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PROSPECTUS | |||||||
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September 1,
2022 | ||||||||
VANECK®
CEF
Muni Income ETF XMPT ®
High
Yield Muni ETF HYD ®
HIP
Sustainable Muni ETF SMI
Intermediate
Muni ETF ITM ®
Long
Muni ETF MLN ®
Muni
Allocation ETF MAAX ™
Short
High Yield Muni ETF SHYD ®
Short
Muni ETF SMB ®
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Principal
U.S. Listing Exchange for each Fund: Cboe BZX Exchange,
Inc. |
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The
U.S. Securities and Exchange Commission (“SEC”) has not approved or
disapproved these securities or passed upon the accuracy or adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense. |
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800.826.2333 vaneck.com
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Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
| Management Fee | % | ||||||||||
|
Other
Expenses(a) |
% | ||||||||||
|
Acquired
Fund Fees and Expenses(b) |
% | ||||||||||
|
Total
Annual Fund Operating Expenses(a) |
% | ||||||||||
(a) Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, 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 September 1,
2023 .
(b) “Acquired Fund Fees and
Expenses” reflect the Fund’s pro rata portion of the expenses charged by the
Underlying Funds (as defined herein). These expenses are based on the total
expense ratio disclosed in each Underlying Fund’s most recent shareholder
report. Because Acquired Fund Fees and Expenses are not borne directly by the
Fund, they will not be reflected in the expense information in the Fund’s
financial statements and the information presented in the table will differ from
that presented in the Fund’s financial highlights included in the Fund’s reports
to shareholders.
| YEAR | EXPENSES | ||||||||||
| 1 | $ |
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| 3 | $ |
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| 5 | $ |
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| 10 | $ |
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1 | ||
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The
Underlying Funds invest in municipal bonds issued by states or local governments
or agencies the income of which is exempt from U.S. federal income tax, but a
portion of this income may be subject to the AMT and will generally be subject
to state income taxes. The Fund’s 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 AMT) requires shareholder approval before it can
be changed. The Fund may count investments that generate income subject to the
AMT toward the 80% investment requirement.
The
Investment Company Act of 1940, as amended (the “1940 Act”), places limits on
the percentage of the total outstanding stock of an Underlying Fund that may be
owned by the Fund.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the CEFMX Index by investing in a portfolio of
securities that generally replicates the CEFMX Index. Unlike many investment
companies that try to “beat” the performance of a benchmark index, the Fund does
not try to “beat” the CEFMX Index and does not take temporary defensive
positions that are inconsistent with its investment objective of seeking to
replicate the CEFMX Index.
The
Fund may become “non-diversified” as defined under the 1940 Act, solely as a
result of a change in relative market capitalization or index weighting of one
or more constituents of the CEFMX Index. This means that the Fund may invest a
greater percentage of its assets in a limited number of issuers than would be
the case if the Fund were always managed as a diversified management investment
company. The Fund intends to be diversified in approximately the same proportion
as the CEFMX Index. Shareholder approval will not be sought when the Fund
crosses from diversified to non-diversified status due solely to a change in the
relative market capitalization or index weighting of one or more constituents of
the CEFMX Index.
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Fund
of Funds Risk.
The performance of the Fund is dependent on the performance of the Underlying
Funds. The Fund is subject to the risks of the Underlying Funds’ investments. In
addition, the Fund’s shareholders will indirectly bear the expenses of the
Underlying Funds, absorbing duplicative levels of fees with respect to
investments in the Underlying Funds. In addition, at times certain segments of
the market represented by the Underlying Funds may be out of favor and
underperform other segments.
Risks
of Investing in Closed-End Funds. The
shares of a closed-end fund may trade at a discount or premium to their net
asset value (“NAV”). A closed-end fund may be leveraged as part of its
investment strategy. As a result, the Fund may be indirectly exposed to the
effects of leverage through its investment in the Underlying Funds. Investments
in Underlying Funds that use leverage may cause the value of the Fund’s Shares
to be more volatile than if the Fund invested in Underlying Funds that do not
utilize leverage and may expose the Fund to the possibility that the Fund’s
long-term returns on such securities (and, indirectly, the long-term returns on
the Shares) will be diminished.
To
comply with provisions of the 1940 Act, the Adviser may be required to vote
Underlying Fund shares in the same general proportion as shares held by other
shareholders of the Underlying Fund.
Underlying
Funds Risk.
The Fund may be subject to the following risks as a result of its investment in
the Underlying Funds:
Market
Risk.
The prices of the securities in the Underlying Funds 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. 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.
An investment in an Underlying Fund may lose
money.
Municipal
Securities Risk.
The Underlying Funds may invest in municipal securities. 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. 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. Municipal securities include
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2 | ||
general
obligation bonds, which 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. General obligation bonds generally are not backed
by revenues from a specific project or source. Municipal securities also 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. The market for municipal
bonds may be less liquid than for taxable bonds. There may be less information
available on the financial condition of issuers of municipal securities than for
public corporations. 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. For example, the COVID-19 pandemic has significantly stressed the
financial resources of many municipal issuers, which may impair a municipal
issuer’s ability to meet its financial obligations when due and could adversely
impact the value of its bonds, which could negatively impact the performance of
the Fund.
High
Yield Securities Risk. The
Underlying Funds may invest in high yield securities. Securities rated below
investment
grade
are commonly referred to as high yield securities or “junk bonds.” High yield
securities are often issued by issuers that are restructuring, are smaller or
less creditworthy than other issuers, or are more highly indebted than other
issuers. High yield securities are subject to greater risk of loss of income and
principal than higher rated securities and are considered speculative. The
prices of high yield securities are likely to be more sensitive to adverse
economic changes or individual municipal developments than higher rated
securities. During an economic downturn or substantial period of rising interest
rates, high yield security issuers may experience financial stress that would
adversely affect their ability to service their principal and interest payment
obligations, to meet their projected business goals or to obtain additional
financing. In the event of a default, the Fund may incur additional expenses to
seek recovery. The secondary market for municipal securities that are high yield
securities may be less liquid than the markets for higher quality municipal
securities or high yield securities issued by corporate issuers and, as such,
may have an adverse effect on the market prices of and an Underlying Fund’s
ability to arrive at a fair value for certain securities. In addition, periods
of economic uncertainty and change may result in an increased volatility of
market prices of high yield securities and a corresponding volatility in the
Fund’s NAV.
Credit
Risk.
Bonds are subject to credit risk. Credit risk refers to the possibility that the
issuer or guarantor of a security
will be unable and/or unwilling
to make timely interest payments and/or repay the principal on its debt or to
otherwise honor its obligations and/or default completely. Bonds are subject to
varying degrees of credit risk, depending on the issuer’s financial condition
and on the terms of the securities, which may be reflected in credit ratings.
There is a possibility that the credit rating of a bond may be downgraded after
purchase or the perception of an issuer’s credit worthiness may decline, which
may adversely affect the value of the security. The Underlying Funds may hold
securities that are insured by a bond insurer. A downgrade of the credit rating
of such bond insurer may cause the value of the insured security to
decline.
Interest
Rate Risk.
Debt securities, such as bonds, are subject to interest rate risk. Interest rate
risk refers to fluctuations in the value of a bond resulting from changes in the
general level of interest rates. When the general level of interest rates goes
up, the prices of most debt securities go down. When the general level of
interest rates goes down, the prices of most debt securities go up. Many factors
can cause interest rates to rise, including central bank monetary policy, rising
inflation rates and general economic conditions. The prevailing historically low
interest rate environment increases the risks associated with rising interest
rates, including the potential for periods of volatility and increased
redemptions. In addition, debt securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than debt
securities with shorter durations. In response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities and regulators are
enacting significant fiscal and monetary policy changes, including providing
direct capital infusions into companies, creating new monetary programs and
lowering interest rates. These actions present heightened risks to debt
instruments, and such risks could increase if these actions are unexpectedly or
suddenly reversed or are ineffective in achieving their desired
outcomes.
Call
Risk.
The Underlying Funds may invest in callable bonds. If interest rates fall, it is
possible that issuers of callable securities will “call” (or prepay) their bonds
before their maturity date. If a call were exercised by the issuer during or
following a period of declining interest rates, the Underlying Fund is likely to
have to replace such called security with a lower yielding security or
securities with greater risks or other less favorable features. If that were to
happen, it would decrease the Underlying Fund’s net investment income, resulting
in a decline in the Fund’s income.
Tax
Risk.
There is no guarantee that an Underlying Fund’s income will be exempt from U.S.
federal or state income taxes. Events occurring after
the date of issuance of a municipal bond or after an Underlying 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 an Underlying Fund to its shareholders to be taxable
to those shareholders in the year of receipt. Federal or state
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3 | ||
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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.
Liquidity
Risk.
Unlike the Fund, as closed-end funds the Underlying Funds are not limited in
their ability to invest in illiquid securities. Securities with reduced
liquidity involve greater risk than securities with more liquid markets. Prices
of securities not traded on an exchange may vary over time. Secondary trading of
a fixed-income security may decline for a period of time if its credit quality
unexpectedly declines. An Underlying Fund may not receive full value for assets
sold during periods of infrequent trading.
Leverage
Risk.
Ordinary borrowings by an Underlying Fund or an Underlying Fund’s investment in
derivatives may result in
leverage. If the prices of those investments decrease, or if the cost of
borrowing exceeds any increase in the prices of investments made with the
proceeds of the borrowing, the NAV of the Underlying Fund’s shares will decrease
more than if the Underlying Fund had not used leverage. An Underlying Fund may
have to sell investments at a time and at a price that is unfavorable to the
Underlying Fund to repay borrowings. Interest on borrowings is an expense the
Underlying Fund would not otherwise incur. Leverage magnifies the potential for
gain and the risk of loss. If an Underlying Fund uses leverage, there can be no
assurance that the Underlying Fund’s leverage strategy will be
successful.
Anti-Takeover
Measures Risk.
Certain Underlying Funds may have provisions in their organizational documents
intended to limit the ability of third parties to acquire control or change the
composition of the Underlying Fund’s board. This may discourage a third party
from seeking to obtain control of the Underlying Fund, which could limit the
ability of Underlying Fund shareholders to sell their shares at a premium over
prevailing market prices.
Non-Diversified
Risk. Some
of the Underlying Funds may invest a relatively high percentage of their assets
in a smaller number of issuers or may invest a larger proportion of their assets
in the obligations of a single issuer. Moreover, the gains and losses on an
investment in such an Underlying Fund may have a greater impact on the Fund’s
NAV and may make the value of the Fund’s investment in such an Underlying Fund
more volatile than an investment in more diversified Underlying
Funds.
Risk
of Investment Restrictions.
The Fund and its affiliates are limited in the amount that they, in the
aggregate, can invest in the outstanding voting securities of any one Underlying
Fund. The Fund and its affiliates may not acquire “control” of an unaffiliated
Underlying Fund, which is presumed once ownership of an Underlying Fund’s
outstanding voting securities exceeds 25%. This limitation could inhibit the
Fund’s ability to purchase one or more Underlying Funds in the CEFMX Index in
the proportions represented in the CEFMX Index. In these circumstances, the Fund
would be required to use sampling techniques, which could increase the risk of
tracking error.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including, but not limited to, human error, processing and communication errors,
errors of the Fund’s service providers, counterparties or other third parties,
failed or inadequate processes and technology or system failures.
Index
Tracking Risk.
The Fund’s return may not match the return of the CEFMX Index for a number of
reasons. For example, the Fund incurs a number of operating expenses, including
taxes, not applicable to the CEFMX Index and incurs costs associated with buying
and selling securities, especially when rebalancing the Fund’s securities
holdings to reflect changes in the composition of the CEFMX Index or (to the
extent the Fund effects creations and redemptions for cash) raising cash to meet
redemptions or deploying cash in connection with newly created Creation Units
(defined herein), which are not factored into the return of the CEFMX Index.
Transaction costs, including brokerage costs, will decrease the Fund’s NAV to
the extent not offset by the transaction fee payable by an Authorized
Participant (“AP”). Market disruptions and regulatory restrictions could have an
adverse effect on the Fund’s ability to adjust its exposure to the required
levels in order to track the CEFMX Index. Errors in CEFMX Index data, CEFMX
Index computations and/or the construction of the CEFMX Index in accordance with
its methodology may occur from time to time and may not be identified and
corrected by the CEFMX Index provider for a period of time or at all, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the CEFMX Index provider's errors will be kept by
the Fund and its shareholders and any losses or costs resulting from the CEFMX
Index provider's errors will be borne by the Fund and its shareholders. When the
CEFMX Index is rebalanced and the Fund in turn rebalances its portfolio to
attempt to increase the correlation between the Fund’s portfolio and the CEFMX
Index, any transaction costs and market exposure arising from such portfolio
rebalancing will be borne directly by the Fund and its shareholders. Apart from
scheduled rebalances, the CEFMX Index provider or its agents may carry out
additional ad hoc rebalances to the CEFMX Index. Therefore, errors and
additional ad hoc rebalances carried out by the CEFMX Index provider or its
agents to the CEFMX Index may increase the costs to and the tracking error risk
of the Fund. The Fund’s performance may also deviate from the return of the
CEFMX Index due to certain listing standards of the Fund's listing exchange (the
“Exchange”) or legal restrictions or limitations (such as diversification
requirements). The Fund may value certain of its investments, underlying
securities and/or currencies, and/or other assets based on fair value prices.
When markets are volatile, the ability to sell securities at fair value prices
may be adversely impacted and may result in additional trading costs and/or
increase the index tracking risk. For tax efficiency purposes, the Fund may sell
certain securities, and such sale may cause the Fund to realize a loss and
deviate from the performance of the CEFMX Index. In light of the factors
discussed above, the Fund’s return may deviate significantly from the return of
the CEFMX
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4 | ||
Index.
Changes to the composition of the CEFMX Index in connection with a rebalancing
or reconstitution of the CEFMX Index may cause the Fund to experience increased
volatility, during which time the Fund’s index tracking risk may be
heightened.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of financial institutions that act as APs,
none of which are obligated to engage in creation and/or redemption
transactions. To the extent that those APs exit the business, or are unable to
or choose not to process creation and/or redemption orders, and no other AP is
able to step forward to create and redeem, there may be a significantly
diminished trading market for Shares or Shares may trade like closed-end funds
at a greater discount (or premium) to NAV and possibly face trading halts and/or
de-listing. The AP concentration risk may be heightened in scenarios where APs
have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market.
While Shares are listed on the Exchange, there can be no assurance that an
active trading market for the Shares will be maintained. Further, secondary
markets may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods in times of market stress because market
makers and APs may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its NAV.
Trading
Issues.
Trading in Shares on the Exchange may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange
necessary to maintain the listing of the Fund will continue to be met or will
remain unchanged.
Passive
Management Risk. An
investment in the Fund involves risks similar to those of investing in any fund
invested in bonds, such as market fluctuations caused by such factors as
economic and political developments, changes in interest rates and perceived
trends in security prices. However, because the Fund is not “actively” managed,
unless a specific security is removed from the CEFMX Index, the Fund generally
would not sell a security because the security’s issuer was in financial
trouble. Additionally, unusual market conditions may cause the CEFMX Index
provider to postpone a scheduled rebalance or reconstitution, which could cause
the CEFMX Index to vary from its normal or expected composition. Therefore, the
Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more
issuers.
Fund
Shares Trading, Premium/Discount Risk and Liquidity of Fund Shares. The
market price of the Shares may fluctuate in response to the Fund’s NAV, the
intraday value of the Fund’s holdings and supply and demand for Shares. The
Adviser cannot predict whether Shares will trade above, below, or at their most
recent NAV. Disruptions to creations and redemptions, the existence of market
volatility or potential lack of an active trading market for Shares (including
through a trading halt), as well as other factors, may result in Shares trading
at a significant premium or discount to NAV or to the intraday value of the
Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the NAV or sells Shares at a time when the market price
is at a discount to the NAV, the shareholder may pay significantly more or
receive significantly less than the underlying value of the Shares that were
bought or sold or the shareholder may be unable to sell his or her Shares. The
securities held by the Fund may be traded in markets that close at a different
time than the Exchange. Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time when the Exchange is open
but after the applicable market closing, fixing or settlement times, bid-ask
spreads on the Exchange and the resulting premium or discount to the Shares’ NAV
may widen. Additionally, in stressed market conditions, the market for the
Fund’s Shares may become less liquid in response to deteriorating liquidity in
the markets for the Fund’s underlying portfolio holdings. There are various
methods by which investors can purchase and sell Shares. Investors should
consult their financial intermediaries before purchasing or selling Shares of
the Fund.
Non-Diversification
Risk. The Fund may become classified as
non-diversified under the 1940 Act, as amended, solely as a result of a change
in relative market capitalization or index weighting of one or more constituents
of the CEFMX Index. If the Fund becomes non-diversified, it may invest a greater
portion of assets in securities of a smaller number of individual issuers than a
diversified fund. As a result, changes in the market value of a single
investment could cause greater fluctuations in share price than would occur in a
more diversified fund.
Concentration
Risk.
The Fund’s assets may be concentrated in a particular sector or sectors or
industry or group of industries to the extent the CEFMX Index concentrates in a
particular sector or sectors or industry or group of industries. To the extent
that the Fund is 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 those sectors
and/or industries may negatively impact the Fund to a greater extent than if the
Fund’s assets were invested in a wider variety of sectors or
industries.
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5 | ||
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The
year-to-date total return as of
June 30, 2022 was
-20.77 %.
| - |
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| Past
One Year |
Past
Five Years |
Past
Ten Years |
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(return before taxes) |
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(return after taxes on distributions) |
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(return after taxes on distributions and sale of Fund Shares) |
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S-Network
Municipal Bond Closed-End Fund Index
|
|||||||||||||||||
Bloomberg
US Aggregate Bond Index
(reflects
no deduction for fees, expenses or taxes) |
- |
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- |
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1
On September 1, 2022, the
ICE BofA Broad US Market Index replaced the Bloomberg US Aggregate Bond Index as
the Fund's broad-based benchmark index as the Adviser believes it is more
representative of broad bond market
exposure.
PORTFOLIO
MANAGEMENT
Investment
Adviser. Van
Eck Associates Corporation.
Portfolio
Manager. The
following individual is primarily responsible for the day-to-day management of
the Fund’s portfolio:
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6 | ||
| Name | Title with Adviser | Date Began Managing the Fund | ||||||||||||
| Peter H. Liao | Portfolio Manager | July 2011 | ||||||||||||
PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information about Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
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7 | ||
SUMMARY
INFORMATION
|
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Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
| Management Fee | % | ||||||||||
|
Other
Expenses(a) |
% | ||||||||||
|
Total
Annual Fund Operating Expenses(a) |
% | ||||||||||
(a) Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, 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 September 1,
2023 .
| YEAR | EXPENSES | ||||||||||
| 1 | $ |
||||||||||
| 3 | $ |
||||||||||
| 5 | $ |
||||||||||
| 10 | $ |
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|
8
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The
Fund has adopted a fundamental investment policy to invest at least 80% of its
assets in municipal securities. Such policy cannot be changed without a
shareholder vote. For purposes of this policy, the term “assets” means net
assets plus the amount of any borrowings for investment purposes. This
percentage limitation applies at the time of the investment.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the High Yield Index. Unlike many investment
companies that try to “beat” the performance of a benchmark index, the Fund does
not try to “beat” the High Yield Index and does not take temporary defensive
positions that are inconsistent with its investment objective of seeking to
replicate the High Yield Index. Because of the practical difficulties and
expense of purchasing all of the securities in the High Yield Index, the Fund
does not purchase all of the securities in the High Yield Index. Instead, the
Adviser utilizes a “sampling” methodology in seeking to achieve the Fund’s
objective. As such, the Fund may purchase a subset of the bonds in the High
Yield Index in an effort to hold a portfolio of bonds with generally the same
risk and return characteristics of the High Yield Index.
Prior
to the selection of the High Yield Index, the Fund tracked the Bloomberg
Municipal Custom High Yield Composite Index (the “Prior High Yield Index”). The
Fund began tracking the High Yield Index on March 1, 2022. The High Yield Index
is an interim index that gradually increases exposure to securities based on
their weightings in the ICE Broad High Yield Crossover Municipal Index (the
"Final High Yield Index") while proportionally reducing exposure to certain
component securities of the Prior High Yield Index.
The
Fund is expected to begin tracking the Final High Yield Index on
December 1, 2022.
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
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. 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. Municipal securities include
general obligation bonds, which 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. General obligation bonds generally are not
backed by revenues from a specific project or source. Municipal securities also
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. The market for municipal bonds may be less liquid than for
taxable bonds. There may be less information available on the financial
condition of issuers of municipal securities than for public corporations.
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. For example, the COVID-19
pandemic has significantly stressed the financial resources of many municipal
issuers, which may impair a municipal issuer’s ability to meet its financial
obligations when due and could adversely impact the value of its bonds, which
could negatively impact the performance of the Fund.
High
Yield Securities Risk.
Securities rated below investment grade are commonly referred to as high yield
securities or “junk bonds.” High yield securities are often issued by issuers
that are restructuring, are smaller or less creditworthy than other issuers, or
are more highly indebted than other issuers. High yield securities are subject
to greater risk of loss of income and principal than higher rated securities and
are considered speculative. The prices of high yield securities are likely to be
more sensitive to adverse economic changes or individual municipal developments
than higher rated securities. During an economic downturn or substantial period
of rising interest rates, high yield security issuers may experience financial
stress that would adversely affect their ability to service their principal and
interest payment obligations, to meet their projected business goals or to
obtain additional financing. In the event of a default, the Fund may incur
additional expenses to seek recovery. The secondary market for municipal
securities that are high yield securities may be less liquid than the markets
for higher quality municipal securities or high yield securities issued by
corporate issuers and, as such, may have an adverse effect on the market prices
of and the Fund’s ability to arrive at a fair value for certain securities. The
illiquidity of the market also could make it difficult for the Fund to sell
certain securities in
|
9 | ||
|
| ||
connection
with a rebalancing of the High Yield Index. In addition, periods of economic
uncertainty and change may result in an increased volatility of market prices of
high yield securities and a corresponding volatility in the Fund’s net asset
value (“NAV”).
Credit
Risk. Bonds
are subject to credit risk. Credit risk refers to the possibility that the
issuer or guarantor of a security will be unable and/or unwilling to make timely
interest payments and/or repay the principal on its debt or to otherwise honor
its obligations and/or default completely. Bonds are subject to varying degrees
of credit risk, depending on the issuer’s financial condition and on the terms
of the securities, which may be reflected in credit ratings. There is a
possibility that the credit rating of a bond may be downgraded after purchase or
the perception of an issuer’s credit worthiness may decline, which may adversely
affect the value of the security.
Interest
Rate Risk.
Debt securities, such as bonds, are subject to interest rate risk. Interest rate
risk refers to fluctuations in the value of a bond resulting from changes in the
general level of interest rates. When the general level of interest rates goes
up, the prices of most debt securities go down. When the general level of
interest rates goes down, the prices of most debt securities go up. Many factors
can cause interest rates to rise, including central bank monetary policy, rising
inflation rates and general economic conditions. The prevailing historically low
interest rate environment increases the risks associated with rising interest
rates, including the potential for periods of volatility and increased
redemptions. In addition, debt securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than debt
securities with shorter durations. In response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities and regulators are
enacting significant fiscal and monetary policy changes, including providing
direct capital infusions into companies, creating new monetary programs and
lowering interest rates. These actions present heightened risks to debt
instruments, and such risks could increase if these actions are unexpectedly or
suddenly reversed or are ineffective in achieving their desired
outcomes.
Call
Risk.
The Fund may invest in callable bonds. If interest rates fall, it is possible
that issuers of callable securities will “call” (or prepay) their bonds before
their maturity date. If a call were exercised by the issuer during or following
a period of declining interest rates, the Fund is likely to have to replace such
called security with a lower yielding security or securities with greater risks
or other less favorable features. If that were to happen, it would decrease the
Fund’s net investment income.
Private
Activity Bonds Risk.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition and performance of private activity bonds. The
issuers of private activity bonds in which the Fund may invest may be negatively
impacted by conditions affecting either the general credit of the user of the
private activity project or the project itself. The Fund’s private activity bond
holdings also may pay interest subject to the alternative minimum tax. See the
section of the Prospectus entitled “Shareholder Information—Tax Information” for
more details.
Industrial
Development Bond Risk. The
Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition and performance of industrial development bonds. These
revenue bonds are 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 on 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.
Special
Tax Bond Risk.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition and performance of special tax bonds. 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 the Fund’s portfolio.
California
Risk.
The Fund may invest a significant portion of its assets in municipal obligations
of issuers located in the State of California. Consequently, the Fund may be
affected by political, economic, regulatory and other developments within
California and by the financial condition of California’s political
subdivisions, agencies, instrumentalities and public authorities.
Illinois
Risk.
The Fund may invest a significant portion of its assets in municipal obligations
of issuers located in the State of Illinois. Consequently, the Fund may be
affected by political, economic, regulatory and other developments within
Illinois and by the financial condition of Illinois’ political subdivisions,
agencies, instrumentalities and public authorities.
Market
Risk.
The prices of the securities in the 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. 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. An investment in the Fund may lose
money.
|
10 | ||
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including, but not limited to, human error, processing and communication errors,
errors of the Fund’s service providers, counterparties or other third parties,
failed or inadequate processes and technology or system failures.
Sampling
Risk.
The Fund’s use of a representative sampling approach will result in its holding
a smaller number of securities than are in the High Yield Index. As a result, an
adverse development respecting an issuer of securities held by the Fund could
result in a greater decline in NAV than would be the case if the Fund held all
of the bonds in the High Yield Index. Conversely, a positive development
relating to an issuer of securities in the High Yield Index that is not held by
the Fund could cause the Fund to underperform the High Yield Index. To the
extent the assets in the Fund are smaller, these risks will be
greater.
Index
Tracking Risk.
The Fund’s return may not match the return of the High Yield Index for a number
of reasons. For example, the Fund incurs a number of operating expenses,
including taxes, not applicable to the High Yield Index and incurs costs
associated with buying and selling securities, especially when rebalancing the
Fund’s securities holdings to reflect changes in the composition of the High
Yield Index or (to the extent the Fund effects creations and redemptions for
cash) raising cash to meet redemptions or deploying cash in connection with
newly created Creation Units (defined herein), which are not factored into the
return of the High Yield Index. Transaction costs, including brokerage costs,
will decrease the Fund’s NAV to the extent not offset by the transaction fee
payable by an Authorized Participant (“AP”). Market disruptions and regulatory
restrictions could have an adverse effect on the Fund’s ability to adjust its
exposure to the required levels in order to track the High Yield Index. Errors
in the High Yield Index data, High Yield Index computations and/or the
construction of the High Yield Index in accordance with its methodology may
occur from time to time and may not be identified and corrected by the High
Yield Index provider for a period of time or at all, which may have an adverse
impact on the Fund and its shareholders. Shareholders should understand that any
gains from the High Yield Index provider's errors will be kept by the Fund and
its shareholders and any losses or costs resulting from the High Yield Index
provider's errors will be borne by the Fund and its shareholders. When the High
Yield Index is rebalanced and the Fund in turn rebalances its portfolio to
attempt to increase the correlation between the Fund’s portfolio and the High
Yield Index, any transaction costs and market exposure arising from such
portfolio rebalancing will be borne directly by the Fund and its shareholders.
In addition, the Fund's use of a representative sampling approach may cause the
fund to not be as well correlated with the return of the High Yield Index as
would be the case if the Fund purchased all of the securities in the High Yield
Index in the proportions in which they are represented in the High Yield Index.
Apart from scheduled rebalances, the High Yield Index provider or its agents may
carry out additional ad hoc rebalances to the High Yield Index. Therefore,
errors and additional ad hoc rebalances carried out by the High Yield Index
provider or its agents to the High Yield Index may increase the costs to and the
tracking error risk of the Fund. The Fund’s performance may also deviate from
the return of the High Yield Index due to certain listing standards of the
Fund's listing exchange (the “Exchange”) or legal restrictions or limitations
(such as diversification requirements). The Fund may value certain of its
investments, underlying securities and/or currencies, and/or other assets based
on fair value prices. When markets are volatile, the ability to sell securities
at fair value prices may be adversely impacted and may result in additional
trading costs and/or increase the index tracking risk. For tax efficiency
purposes, the Fund may sell certain securities, and such sale may cause the Fund
to realize a loss and deviate from the performance of the High Yield Index. In
addition, sale of securities may result in the recognition of accrued market
discount and/or net realized gains for tax purposes, which may result in taxable
distributions to shareholders. In light of the factors discussed above, the
Fund’s return may deviate significantly from the return of the High Yield Index.
Changes to the composition of the High Yield Index in connection with a
rebalancing or reconstitution of the High Yield Index may cause the Fund to
experience increased volatility, during which time the Fund’s index tracking
risk may be heightened.
The
High Yield Index will gradually increase exposure to securities based on their
weightings in the Final High Yield Index while proportionally reducing exposure
to certain component securities of the Prior High Yield Index. These adjustments
to the Fund's portfolio holdings are expected to increase the Fund's transaction
costs and turnover rate.
Tax
Risk.
There is no guarantee that the Fund’s income will be exempt from U.S. federal or
state income taxes. Events occurring after the date of issuance of a municipal
bond or after the 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 the 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.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of financial institutions that act as APs,
none of which are obligated to engage in creation and/or redemption
transactions. To the extent that those APs exit the business, or are unable to
or choose not to process creation and/or redemption orders, and no other AP is
able to step forward to create and redeem, there may be a significantly
diminished trading market for Shares or Shares may trade like closed-end funds
at a greater discount (or premium) to NAV and possibly face trading halts and/or
de-listing. The AP concentration risk may be heightened in scenarios where APs
have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market.
While Shares are listed on the Exchange, there can be no assurance that an
active trading market for the Shares will be maintained. Further, secondary
markets may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods in times of market stress because market
makers and APs may step
|
11 | ||
|
| ||
away
from making a market in the Shares and in executing creation and redemption
orders, which could cause a material deviation in the Fund’s market price from
its NAV.
Trading
Issues.
Trading in Shares on the Exchange may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange
necessary to maintain the listing of the Fund will continue to be met or will
remain unchanged.
Passive
Management Risk.
An investment in the Fund involves risks similar to those of investing in any
fund invested in bonds, such as market fluctuations caused by such factors as
economic and political developments, changes in interest rates and perceived
trends in security prices. However, because the Fund is not “actively” managed,
unless a specific security is removed from the High Yield Index, the Fund
generally would not sell a security because the security’s issuer was in
financial trouble. Additionally, unusual market conditions may cause the High
Yield Index provider to postpone a scheduled rebalance or reconstitution, which
could cause the High Yield Index to vary from its normal or expected
composition. Therefore, the Fund’s performance could be lower than funds that
may actively shift their portfolio assets to take advantage of market
opportunities or to lessen the impact of a market decline or a decline in the
value of one or more issuers.
Fund
Shares Trading, Premium/Discount Risk and Liquidity of Fund Shares. The
market price of the Shares may fluctuate in response to the Fund’s NAV, the
intraday value of the Fund’s holdings and supply and demand for Shares. The
Adviser cannot predict whether Shares will trade above, below, or at their most
recent NAV. Disruptions to creations and redemptions, the existence of market
volatility or potential lack of an active trading market for Shares (including
through a trading halt), as well as other factors, may result in Shares trading
at a significant premium or discount to NAV or to the intraday value of the
Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the NAV or sells Shares at a time when the market price
is at a discount to the NAV, the shareholder may pay significantly more or
receive significantly less than the underlying value of the Shares that were
bought or sold or the shareholder may be unable to sell his or her Shares. The
securities held by the Fund may be traded in markets that close at a different
time than the Exchange. Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time when the Exchange is open
but after the applicable market closing, fixing or settlement times, bid-ask
spreads on the Exchange and the resulting premium or discount to the Shares’ NAV
may widen. Additionally, in stressed market conditions, the market for the
Fund’s Shares may become less liquid in response to deteriorating liquidity in
the markets for the Fund’s underlying portfolio holdings. There are various
methods by which investors can purchase and sell Shares. Investors should
consult their financial intermediaries before purchasing or selling Shares of
the Fund.
Concentration
Risk.
The Fund’s assets may be concentrated in a particular sector or sectors or
industry or group of industries to the extent the High Yield Index concentrates
in a particular sector or sectors or industry or group of industries. To the
extent that the Fund is 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 those
sectors and/or industries may negatively impact the Fund to a greater extent
than if the Fund’s assets were invested in a wider variety of sectors or
industries.
|
12 | ||
The
year-to-date total return as of
June 30, 2022 was
-13.04 %.
| - |
||||||||
| Past
One Year |
Past
Five Years |
Past
Ten Years |
|||||||||||||||
(return
before taxes)* |
|||||||||||||||||
(return after taxes on distributions) |
|||||||||||||||||
(return after taxes on distributions and sale of Fund Shares) |
|||||||||||||||||
Bloomberg
Municipal Custom High Yield Composite Index
|
|||||||||||||||||
(reflects no deduction for fees, expenses or taxes)** |
|||||||||||||||||
ICE
Broad High Yield Crossover Municipal Index
(reflects
no deduction for fees, expenses or
taxes)** |
|||||||||||||||||
(reflects no deduction for fees, expenses or taxes) |
- |
||||||||||||||||
|
|
- |
||||||||||||||||
*
Prior to March 1, 2022,
the Fund sought to replicate as closely as possible, before fees and expenses,
the price and yield performance of the Prior High Yield Index. Therefore,
performance information prior to March 1, 2022 reflects the performance of the
Fund tracking the Prior High Yield Index.
|
13 | ||
|
| ||
**
The inception date of the
High Yield Index and the Final High Yield Index was December 11,
2021
1
On September 1, 2022, the
ICE BofA Broad US Market Index replaced the Bloomberg US Aggregate Bond Index as
the Fund's broad-based benchmark index as the Adviser believes it is more
representative of broad bond market exposure.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Manager. The
following individual is primarily responsible for the day-to-day management of
the Fund’s portfolio:
| Name | Title with Adviser | Date Began Managing the Fund | ||||||||||||
| James T. Colby III | Portfolio Manager | February 2009 | ||||||||||||
PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information about Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
|
14 | ||
SUMMARY
INFORMATION
|
|
|||||
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
| Management Fee | % | ||||||||||
|
Other
Expenses(a) |
% | ||||||||||
|
Total
Annual Fund Operating Expenses(a) |
% | ||||||||||
(a)
Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, 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 September 1,
2023 .
| YEAR | EXPENSES | ||||||||||
| 1 | $ |
||||||||||
| 3 | $ |
||||||||||
| 5 | $ |
||||||||||
| 10 | $ |
||||||||||
|
15 | ||
development
and that promote beneficial environmental and social outcomes in U.S.
communities and cities by utilizing the rules-based investment approach
described below. The Fund's policy to normally invest at least 80% of its total
assets in securities that support sustainable development is non-fundamental and
may be changed without shareholder approval upon 60 days' prior written notice
to shareholders.
The
Adviser primarily uses a rules-based investment approach which utilizes
proprietary HIP (Human Impact + Profit) Ratings data for the application of
impact criteria to security selection and portfolio management. HIP Ratings are
produced and licensed from HIP Investor, Inc. (“HIP” or the “Data Provider”),
which provides services
to
evaluate, rate and rank issuers and their securities based on data-driven,
quantitative performance measures that demonstrate positive social,
environmental and economic outcomes or mission accomplishment. The Adviser’s
investment process begins by using HIP Ratings to screen municipal securities
based on their SDGs 9, 11 and 12 ratings by HIP, Environmental, Social and
Governance (“ESG”) ratings by HIP
and
Climate-Threat and Resilience ratings by HIP. HIP Ratings are only assigned to
the municipal securities of issuers where at least one qualified opportunity
zone is located in the issuer’s region. An “opportunity zone” is an
economically-distressed community where new investments, under certain
conditions, may be eligible for preferential tax treatment based on
certification from the Internal Revenue Service. HIP, as the Data Provider,
analyzes multiple data points of municipal securities to determine an estimate
of
the
impact (i.e.,
net benefit to the community) each municipal security provides. The HIP Ratings
used by the Adviser seek to evaluate the impact of municipal securities with
respect to the goals and metrics defined by SDGs 9, 11 and 12, climate
resilience, and overall net benefit to people, planet, and prosperity. These HIP
Ratings are used by the Adviser to narrow the universe of eligible Fund
investments to municipal securities that, based on the HIP Ratings, the Adviser
believes have been issued to fund operations or projects that support or advance
sustainable development, as well as promote positive social and environmental
outcomes. Such municipal debt securities may include, but are not limited
to, bonds issued in connection with (i) new or revitalized infrastructure
(i.e.,
roads, bridges, tunnels, buildings, transportation of people and freight,
affordable and safe housing and redevelopment of urban areas (e.g.,
green spaces), school or campus upgrades and Leadership in Energy and
Environmental Design (“LEED”) qualified real estate); (ii) information and
education systems (i.e.,
schools, research, financial services, communication services and technologies
and information services); (iii) healthier communities (i.e.,
hospitals, food and nutrition infrastructure, waste systems, air quality and
environmental management systems); (iv) cleaner energy (i.e.,
utilities, resource and material use); (v) inclusive and sustainable
industrialization towards increased gross domestic product (“GDP”); (vi) action
and resilience planning and projects to mitigate the effects of climate change
and other natural disasters and hazards; and (vii) ensuring sustainable
consumption and production patterns. The Adviser is not required to invest in
any issuer rated by the Data Provider and the Data Provider is not acting as a
sub-adviser to the Fund.
Municipal
securities that the Fund may invest in include securities issued by U.S. states
and municipal governments, any of their political subdivisions, agencies, or
instrumentalities, or by U.S. territories and possessions, such as Guam, the
U.S. Virgin Islands, and Puerto Rico, and their political subdivisions and
public corporations. The Fund may invest a significant portion of its assets in
municipal obligations of issuers located in the States of California and New
York. The Fund does not expect to invest in non-investment grade (or “junk”)
securities. The Fund may invest in debt securities of any maturity or duration
and does not have a target maturity or duration. “Duration” is a measure of a
debt security’s price sensitivity to changes in interest rates. The longer the
duration of a debt security, the more sensitive its market price is to changes
in interest rates. The Fund seeks to reduce its exposure to credit risk by
diversifying its assets among many municipal issuers and among the different
types and maturities of municipal securities available.
The
Fund’s 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 AMT) may not be changed without shareholder approval. The Fund may count
investments that generate income subject to the AMT toward its 80% investment
policy. For purposes of this policy, the term “assets” means net assets plus the
amount of any borrowings for investment purposes. This percentage limitation
applies at the time of the investment.
The
Fund is classified as a non-diversified fund under the Investment Company Act of
1940, as amended (the “1940 Act”) and, therefore, may invest a greater
percentage of its assets in a particular issuer.
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk. An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. Therefore, you should consider
carefully the following risks before investing in the Fund, each of which could
significantly and adversely affect the value of an investment in the
Fund.
Sustainable
Impact Investing Strategy Risk. The
Fund's strategy of investing in municipal debt securities of issuers promoting
sustainable development may limit the types and number of investments available
to the Fund or cause the Fund to invest in securities that underperform the
market as a whole. As a result, the Fund may underperform funds that do not have
a sustainable investing strategy or funds with sustainable investing strategies
that do not employ HIP Ratings. In addition, the Fund relies on the Data
Provider for the identification of issuers that promote sustainable development
based on their HIP Ratings; however, there can be no guarantee that the Data
Provider's methodology will align with the Fund's investment strategy or
desirable issuers can
|
16 | ||
be
correctly identified. Moreover, SDGs 9, 11 and 12 may be modified or abandoned
in the future and there can be no guarantee that the Fund will be able to
continue to use HIP Ratings or find an appropriate substitute ratings
system.
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. 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. Municipal securities include
general obligation bonds, which 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. General obligation bonds generally are not
backed by revenues from a specific project or source. Municipal securities also
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. The market for municipal bonds may be less liquid than for
taxable bonds. There may be less information available on the financial
condition of issuers of municipal securities than for public corporations.
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. For example, the COVID-19
pandemic has significantly stressed the financial resources of many municipal
issuers, which may impair a municipal issuer’s ability to meet its financial
obligations when due and could adversely impact the value of its bonds, which
could negatively impact the performance of the Fund.
Credit
Risk.
Bonds are subject to credit risk. Credit risk refers to the possibility that the
issuer or guarantor of a security will be unable and/or unwilling to make timely
interest payments and/or repay the principal on its debt or to otherwise honor
its obligations and/or default completely. Bonds are subject to varying degrees
of credit risk, depending on the issuer’s financial condition and on the terms
of the securities, which may be reflected in credit ratings. There is a
possibility that the credit rating of a bond may be downgraded after purchase or
the perception of an issuer’s credit worthiness may decline, which may adversely
affect the value of the security.
Interest
Rate Risk.
Debt securities, such as bonds, are subject to interest rate risk. Interest rate
risk refers to fluctuations in the value of a bond resulting from changes in the
general level of interest rates. When the general level of interest rates goes
up, the prices of most debt securities go down. When the general level of
interest rates goes down, the prices of most debt securities go up. Many factors
can cause interest rates to rise, including central bank monetary policy, rising
inflation rates and general economic conditions. The prevailing historically low
interest rate environment increases the risks associated with rising interest
rates, including the potential for periods of volatility and increased
redemptions. In addition, debt securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than debt
securities with shorter durations. In response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities and regulators are
enacting significant fiscal and monetary policy changes, including providing
direct capital infusions into companies, creating new monetary programs and
lowering interest rates. These actions present heightened risks to debt
instruments, and such risks could increase if these actions are unexpectedly or
suddenly reversed or are ineffective in achieving their desired
outcomes.
Call
Risk.
The Fund may invest in callable bonds. If interest rates fall, it is possible
that issuers of callable securities will “call” (or prepay) their bonds before
their maturity date. If a call were exercised by the issuer during or following
a period of declining interest rates, the Fund is likely to have to replace such
called security with a lower yielding security or securities with greater risks
or other less favorable features. If that were to happen, it would decrease the
Fund’s net investment income.
Data
Risk. Given
the complexity of the investments and strategies of the Fund, the Adviser relies
heavily on quantitative models and information and data (“Data”). Data is used
to construct sets of transactions and investments, and to provide risk
management insights. When Data proves to be incorrect or incomplete, any
decisions made in reliance thereon expose the Fund to potential
risks.
California
Risk.
The Fund may invest a significant portion of its assets in municipal obligations
of issuers located in the State of California. Consequently, the Fund may be
affected by political, economic, regulatory and other developments within
California and by the financial condition of California’s political
subdivisions, agencies, instrumentalities and public authorities.
New
York Risk. The
Fund may invest a significant portion of its assets in municipal obligations of
issuers located in the State of New York. Consequently, the Fund may be affected
by political, economic, regulatory and other developments within New York and by
the financial condition of New York’s political subdivisions, agencies,
instrumentalities and public authorities.
Education
Bond Risk. The
Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition and performance of education bonds. 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
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17 | ||
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 substate)
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.
Health
Care Bond Risk. The
Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition and performance of health care bonds. 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. The
Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition and performance of housing revenue bonds.
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.
Transportation
Bond Risk. The
Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition and performance of transportation bonds.
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.
Active
Management Risk.
The Fund is subject to management risk because it is an actively managed ETF. In
managing the Fund’s portfolio, the Adviser will apply investment techniques and
risk analyses in making investment decisions for the Fund, but there can be no
guarantee that these will produce the desired results.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including, but not limited to, human error, processing and communication errors,
errors of the Fund’s service providers, counterparties or other third parties,
failed or inadequate processes and technology or system failures.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of financial institutions that act as
Authorized Participants (“APs”), none of which are obligated to engage in
creation and/or redemption transactions. To the extent that those APs exit the
business, or are unable to or choose not to process creation and/or redemption
orders, and no other AP is able to step forward to create and redeem, there may
be a significantly diminished trading market for Shares or Shares may trade like
closed-end funds at a greater discount (or premium) to net asset value (“NAV”)
and possibly face trading halts and/or de-listing. The AP concentration risk may
be heightened in scenarios where APs have limited or diminished access to the
capital required to post collateral.
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No
Guarantee of Active Trading Market.
While Shares are listed on the Exchange, there can be no assurance that an
active trading market for the Shares will be maintained. Further, secondary
markets may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods in times of market stress because market
makers and APs may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its NAV.
Trading
Issues.
Trading in Shares on the Exchange may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange
necessary to maintain the listing of the Fund will continue to be met or will
remain unchanged.
Market
Risk.
The prices of the securities in the 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. 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. An investment in the Fund may lose
money.
Fund
Shares Trading, Premium/Discount Risk and Liquidity of Fund Shares.
The market price of the Shares may fluctuate in response to the Fund’s NAV, the
intraday value of the Fund’s holdings and supply and demand for Shares. The
Adviser cannot predict whether Shares will trade above, below, or at their most
recent NAV. Disruptions to creations and redemptions, the existence of market
volatility or potential lack of an active trading market for Shares (including
through a trading halt), as well as other factors, may result in Shares trading
at a significant premium or discount to NAV or to the intraday value of the
Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the NAV or sells Shares at a time when the market price
is at a discount to the NAV, the shareholder may pay significantly more or
receive significantly less than the underlying value of the Shares that were
bought or sold or the shareholder may be unable to sell his or her Shares. The
securities held by the Fund may be traded in markets that close at a different
time than the Exchange. Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time when the Exchange is open
but after the applicable market closing, fixing or settlement times, bid/ask
spreads on the Exchange and the resulting premium or discount to the Shares’ NAV
may widen. Additionally, in stressed market conditions, the market for the
Fund’s Shares may become less liquid in response to deteriorating liquidity in
the markets for the Fund’s underlying portfolio holdings. There are various
methods by which investors can purchase and sell Shares. Investors should
consult their financial intermediaries before purchasing or selling Shares of
the Fund.
Non-Diversified
Risk.
The Fund is classified as a “non-diversified”
fund under the 1940 Act. Therefore, the Fund 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. Moreover, the gains and losses on a
single investment may have a greater impact on the Fund’s NAV and may make the
Fund more volatile than more diversified
funds.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Managers.
The following individuals are primarily and jointly responsible for the
day-to-day management of the Fund’s portfolio:
| Name | Title with Adviser | Date Began Managing the Fund | ||||||||||||
| James T. Colby III | Portfolio Manager | August 2021 | ||||||||||||
| Stephanie Wang | Deputy Portfolio Manager | August 2021 | ||||||||||||
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information About Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
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20 | ||
SUMMARY
INFORMATION
|
|
| ||||
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
| Management Fee | % | ||||||||||
|
Other
Expenses(a) |
% | ||||||||||
|
Total
Annual Fund Operating Expenses(a) |
% | ||||||||||
(a) Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, 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 September 1,
2023 .
| YEAR | EXPENSES | ||||||||||
| 1 | $ |
||||||||||
| 3 | $ |
||||||||||
| 5 | $ |
||||||||||
| 10 | $ |
||||||||||
The
Fund normally invests at least 80% of its total assets in fixed income
securities that comprise the Intermediate Index. The Intermediate Index is
comprised of publicly traded municipal bonds that cover the U.S. dollar
denominated intermediate term tax-exempt bond market. This 80% investment policy
is non-fundamental and may be changed without shareholder approval upon 60 days'
prior written notice to shareholders.
The
Fund has adopted a fundamental investment policy to invest at least 80% of its
assets in municipal securities. Such policy cannot be changed without a
shareholder vote. For purposes of this policy, the term “assets” means net
assets plus the amount of any borrowings for investment purposes. This
percentage limitation applies at the time of the investment.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Intermediate Index. Unlike many investment
companies that try to “beat” the performance of a benchmark index, the Fund does
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21 | ||
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| ||
not
try to “beat” the Intermediate Index and does not take temporary defensive
positions that are inconsistent with its investment objective of seeking to
replicate the Intermediate Index. Because of the practical difficulties and
expense of purchasing all of the securities in the Intermediate Index, the Fund
does not purchase all of the securities in the Intermediate Index. Instead, the
Adviser utilizes a “sampling” methodology in seeking to achieve the Fund’s
objective. As such, the Fund may purchase a subset of the bonds in the
Intermediate Index in an effort to hold a portfolio of bonds with generally the
same risk and return characteristics of the Intermediate Index.
Prior
to the selection of the Intermediate Index, the Fund tracked the Bloomberg
AMT-Free Intermediate Continuous Municipal Index (the “Prior Intermediate
Index”). The Fund began tracking the Intermediate Index on March 1, 2022. The
Intermediate Index is an interim index that gradually increases exposure to
securities based on their weightings in the ICE Intermediate AMT-Free Broad
National Municipal Index (the “Final Intermediate Index”) while proportionally
reducing exposure to certain component securities of the Prior Intermediate
Index. The Fund is expected to begin tracking the Final Intermediate Index on
December 1, 2022.
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
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. 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. Municipal securities include
general obligation bonds, which 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. General obligation bonds generally are not
backed by revenues from a specific project or source. Municipal securities also
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. The market for municipal bonds may be less liquid than for
taxable bonds. There may be less information available on the financial
condition of issuers of municipal securities than for public corporations.
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. For example, the COVID-19
pandemic has significantly stressed the financial resources of many municipal
issuers, which may impair a municipal issuer’s ability to meet its financial
obligations when due and could adversely impact the value of its bonds, which
could negatively impact the performance of the Fund.
Credit
Risk. Bonds
are subject to credit risk. Credit risk refers to the possibility that the
issuer or guarantor of a security will be unable and/or unwilling to make timely
interest payments and/or repay the principal on its debt or to otherwise honor
its obligations and/or default completely. Bonds are subject to varying degrees
of credit risk, depending on the issuer’s financial condition and on the terms
of the securities, which may be reflected in credit ratings. There is a
possibility that the credit rating of a bond may be downgraded after purchase or
the perception of an issuer’s credit worthiness may decline, which may adversely
affect the value of the security.
Interest
Rate Risk.
Debt securities, such as bonds, are subject to interest rate risk. Interest rate
risk refers to fluctuations in the value of a bond resulting from changes in the
general level of interest rates. When the general level of interest rates goes
up, the prices of most debt securities go down. When the general level of
interest rates goes down, the prices of most debt securities go up. Many factors
can cause interest rates to rise, including central bank monetary policy, rising
inflation rates and general economic conditions. The prevailing historically low
interest rate environment increases the risks associated with rising interest
rates, including the potential for periods of volatility and increased
redemptions. In addition, debt securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than debt
securities with shorter durations. In response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities and regulators are
enacting significant fiscal and monetary policy changes, including providing
direct capital infusions into companies, creating new
|
22 | ||
monetary
programs and lowering interest rates. These actions present heightened risks to
debt instruments, and such risks could increase if these actions are
unexpectedly or suddenly reversed or are ineffective in achieving their desired
outcomes.
Call
Risk.
The Fund may invest in callable bonds. If interest rates fall, it is possible
that issuers of callable securities will “call” (or prepay) their bonds before
their maturity date. If a call were exercised by the issuer during or following
a period of declining interest rates, the Fund is likely to have to replace such
called security with a lower yielding security or securities with greater risks
or other less favorable features. If that were to happen, it would decrease the
Fund’s net investment income.
California
Risk.
The Fund may invest a significant portion of its assets in municipal obligations
of issuers located in the State of California. Consequently, the Fund may be
affected by political, economic, regulatory and other developments within
California and by the financial condition of California’s political
subdivisions, agencies, instrumentalities and public authorities.
New
York Risk. The
Fund may invest a significant portion of its assets in municipal obligations of
issuers located in the State of New York. Consequently, the Fund may be affected
by political, economic, regulatory and other developments within New York and by
the financial condition of New York’s political subdivisions, agencies,
instrumentalities and public authorities.
Special
Tax Bond Risk.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition and performance of special tax bonds. 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 the Fund’s portfolio.
Market
Risk.
The prices of the securities in the 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. 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. An investment in the Fund may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including, but not limited to, human error, processing and communication errors,
errors of the Fund’s service providers, counterparties or other third parties,
failed or inadequate processes and technology or system failures.
Sampling
Risk.
The Fund’s use of a representative sampling approach will result in its holding
a smaller number of securities than are in the Intermediate Index. As a result,
an adverse development respecting an issuer of securities held by the Fund could
result in a greater decline in net asset value (“NAV”) than would be the case if
the Fund held all of the securities in the Intermediate Index. Conversely, a
positive development relating to an issuer of securities in the Intermediate
Index that is not held by the Fund could cause the Fund to underperform the
Intermediate Index. To the extent the assets in the Fund are smaller, these
risks will be greater.
Index
Tracking Risk. The
Fund’s return may not match the return of the Intermediate Index for a number of
reasons. For example, the Fund incurs a number of operating expenses, including
taxes, not applicable to the Intermediate Index and incurs costs associated with
buying and selling securities, especially when rebalancing the Fund’s securities
holdings to reflect changes in the composition of the Intermediate Index or (to
the extent the Fund effects creations and redemptions for cash) raising cash to
meet redemptions or deploying cash in connection with newly created Creation
Units (defined herein), which are not factored into the return of the
Intermediate Index. Transaction costs, including brokerage costs, will decrease
the Fund’s NAV to the extent not offset by the transaction fee payable by an
Authorized Participant (“AP”). Market disruptions and regulatory restrictions
could have an adverse effect on the Fund’s ability to adjust its exposure to the
required levels in order to track the Intermediate Index. Errors in the
Intermediate Index data, Intermediate Index computations and/or the construction
of the Intermediate Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Intermediate Index
provider for a period of time or at all, which may have an adverse impact on the
Fund and its shareholders. Shareholders should understand that any gains from
the Intermediate Index provider's errors will be kept by the Fund and its
shareholders and any losses or costs resulting from the Intermediate Index
provider's errors will be borne by the Fund and its shareholders. When the
Intermediate Index is rebalanced and the Fund in turn rebalances its portfolio
to attempt to increase the correlation between the Fund’s portfolio and the
Intermediate Index, any transaction costs and market exposure arising from such
portfolio rebalancing will be borne directly by the Fund and its shareholders.
In addition, the Fund's use of a representative sampling approach may cause the
fund to not be as well correlated with the return of the Intermediate Index as
would be the case if the Fund purchased all of the securities in the
Intermediate Index in the proportions in which they are represented in the
Intermediate Index. Apart from scheduled rebalances, the Intermediate Index
provider or its agents may carry out additional ad hoc rebalances to the
Intermediate Index. Therefore, errors and additional ad hoc rebalances carried
out by the Intermediate Index provider or its agents to the Intermediate Index
may increase the costs to and the tracking error risk of the Fund. The Fund’s
performance may also deviate from the return of the Intermediate Index due to
certain listing standards of the Fund's listing exchange (the “Exchange”) or
legal restrictions or limitations (such as diversification requirements). The
Fund may value certain of its investments, underlying securities and/or
currencies, and/
|
23 | ||
|
| ||
or
other assets based on fair value prices. When markets are volatile, the ability
to sell securities at fair value prices may be adversely impacted and may result
in additional trading costs and/or increase the index tracking risk. For tax
efficiency purposes, the Fund may sell certain securities, and such sale may
cause the Fund to realize a loss and deviate from the performance of the
Intermediate Index. In addition, sale of securities may result in the
recognition of accrued market discount and/or net realized gains for tax
purposes, which may result in taxable distributions to shareholders. In light of
the factors discussed above, the Fund’s return may deviate significantly from
the return of the Intermediate Index. Changes to the composition of the
Intermediate Index in connection with a rebalancing or reconstitution of the
Intermediate Index may cause the Fund to experience increased volatility, during
which time the Fund’s index tracking risk may be heightened.
The
Intermediate Index will gradually increase exposure to securities based on their
weightings in the Final Intermediate Index while proportionally reducing
exposure to certain component securities of the Prior Intermediate Index. These
adjustments to the Fund's portfolio holdings are expected to increase the Fund's
transaction costs and turnover rate.
Tax
Risk.
There is no guarantee that the Fund’s income will be exempt from U.S. federal or
state income taxes. Events occurring after the date of issuance of a municipal
bond or after the 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 the 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.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of financial institutions that act as APs,
none of which are obligated to engage in creation and/or redemption
transactions. To the extent that those APs exit the business, or are unable to
or choose not to process creation and/or redemption orders, and no other AP is
able to step forward to create and redeem, there may be a significantly
diminished trading market for Shares or Shares may trade like closed-end funds
at a greater discount (or premium) to NAV and possibly face trading halts and/or
de-listing. The AP concentration risk may be heightened in scenarios where APs
have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market.
While Shares are listed on the Exchange, there can be no assurance that an
active trading market for the Shares will be maintained. Further, secondary
markets may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods in times of market stress because market
makers and APs may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its NAV.
Trading
Issues.
Trading in Shares on the Exchange may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange
necessary to maintain the listing of the Fund will continue to be met or will
remain unchanged.
Passive
Management Risk.
An investment in the Fund involves risks similar to those of investing in any
fund invested in bonds, such as market fluctuations caused by such factors as
economic and political developments, changes in interest rates and perceived
trends in security prices. However, because the Fund is not “actively” managed,
unless a specific security is removed from the Intermediate Index, the Fund
generally would not sell a security because the security’s issuer was in
financial trouble. Additionally, unusual market conditions may cause the
Intermediate Index provider to postpone a scheduled rebalance or reconstitution,
which could cause the Intermediate Index to vary from its normal or expected
composition. Therefore, the Fund’s performance could be lower than funds that
may actively shift their portfolio assets to take advantage of market
opportunities or to lessen the impact of a market decline or a decline in the
value of one or more issuers.
Fund
Shares Trading, Premium/Discount Risk and Liquidity of Fund Shares. The
market price of the Shares may fluctuate in response to the Fund’s NAV, the
intraday value of the Fund’s holdings and supply and demand for Shares. The
Adviser cannot predict whether Shares will trade above, below, or at their most
recent NAV. Disruptions to creations and redemptions, the existence of market
volatility or potential lack of an active trading market for Shares (including
through a trading halt), as well as other factors, may result in Shares trading
at a significant premium or discount to NAV or to the intraday value of the
Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the NAV or sells Shares at a time when the market price
is at a discount to the NAV, the shareholder may pay significantly more or
receive significantly less than the underlying value of the Shares that were
bought or sold or the shareholder may be unable to sell his or her Shares. The
securities held by the Fund may be traded in markets that close at a different
time than the Exchange. Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time when the Exchange is open
but after the applicable market closing, fixing or settlement times, bid-ask
spreads on the Exchange and the resulting premium or discount to the Shares’ NAV
may widen. Additionally, in stressed market conditions, the market for the
Fund’s Shares may become less liquid in response to deteriorating liquidity in
the markets for the Fund’s underlying portfolio holdings. There are various
methods by which investors can purchase and sell Shares. Investors should
consult their financial intermediaries before purchasing or selling Shares of
the Fund.
|
24 | ||
The
year-to-date total return as of
June 30, 2022 was
-10.73 %.
| - |
||||||||
|
25 | ||
|
| ||
| Past One Year |
Past Five Years |
Past Ten Years |
|||||||||||||||
(return before taxes)* |
|||||||||||||||||
(return after taxes on distributions) |
|||||||||||||||||
(return after taxes on distributions and sale of Fund Shares) |
|||||||||||||||||
|
|
|||||||||||||||||
(reflects no deduction for fees, expenses or taxes)** |
|||||||||||||||||
ICE
Intermediate AMT-Free Broad National Municipal Index
(reflects
no deduction for fees, expenses or
taxes)** |
|||||||||||||||||
(reflects no deduction for fees, expenses or taxes) |
- |
||||||||||||||||
|
|
- |
||||||||||||||||
*
Prior to March 1, 2022,
the Fund sought to replicate as closely as possible, before fees and expenses,
the price and yield performance of the Prior Intermediate Index. Therefore,
performance information prior to March 1, 2022 reflects the performance of the
Fund tracking the Prior Intermediate Index.
**
The inception date of the
Intermediate Index and the Final Intermediate Index was December 11,
2021
1
On September 1, 2022, the
ICE BofA Broad US Market Index replaced the Bloomberg US Aggregate Bond Index as
the Fund's broad-based benchmark index as the Adviser believes it is more
representative of broad bond market exposure.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Manager.
The following individual is primarily responsible for the day-to-day management
of the Fund’s portfolio:
| Name | Title with Adviser | Date Began Managing the Fund | ||||||||||||
| James T. Colby III | Portfolio Manager | December 2007 | ||||||||||||
PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information, and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information about Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
|
26 | ||
SUMMARY
INFORMATION
|
|
| ||||
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
| Management Fee | % | ||||||||||
|
Other
Expenses(a) |
% | ||||||||||
|
Total
Annual Fund Operating Expenses(a) |
% | ||||||||||
(a) Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, 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 September 1,
2023 .
| YEAR | EXPENSES | ||||||||||
| 1 | $ |
||||||||||
| 3 | $ |
||||||||||
| 5 | $ |
||||||||||
| 10 | $ |
||||||||||
The
Fund normally invests at least 80% of its total assets in fixed income
securities that comprise the Long Index. The Long Index is comprised of publicly
traded municipal bonds that cover the U.S. dollar denominated long-term
tax-exempt bond market. This 80% investment policy is non-fundamental and may be
changed without shareholder approval upon 60 days' prior written notice to
shareholders.
The
Fund has adopted a fundamental investment policy to invest at least 80% of its
assets in municipal securities. Such policy cannot be changed without a
shareholder vote. For purposes of this policy, the term “assets” means net
assets plus the amount of any borrowings for investment purposes. This
percentage limitation applies at the time of the investment.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Long Index. Unlike many investment companies
that try to “beat” the performance of a benchmark index, the Fund does not try
to
|
27 | ||
|
| ||
“beat”
the Long Index and does not take temporary defensive positions that are
inconsistent with its investment objective of seeking to replicate the Long
Index. Because of the practical difficulties and expense of purchasing all of
the securities in the Long Index, the Fund does not purchase all of the
securities in the Long Index. Instead, the Adviser utilizes a “sampling”
methodology in seeking to achieve the Fund’s objective. As such, the Fund may
purchase a subset of the bonds in the Long Index in an effort to hold a
portfolio of bonds with generally the same risk and return characteristics of
the Long Index.
Prior
to the selection of the Long Index, the Fund tracked the Bloomberg AMT-Free Long
Continuous Municipal Index (the “Prior Long Index”). The Fund began tracking the
Long Index on March 1, 2022. The Long Index is an interim index that gradually
increases exposure to securities based on their weightings in the ICE Long
AMT-Free Broad National Municipal Index (the “Final Long Index”) while
proportionally reducing exposure to certain component securities of the Prior
Long Index. The Fund is expected to begin tracking the Final Long Index on
December 1, 2022.
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
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. 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. Municipal securities include
general obligation bonds, which 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. General obligation bonds generally are not
backed by revenues from a specific project or source. Municipal securities also
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. The market for municipal bonds may be less liquid than for
taxable bonds. There may be less information available on the financial
condition of issuers of municipal securities than for public corporations.
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. For example, the COVID-19
pandemic has significantly stressed the financial resources of many municipal
issuers, which may impair a municipal issuer’s ability to meet its financial
obligations when due and could adversely impact the value of its bonds, which
could negatively impact the performance of the Fund.
Credit
Risk. Bonds
are subject to credit risk. Credit risk refers to the possibility that the
issuer or guarantor of a security will be unable and/or unwilling to make timely
interest payments and/or repay the principal on its debt or to otherwise honor
its obligations and/or default completely. Bonds are subject to varying degrees
of credit risk, depending on the issuer’s financial condition and on the terms
of the securities, which may be reflected in credit ratings. There is a
possibility that the credit rating of a bond may be downgraded after purchase or
the perception of an issuer’s credit worthiness may decline, which may adversely
affect the value of the security.
Interest
Rate Risk.
Debt securities, such as bonds, are subject to interest rate risk. Interest rate
risk refers to fluctuations in the value of a bond resulting from changes in the
general level of interest rates. When the general level of interest rates goes
up, the prices of most debt securities go down. When the general level of
interest rates goes down, the prices of most debt securities go up. Many factors
can cause interest rates to rise, including central bank monetary policy, rising
inflation rates and general economic conditions. The prevailing historically low
interest rate environment increases the risks associated with rising interest
rates, including the potential for periods of volatility and increased
redemptions. In addition, debt securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than debt
securities with shorter durations. In response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities and regulators are
enacting significant fiscal and monetary policy changes, including providing
direct capital infusions into companies, creating new monetary programs and
lowering interest rates. These actions present heightened risks to debt
instruments, and such risks could increase if these actions are unexpectedly or
suddenly reversed or are ineffective in achieving their desired
outcomes.
|
28 | ||
California
Risk.
The Fund may invest a significant portion of its assets in municipal obligations
of issuers located in the State of California. Consequently, the Fund may be
affected by political, economic, regulatory and other developments within
California and by the financial condition of California’s political
subdivisions, agencies, instrumentalities and public authorities.
New
York Risk. The
Fund may invest a significant portion of its assets in municipal obligations of
issuers located in the State of New York. Consequently, the Fund may be affected
by political, economic, regulatory and other developments within New York and by
the financial condition of New York’s political subdivisions, agencies,
instrumentalities and public authorities.
Texas
Risk.
The Fund may invest a significant portion of its assets in municipal obligations
of issuers located in the State of Texas. Consequently, the Fund may be affected
by political, economic, regulatory and other developments within Texas and by
the financial condition of Texas’ political subdivisions, agencies,
instrumentalities and public authorities.
Call
Risk.
The Fund may invest in callable bonds. If interest rates fall, it is possible
that issuers of callable securities will “call” (or prepay) their bonds before
their maturity date. If a call were exercised by the issuer during or following
a period of declining interest rates, the Fund is likely to have to replace such
called security with a lower yielding security or securities with greater risks
or other less favorable features. If that were to happen, it would decrease the
Fund’s net investment income.
Health
Care Bond Risk.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition and performance of health care bonds. 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.
Special
Tax Bond Risk.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition and performance of special tax bonds. 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 the Fund’s portfolio.
Market
Risk.
The prices of the securities in the 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. 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. An investment in the Fund may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including, but not limited to, human error, processing and communication errors,
errors of the Fund’s service providers, counterparties or other third parties,
failed or inadequate processes and technology or system failures.
Sampling
Risk. The
Fund’s use of a representative sampling approach will result in its holding a
smaller number of securities than are in the Long Index. As a result, an adverse
development respecting an issuer of securities held by the Fund could result in
a greater decline in net asset value (“NAV”) than would be the case if the Fund
held all of the securities in the Long Index. Conversely, a positive development
relating to an issuer of securities in the Long Index that is not held by the
Fund could cause the Fund to underperform the Long Index. To the extent the
assets in the Fund are smaller, these risks will be greater.
Index
Tracking Risk. The
Fund’s return may not match the return of the Long Index for a number of
reasons. For example, the Fund incurs a number of operating expenses, including
taxes, not applicable to the Long Index and incurs costs associated with buying
and selling securities, especially when rebalancing the Fund’s securities
holdings to reflect changes in the composition of the Long Index or (to the
extent the Fund effects creations and redemptions for cash) raising cash to meet
redemptions or deploying cash in connection with newly created Creation Units
(defined herein), which are not factored into the return of the Long Index.
Transaction costs, including brokerage costs, will decrease the Fund’s NAV to
the extent not offset by the transaction fee payable by an Authorized
Participant (“AP”). Market disruptions and regulatory restrictions could have an
adverse effect on the Fund’s ability to adjust its exposure to the required
levels in order to track the Long Index. Errors in the Long Index data, Long
Index computations and/or the construction of the Long Index in accordance with
its methodology may occur from time to time and may not be identified and
corrected by the Long Index provider for a period of time or at all, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Long Index provider's errors will
|
29 | ||
|
| ||
be
kept by the Fund and its shareholders and any losses or costs resulting from the
Long Index provider's errors will be borne by the Fund and its shareholders.
When the Long Index is rebalanced and the Fund in turn rebalances its portfolio
to attempt to increase the correlation between the Fund’s portfolio and the Long
Index, any transaction costs and market exposure arising from such portfolio
rebalancing will be borne directly by the Fund and its shareholders. In
addition, the Fund's use of a representative sampling approach may cause the
fund to not be as well correlated with the return of the Long Index as would be
the case if the Fund purchased all of the securities in the Long Index in the
proportions in which they are represented in the Long Index. Apart from
scheduled rebalances, the Long Index provider or its agents may carry out
additional ad hoc rebalances to the Long Index. Therefore, errors and additional
ad hoc rebalances carried out by the Long Index provider or its agents to the
Long Index may increase the costs to and the tracking error risk of the Fund.
The Fund’s performance may also deviate from the return of the Long Index due to
certain listing standards of the Fund's listing exchange (the “Exchange”) or
legal restrictions or limitations (such as diversification requirements). The
Fund may value certain of its investments, underlying securities and/or
currencies, and/or other assets based on fair value prices. When markets are
volatile, the ability to sell securities at fair value prices may be adversely
impacted and may result in additional trading costs and/or increase the index
tracking risk. For tax efficiency purposes, the Fund may sell certain
securities, and such sale may cause the Fund to realize a loss and deviate from
the performance of the Long Index. In addition, sale of securities may result in
the recognition of accrued market discount and/or net realized gains for tax
purposes, which may result in taxable distributions to shareholders. In light of
the factors discussed above, the Fund’s return may deviate significantly from
the return of the Long Index. Changes to the composition of the Long Index in
connection with a rebalancing or reconstitution of the Long Index may cause the
Fund to experience increased volatility, during which time the Fund’s index
tracking risk may be heightened.
The
Long Index will gradually increase exposure to securities based on their
weightings in the Final Long Index while proportionally reducing exposure to
certain component securities of the Prior Long Index. These adjustments to the
Fund's portfolio holdings are expected to increase the Fund's transaction costs
and turnover rate.
Tax
Risk.
There is no guarantee that the Fund’s income will be exempt from U.S. federal or
state income taxes. Events occurring after the date of issuance of a municipal
bond or after the 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 the 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.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of financial institutions that act as APs,
none of which are obligated to engage in creation and/or redemption
transactions. To the extent that those APs exit the business, or are unable to
or choose not to process creation and/or redemption orders, and no other AP is
able to step forward to create and redeem, there may be a significantly
diminished trading market for Shares or Shares may trade like closed-end funds
at a greater discount (or premium) to NAV and possibly face trading halts and/or
de-listing. The AP concentration risk may be heightened in scenarios where APs
have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market.
While Shares are listed on the Exchange, there can be no assurance that an
active trading market for the Shares will be maintained. Further, secondary
markets may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods in times of market stress because market
makers and APs may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its NAV.
Trading
Issues.
Trading in Shares on the Exchange may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange
necessary to maintain the listing of the Fund will continue to be met or will
remain unchanged.
Passive
Management Risk.
An investment in the Fund involves risks similar to those of investing in any
fund invested in bonds, such as market fluctuations caused by such factors as
economic and political developments, changes in interest rates and perceived
trends in security prices. However, because the Fund is not “actively” managed,
unless a specific security is removed from the Long Index, the Fund generally
would not sell a security because the security’s issuer was in financial
trouble. Additionally, unusual market conditions may cause the Long Index
provider to postpone a scheduled rebalance or reconstitution, which could cause
the Long Index to vary from its normal or expected composition. Therefore, the
Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more
issuers.
Fund
Shares Trading, Premium/Discount Risk and Liquidity of Fund Shares. The
market price of the Shares may fluctuate in response to the Fund’s NAV, the
intraday value of the Fund’s holdings and supply and demand for Shares. The
Adviser cannot predict whether Shares will trade above, below, or at their most
recent NAV. Disruptions to creations and redemptions, the existence of market
volatility or potential lack of an active trading market for Shares (including
through a trading halt), as well as other factors, may result in Shares trading
at a significant premium or discount to NAV or to the intraday value of the
Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the NAV or sells
|
30 | ||
Shares
at a time when the market price is at a discount to the NAV, the shareholder may
pay significantly more or receive significantly less than the underlying value
of the Shares that were bought or sold or the shareholder may be unable to sell
his or her Shares. The securities held by the Fund may be traded in markets that
close at a different time than the Exchange. Liquidity in those securities may
be reduced after the applicable closing times. Accordingly, during the time when
the Exchange is open but after the applicable market closing, fixing or
settlement times, bid-ask spreads on the Exchange and the resulting premium or
discount to the Shares’ NAV may widen. Additionally, in stressed market
conditions, the market for the Fund’s Shares may become less liquid in response
to deteriorating liquidity in the markets for the Fund’s underlying portfolio
holdings. There are various methods by which investors can purchase and sell
Shares. Investors should consult their financial intermediaries before
purchasing or selling Shares of the Fund.
Concentration
Risk. The
Fund’s assets may be concentrated in a particular sector or sectors or industry
or group of industries to the extent the Long Index concentrates in a particular
sector or sectors or industry or group of industries. To the extent that the
Fund is 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 those sectors and/or industries
may 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
year-to-date total return as of
June 30, 2022 was
-16.56 %.
| - |
||||||||
|
31 | ||
|
| ||
| Past One Year |
Past Five Years |
Past Ten Years |
|||||||||||||||
(return before taxes)* |
|||||||||||||||||
(return after taxes on distributions) |
|||||||||||||||||
(return after taxes on distributions and sale of Fund Shares) |
|||||||||||||||||
Bloomberg
AMT-Free Long Continuous Municipal Index
|
|||||||||||||||||
ICE
Long AMT-Free Broad National Municipal Transition Index
(reflects
no deduction for fees, expenses or
taxes)** |
|||||||||||||||||
(reflects no deduction for fees, expenses or taxes)** |
|||||||||||||||||
Bloomberg
US Aggregate Bond Index
(reflects
no deduction for fees, expenses or taxes) |
- |
||||||||||||||||
|
|
- |
||||||||||||||||
*
Prior to March 1, 2022,
the Fund sought to replicate as closely as possible, before fees and expenses,
the price and yield performance of the Prior Long Index. Therefore, performance
information prior to March 1, 2022 reflects the performance of the Fund tracking
the Prior Long Index.
**
The inception date of the
Long Index and the Final Long Index was December 11,
2021
1
On September 1, 2022, the
ICE BofA Broad US Market Index replaced the Bloomberg US Aggregate Bond Index as
the Fund's broad-based benchmark index as the Adviser believes it is more
representative of broad bond market exposure.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van
Eck Associates Corporation.
Portfolio
Manager. The
following individual is primarily responsible for the day-to-day management of
the Fund’s portfolio:
| Name | Title with Adviser | Date Began Managing the Fund | ||||||||||||
| James T. Colby III | Portfolio Manager | January 2008 | ||||||||||||
PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information about Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
|
32 | ||
SUMMARY
INFORMATION
|
|
| ||||
| Management Fee | % | ||||||||||
|
Other
Expenses(a) |
% | ||||||||||
|
Acquired
Fund Fees and Expenses
(b) |
% | ||||||||||
|
Total
Annual Fund Operating Expenses(a) |
% | ||||||||||
(a)Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, 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 September 1,
2023 .
(b)"Acquired Fund Fees
and Expenses” reflect the Fund’s pro rata portion of the expenses charged by
other investment companies in which the Fund invests, including VanEck
exchange-traded funds and funds which invest exclusively in money market
instruments. Because Acquired Fund Fees and Expenses are not borne directly by
the Fund, they will not be reflected in the expense information in the Fund’s
financial statements and the information presented in the table will differ from
that presented in the Fund’s financial highlights included in the Fund’s reports
to shareholders.
| YEAR | EXPENSES | ||||||||||
| 1 | $ |
||||||||||
| 3 | $ |
||||||||||
| 5 | $ |
||||||||||
| 10 | $ |
||||||||||
|
33 | ||
investment
grade and below investment grade (high yield or "junk" bonds) tax-exempt bond
market. While the Adviser currently anticipates that the Fund will invest
primarily in other VanEck ETFs, the Fund may also invest in unaffiliated
exchange-traded products ("ETPs"), which could include ETFs and closed-end
funds, that invest in municipal bonds. The Fund does not have any limits on its
investments in below investment grade securities ("junk" bonds), and the Fund
will have indirect exposure to below investment grade securities through its
investments in ETPs. The Fund’s 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 AMT) may not be changed without shareholder approval. The
Fund may count investments that generate income subject to the AMT toward its
80% investment policy. For purposes of this policy, the term “assets” means net
assets plus the amount of any borrowings for investment purposes. This
percentage limitation applies at the time of the investment.
The
Adviser primarily uses a proprietary, rules-based allocation model (the
“Municipal Allocation Model”), which considers various inputs to guide asset
allocation decisions and select ETPs that provide exposure to tax-exempt
investments and that the Adviser believes will offer enhanced risk-adjusted
returns. The term “risk-adjusted returns” does not imply that the Adviser
employs low-risk strategies or that an investment in the Fund should
be considered a low-risk or no risk investment. The Municipal
Allocation Model uses various indicators to generate allocation signals among
tax-exempt investments. These signals are used as inputs to determine ETP
allocation and individual portfolio weights.
The
Municipal Allocation Model utilizes various indicators to identify periods of
credit and duration risk. These indicators measure various risk metrics, which
include but are not limited to, market prices and trends, volatility
(i.e.,
the measure of historic and/or predicted future variation of returns for a given
security or market index), yield spreads (i.e.,
the difference between yields on differing fixed income securities of varying
maturities, credit ratings and risk), and relative yield ratios (i.e.,
the yield on a security relative to the yield on a benchmark security). The
Adviser anticipates that the Municipal Allocation Model will evolve over time
and may incorporate additional indicators and/or remove or modify existing
indicators.
The
Adviser allocates the Fund’s assets to those ETPs that it believes will have
returns that, in the aggregate, closely correlate (before fees and expenses) to
the returns of the Municipal Allocation Model. The Municipal Allocation Model
typically adjusts its allocation signals on a monthly basis, and the Adviser may
adjust the Fund's portfolio allocation as needed in response to such changes in
the Municipal Allocation Model. The Fund may engage in active and frequent
trading of portfolio securities.
The
Fund is classified as a non-diversified fund under the Investment Company Act of
1940, as amended (the “1940 Act”) and, therefore, may invest a greater
percentage of its assets in a particular issuer.
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk. An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Fund
of Funds Risk.
The performance of the Fund is dependent on the performance of underlying funds.
The Fund is subject to the risks of the underlying funds’ investments. In
addition, the Fund’s shareholders will indirectly bear the expenses of the
underlying funds, absorbing duplicative levels of fees with respect to
investments in the underlying funds. In addition, at times certain segments of
the market represented by the underlying funds may be out of favor and
underperform other segments.
Risk
of ETPs.
The Fund may be subject to the following risks as a result of its investments in
ETPs:
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. 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
securities include general obligation bonds, which 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. General
obligation bonds generally are not backed by revenues from a specific project or
source. Municipal securities also 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. The market for municipal bonds may be less liquid than for taxable
bonds. The value and liquidity of
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34 | ||
many
municipal securities have decreased as a result of the past financial crises,
which has also adversely affected many municipal securities issuers and may
continue to do so. There may be less information available on the financial
condition of issuers of municipal securities than for public corporations.
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. For example,
the COVID-19 pandemic has significantly stressed the financial resources of many
municipal issuers, which may impair a municipal issuer’s ability to meet its
financial obligations when due and could adversely impact the value of its
bonds, which could negatively impact the performance of the Fund.
Credit
Risk.
Debt securities are subject to credit risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable and/or
unwilling to make timely interest payments and/or repay the principal on its
debt or to otherwise honor its obligations and/or default completely on
securities. Debt securities are subject to varying degrees of credit risk,
depending on the issuer’s financial condition and on the terms of the
securities, which may be reflected in credit ratings. There is a possibility
that the credit rating of a debt security may be downgraded after purchase or
the perception of an issuer’s credit worthiness may decline, which may adversely
affect the value of the security.
High
Yield Securities Risk.
Securities rated below investment grade are commonly referred to as high yield
securities or “junk bonds.” High yield securities are often issued by issuers
that are restructuring, are smaller or less creditworthy than other issuers, or
are more highly indebted than other issuers. High yield securities are subject
to greater risk of loss of income and principal than higher rated securities and
are considered speculative. The prices of high yield securities are likely to be
more sensitive to adverse economic changes or individual issuer developments
than higher rated securities. During an economic downturn or substantial period
of rising interest rates, issuers of high yield securities may experience
financial stress that would adversely affect their ability to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. In the event of a default, an ETP may
incur additional expenses to seek recovery. The secondary market for securities
that are high yield securities may be less liquid than the markets for higher
quality securities and high yield securities issued by non-corporate issuers may
be less liquid than high yield securities issued by corporate issuers, which, in
either instance, may have an adverse effect on the market prices of and an ETP’s
ability to arrive at a fair value for certain securities. The illiquidity of the
market also could make it difficult for an ETP to sell certain securities in
connection with a rebalancing of its index, if applicable. In addition, periods
of economic uncertainty and change may result in an increased volatility of
market prices of high yield securities and a corresponding volatility in an
ETP’s NAV.
Tax
Risk.
There is no guarantee that an ETP’s income will be exempt from U.S. federal or
state income taxes. Events occurring after the date of issuance of a municipal
bond or after the ETP’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 the ETP 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.
Interest
Rate Risk.
Debt securities, such as bonds, are subject to interest rate risk. Interest rate
risk refers to fluctuations in the value of a bond resulting from changes in the
general level of interest rates. When the general level of interest rates goes
up, the prices of most debt securities go down. When the general level of
interest rates goes down, the prices of most debt securities go up. Many factors
can cause interest rates to rise, including central bank monetary policy, rising
inflation rates and general economic conditions. The prevailing historically low
interest rate environment increases the risks associated with rising interest
rates, including the potential for periods of volatility and increased
redemptions. In addition, debt securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than debt
securities with shorter durations. In response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities and regulators are
enacting significant fiscal and monetary policy changes, including providing
direct capital infusions into companies, creating new monetary programs and
lowering interest rates. These actions present heightened risks to debt
instruments, and such risks could increase if these actions are unexpectedly or
suddenly reversed or are ineffective in achieving their desired
outcomes.
Call
Risk.
An ETP may invest in callable debt securities. If interest rates fall, it is
possible that issuers of callable securities will “call” (or prepay) their debt
securities before their maturity date. If a call were exercised by the issuer
during or following a period of declining interest rates, the ETP is likely to
have to replace such called security with a lower yielding security or
securities with greater risks or other less favorable features. If that were to
happen, it would decrease the ETP’s net investment income.
State
Concentration Risk. Certain
of the ETPs may invest a significant portion of its assets in municipal
obligations of issuers located in a particular state or
states. Consequently, the Fund may be affected by political, economic,
regulatory and other developments within the state or states and by the
financial condition of the state's or states' political subdivisions, agencies,
instrumentalities and public authorities.
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35 | ||
Concentration
Risk.
Certain of the ETPs may be concentrated in a particular sector or sectors or
industry or group of industries. To the extent that an ETP is concentrated in a
particular sector or sectors or industry or group of industries, the ETP will be
subject to the risk that economic, political or other conditions that have a
negative effect on those sectors and/or industry or groups of industries may
negatively impact the ETP to a greater extent than if the ETP’s assets were
invested in a wider variety of sectors or industries.
High
Portfolio Turnover Risk.
The Fund may engage in active and frequent trading of its portfolio securities.
High portfolio turnover may result in increased transaction costs to the Fund,
including brokerage commissions, dealer mark-ups and other transaction costs on
the sale of the securities and on reinvestment in other securities. High
portfolio turnover may also result in higher taxes when Fund Shares are held in
a taxable account.
Model
and Data Risk.
Given the complexity of the investments and strategies of the Fund, the Adviser
relies heavily on quantitative models and information and data (“Models and
Data”). Models and Data are used to construct sets of transactions and
investments, and to provide risk management insights. When Models and Data prove
to be incorrect or incomplete, any decisions made in reliance thereon expose the
Fund to potential risks.
Active
Management Risk.
The Fund is subject to management risk because it is an actively managed ETF. In
managing the Fund’s portfolio, the Adviser will apply investment techniques and
risk analyses in making investment decisions for the Fund, but there can be no
guarantee that these will produce the desired results.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including, but not limited to, human error, processing and communication errors,
errors of the Fund’s service providers, counterparties or other third parties,
failed or inadequate processes and technology or system failures.
Authorized
Participant Concentration Risk. The
Fund may have a limited number of financial institutions that act as APs, none
of which are obligated to engage in creation and/or redemption transactions. To
the extent that those APs exit the business, or are unable to or choose not to
process creation and/or redemption orders, and no other AP is able to step
forward to create and redeem, there may be a significantly diminished trading
market for Shares or Shares may trade like closed-end funds at a greater
discount (or premium) to NAV and possibly face trading halts and/or de-listing.
The AP concentration risk may be heightened in scenarios where APs have limited
or diminished access to the capital required to post collateral.
No
Guarantee of Active Trading Market.
While Shares are listed on the Exchange, there can be no assurance that an
active trading market for the Shares will be maintained. Further, secondary
markets may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods in times of market stress because market
makers and APs may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its NAV.
Trading
Issues.
Trading in Shares on the Exchange may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange
necessary to maintain the listing of the Fund will continue to be met or will
remain unchanged.
Market
Risk. Both
the Fund and the ETPs in which the Fund may invest are subject to market risk.
The prices of the securities in the Fund or
an
ETP 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. 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.
An
investment in the Fund or an ETP may lose money .
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36 | ||
The
year-to-date total return as of
June 30, 2022 was
-12.67 %.
| - |
||||||||
| Past One Year |
Since
Inception ( |
|||||||||||||
(return before taxes) |
||||||||||||||
(return after taxes on distributions) |
||||||||||||||
(return after taxes on distributions and sale of Fund Shares) |
||||||||||||||
|
|
||||||||||||||
|
(reflects no deduction for fees, expenses or taxes) |
||||||||||||||
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
|
37 | ||
Portfolio
Managers.
The following individuals are primarily and jointly responsible for the
day-to-day management of the Fund’s portfolio:
| Name | Title with Adviser | Date Began Managing the Fund | ||||||||||||
| David Schassler | Portfolio Manager | May 2019 | ||||||||||||
| John Lau | Deputy Portfolio Manager | September 2020 | ||||||||||||
PURCHASE
AND SALE OF FUND SHARES
Individual
Shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at a market price. Shares of the Fund
are listed on the Exchange, and because Shares trade at market prices rather
than NAV, Shares of the Fund may trade at a price greater than NAV (i.e.,
a “premium”) or less than NAV (i.e.,
a “discount”).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares of the Fund (bid) and the
lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares in the secondary market (the “bid/ask spread”).
Recent
information, including information about the Fund’s NAV, market price, premiums
and discounts, and bid/ask spreads, is included on the Fund’s website at
www.vaneck.com.
TAX
INFORMATION
The
Fund expects to distribute net investment income, if any, at least monthly, and
any net realized long-term or short-term capital gains annually. The Fund may
also pay a special distribution at any time to comply with U.S. federal tax
requirements. Dividends paid by the Fund that are properly reported as
exempt-interest dividends will not be subject to regular U.S. federal income
tax. The Fund intends to invest its assets in a manner such that a significant
portion of its dividend distributions to shareholders will generally be exempt
from U.S. federal income taxes. Such distributions will generally be subject to
state income taxes.
Distributions
from the Fund’s net investment income (other than net tax-exempt income),
including any net short-term capital gains, if any, are taxable to you as
ordinary income.
PAYMENTS
TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
The
Adviser and its related companies may pay broker-dealers or other financial
intermediaries (such as a bank) for the sale of the Fund Shares and related
services. These payments may create a conflict of interest by influencing your
broker-dealer or other intermediary or its employees or associated persons to
recommend the Fund over another investment. Ask your financial adviser or visit
your financial intermediary’s website for more information.
|
38 | ||
SUMMARY
INFORMATION
|
|
| ||||
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
| Management Fee | % | ||||||||||
|
Other
Expenses(a) |
% | ||||||||||
|
Total
Annual Fund Operating Expenses(a) |
% | ||||||||||
(a) Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, 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 September 1,
2023 .
| YEAR | EXPENSES | ||||||||||
| 1 | $ |
||||||||||
| 3 | $ |
||||||||||
| 5 | $ |
||||||||||
| 10 | $ |
||||||||||
|
39 | ||
|
| ||
The
Fund has adopted a fundamental investment policy to invest at least 80% of its
assets in municipal securities. Such policy cannot be changed without a
shareholder vote. For purposes of this policy, the term “assets” means net
assets plus the amount of any borrowings for investment purposes. This
percentage limitation applies at the time of the investment.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Short High Yield Index. Unlike many investment
companies that try to “beat” the performance of a benchmark index, the Fund does
not try to “beat” the Short High Yield Index and does not take temporary
defensive positions that are inconsistent with its investment objective of
seeking to replicate the Short High Yield Index. Because of the practical
difficulties and expense of purchasing all of the securities in the Short High
Yield Index, the Fund does not purchase all of the securities in the Short High
Yield Index. Instead, the Adviser utilizes a “sampling” methodology in seeking
to achieve the Fund’s objective. As such, the Fund may purchase a subset of the
bonds in the Short High Yield Index in an effort to hold a portfolio of bonds
with generally the same risk and return characteristics of the Short High Yield
Index.
Prior
to the selection of the Short High Yield Index, the Fund tracked the Bloomberg
Municipal High Yield Short Duration Index (the “Prior Short High Yield Index”).
The Fund began tracking the Short High Yield Index on March 1, 2022. The Short
High Yield Index is an interim index that gradually increases exposure to
securities based on their weightings in the ICE 1-12 Year Broad High Yield
Crossover Municipal Index (the “Final Short High Yield Index”) while
proportionally reducing exposure to certain component securities of the Prior
Short High Yield Index. The Fund is expected to begin tracking the Final Short
High Yield Index on December 1, 2022.
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
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. 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. Municipal securities include
general obligation bonds, which 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. General obligation bonds generally are not
backed by revenues from a specific project or source. Municipal securities also
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. The market for municipal bonds may be less liquid than for
taxable bonds. There may be less information available on the financial
condition of issuers of municipal securities than for public corporations.
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. For example, the COVID-19
pandemic has significantly stressed the financial resources of many municipal
issuers, which may impair a municipal issuer’s ability to meet its financial
obligations when due and could adversely impact the value of its bonds, which
could negatively impact the performance of the Fund.
Credit
Risk. Bonds
are subject to credit risk. Credit risk refers to the possibility that the
issuer or guarantor of a security will be unable and/or unwilling to make timely
interest payments and/or repay the principal on its debt or to otherwise honor
its obligations and/or default completely. Bonds are subject to varying degrees
of credit risk, depending on the issuer’s financial condition and on the terms
of the securities, which may be reflected in credit ratings. There is a
possibility that the credit rating of a bond may be downgraded after purchase or
the perception of an issuer’s credit worthiness may decline, which may adversely
affect the value of the security.
Interest
Rate Risk.
Debt securities, such as bonds, are subject to interest rate risk. Interest rate
risk refers to fluctuations in the value of a bond resulting from changes in the
general level of interest rates. When the general level of interest rates goes
up, the prices of most debt securities go down. When the general level of
interest rates goes down, the prices of most debt securities go up. Many factors
can cause interest rates to rise, including central bank monetary policy, rising
inflation rates and general
|
40 | ||
economic
conditions. The prevailing historically low interest rate environment increases
the risks associated with rising interest rates, including the potential for
periods of volatility and increased redemptions. In addition, debt securities
with longer durations tend to be more sensitive to interest rate changes,
usually making them more volatile than debt securities with shorter durations.
In response to the COVID-19 pandemic, as with other serious economic
disruptions, governmental authorities and regulators are enacting significant
fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates.
These actions present heightened risks to debt instruments, and such risks could
increase if these actions are unexpectedly or suddenly reversed or are
ineffective in achieving their desired outcomes.
High
Yield Securities Risk.
Securities rated below investment grade are commonly referred to as high yield
securities or “junk bonds.” High yield securities are often issued by issuers
that are restructuring, are smaller or less creditworthy than other issuers, or
are more highly indebted than other issuers. High yield securities are subject
to greater risk of loss of income and principal than higher rated securities and
are considered speculative. The prices of high yield securities are likely to be
more sensitive to adverse economic changes or individual municipal developments
than higher rated securities. During an economic downturn or substantial period
of rising interest rates, high yield security issuers may experience financial
stress that would adversely affect their ability to service their principal and
interest payment obligations, to meet their projected business goals or to
obtain additional financing. In the event of a default, the Fund may incur
additional expenses to seek recovery. The secondary market for municipal
securities that are high yield securities may be less liquid than the markets
for higher quality municipal securities or high yield securities issued by
corporate issuers and, as such, may have an adverse effect on the market prices
of and the Fund’s ability to arrive at a fair value for certain securities. The
illiquidity of the market also could make it difficult for the Fund to sell
certain securities in connection with a rebalancing of the Short High Yield
Index. In addition, periods of economic uncertainty and change may result in an
increased volatility of market prices of high yield securities and a
corresponding volatility in the Fund’s net asset value (“NAV”).
Industrial
Development Bond Risk. The
Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition and performance of industrial development bonds. These
revenue bonds are 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 on 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.
Special
Tax Bond Risk.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition and performance of special tax bonds. 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 the Fund’s
portfolio.
Illinois
Risk.
The Fund may invest a significant portion of its assets in municipal obligations
of issuers located in the State of Illinois. Consequently, the Fund may be
affected by political, economic, regulatory and other developments within
Illinois and by the financial condition of Illinois’ political subdivisions,
agencies, instrumentalities and public authorities.
New
York Risk. The
Fund may invest a significant portion of its assets in municipal obligations of
issuers located in the State of New York. Consequently, the Fund may be affected
by political, economic, regulatory and other developments within New York and by
the financial condition of New York’s political subdivisions, agencies,
instrumentalities and public authorities.
Call
Risk.
The Fund may invest in callable bonds. If interest rates fall, it is possible
that issuers of callable securities will “call” (or prepay) their bonds before
their maturity date. If a call were exercised by the issuer during or following
a period of declining interest rates, the Fund is likely to have to replace such
called security with a lower yielding security or securities with greater risks
or other less favorable features. If that were to happen, it would decrease the
Fund’s net investment income.
Private
Activity Bonds Risk.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition and performance of private activity bonds. The
issuers of private activity bonds in which the Fund may invest may be negatively
impacted by conditions affecting either the general credit of the user of the
private activity project or the project itself. The Fund’s private activity bond
holdings also may pay interest subject to the alternative minimum tax. See the
section of the Prospectus entitled “Shareholder Information—Tax Information” for
more details.
Market
Risk.
The prices of the securities in the 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. 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. An investment in the Fund may lose
money.
|
41 | ||
|
| ||
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including, but not limited to, human error, processing and communication errors,
errors of the Fund’s service providers, counterparties or other third parties,
failed or inadequate processes and technology or system failures.
Sampling
Risk.
The Fund’s use of a representative sampling approach will result in its holding
a smaller number of securities than are in the Short High Yield Index. As a
result, an adverse development respecting an issuer of securities held by the
Fund could result in a greater decline in NAV than would be the case if the Fund
held all of the securities in the Short High Yield Index. Conversely, a positive
development relating to an issuer of securities in the Short High Yield Index
that is not held by the Fund could cause the Fund to underperform the Short High
Yield Index. To the extent the assets in the Fund are smaller, these risks will
be greater.
Index
Tracking Risk. The
Fund’s return may not match the return of the Short High Yield Index for a
number of reasons. For example, the Fund incurs a number of operating expenses,
including taxes, not applicable to the Short High Yield Index and incurs costs
associated with buying and selling securities, especially when rebalancing the
Fund’s securities holdings to reflect changes in the composition of the Short
High Yield Index or (to the extent the Fund effects creations and redemptions
for cash) raising cash to meet redemptions or deploying cash in connection with
newly created Creation Units (defined herein), which are not factored into the
return of the Short High Yield Index. Transaction costs, including brokerage
costs, will decrease the Fund’s NAV to the extent not offset by the transaction
fee payable by an Authorized Participant (“AP”). Market disruptions and
regulatory restrictions could have an adverse effect on the Fund’s ability to
adjust its exposure to the required levels in order to track the Short High
Yield Index. Errors in the Short High Yield Index data, Short High Yield Index
computations and/or the construction of the Short High Yield Index in accordance
with its methodology may occur from time to time and may not be identified and
corrected by the Short High Yield Index provider for a period of time or at all,
which may have an adverse impact on the Fund and its shareholders. Shareholders
should understand that any gains from the Short High Yield Index provider's
errors will be kept by the Fund and its shareholders and any losses or costs
resulting from the Short High Yield Index provider's errors will be borne by the
Fund and its shareholders. When the Short High Yield Index is rebalanced and the
Fund in turn rebalances its portfolio to attempt to increase the correlation
between the Fund’s portfolio and the Short High Yield Index, any transaction
costs and market exposure arising from such portfolio rebalancing will be borne
directly by the Fund and its shareholders. In addition, the Fund's use of a
representative sampling approach may cause the fund to not be as well correlated
with the return of the Short High Yield Index as would be the case if the Fund
purchased all of the securities in the Short High Yield Index in the proportions
in which they are represented in the Short High Yield Index. Apart from
scheduled rebalances, the Short High Yield Index provider or its agents may
carry out additional ad hoc rebalances to the Short High Yield Index. Therefore,
errors and additional ad hoc rebalances carried out by the Short High Yield
Index provider or its agents to the Short High Yield Index may increase the
costs to and the tracking error risk of the Fund. The Fund’s performance may
also deviate from the return of the Short High Yield Index due to certain
listing standards of the Fund's listing exchange (the “Exchange”) or legal
restrictions or limitations (such as diversification requirements). The Fund may
value certain of its investments, underlying securities and/or currencies,
and/or other assets based on fair value prices. When markets are volatile, the
ability to sell securities at fair value prices may be adversely impacted and
may result in additional trading costs and/or increase the index tracking risk.
For tax efficiency purposes, the Fund may sell certain securities, and such sale
may cause the Fund to realize a loss and deviate from the performance of the
Short High Yield Index. In addition, sale of securities may result in the
recognition of accrued market discount and/or net realized gains for tax
purposes, which may result in taxable distributions to shareholders. In light of
the factors discussed above, the Fund’s return may deviate significantly from
the return of the Short High Yield Index. Changes to the composition of the
Short High Yield Index in connection with a rebalancing or reconstitution of the
Short High Yield Index may cause the Fund to experience increased volatility,
during which time the Fund’s index tracking risk may be heightened.
The
Short High Yield Index will gradually increase exposure to securities based on
their weightings in the Final Short High Yield Index while proportionally
reducing exposure to certain component securities of the Prior Short High Yield
Index. These adjustments to the Fund's portfolio holdings are expected to
increase the Fund's transaction costs and turnover rate.
Tax
Risk.
There is no guarantee that the Fund’s income will be exempt from U.S. federal or
state income taxes. Events occurring after the date of issuance of a municipal
bond or after the 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 the 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.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of financial institutions that act as APs,
none of which are obligated to engage in creation and/or redemption
transactions. To the extent that those APs exit the business, or are unable to
or choose not to process creation and/or redemption orders, and no other AP is
able to step forward to create and redeem, there may be a significantly
diminished trading market for Shares or Shares may trade like closed-end
|
42 | ||
funds
at a greater discount (or premium) to NAV and possibly face trading halts and/or
de-listing. The AP concentration risk may be heightened in scenarios where APs
have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market.
While Shares are listed on the Exchange, there can be no assurance that an
active trading market for the Shares will be maintained. Further, secondary
markets may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods in times of market stress because market
makers and APs may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its NAV.
Trading
Issues.
Trading in Shares on the Exchange may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange
necessary to maintain the listing of the Fund will continue to be met or will
remain unchanged.
Passive
Management Risk.
An investment in the Fund involves risks similar to those of investing in any
fund invested in bonds, such as market fluctuations caused by such factors as
economic and political developments, changes in interest rates and perceived
trends in security prices. However, because the Fund is not “actively” managed,
unless a specific security is removed from the Short High Yield Index, the Fund
generally would not sell a security because the security’s issuer was in
financial trouble. Additionally, unusual market conditions may cause the Short
High Yield Index provider to postpone a scheduled rebalance or reconstitution,
which could cause the Short High Yield Index to vary from its normal or expected
composition. Therefore, the Fund’s performance could be lower than funds that
may actively shift their portfolio assets to take advantage of market
opportunities or to lessen the impact of a market decline or a decline in the
value of one or more issuers.
Fund
Shares Trading, Premium/Discount Risk and Liquidity of Fund Shares. The
market price of the Shares may fluctuate in response to the Fund’s NAV, the
intraday value of the Fund’s holdings and supply and demand for Shares. The
Adviser cannot predict whether Shares will trade above, below, or at their most
recent NAV. Disruptions to creations and redemptions, the existence of market
volatility or potential lack of an active trading market for Shares (including
through a trading halt), as well as other factors, may result in Shares trading
at a significant premium or discount to NAV or to the intraday value of the
Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the NAV or sells Shares at a time when the market price
is at a discount to the NAV, the shareholder may pay significantly more or
receive significantly less than the underlying value of the Shares that were
bought or sold or the shareholder may be unable to sell his or her Shares. The
securities held by the Fund may be traded in markets that close at a different
time than the Exchange. Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time when the Exchange is open
but after the applicable market closing, fixing or settlement times, bid-ask
spreads on the Exchange and the resulting premium or discount to the Shares’ NAV
may widen. Additionally, in stressed market conditions, the market for the
Fund’s Shares may become less liquid in response to deteriorating liquidity in
the markets for the Fund’s underlying portfolio holdings. There are various
methods by which investors can purchase and sell Shares. Investors should
consult their financial intermediaries before purchasing or selling Shares of
the Fund.
Concentration
Risk. The
Fund’s assets may be concentrated in a particular sector or sectors or industry
or group of industries to the extent the Short High Yield Index concentrates in
a particular sector or sectors or industry or group of industries. To the extent
that the Fund is 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 those sectors
and/or industries may negatively impact the Fund to a greater extent than if the
Fund’s assets were invested in a wider variety of sectors or
industries.
|
43 | ||
|
| ||
The
year-to-date total return as of
June 30, 2022 was
-8.73 %.
| - |
||||||||
| Past
One Year |
Past
Five Years |
Since
Inception
( |
|||||||||||||||
(return before taxes)* |
|||||||||||||||||
(return after taxes on distributions) |
|||||||||||||||||
(return after taxes on distributions and sale of Fund Shares) |
|||||||||||||||||
Bloomberg
Municipal High Yield Short Duration Index
|
|||||||||||||||||
(reflects no deduction for fees, expenses or taxes)** |
|||||||||||||||||
(reflects no deduction for fees, expenses or taxes) |
- |
||||||||||||||||
|
|
- |
||||||||||||||||
* Prior to March 1, 2022,
the Fund sought to replicate as closely as possible, before fees and expenses,
the price and yield performance of the Prior Short High Yield Index. Therefore,
performance information prior to March 1, 2022 reflects the performance of the
Fund tracking the Prior Short High Yield Index.
**
The inception date of the
Short High Yield Index and the Final Short High Yield Index was December 11,
2021
|
44 | ||
1
On September 1, 2022, the
ICE BofA Broad US Market Index replaced the Bloomberg US Aggregate Bond Index as
the Fund's broad-based benchmark index as the Adviser believes it is more
representative of broad bond market exposure.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van
Eck Associates Corporation.
Portfolio
Manager. The
following individual is primarily responsible for the day-to-day management of
the Fund’s portfolio:
| Name | Title with Adviser | Date Began Managing the Fund | ||||||||||||