from cyber-related issues, it is our
view that cyber risk is material for all companies.
In
the absence of material cybersecurity incidents, we will generally not make
voting recommendations on the basis of a company’s oversight or disclosure
concerning cyber-related issues. However, in instances where cyber-attacks have
caused significant harm to shareholders, we will closely evaluate the board’s
oversight of cybersecurity as well as the company’s response and
disclosures.
Moreover,
in instances where a company has been materially impacted by a cyber-attack, we
believe shareholders can reasonably expect periodic updates from the company
communicating its ongoing progress towards resolving and remediating the impact
of the cyber-attack. These disclosures should focus on the company’s response to
address the impacts to affected stakeholders and should not reveal specific
and/or
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technical
details that could impede the company’s response or remediation of the incident
or that could assist threat actors.
In
instances where a company has been materially impacted by a cyber-attack, we may
recommend against appropriate directors should we find the board’s oversight,
response or disclosures concerning cybersecurity-related issues to be
insufficient or are not provided to shareholders.
Board
Oversight of Environmental and Social Issues
We
have updated our discussion of board oversight of environmental and social
issues. Given the importance of the board’s role in overseeing environmental and
social risks, we believe that this responsibility should be formally designated
and codified in the appropriate committee charters or other governing
documents.
When
evaluating the board’s role in overseeing environmental and/or social issues, we
will examine a company’s committee charters and governing documents to determine
if the company has codified a meaningful level of oversight of and
accountability for a company’s material environmental and social
impacts.
Board
Accountability for Climate-Related Issues
We
have updated our discussion of board accountability for climate-related issues,
and how our policy is applied. In 2023, our policy on this topic was applied to
the largest, most significant emitters; however beginning in 2024, Glass Lewis
will apply this policy to companies in the S&P 500 index operating in
industries where the Sustainability Accounting Standards Board (SASB) has
determined that the companies’ GHG emissions represent a financially material
risk, as well as companies where we believe emissions or climate impacts, or
stakeholder scrutiny thereof, represent an outsized, financially material risk.
We
will assess whether such companies have produced disclosures in line with the
recommendations of the Task Force on Climate-related Financial Disclosures
(TCFD). We have further clarified that we will also assess whether these
companies have disclosed explicit and clearly defined board-level oversight
responsibilities for climate-related issues. In instances where we find either
of these disclosures to be absent of significantly lacking, we may recommend
voting against responsible directors.
Clawback
Provisions
In
light of new NYSE and Nasdaq listing requirements to comply with SEC Rule 10D-1
under the Securities Exchange Act of 1934, Glass Lewis has updated our views on
the utility of clawback provisions. Although the negative impacts of excessive
risk-taking do not always result in financial restatements, they may nonetheless
prove harmful to shareholder value. In addition to meeting listing requirements,
effective clawback policies should provide companies with the power to recoup
incentive compensation from an executive when there is evidence of
problematic decisions or actions, such as material misconduct, a material
reputational failure, material risk management failure, or a material
operational failure, the consequences of which have not already been reflected
in incentive payments and where recovery is warranted. Such power to recoup
should be provided regardless of whether the employment of the executive
officer was terminated
with or without cause.
In these circumstances, rationale should be provided if the company determines
ultimately to refrain from recouping compensation as well as disclosure of
alternative measures that are instead pursued, such as the exercise of negative
discretion on future payments.
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Executive
Ownership Guidelines
We
have added a discussion to formally outline our approach to executive ownership
guidelines. We believe that companies should facilitate an alignment between the
interests of the executive leadership with those of long-term shareholders by
adopting and enforcing minimum share ownership rules for their named executive
officers. Companies should provide clear disclosure in the Compensation
Discussion and Analysis section of the proxy statement of their executive share
ownership requirements and how various outstanding equity awards are treated
when determining an executive’s level of ownership.
In
the process of determining an executive’s level of share ownership, counting
unearned performance-based full value awards and/or unexercised stock options is
inappropriate. Companies should provide a cogent rationale should they count
these awards towards shares held by an executive.
Proposals
for Equity Awards for Shareholders
Regarding
proposals seeking approval for individual equity awards, we have included new
discussion of provisions that require a non-vote, or vote of abstention, from a
shareholder if the shareholder is also the recipient of the proposed grant. Such
provisions help to address potential conflict of interest issues and provide
disinterested shareholders with more meaningful say over the proposal. The
inclusion of such provisions will be viewed positively during our holistic
analysis, especially when a vote from the recipient of the proposed grant would
materially influence the passage of the proposal.
Net
Operating Loss (NOL) Pills
We
have updated our discussion of NOL pills to include our concerns with acting in
concert provisions. Over the past several years, the terms and structures of NOL
pills have evolved to include features such as acting in concert provisions,
among other concerning terms, that may disempower shareholders and insulate the
board and management. When acting in concert provisions are present within the
terms of a NOL pill, we believe this may raise concerns as to the true objective
of the pill.
Acting
in concert provisions broaden the definition of beneficial ownership to prohibit
parallel conduct, or multiple shareholders party to a formal or informal
agreement collaborating to influence the board and management of a company, and
aggregate the ownership of such shareholders towards the triggering threshold.
As
such, we have added the inclusion of an acting in concert provision and whether
the pill is implemented following the filing of a Schedule 13D by a shareholder
or there is evidence of hostile activity or shareholder activism as part of our
considerations to recommend shareholders vote against a management proposed NOL
pill.
Control
Share Statutes
We
have added a new discussion outlining our approach to control share statutes.
Certain states, including Delaware, have adopted control share acquisition
statutes as an anti-takeover defense for certain closed-end investment companies
and business development companies. Control share statutes may prevent changes
in control by limiting voting rights of a person that acquires the ownership of
“control shares.” Control shares are shares of stock equal to or exceeding
specified percentages of company voting power, and a control share statute
prevents shares in excess of the specified percentage from being voted, unless:
(i) the board approves
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them
to be voted; or (ii) the holder of the “control shares” receives approval from a
supermajority of “non-interested” shareholders.
Depending
on the state of incorporation, companies may automatically rely on control share
statutes unless the fund’s board of trustees eliminates the application of the
control share statute to any or all fund share acquisitions, through adoption of
a provision in the fund's governing instrument or by fund board action alone. In
certain other states, companies must adopt control share
statutes.
In
our view, control share statues disenfranchise shareholders by reducing their
voting power to a level less than their economic interest and effectively
function as an anti-takeover device. We believe all shareholders should have an
opportunity to vote all of their shares. Moreover, we generally believe
anti-takeover measures prevent shareholders from receiving a buy-out premium for
their stock.
As
such, we will generally recommend voting for proposals to opt out of control
share acquisition statutes, unless doing so would allow the completion of a
takeover that is not in the best interests of shareholders; and recommend voting
against proposals to amend the charter to include control share acquisition
provisions.
Further,
in cases where a closed-end fund or business development company has received a
public buyout offer and has relied on a control share statute as a defense
mechanism in the prior year, we will generally recommend shareholders vote
against the chair of the nominating and governance committee, absent a
compelling rationale as to why a rejected acquisition was not in the best
interests of shareholders.
Clarifying
Amendments
The
following clarifications of our existing policies are included this year:
Board
Responsiveness
We
have clarified our discussion of board responsiveness to remove a reference to
shareholder proposals from our discussion of when 20% or more of shareholders
vote contrary to management. In addition, we have clarified that our calculation
of opposition includes votes cast as either AGAINST and/or ABSTAIN.
Interlocking
Directorships
We
have clarified our policy on interlocking directorships to reference that, on a
case-by-case basis, we evaluate other types of interlocking relationships, such
as interlocks with close family members of executives or within group
companies.
Board
Gender Diversity
We
have clarified our policy on board gender diversity to emphasize that when
making these voting recommendations, we will carefully review a company’s
disclosure of its diversity considerations and may refrain from recommending
that shareholders vote against directors when boards have provided a sufficient
rationale or plan to address the lack of diversity on the board, including a
timeline of when the board intends to appoint additional gender diverse
directors (generally by the next annual meeting or as soon as is reasonably
practicable).
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Underrepresented
Community Diversity
We
have clarified our policy on underrepresented community diversity to emphasize
that when making these voting recommendations, we will carefully review a
company’s disclosure of its diversity considerations and may refrain from
recommending that shareholders vote against directors when boards have provided
a sufficient rationale or plan to address the lack of diversity on the board,
including a timeline of when the board intends to appoint additional directors
from an underrepresented community (generally by the next annual meeting or as
soon as is reasonably practicable).
Furthermore,
we have revised our definition of “underrepresented community director” to
replace our reference to an individual who self-identifies as gay, lesbian,
bisexual, or transgender with an individual who self-identifies as a member of
the LGBTQIA+ community.
Non-GAAP
to GAAP Reconciliation Disclosure
We
have expanded the discussion of our approach to the use of non-GAAP measures in
incentive programs in order to emphasize the need for thorough and transparent
disclosure in the proxy statement that will assist shareholders in reconciling
the difference between non-GAAP results used for incentive payout determinations
and reported GAAP results. Particularly in situations where significant
adjustments were applied and materially impacts incentive pay outcomes, the lack
of such disclosure will impact Glass Lewis’ assessment of the quality of
executive pay disclosure and may be a factor in our recommendation for the
say-on-pay.
Pay-Versus-Performance
Disclosure
We
have revised our discussion of the pay-for-performance analysis to note that the
pay-versus-performance disclosure mandated by the SEC may be used as part of our
supplemental quantitative assessments supporting our primary pay-for-performance
grade.
Company
Responsiveness for Say-on-Pay Opposition
For
increased clarity, we amended our discussion of company responsiveness to
significant levels of say-on-pay opposition to note that our calculation of
opposition includes votes cast as either AGAINST and/or ABSTAIN, with opposition
of 20% or higher treated as significant.
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Asia
China
Cumulative
Voting
We
have added a new paragraph to reflect China’s voting practice for the election
of directors and supervisors.
Director
Commitments
We
have updated our policy on board commitments for directors who also serve as
executives. From 2024, we have reduced our overcommitment threshold for
directors who also serve as executives to a total of two directorships
(previously three).
In
addition, we previously refrained from recommending a vote against overcommitted
executives at the company where they serve as an executive. Going forward, we
will generally recommend voting against an overcommitted executive at the
company where they serve as an executive if they hold more than four
directorships.
Postponement
of Director Elections
We
have added new content regarding the postponement of the reelection of
directors.
Independent
Director Board Tenure
We
have added new content on the reappointment of independent directors who have
served six consecutive years and are reappointed after a 3-year gap. Without
reasonable explanation, we will classify such an independent director nominee as
affiliated.
Audit
Committee Performance
We
will recommend voting for audit committee chair and members appointed in the
current fiscal year when the fees paid to the auditor were not disclosed, the
breakdown of the fees was not disclosed or the fees paid to the auditor were
considered excessive in last fiscal year.
Nominating
Committee Performance
We
have altered our policy to recommend voting for the nominating committee chair
even if the committee failed to meet at least once during the previous financial
year.
Local
Environmental & Social Disclosure Practices
We
have added new content to reflect recent developments in local environmental
& social disclosure practices.
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Allocation
of Profits/Dividends
We
have added a new paragraph to reflect China’s latest regulation on the
allocation of profits/dividends for listed companies.
Equity-Based
Compensation Plans
We
have added new content on the eligibility of participants of equity-based
compensation plans. We also updated our policy regarding the minimum vesting
period. From 2024, we will recommend voting for equity-based compensation plans
with a minimum vesting period of between one and two years provided that such
plans incorporate a clawback and/or malus mechanism.
Issuance
of Shares and/or Convertible Securities
We
have added a new paragraph to reflect recent developments in local practice
regarding preferred share issuance.
Issuance
of Debt Instruments
We
have updated our discussion on how we evaluate debt issuance authority
proposals.
Hong
Kong
Director
Commitments
We
have updated our director overcommitment thresholds for executives, and
directorships across a single group of companies.
From
2024, we will recommend that shareholders vote against a director who serves as
an executive officer of any public company while serving on more than one
additional external public company board.
In
addition, we have expanded our discussion on potential overcommitment with
regard to group companies. From 2024, we will cap the total number of group
public company boards a director may serve on at ten boards before we consider
that director to be overboarded.
Director
Fees
We
have expanded our discussion on director’s compensation to address additional
compensation apart from directors’ fees.
Equity-Based
Compensation Plans
We
have revised our policy on the granting of equity-based compensation awards to
external participants. From 2024, we will refrain from recommending voting
against the granting of equity-based compensation awards to external
participants whose nature of work is akin to that of a company’s employees,
provided that the company provides sufficient disclosure of the participant’s
work scope.
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We
have also updated our policy regarding the minimum vesting period for equity
awards. From 2024, we will refrain from recommending voting against equity-based
compensation plans with a minimum vesting period of under two years but not less
than one year (12 months) provided that such plans incorporate a clawback and/or
malus mechanism.
We
have also expanded our discussion and updated our policy for restricted share
plans.
Amendments
to Procedural Rules/Management Systems
We
have updated our policy to include discussions around the amendments to
procedural rules and management systems.
Issuance
of Shares and Convertible Securities
We
have expanded our discussion on the issuance of shares and convertible
securities with and without preemptive rights.
Issuance
of Debt Instruments
We
have expanded our discussion on how we evaluate debt issuance authority
proposals.
Related
Party Transactions
We
have updated our policy to include specific criteria on how we evaluate related
party transactions.
Local
Environmental & Social Disclosure Practices
We
have updated our discussion around the HKEX’s 2022 Analysis of ESG Practice
Disclosure, and its recent consultation on enhancement of climate disclosures
under the ESG framework.
Indonesia
Director
Commitments on Group Companies
We
have updated how we evaluate the director’s commitments for group companies.
When considering the number of boards that directors can serve on, we reserve
the right to exempt individual who serves on boards of group companies from our
over boarded policy based on several mitigating factors.
Approval
of Fees Paid to the Board of Directors and/or Commissioners
We
have updated our guidelines to incorporate the level of past disclosure details
as a factor in determining our vote recommendations for the approval of fees and
remuneration paid to the Board of Directors and/or Commissioners.
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Japan
Board
Gender Diversity
From
shareholder meetings held on or after February 2024, we will no longer provide
an exemption to our policy guidelines for Prime Market-listed companies in cases
where they fail to meet the requisite board gender diversity
requirements.
Furthermore,
beginning in 2026, we will require Prime Market-listed companies to have a board
comprised of at least 20% gender diverse directors. We will generally recommend
voting against the chair of the board under a two-tier board or one-tier with
one-committee structure; or the nominating committee chair under a one-tier with
three-committee structure of a board that does not meet this
requirement.
Excessive
Strategic Shareholding
Beginning
in 2025, we will implement stricter requirements for companies when providing an
exemption to our policy guidelines for this issue.
From
2025, we may refrain from recommending shareholders vote against directors for
this issue in cases where the company has disclosed a clear plan that outlines
the specific scale and timeframe for reducing the size of its strategic
shareholdings to 20% or less of its net assets within the next five
years.
Additionally,
we may also refrain from recommending voting against directors for this issue
when the company has posted an average return on equity (ROE) of 8% or more over
the past five fiscal years, or 8% or more in the most recent fiscal
year1,
if the size of strategic shares held by the company falls in the range between
10% and 20% of its net assets.
Board
Composition and Refreshment
Beginning
in 2025, we will implement a new policy on board composition and refreshment for
companies that have displayed a significant lack of commitment to the area of
board refreshment.
We
may recommend voting against the chair of the board under a two-tier board or
one-tier with one-committee structure; or the nominating committee chair under a
one-tier with three-committee structure of a board when all outside directors,
or all external statutory auditors under a two-tier board structure, have a
tenure in excess of 12 consecutive years of service.
Cyber
Risk Oversight
We
have included a new discussion on our approach to cyber risk oversight. Given
the potential adverse outcomes from cyber-related issues, it is our view that
cyber risk is material for all companies.
We,
therefore, believe that it is critical that companies evaluate and mitigate
these risks to the greatest extent possible. With that view, we encourage all
issuers to provide clear disclosure concerning the role of the board in
overseeing issues related to cybersecurity. We also believe that disclosure
concerning how companies are
2
Ito Review published by the Ministry of Economy, Trade and Industry (METI) in
2014 included a target of 8% in ROE for Japanese companies (“Ito
Review of Competitiveness and Incentives for Sustainable Growth”.
METI. August 2014).
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Summary of 2024 Benchmark Policy Guideline
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ensuring
directors are fully versed on this rapidly evolving and dynamic issue can help
shareholders understand the seriousness with which companies take this issue.
We
will generally not make recommendations on the basis of a company’s oversight or
disclosure concerning cyber-related issues. However, we will closely evaluate a
company’s disclosure in this regard in instances where cyber-attacks have caused
significant harm to shareholders and may recommend against appropriate directors
should we find such disclosure or oversight to be insufficient.
Board
Accountability for Climate-Related Issues
We
have updated our discussion of board accountability for climate-related issues,
and how our policy is applied. In 2023, our policy on this topic was applied to
the largest, most significant emitters; however beginning in February 2024,
Glass Lewis will apply this policy to companies in the Nikkei 225 index
operating in industries where the Sustainability Accounting Standards Board
(SASB) has determined that the companies’ GHG emissions represent a financially
material risk, as well as companies where we believe emissions or climate
impacts, or stakeholder scrutiny thereof, represent an outsized, financially
material risk.
We
will assess whether such companies have produced disclosures in line with the
recommendations of the Task Force on Climate-related Financial Disclosures
(TCFD). We have further clarified that we will also assess whether these
companies have disclosed explicit and clearly defined board-level oversight
responsibilities for climate related issues. In instances where we find either
of these disclosures to be absent of significantly lacking, we may recommend
voting against responsible directors.
Korea
Classification
of Employee Representative
The
appointment of an employee representative in the government-owned companies
board is mandated by the Act on the Management of Public Institutions. While the
Act requires an employee representative to be appointed as non-executive
director, the commercial law allows non-executive directors to be registered
only as independent or non-independent, lacking a classification for employee
representative. Consequently, this has led to confusion on their classification.
As for GL classification, we will align it with the company classification, and
given the characteristic of labor directors defined by the public institutional
law, we do not vote against this candidate for board independence.
Enhancement
of Gender Diversity
We
have revised our approach to gender diversity in the Korea market. With
increasing domestic and foreign investor demands for the board diversity, we
have shifted from a fixed numerical approach to a percentage-based approach. At
Large Companies which are subject to the mandatory gender quota, we will
recommend voting against the nominating committee chair (or the board chair in
the absence of nomination committee) if the board is not at least 10 percent
gender diverse. However, for large companies already satisfying the
one-female-director gender quota, we will carefully review their disclosures on
diversity plans or considerations, and we may not recommend voting against the
nominating committee chair, if a sufficient rationale or plan is
provided.
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Summary of 2024 Benchmark Policy Guideline
Updates 20
Cyber
Risk Oversight
We
have included a new discussion on our approach to cyber risk oversight. Given
current regulatory focus on and the potential adverse outcomes from
cyber-related issues, it is our view that cyber risk is material for all
companies. We, therefore, believe that it is critical that companies evaluate
and mitigate these risks to the greatest extent possible. With that view, we
encourage all issuers to provide clear disclosure concerning the role of the
board in overseeing issues related to cybersecurity. We also believe that
disclosure concerning how companies are ensuring directors are fully versed on
this rapidly evolving and dynamic issue can help shareholders understand the
seriousness with which companies take this issue.
We
will generally not make recommendations on the basis of a company’s oversight or
disclosure concerning cyber-related issues. However, we will closely evaluate a
company’s disclosure in this regard in instances where cyber-attacks have caused
significant harm to shareholders and may recommend against appropriate directors
should we find such disclosure or oversight to be insufficient.
Amendments
to the Articles: Virtual-Only Meeting
We
expect companies proposing to amend their articles of incorporation to allow for
virtual-only meetings to, at a minimum, include details on procedures,
requirements and other necessary information in the proposed amendments or in
the supporting documents. However, for companies incorporated in jurisdictions
in which the aforementioned organizational and disclosure aspects are already
required by applicable legislation, the burden to explain their approach is
lower.
In
the case of Korea, the Ministry of Justice pre-announced legislation on
virtual-only meetings in August 2023, and the legislation is expected to be
announced at the end of the year, including details on procedures and
requirements. Therefore, if such details can be identified under the law, we
will recommend that shareholders support amendments despite the absence of
detailed information on their proposed amendments regarding virtual-only
meetings. We will continue monitoring the ongoing introduction of the
legislation.
Approval
of Annual Financial Statements
In
Korea, the notice and circular for convocation of a general meeting are
dispatched in writing or electronically to shareholders at least 14 days prior
to the meeting date, as mandated by the Commercial Act. Separately, the
Commercial Act states a listed company shall make public notice of its audited
financial statements at least seven days prior to the annual general meeting.
In
general, annual financial statements are not available when investors review the
proposal regarding approval of financial statements due to the discrepancy in
the timing of disclosures of meeting materials and an audit report in the Korean
market. Given the importance of auditor’s opinion in financial statements and
the availability of financial statements, with respect to financial statements,
we have recommended voting against financial statement proposals, if the audit
opinion is not disclosed at the timing of our publication. However, after
comprehensive research on market circumstances and data, along with discussions
with investors and issuers, we are updating our policy to better align with
market practices and regulations and to prevent unintentional preference to
companies disclosing meeting materials at the last minute over companies
disclosing materials early but without an audit report.
In
2024, we will review companies’ past three years’ financial statements and audit
opinion when we review relevant proposals. If we do not identify any issues
raised by independent auditors and/or accounting practices during the three-year
period, we will recommend voting for the financial statement proposal. However,
for
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Summary of 2024 Benchmark Policy Guideline
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companies
receiving opinions other than "unqualified" in the last three years, we will
advise shareholders to oppose the adoption of financial statements, unless the
company discloses its auditor’s report before our publication. Nonetheless, we
strongly encourage companies to provide transparent and timely audit opinions on
financial statements to shareholders.
Malaysia
Director
Commitments on Group Companies
We
have updated how we evaluate the director’s commitments for group companies.
When considering the number of boards that directors can serve on, we reserve
the right to exempt individual who serves on boards of group companies from our
over boarded policy and based on several mitigating factors.
Independent
Director Board Tenure
We
have updated our guidelines in relation to the tenure of independent directors.
From 2024, we will re-classify independent directors who have served nine or
more cumulative years as affiliated.
Board
Gender Diversity
We
have updated our guidelines in relation to the issue of board gender diversity.
From 2024, we will require all companies, regardless of size, to have a minimum
of 30% of the board composed of gender diverse directors.
Philippines
Director
Commitments on Group Companies
We
have updated how we evaluate the director’s commitments for group companies.
When considering the number of boards that directors can serve on, we reserve
the right to exempt individual who serves on boards of group companies from our
over boarded policy based on several mitigating factors.
Local
Environmental & Social Disclosure Practices
We
have included discussion of the SEC’s ongoing reassessment of sustainability
reporting frameworks for use by publicly listed companies.
Singapore
Director
Commitments on Group Companies
We
have updated how we evaluate the director’s commitments for group companies.
When considering the number of boards that directors can serve on , we reserve
the right to exempt individual who serves on boards of group companies from our
over boarded policy based on several mitigating factors.
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Summary of 2024 Benchmark Policy Guideline
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Independent
Director Board Tenure
We
have updated our guidelines based on the latest regulatory update. The prior
two-tier vote mechanism has been removed, and from 2024 onwards we will
reclassify all independent directors serving for more than 9 years as affiliated
directors.
Board
Gender Diversity
We
have updated our guidelines to reflect the importance of gender diversity for
Singaporean companies. From 2024, we will recommend shareholders vote against
the nomination committee chair if the board is not at least 15% gender
diverse.
Remuneration
Committee Performance
We
have updated this section to address additional disclosure practices mandated by
the regulator. From 2024 we will start to note the company’s remuneration
committee level of disclosure, and from 2025 will start to recommend that
shareholders vote against the remuneration committee chair if the total
remuneration and breakdown of amounts paid to the directors and CEO are not
disclosed in the annual report.
South
Asia
Board
Size & Formation of Risk Management Committee
We
have incorporated the Monetary Board of the Central Bank of Sri Lanka’s
requirement that banks and finance companies falling under the Central Bank’s
supervision set a board size maximum of 13 directors and minimum of 7 directors,
and convene a risk management committee.
Taiwan
Election
of the Board of Directors and Supervisors
As
of June 2023, all 1,791 listed companies on the Taiwan Stock Exchange and the
main board of Taipei Exchange have established audit committees to replace the
supervisor system. Thus, we have removed content related to the election of
supervisors and independence of supervisors.
Voting
Recommendations on the Basis of Independence
We
have removed content regarding the slate election of directors and supervisors.
Director
Commitments
We
have updated our policy on board commitments for directors who also serve as
executives. From 2024, we have reduced our overcommitment threshold for
directors who also serve as executives to a total of two directorships
(previously three).
Global
Summary of 2024 Benchmark Policy Guideline
Updates 23
In
addition, we previously refrained from recommending a vote against overcommitted
executives at the company where they serve as an executive. Going forward, we
will generally recommend voting against an overcommitted executive at the
company where they serve as an executive if they hold more than four
directorships.
In
accordance with local regulatory requirements, we also removed our maximum
director commitments policy on financial companies’ independent
directors.
Independent
Director Board Tenure
In
2024, the board tenure limitation for independent directors, which is 12
consecutive years, will remain unchanged. However, we plan to lower it to 9
consecutive years in 2025.
Director
Bonuses
We
have added new content regarding director bonuses.
Equity-Based
Compensation Plans
We
have updated our policy regarding the minimum vesting period. From 2024, we will
no longer recommend voting against equity-based compensation plans with a
minimum vesting period of between one to two years provided that such plan
incorporate a clawback and/or malus mechanism. We have also expanded the cases
in which we may recommended against individual equity grants.
Non-Compete
Restrictions
We
have removed the exemption for directors who either represent the same legal
entity on other boards or are employed by the same legal entity’s
subsidiaries.
Virtual
Shareholder Meetings
We
have added a new paragraph to reflect local regulatory amendments on virtual or
hybrid shareholder meetings.
Thailand
Director
Commitments on Group Companies
We
have updated how we evaluate the director’s commitments for group companies.
When considering the number of boards that directors can serve on, we reserve
the right to exempt individual who serves on boards of group companies from our
over boarded policy based on several mitigating factors.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 24
Vietnam
Board
Independence
We
have updated our policy and voting recommendations regarding board independence.
In line with the prevailing regulations, we will no longer recommend voting
against the election/re-election of directors based on the one-third board
independence threshold. Instead, we will now require at least one independent
director for a board size of 3 to 5 members; two independent directors for a
board size of 6 to 8 members; and three independent directors for a for a board
size of 9 to 11 members.
Director
Experience
We
have updated requirements on director experience and how we will evaluate the
election/re-election of directors based on the director’s
experience.
Director
Commitments
We
have updated our guidelines to address how we will evaluate director commitments
for positions within a consolidated group. We may refrain from recommending
voting against directors serving a potentially excessive number of board within
a consolidated group of companies.
Equity-Based
Compensation Plan
We
have revised and updated our criteria for evaluating equity-based compensation
plans.
Environmental
and Social Risk Oversight
We
have included the recent regulatory requirements for disclosure of ESG
applicable to public companies, and updated our views and voting recommendations
based upon these changes.
Issuance
of Debt-Instruments
We
have updated our policy to include our views on evaluating and providing voting
recommendations for the issuance of debt-instruments.
Global
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Europe
Continental
Europe
Vote
on Non-Financial Reporting
In
a new section of these guidelines, we have introduced a policy for the
assessment of proposals to approve a company’s non-financial reporting, which
large Spanish and Swiss companies are required to include on the agenda of their
annual general meetings.
We
have clarified that we will generally recommend that shareholders approve these
proposals unless any of the following apply: (i) the company has failed to make
the report publicly-available with sufficient time for shareholder review; (ii)
the company has failed to provide a sufficient response to material
controversies in its reporting; (iii) there are material concerns regarding the
completeness and/or quality of the reporting; or (iv) the company is listed on a
blue-chip or mid-cap index and has failed to disclose its Scope 1 and 2
greenhouse gas emissions.
We
have also clarified that in some cases we may extend our “Environmental and
Social Risk Oversight” policy to recommend a vote against the approval of a
company’s non-financial reporting in addition to, or instead of, a
recommendation to vote against accountable directors of large-cap companies and
other companies with material ESG oversight concerns that have failed to provide
explicit disclosure concerning the board’s role in overseeing material ESG
issues.
Director
Accountability for Climate-Related Issues
Beginning
in 2023, Glass Lewis included a new discussion on director accountability for
climate related issues. In particular, we believe that clear and comprehensive
disclosure regarding climate risks, including how they are being mitigated and
overseen, should be provided by those companies whose own GHG emissions
represent a financially material risk.
Accordingly,
for companies with material exposure to climate risk stemming from their own
operations, we believe they should provide thorough climate-related disclosures
in line with the recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD). We also believe the boards of these companies should have
explicit and clearly defined oversight responsibilities for climate-related
issues. As such, in instances where we find either of these disclosures to be
absent or significantly lacking, we may recommend voting against responsible
directors.
While
this policy was applied to the largest, most significant emitters in 2023,
beginning in 2024, Glass Lewis will apply this policy to most large-cap
companies operating in industries where the Sustainability Accounting Standards
Board (SASB) has determined that companies’ GHG emissions represent a
financially material risk.
Cyber
Risk Oversight
We
have expanded our policy on cyber risk oversight to outline our belief that,
where a company has been materially impacted by a cyber-attack, shareholders can
reasonably expect periodic updates communicating the company’s ongoing process
towards resolving and remediating the impact of the attack.
Global
Summary of 2024 Benchmark Policy Guideline
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In
instances where a company has been materially impacted by a cyber-attack, we may
recommend against appropriate directors should we find the board’s oversight,
response or disclosures concerning cybersecurity-related issues to be
insufficient, or not provided to shareholders.
Exclusive
Forum Provisions
In
a new section of these guidelines, we have outlined our approach to reviewing
proposals that request amendments to a company’s articles of association to
specify that the exclusive place of jurisdiction for all proceedings against the
company (and affiliated entities) is at the registered office of the company and
that local laws shall apply.
We
will generally recommend that shareholders vote against such proposals unless
the company provides a compelling argument on why the provision would directly
benefit shareholders.
Interlocking
Directorships
We
have expanded our policy on interlocking directorships to specify that we
consider both public and private companies. Further, we have specified that we
evaluate other types of interlocking relationships on a case-by-case basis, and
review multiple board interlocks among non-insiders for evidence of a pattern of
poor oversight.
Executive
Shareholding Requirements
In
a new section of these guidelines, we have outlined our belief that companies
should generally adopt minimum executive share ownership requirements that
should apply for the duration of an executive’s tenure, and our view that
additional post-vesting/post-termination holding requirements may serve to
further align executives’ interests with those of long-term free-float
shareholders.
Clarifying
Amendments
The
following clarifications of our existing policies are included this year:
Remuneration
Relative to Peers
We
have expanded this section of our guidelines to clarify our expectation that
companies disclose their peer group utilised for pay benchmarking, as well as
the criteria utilised in the selection process – particularly in cases where
companies consider U.S.-based peers.
Further,
we have clarified that we generally believe companies should provide supporting
disclosure where key elements of their executive pay plan deviates from
prevailing market practice – particularly in cases where multiple exchange
listings or other company-specific situation leads a company to benchmark its
pay-setting across multiple jurisdictions.
Remuneration
Relative to Ownership Structure
We
have expanded this section of our guidelines to outline a number of company
practices that may serve to mitigate concerns when a significant equity award is
made to an executive that is also a major shareholder. These include the
inclusion of challenging targets attached to a diverse set of performance
metrics, meaningful
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Summary of 2024 Benchmark Policy Guideline
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disclosure
on the company’s engagement with free-float shareholders on the topic, or a
policy that the shareholder executive will not participate in voting on the
award.
Severance
Payments
We
have clarified our belief that unvested long-term awards should be
proportionately reduced to the time served until an executive’s termination and
that deviation from this practice should be accompanied by supporting
disclosure.
Director
Attendance
We
have clarified that in our assessment of director attendance, we typically
recommend voting against the re-election of directors that attended fewer than
(i) 75% of board meetings; or (ii) an aggregate of 75% of board and applicable
committee meetings. We will continue to typically grant exceptions to directors
in their first year of service on a board or when the company discloses
mitigating circumstances for a director’s poor attendance record.
Accounts
and Reports
We
have clarified that, on a case-by-case basis, we may recommend that shareholders
vote against proposals to approve or acknowledge a company’s accounts and
reports in instances where the statutory auditor has refused to provide an
unqualified opinion on the financial statements. In these circumstances, we will
assess the reasoning provided by the statutory auditor as well as any relevant
disclosure from the company.
Further,
we have clarified that in cases where the statutory auditor has included an
emphasis of matter or raised concerns regarding the going concern basis of a
company in its report on the financial statements, this will generally not lead
to a recommendation to vote against proposals to approve or acknowledge a
company’s accounts and reports unless there are other legitimate concerns
regarding the integrity of the financial statements and reports.
‘Overperformance’
Resulting in Pay-for-Performance Concerns
We
have clarified that in cases where maximum vesting occurs even if the threshold
hurdle for one or more performance metrics was missed (due to the structure of
the incentive plan and above-target performance against other metrics), which
results in a clear pay-for-performance disconnect, Glass Lewis may recommend
that shareholders vote against a company’s remuneration report.
Capital
Authorities to Service Equity Programmes
We
have clarified that where a company proposes a capital authority to service an
equity programme that includes participants beyond the executive committee, we
generally believe that the authority should not exceed 10% of a company’s issued
share capital. Where a company proposes a capital authority to service an equity
programme that is exclusively for executive directors, we continue to believe
that the authority should not exceed 5% of a company’s issued share
capital.
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Summary of 2024 Benchmark Policy Guideline
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Austria
Implementation
of New Remuneration Policy
We
have updated the “Remuneration Policy” section of these guidelines to reinforce
our view that we favour the simultaneous implementation of a new or amended
remuneration policy into all active management board members’ contracts. In
particular, we have further clarified that a staggered implementation –
occurring only upon renewal of each executive’s multi-year contract – may not
only hinder transparency, but also represent a disservice to minority
shareholders when the new policy was aimed at addressing structural concerns
they had previously expressed.
Accordingly,
we believe companies should provide specific disclosure supporting the board’s
decision-making process in this regard.
Disclosure
of Earned/Paid Remuneration
We
have updated the “Remuneration Report” section of these guidelines to reflect
our stance on the disclosure of individual remuneration allocated to management
board members. In particular, we have clarified that we may recommend
shareholders to vote against a remuneration report where information about
awards earned
(or vested)
for performance (or the performance cycle ended) in the year under review is
omitted, absent a supporting and compelling rationale and in the presence of
other factors compounding our concerns.
Virtual
Meetings
We
have introduced a new section into these guidelines to outline our expectations
with respect to the new Austrian legislation on virtual meetings. Our policies
in this regard are aligned with the Continental
European Policy Guidelines.
Belgium
Director
Attendance Records
We
have added this section to the guidelines to reflect the recommendation by the
Belgian Code on Corporate Governance that directors’ attendance at board and
committee meetings be disclosed annually, in line with Glass Lewis’ view that
meeting attendance is a core responsibility of directors.
Accordingly,
absent such disclosure, we will consider recommending a vote against the
re-election of the governance committee chair (or equivalent).
Share
Price Hurdle
We
have expanded the “Short- and Long-Term Incentives” section of these guidelines
to clarify that, for companies that opt to offer executives a stock option plan
without attaching performance conditions, the inclusion of a share price hurdle
is viewed positively.
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Summary of 2024 Benchmark Policy Guideline
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Denmark
Disclosure
of General Meeting Vote Results
As
previously announced, from 2024, we will generally recommend that shareholders
vote against the re-election of the chair of the governance committee or
equivalent (i.e. board chair or Lead Independent Director) at companies included
in OMX Nordic 120 that did not disclose vote results from their previous annual
meeting.
The
Link Between Pay and Performance
We
have restructured and expanded this section of the guidelines in line with our
Continental European Policy Guidelines and Danish market practice in order to
provide further insight into our assessment of executive
remuneration.
Linking
Executive Pay to Environmental and Social Criteria
We
have outlined our current guidance on the use of E&S metrics in the variable
incentive programmes for executive directors in line with our Continental
European Policy Guidelines.
Although
we are strongly supportive of companies’ incorporation of material E&S risks
and opportunities in their long-term strategic planning, we believe that the
inclusion of E&S metrics in remuneration plans should be predicated on each
company’s unique circumstances.
Companies
should provide shareholders with disclosures that clearly lay out the rationale
for selecting specific E&S metrics, the target-setting process, and
corresponding payout opportunities. Further, in our view shareholders of
companies that have not included explicit environmental or social indicators in
their incentive plans would benefit from additional disclosure on how the
company’s executive pay strategy is otherwise aligned with its sustainability
strategy.
Finland
Disclosure
of General Meeting Vote Results
As
previously announced, from 2024, we will generally recommend that shareholders
vote against the re-election of the chair of the governance committee or
equivalent (i.e., board chair or lead independent director) at companies
included in OMX Nordic 120 that did not disclose vote results from their
previous annual meeting.
The
Link Between Pay and Performance
We
have restructured and expanded this section of the guidelines in line with our
Continental European Policy Guidelines and Finnish market practice in order to
provide further insight into our assessment of executive
remuneration.
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Summary of 2024 Benchmark Policy Guideline
Updates 30
Linking
Executive Pay to Environmental and Social Criteria
We
have outlined our current guidance on the use of E&S metrics in the variable
incentive programmes for executive directors in line with our Continental
European Policy Guidelines.
Although
we are strongly supportive of companies’ incorporation of material E&S risks
and opportunities in their long-term strategic planning, we believe that the
inclusion of E&S metrics in remuneration plans should be determined by the
company based on its own unique circumstances.
Companies
should provide shareholders with disclosures that clearly lay out the rationale
for selecting specific E&S metrics, the target-setting process, and
corresponding payout opportunities. Further, in our view shareholders of
companies that have not included explicit environmental or social indicators in
their incentive plans would benefit from additional disclosure on how the
company’s executive pay strategy is otherwise aligned with its sustainability
strategy.
Clarifying
Changes
We
have included in the guidelines new sections regarding "Accounts and Reports",
"Appointment of Auditor and Authority to Set Fees", “Authority to Cancel Shares
and Reduce Capital”, "Bundled Proposals" and “Nominating Committee” that
describe the market practice and clarify our current approach.
France
Metrics
Related to Company’s Social and Environmental Stakes
We
have updated these guidelines, in line with the updated recommendation of the
AFEP-MEDEF code, to clarify that variable remuneration should be based on
multiple metrics that are related to the most important social and environmental
stakes of the company. Further, we generally believe that quantifiable metrics
are generally preferable.
Previously,
our expectations were limited to the presence of at least one metric related to
the company’s social and environmental responsibility.
Employee
Shareholder Representatives
We
have updated our guidelines to clarify our approach when a company puts up for
shareholder approval the election of multiple employee shareholder
representatives that are competing for a single seat on the board. In this case,
we generally recommend in favour of a single candidate. Our recommendation takes
into consideration the stake held in the company of the employee fund proposing
the candidate, the candidates’ individual skills, their previous role on the
board as well as the board recommendation, if available.
Equity-Based
Incentive Plan Proposals
We
have updated our guidelines to clarify that no discount should be applied to the
exercise price of the options granted to the corporate officers. We will
generally recommend against authorities granting discounted options to the
aforementioned beneficiaries.
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Summary of 2024 Benchmark Policy Guideline
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Germany
Implementation
of New Remuneration Policy
We
have updated the “Management Board Remuneration Policy” section of these
guidelines to reinforce our view that we favour the simultaneous implementation
of a new or amended remuneration policy into all active management board
members’ contracts. In particular, we have further clarified that a staggered
implementation – occurring only upon renewal of each executive’s multi-year
contract – may not only hinder transparency, but also represent a disservice to
minority shareholders when the new policy was aimed at addressing structural
concerns they had previously expressed.
Accordingly,
we believe companies should provide specific disclosure supporting the board’s
decision-making process in this regard.
Disclosure
of Earned/Paid Remuneration
We
have updated the “Management Board Remuneration Report” section of these
guidelines to reflect evolving market practice on the disclosure of individual
remuneration allocated to management board members. In particular, we have
clarified that, despite the absence of clear mandatory or recommended templates,
best practice has developed towards a voluntary disclosure of both earned and
paid variable pay elements and the addition of a preface to the relevant tables,
detailing what variable pay elements are included and in reference to what
performance period.
Accordingly,
we may recommend shareholders to vote against a remuneration report where
information about awards earned
(or vested)
for performance (or the performance cycle ended) in the year under review is
omitted, absent a supporting and compelling rationale.
Greece
Election
of Audit Committee
We
have updated these guidelines to clarify our approach to the election of the
audit committee as an independent body. Specifically, we will recommend against
the election of the audit committee where a company fails to disclose fees paid
to the auditor in the previous fiscal year, the audit committee is elected as an
independent body and the previous audit committee chair is being
re-elected.
Equity
Remuneration
We
have updated these guidelines, in line with our Continental
Europe Benchmark Policy Guidelines,
to clarify that where a company proposes a capital authority to service an
equity programme that is exclusively for executive directors, we believe that
the authority should not exceed 5% of a company’s issued share capital. However,
we will evaluate each proposal on a case-by-case basis in light of the proposed
number of company executives participating in the remuneration plan and will
recommend shareholders vote against proposals where proposed dilution exceeds
the recommended 5% threshold if no disclosure about the number of executive
beneficiaries was provided.
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Summary of 2024 Benchmark Policy Guideline
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Ireland
Gender
Diversity
We
have updated these guidelines to clarify that we will generally recommend
against the chair of the nomination committee at any ISEQ 20 board that has
failed to meet the 33% board gender diversity target set out by the Balance for
Better Business review and has failed to provide clear and compelling disclosure
for why it has been unable to do so. We may apply limited exceptions to this
policy.
Clarifying
Amendments
The
following clarifications of our existing policies are included this
year:
Director
Classification
We
have updated the “Independence” section of the guidelines to reflect that, in
line with the UK Guidelines, Glass Lewis considers uncles, aunts, cousins,
nieces and nephews as being relevant familial relationships.
Further,
in line with the UK Guidelines, we have included a discussion of the impact of
director tenure and interim management positions on director
independence.
Accounts
and Reports
We
have clarified that, on a case-by-case basis, we may recommend that shareholders
vote against proposals to approve or acknowledge a company’s accounts and
reports in instances where the statutory auditor did not provide an unqualified
opinion on the financial statements. In these circumstances, we will assess the
reasoning provided by the statutory auditor as well as any relevant disclosure
from the company.
Italy
No
Material Changes
While
we have updated certain sections of these guidelines to reflect recent
regulatory developments, for the 2024 year we have made no noteworthy revisions
and will continue to apply our guidelines taking into account the market’s
regulations as well as international best practices.
Middle
East & North Africa (MENA)
Regulatory
Updates
We
have updated our policy guidelines to reflect the updated Commercial Law in
Morocco (Law No. 17-95 Relating to Public Limited Companies, and its amendments)
and the Corporate Governance Code in Saudi Arabia (Corporate Governance
Regulations of Capital Markets Authority (2017) amended in 2023). In addition to
the
Global
Summary of 2024 Benchmark Policy Guideline
Updates 33
issuance
of the supplementary regulation to the Commercial Law in Saudi Arabia
(Implementing Regulation of the Companies Law for Listed Joint Stock Companies
(2023)).
Further,
we have applied the relevant amendments and updates to other codes and laws.
Minor edits of a housekeeping nature have been made, mainly consisting of
updating outdated references, in order to enhance clarity and
readability.
Environmental
and Social Risk Oversight
In
a new section of these guidelines, we have outlined our view that environmental
and social risk are material for all companies and that a company’s stakeholders
would benefit from clear disclosure regarding the role of the board in
overseeing these issues.
In
situations where we believe that a company has not properly managed or mitigated
environmental or social risks to the detriment of shareholder value, or when
such mismanagement has threatened shareholder value, Glass Lewis may recommend
that shareholders vote against the members of the board who are responsible for
oversight of environmental and social risks. Please refer to the “Environmental
and Social Risk Oversight” section of these guidelines for further
information.
Cyber
Risk Oversight
In
a new section of these guidelines, we have outlined our belief that cyber risk
is material for all companies and that a company’s stakeholders would benefit
from clear disclosure regarding the role of the board in overseeing issues
related to cybersecurity. Further we have clarified that, while we will
generally not make recommendations on the basis of a company’s oversight or
disclosure concerning cyber-related issues, we may recommend against appropriate
directors in instances where cyber-attacks have caused significant harm to
shareholders, and we find the company’s disclosure or oversight to be
insufficient.
Netherlands
Director
Attendance Records
We
have added this section to the guidelines to reflect the recommendation by the
Dutch Corporate Governance Code that directors’ attendance at board and
committee meetings be disclosed annually, in line with Glass Lewis’ view that
meeting attendance is a core responsibility of directors.
Accordingly,
absent such disclosure, we will consider recommending a vote against the
re-election of the governance committee chair (or equivalent).
Remuneration
Relative to Peers
In
line with our Continental
Europe Policy Guidelines,
we have added a section to these guidelines to clarify our expectation that
companies disclose their peer group utilised for pay benchmarking, as well as
the criteria utilised in the selection process – particularly in cases where
companies consider U.S.-based peers.
Further,
we have clarified that we generally believe companies should provide supporting
disclosure where key elements of their executive pay plan deviate from
prevailing market practice. This is particularly relevant in cases
Global
Summary of 2024 Benchmark Policy Guideline
Updates 34
where
multiple exchange listings or another company-specific situation leads a company
to benchmark its pay-setting across multiple jurisdictions.
Norway
Disclosure
of General Meeting Vote Results
As
previously announced, from 2024, we will generally recommend that shareholders
vote against the re-election of the chair of the governance committee or
equivalent (i.e., board chair or lead independent director) at companies
included in included on the Euronext 100 and Next 150 indices that did not
disclose vote results from their previous annual meeting.
The
Link Between Pay and Performance
We
have restructured and expanded this section of the guidelines in line with our
Continental European Policy Guidelines and Norwegian market practice in order to
provide further insight into our assessment of executive
remuneration.
Linking
Executive Pay to Environmental and Social Criteria
We
have outlined our current guidance on the use of E&S metrics in the variable
incentive programmes for executive directors in line with our Continental
European Policy Guidelines.
Although
we are strongly supportive of companies’ incorporation of material E&S risks
and opportunities in their long-term strategic planning, we believe that the
inclusion of E&S metrics in remuneration plans should be determined by the
company based on its own unique circumstances.
Companies
should provide shareholders with disclosures that clearly lay out the rationale
for selecting specific E&S metrics, the target-setting process, and
corresponding payout opportunities. Further, in our view shareholders of
companies that have not included explicit environmental or social indicators in
their incentive plans would benefit from additional disclosure on how the
company’s executive pay strategy is otherwise aligned with its sustainability
strategy.
Poland
Classified
Supervisory Boards and Term Lengths
We
have amended this section of the guidelines to introduce a policy regarding the
use of lengthy appointment terms. While Polish law allows for director terms of
up to five years, market practice has been evolving towards shorter terms, of
three to four years. As we believe more frequent (re-)elections improve
directors’ accountability to shareholders, we will consider recommending against
a director’s (re-)election in case of a proposed appointment term of five years,
absent supporting disclosure and/or sufficient board refreshment. In case of a
slate election, we would note a concern in our analysis, and only recommend
against the whole slate in egregious cases of poor board refreshment or
composition.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 35
Portugal
No
Material Changes
While
we have updated certain sections of these guidelines to reflect recent
regulatory developments, for the 2024 year we have made no noteworthy revisions
and will continue to apply our guidelines taking into account the market’s
regulations as well as international best practices.
Russia
Director
Accountability for Climate-Related Issues
Beginning
in 2023, Glass Lewis included a new discussion on director accountability for
climate related issues. In particular, we believe that clear and comprehensive
disclosure regarding climate risks, including how they are being mitigated and
overseen, should be provided by those companies whose own GHG emissions
represent a financially material risk.
Accordingly,
for companies with material exposure to climate risk stemming from their own
operations, we believe they should provide thorough climate-related disclosures
in line with the recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD). We also believe the boards of these companies should have
explicit and clearly defined oversight responsibilities for climate-related
issues. As such, in instances where we find either of these disclosures to be
absent or significantly lacking, we may recommend voting against responsible
directors.
While
this policy was applied to the largest, most significant emitters in 2023,
beginning in 2024, Glass Lewis will apply this policy to most large-cap
companies operating in industries where the Sustainability Accounting Standards
Board (SASB) has determined that companies’ GHG emissions represent a
financially material risk.
Cyber
Risk Oversight
We
have expanded our policy on cyber risk oversight to outline our belief that,
where a company has been materially impacted by a cyber-attack, shareholders can
reasonably expect periodic updates communicating the company’s ongoing process
towards resolving and remediating the impact of the attack.
In
instances where a company has been materially impacted by a cyber-attack, we may
recommend against appropriate directors should we find the board’s oversight,
response or disclosures concerning cybersecurity-related issues to be
insufficient, or are not provided to shareholders.
Interlocking
Directorships
We
have expanded our policy on interlocking directorships to specify that we
consider both public and private companies. Further, we have specified that we
evaluate other types of interlocking relationships on a case-by-case basis, and
review multiple board interlocks among non-insiders for evidence of a pattern of
poor oversight.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 36
Director
Attendance
We
have clarified that in our assessment of director attendance, we typically
recommend voting against the re-election of directors that attended fewer than
(i) 75% of board meetings; or (ii) an aggregate of 75% of board and applicable
committee meetings. We will continue to typically grant exceptions to directors
in their first year of service on a board or when the company discloses
mitigating circumstances for a director’s poor attendance record.
Accounts
and Reports
We
have clarified that, on a case-by-case basis, we may recommend that shareholders
vote against proposals to approve or acknowledge a company’s accounts and
reports in instances where the statutory auditor has refused to provide an
unqualified opinion on the financial statements. In these circumstances, we will
assess the reasoning provided by the statutory auditor as well as any relevant
disclosure from the company.
Further,
we have clarified that in cases where the statutory auditor has included an
emphasis of matter or raised concerns regarding the going concern basis of a
company in its report on the financial statements, this will generally not lead
to a recommendation to vote against proposals to approve or acknowledge a
company’s accounts and reports unless there are other legitimate concerns
regarding the integrity of the financial statements and reports.
Spain
Vote
on Non-Financial Reporting
We
have clarified that we will generally recommend that shareholders approve
proposals to approve a company’s non-financial reporting unless any of the
following apply: (i) the company has failed to make the report
publicly-available with sufficient time for shareholder review; (ii) the company
has failed to provide a sufficient response to material controversies in its
reporting; (iii) there are material concerns regarding the completeness and/or
quality of the reporting; or (iv) the company is listed on a blue-chip or
mid-cap index and has failed to disclose its Scope 1 and 2 greenhouse gas
emissions.
We
have also clarified that in some cases we may extend our “Environmental and
Social Risk Oversight” policy to recommend a vote against the approval of a
company’s non-financial reporting in addition to, or instead of, a
recommendation to vote against accountable directors of large-cap companies and
other companies with material ESG oversight concerns that have failed to provide
explicit disclosure concerning the board’s role in overseeing material ESG
issues.
Remuneration
Relative to Ownership Structure
We
have expanded this section of our guidelines to outline a number of company
practices that may serve to mitigate concerns when a significant equity award is
made to an executive that is also a major shareholder. These include the
inclusion of challenging targets attached to a diverse set of performance
metrics, meaningful disclosure on the company’s engagement with free-float
shareholders on the topic, or a policy that the shareholder executive will not
participate in voting on the award.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 37
Sweden
Disclosure
of General Meeting Vote Results
As
previously announced, from 2024, we will generally recommend that shareholders
vote against the re-election of the chair of the governance committee or
equivalent (i.e., board chair or Lead Independent Director) at companies
included in OMX Nordic 120 that did not disclose vote results from their
previous annual meeting.
The
Link Between Pay and Performance
We
have restructured and expanded this section of the guidelines in line with our
Continental European Policy Guidelines and Swedish market practice in order to
provide further insight into our assessment of executive
remuneration.
Linking
Executive Pay to Environmental and Social Criteria
We
have outlined our current guidance on the use of E&S metrics in the variable
incentive programmes for executive directors in line with our Continental
European Policy Guidelines.
Although
we are strongly supportive of companies’ incorporation of material E&S risks
and opportunities in their long-term strategic planning, we believe that the
inclusion of E&S metrics in remuneration plans should be predicated on each
company’s unique circumstances.
Companies
should provide shareholders with disclosures that clearly lay out the rationale
for selecting specific E&S metrics, the target-setting process, and
corresponding payout opportunities. Further, in our view shareholders of
companies that have not included explicit environmental or social indicators in
their incentive plans would benefit from additional disclosure on how the
company’s executive pay strategy is otherwise aligned with its sustainability
strategy.
Switzerland
Vote
on the Non-Financial Report
In
the “Non-Financial Reporting” section of these guidelines, we have introduced a
policy for the assessment of proposals to approve a company’s non-financial
reporting, which Swiss companies are now required to include on the agenda of
their annual general meetings.
We
have clarified that we will generally recommend that shareholders approve these
proposals unless any of the following apply: (i) the company has failed to make
the report publicly-available with sufficient time for shareholder review; (ii)
the company has failed to provide a sufficient response to material
controversies in its reporting; (iii) there are material concerns regarding the
completeness and/or quality of the reporting; or (iv) the company is listed on a
blue-chip or mid-cap index and has failed to disclose its Scope 1 and 2
greenhouse gas emissions.
We
have also clarified that in some cases we may extend our “Environmental and
Social Risk Oversight” policy to recommend a vote against the approval of a
company’s non-financial reporting in addition to, or instead of, a
Global
Summary of 2024 Benchmark Policy Guideline
Updates 38
recommendation
to vote against accountable directors of large-cap companies and other companies
with material ESG oversight concerns that have failed to provide explicit
disclosure concerning the board’s role in overseeing material ESG
issues.
Türkiye
Country
Name Change
In
line with the Turkish government's decision, Turkish Foreign Ministry submitted
a letter to the United Nations on June 1, 2022, requesting the use of “Türkiye”
as the country's name instead of “Turkey”, for all affairs. The United Nations
confirmed the name change effective from the moment the letter was
received.
Accordingly,
we will use Türkiye from 2024 as the name of the country instead of Turkey in
all our communications.
Charitable
Donations
Announced
in the wake of the February 6, 2023 earthquakes that severely affected southern
and central provinces of the country, the CMB’s decision no. 8/174 allowed
companies the discretion to exceed their existing charitable donation limits for
the purpose of donating to earthquake relief efforts. Given that the total cost
of the natural disaster was then unaccounted for, we believed that companies may
not have been able to predict the relevant limits of their charitable donations
for the upcoming fiscal year. Therefore, we applied some leniency to companies'
lack of forward-looking disclosure in this matter, noting that we would review
disclosure of 2023 financial year donations in their next annual filings.
If
evidence exists that this authority has been abused to the detriment of
shareholders, we may recommend shareholder action against the audit committee
chair.
In
addition, in line with our policy prior to 2023, we may recommend voting against
proposals asking for shareholder approval of charitable donations limit for the
next fiscal year where the relevant limit is not disclosed. Further, starting
2024, as a step forward in charitable donations disclosure practices, we will
expect all companies to transparently disclose their previous years' charitable
donations, including the breakdown of recipients of such donations. In case of
lack of such disclosure, we may recommend a vote against the audit committee
chair.
Please
refer to the “Charitable Donations” section of these guidelines for further
information.
Independent
Audit Fees
The
Public Oversight, Accounting and Auditing Standards Authority of Türkiye (KGK)
had announced their decision for Turkish public companies to start disclosing
their payments to independent audit firms, starting with the 2021 financial
year, on March 26, 2021. Accordingly, we have reviewed our approach to auditor
appointment proposals and audit committee performance. Considering that the
audit mandates in the past financial year were already in progress when the new
decision was passed, we found it would be disproportionate to recommend that
shareholders vote against the auditor appointment for companies that are
disclosing their fees for the first time in 2022, even when non-audit fees
appeared excessive. Thus, we granted exemptions for excessive non-audit fees
during this observation phase for annual general meetings in 2022.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 39
From
2023, we expect companies to disclose the audit and non-audit fees they have
paid to independent audit firms for the relevant financial year, including the
sum total and the categorical breakdown of such fees. In the case of lack of
such disclosure, we recommend a vote against the audit committee chair as well
as the re-appointment of the independent auditor, where applicable.
Starting
in 2024, in cases where non-audit fees have exceeded 50% of total fees paid to
the independent auditor without a compelling reason, we may vote against the
re-appointment of the independent auditor where applicable. Further, in cases
where this concern has persisted for at least two years in a row without
justification, we may recommend a vote against the audit committee
chair.
Please
refer to the “Audit Committee Performance” and “Appointment of Auditor” sections
of these guidelines for further information.
Ceiling
for Material Related Party Transactions
In
line with the increase in Consumer Price Index (CPI) in Türkiye, we have updated
our policy to increase the ceiling for transactions that are not to be deemed
material from (i) TRY560,000 to TRY900,000 for NEDs who receive remuneration for
a service they have agreed to perform for the company, outside of their service
as a director, including professional or other services; and (ii) TRY1,120,000
to TRY1,800,000 for those NEDs employed by a professional services firm such as
an accounting firm, consulting firm, law firm or investment bank, where the firm
is paid for services, but not to the individual directly.
Please
refer to “Independence” in the “A Board of Directors that Serves the Interest of
Shareholders” section of these guidelines for further information.
Governance
Committee Independence
In
line with the local law, many companies in Türkiye have a single governance
committee in place of separate compensation or nominating committees. Having an
executive on the committee responsible for compensation may bring about
situations in which executives have a say in their own remuneration, which may
create conflicts of interest between management and shareholder interests. As
such, in cases where the company does not have a separate compensation committee
and the relevant duties are undertaken by the governance committee, we object to
executive directors’ and senior executives' membership in the governance
committee (we make exceptions for investor relations department personnel with
legally required certificates).
As
a transitional measure, during 2023 we highlighted our concern with executive
directors’ and senior executives’ membership in governance committees which
review executive compensation. Beginning in 2024, as signaled in our 2023 voting
guidelines, we will vote against the governance committee chair in these
cases.
Please
refer to the “Nominating or Corporate Governance Committee Performance” and
“Compensation or Corporate Governance Committee Performance” sections of these
guidelines for further information.
Interlocking
Directorships
We
have expanded our policy on interlocking directorships to specify that we
consider both public and private companies. Further, we have specified that we
evaluate other types of interlocking relationships on a case-by-case basis and
review multiple board interlocks among non-insiders for evidence of a pattern of
poor oversight.
Please
refer to the “Conflicts of Interest” section of these guidelines for further
information.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 40
Director
Accountability for Climate-Related Issues
We
believe that clear and comprehensive disclosure regarding climate risks,
including how they are being mitigated and overseen, should be provided by those
companies whose own greenhouse gas (GHG) emissions represent a financially
material risk.
Accordingly,
for companies with material exposure to climate risk stemming from their own
operations, we believe they should provide thorough climate-related disclosures
in line with the recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD). We also believe the boards of these companies should have
explicit and clearly defined oversight responsibilities for climate-related
issues. As such, in instances where we find either of these disclosures to be
absent or significantly lacking, we may recommend voting against responsible
directors.
Beginning
in 2024, Glass Lewis will apply this policy to most large-cap companies
operating in industries where the Sustainability Accounting Standards Board
(SASB) has determined that companies’ GHG emissions represent a financially
material risk.
Please
refer to the “Director Accountability for Climate-Related Issues” section of
these guidelines for further information.
Cyber
Risk Oversight
We
have updated our policy on cyber risk oversight to outline our belief that,
where a company has been materially impacted by a cyber-attack, shareholders can
reasonably expect periodic updates communicating the company’s ongoing process
towards resolving and remediating the impact of the attack.
In
instances where a company has been materially impacted by a cyber-attack, we may
recommend against appropriate directors should we find the board’s oversight,
response or disclosures concerning cybersecurity related issues to be
insufficient, or not provided to shareholders.
United
Kingdom
Director
Attendance
We
have clarified that in our assessment of director attendance, we typically
recommend voting against the re-election of directors that failed to attend
either: at least 75% of board meetings; or an aggregate of 75% of board and
applicable committee meetings. We will continue to typically grant exceptions to
directors in their first year of service on a board or when the company
discloses mitigating circumstances for a director’s poor attendance
record.
Please
refer to the “Voting Recommendations on the Basis of Performance and Experience”
section of these guidelines for further information.
Interlocking
Directorships
We
have expanded our policy on interlocking directorships to specify that we
consider both public and private companies. Further, we have specified that we
evaluate other types of interlocking relationships on a case-by-case basis, and
review multiple board interlocks among non-insiders for evidence of a pattern of
poor oversight.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 41
Please
refer to the “Conflicts of Interest” section of these guidelines for further
information.
Director
Accountability for Climate-Related Issues
Beginning
in 2023, Glass Lewis included a new discussion on director accountability for
climate related issues. In particular, we believe that clear and comprehensive
disclosure regarding climate risks, including how they are being mitigated and
overseen, should be provided by those companies whose own GHG emissions
represent a financially material risk.
Accordingly,
for companies with material exposure to climate risk stemming from their own
operations, we believe they should provide thorough climate-related disclosures
in line with the recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD). We also believe the boards of these companies should have
explicit and clearly defined oversight responsibilities for climate-related
issues. As such, in instances where we find either of these disclosures to be
absent or significantly lacking, we may recommend voting against responsible
directors.
While
this policy was applied to the largest, most significant emitters in 2023,
beginning in 2024, Glass Lewis will apply this policy to FTSE 100 companies
operating in industries where the Sustainability Accounting Standards Board
(SASB) has determined that companies’ GHG emissions represent a financially
material risk.
Please
refer to the “Director Accountability for Climate-Related Issues” section of
these guidelines for further information.
Cyber
Risk Oversight
We
have expanded our policy on cyber risk oversight to outline our belief that,
where a company has been materially impacted by a cyber-attack, shareholders can
reasonably expect periodic updates communicating the company’s ongoing process
towards resolving and remediating the impact of the attack.
In
instances where a company has been materially impacted by a cyber-attack, we may
recommend against appropriate directors should we find the board’s oversight,
response or disclosures concerning cybersecurity-related issues to be
insufficient, or not provided to shareholders.
Please
refer to the “Cyber Risk Oversight” section of these guidelines for further
information.
Clarifying
Amendments
The
following clarifications of our existing policies are included this
year:
Accounts
and Reports
We
have clarified that, on a case-by-case basis, we may recommend that shareholders
vote against proposals to approve or acknowledge a company’s accounts and
reports in instances where the auditor did not provide an unqualified opinion on
the financial statements. In these circumstances, we will assess the reasoning
provided by the statutory auditor as well as any relevant disclosure from the
company.
Please
refer to the “Accounts and Reports” section of these guidelines for further
information.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 42
Executive
Remuneration Voting Considerations
Within
the “Vote on Remuneration Policy”, “Vote on Remuneration Report”, and “Long-Term
Incentives — Structure and Duration” sections of these guidelines, we have
clarified certain structural elements that we consider to be best practice and
specific circumstances which may lead us to recommend against the company’s
remuneration policy and/or report.
Please
refer to “The Link Between Pay and Performance” section of these guidelines for
further information.
Executive
Shareholding Requirements
In
a new section of these guidelines, we have outlined our belief that companies
should generally adopt minimum executive share ownership requirements that
should apply for the duration of an executive’s tenure, and for a period of time
post-employment.
Please
refer to the “Shareholding Requirements” section of these guidelines for further
information.
Remuneration
Relative to Ownership Structure
We
have expanded this section of our guidelines to outline a number of company
practices that may serve to mitigate concerns when a significant equity award is
made to an executive that is also a major shareholder. These include the
inclusion of challenging targets attached to a diverse set of performance
metrics, meaningful disclosure on the company’s engagement with free-float
shareholders on the topic, or a policy that the shareholder executive will not
participate in voting on the award.
Please
refer to the “Remuneration Relative to Ownership Structure” section of these
guidelines for further information.
Remuneration
Relative to Peers
In
a new section of our guidelines, we have outlined our expectations surrounding
setting remuneration levels relative to peers. Further, we have clarified that
we welcome companies to disclose the peer group utilised, including the criteria
used in the selection process, for pay benchmarking – particularly in cases
where companies consider U.S.-based peers.
Further,
we have clarified that we generally believe companies should provide supporting
disclosure where key elements of their executive pay plan deviate from
prevailing market practice – particularly in cases where multiple exchange
listings or other company-specific situation lead a company to benchmark its
pay-setting across multiple jurisdictions.
Please
refer to the “Remuneration Relative to Peers” section of these guidelines for
further information.
Standard
Listed Companies
We
have clarified that, for companies listed on the standard segment of the main
market of the London Stock Exchange, we generally apply our policies as they
pertain to AIM-traded companies. However, in light of the varied market
capitalisation and complexity of standard listed companies, we approach this on
a case-by-case basis.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 43
Shareholder
Proposals & ESG-Related Issues Initiatives
Board
Accountability for Climate-Related Issues
Beginning
in 2023, Glass Lewis included a new discussion on director accountability for
climate related issues. In particular, we believe that clear and comprehensive
disclosure regarding climate risks, including how they are being mitigated and
overseen, should be provided by those companies whose own GHG emissions
represent a financially material risk. Accordingly, for companies with material
exposure to climate risk stemming from their own operations, we believe they
should provide thorough climate-related disclosures in line with the
recommendations of the Task Force on Climate-related Financial Disclosures
(“TCFD”). We also believe the boards of these companies should have explicit and
clearly defined oversight responsibilities for climate-related issues. As such,
in instances where we find either of these disclosures to be absent or
significantly lacking, we may recommend voting against responsible directors.
While
this policy was applied to the largest, most significant emitters in 2023,
beginning in 2024, Glass Lewis will apply this policy to most large-cap
companies operating in industries where the Sustainability Accounting Standards
Board (SASB) has determined that companies’ GHG emissions represent a
financially material risk.
Engagement
Considerations
We
have updated our “Overall Approach” section to include consideration for
engagement between companies and investors. Specifically, as part of our broader
evaluation of a company’s governance risks when making a recommendation on a
shareholder proposal, we will look to publicly available disclosures made by
both the company and shareholder proponents concerning engagement between the
two parties. In instances where there is compelling disclosure that either party
has failed to engage in good faith, we may take such information into account
when making recommendations on these resolutions.
We
also believe that companies should make a concerted effort to provide disclosure
in their proxy statements concerning their engagements with their broader
shareholder bases on issues raised by shareholder proposals. Particularly in
cases where companies receive repeat shareholder proposals, we may consider a
company’s disclosure of its engagement efforts on related topics in our analysis
and recommendations, especially in cases where such repeat proposals have
received significant support from shareholders. While we do not necessarily
expect companies to take action on proposals that receive less than majority
shareholder support, we do expect them to ensure that they are soliciting
feedback from shareholders concerning the topics raised by the proposals and
communicating the feedback they have received in their proxy disclosures with a
particular focus on responding to such feedback. Such disclosure will also be
strongly considered when we are evaluating whether companies have sufficiently
responded to majority-supported shareholder proposals.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 44
Non-Financial
Reporting
We
have updated our guidelines on management-proposed ESG resolutions to reflect
our approach to mandatory proposals in Spain and Switzerland asking shareholders
to approve non-financial reporting. In these cases, we will generally recommend
that shareholders vote for proposals to approve a company’s non-financial
reporting, unless any of the following apply: (i) the company has failed to make
the report publicly-available with sufficient time for shareholder review prior
to the general meeting; (ii) the company has failed to provide a sufficient
response to material controversies in its reporting; (iii) there are material
concerns regarding the completeness and/or quality of the reporting; or (iv) the
company is listed on a blue-chip or mid-cap index and has failed to disclose its
Scope 1 and 2 emissions.
In
addition, for large-cap companies and in instances where we identify material
ESG oversight concerns, we will review the manner in which the board oversees
ESG issues. In instances where the board has failed to provide explicit
disclosure concerning its role in overseeing material ESG issues, we may
recommend that shareholders vote against the approval of a company’s
non-financial reporting instead of or in addition to a recommendation to vote
against accountable directors.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 45
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with Glass Lewis
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Global
Summary of 2024 Benchmark Policy Guideline
Updates 46
DISCLAIMER
©
2024 Glass, Lewis & Co., and/or its affiliates. All Rights
Reserved.
This
document is intended to provide an overview of Glass Lewis’ proxy voting
guidelines. It is not intended to be exhaustive and does not address all
potential voting issues. Glass Lewis’ proxy voting guidelines, as they apply to
certain issues or types of proposals, are further explained in supplemental
guidelines and reports that are made available on Glass Lewis’ website –
http://www.glasslewis.com.
These guidelines have not been set or approved by the U.S. Securities and
Exchange Commission or any other regulatory body. Additionally, none of the
information contained herein is or should be relied upon as investment advice.
The content of this document has been developed based on Glass Lewis’ experience
with proxy voting and corporate governance issues, engagement with clients and
issuers, and review of relevant studies and surveys, and has not been tailored
to any specific person or entity.
Glass
Lewis’ proxy voting guidelines are grounded in corporate governance best
practices, which often exceed minimum legal requirements. Accordingly, unless
specifically noted otherwise, a failure to meet these guidelines should not be
understood to mean that the company or individual involved has failed to meet
applicable legal requirements.
No
representations or warranties express or implied, are made as to the accuracy or
completeness of any information included herein. In addition, Glass Lewis shall
not be liable for any losses or damages arising from or in connection with the
information contained herein or the use, reliance on, or inability to use any
such information. Glass Lewis expects its subscribers possess sufficient
experience and knowledge to make their own decisions entirely independent of any
information contained in this document.
All
information contained in this report is protected by law, including, but not
limited to, copyright law, and none of such information may be copied or
otherwise reproduced, repackaged, further transmitted, transferred,
disseminated, redistributed or resold, or stored for subsequent use for any such
purpose, in whole or in part, in any form or manner, or by any means whatsoever,
by any person without Glass Lewis’ prior written consent.
Global
Summary of 2024 Benchmark Policy Guideline
Updates 47
Table
of Contents
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About
Glass Lewis
Glass
Lewis is the world’s choice for governance solutions. We enable institutional
investors and publicly
listed
companies to make sustainable decisions based on research and data. We cover
30,000+ meetings each year, across approximately 100 global markets. Our team
has been providing in-depth analysis of companies since 2003, relying solely on
publicly available information to inform its policies, research, and voting
recommendations.
Our
customers include the majority of the world’s largest pension plans, mutual
funds, and asset
managers,
collectively managing over $40 trillion in assets. We have teams located across
the United States, Europe, and Asia-Pacific giving us global reach with a local
perspective on the important governance issues.
Investors
around the world depend on Glass Lewis’ Viewpoint
platform
to manage their proxy voting, policy implementation, recordkeeping, and
reporting. Our industry leading Proxy
Paper
product
provides comprehensive environmental, social, and governance research and voting
recommendations weeks ahead of voting deadlines. Public companies can also use
our innovative Report
Feedback Statement
to
deliver their opinion on our proxy research directly to the voting decision
makers at every investor client in time for voting decisions to be made or
changed.
The
research team engages extensively with public companies, investors, regulators,
and other industry stakeholders to gain relevant context into the realities
surrounding companies, sectors, and the market in general. This enables us to
provide the most comprehensive and pragmatic insights to our
customers.
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Introduction
These
guidelines provide a general overview of the Glass Lewis approach to proxy
advice globally. Glass Lewis publishes separate, detailed policy guidelines for
all major global markets, which are publicly available on the Glass Lewis
website. Glass Lewis policies are largely based on the regulations, listing
rules, codes of best practice and other relevant standards set in each country.
While these guidelines provide a high-level overview of our general policy
approach, implementation varies in accordance with relevant requirements or best
practices in each market. For detailed information on the implementation of the
policy approach described below, refer to the Glass Lewis policy guidelines for
the relevant country.
Summary
of Changes for 2023
Board
Accountability for Climate-related Issues
In
a new section of these guidelines, we have outlined that where companies with
increased climate risk exposure have not provided thorough TCFD-aligned
climate-related disclosure and/or have not explicitly and clearly defined board
oversight responsibilities for climate-related issues, we may recommend voting
against a responsible member of the board or other relevant agenda
item.
Please
refer to the “Board Accountability for Climate-related Issues” section of these
guidelines for further information.
Cyber
Risk Oversight
In
a new section of these guidelines, we have outlined our belief that cyber risk
is material for all companies and that a company’s stakeholders would benefit
from clear disclosure regarding the role of the board in overseeing issues
related to cybersecurity. Further we have clarified that, while we will
generally not make
recommendations
on the basis of a company’s oversight or disclosure concerning cyber-related
issues, we may recommend against appropriate directors in instances where
cyber-attacks have caused significant harm to shareholders and we find the
company’s disclosure or oversight to be insufficient.
Please
refer to the “Cyber Risk Oversight” section of these guidelines for further
information.
Board
Responsiveness
We
have clarified that, in assessing board responsiveness, we take into account a
company’s shareholder and capital structure, carefully examining the level of
disapproval on prior year agenda items attributable to minority
shareholders.
Please
refer to the “Board Responsiveness” section of these guidelines for further
information.
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Board
Diversity
We
have clarified that we generally expect the boards of main market companies in
most major global markets to comprise at least one gender diverse director and
that for boards listed on blue-chip or mid-cap indices in Europe or North
America, we expect gender diverse directors to hold at least 30% of board seats.
We will continue to apply a higher standard where best practice recommendations
or listing regulations set a higher target.
Please
refer to the “Board Diversity” section of these guidelines for further
information.
Multi-Class
Share Structures
We
have outlined that we will generally recommend that shareholders vote against
(a) certain director(s) and/or other relevant agenda items at a North American
or European company that adopts a multi-class share structure with unequal
voting rights in connection with an IPO, spin-off, or direct listing within the
past year if the board:
(i)
did not also commit to submitting the multi-class structure to a shareholder
vote at the company’s first shareholder meeting following the IPO; or (ii) did
not provide for a reasonable sunset of the multi-class structure (generally
seven years or less).
Further,
we have clarified that our approach toward companies with existing multi-class
share structures with unequal voting varies between regions and is dependent on,
inter alia, local market practice and legislation, as well as our assessment of
whether evidence exists that the share structure is contributing to poor
governance or the suppression of minority shareholder concerns.
Please
refer to the “Multi-Class Share Structures” section of these guidelines for
further information.
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Election
of Directors
Board
of Directors
Boards
are put in place to represent shareholders and protect their interests. Glass
Lewis seeks boards with a proven record of protecting shareholders and
delivering value over the medium- and long-term. In our view, boards working to
protect and enhance the best interests of shareholders typically include some
independent directors (the percentage will vary by local market practice and
regulations), boast a record of positive performance, have directors with
diverse backgrounds, and appoint directors with a breadth and depth of
experience.
Board
Composition
We
look at each individual on the board and examine his or her relationships with
the company, the company’s executives and with other board members. The purpose
of this inquiry is to determine whether pre-existing personal, familial or
financial relationships are likely to impact the decisions of that board
member.
Where
the company does not disclose the names or backgrounds of director nominees with
sufficient time in advance of the shareholder meeting to evaluate their
independence, performance or skills we will consider recommending voting against
or abstaining from voting on the directors’ election.
We
recommend voting in favor of governance structures that will drive positive
performance and enhance shareholder value. The most crucial test of a board’s
commitment to the company and to its shareholders is the performance of the
board and its members. The performance of directors in their capacity as board
members and as executives of the company, when applicable, and in their roles at
other companies where they serve is critical to this evaluation. We generally
believe that a board will be most effective in protecting shareholders'
interests when a majority of shareholder representatives on the board are
independent, although we set higher and lower thresholds in some markets on the
basis of local best practice recommendations and prevailing market practice. We
typically accept the presence of representatives of a company's major
shareholder(s) on the board in line with their stake in a company's issued share
capital or voting rights, so long as there is a sufficient number of independent
directors to represent free-float shareholders and allow for the formation of
sufficiently independent board committees.
We
believe a director is independent if they have no material financial, familial
or other current relationships with the company, its executives or other board
members except for service on the board and standard fees paid for that service.
Relationships that have existed within the three to five years, dependent on the
nature of the relationship, prior to the inquiry are usually considered to be
“current” for purposes of this test.
In
our view, a director is affiliated if they have a material financial, familial
or other relationship with the company or its executives, but are not an
employee of the company. This includes directors whose employers have a material
financial relationship with the Company. This also includes a director who owns
or controls, directly or indirectly, 10% or more of the company’s voting stock
(except where local regulations or best practice
set
a different threshold).
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We
define an inside director as one who simultaneously serves as a director and as
an employee of the company. This category may include a board chair who acts as
an employee of the company or is paid as an employee of the
company.
Although
we typically recommend that shareholders support the election of independent
directors, we will recommend voting against directors for the following
reasons:
•A
director who attends less than 75% of the board and applicable committee
meetings.
•A
director who is also the CEO of a company where a serious restatement has
occurred after the CEO certified the pre-restatement financial
statements.
•An
affiliated director where the board is not sufficiently independent in
accordance with market best practice standards.
•There
are substantial concerns regarding the performance and/or skills and experience
of a director.
We
also feel that the following conflicts of interest may hinder a director’s
performance and will therefore
recommend
voting against a:
•Director
who presently sits on an excessive number of boards.
•Director
who, or a director whose immediate family member, provides material professional
services to the company at any time during the past three years.
•Director
who, or a director whose immediate family member, engages in airplane, real
estate or other similar deals, including perquisite type grants from the
company.
•Director
with an interlocking directorship.
Slate
Elections
In
some countries, companies elect their board members as a slate, whereby
shareholders are unable to vote on the election of each individual director, but
rather are limited to voting for or against the board as a whole. In countries
where slate elections are common market practice, we will not recommend that
shareholders oppose an election on the basis of this election method
alone.
We
will generally recommend that shareholders support a director slate, unless we
have identified independence or performance concerns. When the proposed slate
raises concerns regarding board or committee independence, we will generally
recommend that shareholders vote against the slate. In egregious cases where we
have identified concerns regarding the performance and/or experience of the
board, its committees, and/or individual directors, we will similarly recommend
that shareholders vote against the director slate.
Board
Committee Composition
We
believe that independent directors should serve on a company’s audit,
compensation, nominating and governance committees. We will support boards with
such a structure and encourage change where this is not the case. We generally
recommend that shareholders oppose the presence of executive directors on the
audit and compensation committee given the risks for conflicts of interest. We
generally believe that the majority of shareholder representatives on key board
committees should be independent, although we set higher and lower thresholds in
some markets on the basis of local best practice recommendations and prevailing
market practice.
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Review
of Risk Management Controls
We
believe companies, particularly financial firms, should have a dedicated risk
committee, or a committee of the board charged with risk oversight, as well as a
chief risk officer who reports directly to that committee, not to the CEO or
another executive. In cases where a company has disclosed a sizable loss or
writedown, and where a reasonable analysis indicates that the company’s
board-level risk committee should be held accountable for poor oversight, we
would recommend that shareholders vote against such committee members on that
basis. In addition, in cases where a company maintains a significant level of
financial risk exposure but fails to disclose any explicit form of board-level
risk oversight (committee or otherwise), we will consider recommending to vote
against the chairman of the board on that basis.
Classified
Boards
Glass
Lewis favors the repeal of staggered boards in favor of the annual election of
directors. We believe that staggered boards are less accountable to shareholders
than annually elected boards. Furthermore, we feel that the annual election of
directors encourages board members to focus on protecting the interests of
shareholders.
Board
Tenure and Refreshment
Glass
Lewis strongly supports routine director evaluation, including independent
external reviews, and periodic board refreshment to foster the sharing of
diverse perspectives in the boardroom and the generation of new
ideas
and business strategies. In our view, a director’s experience can be a valuable
asset to shareholders because of the complex, critical issues that boards face.
This said, we recognize a lack of refreshment can contribute to a lack of board
responsiveness to poor company performance. We may consider recommending voting
against directors with a lengthy tenure (e.g. over 12 years) when we identify
significant performance or governance concerns indicating that a fresh
perspective would be beneficial and we find no evidence of board
refreshment.
Where
a board has established an age or term limit, we believe these should generally
be applied equally for all members of the board. If a board waives its age/term
limits, Glass Lewis will consider recommending shareholders vote against the
chair of the nominating committee or equivalent, unless compelling rationale is
provided for why the board is proposing to waive this rule through an
election/re-election.
Board
Diversity
Glass
Lewis values the importance of board diversity, believing there are a number of
benefits from having individuals with a variety of backgrounds serving on
boards. We consider the diversity of gender, backgrounds, skills and experience
of directors when evaluating board diversity. If a board has failed to address
material concerns regarding the mix of skills and experience of the
non-executive directors or when it fails to meet legal requirements or the best
practice standard prevalent in the market for gender quotas and has not
disclosed any cogent explanation or plan regarding its approach to board
diversity, we will consider recommending voting against the chair of the
nominating committee. We expect boards of main market companies listed in most
major global markets (e.g. Australia, Canada, Europe, Japan, United Kingdom and
United States), to comprise at least one gender diverse director (women, or
directors that identify with a gender other than male or female).
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For
European and North American companies listed on a blue-chip or mid-cap index
(e.g. Russell 3000, TSX, FTSE 350, etc.), we expect at least 30% of the board to
be composed of gender diverse directors. We apply a higher standard where best
practice recommendations or listing regulations set a higher
target.
We
also monitor company disclosure on ethnic diversity at board level. We expect
large companies in markets with legal requirements or best practice
recommendations in this area (e.g. United States; United Kingdom) to provide
clear disclosure on the board's performance or transition plans.
Environmental
and Social Risk Oversight
Glass
Lewis recognizes the importance of ensuring the sustainability of companies’
operations. We believe that insufficient oversight of material environmental and
social issues can present direct legal, financial, regulatory and reputational
risks that could serve to harm shareholder interests. Therefore, we believe that
these issues should be carefully monitored and managed by companies, and that
companies should have an appropriate oversight structure in place to ensure that
they are mitigating attendant risks and capitalizing on related opportunities to
the best extent possible. From 2022, Glass Lewis will generally recommend that
shareholders vote against the chair of the governance committee (or equivalent)
of companies listed on a major blue-chip index in key global markets that do not
provide clear disclosure concerning the board-level oversight afforded to
material environmental and/or social issues.
Board
Accountability for Climate-related Issues
We
believe that companies with increased climate risk exposure, such as those
companies identified by groups including Climate Action 100+, should provide
clear and comprehensive disclosure regarding these risks, including how they are
being mitigated and overseen. We believe such information is crucial to allow
investors to understand the company’s management of this issue, as well as the
impact of a lower carbon future on the company’s operations.
Accordingly,
for such companies with material exposure to climate risk stemming from their
own operations, we believe thorough climate-related disclosures in line with the
recommendations of the Task Force on Climate-
related
Disclosures (“TCFD”) should be provided to shareholders. We also believe the
boards of these companies should have explicit and clearly defined oversight
responsibilities for climate-related issues. As such, in instances where we find
either (or both) of these disclosures to be absent or significantly lacking, we
may recommend voting against the chair of the committee (or board) charged with
oversight of climate-related issues, or if no committee has been charged with
such oversight, the chair of the governance committee. Further, we may extend
our recommendation on this basis to additional members of the responsible
committee in cases where the committee chair is not standing for election due to
a classified board, or based on other factors, including the company’s size and
industry and its overall governance profile. In instances where appropriate
directors are not standing for election, we may instead recommend shareholders
vote against other matters that are up for a vote, such as the ratification of
board acts, or the accounts and reports proposal.
Cyber
Risk Oversight
Given
the regulatory focus on, and the potential adverse outcomes from, cyber-related
issues, it is our view that cyber risk is material for all companies. We
therefore believe that it is critical that companies evaluate and
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mitigate
these risks to the greatest extent possible. With that view, we encourage all
issuers to provide clear disclosure concerning the role of the board in
overseeing issues related to cybersecurity. We also believe that disclosure
concerning how companies are ensuring directors are fully versed on this rapidly
evolving and dynamic issue can help shareholders understand the seriousness with
which companies take this issue.
We
will generally not make voting recommendations on the basis of a company’s
oversight or disclosure concerning cyber-related issues. However, we will
closely evaluate a company’s disclosure in this regard in instances where
cyber-attacks have caused significant harm to shareholders and may recommend
against appropriate directors should we find such disclosure or oversight to be
insufficient.
Board
Responsiveness
Glass
Lewis believes that any time 20% or more of shareholders vote contrary to the
recommendation of management, the board should, depending on the issue,
demonstrate some level of responsiveness to address the concerns of
shareholders, particularly in the case of a compensation or director election
proposal. While the 20% threshold alone will not automatically generate a
negative vote recommendation from Glass Lewis on a future proposal (e.g., to
recommend against a director nominee, against a remuneration proposal, etc.), it
will be a contributing factor to recommend a vote against management's
recommendation in the event we determine that the board did not respond
appropriately. In the case of companies with a controlling shareholder and/or
with a multi-class share structure, we will carefully examine the level of
disapproval attributable to minority shareholders.
As
a general framework, our evaluation of board responsiveness involves a review of
the publicly available disclosures released following the date of the company's
last annual meeting up through the publication date of our most current Proxy
Paper.
Separation
of the Roles of Chair and CEO
Glass
Lewis believes that separating the roles of corporate officers and the chair of
the board is a better governance structure than a combined executive/chair
position. The role of executives is to manage the business on the basis of the
course charted by the board. Executives should be in the position of reporting
and answering to the board for their performance in achieving the goals set out
by such board. This becomes much more complicated when management actually sits
on, or chairs, the board.
We
view an independent chair as better able to oversee the executives of the
company and set a pro- shareholder agenda without the management conflicts that
a CEO and other executive insiders often face. This, in turn, leads to a more
proactive and effective board of directors that is looking out for the interests
of shareholders above all else.
In
the absence of an independent chair, we support the appointment of a presiding
or lead director with authority to set the agenda for the meetings and to lead
sessions outside the presence of the insider chair.
We
may recommend voting against the chair of the nominating committee when the
chair and CEO roles are combined and the board has not appointed an independent
presiding or lead director.
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Financial
Reporting
Accounts
and Reports
Many
countries require companies to submit the annual financial statements, director
reports and independent auditors’ reports to shareholders at a general meeting.
We will usually recommend voting in favor of these proposals except when there
are concerns about the integrity of the statements/reports. However, should the
audited financial statements, auditor’s report and/or annual report not be
published at the writing of our report, we will recommend that shareholders
abstain from voting on this proposal.
Income
Allocation (Distribution of Dividends)
In
many countries, companies must submit the allocation of income for shareholder
approval. We will generally recommend voting for such a proposal. However, we
will give particular scrutiny to cases where the company’s dividend payout ratio
is exceptionally low or excessively high relative to its peers, or the proposed
distribution represents a substantial departure from a company's disclosed
dividend policy, and the company has not provided a satisfactory
explanation.
Appointment
of Auditors and Authority to Set Fees
We
believe that role of the auditor is crucial in protecting shareholder value.
Like directors, auditors should be free from conflicts of interest and should
assiduously avoid situations that require them to make choices between their own
interests and the interests of the shareholders. We generally support
management’s recommendation regarding the selection of an auditor and support
granting the board the authority to fix auditor fees except in cases where we
believe the independence of an incumbent auditor or the integrity of the audit
has been compromised. However, we generally recommend voting against
ratification of the auditor and/or authorizing the board to set auditor fees for
the following reasons:
•When
audit fees added to audit-related fees total less than one-half of total
fees.
•When
there have been any recent restatements or late filings by the company where the
auditor bears some responsibility for the restatement or late filing (e.g., a
restatement due to a reporting error).
•When
the company has aggressive accounting policies.
•When
the company has poor disclosure or lack of transparency in financial
statements.
•When
there are other relationships or issues of concern with the auditor that might
suggest a conflict between the interest of the auditor and the interests of
shareholders.
•When
the company is changing auditors as a result of a disagreement between the
company and the auditor on a matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures.
•Where
the auditor’s tenure is lengthy (e.g. over 10 years) and when we identify any
ongoing litigation or
significant
controversies which call into question an auditor's effectiveness
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Compensation
Compensation
Report/Compensation Policy
We
closely review companies’ remuneration practices and disclosure as outlined in
company filings to evaluate management-submitted advisory compensation report
and policy vote proposals. In evaluating these proposals, which can be binding
or non-binding depending on the country, we examine how well the company has
disclosed information pertinent to its compensation programs, the extent to
which overall compensation is tied to performance, the performance metrics
selected by the company and the levels of remuneration in comparison to company
performance and that of its peers.
We
will usually recommend voting against approval of the compensation report or
policy when the following occur:
•Gross
disconnect between pay and performance;
•Gross
disconnect between remuneration outcomes and the experience of shareholders and
other key stakeholders (in particular company employees) in the year under
review;
•Performance
goals and metrics are inappropriate or insufficiently challenging;
•Lack
of disclosure regarding performance metrics and goals as well as the extent to
which the performance metrics, targets and goals are implemented to enhance
company performance and encourage prudent risk-taking;
•Excessive
weighting of short-term (e.g., generally less than three year) performance
measurement in incentive plans;
•Excessive
discretion afforded to or exercised by management or the compensation committee
to deviate from defined performance metrics and goals in making
awards;
•Ex
gratia or other non-contractual payments have been made and the reasons for
making the payments have not been fully explained or the explanation is
unconvincing;
•Guaranteed
bonuses are established;
•Egregious
or excessive bonuses, equity awards or severance payments;
•Excessive
increases (e.g. over 10%) in fixed payments such as salary or pension
entitlements that are not adequately justified
In
addition, we look for the presence of other structural safeguards, such as
clawback and malus policies for incentive plans. The absence of such safeguards
may contribute to a negative recommendation. In particularly egregious cases
where we conclude that the compensation committee has substantially failed to
fulfill its duty to shareholders, we may also recommend that shareholders vote
against the chair, senior members, or all members of the committee, depending on
the seriousness and persistence of the issues identified.
Long-Term
Incentive Plans
Glass
Lewis recognizes the value of equity-based incentive programs. When used
appropriately, they can
provide
a vehicle for linking an employee’s pay to a company’s performance, thereby
aligning their interests
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with
those of shareholders. Tying a portion of an employee’s compensation to the
performance of the Company provides an incentive to maximize share value. In
addition, equity-based compensation is an effective way to attract, retain and
motivate key employees. In order to allow for meaningful shareholder review, we
believe that incentive programs should generally include: (i) specific and
appropriate performance goals; (ii) a maximum award pool; and (iii) a maximum
award amount per employee. In addition, the payments made should be reasonable
relative to the performance of the business and total compensation to those
covered by the plan should be in line with compensation paid by the Company’s
peers.
Performance-Based
Equity Compensation
Glass
Lewis believes in performance-based equity compensation plans for senior
executives. We feel that executives should be compensated with equity when their
performance and that of the company warrants such rewards. While we do not
believe that equity-based compensation plans for all employees need to be based
on overall company performance, we do support such limitations for grants to
senior executives (although even some equity-based compensation of senior
executives without performance criteria is acceptable, such as in the case of
moderate incentive grants made in an initial offer of employment). Boards often
argue that such a proposal would hinder them in attracting talent. We believe
that boards can develop a consistent, reliable approach, as boards of many
companies have, that would still attract executives who believe in their ability
to guide the company to achieve its targets.
We
generally recommend that shareholders vote in favor of performance-based option
requirements. There should be no retesting of performance conditions for all
share- and option- based incentive schemes. We will generally recommend that
shareholders vote against performance-based equity compensation plans that allow
for re-testing. We pay particular attention to awards to major shareholders that
serve as senior executives, mindful of the natural alignment between
shareholders' and the executive's interests and the potential for such grants to
further consolidate the executive's ownership level.
Director
Compensation
Glass
Lewis believes that non-employee directors should receive appropriate types and
levels of compensation for the time and effort they spend serving on the board
and its committees. Director fees should be reasonable in order to retain and
attract qualified individuals. We support compensation plans that include non
performance-based equity awards. Glass Lewis compares the costs of these plans
to the plans of peer companies with similar market capitalizations in the same
country to help inform its judgment on this issue.
Retirement
Benefits for Directors
We
will typically recommend voting against proposals to grant retirement benefits
to non-executive directors. Such extended payments can impair the objectivity
and independence of these board members. Directors should receive adequate
compensation for their board service through initial and annual
fees.
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Governance
Structure
Amendments
to the Articles of Association
We
will evaluate proposed amendments to a company’s articles of association on a
case-by-case basis. We are opposed to the practice of bundling several
amendments under a single proposal because it prevents shareholders from
evaluating each amendment on its own merits. In such cases, we will analyze each
change individually and will recommend voting for the proposal only when we
believe that the amendments on balance are in the best interests of
shareholders.
Virtual
Meetings
Glass
Lewis unequivocally supports companies facilitating the virtual participation of
shareholders in general meetings. We believe that virtual meeting technology can
be a useful complement to a traditional, in-person shareholder meeting by
expanding participation of shareholders who are unable to attend a shareholder
meeting in person (i.e. a "hybrid meeting"). However, we also believe that
virtual-only shareholder meetings can curb the ability of a company's
shareholders to participate in the meeting and meaningfully communicate with
company management and directors.
Where
companies are convening a meeting at which in-person attendance of shareholders
is limited, we expect companies to set and disclose clear procedures at the time
of convocation regarding:
i)When,
where, and how shareholders will have an opportunity to ask questions related to
the subjects normally discussed at the annual meeting, including a timeline for
submitting questions, types of appropriate questions, and rules for how
questions and comments will be recognized and disclosed to
shareholders;
ii)In
particular where there are restrictions on the ability of shareholders to
question the board during the meeting - the manner in which appropriate
questions received during the meeting will be addressed by the board; this
should include a commitment that questions which meet the board’s guidelines are
answered in a format that is accessible by all shareholders, such as on the
company’s AGM or investor relations website;
iii)The
procedure and requirements to participate in the meeting and access the meeting
platform; and
iv)Technical
support that is available to shareholders prior to and during the meeting. In
egregious cases where inadequate disclosure of the aforementioned has been
provided to shareholders at the time of convocation, we will generally recommend
that shareholders hold the board or relevant directors accountable.
Depending
on a company’s governance structure, country of incorporation, and the agenda of
the meeting, this may lead to recommendations that shareholders vote against
members of the governance committee (or equivalent; if up for re-election); the
chair of the board (if up for re-election); and/or other agenda items concerning
board composition and performance as applicable (e.g. ratification of board
acts). We will always take into account emerging local laws, best practices, and
disclosure standards when assessing a company’s performance on this
issue.
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Anti-Takeover
Measures
Multi-Class
Share Structures
Glass
Lewis believes multi-class voting structures are typically not in the best
interests of common shareholders. We believe the economic stake of each
shareholder should match their voting power and that no small group of
shareholders, family or otherwise, should have voting rights different from
those of other shareholders.
We
generally consider a multi-class share structure to reflect negatively on a
company's overall corporate governance. Because we believe that allowing one
vote per share best protects the interests of shareholders, we typically
recommend that shareholders vote in favor of recapitalization proposals to
eliminate multi-class share structures. Similarly, we will generally recommend
voting against proposals to adopt a new class of common stock.
Glass
Lewis will generally recommend that shareholders vote against (a) certain
director(s) and/or other relevant agenda items at a North American or European
company that adopts a multi-class share structure with unequal voting rights in
connection with an IPO, spin-off, or direct listing within the past year if the
board: (i) did not also commit to submitting the multi-class structure to a
shareholder vote at the company’s first shareholder meeting following the IPO;
or (ii) did not provide for a reasonable sunset of the multi-class structure
(generally seven years or less). Our approach toward companies with existing
multi-class share structures with unequal voting varies between regions and is
dependent on, inter alia, local market practice and legislation, as well as our
assessment on whether evidence exists that the share structure is contributing
to poor governance or the suppression of minority shareholder
concerns.
Poison
Pills (Shareholder Rights Plans)
Glass
Lewis believes that poison pill plans generally are not in the best interests of
shareholders. Specifically, they can reduce management accountability by
substantially limiting opportunities for corporate takeovers. Rights plans can
thus prevent shareholders from receiving a buy-out premium for their stock. We
believe that boards should be given wide latitude in directing the activities of
the company and charting the company’s course. However, on an issue such as this
where the link between the financial interests of shareholders and their right
to consider and accept buyout offers is so substantial, we believe that
shareholders should be allowed to vote on whether or not they support such a
plan’s implementation. In certain limited circumstances, we will support a
limited poison pill to accomplish a particular objective, such as the closing of
an important merger, or a pill that contains what we believe to be a reasonable
‘qualifying offer’ clause.
Supermajority
Vote Requirements
Glass
Lewis favors a simple majority voting structure except where a supermajority
voting requirement is explicitly intended to protect the rights of minority
shareholders in a controlled company. In the case of noncontrolled companies,
supermajority vote requirements act as impediments to shareholder action on
ballot items that are critical to their interests. One key example is in the
takeover context where supermajority vote requirements can strongly limit
shareholders’ input in making decisions on such crucial matters as selling the
business.
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Increase
in Authorized Shares
Glass
Lewis believes that having adequate capital stock available for issuance is
important to the operation of a company. We will generally support proposals
when a company could reasonably use the requested shares for financing, stock
splits and stock dividends. While we believe that having adequate shares to
allow management to make quick decisions and effectively operate the business is
critical, we prefer that, for significant transactions, management come to
shareholders to justify their use of additional shares rather than providing a
blank check in the form of large pools of unallocated shares available for any
purpose.
In
general, we will support proposals to increase authorized shares up to 100% of
the number of shares currently authorized unless, after the increase the company
would be left with less than 30% of its authorized shares outstanding. In
markets where such authorities typically also authorize the board to issue new
shares without separate shareholder approval, we apply the policy described
below on the issuance of shares.
Issuance
of Shares
Issuing
additional shares can dilute existing holders in some circumstances. Further,
the availability of additional shares, where the board has discretion to
implement a poison pill, can often serve as a deterrent to interested suitors.
Accordingly, where we find that the company has not disclosed a detailed plan
for use of the proposed shares, or where the number of shares requested are
excessive, we typically recommend against the issuance. In the case of a private
placement, we will also consider whether the company is offering a discount to
its share price.
In
general, we will support proposals to authorize the board to issue shares (with
pre-emption rights) when the requested increase is equal to or less than the
current issued share capital. This authority should generally not exceed five
years. In accordance with differing market best practice, in some countries, if
a proposal seeks to issue shares exceeding 33% of issued share capital, the
company should explain the specific rationale, which we analyze on a
case-by-case basis.
We
will also generally support proposals to suspend pre-emption rights for a
maximum of 5-20% of the issued ordinary share capital of the company, depending
on best practice in the country in which the company is located. This authority
should not exceed five years, or less for some countries.
Repurchase
of Shares
We
will recommend voting in favor of a proposal to repurchase shares when the plan
includes the following provisions: (i) a maximum number of shares which may be
purchased (typically not more than 10-20% of the issued share capital); and (ii)
a maximum price which may be paid for each share (as a percentage of the market
price). We may support a larger proposed repurchase program where the terms of
the program stipulate that repurchased shares must be cancelled.
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Shareholder
Proposals
Glass
Lewis believes that shareholders should seek to promote governance structures
that protect shareholders, support effective ESG oversight and reporting, and
encourage director accountability. Accordingly, Glass Lewis places a significant
emphasis on promoting transparency, robust governance structures and companies’
responsiveness to and engagement with shareholders. We also believe that
companies should be transparent on how they are mitigating material ESG risks,
including those related to climate change, human capital management, and
stakeholder relations.
To
that end, we evaluate all shareholder proposals on a case-by-case basis with a
view to promoting long-term shareholder value. While we are generally supportive
of those that promote board accountability, shareholder rights, and
transparency, we consider all proposals in the context of a company’s unique
operations and risk profile.
For
a detailed review of our policies concerning compensation, environmental,
social, and governance shareholder proposals, please refer to our comprehensive
Proxy
Paper Guidelines for Environmental, Social & Governance
Initiatives,
available at www.glasslewis.com/voting-policies-current/.
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Overall
Approach to
Environmental,
Social & Governance
Glass
Lewis evaluates all environmental and social issues through the lens of
long-term shareholder value. We believe that companies should be considering
material environmental and social factors in all aspects of their operations and
that companies should provide shareholders with disclosures that allow them to
understand how these factors are being considered and how attendant risks are
being mitigated. We also are of the view that governance is a critical factor in
how companies manage environmental and social risks and opportunities and that a
well-governed company will be generally managing these issues better than one
without a governance structure that promotes board independence and
accountability.
We
believe part of the board’s role is to ensure that management conducts a
complete risk analysis of company operations, including those that have material
environmental and social implications. We believe that directors should monitor
management’s performance in both capitalizing on environmental and social
opportunities and mitigating environmental and social risks related to
operations in order to best serve the interests of shareholders. Companies face
significant financial, legal and reputational risks resulting from poor
environmental and social practices, or negligent oversight thereof. Therefore,
in cases where the board or management has neglected to take action on a
pressing issue that could negatively impact shareholder value, we believe that
shareholders should take necessary action in order to effect changes that will
safeguard their financial interests.
Given
the importance of the role of the board in executing a sustainable business
strategy that allows for the realization of environmental and social
opportunities and the mitigation of related risks, relating to environmental
risks and opportunities, we believe shareholders should seek to promote
governance structures that protect shareholders and promote director
accountability. When management and the board have displayed disregard for
environmental or social risks, have engaged in egregious or illegal conduct, or
have failed to adequately respond to current or imminent environmental and
social risks that threaten shareholder value, we believe shareholders should
consider holding directors accountable. In such instances, we will generally
recommend against responsible members of the board that are specifically charged
with oversight of the issue in question.
When
evaluating environmental and social factors that may be relevant to a given
company, Glass Lewis does so in the context of the financial materiality of the
issue to the company’s operations. We believe that all companies face risks
associated with environmental and social issues. However, we recognize that
these risks manifest themselves differently at each company as a result of a
company’s operations, workforce, structure, and geography, among other factors.
Accordingly, we place a significant emphasis on the financial implications of a
company’s actions with regard to impacts on its stakeholders and the
environment.
When
evaluating environmental and social issues, Glass Lewis examines
companies’:
Direct
environmental and social risk —
Companies should evaluate financial exposure to direct environmental risks
associated with their operations. Examples of direct environmental risks include
those associated with oil or gas spills, contamination, hazardous leakages,
explosions, or reduced water or air quality, among others.
Social
risks may include non-inclusive employment policies, inadequate human rights
policies, or issues that
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adversely
affect the company’s stakeholders. Further, we believe that firms should
consider their exposure to risks emanating from a broad range of issues, over
which they may have no or only limited control, such as insurance companies
being affected by increased storm severity and frequency resulting from climate
change or membership in trade associations with controversial political
ties.
Risk
due to legislation and regulation —
Companies should evaluate their exposure to changes or potential changes in
regulation that affect current and planned operations. Regulation should be
carefully monitored in all jurisdictions in which the company operates. We look
closely at relevant and proposed legislation and evaluate whether the company
has responded proactively.
Legal
and reputational risk —
Failure to take action on important environmental or social issues may carry the
risk of inciting negative publicity and potentially costly litigation. While the
effect of high-profile campaigns on shareholder value may not be directly
measurable, we believe it is prudent for companies to carefully evaluate the
potential impacts of the public perception of their impacts on stakeholders and
the environment. When considering investigations and lawsuits, Glass Lewis is
mindful that such matters may involve unadjudicated allegations or other charges
that have not been resolved. Glass Lewis does not assume the truth of such
allegations or charges or that the law has been violated. Instead, Glass Lewis
focuses more broadly on whether, under the particular facts and circumstances
presented, the nature and number of such concerns, lawsuits or investigations
reflects on the risk profile of the company or suggests that appropriate risk
mitigation measures may be warranted.
Governance
risk —
Inadequate oversight of environmental and social issues carries significant
risks to companies. When leadership is ineffective or fails to thoroughly
consider potential risks, such risks are likely unmitigated and could thus
present substantial risks to the company, ultimately leading to loss of
shareholder value.
Glass
Lewis believes that one of the most crucial factors in analyzing the risks
presented to companies in the form of environmental and social issues is the
level and quality of oversight over such issues. When management and the board
have displayed disregard for environmental risks, have engaged in egregious or
illegal conduct, or have failed to adequately respond to current or imminent
environmental risks that threaten shareholder value, we believe shareholders
should consider holding directors accountable. When companies have not provided
for explicit, board-level oversight of environmental and social matters and/or
when a substantial environmental or social risk has been ignored or inadequately
addressed, we may recommend voting against members of the board. In addition, or
alternatively, depending on the proposals presented, we may also consider
recommending voting in favor of relevant shareholder proposals or against other
relevant management-proposed items, such as the ratification of auditor, a
company’s accounts and reports, or ratification of management and board
acts.
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Connect
with Glass Lewis
Corporate
Website |
www.glasslewis.com
Social |
@glasslewis
Glass,
Lewis & Co.
Global
Locations
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States
Headquarters
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DISCLAIMER
©
2023 Glass, Lewis & Co., and/or its affiliates. All Rights
Reserved.
This
document is intended to provide an overview of Glass Lewis’ proxy voting
guidelines. It is not intended to be exhaustive and does not address all
potential voting issues. Glass Lewis’ proxy voting guidelines, as they apply to
certain issues or types of proposals, are further explained in supplemental
guidelines and reports that are made available on Glass Lewis’ website –
http://www.glasslewis.com.
These guidelines have not been set or approved by the U.S. Securities and
Exchange Commission or any other regulatory body. Additionally, none of the
information contained herein is or should be relied upon as investment advice.
The content of this
document
has been developed based on Glass Lewis’ experience with proxy voting and
corporate governance issues, engagement with clients and issuers, and review of
relevant studies and surveys, and has not been tailored to any specific person
or entity.
Glass
Lewis’ proxy voting guidelines are grounded in corporate governance best
practices, which often exceed minimum legal requirements. Accordingly, unless
specifically noted otherwise, a failure to meet these guidelines should not be
understood to mean that the company or individual involved has failed to meet
applicable legal requirements.
No
representations or warranties express or implied, are made as to the accuracy or
completeness of any information included herein. In addition, Glass Lewis shall
not be liable for any losses or damages arising from or in connection with the
information contained herein or the use, reliance on, or inability to use any
such information. Glass Lewis expects its subscribers possess sufficient
experience and knowledge to make their own decisions entirely independent of any
information contained in this document.
All
information contained in this report is protected by law, including, but not
limited to, copyright law, and none of such information may be copied or
otherwise reproduced, repackaged, further transmitted, transferred,
disseminated, redistributed or resold, or stored for subsequent use for any such
purpose, in whole or in part, in any form or manner, or by any means whatsoever,
by any person without Glass Lewis’ prior written consent.
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