cik0001137360-20210930
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PROSPECTUS
February
1, 2022 |
VANECK®
Energy
Income ETF EINCTM
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Principal
U.S. Listing Exchange for the Fund: NYSE Arca, Inc. |
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. |
800.826.2333
vaneck.com
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VANECK®
ENERGY INCOME ETF |
SUMMARY
INFORMATION
INVESTMENT OBJECTIVE
VanEck®
Energy Income ETF1
(the
“Fund”) seeks to replicate as closely as possible, before fees and expenses, the
price and yield performance of the MVIS®
North
America Energy Infrastructure Index (the “Index”).
FUND FEES AND EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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| Shareholder Fees (fees paid directly from
your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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Management
Fee |
0.45% |
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Other
Expenses(a) |
0.01% |
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Total
Annual Fund Operating Expenses(a) |
0.46% |
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(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 February 1,
2023.
EXPENSE EXAMPLE
This example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of the
Fund.
The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell or hold all of
your Shares at the end of those periods. The example also assumes that your
investment has a 5% annual return and that the Fund’s operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
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YEAR
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EXPENSES |
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1 |
$47 |
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3 |
$148 |
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5 |
$258 |
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10 |
$579 |
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PORTFOLIO TURNOVER
The Fund will pay transaction
costs, such as commissions, when it purchases and sells securities (or “turns
over” its portfolio). A higher portfolio turnover will cause the Fund to incur
additional transaction costs and may result in higher taxes when Fund Shares are
held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the example, may affect the Fund’s performance. During
the most recent fiscal year, the Fund’s portfolio turnover rate was
24% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The Fund normally invests at
least 80% of its total assets in securities that comprise the Fund’s benchmark
index. The Index is a rules-based index designed to give investors a means to
track the overall performance of North American companies involved in the
midstream energy segment, which includes master limited partnerships (“MLPs”)
and corporations involved in oil and gas storage and transportation. The Index
is entirely comprised of companies involved in the midstream energy segment and
includes common stock of corporations and equity securities of MLPs and MLP
affiliates. “Oil and gas storage and transportation”
____________________________
1
Prior to September 1, 2021, the
Fund's name was VanEck Vectors®
Energy Income ETF.
companies
may include those involved in oil and gas pipelines, storage facilities, and
other activities associated with transporting, storing, and gathering natural
gas, natural gas liquids, crude oil or refined products. To be initially
eligible for the Index, companies must generate at least 50% of their revenues
from oil and gas storage and transportation (as defined above). Such companies
may include medium- and large-capitalization companies and North American
issuers, including Canadian issuers. As of December 31, 2021, the Index included
29 securities of companies with a market capitalization range of approximately
$321.9 million and $79.2 billion and a weighted average market capitalization of
$25.4 billion. The Index is rebalanced quarterly. The Fund’s 80% investment
policy is non-fundamental and may be changed without shareholder approval upon
60 days’ prior written notice to shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Index by investing in a portfolio of
securities that generally replicates the Index. Unlike many investment companies
that try to “beat” the performance of a benchmark index, the Fund does not try
to “beat” the Index and does not seek temporary defensive positions that are
inconsistent with its investment objective of seeking to replicate the
Index.
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.
The Fund may concentrate its
investments in a particular industry or group of industries to the extent that
the Index concentrates in an industry or group of industries. As of September
30, 2021, the energy sector represented a significant portion of the
Fund.
PRINCIPAL RISKS OF INVESTING IN THE
FUND
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.
Risk
of Investing in Oil and Gas Companies. The
Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition of oil and gas companies. The profitability of oil and
gas companies is related to worldwide energy prices, including all sources of
energy, and exploration and production costs. The price of oil and gas, the
earnings of oil and gas companies, and the value of such companies’ securities
have been extremely volatile. Such companies are also subject to risks of
changes in commodity prices, changes in the global supply of and demand for oil
and gas, interest rates, exchange rates, the price of oil and gas and the prices
of competitive energy services, the imposition of import controls, world events,
friction with certain oil-producing countries and between the governments of the
United States and other major exporters of oil to the United States, negative
perception, and publicity, depletion of resources, development of alternative
energy sources, energy conservation, technological developments, labor relations
and general economic conditions, as well as market, economic and political risks
of the countries where oil and gas companies are located or do business,
fluctuations caused by events relating to international politics, including
political instability, expropriation, social unrest and acts of war, acts of
terrorism, energy conservation, the success of exploration projects and tax and
other governmental regulatory policies. Oil and gas companies operate in a
highly competitive and cyclical industry, with intense price competition. A
significant portion of their revenues may depend on a relatively small number of
customers, including governmental entities and utilities.
Oil
and gas companies are exposed to significant and numerous operating hazards. Oil
and gas equipment and services, as well as oil and gas, can be significantly
affected by natural disasters and adverse weather conditions in the regions in
which they operate. The revenues of oil and gas companies may be negatively
affected by contract termination and renegotiation. Oil and gas companies are
subject to, and may be adversely affected by, extensive federal, state, local
and foreign laws, rules and regulations. Oil and gas companies may also be
adversely affected by environmental damage claims and other types of litigation.
Laws and regulations protecting the environment may expose oil and gas companies
to liability for the conduct of or conditions caused by others or for acts that
were in compliance with all applicable laws at the time they were performed. The
international operations of oil and gas companies expose them to risks
associated with instability and changes in economic and political conditions,
social unrest and acts of war, foreign currency fluctuations, changes in foreign
regulations and other risks inherent to international business. Such companies
may also have significant capital investments or operations in, or engage in
transactions involving, emerging market countries, which may increase these
risks. Energy companies and MLPs operating in the energy sector are also subject
to risks that are specific to the industry they serve.
Midstream.
Midstream energy companies that provide crude oil, refined product and natural
gas services are subject to supply and demand fluctuations in the markets they
serve which may be impacted by a wide range of factors, including fluctuating
commodity prices, weather, increased conservation, increased governmental or
environmental regulation, depletion, rising interest rates, declines in domestic
or foreign production, accidents or catastrophic events, increasing operating
expenses and economic conditions, among others.
Marine
shipping.
Marine shipping energy companies and MLPs are primarily marine transporters of
natural gas, crude oil or refined petroleum products. Marine shipping companies
are exposed to many of the same risks as other energy companies. The highly
cyclical nature of the marine transportation industry may lead to volatile
changes in charter rates and
vessel
values, which may adversely affect the revenues, profitability and cash flows of
energy companies and MLPs with marine transportation assets.
Geopolitical
Risk.
Global political and economic instability could affect the operations of energy
companies and MLPs in unpredictable ways, including through disruptions of
natural resource supplies and markets and the resulting volatility in commodity
prices. Market disruptions arising out of geopolitical events could also prevent
the Fund from executing advantageous investment decisions in a timely
manner.
Special
Risk Considerations of Investing in Canadian Issuers. Investments
in securities of Canadian issuers, including issuers located outside of Canada
that generate significant revenue from Canada, involve risks and special
considerations not typically associated with investments in the U.S. securities
markets. The Canadian economy is very dependent on the demand for, and supply
and price of, natural resources. The Canadian market is relatively concentrated
in issuers involved in the production and distribution of natural resources.
There is a risk that any changes in natural resources sectors could have an
adverse impact on the Canadian economy. Additionally, the Canadian economy is
heavily dependent on relationships with certain key trading partners including
the United States, countries in the European Union and China. Because the United
States is Canada’s largest trading partner and foreign investor, the Canadian
economy is dependent on and may be significantly affected by the U.S. economy.
Reduction in spending on Canadian products and services or changes in the U.S.
economy may adversely impact the Canadian economy. Trade agreements may further
increase Canada’s dependency on the U.S. economy, and uncertainty as to future
trade agreements may cause a decline in the value of the Fund’s Shares. Past
periodic demands by the Province of Quebec for sovereignty have significantly
affected equity valuations and foreign currency movements in the Canadian market
and such demands may have this effect in the future. In addition, certain
sectors of Canada’s economy may be subject to foreign ownership limitations.
This may negatively impact the Fund’s ability to invest in Canadian issuers and
to track the Index.
MLP
Risk.
Investments in common units of MLPs involve risks that differ from investments
in common stock including risks inherent in the structure of MLPs, including (i)
tax risks (described further below), (ii) risk related to limited control of
management or the general partner or managing member, (iii) limited rights to
vote on matters affecting the MLP, except with respect to extraordinary
transactions, (iv) conflicts of interest between the general partner or managing
member and its affiliates, on the one hand, and the limited partners or members,
on the other hand, including those arising from incentive distribution payments
or corporate opportunities, (v) dilution risks and risks related to the general
partner’s right to require unit-holders to sell their common units at an
undesirable time or price, resulting from regulatory changes or other reasons
and (vi) cash flow risks, as described in more detail in this
Prospectus.
MLP
common units and other equity securities can be affected by macro-economic and
other factors affecting the stock market in general, expectations of interest
rates, investor sentiment towards MLPs or the energy sector, changes in a
particular issuer’s financial condition, or unfavorable or unanticipated poor
performance of a particular issuer (in the case of MLPs, generally measured in
terms of distributable cash flow). MLPs holding credit-related investments are
subject to interest rate risk and the risk of default on payment obligations by
debt issuers. Prices of common units of individual MLPs and other equity
securities also can be affected by fundamentals unique to the partnership or
company, including cash flow growth, cash generating power and distribution
coverage.
Certain
MLP securities may trade in relatively low volumes due to their smaller
capitalizations or other factors, which may cause them to have a high degree of
volatility and lack sufficient market liquidity to enable the Fund to effect a
sale at an advantageous time or price. Because many MLPs pay out most of their
operating cash flows, the MLPs rely on capital markets for access to equity and
debt financing to fund growth through organization. If market conditions limit
an MLP’s access to capital markets, the MLP’s growth prospects could diminish
and its costs of capital increase, which would decrease the value of the common
units held by the Fund.
MLP
Tax Risk.
MLPs are generally being treated as partnerships for U.S. federal income tax
purposes. Partnerships generally do not pay U.S. federal income tax at the
partnership level. Rather, each partner is allocated a share of the
partnership’s income, gains, losses, deductions and expenses, and takes that
share into account in calculating its own U.S. federal income tax liability. A
change in current tax law, or a change in the business of a given MLP, could
result in an MLP being treated as a corporation for U.S. federal income tax
purposes. As a result, the amount of cash available for distribution by the MLP
could be reduced and the after-tax return to the Fund with respect to its
investment in such MLP could be reduced. Thus, if any of the MLPs owned by the
Fund were treated as corporations for U.S. federal income tax purposes, it could
result in a reduction in the value of your investment in the Fund and lower
distributions.
Changes
in tax laws or regulations, or future interpretations of such laws or
regulations, could adversely affect the Fund or the MLPs in which the Fund
invests and could also negatively impact the amount and tax characterization of
dividends received by the Fund’s shareholders. For example, Congress could take
actions which would eliminate the tax benefits of depreciation, depletion and
amortization deductions realized by MLPs. Alternatively, Congress could impose a
tax on pass-through entities such as MLPs or eliminate the use of pass-through
taxation entirely. The tax benefits of depreciation, depletion and amortization
deductions realized by MLPs effectively defer the income of the MLPs and, in
turn, the taxable income of the Fund. Without these benefits the Fund would be
subject to current U.S. federal, state and local corporate income taxes on a
greater proportion of its allocable share of the income and gains of MLPs in
which it invests, and the Fund’s ability to pay distributions treated as
return-of-capital
distributions
(for tax purposes). Imposing a tax on pass-through entities and/or eliminating
the use of pass-through taxation entirely could result in three levels of tax—at
the MLP level, the Fund level and the shareholder level.
Individuals
and certain other non-corporate entities are generally eligible for a 20%
deduction with respect to certain taxable income from MLPs. However, the Fund
(which is taxable as a regulated investment company (“RIC”)) will not be
eligible to pass through such certain taxable income, if any, from MLPs or the
related 20% deduction to Fund shareholders. As a result, in comparison,
investors investing directly in MLPs would be eligible for the 20% deduction for
such taxable income, if any, from these investments while investors investing in
MLPs held indirectly through the Fund would not be eligible for the 20%
deduction for their share of such taxable income.
An
MLP’s distributions to the Fund generally will not be taxable unless the cash
amount (or, in certain cases, the value of marketable securities) distributed
exceeds the Fund’s basis in its interest in the MLP. Distributions received by
the Fund from an MLP will reduce the Fund’s adjusted basis in its interest in
the MLP, but not below zero. A reduced basis will generally result in an
increase in the amount of gain (or decrease in the amount of loss) that will be
recognized by the Fund for tax purposes on the sale of its interest in the MLP.
Cash distributions from an MLP to the Fund (and, in certain cases, the value of
marketable securities distributed by an MLP to the Fund) in excess of the Fund’s
basis in the MLP will generally be taxable to the Fund as capital gain. A
portion of any gain or loss recognized by the Fund on a disposition of an MLP
equity security may be separately computed and taxed as ordinary income or loss
under the Code. Any such gain may exceed net taxable gain realized on the
disposition and will be recognized even if there is a net taxable loss on the
disposition.
The
tax treatment of all items allocated to the Fund each year by the MLPs will not
be known until the Fund receives a schedule K-1 for that year with respect to
each of its MLP investments.
Energy
Sector Risks. The
Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition of the energy sector. As a result, a downturn in the
energy sector of the economy, adverse political, legislative or regulatory
developments or other events could have a larger impact on the Fund than on an
investment company that does not invest a substantial portion of its assets in
the energy sector. At times, the performance of securities of companies in the
energy sector may lag the performance of other sectors or the broader market as
a whole. The price of oil, natural gas and other fossil fuels may decline and/or
experience significant volatility, which could adversely impact companies
operating in the energy sector. In addition, there are several specific risks
associated with investments in the energy sector, including the
following:
a.the
energy sector is highly regulated and energy companies and MLPs operating in the
energy sector are subject to significant regulation of nearly every aspect of
their operations by federal, state and local governmental agencies;
b.energy
companies and MLPs operating in the energy sector may be affected by
fluctuations in the prices of energy commodities, including, for example,
natural gas, natural gas liquids, crude oil and coal, in the short- and
long-term;
c.energy
companies and MLPs operating in the energy sector could be adversely affected by
reductions in the supply of or demand for energy commodities;
d.extreme
weather or other natural disasters could impact the value of energy companies
and MLPs operating in the energy sector;
e.the
abilities of energy companies and MLPs operating in the energy sector to grow
and to increase cash distributions to shareholders and unitholders can be highly
dependent on their ability to make acquisitions that result in an increase in
cash flows;
f.rising
interest rates which could adversely impact the financial performance and/or the
present value of cash flow of energy companies and MLPs operating in the energy
sector; and
g.energy
companies and MLPs operating in the energy sector are subject to many dangers
inherent in the production, exploration, management, transportation, processing
and distribution of natural gas, natural gas liquids, crude oil, refined
petroleum and petroleum products and other hydrocarbons. In addition, threats of
attack by terrorists on energy assets could impact the market for energy
companies and MLPs operating in the energy sector.
Return
of Capital Distributions From the Fund Reduce the Tax Basis of Fund Shares.
A
portion of the Fund’s distributions are expected to be treated as a return of
capital for tax purposes. Return of capital distributions are not taxable income
to you but reduce your tax basis in your Fund Shares. Such a reduction in tax
basis will generally result in larger taxable gains and/or lower tax losses on a
subsequent sale of Fund Shares. The Fund’s return of capital distributions are
not derived from the net income or earnings and profits of the Fund.
Shareholders should not assume that all Fund distributions are derived from the
net income or earnings and profits of the Fund.
Liquidity
Risk.
Although energy companies and MLPs trade on national securities exchanges,
certain MLP securities may trade less frequently than those of larger companies
due to their smaller capitalizations. At times, due to limited trading volumes
of certain MLPs, the prices of such MLPs may display abrupt or erratic
movements. Moreover, it may be more difficult for the Fund to buy and sell
significant amounts of such securities without an unfavorable impact on
prevailing market prices. The Fund’s
investment
in securities that are less actively traded or over time experience decreased
trading volume may restrict its ability to take advantage of other market
opportunities or to dispose of securities at a fair price at the times when the
Adviser believes it is desirable to do so. This also may affect adversely the
Fund’s ability to make dividend distributions to you.
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.
Risk
of Investing in Medium-Capitalization Companies.
Medium-capitalization companies may be more volatile and more likely than
large-capitalization companies to have narrower product lines, fewer financial
resources, less management depth and experience and less competitive strength.
In addition, these companies often have greater price volatility, lower trading
volume and less liquidity than larger more established companies. Returns on
investments in securities of medium-capitalization companies could trail the
returns on investments in securities of large-capitalization
companies.
Index
Tracking Risk.
The Fund’s return may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses, including taxes,
not applicable to the 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 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 (as defined
herein), which are not factored into the return of the Index. Transaction costs,
including brokerage costs, will decrease the Fund’s net asset value (“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 Index. Errors in the Index data, the Index
computations and/or the construction of the Index in accordance with its
methodology may occur from time to time and may not be identified and corrected
by the 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 Index provider's errors will be kept by the Fund and its
shareholders and any losses or costs resulting from the Index provider's errors
will be borne by the Fund and its shareholders. The Fund may not be fully
invested at times either as a result of cash flows into the Fund (if the Fund
effects creations and redemptions for cash) or reserves of cash held by the Fund
to meet redemptions or pay expenses. When the Fund’s Index is rebalanced and the
Fund in turn rebalances its portfolio to attempt to increase the correlation
between the Fund’s portfolio and its Index, any transaction costs and market
exposure arising from such portfolio rebalancing may be borne directly by the
Fund and its shareholders. Apart from scheduled rebalances, the Index provider
or its agents may carry out additional ad hoc rebalances to the Fund’s Index.
Therefore, errors and additional ad hoc rebalances carried out by the Index
provider or its agents to the Fund’s Index may increase the costs to and the
tracking error risk of the Fund. In addition, the Fund may not be able to invest
in certain securities included in the Index, or invest in them in the exact
proportions in which they are represented in the Index. The Fund’s performance
may also deviate from the return of the Index due to certain listing standards
of the Fund’s listing exchange (the “Exchange”), a lack of liquidity in markets
in which such securities trade, potential adverse tax consequences or other
regulatory reasons or legal restrictions or limitations (such as diversification
requirements). The Fund may value certain of its investments, underlying
securities and/or underlying currencies based on fair value prices. To the
extent the Fund calculates its NAV based on fair value prices and the value of
the Index is based on securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. 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.
The Fund may also need to rely on borrowings to meet redemptions, which may lead
to increased expenses. 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 Index. In light of the factors discussed above, the
Fund’s return may deviate significantly from the return of the Index. Changes to
the composition of the Index in connection with a rebalancing or reconstitution
of the 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 equity securities traded on an exchange, 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 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 Index provider to postpone a scheduled rebalance or
reconstitution, which could cause the 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-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.
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 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.
PERFORMANCE
Pursuant
to an agreement and plan of reorganization between the VanEck ETF Trust (the
“Trust”), on behalf of the Fund, and Exchange Traded Concepts Trust, on behalf
of Yorkville High Income MLP ETF (the “Predecessor Fund”), on February 22, 2016,
the Fund acquired all of the assets and liabilities of the Predecessor Fund in
exchange for shares of beneficial interest of the Fund (the “Reorganization”).
As a result of the Reorganization, the Fund is the accounting successor of the
Predecessor Fund. The historical performance information shown below reflects,
for the period prior to the Reorganization, the historical performance of the
Predecessor Fund.
The
bar chart that follows shows how the Fund performed for the calendar years
shown. The table below the bar chart shows the Fund’s average annual returns
(before and after taxes). The bar chart
and table provide an indication of the risks of investing in the Fund by
comparing the Fund’s performance from year to year and by showing how the Fund’s
average annual returns for the one year, five year, ten year and/or since
inception periods, as applicable, compared with the Fund’s benchmark index and a
broad measure of market performance. Prior to December 2, 2019,
the Fund sought to replicate as closely as possible, before fees and expenses,
the price and yield performance of the Solactive High Income MLP Index (the
“Prior Index”). Therefore, performance information prior to December 2, 2019
reflects the performance of the Fund while seeking to track the Prior Index. All
returns assume reinvestment of dividends and distributions. The Fund’s past performance
(before and after taxes) is not necessarily indicative of how the Fund will
perform in the future. Updated performance information is
available online at www.vaneck.com.
Annual Total Returns (%)—Calendar
Years
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| Best
Quarter: |
39.94% |
2Q 2020 |
| Worst
Quarter: |
-49.42% |
1Q
2020 |
Average Annual Total Returns for the Periods
Ended December 31, 2021
The after-tax returns presented
in the table below are calculated using the highest historical individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Your actual after-tax returns will depend on your
specific tax situation and may differ from those shown below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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Past
One
Year |
Past
Five
Years |
Since
Inception (3/12/2012) |
|
|
VanEck Energy Income ETF (return before
taxes) |
37.99% |
0.02% |
-8.19% |
|
|
VanEck Energy Income ETF (return after
taxes on distributions) |
37.01% |
-0.29% |
-9.80% |
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VanEck Energy Income ETF (return after
taxes on distributions and sale of Fund Shares) |
23.12% |
-0.01% |
-5.70% |
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MVIS North America Energy
Infrastructure Index (reflects no deduction for
fees, expenses or taxes, except withholding
taxes)* |
39.21% |
-0.57% |
-7.95% |
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S&P
500®
Index (reflects no deduction for fees, expenses or
taxes) |
28.71% |
18.47% |
15.83% |
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*Prior to December 2, 2019, the
Fund sought to replicate as closely as possible, before fees and expenses, the
price and yield performance of the Prior Index. Therefore, performance
information prior to December 2, 2019 reflects the performance of the Fund while
seeking to track the Prior Index. Prior to December 2, 2019, index data reflects
that of the Prior Index.
From
December 2, 2019, the index data will reflect that of the MVIS North America
Energy Infrastructure Index.
See “License Agreements
and Disclaimers” for important information.
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:
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Name |
Title
with Adviser |
Date
Began Managing the Fund |
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Peter
H. Liao |
Portfolio
Manager |
February
2016 |
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Guo
Hua (Jason) Jin |
Portfolio
Manager |
March
2018 |
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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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SUMMARY
INFORMATION ABOUT PURCHASES AND SALES OF FUND SHARES, TAXES
AND
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL
INTERMEDIARIES |
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’s distributions (other than return of capital distributions) are taxable
and will generally be taxed as ordinary income or capital gains.
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.
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| ADDITIONAL
INFORMATION ABOUT THE FUND’S INVESTMENT STRATEGIES AND
RISKS |
PRINCIPAL
INVESTMENT STRATEGIES
The
Adviser anticipates that, generally, the Fund will hold or gain exposure to all
of the securities that comprise the Index in proportion to their weightings in
the Index. However, under various circumstances, it may not be possible or
practicable to purchase all of those securities in those weightings. In these
circumstances, the Fund may purchase a sample of securities in the Index. There
also may be instances in which the Adviser may choose to underweight or
overweight a security in the Index, purchase securities not in the Index that
the Adviser believes are appropriate to substitute for certain securities in the
Index or utilize various combinations of other available investment techniques
in seeking to replicate as closely as possible, before fees and expenses, the
price and yield performance of the Index. The Fund may sell securities that are
represented in the Index in anticipation of their removal from the Index or
purchase securities not represented in the Index in anticipation of their
addition to the Index. The Fund may also, in order to comply with the tax
diversification requirements of the Internal Revenue Code of 1986, as amended
(the “Internal Revenue Code”), temporarily invest in securities not included in
the Index that are expected to be highly correlated with the securities included
in the Index.
ADDITIONAL
INFORMATION ABOUT MLPs
MLPs
are publicly traded partnerships engaged in the transportation, storage,
processing, refining, marketing, exploration, production and mining of minerals
and natural resources. By confining their operations to these specific
activities, their interests, or units, are able to trade on public securities
exchanges exactly like the shares of a corporation, without entity level
taxation. Partnerships eligible for inclusion in an Index are subject to further
liquidity screens before they may be included in an Index.
MLPs’
disclosures are regulated by the SEC and MLPs must file Form 10-Ks, Form 10-Qs
and notices of material changes like any publicly traded corporation. MLPs also
must comply with certain requirements applicable to public companies under the
Sarbanes-Oxley Act of 2002.
To
qualify as an MLP and to avoid being taxed as a corporation, a partnership must
receive at least 90% of its income from qualifying sources as set forth in
Section 7704(d) of the Internal Revenue Code. These qualifying sources include
natural resource-based activities such as the exploration, development, mining,
production, processing, refining, transportation, storage and marketing of
mineral or natural resources. An MLP consists of a general partner and limited
partners (or in the case of MLPs organized as limited liability companies, a
managing member and members). The general partner or managing member typically
controls the operations and management of the MLP and has an ownership stake in
the MLP. The limited partners or members, through their ownership of limited
partner or member interests, provide capital to the entity, are intended to have
no role in the operation and management of the entity, and receive cash
distributions. The MLPs themselves generally do not pay United States federal
income taxes, but investors (like the Fund) that hold interests in MLPs are
generally subject to tax on their allocable shares of the income and gains of
the MLPs. Thus, unlike investors in corporate securities, direct MLP investors
are generally not subject to double taxation (i.e.,
corporate level tax and tax on corporate dividends). Currently, most MLPs
operate in the energy and/or natural resources sectors.
General
partner or managing member interests receive cash distributions, typically in an
amount of up to 2% of available cash, which is contractually defined in the
partnership or limited liability company agreement. In addition, holders of
general partner or managing member interests typically receive incentive
distribution rights (“IDRs”), which provide them with an increasing share of the
entity’s aggregate cash distributions upon the payment of per common unit
distributions that exceed specified threshold levels above the minimum quarterly
distribution. Due to the IDRs, general partners of MLPs have higher distribution
growth prospects than their underlying MLPs, but quarterly incentive
distribution payments would also decline at a greater rate than the decline rate
in quarterly distributions to common and subordinated unit holders in the event
of a reduction in the MLP’s quarterly distribution. In addition, some MLPs
permit the holder of IDRs to reset, under specified circumstances, the incentive
distribution levels and receive compensation in exchange for the distribution
rights given up in the reset.
FUNDAMENTAL
AND NON-FUNDAMENTAL POLICIES
The
Fund’s investment objective and each of its other investment policies are
non-fundamental policies that may be changed by the Board of Trustees of the
Trust (the “Board of Trustees”) without shareholder approval, except as noted in
this Prospectus or the Statement of Additional Information (“SAI”) under the
section entitled “Investment Policies and Restrictions— Investment
Restrictions.”
RISKS
OF INVESTING IN THE FUND
The
following section provides additional information regarding the principal risks
identified under “Principal Risks of Investing in the Fund” in the Fund’s
“Summary Information” section followed by additional risk information.
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.
Risk
of Investing in Oil and Gas Companies.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition of oil and gas companies. The profitability of
oil and gas companies is related to worldwide energy prices,
including
all sources of energy, and exploration and production costs. The price of oil
and gas, the earnings of oil and gas companies, and the value of such companies’
securities have been extremely volatile. Such companies are also subject to
risks of changes in commodity prices, changes in the global supply of and demand
for oil and gas (including reduced demand as a result of increases in energy
efficiency and energy conservation efforts), interest rates, exchange rates, the
prices of competitive energy services, the imposition of import controls, world
events, friction with certain oil producing countries and between the
governments of the United States and other major exporters of oil to the United
States, actions of the OPEC, negative perception and publicity, depletion of
resources, development of alternative energy sources, technological
developments, labor relations and general economic conditions, as well as
market, economic and political risks of the countries where oil and gas
companies are located or do business, fluctuations caused by events relating to
international politics, including political instability, expropriation, social
unrest and acts of war, acts of terrorism, energy conservation, the success of
exploration projects and tax and other governmental regulatory policies. Oil and
gas companies may have significant capital investments in, or engage in
transactions involving, emerging market countries, which may heighten these
risks. These companies may also be subject to contractual fixed pricing, which
may increase the cost of business and limit these companies’ earnings. Oil and
gas companies operate in a highly competitive and cyclical industry, with
intense price competition. Additionally, the price of oil may fluctuate on a
seasonal basis. A significant portion of their revenues may depend on a
relatively small number of customers, including governmental entities and
utilities.
Oil
and gas companies are exposed to significant and numerous operating hazards. Oil
and gas companies’ operations are subject to hazards inherent in the oil and gas
industry, such as fire, explosion, blowouts, loss of well control and oil
spills. Companies that own or operate gas pipelines are subject to certain
risks, including pipeline and equipment leaks and ruptures, explosions, fires,
unscheduled downtime, transportation interruptions, discharges or releases of
toxic or hazardous gases and other environmental risks. Oil and gas equipment
and services, as well as oil and gas exploration and production, can be
significantly affected by natural disasters and adverse weather conditions in
the regions in which they operate. The revenues of oil and gas companies may be
negatively affected by contract termination and renegotiation.
Oil
and gas companies are subject to, and may be adversely effected by, extensive
federal, state, local and foreign laws, rules and regulations. Oil and gas
exploration and production companies may also be adversely affected by
environmental damage claims and other types of litigation. Laws and regulations
protecting the environment may expose oil and gas companies to liability for the
conduct of or conditions caused by others or for acts that were in compliance
with all applicable laws at the time they were performed. Changes to
environmental protection laws, including the implementation of policies with
less stringent environmental protection standards and those geared away from
sustainable energy development, could lead to fluctuations in supply, demand and
prices of oil and gas. The international operations of oil and gas companies
expose them to risks associated with instability and changes in economic and
political conditions, social unrest and acts of war, foreign currency
fluctuations, changes in foreign regulations and other risks inherent to
international business. Such companies may also have significant capital
investments or operations in, or engage in transactions involving, emerging
market countries, which may increase these risks.
Special
Risk Considerations of Investing in Canadian Issuers.
Investments in securities of Canadian issuers, including issuers located outside
of Canada that generate significant revenue from Canada, involve risks and
special considerations not typically associated with investments in the U.S.
securities markets. The Canadian economy is very dependent on the demand for,
and supply and price of, natural resources. The Canadian market is relatively
concentrated in issuers involved in the production and distribution of natural
resources. There is a risk that any changes in natural resources sectors could
have an adverse impact on the Canadian economy. Additionally, the Canadian
economy is heavily dependent on relationships with certain key trading partners,
including the United States, countries in the EU and China. Because the United
States is Canada’s largest trading partner and foreign investor, the Canadian
economy is dependent on and may be significantly affected by the U.S. economy.
Reduction in spending on Canadian products and services or changes in the U.S.
economy may adversely impact the Canadian economy. Trade agreements may further
increase Canada’s dependency on the U.S. economy, and uncertainty as to the
future of such trade agreements may cause a decline in the value of the Fund’s
Shares. Past periodic demands by the Province of Quebec for sovereignty have
significantly affected equity valuations and foreign currency movements in the
Canadian market and such demands may have this effect in the future. In
addition, certain sectors of Canada’s economy may be subject to foreign
ownership limitations. This may negatively impact the Fund’s ability to invest
in Canadian issuers and to track the Fund’s Index.
MLP
Risk.
An investment in MLP units involves risks that differ from a similar investment
in equity securities, such as common stock, of a corporation. Holders of MLP
units have the rights typically afforded to limited partners in a limited
partnership. Holders of MLP units are subject to certain risks inherent in the
structure of MLPs, including (i) tax risks (described further below), (ii) the
limited ability to elect or remove management or the general partner or managing
member, (iii) limited voting rights, except with respect to extraordinary
transactions, (iv) conflicts of interest between the general partner or managing
member and its affiliates, on the one hand, and the limited partners or members,
on the other hand, including those arising from incentive distribution payments
or corporate opportunities, (v) dilution risks and risks related to the general
partner’s right to require unit-holders to sell their common units at an
undesirable time or price, resulting from regulatory changes or other reasons
and (vi) cash flow risks, as described in more detail in this Prospectus.
General partners typically have limited fiduciary duties to an MLP, which could
allow a general partner to favor its own interests over the MLP’s interests. In
addition, general partners of MLPs often have limited call
rights
that may require unitholders to sell their common units at an undesirable time
or price. MLPs may issue additional common units without unitholder approval,
which would dilute the interests of existing unitholders, including the Fund’s
ownership interest.
MLP
common units and other equity securities can be affected by macro-economic and
other factors affecting the stock market in general, expectations of interest
rates, investor sentiment towards MLPs or the energy sector, changes in a
particular issuer’s financial condition, or unfavorable or unanticipated poor
performance of a particular issuer (in the case of MLPs, generally measured in
terms of distributable cash flow). MLPs holding credit-related investments are
subject to interest rate risk and the risk of default on payment obligations by
debt issuers. Certain MLP securities may trade in lower volumes due to their
smaller capitalizations, and may be subject to more abrupt or erratic price
movements and lower market liquidity. MLP securities are generally considered
interest-rate sensitive investments. During periods of interest rate volatility,
these investments may not provide attractive returns. Prices of common units of
individual MLPs and other equity securities also can be affected by fundamentals
unique to the partnership or company, including cash flow growth, cash
generating power and distribution coverage.
The
Fund derives a significant portion of its cash flow from investments in equity
securities of MLPs. Therefore, the amount of cash that the Fund will have
available to pay or distribute will depend on the ability of the MLPs that the
Fund owns to make distributions to their partners and the tax character of those
distributions. Neither the Fund nor the Adviser has control over the actions of
underlying MLPs. MLPs are subject to various risks related to the underlying
operating companies they control, including dependence upon specialized
management skills and the risk that such companies may lack or have limited
operating histories. Certain MLPs in which the Fund may invest depend upon their
parent or sponsor entities for the majority of their revenues. If the parent or
sponsor entities fail to make payments or satisfy their obligations to an MLP,
the revenues and cash flows of that MLP and ability of that MLP to make
distributions to unit holders such as the Fund would be adversely affected. The
amount of cash that each individual MLP can distribute to its partners will
depend on the amount of cash it generates from operations, which will vary from
quarter to quarter depending on factors affecting the energy infrastructure
market generally and on factors affecting the particular business lines of the
MLP. Available cash will also depend on the MLPs’ level of operating costs
(including incentive distributions to the general partner), level of capital
expenditures, debt service requirements, acquisition costs (if any),
fluctuations in working capital needs and other factors. The Fund expects to
generate significant investment income, and the Fund’s investments may not
distribute the expected or anticipated levels of cash, resulting in the risk
that the Fund may not have the ability to make cash distributions as investors
expect from MLP- focused investments.
MLP
Tax Risk.
MLPs are generally being treated as partnerships for federal income tax
purposes. Partnerships generally do not pay U.S. federal income tax at the
partnership level. Rather, each partner of the MLP, in computing its U.S.
federal income tax liability, must include its allocable share of the MLP’s
income, gains, losses, deductions and tax credits. If, as a result of a change
in current law or a change in an MLP’s underlying business mix, an MLP were
treated as a corporation for federal income tax purposes, the MLP would be
obligated to pay federal income tax on its income at the corporate tax rate. If
an MLP were classified as a corporation for federal income tax purposes, the
amount of cash available for distribution could be reduced and part or all of
the distributions the Fund receives might be taxed entirely as dividend income.
Therefore, treatment of one or more MLPs as a corporation for U.S. federal
income tax purposes could affect the Fund’s ability to meet its investment
objective and could reduce the amount of cash available to pay expenses or
distribute to Shareholders.
Changes
in tax laws or regulations, or future interpretations of such laws or
regulations, could adversely affect the Fund or the MLPs in which the Fund
invests and could also negatively impact the amount and tax characterization of
dividends received by the Fund’s shareholders. For example, Congress could take
actions which would eliminate the tax benefits of depreciation, depletion and
amortization deductions realized by MLPs. Alternatively, Congress could impose a
tax on pass-through entities such as MLPs or eliminate the use of pass-through
taxation entirely.
Individuals
and certain other non-corporate entities are generally eligible for a 20%
deduction with respect to certain taxable income from MLPs. However, the Fund
(which is taxable as a RIC) will not be eligible for the 20% deduction and will
not pass through the 20% deduction to Fund shareholders. As a result, in
comparison, investors investing directly in MLPs would be eligible for the 20%
deduction for any such taxable income from these investments while investors
investing in MLPs held indirectly through the Fund would not be eligible for the
20% deduction for their share of such taxable income.
An
MLP’s distributions to the Fund generally will not be taxable unless the cash
amount (or, in certain cases, the value of marketable securities) distributed
exceeds the Fund’s basis in its interest in the MLP. Distributions received by
the Fund from an MLP will reduce the Fund’s adjusted basis in its interest in
the MLP, but not below zero. A reduced basis will generally result in an
increase in the amount of gain (or decrease in the amount of loss) that will be
recognized by the Fund for tax purposes on the sale of its interest in the MLP.
U.S.
federal income tax audit rules for partnerships such as the MLPs in which the
Fund invests generally require that underpayments of tax be determined and paid
at the partnership level following any adjustment to the partnership’s items of
income, gain, loss, deduction or credit. If the Internal Revenue Service (“IRS”)
makes audit adjustments, it may assess and collect any taxes (including any
applicable penalties and interest) resulting from such audit adjustments
directly from the partnership. A partnership such as an MLP may elect to either
pay the taxes directly to the IRS or pass through such tax liability to
unitholders including former unitholders, if eligible. Although MLPs generally
are accorded an election to require unitholders and former
unitholders
to take such IRS audit adjustment into account and to pay any resulting taxes
(including applicable penalties or interest) therefrom in accordance with their
interests in the MLP during the tax year under audit, there can be no assurance
that such election would be made or would be practical, permissible or effective
in all circumstances. Both current and past MLP unitholders, which may include
the Fund, may bear some or all of any tax liability resulting from such an audit
adjustment relating to current or prior years, plus additional tax, interest and
penalties as well as incremental accounting and legal expenses, whether or not
such unitholders held units in the partnership during the tax year actually
under audit. If as a result of any such audit adjustment an MLP in which the
Fund was or is invested is required to recognize taxable income or make payments
of taxes, penalties and interest or the Fund is so required, the Fund’s returns
may be materially negatively affected.
Energy
Sector Risks.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition of the energy sector. At times, the performance
of companies in the energy sector may lag the performance of other sectors or
the broader market as a whole. The price of oil, natural gas and other fossil
fuels may decline and/or experience significant volatility, which could
adversely impact companies operating in the energy sector. In addition, there
are several specific risks associated with investments in the energy sector,
including, but not limited to, the following:
Regulatory
Risk.
The energy sector is highly regulated. MLPs and other companies operating in the
energy sector are subject to significant regulation of nearly every aspect of
their operations by federal, state and local governmental agencies as well as
import controls and international treaties. These include, for example, the
federal Clean Water Act and comparable state laws and regulations that impose
obligations related to discharges of pollutants into regulated bodies of water;
the Resource Conservation and Recovery Act and comparable state laws and
regulations that impose requirements for the handling and disposal of waste from
facilities; and the Comprehensive Environmental Response, Compensation, and
Liability Act, also known as “Superfund,” and comparable state laws and
regulations that regulate the cleanup of hazardous substances that may have been
released at properties currently or previously owned or operated by energy
companies or at locations to which they have sent waste for disposal. Such
regulation can change rapidly or over time in both scope and intensity. For
example, a particular by-product or process, including hydraulic fracturing, may
be declared hazardous—sometimes retroactively—by a regulatory agency and
unexpectedly increase production costs. Various governmental authorities have
the power to enforce compliance with these regulations and the permits issued
under them, and violators are subject to administrative, civil and criminal
penalties, including civil fines, injunctions or both. Stricter laws,
regulations or enforcement policies could be enacted in the future which would
likely increase compliance costs and may materially adversely affect the
financial performance of MLPs and other companies operating in the energy
sector. There is an inherent risk that energy companies and MLPs may incur
material environmental costs and liabilities due to the nature of their
businesses and the substances they handle, including substantial liabilities for
environmental cleanup and restoration costs, claims made by neighboring
landowners and other third parties for personal injury and property damage and
fines or penalties for related violations of environmental laws or
regulations.
Voluntary
initiatives and mandatory controls have been adopted or are being discussed both
in the United States and worldwide to reduce emissions of “greenhouse gases”
such as carbon dioxide, a by-product of burning fossil fuels, and methane, the
major constituent of natural gas, which many scientists and policymakers believe
contribute to global climate change. These measures and future measures could
result in increased costs to certain companies in which the Fund may invest to
operate and maintain facilities and administer and manage a greenhouse gas
emissions program and may reduce demand for fuels that generate greenhouse gases
and that are managed or produced by companies in which the Fund may
invest.
Energy
companies may also operate in or engage in transactions involving countries with
less developed regulatory regimes or a history of expropriation, nationalization
or other adverse policies.
In
addition, a significant portion of revenues of energy companies depends on a
relatively small number of customers, including governmental entities and
utilities. As a result, governmental budget constraints may have a material
adverse effect on the stock prices of companies in this industry. Energy
infrastructure companies can also be exposed to counterparty credit risk, as
some customers are oil and gas producers that may become financially distressed
and unable to perform under, or may seek to reject contracts for the gathering,
processing, storage and pipeline transportation of oil, refined products,
natural gas, and natural gas liquids.
Commodity
Price Risk.
MLPs and other companies operating in the energy sector may be affected by
fluctuations in the prices of energy commodities, including, for example,
natural gas, natural gas liquids, crude oil and coal, in the short- and
long-term. Fluctuations in energy commodity prices would impact directly
companies that own such energy commodities and could impact indirectly companies
that engage in transportation, storage, processing, distribution or marketing of
such energy commodities. Fluctuations in energy commodity prices can result from
changes in general economic conditions or political circumstances (especially of
key energy producing and consuming countries); market conditions; weather
patterns; domestic production levels; volume of imports; energy conservation;
domestic and foreign governmental regulation; international politics; policies
of the Organization of Petroleum Exporting Countries (“OPEC”); taxation;
tariffs; and the availability and costs of local, intrastate and interstate
transportation methods. The energy sector as a whole may also be impacted by the
perception that the performance of energy sector companies is directly linked to
commodity prices. High commodity prices
may
drive further energy conservation efforts, and a slowing economy may adversely
impact energy consumption, which may adversely affect the performance of MLPs
and other companies operating in the energy sector. Depressed commodity prices
may result in a significant decrease in the production of energy commodities,
which would reduce revenue and operating income of MLPs and other companies
operating in the energy sector. Greater volatility of energy commodity prices
may lead to increased volatility in the prices of equities in the energy
infrastructure sector.
Depletion
Risk.
Energy companies and MLPs engaged in the exploration, development, management or
production of energy commodities face the risk that commodity reserves are
depleted over time, with the potential associated effect of causing the market
value of the energy companies and MLP to decline over time. Such companies seek
to increase their reserves through expansion of their current businesses,
acquisitions, further development of their existing sources of energy
commodities, exploration of new sources of energy commodities or by entering
into long-term contracts for additional reserves; however, there are risks
associated with each of these potential strategies. If an MLP or energy company
is not able to raise capital on favorable terms, it may not be able to add to or
maintain its reserves. If such companies fail to acquire additional reserves in
a cost-effective manner and at a rate at least equal to the rate at which their
existing reserves decline, their financial performance may suffer. Additionally,
failure to replenish reserves could reduce the amount and affect the tax
characterization of the distributions paid by such companies.
Supply
and Demand Risk.
MLPs and other companies operating in the energy sector could be adversely
affected by reductions in the supply of or demand for energy commodities. The
volume of production of energy commodities and the volume of energy commodities
available for transportation, storage, processing or distribution could be
affected by a variety of factors, including depletion of resources; depressed
commodity prices; catastrophic events; labor relations; increased environmental
or other governmental regulation; equipment malfunctions and maintenance
difficulties; import volumes; international politics, policies of OPEC; and
increased competition from alternative energy sources. Alternatively, a decline
in demand for energy commodities could result from factors such as adverse
economic conditions (especially in key energy-consuming countries); increased
taxation; increased environmental or other governmental regulation; increased
fuel economy; increased energy conservation or use of alternative energy
sources; legislation intended to promote the use of alternative energy sources;
or increased commodity prices.
Weather
Risks.
Weather conditions and the seasonality of weather patterns play a role in the
cash flows of certain MLPs and other companies operating in the energy sector.
MLPs and energy companies in the propane industry, for example, rely on the
winter heating season to generate almost all of their cash flow. In an unusually
warm winter season, propane MLPs and energy companies experience decreased
demand for their product. Although most MLPs and energy companies can reasonably
predict seasonal weather demand based on normal weather patterns, extreme
weather conditions, such as hurricanes, demonstrate that no amount of
preparation can protect an MLP from the unpredictability of the weather. The
damage done by extreme weather also may serve to increase insurance premiums for
energy assets owned by MLPs and energy companies, could significantly increase
the volatility in the supply of energy-related commodities and could adversely
affect such companies’ financial condition and ability to pay distributions to
shareholders. Market disruptions arising out of natural or weather-related
disasters could also prevent the Fund from executing advantageous investment
decisions in a timely manner.
Acquisition
Risk.
The abilities of MLPs and other companies operating in the energy sector to grow
and to increase cash distributions to unitholders can be highly dependent on
their ability to make acquisitions that result in an increase in cash flows. In
the event that MLPs and energy companies are unable to make such accretive
acquisitions because they are unable to identify attractive acquisition
candidates and negotiate acceptable purchase contracts, because they are unable
to raise financing for such acquisitions on economically acceptable terms, or
because they are outbid by competitors, their future growth and ability to raise
distributions will be limited. Furthermore, even if MLPs and energy companies do
consummate acquisitions that they believe will be accretive, the acquisitions
may instead result in a decrease in cash flow. Any acquisition involves risks,
including, among other things: mistaken assumptions about revenues and costs,
including synergies; the assumption of unknown liabilities; limitations on
rights to indemnity from the seller; the diversion of management’s attention
from other business concerns; unforeseen difficulties operating in new product
or geographic areas; and customer or key employee losses at the acquired
businesses.
Interest
Rate Risk.
Rising interest rates could adversely impact the financial performance and/or
the present value of cash flow of MLPs and other companies operating in the
energy sector by increasing their costs of capital. Conversely, during periods
of very low or negative interest rates, these companies' susceptibility to
interest rate risk may be magnified, their yield may be diminished and their
performance may be adversely affected. These levels of interest rates may
magnify the risks associated with rising interest rates. Changes in interest
rates, including rates that fall below zero, may reduce the ability of MLPs and
other companies operating in the energy sector to execute acquisitions or
expansion projects in a cost-effective manner. Changing interest rates may also
have unpredictable effects on markets, including market volatility, and may
adversely affect the performance of MLPs and energy companies and the Fund. MLP
and energy company valuations are based on numerous factors, including sector
and business fundamentals, management expertise, and expectations of future
operating results. However, MLP and energy company yields are also susceptible
in the short-term to fluctuations in interest rates and the prices of MLP and
energy company securities may decline when interest rates rise.
Catastrophic
Event Risk. MLPs
and other companies operating in the energy sector are subject to many dangers
inherent in the production, exploration, management, transportation, processing
and distribution of natural gas, natural gas liquids, crude oil, refined
petroleum products and other hydrocarbons. These dangers include leaks, fires,
explosions, damage to facilities and equipment resulting from natural disasters,
inadvertent damage to facilities and equipment (such as those suffered by BP’s
Deepwater Horizon drilling platform in 2010) and terrorist acts. Since the
September 11th terrorist attacks, the U.S. government has issued warnings that
energy assets, specifically U.S. pipeline infrastructure, may be targeted in
future terrorist attacks. These dangers give rise to risks of substantial losses
as a result of loss or destruction of reserves; damage to or destruction of
property, facilities and equipment; pollution and environmental damage; and
personal injury or loss of life. Any occurrence of such catastrophic events
could bring about a limitation, suspension or discontinuation of the operations
of certain assets owned by such MLP or energy company. MLPs and other companies
operating in the energy sector may not be fully insured against all risks
inherent in their business operations and, therefore, accidents and catastrophic
events could adversely affect such companies’ financial condition and ability to
pay distributions to shareholders. We expect that increased governmental
regulation to mitigate such catastrophic risk could increase insurance premiums
and other operating costs for MLPs and energy companies.
Industry
Specific Risks.
Energy companies and MLPs can be negatively impacted by market perception that
energy companies’ and MLPs’ performance and distributions are directly tied to
commodity prices. Furthermore, a significant decrease in the production of
natural gas, oil or other energy commodities, due to a decline in production
from existing facilities, import supply disruption or otherwise, would reduce
revenue and operating income of energy companies and MLPs and, therefore, the
ability of energy companies and MLPs to make distributions to partners. Changes
in demand for transportation of commodities over longer distances and supply of
vessels to carry those commodities may materially affect revenues, profitability
and cash flows. MLPs and other companies operating in the energy sector are also
subject to risks that are specific to the industry they serve.
Midstream.
Energy companies and MLPs that operate midstream assets are subject to supply
and demand fluctuations in the markets they serve which may be impacted by a
wide range of factors including fluctuating commodity prices, weather, increased
conservation, increased governmental or environmental regulation, depletion,
rising interest rates, declines in domestic or foreign production, accidents or
catastrophic events, increasing operating expenses and economic conditions,
among others. Further, energy companies and MLPs that operate gathering and
processing assets are subject to natural declines in the production of the oil
and gas fields they serve. In addition, some gathering and processing contracts
subject the owner of such assets to direct commodity price risk. The development
of, demand for and/or supply of competing forms of energy may negatively impact
the revenues of midstream companies.
Downstream.
Downstream companies are businesses engaged in refining, marketing and other
“end-customer” distribution activities relating to refined energy sources, such
as: customer-ready natural gas, propane and gasoline; the production and
manufacturing of petrochemicals including olefins, polyolefins, ethylene and
similar co-products as well as intermediates and derivatives; and the
generation, transmission and distribution of power and electricity. In addition
to the other risks described herein, downstream companies may be more
susceptible to risks associated with reduced customer demand for the products
and services they provide.
Exploration
and Production.
Exploration and production energy companies and MLPs are particularly vulnerable
to declines in the demand for and prices of crude oil and natural gas.
Reductions in prices for crude oil and natural gas can cause a given reservoir
to become uneconomic for continued production earlier than it would if prices
were higher, resulting in the plugging and abandonment of, and cessation of
production from, that reservoir. In addition, lower commodity prices not only
reduce revenues but also can result in substantial downward adjustments in
reserve estimates. The accuracy of any reserve estimate is a function of the
quality of available data, the accuracy of assumptions regarding future
commodity prices and future exploration and development costs and engineering
and geological interpretations and judgments. Different reserve engineers may
make different estimates of reserve quantities and related revenue based on the
same data. Actual oil and gas prices, development expenditures and operating
expenses will vary from those assumed in reserve estimates, and these variances
may be significant. Any significant variance from the assumptions used could
result in the actual quantity of reserves and future net cash flow being
materially different from those estimated in reserve reports. In addition,
results of drilling, testing and production and changes in prices after the date
of reserve estimates may result in downward revisions to such estimates.
Substantial downward adjustments in reserve estimates could have a material
adverse effect on a given exploration and production company’s financial
position and results of operations. In addition, due to natural declines in
reserves and production, exploration and production companies must economically
find or acquire and develop additional reserves in order to maintain and grow
their revenues and distributions. Exploration and production energy companies
and MLPs seek to reduce cash flow volatility associated with commodity prices by
executing multiyear hedging strategies that fix the price of gas and oil
produced. There can be no assurance that the hedging strategies currently
employed by these energy companies and MLPs are currently effective or will
remain effective.
Marine
Shipping.
Marine shipping energy companies and MLPs are primarily marine transporters of
natural gas, crude oil or refined petroleum products. Marine shipping companies
are exposed to many of the same risks as other energy companies. In addition,
the highly cyclical nature of the marine transportation industry may lead to
volatile changes in charter rates and vessel values, which may adversely affect
the revenues, profitability and cash flows of such companies. Fluctuations in
charter
rates
result from changes in the supply and demand for vessel capacity and changes in
the supply and demand for certain energy commodities. Changes in demand for
transportation of commodities over longer distances and supply of vessels to
carry those commodities may materially affect revenues, profitability and cash
flows. The value of marine transportation vessels may fluctuate and could
adversely affect the value of shipping company securities in the Fund’s
portfolio. Declining marine transportation values could affect the ability of
shipping companies to raise cash by limiting their ability to refinance their
vessels, thereby adversely impacting such company’s liquidity. Shipping company
vessels are at risk of damage or loss because of events such as mechanical
failure, collision, human error, war, terrorism, piracy, cargo loss and bad
weather. In addition, changing economic, regulatory and political conditions in
some countries, including political and military conflicts, have from time to
time resulted in attacks on vessels, mining of waterways, piracy, terrorism,
labor strikes, boycotts and government requisitioning of vessels. These sorts of
events could interfere with shipping lanes and result in market disruptions and
a significant reduction in cash flow for the shipping companies.
Propane.
Propane energy companies and MLPs are distributors of propane to homeowners for
space and water heating. Energy companies and MLPs with propane assets are
subject to earnings variability based upon weather conditions in the markets
they serve, fluctuating commodity prices, customer conservation and increased
use of alternative fuels, increased governmental or environmental regulation,
and accidents or catastrophic events, among others.
Natural
Resource.
Energy companies and MLPs with coal, timber, fertilizer and other mineral assets
are subject to supply and demand fluctuations in the markets they serve, which
will be impacted by a wide range of domestic and foreign factors including
fluctuating commodity prices, the level of their customers’ coal stockpiles,
weather, increased conservation or use of alternative fuel sources, increased
governmental or environmental regulation, depletion, declines in production,
mining accidents or catastrophic events, health claims and economic conditions,
among others. In light of increased state and federal regulation, it has been
increasingly difficult to obtain and maintain the permits necessary to mine
coal. Further, such permits, if obtained, have increasingly contained more
stringent, and more difficult and costly to comply with, provisions relating to
environmental protection.
Geopolitical
Risk.
Global political and economic instability could affect the operations of MLPs
and energy companies in unpredictable ways, including through disruptions of
natural resource supplies and markets and the resulting volatility in commodity
prices. Market disruptions arising out of geopolitical events could also prevent
the Fund from executing advantageous investment decisions in a timely manner.
Energy infrastructure companies and MLPs are also subject to risks that are
specific to the industry they serve.
Pipeline.
Pipeline energy companies and MLPs are not subject to direct commodity price
exposure because they do not own the underlying energy commodity. However, the
energy sector can be hurt by market perception that energy companies’ and MLPs’
performance and distributions are directly tied to commodity prices. Also, a
significant decrease in the production of natural gas, oil, or other energy
commodities, due to a decline in production from existing facilities, import
supply disruption, or otherwise, would reduce revenue and operating income of
energy companies and MLPs and, therefore, the ability of energy companies and
MLPs to make distributions to partners.
A
sustained decline in demand for crude oil, natural gas and refined petroleum
products could adversely affect energy company and MLP revenues and cash flows.
Factors that could lead to a decrease in market demand include a recession or
other adverse economic conditions, an increase in the market price of the
underlying commodity, higher taxes or other regulatory actions that increase
costs, or a shift in consumer demand for such products. Demand may also be
adversely impacted by consumer sentiment with respect to global warming and/ or
by any state or federal legislation intended to promote the use of alternative
energy sources, such as bio-fuels.
A
significant slowdown in large energy companies’ disposition of energy
infrastructure assets and other merger and acquisition activity in the energy
industry could reduce the growth rate of cash flows received by the Fund from
energy companies and MLPs that grow through acquisitions.
Liquidity
Risk.
Although energy companies and MLPs trade on national securities exchanges,
certain energy company and MLP securities may trade less frequently than those
of larger companies due to their smaller capitalizations. At times, due to
limited trading volumes of certain energy companies and MLPs, the prices of such
energy companies and MLPs may display abrupt or erratic movements. Moreover, it
may be more difficult for the Fund to buy and sell significant amounts of such
securities without an unfavorable impact on prevailing market prices. The Fund’s
investment in securities that are less actively traded or over time experience
decreased trading volume may restrict its ability to take advantage of other
market opportunities or to dispose of securities at a fair price at the times
when the Adviser believes it is desirable to do so. This also may adversely
affect the Fund’s ability to make dividend distributions to you.
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. Overall securities values could decline generally or could
underperform other investments. 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.
Risk
of Investing in Medium-Capitalization Companies.
The Fund may invest in medium-capitalization companies and, therefore may be
subject to certain risks associated with medium-capitalization companies. These
companies are often subject to less analyst coverage and may be in early and
less predictable periods of their corporate existences, with little or no record
of profitability. In addition, these companies often have greater price
volatility, lower trading volume and less liquidity than larger more established
companies. These companies tend to have smaller revenues, narrower product
lines, less management depth and experience, smaller shares of their product or
service markets, fewer financial resources and less competitive strength than
large-capitalization companies. Returns on investments in securities of
medium-capitalization companies could trail the returns on investments in
securities of larger companies.
Index
Tracking Risk.
The Fund’s return may not match the return of its Index for a number of reasons.
For example, the Fund incurs a number of operating expenses, including taxes,
not applicable to the 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 Index which are not factored into the
return of the Index. Transaction costs, including brokerage costs, will decrease
the Fund’s NAV to the extent not offset by the transaction fee payable by an 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 Index. There is no assurance that the Index Provider (defined herein)
or any agents that may act on its behalf will compile the Index accurately, or
that the Index will be determined, composed or calculated accurately. Errors in
respect of the quality, accuracy and completeness of the data used to compile
the Index may occur from time to time and may not be identified and corrected by
the Index Provider for a period of time or at all, particularly where the Index
is less commonly used as a benchmark by funds or managers. Therefore, gains,
losses or costs associated with errors of the Index Provider or its agents will
generally be borne by the Fund and its shareholders. For example, during a
period where the Index contains incorrect constituents, the Fund would have
market exposure to such constituents and would be underexposed to the Index’s
other constituents. Such errors may negatively or positively impact the Fund and
its shareholders. Any gains due to the Index Provider’s or others’ errors will
be kept by the Fund and its shareholders and any losses resulting from the Index
Provider’s or others’ errors will be borne by the Fund and its shareholders.
When the Fund’s Index is rebalanced and the Fund in turn rebalances its
portfolio to attempt to increase the correlation between the Fund’s portfolio
and its Index, any transaction costs and market exposure arising from such
portfolio rebalancing may be borne directly by the Fund and its shareholders.
Apart
from scheduled rebalances, the Index provider or its agents may carry out
additional ad hoc rebalances to the Fund’s Index. Therefore, errors and
additional ad hoc rebalances carried out by the Index provider or its agents to
the Fund’s Index may increase the costs to and the tracking error risk of the
Fund. In
addition, the Fund may not be able to invest in certain securities and/or other
assets included in the Index, or invest in them in the exact proportions in
which they are represented in the Index, due to legal restrictions or
limitations, certain Exchange listing standards, a lack of liquidity in markets
in which such securities trade, potential adverse tax consequences or other
regulatory reasons (such as diversification requirements). A lack of liquidity
may be due to various events, including markets events, economic conditions or
investor perceptions. Illiquid securities may be difficult to value and their
value may be lower than market price of comparable liquid securities, which
would negatively affect the Fund's performance. Moreover, the Fund may be
delayed in purchasing or selling securities included in the Index. 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 its Index.
The
Fund may fair value certain of the securities or other assets it holds. The need
to comply with the tax diversification and other requirements of the Internal
Revenue Code may also impact the Fund’s ability to replicate the performance of
its Index. In addition, if the Fund utilizes depositary receipts not included in
the Index or other derivative instruments that are not included in the Index,
its return may not correlate as well with the return of its Index as would be
the case if the Fund purchased all the securities in the Index directly. Actions
taken in response to proposed corporate actions could result in increased
tracking error. In light of the factors discussed above, the Fund’s return may
deviate significantly from the return of the Index.
Index
tracking risk may be heightened during times of increased market volatility or
other unusual market conditions. Changes to the composition of the Index in
connection with a rebalancing or reconstitution of the 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 the Fund’s Shares are listed on the Exchange, there can be no assurance
that an active trading markets for the Shares will develop or be maintained.
Further, secondary markets may be subject to irregular trading activity, market
dislocations, 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. The
Distributor (defined herein) does not maintain a secondary market in the Shares.
Investors purchasing and selling shares in the secondary market may not
experience investment results consistent with those experienced by those APs
creating and redeeming directly with the Fund.
Decisions
by market makers or APs to reduce their role or “step away” from these
activities in times of market stress could inhibit the effectiveness of the
arbitrage process in maintaining the relationship between the underlying value
of the Fund’s portfolio securities and the Fund’s market price. This reduced
effectiveness could result in Fund Shares trading at a price which differs
materially from NAV and also in greater than normal intraday bid/ask spreads for
Fund Shares.
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. If a trading halt or unanticipated early close of the Exchange
occurs, a shareholder may be unable to purchase or sell Shares of the Fund.
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.
Unlike many investment companies, the Fund is not “actively” managed. Therefore,
unless a specific security is removed from the Index, the Fund generally would
not sell a security because the security’s issuer is in financial trouble. If a
specific security is removed from the Index, the Fund may be forced to sell such
security at an inopportune time or for prices other than at current market
values. An investment in the Fund involves risks similar to those of investing
in any fund that invests in equity securities traded on an exchange, such as
market fluctuations caused by such factors as economic and political
developments, changes in interest rates and perceived trends in security prices.
The Index may not contain the appropriate or a diversified mix of securities for
any particular economic cycle. The timing of changes in the securities of the
Fund’s portfolio in seeking to replicate the Index could have a negative effect
on the Fund. Unlike with an actively managed fund, the Adviser does not use
techniques or defensive strategies designed to lessen the effects of market
volatility or to reduce the impact of periods of market decline. Additionally,
unusual market conditions may cause the Fund’s Index Provider to postpone a
scheduled rebalance or reconstitution, which could cause the Index to vary from
its normal or expected composition. This means that, based on market and
economic conditions, 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.
Shareholder
Risk.
Certain shareholders, including other funds advised by the Adviser, may from
time to time own a substantial amount of the Fund’s Shares. In addition, a third
party investor, the Adviser or an affiliate of the Adviser, an AP, a market
maker or another entity may invest in the Fund and hold its investment for a
limited period of time. There can be no assurance that any large shareholder
would not redeem its investment. Redemptions by shareholders could have a
negative impact on the Fund. In addition, transactions by large shareholders may
account for a large percentage of the trading volume on the Exchange, as
applicable and may, therefore, have a material effect on the market price of the
Shares.
Fund
Shares Trading, Premium/Discount Risk and Liquidity of Fund Shares. 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. The NAV of
the Shares will fluctuate with changes in the market value of the Fund’s
securities holdings. The market price of Shares will fluctuate, in some cases
materially, in accordance with changes in NAV and the intraday value of the
Fund’s holdings as well as supply and demand on the Exchange. The Adviser cannot
predict whether Shares will trade below, at or above their NAV. Given the fact
that Shares can be created and redeemed by APs in Creation Units, the Adviser
believes that large discounts or premiums to the NAV of Shares should not be
sustained in the long-term. While the creation/redemption feature is designed to
make it likely that Shares normally will trade close to the value of the Fund’s
holdings, market prices are not expected to correlate exactly to the Fund’s NAV
due to timing reasons, supply and demand imbalances and other factors. The price
differences may be due, in large part, to the fact that supply and demand forces
at work in the secondary trading market for Shares may be closely related to,
but not necessarily identical to, the same forces influencing the prices of the
securities of the Fund’s portfolio of investments trading individually or in the
aggregate at any point in time. 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.
Any of these factors, discussed above and further below, may lead to the Shares
trading at a premium or discount to the Fund’s NAV. In addition, because certain
of the Fund’s underlying securities trade on exchanges that are closed when the
Exchange (i.e.,
the exchange that Shares of the Fund trade on) is open, there are likely to be
deviations between the expected value of an underlying security and the closing
security’s price (i.e.,
the last quote from its closed foreign market) resulting in premiums or
discounts to NAV that may be greater than those experienced by other ETFs. In
addition, 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 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.
When
you buy or sell Shares of the Fund through a broker, you will likely incur a
brokerage commission or other charges imposed by brokers. In addition, the
market price of Shares, like the price of any exchange-traded security, includes
a bid/ask spread charged by the market makers or other participants that trade
the particular security. The spread of the Fund’s Shares varies over time based
on the Fund’s trading volume and market liquidity and may increase if the Fund’s
trading volume, the spread of the Fund’s underlying securities, or market
liquidity decrease. In times of severe market disruption, including when trading
of the Fund’s holdings may be halted, the bid/ask spread may increase
significantly. This means that Shares may trade at a discount to the Fund’s NAV,
and the discount is likely to be greatest during significant market
volatility.
Non-Diversified
Risk.
The Fund is a separate investment portfolio of the Trust, which is an open-end
investment company registered under the 1940 Act. The Fund is classified as a
“non-diversified” fund under the 1940 Act. Moreover, the Fund is subject to the
risk that it will be more volatile than a diversified fund because the Fund may
invest 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.
Concentration
Risk.
The Fund’s assets may be concentrated in a particular sector or sectors or
industry or group of industries to the extent that the Index concentrates in a
particular sector or sectors or industry or group of industries. The securities
of many or all of the companies in the same sector or industry may decline in
value due to developments adversely affecting such sector or industry. By
concentrating its assets in a particular sector or sectors or industry or group
of industries, the Fund is 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.
ADDITIONAL
NON-PRINCIPAL INVESTMENT STRATEGIES
The
Fund, using an “indexing” investment approach, seeks to provide investment
results that, before fees and expenses, correspond generally to the price and
yield performance of the Index. A number of factors may affect the Fund’s
ability to achieve a high correlation with the Index, including the degree to
which the Fund utilizes a sampling methodology. There can be no guarantee that
the Fund will achieve a high degree of correlation.
The
Fund may sell securities that are represented in the Index or purchase
securities not yet represented in the Index, in anticipation of their removal
from or addition to the Index. There may also be instances in which the Adviser
may choose to overweight securities in the Index, thus causing it to purchase or
sell securities not in the Index which the Adviser believes are appropriate to
substitute for certain securities in the Index or utilize various combinations
of other available investment techniques in seeking to track the Index.
The
Fund may invest up to 20% of its total assets in cash, cash equivalents, such as
money market instruments, or other types of investments that are not included in
the Fund’s underlying index, including in certain derivatives, to the extent
that the Adviser believes such investments should help the Fund’s overall
portfolio track its underlying index.
BORROWING
MONEY
The
Fund may borrow money from a bank up to a limit of one-third of the market value
of its assets. The Fund has entered or intends to enter into a credit facility
to borrow money for temporary, emergency or other purposes, including the
funding of shareholder redemption requests, trade settlements and as necessary
to distribute to shareholders any income required to maintain the Fund’s status
as a regulated investment company. To the extent that the Fund borrows money, it
may be leveraged; at such times, the Fund will appreciate or depreciate in value
more rapidly than the Index. Leverage generally has the effect of increasing the
amount of loss or gain the Fund might realize, and may increase volatility in
the value of the Fund’s investments.
LENDING
PORTFOLIO SECURITIES
The
Fund may lend its portfolio securities to brokers, dealers and other financial
institutions desiring to borrow securities to complete transactions and for
other purposes. In connection with such loans, the Fund receives cash, U.S.
government securities and stand-by letters of credit not issued by the Fund’s
bank lending agent equal to at least 102% of the value of the portfolio
securities being loaned. This collateral is marked-to-market on a daily basis.
Although the Fund will receive collateral in connection with all loans of its
securities holdings, the Fund would be exposed to a risk of loss should a
borrower fail to return the borrowed securities (e.g.,
the Fund would have to buy replacement securities and the loaned securities may
have appreciated beyond the value of the collateral held by the Fund) or become
insolvent. The Fund may pay fees to the party arranging the loan of securities.
In addition, the Fund will bear the risk that it may lose money because the
borrower of the loaned securities fails to return the securities in a timely
manner or at all. The Fund could also lose money in the event of a decline in
the value of any cash collateral or in the value of investments made with the
cash collateral. These events could trigger adverse tax consequences for the
Fund. Substitute payments for dividends received by the Fund for securities
loaned out by the Fund will not be considered qualified dividend
income.
ADDITIONAL
NON-PRINCIPAL RISKS
Risk
of Investing in Derivatives.
Derivatives are financial instruments whose values are based on the value of one
or more reference assets or indicators, such as a security, currency, interest
rate, or index. The Fund’s use of derivatives involves risks different from, and
possibly greater than, the risks associated with investing directly in
securities and other more traditional investments. Moreover, although the value
of a derivative is based on an underlying asset or indicator, a derivative
typically does not carry the same rights as would be the case if the Fund
invested directly in the underlying securities, currencies or other
assets.
Derivatives
are subject to a number of risks, such as potential changes in value in response
to market developments or, in the case of “over-the-counter” derivatives, as a
result of a counterparty’s credit quality and the risk that a derivative
transaction may not have the effect the Adviser anticipated. Derivatives also
involve the risk of mispricing or improper valuation and the risk that changes
in the value of a derivative may not achieve the desired correlation with the
underlying asset or indicator. Derivative transactions can create investment
leverage, and may be highly volatile, and the Fund could lose more than the
amount it invests. The use of derivatives may increase the amount and affect the
timing and character of taxes payable by shareholders of the Fund.
Many
derivative transactions are entered into “over-the-counter” without a central
clearinghouse; as a result, the value of such a derivative transaction will
depend on, among other factors, the ability and the willingness of the Fund’s
counterparty to perform its obligations under the transaction. If a counterparty
were to default on its obligations, the Fund’s contractual remedies against such
counterparty may be subject to bankruptcy and insolvency laws, which could
affect the Fund’s rights as a creditor (e.g.,
the Fund may not receive the net amount of payments that it is contractually
entitled to receive). A liquid secondary market may not always exist for the
Fund’s derivative positions at any time, and the Fund may not be able to
initiate or liquidate a swap position at an advantageous time or price, which
may result in significant losses.
In
October 2020, the SEC adopted a final rule related to the use of derivatives,
short sales, reverse repurchase agreements and certain other transactions by
registered investment companies that will rescind and withdraw the guidance of
the SEC and its staff regarding asset segregation and cover transactions. The
final rule requires funds to trade derivatives and other transactions that
create future payment or delivery obligations (except reverse repurchase
agreements and similar financing transactions) subject to a value-at-risk
(“VaR”) leverage limit, certain derivatives risk management program and
reporting requirements. Generally, these requirements apply unless a fund
qualifies as a “limited derivatives user,” as defined in the final rule. Under
the final rule, when a fund trades reverse repurchase agreements or similar
financing transactions, including certain tender option bonds, it needs to
aggregate the amount of indebtedness associated with the reverse repurchase
agreements or similar financing transactions with the aggregate amount of any
other senior securities representing indebtedness when calculating the fund’s
asset coverage ratio or treat all such transactions as derivatives transactions.
Reverse repurchase agreements or similar financing transactions aggregated with
other indebtedness do not need to be included in the calculation of whether a
fund is a limited derivatives user, but for funds subject to the VaR testing,
reverse repurchase agreements and similar financing transactions must be
included for purposes of such testing whether treated as derivatives
transactions or not. The SEC also provided guidance in connection with the new
rule regarding use of securities lending collateral that may limit a fund's
securities lending activities. Compliance with these new requirements will be
required after an eighteen-month transition period.
Leverage
Risk.
To the extent that the Fund borrows money or utilizes certain derivatives, it
may be leveraged. Leveraging generally exaggerates the effect on NAV of any
increase or decrease in the market value of the Fund’s portfolio securities. To
manage the risk associated with leveraging, the Fund may segregate liquid
assets, or otherwise “cover” its derivatives position in a manner consistent
with the 1940 Act and the rules and SEC interpretations thereunder. The Fund may
modify its asset segregation policies at any time to comply with any changes in
the SEC’s positions regarding asset segregation.
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ADVANTAGED PRODUCT STRUCTURE |
Unlike
many conventional mutual funds which are only bought and sold at closing NAVs,
the Shares of the Fund have been designed to be tradable in a secondary market
on an intra-day basis and to be created and redeemed principally in-kind in
Creation Units at each day’s market close. These in-kind arrangements are
designed to mitigate the adverse effects on the Fund’s portfolio that could
arise from frequent cash purchase and redemption transactions that affect the
NAV of the Fund. Moreover, in contrast to conventional mutual funds, where
frequent redemptions can have an adverse tax impact on taxable shareholders
because of the need to sell portfolio securities which, in turn, may generate
taxable gain, the in-kind redemption mechanism of the Fund, to the extent used,
generally is not expected to lead to a tax event for shareholders whose Shares
are not being redeemed.
A
description of the Fund’s policies and procedures with respect to the disclosure
of the Fund’s portfolio securities is available in the Fund’s SAI.
Board
of Trustees.
The Board of Trustees of the Trust has responsibility for the general oversight
of the management of the Fund, including general supervision of the Adviser and
other service providers, but is not involved in the day-to-day management of the
Trust. A list of the Trustees and the Trust officers, and their present
positions and principal occupations, is provided in the Fund’s SAI.
Investment
Adviser.
Under the terms of an investment management agreement between the Trust and Van
Eck Associates Corporation with respect to the Fund (the “Investment Management
Agreement”), Van Eck Associates Corporation serves as the adviser to the Fund
and, subject to the supervision of the Board of Trustees, is responsible for the
day-to-day investment management of the Fund. As of December 31, 2021, the
Adviser managed approximately $81.73 billion in assets. The Adviser has been an
investment adviser since 1955 and also acts as adviser or sub-adviser to mutual
funds, other ETFs, other pooled investment vehicles and separate accounts. The
Adviser’s principal business address is 666 Third Avenue, 9th Floor, New York,
New York 10017. A discussion regarding the Board of Trustees’ approval of the
Investment Management Agreement is available in the Trust’s annual report for
the period ended September 30, 2021.
Pursuant
to the Investment Management Agreement, the Adviser is responsible for all
expenses of the Fund, including the costs of transfer agency, custody, fund
administration, legal, audit and other services, except for the fee payment
under the Investment Management Agreement, acquired fund fees and expenses,
interest expense, offering costs, trading expenses, taxes and extraordinary
expenses. For its services to the Fund, the Fund has agreed to pay the Adviser
an annual unitary management fee equal to 0.45% of its average daily net assets.
Offering costs excluded from the annual unitary management fee are: (a) legal
fees pertaining to the Fund’s Shares offered for sale; (b) SEC and state
registration fees; and (c) initial fees paid for Shares of the Fund to be listed
on an exchange. Notwithstanding the foregoing, the Adviser has agreed to pay all
such offering costs until at least February 1, 2023.
Manager
of Managers Structure.
The Adviser and the Trust may rely on an exemptive order (the “Order”) from the
SEC that permits the Adviser to enter into investment sub-advisory agreements
with unaffiliated sub-advisers without obtaining shareholder approval. The
Adviser, subject to the review and approval of the Board of Trustees, may select
one or more sub-advisers for the Fund and supervise, monitor and evaluate the
performance of each sub-adviser.
The
Order also permits the Adviser, subject to the approval of the Board of
Trustees, to replace sub-advisers and amend investment sub-advisory agreements,
including applicable fee arrangements, without shareholder approval whenever the
Adviser and the Board of Trustees believe such action will benefit the Fund and
its shareholders. The Adviser thus would have the responsibility (subject to the
oversight of the Board of Trustees) to recommend the hiring and replacement of
sub-advisers as well as the discretion to terminate any sub-adviser and
reallocate the Fund’s assets for management among any other sub-adviser(s) and
itself. This means that the Adviser would be able to reduce the sub-advisory
fees and retain a larger portion of the management fee, or increase the
sub-advisory fees and retain a smaller portion of the management fee. The
Adviser would compensate each sub-adviser out of its management
fee.
Administrator,
Custodian and Transfer Agent.
Van Eck Associates Corporation is the administrator for the Fund (the
“Administrator”), and State Street Bank and Trust Company is the custodian of
the Fund’s assets and provides transfer agency and fund accounting services to
the Fund. The Administrator is responsible for certain clerical, recordkeeping
and/or bookkeeping services which are required to be provided pursuant to the
Investment Management Agreement.
Distributor.
Van Eck Securities Corporation is the distributor of the Shares (the
“Distributor”). The Distributor will not distribute Shares in less than a
specified number of Shares, each called a “Creation Unit”, and does not maintain
a secondary market in the Shares. The Shares are traded in the secondary
market.
The
portfolio managers who currently share joint responsibility for the day-to-day
management of the Fund’s portfolio are Peter H. Liao, CFA and Guo Hua (Jason)
Jin. Mr. Liao has been employed by the Adviser as an analyst since the summer of
2004 and has been a portfolio manager since 2006. Mr. Liao graduated from New
York University in 2004 with a Bachelor of Arts in Economics and Mathematics.
Mr. Jin has been employed by the Adviser as an analyst since January 2007 and
has been a portfolio manager since 2018. Mr. Jin graduated from the State
University of New York at Buffalo in 2004 with a Bachelor of Science degree in
Business Administration with a concentration in Financial Analysis. Messrs. Liao
and Jin also serve as portfolio managers for certain other investment companies
and pooled investment vehicles advised by the Adviser. See the Fund’s SAI for
additional information about the portfolio managers’ compensation, other
accounts managed by the portfolio managers and their respective ownership of
Shares.
DETERMINATION
OF NAV
The
NAV per Share for the Fund is computed by dividing the value of the net assets
of the Fund (i.e.,
the value of its total assets less total liabilities) by the total number of
Shares outstanding. Expenses and fees, including the management fee, are accrued
daily and taken into account for purposes of determining NAV. The NAV of the
Fund is determined each business day as of the close of trading (ordinarily 4:00
p.m., Eastern time) on the New York Stock Exchange.
The
values of the Fund’s portfolio securities are based on the securities’ closing
prices on the markets on which the securities trade, when available. Due to the
time differences between the United States and certain countries in which the
Fund invests, securities on these exchanges may not trade at times when Shares
of the Fund will trade. In the absence of a last reported sales price, or if no
sales were reported, and for other assets for which market quotes are not
readily available, values may be based on quotes obtained from a quotation
reporting system, established market makers or by an outside independent pricing
service. Debt instruments with remaining maturities of more than 60 days are
valued at the evaluated mean price provided by an outside independent pricing
service. If an outside independent pricing service is unable to provide a
valuation, the instrument is valued at the mean of the highest bid and the
lowest asked quotes obtained from one or more brokers or dealers selected by the
Adviser. Prices obtained by an outside independent pricing service may use
information provided by market makers or estimates of market values obtained
from yield data related to investments or securities with similar
characteristics and may use a computerized grid matrix of securities and its
evaluations in determining what it believes is the fair value of the portfolio
securities. Short-term debt instruments having a maturity of 60 days or less are
valued at amortized cost. Any assets or liabilities denominated in currencies
other than the U.S. dollar are converted into U.S. dollars at the current market
rates on the date of valuation as quoted by one or more sources. If a market
quotation for a security or other asset is not readily available or the Adviser
believes it does not otherwise accurately reflect the market value of the
security or asset at the time the Fund calculates its NAV, the security or asset
will be fair valued by the Adviser in accordance with the Trust’s valuation
policies and procedures approved by the Board of Trustees. The Fund may also use
fair value pricing in a variety of circumstances, including but not limited to,
situations when the value of a security in the Fund’s portfolio has been
materially affected by events occurring after the close of the market on which
the security is principally traded (such as a corporate action or other news
that may materially affect the price of a security) or trading in a security has
been suspended or halted. In addition, the Fund currently expects that it will
fair value certain of the foreign equity securities held by the Fund, if any,
each day the Fund calculates its NAV, except those securities principally traded
on exchanges that close at the same time the Fund calculates its
NAV.
Accordingly,
the Fund’s NAV may reflect certain portfolio securities’ fair values rather than
their market prices at the time the exchanges on which they principally trade
close. Fair value pricing involves subjective judgments and it is possible that
a fair value determination for a security or other asset is materially different
than the value that could be realized upon the sale of such security or asset.
In addition, fair value pricing could result in a difference between the prices
used to calculate the Fund’s NAV and the prices used by the Fund’s Index. This
may adversely affect the Fund’s ability to track its Index. With respect to
securities that are principally traded on foreign exchanges, the value of the
Fund’s portfolio securities may change on days when you will not be able to
purchase or sell your Shares.
INTRADAY
VALUE
The
trading prices of the Fund’s Shares in the secondary market generally differ
from the Fund’s daily NAV and are affected by market forces such as the supply
of and demand for Fund Shares and underlying securities held by the Fund,
economic conditions and other factors. Information regarding the intraday value
of the Fund’s Shares (“IIV”) may be disseminated throughout each trading day by
the Exchange or by market data vendors or other information providers. The IIV
is based on the current market value of the securities and/or cash required to
be deposited in exchange for a Creation Unit. The IIV does not necessarily
reflect the precise composition of the current portfolio of securities held by
the Fund at a particular point in time or the best possible valuation of the
current portfolio. Therefore, the IIV should not be viewed as a “real-time”
update of the Fund’s NAV, which is computed only once a day. The IIV is
generally determined by using current market quotations and/or price quotations
obtained from broker-dealers and other market intermediaries that may trade in
the portfolio securities held by the Fund and valuations based on current market
rates. The quotations and/or valuations of the Fund holdings may not be updated
during U.S.
trading
hours if such holdings do not trade in the United States. The Fund is not
involved in, or responsible for, the calculation or dissemination of the IIV and
makes no warranty as to its accuracy.
RULE
144A AND OTHER UNREGISTERED SECURITIES
An
AP (i.e.,
a person eligible to place orders with the Distributor to create or redeem
Creation Units of the Fund) that is not a “qualified institutional buyer,” as
such term is defined under Rule 144A of the Securities Act of 1933, as amended
(the “Securities Act”), will not be able to receive, as part of a redemption,
restricted securities eligible for resale under Rule 144A or other unregistered
securities.
BUYING
AND SELLING EXCHANGE-TRADED SHARES
The
Shares of the Fund are listed on the Exchange. If you buy or sell Shares in the
secondary market, you will incur customary brokerage commissions and charges and
may pay some or all of the “spread,” which is any difference between the bid
price and the ask price. The spread varies over time for the Fund’s Shares based
on the Fund’s trading volume and market liquidity, and is generally lower if the
Fund has high trading volume and market liquidity, and generally higher if the
Fund has little trading volume and market liquidity (which is often the case for
funds that are newly launched or small in size). In times of severe market
disruption or low trading volume in the Fund’s Shares, this spread can increase
significantly. It is anticipated that the Shares will trade in the secondary
market at prices that may differ to varying degrees from the NAV of the Shares.
During periods of disruptions to creations and redemptions or the existence of
extreme market volatility, the market prices of Shares are more likely to differ
significantly from the Shares’ NAV.
The
Depository Trust Company (“DTC”) serves as securities depository for the Shares.
(The Shares may be held only in book- entry form; stock certificates will not be
issued.) DTC, or its nominee, is the record or registered owner of all
outstanding Shares. Beneficial ownership of Shares will be shown on the records
of DTC or its participants (described below). Beneficial owners of Shares are
not entitled to have Shares registered in their names, will not receive or be
entitled to receive physical delivery of certificates in definitive form and are
not considered the registered holder thereof. Accordingly, to exercise any
rights of a holder of Shares, each beneficial owner must rely on the procedures
of: (i) DTC; (ii) “DTC Participants,” i.e.,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations, some of whom (and/or their representatives) own
DTC; and (iii) “Indirect Participants,” i.e.,
brokers, dealers, banks and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly,
through which such beneficial owner holds its interests. The Trust understands
that under existing industry practice, in the event the Trust requests any
action of holders of Shares, or a beneficial owner desires to take any action
that DTC, as the record owner of all outstanding Shares, is entitled to take,
DTC would authorize the DTC Participants to take such action and that the DTC
Participants would authorize the Indirect Participants and beneficial owners
acting through such DTC Participants to take such action and would otherwise act
upon the instructions of beneficial owners owning through them. As described
above, the Trust recognizes DTC or its nominee as the owner of all Shares for
all purposes. For more information, see the section entitled “Book Entry Only
System” in the Fund’s SAI.
The
Exchange is open for trading Monday through Friday and is closed on weekends and
the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’
Day, Good Friday, Memorial Day, Juneteenth National Independence Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Because
non-U.S. exchanges may be open on days when the Fund does not price its Shares,
the value of the securities in the Fund’s portfolio may change on days when
shareholders will not be able to purchase or sell the Fund’s
Shares.
The
right of redemption by an AP may be suspended or the date of payment postponed
(1) for any period during which the Exchange is closed (other than customary
weekend and holiday closings); (2) for any period during which trading on the
Exchange is suspended or restricted; (3) for any period during which an
emergency exists as a result of which disposal of the Shares of the Fund or
determination of its NAV is not reasonably practicable; or (4) in such other
circumstance as is permitted by the SEC.
Market
Timing and Related Matters. The Fund imposes no restrictions on the frequency of
purchases and redemptions. Frequent purchases and redemptions of Fund Shares may
attempt to take advantage of a potential arbitrage opportunity presented by a
lag between a change in the value of the Fund’s portfolio securities after the
close of the primary markets for the Fund’s portfolio securities and the
reflection of that change in the Fund’s NAV (“market timing”). The Board of
Trustees considered the nature of the Fund (i.e.,
a fund whose Shares are expected to trade intraday), that the Adviser monitors
the trading activity of APs for patterns of abusive trading, that the Fund
reserves the right to reject orders that may be disruptive to the management of
or otherwise not in the Fund’s best interests, and that the Fund may fair value
certain of its securities. Given this structure, the Board of Trustees
determined that it is not necessary to impose restrictions on the frequency of
purchases and redemptions for the Fund at the present time.
DISTRIBUTIONS
Net
Investment Income and Capital Gains.
As
a shareholder of the Fund, you are entitled to your share of the Fund’s
distributions of net investment income and net realized capital gains on its
investments. The Fund pays out substantially all of its net earnings to its
shareholders as “distributions.”
The
Fund typically earns income dividends from stocks and interest from debt
securities. These amounts, net of expenses, are typically passed along to Fund
shareholders as dividends from net investment income. The Fund realizes capital
gains or losses whenever it sells securities. Net capital gains are distributed
to shareholders as “capital gain distributions.” Distributions from the Fund’s
net investment income, including net short-term capital gains, if any, are
taxable to you as ordinary income. Any long-term capital gains distributions you
receive from the Fund are taxable as long-term capital gains.
Net
investment income, if any, is typically distributed to shareholders quarterly
while net realized capital gains, if any, are typically distributed to
shareholders at least annually. Dividends may be declared and paid more
frequently to improve index tracking or to comply with the distribution
requirements of the Internal Revenue Code. In addition, in situations where the
Fund acquires investment securities after the beginning of a dividend period,
the Fund may elect to distribute at least annually amounts representing the full
dividend yield net of expenses on the underlying investment securities, as if
the Fund owned the underlying investment securities for the entire dividend
period. If the Fund so elects, some portion of each distribution may result in a
return of capital, which, for tax purposes, is treated as a return of your
investment in Shares. You will be notified regarding the portion of the
distribution which represents a return of capital.
Distributions
in cash may be reinvested automatically in additional Shares of the Fund only if
the broker through which you purchased Shares makes such option
available.
TAX
INFORMATION
As
with any investment, you should consider how your Fund investment will be taxed.
The tax information in this Prospectus is provided as general information. You
should consult your own tax professional about the tax consequences of an
investment in the Fund, including the possible application of foreign, state and
local taxes. Unless your investment in the Fund is through a tax-exempt entity
or tax-deferred retirement account, such as a 401(k) plan, you need to be aware
of the possible tax consequences when: (i) the Fund makes distributions, (ii)
you sell Shares in the secondary market or (iii) you create or redeem Creation
Units.
Taxes
on Distributions. As
noted above, the Fund expects to distribute net investment income, if any, at
least quarterly, and any net realized long-term or short-term capital gains, if
any, annually. The Fund may also pay a special distribution at any time to
comply with U.S. federal tax requirements.
In
general, your distributions are subject to U.S. federal income tax when they are
paid, whether you take them in cash or reinvest them in the Fund. Distributions
of net investment income, including net short-term gains, if any, are generally
taxable as ordinary income. Whether distributions of capital gains represent
long-term or short-term capital gains is determined by how long the Fund owned
the investments that generated them, rather than how long you have owned your
Shares. Distributions of net short-term capital gains in excess of net long-term
capital losses, if any, are generally taxable as ordinary income. Distributions
of net long- term capital gains in excess of net short-term capital losses, if
any, that are properly reported as capital gain dividends are generally taxable
as long-term capital gains. Long-term capital gains of a non-corporate
shareholder are generally taxable at a maximum rate of 15% or 20%, depending on
whether the shareholder’s income exceeds certain threshold amounts.
The
Fund may receive dividends, the distribution of which the Fund may report as
qualified dividends. In the event that the Fund receives such a dividend and
reports the distribution of such dividend as a qualified dividend, the dividend
may be taxed at the maximum capital gains rates of 15% or 20%, provided holding
period and other requirements are met at both the shareholder and the Fund
level. There can be no assurance that any significant portion of the Fund’s
distributions will be eligible for qualified dividend treatment.
Distributions
in excess of the Fund’s current and accumulated earnings and profits are treated
as a tax-free return of your investment to the extent of your basis in the
Shares, and generally as capital gain thereafter. A return of capital, which for
tax purposes is treated as a return of your investment, reduces your basis in
Shares, thus reducing any loss or increasing any gain on a subsequent taxable
disposition of Shares. A distribution will reduce the Fund’s NAV per Share and
may be taxable to you as ordinary income or capital gain even though, from an
economic standpoint, the distribution may constitute a return of
capital.
Dividends,
interest and gains from non-U.S. investments of the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may, in some cases, reduce or
eliminate such taxes.
If
more than 50% of the Fund’s total assets at the end of its taxable year consist
of foreign securities, the Fund may elect to “pass through” to its investors
certain foreign income taxes paid by the Fund, with the result that each
investor will (i) include in gross income, even though not actually received,
the investor’s pro rata share of the Fund’s foreign income taxes, and (ii)
either deduct (in calculating U.S. taxable income) or credit (in calculating
U.S. federal income), subject to certain holding period and other limitations,
the investor’s pro rata share of the Fund’s foreign income taxes.
The
Fund may make investments in companies classified as passive foreign investment
companies ("PFICs") for U.S. federal income tax purposes. Investments in PFICs
are subject to special tax rules which may result in adverse tax consequences to
the Fund and its shareholders. The Fund generally intends to elect to “mark to
market” these investments at the end of each taxable year. By making this
election, the Fund will recognize as ordinary income any increase in the value
of such shares as of the close of the taxable year over its adjusted basis and
as ordinary loss any decrease in such investment (but only to the extent of
prior
income
from such investment under the mark to market rules). Gains realized with
respect to a disposition of a PFIC that the Fund has elected to mark to market
will be ordinary income. By making the mark to market election, the Fund may
recognize income in excess of the distributions that it receives from its
investments. Accordingly, the Fund may need to borrow money or dispose of some
of its investments in order to meet its distribution requirements. If the Fund
does not make the mark to market election with respect to an investment in a
PFIC, the Fund could become subject to U.S. federal income tax with respect to
certain distributions from, and gain on the dispositions of, the PFIC which
cannot be avoided by distributing such amounts to the Fund’s
shareholders.
Backup
Withholding.
The Fund may be required to withhold a percentage of your distributions and
proceeds if you have not provided a taxpayer identification number or social
security number or otherwise established a basis for exemption from backup
withholding. The backup withholding rate for individuals is currently 24%. This
is not an additional tax and may be refunded, or credited against your U.S.
federal income tax liability, provided certain required information is furnished
to the Internal Revenue Services.
Taxes
on the Sale or Cash Redemption of Exchange Listed Shares.
Currently, any capital gain or loss realized upon a sale of Shares is generally
treated as long-term capital gain or loss if the Shares have been held for more
than one year and as a short-term capital gain or loss if held for one year or
less. However, any capital loss on a sale of Shares held for six months or less
is treated as long-term capital loss to the extent that capital gain dividends
were paid with respect to such Shares. The ability to deduct capital losses may
be limited. To the extent that the Fund shareholder’s Shares are redeemed for
cash, this is normally treated as a sale for tax purposes.
Taxes
on Creations and Redemptions of Creation Units.
A person who exchanges securities for Creation Units generally will recognize a
gain or loss. The gain or loss will be equal to the difference between the
market value of the Creation Units at the time of exchange and the sum of the
exchanger’s aggregate basis in the securities surrendered and the amount of any
cash paid for such Creation Units. A person who exchanges Creation Units for
securities will generally recognize a gain or loss equal to the difference
between the exchanger’s basis in the Creation Units and the sum of the aggregate
market value of the securities received. The IRS, however, may assert that a
loss realized upon an exchange of primarily securities for Creation Units cannot
be deducted currently under the rules governing “wash sales,” or on the basis
that there has been no significant change in economic position. Persons
exchanging securities for Creation Units or redeeming Creation Units should
consult their own tax adviser with respect to whether wash sale rules apply and
when a loss might be deductible and the tax treatment of any creation or
redemption transaction.
Under
current U.S. federal income tax laws, any capital gain or loss realized upon a
redemption (or creation) of Creation Units held as capital assets is generally
treated as long-term capital gain or loss if the Shares (or securities
surrendered) have been held for more than one year and as a short-term capital
gain or loss if the Shares (or securities surrendered) have been held for one
year or less.
If
you create or redeem Creation Units, you will be sent a confirmation statement
showing how many Shares you created or sold and at what price.
Medicare
Tax.
An additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from the
Fund and net gains from redemptions or other taxable dispositions of Fund
Shares) of U.S. individuals, estates and trusts to the extent that such person’s
“modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold
amounts.
Non-U.S.
Shareholders.
Dividends paid by the Fund to non-U.S. shareholders are generally subject to
withholding tax at a 30% rate or a reduced rate specified by an applicable
income tax treaty to the extent derived from investment income and short-term
capital gains. Dividends paid by the Fund from net tax-exempt income or
long-term capital gains are generally not subject to such withholding tax.
Properly-reported dividends are generally exempt from U.S. federal withholding
tax where they (i) are paid in respect of the Fund’s “qualified net interest
income” (generally, the Fund’s U.S. source interest income, other than certain
contingent interest and interest from obligations of a corporation or
partnership in which the Fund is at least a 10% shareholder, reduced by expenses
that are allocable to such income); or (ii) are paid in respect of the Fund’s
“qualified short-term capital gains” (generally, the excess of the Fund’s net
short-term capital gain over the Fund’s long-term capital loss for such taxable
year). However, depending on its circumstances, the Fund may report all, some or
none of its potentially eligible dividends as such qualified net interest income
or as qualified short-term capital gains and/or treat such dividends, in whole
or in part, as ineligible for this exemption from withholding.
Any
capital gain realized by a Non-U.S. shareholder upon a sale of Shares of the
Fund will generally not be subject to U.S. federal income or withholding tax
unless (i) the gain is effectively connected with the shareholder’s trade or
business in the United States, or in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
met or (ii) the Fund is or has been a U.S. real property holding corporation, as
defined below, at any time within the five-year period preceding the date of
disposition of the Fund’s Shares or, if shorter, within the period during which
the Non-U.S. shareholder has held the Shares. Generally, a corporation is a U.S.
real property holding corporation if the fair market value of its U.S. real
property interests, as defined in the Internal Revenue Code and applicable
regulations, equals or exceeds 50% of the aggregate fair market value of its
worldwide real property interests and its
other
assets used or held for use in a trade or business. The Fund may be, or may
prior to a Non-U.S. shareholder’s disposition of Shares become, a U.S. real
property holding corporation. If the Fund is or becomes a U.S. real property
holding corporation, so long as the Fund’s Shares are regularly traded on an
established securities market, only a Non-U.S. shareholder who holds or held (at
any time during the shorter of the five year period preceding the date of
disposition or the holder’s holding period) more than 5% (directly or indirectly
as determined under applicable attribution rules of the Internal Revenue Code)
of the Fund’s Shares will be subject to United States federal income tax on the
disposition of Shares.
As
part of the Foreign Account Tax Compliance Act, (“FATCA”), the Fund may be
required to withhold 30% tax on certain types of U.S. sourced income
(e.g.,
dividends, interest, and other types of passive income) paid to (i) foreign
financial institutions (“FFIs”), including non-U.S. investment funds, unless
they agree to collect and disclose to the IRS information regarding their direct
and indirect U.S. account holders and (ii) certain nonfinancial foreign entities
(“NFFEs”), unless they certify certain information regarding their direct and
indirect U.S. owners. To avoid possible withholding, FFIs will need to enter
into agreements with the IRS which state that they will provide the IRS
information, including the names, account numbers and balances, addresses and
taxpayer identification numbers of U.S. account holders and comply with due
diligence procedures with respect to the identification of U.S. accounts as well
as agree to withhold tax on certain types of withholdable payments made to
non-compliant foreign financial institutions or to applicable foreign account
holders who fail to provide the required information to the IRS, or similar
account information and required documentation to a local revenue authority,
should an applicable intergovernmental agreement be implemented. NFFEs will need
to provide certain information regarding each substantial U.S. owner or
certifications of no substantial U.S. ownership, unless certain exceptions
apply, or agree to provide certain information to the IRS. While some parts of
the FATCA rules have not been finalized, the Fund may be subject to the FATCA
withholding obligation, and also will be required to perform due diligence
reviews to classify foreign entity investors for FATCA purposes. Investors are
required to agree to provide information necessary to allow the Fund to comply
with the FATCA rules. If the Fund is required to withhold amounts from payments
pursuant to FATCA, investors will receive distributions that are reduced by such
withholding amounts.
Non-U.S.
shareholders are advised to consult their tax advisors with respect to the
particular tax consequences to them of an investment in the Fund, including the
possible applicability of the U.S. estate tax.
The
foregoing discussion summarizes some of the consequences under current U.S.
federal income tax law of an investment in the Fund. It is not a substitute for
personal tax advice. Consult your own tax advisor about the potential tax
consequences of an investment in the Fund under all applicable tax laws. Changes
in applicable tax authority could materially affect the conclusions discussed
above and could adversely affect the Fund, and such changes often
occur.
The
Index is published by MV Index Solutions GmbH (the “Index Provider” or “MVIS”),
which is an indirectly wholly-owned subsidiary of the Adviser. MVIS does not
sponsor, endorse, or promote the Fund and bears no liability with respect to the
Fund or any security.
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MVIS
NORTH
AMERICA ENERGY INFRASTRUCTURE
INDEX |
The
Index is a rules-based, modified capitalization weighted, float adjusted index
intended to give investors a means to track the overall performance of North
American companies involved in the midstream energy segment, which includes MLPs
and corporations involved in oil and gas storage and transportation. “Oil and
gas storage and transportation” companies may include those involved in oil and
gas pipelines, storage facilities, and other activities associated with
transporting, storing, and gathering natural gas, natural gas liquids, crude oil
or refined products.
To
be initially eligible for the Index, (i) companies must generate at least 50% of
their revenues from oil and gas storage and transportation (as defined above),
and (ii) all stocks must have a market capitalization of greater than $150
million as of the end of the month prior to the month in which the review
occurs. Stocks must have a three month average daily trading volume value of at
least $1 million at a review and also at the previous two reviews to be eligible
for the Index and such stocks must have traded at least 250,000 shares each
month over the last six months at a review and also at the previous two
reviews.
The
Index is calculated and maintained by Solactive AG on behalf of
MVIS.
The
Index is reconstituted semi-annually and rebalanced quarterly and will limit
exposure to companies taxed as partnerships to 24% at each quarterly review.
MVIS may delay or change a scheduled rebalancing or reconstitution of the Index
or the implementation of certain rules at its sole discretion.
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| LICENSE
AGREEMENT AND DISCLAIMERS |
The
Adviser has entered into a licensing agreement with MVIS to use the Index. MVIS
is an indirectly wholly owned subsidiary of the Adviser. The Fund is entitled to
use its Index pursuant to a sub-licensing arrangement with the
Adviser.
Shares
of the Fund are not sponsored, endorsed, sold or promoted by MVIS. MVIS makes no
representation or warranty, express or implied, to the owners of Shares of the
Fund or any member of the public regarding the advisability of investing in
securities generally or in the Shares of the Fund particularly or the ability of
the Index to track the performance of the securities market. The Index is
determined and composed by MVIS without regard to the Adviser or the Shares of
the Fund. MVIS has no obligation to take the needs of the Adviser or the owners
of Shares of the Fund into consideration in determining or composing the Index.
MVIS is not responsible for and has not participated in the determination of the
timing of, prices at, or quantities of the Shares of the Fund to be issued or in
the determination or calculation of the equation by which the Shares of the Fund
are to be converted into cash. MVIS has no obligation or liability in connection
with the administration, marketing or trading of the Shares of the
Fund.
The
MVIS Indices are the exclusive property of MVIS, which has contracted with
Solactive AG to maintain and calculate the MVIS Indices. Solactive AG uses its
best efforts to ensure that the MVIS Indices are calculated correctly.
Irrespective of its obligations towards the MVIS, Solactive AG has no obligation
to point out errors in the MVIS Indices to third parties including but not
limited to investors and/or financial intermediaries of the financial
instrument.
Solactive
AG nor does Solactive AG offer any express or implicit guarantee or assurance
either with regard to the results of using the MVIS Indices and/or its trade
mark or its price at any time or in any other respect. The MVIS Indices are
calculated and maintained by Solactive AG. Solactive AG uses its best efforts to
ensure that the MVIS Indices are calculated correctly. Irrespective of its
obligations towards MVIS, Solactive AG has no obligation to point out errors in
the MVIS Indices to third parties including but not limited to investors and/or
financial intermediaries of the MVIS Index ETFs. Neither publication of the MVIS
Indices by Solactive AG nor the licensing of the MVIS Indices or its trade mark
for the purpose of use in connection with the MVIS Index ETFs constitutes a
recommendation by Solactive AG to invest capital in the MVIS Index ETFs nor does
it in any way represent an assurance or opinion of Solactive AG with regard to
any investment in the MVIS Index ETFs. Solactive AG is not responsible for
fulfilling the legal requirements concerning the accuracy and completeness of
the prospectus of the MVIS Index ETFs.
MVIS
DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA
INCLUDED THEREIN AND MVIS SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN. MVIS MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS
TO BE OBTAINED BY THE ADVISER, OWNERS OF SHARES OF THE FUND, OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE INDEX, OR THE FUND, OR ANY DATA INCLUDED THEREIN.
MVIS MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL MVIS HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
On
February 22, 2016, the Fund acquired all of the assets and liabilities of the
respective Predecessor Fund in exchange for shares of beneficial interest of the
Fund (the “Reorganization”). As a result of the Reorganization, the Fund adopted
the financial and performance history of the respective Predecessor
Fund.
The
financial highlights table that follows is intended to help you understand the
Fund’s financial performance for the past five years or as indicated. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent that rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions).
The
information for all periods since the Reorganization has been audited by Ernst
& Young LLP, the Trust’s independent registered public accounting firm,
whose report, along with the Fund’s financial statements, are included in the
Fund’s Annual Report, which is available upon request. The information for all
periods prior to the Reorganization on February 22, 2016 was audited by the
independent registered public accounting firm for the Predecessor Fund
(“Predecessor Accounting Firm”), which is a different firm from the Trust’s
independent registered public accounting firm. The reports of the Predecessor
Accounting Firm, along with the Predecessor Fund’s financial statements (which
have been adopted by the Trust), are included in the annual reports of
Predecessor Fund, which are available upon request.
For
a share outstanding throughout each period:
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Year
Ended
September 30, 2021 |
|
Period
Ended
September
30,
2020(a)(b) |
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Year
Ended November 30, |
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2019 |
|
2018 |
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2017 |
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2016
(c) |
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| Net
asset value, beginning of period |
$ |
34.29 |
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|
$ |
51.20 |
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|
$ |
58.32 |
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|
$ |
68.49 |
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$ |
76.29 |
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$ |
93.90 |
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| Net
investment income (loss) (d) |
1.15 |
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|
0.76 |
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|
(0.39) |
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|
0.09 |
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|
0.42 |
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|
(0.06) |
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| Net
realized and unrealized gain (loss) on investments |
21.90 |
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|
(15.58) |
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|
(1.42) |
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|
(4.44) |
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|
(2.25) |
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|
(9.93) |
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| Total
from investment operations |
23.05 |
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|
(14.82) |
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|
(1.81) |
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|
(4.35) |
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|
(1.83) |
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|
(9.99) |
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| Distributions
from: |
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| Net
investment income |
(1.37) |
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|
— |
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|
(1.77) |
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|
— |
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|
— |
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|
— |
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| Return
of capital distribution |
(1.72) |
|
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|
(2.09) |
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|
(3.54) |
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|
(5.82) |
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|
(5.97) |
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|
(7.62) |
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| Total
distributions |
(3.09) |
|
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|
(2.09) |
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|
(5.31) |
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|
(5.82) |
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|
(5.97) |
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|
(7.62) |
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| Net
asset value, end of period |
$ |
54.25 |
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|
$ |
34.29 |
|
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|
$ |
51.20 |
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|
$ |
58.32 |
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|
$ |
68.49 |
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|
$ |
76.29 |
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| Total
return (e) |
68.88 |
% |
|
|
(29.74) |
|
%(f) |
|
(3.66) |
|
% |
(7.16) |
|
% |
(2.67) |
|
% |
(8.40) |
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% |
| Ratios
to average net assets |
|
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| Expenses |
0.46 |
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% |
|
0.45 |
|
%(g)(h) |
|
1.41 |
|
%(i) |
0.73 |
|
%(j) |
0.86 |
|
%(k) |
0.88 |
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% |
| Expenses
excluding interest expense and taxes |
0.45 |
|
% |
|
0.45 |
|
%(g)(h) |
|
1.41 |
|
%(i) |
0.73 |
|
%(j) |
0.86 |
|
%(k) |
0.88 |
|
% |
| Net
investment income (loss) |
2.43 |
|
% |
|
2.17 |
|
%(g)(l) |
|
(0.68) |
|
%(i) |
0.13 |
|
%(j) |
0.55 |
|
%(k) |
(0.34) |
|
% |
| Supplemental
data |
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| Net
assets, end of year (in millions) |
$ |
24 |
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|
$ |
20 |
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|
$ |
52 |
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|
$ |
45 |
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|
$ |
64 |
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$ |
95 |
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| Portfolio
turnover rate (m) |
24 |
|
% |
|
24 |
|
%(f) |
|
106 |
|
% |
34 |
|
% |
40 |
|
% |
46 |
|
% |
The
financial highlights include the financial information of the Predecessor Fund
through February 21, 2016 (See Note 1).
(a)On
April 15, 2020, the Fund effected a 1 for 3 reverse share split. Per share data
prior to April 15, 2020 has been adjusted to reflect the reverse share
split.
(b)The
Fund changed its fiscal year-end from November 30 to September 30.
(c)On
June 29, 2016, the Fund effected a 1 for 5 reverse share split. Per share data
prior to June 29, 2016 has been adjusted to reflect the reverse share
split.
(d)Calculated
based upon average shares outstanding.
(e)Returns
include adjustments in accordance with U.S. Generally Accepted Accounting
Principles. Net asset values and returns for financial reporting purposes may
differ from those for shareholder transactions.
(f)Not
Annualized
(g)Annualized
(h)Includes
income tax expense of 1.56% and adviser reimbursement of (1.56%). If the adviser
had not reimbursed the Fund, the ratio would have been higher.
(i)Includes
income tax expense of 0.59% related to the Fund’s tax status as a C-Corporation
prior to its reorganization as a regulated investment company.
(j)Includes
income tax benefit of 0.11% related to the Fund’s tax status as a C-Corporation
prior to its reorganization as a regulated investment company.
(k)Includes
income tax expense of 0.04% related to the Fund’s tax status as a C-Corporation
prior to its reorganization as a regulated investment company.
(l)Includes
income tax expense of 1.56% and adviser reimbursement of (1.56%). If the adviser
had not reimbursed the Fund, the ratio would have been lower.
(m)Portfolio
turnover rate excludes in-kind transactions.
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| PREMIUM/DISCOUNT
INFORMATION |
Information
regarding how often the closing trading price of the Shares of the Fund was
above (i.e.,
at a premium) or below (i.e.,
at a discount) the NAV of the Fund for the most recently completed calendar year
and the most recently completed calendar quarter(s) since that year (or the life
of the Fund, if shorter) can be found at www.vaneck.com.
CONTINUOUS
OFFERING
The
method by which Creation Units are created and traded may raise certain issues
under applicable securities laws. Because new Creation Units are issued and sold
by the Trust on an ongoing basis, a “distribution,” as such term is used in the
Securities Act may occur at any point. Broker dealers and other persons are
cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
manner which could render them statutory underwriters and subject them to the
prospectus delivery and liability provisions of the Securities Act.
For
example, a broker dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with the
Distributor, breaks them down into constituent Shares, and sells such Shares
directly to customers, or if it chooses to couple the creation of a supply of
new Shares with an active selling effort involving solicitation of secondary
market demand for Shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a categorization
as an underwriter.
Broker
dealers who are not “underwriters” but are participating in a distribution (as
contrasted to ordinary secondary trading transactions), and thus dealing with
Shares that are part of an “unsold allotment” within the meaning of Section
4(a)(3)(C) of the Securities Act, would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act.
This is because the prospectus delivery exemption in Section 4(a)(3) of the
Securities Act is not available in respect of such transactions as a result of
Section 24(d) of the 1940 Act. As a result, broker dealer firms should note that
dealers who are not underwriters but are participating in a distribution (as
contrasted with ordinary secondary market transactions) and thus dealing with
the Shares that are part of an overallotment within the meaning of Section
4(a)(3)(A) of the Securities Act would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act.
Firms that incur a prospectus delivery obligation with respect to Shares are
reminded that, under Rule 153 of the Securities Act, a prospectus delivery
obligation under Section 5(b)(2) of the Securities Act owed to an exchange
member in connection with a sale on the Exchange is satisfied by the fact that
the prospectus is available at the Exchange upon request. The prospectus
delivery mechanism provided in Rule 153 is only available with respect to
transactions on an exchange.
In
addition, certain affiliates of the Fund and the Adviser may purchase and resell
Fund shares pursuant to this Prospectus.
OTHER
INFORMATION
The
Trust was organized as a Delaware statutory trust on March 15, 2001. Its
Declaration of Trust currently permits the Trust to issue an unlimited number of
Shares of beneficial interest. If shareholders are required to vote on any
matters, each Share outstanding would be entitled to one vote. Annual meetings
of shareholders will not be held except as required by the 1940 Act and other
applicable law. See the Fund’s SAI for more information concerning the Trust’s
form of organization. Section 12(d)(1) of the 1940 Act restricts investments by
investment companies in the securities of other investment companies, including
Shares of the Fund. Registered investment companies are permitted to invest in
the Fund beyond the limits set forth in Section 12(d)(1) subject to certain
terms and conditions set forth in an SEC regulation, including that such
investment companies enter into an agreement with the Fund.
The
Prospectus, SAI and any other Fund communication do not create any contractual
obligations between the Fund’s shareholders and the Trust, the Fund, the Adviser
and/or the Trustees. Further, shareholders are not intended third party
beneficiaries of any contracts entered into by (or on behalf of) the Fund,
including contracts with the Adviser or other parties who provide services to
the Fund.
Dechert
LLP serves as counsel to the Trust, including the Fund. Ernst & Young LLP
serves as the Trust’s independent registered public accounting firm and will
audit the Fund’s financial statements annually.
ADDITIONAL
INFORMATION
This
Prospectus does not contain all the information included in the Registration
Statement filed with the SEC with respect to the Fund’s Shares. The Fund’s
Registration Statement, including this Prospectus, the Fund’s SAI and the
exhibits are available on the EDGAR database at the SEC’s website
(http://www.sec.gov), and copies may be obtained, after paying a duplicating
fee, by electronic request at the following email address:
[email protected].
The
SAI for the Fund, which has been filed with the SEC, provides more information
about the Fund. The SAI for the Fund is incorporated herein by reference and is
legally part of this Prospectus. Additional information about the Fund’s
investments is available in the Fund’s annual and semi-annual reports to
shareholders. In the Fund’s annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund’s performance during its last fiscal year. The SAI and the Fund’s annual
and semi-annual reports may be obtained without charge by writing to the Fund at
Van Eck Securities Corporation, the Fund’s Distributor, at 666 Third Avenue, 9th
Floor, New York, New York 10017 or by calling the Distributor at the following
number: Investor Information: 800.826.2333.
Shareholder
inquiries may be directed to the Fund in writing to 666 Third Avenue, 9th Floor,
New York, New York 10017 or by calling 800.826.2333.
The
Fund’s SAI is available at www.vaneck.com.
(Investment
Company Act file no. 811-10325)
[THIS
PAGE INTENTIONALLY LEFT BLANK]
For
more detailed information about the Fund, see the SAI dated February 1, 2022, as
may be supplemented from time to time. Additional information about the Fund’s
investments is or will be available in the Fund’s annual and semi-annual reports
to shareholders. In the Fund’s annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund’s performance during its last fiscal year.
Call
VanEck at 800.826.2333 to request, free of charge, the annual or semi-annual
reports, the SAI, or other information about the Fund or to make shareholder
inquiries. You may also obtain the SAI or the Fund’s annual or semi-annual
reports, by visiting the VanEck website at www.vaneck.com.
Reports
and other information about the Fund are available on the EDGAR Database on the
SEC’s internet site at http://www.sec.gov. In addition, copies of this
information may be obtained, after paying a duplicating fee, by electronic
request at the following email address: [email protected].
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Transfer
Agent: State Street Bank and Trust Company
SEC
Registration Number: 333-123257
1940
Act Registration Number: 811-10325
EINCPRO |
800.826.2333
www.vaneck.com |
