The
information in this Prospectus is not complete and may be changed. The Trust may
not sell these securities
until
the registration statement filed with the Securities and Exchange Commission is
effective. This Prospectus
is
not an offer to sell these securities and is not soliciting an offer to buy
these securities in any jurisdiction
where
the offer or sale is not permitted.
Subject
to Completion
Preliminary
Prospectus dated March 25, 2024
China
Bond ETF CBON
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Principal
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The
U.S. Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense. |
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800.826.2333
vaneck.com
SUMMARY
INFORMATION
INVESTMENT
OBJECTIVE
VanEck®
China
Bond ETF (the “Fund”) seeks to replicate as closely as possible, before fees and
expenses, the price and yield performance of the FTSE Chinese Broad Bond 0-10
Years Diversified Select 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 |
0.40 |
% |
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Other
Expenses |
0.11 |
% |
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Total
Annual Fund Operating Expenses(a) |
0.51 |
% |
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Fee
Waivers and Expense Reimbursement(a) |
0.00 |
% |
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Total
Annual Fund Operating Expenses After Fee Waivers and Expense
Reimbursement(a) |
0.51 |
% |
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(a) Van
Eck Associates Corporation (the “Adviser”) has agreed to waive fees and/or pay
Fund expenses to the extent necessary to prevent the operating expenses of the
Fund (excluding acquired fund fees and expenses, interest expense, trading
expenses, taxes and extraordinary expenses) from exceeding 0.50% of the Fund’s
average daily net assets per year until at least September 1, 2025. During such
time, the expense limitation is expected to continue until the Fund’s Board of
Trustees acts to discontinue all or a portion of such expense
limitation.
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 (except that the example
incorporates the fee waivers and/or expense reimbursement arrangement for only
the first year). Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
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YEAR |
EXPENSES |
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1 |
$52 |
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3 |
$164 |
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5 |
$285 |
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10 |
$640 |
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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 10% 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 calculated by FTSE Russell
Ltd., (the “Index Provider”), and is comprised of fixed-rate, Renminbi
(“RMB”)-denominated bonds issued in the People’s Republic of China (“China” or
the “PRC”) by Chinese credit, governmental and quasi-governmental (e.g., policy
banks) issuers (“RMB Bonds”). Credit RMB Bonds or the issuer must have an
“investment grade” rating by Standard & Poor’s or Moody’s Investors Service
to be included in the Index. China currently has three policy banks, which are
state-owned banks responsible for financing economic and trade development and
state invested projects. As of February 29, 2024, the Index
was
comprised of 485 bonds of 54 issuers. 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. 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 take temporary defensive positions that are
inconsistent with its investment objective of seeking to replicate the Index.
Because of the practical difficulties and expense of purchasing all of the
securities in the Index, the Fund does not purchase all of the securities in the
Index. Instead, the Adviser utilizes a “sampling” methodology in seeking to
achieve the Fund’s objective. As such, the Fund may purchase a subset of the
bonds in the Index in an effort to hold a portfolio of bonds with generally the
same risk and return characteristics of the Index.
RMB
Bonds are traded on the inter-bank bond market or the exchange-traded bond
market in the PRC. Currently, the inter-bank bond market is much larger with
respect to trading volume and is generally considered more liquid than the
exchange-traded bond market. The inter-bank bond market is a quote-driven
over-the-counter (“OTC”) market for institutional investors, while the
exchange-traded bond market is an electronic automatic matching system where
securities are traded on the Shanghai Stock Exchange or the Shenzhen Stock
Exchange. These RMB Bonds are made available to domestic PRC investors and
certain foreign investors, including via the Bond Connect program, through those
registered under the China interbank bond market program for foreign
institutional investors.
The
Fund seeks to achieve its investment objective by primarily investing in RMB
Bonds through Bond Connect.
The
Fund is classified as a non-diversified fund 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 February 29, 2024, each of the financials and government sectors 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.
RMB
Bonds Risk. Investing
in RMB Bonds involves additional risks, including, the fact that the economy of
China differs, often unfavorably, from the U.S. economy, including, among other
things, currency revaluation, structure, general development, government
involvement, wealth distribution, rate of inflation, growth rate, allocation of
resources and capital reinvestment, among others; the central government has
historically exercised substantial control over virtually every sector of the
Chinese economy through administrative regulation and/or state ownership;
actions of the Chinese central and local government authorities continue to have
a substantial effect on economic conditions in China; the risk of
nationalization or expropriation of assets; the risk that the Chinese government
may decide not to continue to support economic reform programs; and the risk of
increased trade tariffs, embargoes, sanctions, investment restrictions and other
trade limitations. In addition, previously the Chinese government has from time
to time taken actions that influence the prices at which certain goods may be
sold, encourage companies to invest or concentrate in particular industries,
induce mergers between companies in certain industries and induce private
companies to publicly offer their securities to increase or continue the rate of
economic growth, control the rate of inflation or otherwise regulate economic
expansion. The Chinese government may do so in the future as well, potentially
having a significant adverse effect on economic conditions in China. Investment
and trading restrictions may make it difficult for non-Chinese investors to
directly access securities by Chinese issuers. These restrictions may impact the
availability, liquidity and pricing of certain RMB-denominated securities,
including RMB Bonds. Additionally, the Chinese government maintains strict
currency controls and regularly intervenes in the currency market. The Chinese
government’s actions may not be transparent or predictable. As a result, the
value of the RMB and the value of RMB Bonds may change quickly and
arbitrarily.
The
financial market of the People’s Republic of China (“PRC”) is at a relatively
early stage of development, and many of the RMB Bonds in which the Fund may
invest are unrated by U.S. credit rating agencies, which may expose the Fund to
greater risks because of generally reduced liquidity, greater price volatility
and greater credit risk.
The
Fund may also encounter difficulties or delays in enforcing its rights against
issuers of RMB Bonds that are organized in the PRC and therefore only subject to
the laws of the PRC. The interpretation and enforcement of Chinese laws and
regulations may be uncertain. With respect to laws pertaining to bankruptcy
proceedings, such laws in Mainland China are generally less developed than and
different from such laws in the United States. Therefore, bankruptcy proceedings
can take more time to resolve than similar proceedings in the United States and
results can be unpredictable. These and other factors could have a negative
impact on the Fund’s performance and increase the volatility of an investment in
the Fund.
Bond
Connect and the CIBM Direct Access Program Risk.
The Bond Connect program and the CIBM Direct Access Program are relatively new.
Laws, rules, regulations, policies, notices, circulars or guidelines relating to
the programs as published or applied by the relevant authorities of the PRC are
untested and are subject to change from time to time. There can be no
assurance
that the Bond Connect program and/or the CIBM Direct Access Program will not be
restricted, suspended or abolished. If such event occurs, the Fund’s ability to
invest in the China interbank bond market through the CIBM Direct Access Program
or Bond Connect will be adversely affected, and if the Fund is unable to
adequately access the China interbank bond market through other means, the
Fund’s ability to achieve its investment objective will be adversely
affected.
The
Fund’s investments through Bond Connect are generally subject to Mainland China
securities laws and listing requirements, among other restrictions. Such
securities may lose their eligibility at any time, in which case they could be
sold but could no longer be purchased through Bond Connect. The Fund will not
benefit from access to Hong Kong investor compensation funds, which are set up
to protect against defaults of trades, when investing through Bond Connect. Bond
Connect is only available on days when markets in both Mainland China and Hong
Kong are open. As a result, prices of Bond Connect Securities may fluctuate at
times when the Fund is unable to add to or exit its position and, therefore, may
limit the Fund’s ability to trade when it would otherwise do so.
Under
the prevailing PRC regulations, eligible foreign investors who wish to
participate in the Bond Connect program may do so through an offshore custody
agent, registration agent or other third parties, and eligible foreign
institutional investors who wish to invest directly in the China interbank bond
market through the CIBM Direct Access Program may do so through an onshore
settlement agent. These agents would be responsible for making the relevant
filings and account opening with the relevant authorities. The Fund is therefore
subject to the risk of default or errors on the part of such agents. The Fund
may also incur losses due to the acts or omissions of the onshore settlement
agent in the process of settling any transactions. As a result, the value of the
relevant Fund may be adversely affected.
Investing
in the CIBM Direct Access Program is also subject to certain restrictions
imposed by the Mainland Chinese authorities on fund remittance and repatriation
which may potentially affect the Fund’s performance and liquidity. Any
non-compliance with or failure to meet the fund remittance and repatriation
requirements may result in regulatory sanctions, which in turn may have an
adverse impact on the portion of the Fund’s investment via the CIBM Direct
Access Program. Further, there is no assurance that the fund remittance and
repatriation requirements in relation to the Fund's investment through the CIBM
Direct Access Program or invest directly in the China interbank bond market will
not be changed as a result of change in government policies or foreign exchange
control policies. The Fund may incur loss in the event such
changes.
Trading
through the Bond Connect program is performed through newly developed trading
platforms and operational systems. There is no assurance that such systems will
function properly (in particular, under extreme market conditions) or will
continue to be adapted to changes and developments in the market. In the event
that the relevant systems fail to function properly, trading through the Bond
Connect may be disrupted. The Fund’s ability to trade through the Bond Connect
(and hence to pursue its investment strategy) may therefore be adversely
affected. In addition, where the Fund invests in the China interbank bond market
through the Bond Connect program, it may be subject to risks of delays inherent
in the order placing and/or settlement.
Bond
Connect trades are settled in onshore RMB (CNY) and investors must have timely
access to a reliable supply of CNY in Hong Kong, which may incur conversion
costs and cannot be guaranteed. Moreover, Bond Connect Securities generally may
not be sold, purchased or otherwise transferred other than through Bond Connect
in accordance with applicable rules.
The
Fund’s investments through Bond Connect will be held on behalf of the Fund via a
book entry omnibus account in the name of the Central Moneymarkets Unit of Hong
Kong maintained with a Mainland China-based custodian. The Fund’s ownership
interest in investments through Bond Connect will not be reflected directly in
book entry with a Mainland China-based custodian and will instead only be
reflected on the books of its Hong Kong sub-custodian. Therefore, the Fund is
subject to the risks regarding the exercise and the enforcement of beneficial
ownership rights over such bonds in the courts in China.
“Bond
Connect Authorities” refers to the exchanges, trading systems, settlement
systems, governmental, regulatory or tax bodies which provide services and/or
regulate Bond Connect and activities relating to Bond Connect.
Renminbi
Currency Risk.
Emerging markets such as China can experience high rates of inflation, deflation
and currency devaluation. The value of the RMB may be subject to a high degree
of fluctuation due to, among other things, changes in interest rates, the
effects of monetary policies issued by the PRC, the United States, foreign
governments, central banks or supranational entities, the imposition of currency
controls or other national or global political or economic developments. The
income received by the Fund for its investments denominated in RMB will
principally be in RMB. The Fund’s exposure to the RMB and changes in value of
the RMB versus the U.S. dollar may result in reduced returns for the Fund.
Moreover, the Fund may incur costs in connection with conversions between U.S.
dollars and RMB. The RMB is currently not a freely convertible currency. The
Chinese government places strict regulation on the RMB and sets the value of the
RMB to levels dependent on the value of the U.S. dollar. The Chinese
government’s imposition of restrictions on the repatriation of RMB out of
Mainland China may limit the depth of the offshore RMB market and reduce the
liquidity of the Fund’s investments. The international community has requested
that China ease its restrictions on currency exchange, but it is unclear whether
the Chinese government will change its policy. These restrictions may adversely
affect the Fund and its investments. The Fund may also be exposed to both
offshore RMB (CNH) and onshore RMB (CNY). To the extent the Fund carries out
conversions between CNH and CNY, investors should note that although CNH and CNY
are the same currency, they trade at different rates. Any divergence between CNH
and CNY may adversely impact investors and the Fund.
Chinese Banking Industry Risk. The
Chinese banking industry is highly regulated and is subject to laws and
regulations touching all aspects of the banking business. These regulators are
given wide discretion in exercising their authority. The banking regulatory
regime in China is currently undergoing significant changes, including changes
in laws and regulations, as it moves toward a more transparent regulatory
process. Some of these changes may have an adverse impact on the performance of
Chinese banks that issue RMB Bonds and may adversely affect their capacity to
honor their commitments to the holders of RMB Bonds, which may include the
Fund.
PRC
Tax Risk.
The application of the tax laws and regulations of the PRC to income, including
capital gains, derived from certain investments of the Fund remains unclear, and
may well continue to evolve, possibly with retroactive effect. Any taxes imposed
on the investments of the Fund pursuant to such laws and regulations will reduce
the Fund’s overall returns.
Sovereign
Bond Risk. Investment
in sovereign bonds involves special risks not present in corporate bonds. The
governmental authority that controls the repayment of the bond may be unable or
unwilling to make interest payments and/or repay the principal on its debt or to
otherwise honor its obligations. If an issuer of sovereign bonds defaults on
payments of principal and/or interest, the Fund may have limited recourse
against the issuer. During periods of economic uncertainty, the market prices of
sovereign bonds, and the Fund’s net asset value, may be more volatile than
prices of corporate bonds, which may result in losses. In the past, certain
governments of emerging market countries have declared themselves unable to meet
their financial obligations on a timely basis, which has resulted in losses for
holders of sovereign bonds.
Financials
Sector Risk.
Companies in the financials sector may be subject to extensive government
regulation that affects the scope of their activities, the prices they can
charge and the amount of capital they must maintain. The profitability of
companies in the financials sector may be adversely affected by increases in
interest rates, by loan losses, which usually increase in economic downturns,
and by credit rating downgrades. In addition, the financials sector is
undergoing numerous changes, including continuing consolidations, development of
new products and structures and changes to its regulatory framework.
Furthermore, some companies in the financials sector perceived as benefiting
from government intervention in the past may be subject to future
government-imposed restrictions on their businesses or face increased government
involvement in their operations. Increased government involvement in the
financials sector, including measures such as taking ownership positions in
financial institutions, could result in a dilution of the Fund’s investments in
financial institutions.
Government-Related Bond Risk. The
governmental authority or government-related entity that controls the repayment
of the bond may be unable or unwilling to honor its payment obligations. If an
issuer of government-related bonds defaults on payments of principal and/or
interest, the Fund may have limited recourse against the issuer. A
government-related debtor’s willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange when a payment is due, the relative size of the debt
service burden to the economy as a whole, the government-related debtor’s policy
toward international lenders, and the political constraints to which the debtor
may be subject. During periods of economic uncertainty, the market prices of
government-related bonds, and the Fund’s net asset value, may be more volatile
than prices of corporate bonds, which may result in losses.
Credit Risk. Credit risk refers
to the possibility that the issuer or guarantor of a security will be unable
and/or unwilling to honor its payment obligations and/or default completely on
securities. The Fund’s securities are subject to varying degrees
of credit risk, depending on the issuer’s financial condition and on
the terms of the securities, which may be reflected in credit ratings. There is
a possibility that the credit rating of a security may be downgraded after
purchase or the perception of an issuer’s creditworthiness may decline, which
may adversely affect the value of the security. Lower credit quality may also
affect liquidity and make it difficult for the Fund to sell the
security.
Interest Rate Risk.
Debt securities and preferred securities are subject to interest rate risk.
Interest rate risk refers to fluctuations in the value of a security resulting
from changes in the general level of interest rates. When the general level of
interest rates goes up, the prices of most debt securities and certain preferred
securities go down. When the general level of interest rates goes down, the
prices of most debt securities go up. Many factors can cause interest rates to
rise, including central bank monetary policy, rising inflation rates and general
economic conditions. Debt securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than debt
securities, such as bonds, with shorter durations. A substantial investment by
the Fund in debt securities with longer-term maturities during periods of rising
interest rates may cause the value of the Fund’s investments to decline
significantly. Changing interest rates may have unpredictable effects on
markets, may result in heightened market volatility and may detract from Fund
performance to the extent the Fund is exposed to such interest rates and/or
volatility. It is difficult to predict the magnitude, timing or direction of
interest rate changes and the impact these changes will have on the markets in
which the Fund invests.
Subordinated
Obligations Risk. Payments
under some bonds may be structurally subordinated to all existing and future
liabilities and obligations of each of the respective subsidiaries and
associated companies of an issuer of the bond. Claims of creditors of such
subsidiaries and associated companies will have priority as to the assets of
such subsidiaries and associated companies over the issuer and its creditors,
including the Fund, who seek to enforce the terms of the bond. Certain bonds do
not contain any restrictions on the ability of the subsidiaries of the issuers
to incur additional unsecured indebtedness.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s investments.
Foreign market trading hours, clearance and settlement procedures, and holiday
schedules may limit the Fund's ability to buy and sell securities.
Emerging
Market Issuers Risk.
Investments in securities of emerging market issuers involve risks not typically
associated with investments in securities of issuers in more developed countries
that may negatively affect the value of your investment in the Fund. Such
heightened risks may include, among others, expropriation and/or nationalization
of assets, restrictions on and government intervention in international trade,
confiscatory taxation, political instability, including authoritarian and/or
military involvement in governmental decision making, armed conflict, the impact
on the economy as a result of civil war, crime (including drug violence) and
social instability as a result of religious, ethnic and/or socioeconomic unrest.
Issuers in certain emerging market countries are subject to less stringent
requirements regarding accounting, auditing, financial reporting and record
keeping than are issuers in more developed markets, and therefore, all material
information may not be available or reliable. Emerging markets are also more
likely than developed markets to experience problems with the clearing and
settling of trades, as well as the holding of securities by local banks, agents
and depositories. Low trading volumes and volatile prices in less developed
markets may make trades harder to complete and settle, and governments or trade
groups may compel local agents to hold securities in designated depositories
that may not be subject to independent evaluation. Local agents are held only to
the standards of care of their local markets. In general, the less developed a
country’s securities markets are, the greater the likelihood of custody
problems. Additionally, each of the factors described below could have a
negative impact on the Fund’s performance and increase the volatility of the
Fund.
Securities
Market Risk.
Securities markets in emerging market countries are underdeveloped and are often
considered to be less correlated to global economic cycles than those markets
located in more developed countries. Securities markets in emerging market
countries are subject to greater risks associated with market volatility, lower
market capitalization, lower trading volume, illiquidity, inflation, greater
price fluctuations, uncertainty regarding the existence of trading markets,
governmental control and heavy regulation of labor and industry. These factors,
coupled with restrictions on foreign investment and other factors, limit the
supply of securities available for investment by the Fund. This will affect the
rate at which the Fund is able to invest in emerging market countries, the
purchase and sale prices for such securities and the timing of purchases and
sales. Emerging markets can experience high rates of inflation, deflation and
currency devaluation. The prices of certain securities listed on securities
markets in emerging market countries have been subject to sharp fluctuations and
sudden declines, and no assurance can be given as to the future performance of
listed securities in general. Volatility of prices may be greater than in more
developed securities markets. Moreover, securities markets in emerging market
countries may be closed for extended periods of time or trading on securities
markets may be suspended altogether due to political or civil unrest. Market
volatility may also be heightened by the actions of a small number of investors.
Brokerage firms in emerging market countries may be fewer in number and less
established than brokerage firms in more developed markets. Since the Fund may
need to effect securities transactions through these brokerage firms, the Fund
is subject to the risk that these brokerage firms will not be able to fulfill
their obligations to the Fund. This risk is magnified to the extent the Fund
effects securities transactions through a single brokerage firm or a small
number of brokerage firms. In addition, the infrastructure for the safe custody
of securities and for purchasing and selling securities, settling trades,
collecting dividends, initiating corporate actions, and following corporate
activity is not as well developed in emerging market countries as is the case in
certain more developed markets.
Political
and Economic Risk.
Certain emerging market countries have historically been subject to political
instability and their prospects are tied to the continuation of economic and
political liberalization in the region. Instability may result from factors such
as government or military intervention in decision making, terrorism, civil
unrest, extremism or hostilities between neighboring countries. Any of these
factors, including an outbreak of hostilities could negatively impact the Fund’s
returns. Limited political and democratic freedoms in emerging market countries
might cause significant social unrest. These factors may have a significant
adverse effect on an emerging market country’s economy.
Many
emerging market countries may be heavily dependent upon international trade and,
consequently, may continue to be negatively affected by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which it
trades. They also have been, and may continue to be, adversely affected by
economic conditions in the countries with which they trade.
In
addition, commodities (such as oil, gas and minerals) represent a significant
percentage of certain emerging market countries’ exports and these economies are
particularly sensitive to fluctuations in commodity prices. Adverse economic
events in one country may have a significant adverse effect on other countries
of this region. In addition, most emerging market countries have experienced, at
one time or another, severe and persistent levels of inflation, including, in
some cases,
hyperinflation.
This has, in turn, led to high interest rates, extreme measures by governments
to keep inflation in check, and a generally debilitating effect on economic
growth.
Although
inflation in many countries has lessened, there is no guarantee it will remain
at lower levels. The political history of certain emerging market countries has
been characterized by political uncertainty, intervention by the military in
civilian and economic spheres, and political corruption. Such events could
reverse favorable trends toward market and economic reform, privatization, and
removal of trade barriers, and result in significant disruption in securities
markets in the region.
Also,
from time to time, certain issuers located in emerging market countries in which
the Fund invests may operate in, or have dealings with, countries subject to
sanctions and/or embargoes imposed by the U.S. Government and the United Nations
and/or countries identified by the U.S. Government as state sponsors of
terrorism. As a result, an issuer may sustain damage to its reputation if it is
identified as an issuer which operates in, or has dealings with, such countries.
The Fund, as an investor in such issuers, will be indirectly subject to those
risks.
The
economies of one or more countries in which the Fund may invest may be in
various states of transition from a planned economy to a more market oriented
economy. The economies of such countries differ from the economies of most
developed countries in many respects, including levels of government
involvement, states of development, growth rates, control of foreign exchange
and allocation of resources. Economic growth in these economies may be uneven
both geographically and among various sectors of their economies and may also be
accompanied by periods of high inflation. Political changes, social instability
and adverse diplomatic developments in these countries could result in the
imposition of additional government restrictions, including expropriation of
assets, confiscatory taxes or nationalization of some or all of the property
held by the underlying issuers of securities of emerging market issuers. There
is no guarantee that the governments of these countries will not revert back to
some form of planned or non-market oriented economy, and such governments
continue to be active participants in many economic sectors through ownership
positions and regulation. The allocation of resources in such countries is
subject to a high level of government control. Such countries’ governments may
strictly regulate the payment of foreign currency denominated obligations and
set monetary policy. Through their policies, these governments may provide
preferential treatment to particular industries or companies. The policies set
by the government of one of these countries could have a substantial effect on
that country’s economy.
Investment
and Repatriation Restrictions Risk.
The government in an emerging market country may restrict or control to varying
degrees the ability of foreign investors to invest in securities of issuers
located or operating in such emerging market countries. These restrictions
and/or controls may at times limit or prevent foreign investment in securities
of issuers located or operating in emerging market countries and may inhibit the
Fund’s ability to meet its investment objective. In addition, the Fund may not
be able to buy or sell securities or receive full value for such securities.
Moreover, certain emerging market countries may require governmental approval or
special licenses prior to investments by foreign investors and may limit the
amount of investments by foreign investors in a particular industry and/or
issuer; may limit such foreign investment to a certain class of securities of an
issuer that may have less advantageous rights than the classes available for
purchase by domiciliaries of such emerging market countries; and/or may impose
additional taxes on foreign investors. A delay in obtaining a required
government approval or a license would delay investments in those emerging
market countries, and, as a result, the Fund may not be able to invest in
certain securities while approval is pending. The government of certain emerging
market countries may also withdraw or decline to renew a license that enables
the Fund to invest in such country. These factors make investing in issuers
located or operating in emerging market countries significantly riskier than
investing in issuers located or operating in more developed countries, and any
one of them could cause a decline in the net asset value of the
Fund.
Additionally,
investments in issuers located in certain emerging market countries may be
subject to a greater degree of risk associated with governmental approval in
connection with the repatriation of investment income, capital or the proceeds
of sales of securities by foreign investors. Moreover, there is the risk that if
the balance of payments in an emerging market country declines, the government
of such country may impose temporary restrictions on foreign capital
remittances. Consequently, the Fund could be adversely affected by delays in, or
a refusal to grant, required governmental approval for repatriation of capital,
as well as by the application to the Fund of any restrictions on investments.
Furthermore, investments in emerging market countries may require the Fund to
adopt special procedures, seek local government approvals or take other actions,
each of which may involve additional costs to the Fund.
Risk
of Available Disclosure About Emerging Market Issuers.
Issuers located or operating in emerging market countries are not subject to the
same rules and regulations as issuers located or operating in more developed
countries. Therefore, there may be less financial and other information publicly
available with regard to issuers located or operating in emerging market
countries and such issuers are not subject to the uniform accounting, auditing
and financial reporting standards applicable to issuers located or operating in
more developed countries.
Foreign
Currency Risk Considerations.
The Fund’s assets that are invested in securities of issuers in emerging market
countries will generally be denominated in foreign currencies, and the proceeds
received by the Fund from these investments will be principally in foreign
currencies. The value of an emerging market country’s currency may be subject to
a high degree of fluctuation. This fluctuation may be due to changes in interest
rates, the effects of monetary policies issued by the United
States,
foreign governments, central banks or supranational entities, the imposition of
currency controls or other national or global political or economic
developments. The economies of certain emerging market countries can be
significantly affected by currency devaluations. Certain emerging market
countries may also have managed currencies which are maintained at artificial
levels relative to the U.S. dollar rather than at levels determined by the
market. This type of system can lead to sudden and large adjustments in the
currency which, in turn, can have a disruptive and negative effect on foreign
investors.
The
Fund’s exposure to an emerging market country’s currency and changes in value of
such foreign currencies versus the U.S. dollar may reduce the Fund’s investment
performance and the value of your investment in the Fund. Meanwhile, the Fund
will compute and expects to distribute its income in U.S. dollars, and the
computation of income will be made on the date that the income is earned by the
Fund at the foreign exchange rate in effect on that date. Therefore, if the
value of the respective emerging market country’s currency falls relative to the
U.S. dollar between the earning of the income and the time at which the Fund
converts the relevant emerging market country’s currency to U.S. dollars, the
Fund may be required to liquidate certain positions in order to make
distributions if the Fund has insufficient cash in U.S. dollars to meet
distribution requirements under the Internal Revenue Code of 1986. The
liquidation of investments, if required, could be at disadvantageous prices or
otherwise have an adverse impact on the Fund’s performance.
Certain
emerging market countries also restrict the free conversion of their currency
into foreign currencies, including the U.S. dollar. There is no significant
foreign exchange market for many such currencies and it would, as a result, be
difficult for the Fund to engage in foreign currency transactions designed to
protect the value of the Fund’s interests in securities denominated in such
currencies. Furthermore, if permitted, the Fund may incur costs in connection
with conversions between U.S. dollars and an emerging market country’s currency.
Foreign exchange dealers realize a profit based on the difference between the
prices at which they are buying and selling various currencies. Thus, a dealer
normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell
that currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into forward, futures or options contracts to purchase or
sell foreign currencies.
Operational
and Settlement Risk.
In addition to having less developed securities markets, emerging market
countries have less developed custody and settlement practices than certain
developed countries. Rules adopted under the Investment Company Act of 1940
permit the Fund to maintain its foreign securities and cash in the custody of
certain eligible non-U.S. banks and securities depositories. Banks in emerging
market countries that are eligible foreign sub-custodians may be recently
organized or otherwise lack extensive operating experience. In addition, in
certain emerging market countries there may be legal restrictions or limitations
on the ability of the Fund to recover assets held in custody by a foreign
sub-custodian in the event of the bankruptcy of the sub-custodian. Because
settlement systems in emerging market countries may be less organized than in
other developed markets, there may be a risk that settlement may be delayed and
that cash or securities of the Fund may be in jeopardy because of failures of or
defects in the systems. Under the laws in many emerging market countries, the
Fund may be required to release local shares before receiving cash payment or
may be required to make cash payment prior to receiving local shares, creating a
risk that the Fund may surrender cash or securities without ever receiving
securities or cash from the other party. Settlement systems in emerging market
countries also have a higher risk of failed trades and back to back settlements
may not be possible.
The
Fund may not be able to convert a foreign currency to U.S. dollars in time for
the settlement of redemption requests. In the event that the Fund is not able to
convert the foreign currency to U.S. dollars in time for settlement, which may
occur as a result of the delays described above, the Fund may be required to
liquidate certain investments and/or borrow money in order to fund such
redemption. The liquidation of investments, if required, could be at
disadvantageous prices or otherwise have an adverse impact on the Fund’s
performance (e.g.,
by causing the Fund to overweight foreign currency denominated holdings and
underweight other holdings which were sold to fund redemptions). In addition,
the Fund will incur interest expense on any borrowings and the borrowings will
cause the Fund to be leveraged, which may magnify gains and losses on its
investments.
In
certain emerging market countries, the marketability of investments may be
limited due to the restricted opening hours of trading exchanges, and a
relatively high proportion of market value may be concentrated in the hands of a
relatively small number of investors. In addition, because certain emerging
market countries’ trading exchanges on which the Fund’s portfolio securities may
trade are open when the relevant exchanges are closed, the Fund may be subject
to heightened risk associated with market movements. Trading volume may be lower
on certain emerging market countries’ trading exchanges than on more developed
securities markets and securities may be generally less liquid. The
infrastructure for clearing, settlement and registration on the primary and
secondary markets of certain emerging market countries are less developed than
in certain other markets and under certain circumstances this may result in the
Fund experiencing delays in settling and/or registering transactions in the
markets in which it invests, particularly if the growth of foreign and domestic
investment in certain emerging market countries places an undue burden on such
investment infrastructure. Such delays could affect the speed with which the
Fund can transmit redemption proceeds and may inhibit the initiation and
realization of investment opportunities at optimum times.
Certain
issuers in emerging market countries may utilize share blocking schemes. Share
blocking refers to a practice, in certain foreign markets, where voting rights
related to an issuer’s securities are predicated on these securities being
blocked from trading at the custodian or sub-custodian level for a period of
time around a shareholder meeting. These restrictions have the effect of barring
the purchase and sale of certain voting securities within a specified number of
days before and, in certain instances, after a shareholder meeting where a vote
of shareholders will be taken. Share blocking may prevent the Fund from buying
or selling securities for a period of time. During the time that shares are
blocked, trades in such securities will not settle. The blocking period can last
up to several weeks. The process for having a blocking restriction lifted can be
quite onerous with the particular requirements varying widely by country. In
addition, in certain countries, the block cannot be removed. As a result of the
ramifications of voting ballots in markets that allow share blocking, the
Adviser, on behalf of the Fund, reserves the right to abstain from voting
proxies in those markets.
Corporate
and Securities Laws Risk.
Securities laws in emerging market countries are relatively new and unsettled
and, consequently, there is a risk of rapid and unpredictable change in laws
regarding foreign investment, securities regulation, title to securities and
securityholders rights. Accordingly, foreign investors may be adversely affected
by new or amended laws and regulations. In addition, the systems of corporate
governance to which emerging market issuers are subject may be less advanced
than those systems to which issuers located in more developed countries are
subject, and therefore, securityholders of issuers located in emerging market
countries may not receive many of the protections available to securityholders
of issuers located in more developed countries. In circumstances where adequate
laws and securityholders rights exist, it may not be possible to obtain swift
and equitable enforcement of the law. In addition, the enforcement of systems of
taxation at federal, regional and local levels in emerging market countries may
be inconsistent and subject to sudden change. The Fund has limited rights and
few practical remedies in emerging markets and the ability of U.S. authorities
to bring enforcement actions in emerging markets may be limited.
Cash
Transactions Risk.
Unlike other ETFs, the Fund expects to effect its creations and redemptions at
least partially for cash, rather than wholly for in-kind securities. Therefore,
it may be required to sell portfolio securities and subsequently incur brokerage
costs and/or recognize gains or losses on such sales that the Fund might not
have recognized if it were to distribute portfolio securities in kind. As such,
investments in Shares may be less tax-efficient than an investment in a
conventional ETF. Transaction costs, including brokerage costs, will decrease
the Fund’s net asset value to the extent not offset by the transaction fee
payable by an Authorized Participant.
Market
Risk.
The prices of securities 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 underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including human error, processing and communication errors, errors of the Fund’s
service providers, counterparties or other third-parties, failed or inadequate
processes and technology or system failures.
Sampling
Risk. The
Fund’s use of a representative sampling approach will result in its holding a
smaller number of securities than are in its Index. As a result, an adverse
development respecting an issuer of securities held by the Fund could result in
a greater decline in net asset value than would be the case if the Fund held all
of the securities in its Index. Conversely, a positive development relating to
an issuer of securities in the Index that is not held by the Fund could cause
the Fund to underperform the Index. To the extent the assets in the Fund are
smaller, these risks will be greater.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (if applicable) raising cash to meet redemptions or deploying
cash in connection with inflows into the Fund. Transaction costs, including
brokerage costs, may decrease the Fund’s net asset value.
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, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not 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 for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards (where applicable), a lack of liquidity in markets in which
such securities trade, potential adverse tax consequences or other regulatory
reasons (such as diversification requirements). To the extent the Fund utilizes
depositary receipts, the purchase of depositary receipts may negatively affect
the Fund’s ability to track the performance of the Index and increase tracking
error, which may be exacerbated if the issuer of the depositary receipt
discontinues issuing new depositary receipts or withdraws existing depositary
receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value 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. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to changes to the Index and high turnover of 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. 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 Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk. There
can be no assurance that an active trading market for the Shares will develop or
be maintained, as applicable. 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 Authorized
Participants 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 net asset value.
Trading
Issues Risk.
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 relevant 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 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 its 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 Fund’s 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 bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
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 its 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 Fund’s 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.
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 net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including 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), may result in
Shares
trading at a significant premium or discount to net asset value 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 net asset value or sells
Shares at a time when the market price is at a discount to the net asset value,
the shareholder may pay significantly more or receive significantly less than
the underlying value of the Shares. The securities held by the Fund may be
traded in markets that close at a different time than the exchange on which the
Shares are traded. 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’ net
asset value 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 and a
shareholder may be unable to sell his or her Shares.
Non-Diversified
Risk.
The Fund is classified as a “non-diversified” fund under the Investment Company
Act of 1940. The Fund is subject to the risk that it will be more volatile than
a diversified fund because 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 net asset value and may make
the Fund more volatile than more diversified funds. The Fund may be particularly
vulnerable to this risk if it is comprised of a limited number of
investments.
Index-Related
Concentration Risk. The
Fund’s assets may be concentrated in a particular sector or sectors or industry
or group of industries to reflect the Index’s allocation to those types of
securities. 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
securities.
High
Portfolio Turnover Risk.
The Fund may engage in active and frequent trading of its portfolio securities,
which will result in increased transaction costs to the Fund, including
brokerage commissions, dealer mark-ups and other transaction costs on the sale
of the securities and on reinvestment in other securities. High portfolio
turnover may also result in higher taxes when Fund Shares are held in a taxable
account. The effects of high portfolio turnover may adversely affect Fund
performance.
PERFORMANCE
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 May
31, 2024, the Fund sought to replicate as closely as possible, before fees and
expenses, the price and yield performance of the ChinaBond China High Quality
Bond Index (the “Prior Index”). Therefore, performance information prior to May
31, 2024 reflects the performance of the Fund tracking 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
[TO
BE UPDATED]
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Best
Quarter: |
[
] |
[
] |
Worst
Quarter: |
[
] |
[
] |
Average
Annual Total Returns for the Periods Ended December 31, 2022 [TO BE
UPDATED]
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
(11/10/2014) |
|
VanEck
China Bond ETF (return before taxes) |
-6.01% |
2.92% |
1.87% |
|
VanEck
China Bond ETF (return after taxes on distributions) |
-6.39% |
1.99% |
1.19% |
|
VanEck
China Bond ETF (return after taxes on distributions and sale of Fund
Shares) |
-3.54% |
1.85% |
1.14% |
|
FTSE
Chinese Broad Bond 0-10 Years Diversified Select Index (reflects no
deduction for fees, expenses or taxes)1 |
[
] |
[
] |
[
] |
|
ChinaBond
China High Quality Bond Index
(reflects
no deduction for fees, expenses or taxes) |
-5.52% |
3.78% |
2.73% |
|
ICE
BofA US Broad Market Index (reflects no deduction for fees, expenses or
taxes) |
-13.16% |
0.03% |
0.97% |
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1
Prior to May 31, 2024, 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 May 31, 2024 reflects the
performance of the Fund tracking the Prior Index.
See
“License Agreements and Disclaimers” for important information.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Manager.
The following individual is primarily responsible for the day-to-day management
of the Fund’s portfolio:
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Name |
Title
with Adviser |
Date
Began Managing the Fund |
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Francis
G. Rodilosso |
Portfolio
Manager |
November
2014 |
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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 its net asset value, Shares of the Fund may trade at a price greater than
net asset value (i.e.,
a “premium”) or less than net asset value (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 net asset value, 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 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
Fund normally invests at least 80% of its total assets in securities that
comprise the Fund’s benchmark index. The Index is calculated by FTSE Russell
Ltd., (the “Index Provider”), and is comprised of fixed-rate, Renminbi
(“RMB”)-denominated bonds issued in the People’s Republic of China (“China” or
the “PRC”) by Chinese credit, governmental and quasi-governmental (e.g., policy
banks) issuers (“RMB Bonds”). Credit RMB Bonds or the issuer must have an
“investment grade” rating by Standard & Poor’s or Moody’s Investors Service
to be included in the Index. China currently has three policy banks, which are
state-owned banks responsible for financing economic and trade development and
state invested projects. As of [February 29, 2024], the Index was comprised of [
] bonds of [ ] issuers. 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. 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 take temporary defensive positions that are
inconsistent with its investment objective of seeking to replicate the Index.
Because of the practical difficulties and expense of purchasing all of the
securities in the Index, the Fund does not purchase all of the securities in the
Index. Instead, the Adviser utilizes a “sampling” methodology in seeking to
achieve the Fund’s objective. As such, the Fund may purchase a subset of the
bonds in the Index in an effort to hold a portfolio of bonds with generally the
same risk and return characteristics of the Index.
RMB
Bonds are traded on the inter-bank bond market or the exchange-traded bond
market in the PRC. Currently, the inter-bank bond market is much larger with
respect to trading volume and is generally considered more liquid than the
exchange-traded bond market. The inter-bank bond market is a quote-driven
over-the-counter (“OTC”) market for institutional investors, while the
exchange-traded bond market is an electronic automatic matching system where
securities are traded on the Shanghai Stock Exchange or the Shenzhen Stock
Exchange. These RMB Bonds are made available to domestic PRC investors and
certain foreign investors, including via the Bond Connect program, through those
registered under the China interbank bond market program for foreign
institutional investors.
The
Fund seeks to achieve its investment objective by primarily investing in RMB
Bonds through Bond Connect.
The
Fund is classified as a non-diversified fund 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 February 29, 2024, each of the financials and government sectors represented
a significant portion of the Fund.
The
Fund uses a sampling approach in seeking to achieve its investment objective.
Sampling means that the Adviser uses quantitative analysis to select a
representative sample of securities that the Adviser believes collectively have
an investment profile similar to the Index. The Adviser seeks to select
securities that will have, in the aggregate, investment characteristics (based
on factors such as market capitalization and industry weightings), fundamental
characteristics (such as return variability, duration, maturity or credit
ratings and yield) and liquidity measures similar to those of the Index. The
quantity of holdings in the Fund will be based on a number of factors, including
asset size of the Fund.
The
Adviser generally expects the Fund to hold less than the total number of
securities in the Index, but reserves the right to hold as many securities as it
believes necessary to achieve the Fund’s investment objective. In addition, from
time to time, securities are added to or removed from the Index. The Fund may
sell securities that are represented in the Index, or purchase securities that
are not yet represented in its Index, in anticipation of their removal from or
addition to the Index. Further, the Adviser may choose to underweight or
overweight securities, purchase or sell securities not in the Index, or utilize
various combinations of other available investment techniques, in seeking to
track the Index.
The
Fund’s assets will be primarily invested in RMB Bonds. The Fund intends to
invest in RMB Bonds using Bond Connect or the China interbank bond market
program.
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.
RMB
Bonds Risk.
Investments in RMB Bonds involve certain risks and special considerations,
including the following:
Political
and Economic Risk.
The economy of China, which has been in a state of transition from a planned
economy to a more market oriented economy, differs from the economies of most
developed countries in many respects, including the level of government
involvement, its state of development, its growth rate, control of foreign
exchange, and allocation of resources. Although the majority of productive
assets in China are still owned by the PRC government at various levels, the PRC
government has implemented economic reform measures emphasizing utilization of
market forces in the development of the economy of China and a high level of
management autonomy.
The
PRC government has carried out economic reforms to achieve decentralization and
utilization of market forces to develop the economy of the PRC. These reforms
have resulted in significant economic growth and social progress. There can,
however, be no assurance that the PRC government will continue to pursue such
economic policies or, if it does, that those policies will continue to be
successful. Any such adjustment and modification of those economic policies may
have an adverse impact on the securities market in the PRC as well as the
underlying securities of the Index in which the Fund may invest. Further, the
PRC government may from time to time adopt corrective measures to control the
growth of the PRC economy which may also have an adverse impact on the capital
growth and performance of the Fund. The PRC may privatize certain entities and
industries. Privatized entities may lose money or be re-nationalized.
Political
changes, social instability and adverse diplomatic developments in the PRC could
result in the imposition of additional government restrictions including
expropriation of assets, confiscatory taxes or nationalization of some or all of
the property held by the issuers of the Fund’s RMB Bond investments or contained
in the Index.
Market
volatility caused by potential regional or territorial conflicts or natural or
other disasters, may have an adverse impact on the performance of the Fund. The
laws, regulations, government policies and the political and economic climate in
China may change with little or no advance notice. Any such change could
adversely affect market conditions and the performance of the Chinese economy
and, thus, the value of the RMB Bonds or other securities in the Fund’s
portfolio.
The
Chinese government continues to be an active participant in many economic
sectors through ownership positions and regulation. The allocation of resources
in China is subject to a high level of government control. The Chinese
government strictly regulates the payment of foreign currency denominated
obligations and sets monetary policy. Through its policies, the government may
provide preferential treatment to particular industries or companies. The
policies set by the government could have a substantial adverse effect on the
Chinese economy and the Fund’s investments.
The
Chinese economy is export-driven and highly reliant on trade, and much of
China’s growth has been the result of focused investments in economic sectors
intended to produce goods and services for export purposes. Adverse changes to
the economic conditions of its primary trading partners, such as the United
States, Japan and South Korea, would adversely impact the Chinese economy and
the Fund’s investments. International trade tensions involving China and its
trading counterparties may arise from time to time which can result in trade
tariffs, embargoes, sanctions, investment restrictions, trade limitations, trade
wars and other negative consequences. Such actions and consequences may
ultimately result in a significant reduction in international trade, an
oversupply of certain manufactured goods, devaluations of existing inventories
and potentially the failure of individual companies and/or large segments of
China’s export industry with a potentially severe negative impact to the
Fund.
The
Fund may encounter difficulties or delays in enforcing its rights against
issuers of RMB Bonds that are organized in the PRC and therefore only subject to
the laws of the PRC. The interpretation and enforcement of Chinese laws and
regulations may be uncertain. With respect to laws pertaining to bankruptcy
proceedings, such laws in mainland China are generally less developed than and
different from such laws in the United States. Therefore, bankruptcy proceedings
can take more time to resolve than similar proceedings in the United States and
results can be unpredictable. These and other factors could have a negative
impact on the Fund’s performance and increase the volatility of an investment in
the Fund.
Inflation
Risk.
Economic growth in China has also historically been accompanied by periods of
high inflation. The performance of the Chinese economy and the Fund’s
investments could be negatively impacted by inflation.
Tax
Changes Risk.
The Chinese system of taxation is not as well settled as that of the United
States. In addition, changes in the Chinese tax system may have retroactive
effects.
Nationalization
and Expropriation Risk.
After the formation of the Chinese socialist state in 1949, the Chinese
government renounced various debt obligations and nationalized private assets
without providing any form of compensation. There can be no assurance that the
Chinese government will not take similar actions in the future. Accordingly, an
investment in the Fund involves a risk of a total loss.
U.S.
Sanctions Risk.
From time to time, certain of the companies in which the Fund expects to invest
may operate in, or have dealings with, countries subject to sanctions or
embargoes imposed by the U.S. Government and the United Nations and/or countries
identified by the U.S. Government as state sponsors of terrorism. A company may
suffer damage to its reputation if it is identified as a company which operates
in, or has dealings with, countries subject to sanctions or embargoes
imposed
by the U.S. Government and the United Nations and/or countries identified by the
U.S. Government as state sponsors of terrorism. As an investor in such
companies, the Fund will be indirectly subject to those risks.
Hong
Kong Policy.
As part of Hong Kong's transition from British to Chinese sovereignty in 1997,
China agreed to allow Hong Kong to maintain a high degree of autonomy with
regard to its political, legal and economic systems for a period of at least 50
years. Under the agreement, China does not tax Hong Kong, does not limit the
exchange of the Hong Kong dollar for foreign currencies and does not place
restrictions on free trade in Hong Kong. However, there is no guarantee that
China will continue to honor the agreement, and China may change its policies
regarding Hong Kong at any time. Any such change could adversely affect market
conditions and the performance of the Chinese economy and, thus, the value of
the securities in the Fund's portfolio.
Chinese
Bond Markets.
The inter-bank bond market and exchange-traded bond markets in China have a
limited operating history and are not as developed as those in the United
States. These markets tend to be smaller in size, have less liquidity and
historically have had greater volatility than markets in the United States and
some other countries. The bid and offer spread on RMB Bonds, whether traded on
the inter-bank or listed bond market, may be high and the Fund may therefore
incur significant trading costs and may suffer losses when selling such
investments. In the absence of a regular and active secondary market, the Fund
may not be able to sell its bond holdings at prices or at times the Adviser
considers advantageous and may need to hold the bonds until their maturity date.
In addition, there is less regulation and monitoring of Chinese bond markets and
the activities of investors, brokers and other participants than in the United
States. During periods of significant market volatility, the Chinese government
has, from time to time, intervened in its domestic bond markets to a greater
degree than would be typical in more developed markets. Bond markets in China
are in the process of change and further development. This may lead to trading
volatility, unpredictable trading suspensions, difficulty in the settlement and
recording of transactions and difficulty in interpreting and applying the
relevant regulations.
Credit
Rating Risk.
RMB Bonds, whether they are traded on the inter-bank market or the
exchange-traded market, are generally rated by local credit rating agencies. The
rating industry in the PRC is still in its early development stage and, due to
lack of historical data and slow responses to certain credit events, the rating
methodologies used by the local credit rating agencies may be driven by domestic
factors rather than quantitative methods. In addition, the rating process may
lack transparency and the rating standards may be significantly different from
that adopted by internationally recognized credit rating agencies. Credit
ratings given by PRC rating agencies may therefore not be directly comparable
with those given by other international rating agencies. RMB Bonds may be
substantially more risky and the Fund may be exposed to a higher degree of
credit risk. A downward revision or withdrawal of any such rating may have an
adverse effect on market prices, liquidity and marketability of these RMB Bonds
and the Fund's investments.
Available
Disclosure About Chinese Companies.
Disclosure and regulatory standards in emerging market countries, such as China,
are in many respects less stringent than U.S. standards. There is substantially
less publicly available information about Chinese issuers than there is about
U.S. issuers. Therefore, disclosure of certain material information may not be
made, and less information may be available to the Fund and other investors than
would be the case if the Fund's investments were restricted to securities of
U.S. issuers. Chinese issuers are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. issuers.
Chinese
Corporate and Securities Law. There
is uncertainty regarding the implementation of existing law by PRC authorities.
Chinese laws providing protection to investors, such as laws regarding the
fiduciary duties of officers and directors, are undeveloped and may not protect
the Fund and its shareholders to the same extent as the laws of the United
States.
It
may therefore be difficult for the Fund to enforce its rights as an investor
under Chinese corporate and securities laws, and it may be difficult or
impossible for the Fund to obtain a judgment in court. Moreover, as Chinese
corporate and securities laws continue to develop, these developments may
adversely affect foreign investors, such as the Fund.
Foreign
Exchange Control.
The RMB is currently not a freely convertible currency. The Chinese government
maintains strict currency controls and regularly intervenes in the currency
market. The Chinese government's actions may not be transparent or predictable.
As a result, the value of the RMB and the value of RMB Bonds may change quickly
and arbitrarily. These and other factors could have a negative impact on the
Fund's performance and increase the volatility of an investment in the
Fund.
Foreign
Currency Considerations.
Emerging markets such as China can experience high rates of inflation, deflation
and currency revaluation. The value of the RMB may be subject to a high degree
of fluctuation due to, among other things, changes in interest rates, the
effects of monetary policies issued by the PRC, the United States, foreign
governments, central banks or supranational entities, the imposition of currency
controls or other national or global political or economic developments. The
Fund's exposure to the RMB and changes in value of the RMB versus the U.S.
dollar may result in reduced returns for the Fund. Moreover, the Fund may incur
costs in connection with conversions between U.S. dollars and RMB. The Chinese
government's imposition of restrictions on the repatriation of RMB out of
Mainland China may limit the depth of the offshore RMB market and reduce the
liquidity of the Fund's investments. These restrictions as well as any
accelerated appreciation or depreciation of RMB may adversely affect the Fund
and its investments.
The
Fund may be required to liquidate certain positions in order to make
distributions if the Fund has insufficient cash in U.S. dollars to meet
distribution requirements under the Internal Revenue Code of 1986. The
liquidation of investments, if required, may also have an adverse impact on the
Fund's performance.
RMB
can be further categorized into onshore RMB (CNY), which can be traded only in
the PRC, and offshore RMB (CNH), which can be traded outside the PRC. CNY and
CNH are traded at different exchange rates and their exchange rates may not move
in the same direction. The Fund may also be adversely affected by the exchange
rates between CNY and CNH. In addition, there may not be sufficient amounts of
RMB for the Fund to be fully invested. Moreover, the trading and settlement of
RMB-denominated securities are recent developments in Hong Kong and there is no
assurance that problems will not be encountered with the systems or that other
logistical problems will not arise that could adversely impact the
Fund.
Bond
Connect and the CIBM Direct Access Program Risk.
The Bond Connect program and the CIBM Direct Access Program are relatively new.
Laws, rules, regulations, policies, notices, circulars or guidelines relating to
the programs as published or applied by the relevant authorities of the PRC are
untested and are subject to change from time to time. There can be no assurance
that the Bond Connect program and/or the CIBM Direct Access Program will not be
restricted, suspended or abolished. If such event occurs, the Fund’s ability to
invest in the China interbank bond market through the CIBM Direct Access Program
or Bond Connect will be adversely affected, and if the Fund is unable to
adequately access the China interbank bond market through other means, the
Fund’s ability to achieve its investment objective will be adversely
affected.
The
Fund’s investments through Bond Connect are generally subject to Mainland China
securities laws and listing requirements, among other restrictions. Such
securities may lose their eligibility at any time, in which case they could be
sold but could no longer be purchased through Bond Connect. The Fund will not
benefit from access to Hong Kong investor compensation funds, which are set up
to protect against defaults of trades, when investing through Bond Connect. Bond
Connect is only available on days when markets in both Mainland China and Hong
Kong are open. As a result, prices of Bond Connect Securities may fluctuate at
times when the Fund is unable to add to or exit its position and, therefore, may
limit the Fund’s ability to trade when it would otherwise do so.
Under
the prevailing PRC regulations, eligible foreign investors who wish to
participate in the Bond Connect program may do so through an offshore custody
agent, registration agent or other third parties, and eligible foreign
institutional investors who wish to invest directly in the China interbank bond
market through the CIBM Direct Access Program may do so through an onshore
settlement agent. These agents would be responsible for making the relevant
filings and account opening with the relevant authorities. The Fund is therefore
subject to the risk of default or errors on the part of such agents. The Fund
may also incur losses due to the acts or omissions of the onshore settlement
agent in the process of settling any transactions. As a result, the value of the
relevant Fund may be adversely affected.
Investing
in the CIBM Direct Access Program is also subject to certain restrictions
imposed by the Mainland Chinese authorities on fund remittance and repatriation
which may potentially affect the Fund’s performance and liquidity. Any
non-compliance with or failure to meet the fund remittance and repatriation
requirements may result in regulatory sanctions, which in turn may have an
adverse impact on the portion of the Fund’s investment via the CIBM Direct
Access Program. Further, there is no assurance that the fund remittance and
repatriation requirements in relation to the Fund's investment through the CIBM
Direct Access Program or invest directly in the China interbank bond market will
not be changed as a result of change in government policies or foreign exchange
control policies. The Fund may incur loss in the event such
changes.
Trading
through the Bond Connect program is performed through newly developed trading
platforms and operational systems. There is no assurance that such systems will
function properly (in particular, under extreme market conditions) or will
continue to be adapted to changes and developments in the market. In the event
that the relevant systems fail to function properly, trading through the Bond
Connect may be disrupted. The Fund’s ability to trade through the Bond Connect
(and hence to pursue its investment strategy) may therefore be adversely
affected. In addition, where the Fund invests in the China interbank bond market
through the Bond Connect program, it may be subject to risks of delays inherent
in the order placing and/or settlement.
Bond
Connect trades are settled in onshore RMB (CNY) and investors must have timely
access to a reliable supply of CNY in Hong Kong, which may incur conversion
costs and cannot be guaranteed. Moreover, Bond Connect Securities generally may
not be sold, purchased or otherwise transferred other than through Bond Connect
in accordance with applicable rules.
The
Fund’s investments through Bond Connect will be held on behalf of the Fund via a
book entry omnibus account in the name of the Central Moneymarkets Unit of Hong
Kong maintained with a Mainland China-based custodian. The Fund’s ownership
interest in investments through Bond Connect will not be reflected directly in
book entry with a Mainland China-based custodian and will instead only be
reflected on the books of its Hong Kong sub-custodian. Therefore, the Fund is
subject to the risks regarding the exercise and the enforcement of beneficial
ownership rights over such bonds in the courts in China.
“Bond
Connect Authorities” refers to the exchanges, trading systems, settlement
systems, governmental, regulatory or tax bodies which provide services and/or
regulate Bond Connect and activities relating to Bond Connect.
Investment
and Repatriation Restrictions.
Investments by the Fund in RMB Bonds through the China interbank bond market
program and other Chinese financial instruments regulated by the China
Securities Regulatory Commission, including
warrants
and open- and closed-end investment companies, are subject to governmental
pre-approval limitations on the quantity that the Fund may purchase or limits on
the classes of securities in which the Fund may invest.
If
the Fund’s investments in RMB Bonds become subject to repatriation restrictions,
the Fund may be unable to satisfy distribution requirements applicable to
regulated investment companies under the Internal Revenue Code of 1986 and be
subject to income and excise tax at the Fund level. In addition, the Fund could
be required to recognize unrealized gains, pay taxes and make distributions
before requalifying for taxation as a regulated investment company. See the
Fund’s SAI for more information.
Furthermore,
the Fund’s ability to meet redemptions requests by Authorized Participants may
also be adversely affected by repatriation restrictions.
The
Fund may elect, for U.S. federal income tax purposes, to treat Chinese taxes
(including withholding taxes) paid by the Fund as paid by its shareholders. Even
if the Fund is qualified to make that election and does so this treatment will
not apply with respect to amounts the Fund reserves, if any, in anticipation of
the imposition of withholding taxes not currently in effect. If these amounts
are used to pay any tax liability of the Fund in a later year, they will be
treated as paid by the shareholders in such later year, even if they are imposed
with respect to income of an earlier year. See the prospectus under “Shareholder
Information—Tax Information” for more information.
The
Chinese government limits foreign investment in the securities of certain
Chinese Issuers entirely if foreign investment is banned in respect of the
industry in which the relevant Chinese issuers are conducting their business.
These restrictions or limitations may have adverse effects on the liquidity and
performance of the Fund holdings as compared to the performance of the Index.
This may increase the risk of tracking error and may adversely affect the Fund’s
ability to achieve its investment objective.
Risk
of Loss of Favorable U.S. Tax Treatment.
The Fund intends to distribute annually all or substantially all of its
investment company taxable income and net capital gain. However, if the Fund
does not repatriate funds associated with direct investment in RMB Bonds on a
timely basis, it may be unable to satisfy the distribution requirements required
to qualify for the favorable tax treatment otherwise generally afforded to
regulated investment companies under the Internal Revenue Code of 1986. If the
Fund fails to qualify for any taxable year as a regulated investment company,
the Fund would be treated as a corporation subject to U.S. federal income tax,
thereby subjecting any income earned by the Fund to tax at the corporate level
and, when such income is distributed, to a further tax at the shareholder level
to the extent of the Fund’s current or accumulated earnings and profits. In
addition, the Fund would not be eligible for a deduction for dividends paid to
shareholders and the Fund could be required to recognize unrealized gains, pay
taxes and make distributions (any of which could be subject to interest charges)
before re-qualifying for taxation as a regulated investment company. See the
Fund’s SAI for more information.
Foreign
Exchange Control.
The Chinese government heavily regulates the domestic exchange of foreign
currencies within China. Chinese law requires that all domestic transactions
must be settled in RMB, places significant restrictions on the remittance of
foreign currency and strictly regulates currency exchange from RMB. Under SAFE
regulations, Chinese corporations may only purchase foreign currencies through
government approved banks. In general, Chinese companies must receive approval
from or register with the Chinese government before investing in certain capital
account items, including direct investments and loans, and must thereafter
maintain separate foreign exchange accounts for the capital items. Foreign
investors may only exchange foreign currencies at specially authorized banks
after complying with documentation requirements. These restrictions may
adversely affect the Fund and its investments. There may not be sufficient
amounts of RMB for the Fund to be fully invested because the Fund has to convert
U.S. dollars received from the purchase of Creation Units into RMB to purchase
RMB-denominated investments. It should also be noted that that the PRC
government’s policies on exchange control and repatriation restrictions are
subject to change, and any such change may adversely impact the Fund. There can
be no assurance that the RMB exchange rate will not fluctuate widely against the
U.S. dollar or any other foreign currency in the future. Under exceptional
circumstances, payment of redemptions and/or dividend payment in RMB may be
delayed due to the exchange controls and restrictions applicable to
RMB.
Custody
Risks of Investing in RMB Bonds.
Custody arrangements for investments in China are subject to the rules and
regulations of the China Securities Regulatory Commission and the People’s Bank
of China, which may materially differ from custody arrangements in other
jurisdictions. The Fund’s investments in China are subject to the risks of such
arrangements, including the risk of a liquidation or bankruptcy by the Chinese
sub-custodian, which may result in losses to the Fund.
Renminbi
Currency Risk.
Emerging markets such as China can experience high rates of inflation, deflation
and currency devaluation. The value of the RMB may be subject to a high degree
of fluctuation due to, among other things, changes in interest rates, the
effects of monetary policies issued by the PRC, the United States, foreign
governments, central banks or supranational entities, the imposition of currency
controls or other national or global political or economic developments. The
income received by the Fund for its investments denominated in RMB will
principally be in RMB. The Fund’s exposure to the RMB and changes in value of
the RMB versus the U.S. dollar may result in reduced returns for the Fund.
Moreover, the Fund may incur costs in connection with conversions between U.S.
dollars and RMB. The RMB is currently not a freely convertible currency. The
Chinese
government
places strict regulation on the RMB and sets the value of the RMB to levels
dependent on the value of the U.S. dollar. The Chinese government’s imposition
of restrictions on the repatriation of RMB out of Mainland China may limit the
depth of the offshore RMB market and reduce the liquidity of the Fund’s
investments. The international community has requested that China ease its
restrictions on currency exchange, but it is unclear whether the Chinese
government will change its policy. These restrictions may adversely affect the
Fund and its investments. The Fund may also be exposed to both offshore RMB
(CNH) and onshore RMB (CNY). To the extent the Fund carries out conversions
between CNH and CNY, investors should note that although CNH and CNY are the
same currency, they trade at different rates. Any divergence between CNH and CNY
may adversely impact investors and the Fund.
Chinese Banking Industry Risk. The
Chinese banking industry is highly regulated and is subject to laws and
regulations touching all aspects of the banking business. These regulators are
given wide discretion in exercising their authority. The banking regulatory
regime in China is currently undergoing significant changes, including changes
in laws and regulations, as it moves toward a more transparent regulatory
process. Some of these changes may have an adverse impact on the performance of
Chinese banks that issue RMB Bonds and may adversely affect their capacity to
honor their commitments to the holders of RMB Bonds, which may include the
Fund.
PRC
Tax Risk.
The application of the tax laws and regulations of the PRC to income, including
capital gains, derived from certain investments of the Fund remains unclear, and
may well continue to evolve, possibly with retroactive effect. Any taxes imposed
on the investments of the Fund pursuant to such laws and regulations will reduce
the Fund’s overall returns.
Sovereign
Bond Risk. Investment
in sovereign bonds involves special risks not present in corporate bonds. The
governmental authority that controls the repayment of the bond may be unable or
unwilling to make interest payments and/or repay the principal on its debt or to
otherwise honor its obligations. If an issuer of sovereign bonds defaults on
payments of principal and/or interest, the Fund may have limited recourse
against the issuer. During periods of economic uncertainty, the market prices of
sovereign bonds, and the Fund’s net asset value, may be more volatile than
prices of corporate bonds, which may result in losses. In the past, certain
governments of emerging market countries have declared themselves unable to meet
their financial obligations on a timely basis, which has resulted in losses for
holders of sovereign bonds.
Financials
Sector Risk.
Companies in the financials sector may be subject to extensive government
regulation that affects the scope of their activities, the prices they can
charge and the amount of capital they must maintain. The profitability of
companies in the financials sector may be adversely affected by increases in
interest rates, by loan losses, which usually increase in economic downturns,
and by credit rating downgrades. In addition, the financials sector is
undergoing numerous changes, including continuing consolidations, development of
new products and structures and changes to its regulatory framework.
Furthermore, some companies in the financials sector perceived as benefiting
from government intervention in the past may be subject to future
government-imposed restrictions on their businesses or face increased government
involvement in their operations. Increased government involvement in the
financials sector, including measures such as taking ownership positions in
financial institutions, could result in a dilution of the Fund’s investments in
financial institutions.
Government-Related Bond Risk. The
governmental authority or government-related entity that controls the repayment
of the bond may be unable or unwilling to honor its payment obligations. If an
issuer of government-related bonds defaults on payments of principal and/or
interest, the Fund may have limited recourse against the issuer. A
government-related debtor’s willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange when a payment is due, the relative size of the debt
service burden to the economy as a whole, the government-related debtor’s policy
toward international lenders, and the political constraints to which the debtor
may be subject. During periods of economic uncertainty, the market prices of
government-related bonds, and the Fund’s net asset value, may be more volatile
than prices of corporate bonds, which may result in losses.
Credit Risk. Credit risk refers
to the possibility that the issuer or guarantor of a security will be unable
and/or unwilling to honor its payment obligations and/or default completely on
securities. The Fund’s securities are subject to varying degrees
of credit risk, depending on the issuer’s financial condition and on
the terms of the securities, which may be reflected in credit ratings. There is
a possibility that the credit rating of a security may be downgraded after
purchase or the perception of an issuer’s creditworthiness may decline, which
may adversely affect the value of the security. Lower credit quality may also
affect liquidity and make it difficult for the Fund to sell the
security.
Interest Rate Risk.
Debt securities and preferred securities are subject to interest rate risk.
Interest rate risk refers to fluctuations in the value of a security resulting
from changes in the general level of interest rates. When the general level of
interest rates goes up, the prices of most debt securities and certain preferred
securities go down. When the general level of interest rates goes down, the
prices of most debt securities go up. Many factors can cause interest rates to
rise, including central bank monetary policy, rising inflation rates and general
economic conditions. Debt securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than debt
securities, such as bonds, with shorter durations. A substantial investment by
the Fund in debt securities with longer-term maturities during periods of rising
interest rates may cause the value of the Fund’s investments to decline
significantly. Changing interest rates may have unpredictable effects on
markets, may result in heightened market volatility and may detract from Fund
performance to the extent the Fund is exposed to such interest rates
and/
or
volatility. It is difficult to predict the magnitude, timing or direction of
interest rate changes and the impact these changes will have on the markets in
which the Fund invests.
Subordinated
Obligations Risk. Payments
under some bonds may be structurally subordinated to all existing and future
liabilities and obligations of each of the respective subsidiaries and
associated companies of an issuer of the bond. Claims of creditors of such
subsidiaries and associated companies will have priority as to the assets of
such subsidiaries and associated companies over the issuer and its creditors,
including the Fund, who seek to enforce the terms of the bond. Certain bonds do
not contain any restrictions on the ability of the subsidiaries of the issuers
to incur additional unsecured indebtedness.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s investments.
Foreign market trading hours, clearance and settlement procedures, and holiday
schedules may limit the Fund's ability to buy and sell securities.
Certain
foreign markets that have historically been considered relatively stable may
become volatile in response to changed conditions or new developments. Increased
interconnectivity of world economies and financial markets increases the
possibility that adverse developments and conditions in one country or region
will affect the stability of economies and financial markets in other countries
or regions. Because the Fund may invest in securities denominated in foreign
currencies and some of the income received by the Fund may be in foreign
currencies, changes in currency exchange rates may negatively impact the Fund’s
return.
Foreign
issuers are often subject to less stringent requirements regarding accounting,
auditing, financial reporting and record keeping than are U.S. issuers, and
therefore, not all material information may be available or reliable. Securities
exchanges or foreign governments may adopt rules or regulations that may
negatively impact the Fund’s ability to invest in foreign securities or may
prevent the Fund from repatriating its investments. The Fund may also invest in
depositary receipts which involve similar risks to those associated with
investments in foreign securities. In addition, the Fund may not receive
shareholder communications or be permitted to vote the securities that it holds,
as the issuers may be under no legal obligation to distribute shareholder
communications.
Certain
foreign markets may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments, the imposition of economic
sanctions against a particular country or countries, organizations, entities
and/or individuals, changes in international trade patterns, trade barriers, and
other protectionist or retaliatory measures. The United States and other nations
or international organizations may impose economic sanctions or take other
actions that may adversely affect issuers of specific countries. Economic
sanctions could, among other things, effectively restrict or eliminate the
Fund’s ability to purchase or sell securities or groups of securities for a
substantial period of time, and may make the Fund’s investments in such
securities harder to value. These sanctions, any future sanctions or other
actions, or even the threat of further sanctions or other actions, may
negatively affect the value and liquidity of the Fund.
Also,
certain issuers located in foreign countries in which the Fund invests may
operate in, or have dealings with, countries subject to sanctions and/or
embargoes imposed by the U.S. Government and the United Nations and/or countries
identified by the U.S. Government as state sponsors of terrorism. As a result,
an issuer may sustain damage to its reputation if it is identified as an issuer
which operates in, or has dealings with, such countries. The Fund, as an
investor in such issuers, will be indirectly subject to those
risks.
Emerging
Market Issuers Risk.
Investments in securities of emerging market issuers involve risks not typically
associated with investments in securities of issuers in more developed countries
that may negatively affect the value of your investment in the Fund. Such
heightened risks may include, among others, expropriation and/or nationalization
of assets, restrictions on and government intervention in international trade,
confiscatory taxation, political instability, including authoritarian and/or
military involvement in governmental decision making, armed conflict, the impact
on the economy as a result of civil war, crime (including drug violence) and
social instability as a result of religious, ethnic and/or socioeconomic unrest.
Issuers in certain emerging market countries are subject to less stringent
requirements regarding accounting, auditing, financial reporting and record
keeping than are issuers in more developed markets, and therefore, all material
information may not be available or reliable. Emerging markets are also more
likely than developed markets to experience problems with the clearing and
settling of trades, as well as the holding of securities by local banks, agents
and depositories. Low trading volumes and volatile prices in less developed
markets may make trades harder to complete and settle, and governments or trade
groups may compel local agents to hold securities in designated depositories
that may not be subject to independent evaluation. Local agents are held only to
the standards of care of their local markets. In general, the less developed a
country’s securities markets are, the greater the likelihood of custody
problems. Additionally, each of the factors described below could have a
negative impact on the Fund’s performance and increase the volatility of the
Fund.
Securities
Market Risk.
Securities markets in emerging market countries are underdeveloped and are often
considered to be less correlated to global economic cycles than those markets
located in more developed countries. Securities markets in emerging market
countries are subject to greater risks associated with market volatility, lower
market capitalization, lower trading volume, illiquidity, inflation, greater
price fluctuations, uncertainty regarding the existence of trading markets,
governmental control and heavy regulation of labor and industry. These factors,
coupled with restrictions on foreign investment and other factors, limit the
supply of securities available for investment by the Fund. This will affect the
rate at which the Fund is able to invest in emerging market countries, the
purchase and sale prices for such securities and the timing of purchases and
sales. Emerging markets can experience high rates of inflation, deflation and
currency devaluation. The prices of certain securities listed on securities
markets in emerging market countries have been subject to sharp fluctuations and
sudden declines, and no assurance can be given as to the future performance of
listed securities in general. Volatility of prices may be greater than in more
developed securities markets. Moreover, securities markets in emerging market
countries may be closed for extended periods of time or trading on securities
markets may be suspended altogether due to political or civil unrest. Market
volatility may also be heightened by the actions of a small number of investors.
Brokerage firms in emerging market countries may be fewer in number and less
established than brokerage firms in more developed markets. Since the Fund may
need to effect securities transactions through these brokerage firms, the Fund
is subject to the risk that these brokerage firms will not be able to fulfill
their obligations to the Fund. This risk is magnified to the extent the Fund
effects securities transactions through a single brokerage firm or a small
number of brokerage firms. In addition, the infrastructure for the safe custody
of securities and for purchasing and selling securities, settling trades,
collecting dividends, initiating corporate actions, and following corporate
activity is not as well developed in emerging market countries as is the case in
certain more developed markets.
Political
and Economic Risk.
Certain emerging market countries have historically been subject to political
instability and their prospects are tied to the continuation of economic and
political liberalization in the region. Instability may result from factors such
as government or military intervention in decision making, terrorism, civil
unrest, extremism or hostilities between neighboring countries. Any of these
factors, including an outbreak of hostilities could negatively impact the Fund’s
returns. Limited political and democratic freedoms in emerging market countries
might cause significant social unrest. These factors may have a significant
adverse effect on an emerging market country’s economy.
Many
emerging market countries may be heavily dependent upon international trade and,
consequently, may continue to be negatively affected by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which it
trades. They also have been, and may continue to be, adversely affected by
economic conditions in the countries with which they trade.
In
addition, commodities (such as oil, gas and minerals) represent a significant
percentage of certain emerging market countries’ exports and these economies are
particularly sensitive to fluctuations in commodity prices. Adverse economic
events in one country may have a significant adverse effect on other countries
of this region. In addition, most emerging market countries have experienced, at
one time or another, severe and persistent levels of inflation, including, in
some cases, hyperinflation. This has, in turn, led to high interest rates,
extreme measures by governments to keep inflation in check, and a generally
debilitating effect on economic growth.
Although
inflation in many countries has lessened, there is no guarantee it will remain
at lower levels. The political history of certain emerging market countries has
been characterized by political uncertainty, intervention by the military in
civilian and economic spheres, and political corruption. Such events could
reverse favorable trends toward market and economic reform, privatization, and
removal of trade barriers, and result in significant disruption in securities
markets in the region.
Also,
from time to time, certain issuers located in emerging market countries in which
the Fund invests may operate in, or have dealings with, countries subject to
sanctions and/or embargoes imposed by the U.S. Government and the United Nations
and/or countries identified by the U.S. Government as state sponsors of
terrorism. As a result, an issuer may sustain damage to its reputation if it is
identified as an issuer which operates in, or has dealings with, such countries.
The Fund, as an investor in such issuers, will be indirectly subject to those
risks.
The
economies of one or more countries in which the Fund may invest may be in
various states of transition from a planned economy to a more market oriented
economy. The economies of such countries differ from the economies of most
developed countries in many respects, including levels of government
involvement, states of development, growth rates, control of foreign exchange
and allocation of resources. Economic growth in these economies may be uneven
both geographically and among various sectors of their economies and may also be
accompanied by periods of high inflation. Political changes, social instability
and adverse diplomatic developments in these countries could result in the
imposition of additional government restrictions, including expropriation of
assets, confiscatory taxes or nationalization of some or all of the property
held by the underlying issuers of securities of emerging market issuers. There
is no guarantee that the governments of these countries will not revert back to
some form of planned or non-market oriented economy, and such governments
continue to be active participants in many economic sectors through ownership
positions and regulation. The allocation of resources in such countries is
subject to a high level of government control. Such countries’ governments may
strictly regulate the payment of foreign currency denominated obligations and
set monetary policy. Through their policies, these
governments
may provide preferential treatment to particular industries or companies. The
policies set by the government of one of these countries could have a
substantial effect on that country’s economy.
Investment
and Repatriation Restrictions Risk.
The government in an emerging market country may restrict or control to varying
degrees the ability of foreign investors to invest in securities of issuers
located or operating in such emerging market countries. These restrictions
and/or controls may at times limit or prevent foreign investment in securities
of issuers located or operating in emerging market countries and may inhibit the
Fund’s ability to meet its investment objective. In addition, the Fund may not
be able to buy or sell securities or receive full value for such securities.
Moreover, certain emerging market countries may require governmental approval or
special licenses prior to investments by foreign investors and may limit the
amount of investments by foreign investors in a particular industry and/or
issuer; may limit such foreign investment to a certain class of securities of an
issuer that may have less advantageous rights than the classes available for
purchase by domiciliaries of such emerging market countries; and/or may impose
additional taxes on foreign investors. A delay in obtaining a required
government approval or a license would delay investments in those emerging
market countries, and, as a result, the Fund may not be able to invest in
certain securities while approval is pending. The government of certain emerging
market countries may also withdraw or decline to renew a license that enables
the Fund to invest in such country. These factors make investing in issuers
located or operating in emerging market countries significantly riskier than
investing in issuers located or operating in more developed countries, and any
one of them could cause a decline in the net asset value of the
Fund.
Additionally,
investments in issuers located in certain emerging market countries may be
subject to a greater degree of risk associated with governmental approval in
connection with the repatriation of investment income, capital or the proceeds
of sales of securities by foreign investors. Moreover, there is the risk that if
the balance of payments in an emerging market country declines, the government
of such country may impose temporary restrictions on foreign capital
remittances. Consequently, the Fund could be adversely affected by delays in, or
a refusal to grant, required governmental approval for repatriation of capital,
as well as by the application to the Fund of any restrictions on investments.
Furthermore, investments in emerging market countries may require the Fund to
adopt special procedures, seek local government approvals or take other actions,
each of which may involve additional costs to the Fund.
Risk
of Available Disclosure About Emerging Market Issuers.
Issuers located or operating in emerging market countries are not subject to the
same rules and regulations as issuers located or operating in more developed
countries. Therefore, there may be less financial and other information publicly
available with regard to issuers located or operating in emerging market
countries and such issuers are not subject to the uniform accounting, auditing
and financial reporting standards applicable to issuers located or operating in
more developed countries.
Foreign
Currency Risk Considerations.
The Fund’s assets that are invested in securities of issuers in emerging market
countries will generally be denominated in foreign currencies, and the proceeds
received by the Fund from these investments will be principally in foreign
currencies. The value of an emerging market country’s currency may be subject to
a high degree of fluctuation. This fluctuation may be due to changes in interest
rates, the effects of monetary policies issued by the United States, foreign
governments, central banks or supranational entities, the imposition of currency
controls or other national or global political or economic developments. The
economies of certain emerging market countries can be significantly affected by
currency devaluations. Certain emerging market countries may also have managed
currencies which are maintained at artificial levels relative to the U.S. dollar
rather than at levels determined by the market. This type of system can lead to
sudden and large adjustments in the currency which, in turn, can have a
disruptive and negative effect on foreign investors.
The
Fund’s exposure to an emerging or frontier market country’s currency and changes
in value of such foreign currencies versus the U.S. dollar may reduce the Fund’s
investment performance and the value of your investment in the Fund. Meanwhile,
the Fund will compute and expects to distribute its income in U.S. dollars, and
the computation of income will be made on the date that the income is earned by
the Fund at the foreign exchange rate in effect on that date. Therefore, if the
value of the respective emerging or frontier market country’s currency falls
relative to the U.S. dollar between the earning of the income and the time at
which the Fund converts the relevant emerging or frontier market country’s
currency to U.S. dollars, the Fund may be required to liquidate certain
positions in order to make distributions if the Fund has insufficient cash in
U.S. dollars to meet distribution requirements under the Internal Revenue Code
of 1986. The liquidation of investments, if required, could be at
disadvantageous prices or otherwise have an adverse impact on the Fund’s
performance.
Certain
emerging market countries also restrict the free conversion of their currency
into foreign currencies, including the U.S. dollar. There is no significant
foreign exchange market for many such currencies and it would, as a result, be
difficult for the Fund to engage in foreign currency transactions designed to
protect the value of the Fund’s interests in securities denominated in such
currencies. Furthermore, if permitted, the Fund may incur costs in connection
with conversions between U.S. dollars and an emerging market country’s currency.
Foreign exchange dealers realize a profit based on the difference between the
prices at which they are buying and selling various currencies. Thus, a dealer
normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell
that currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e.,
cash) basis at
the
spot rate prevailing in the foreign currency exchange market, or through
entering into forward, futures or options contracts to purchase or sell foreign
currencies.
Operational
and Settlement Risk.
In addition to having less developed securities markets, emerging market
countries have less developed custody and settlement practices than certain
developed countries. Rules adopted under the Investment Company Act of 1940
permit the Fund to maintain its foreign securities and cash in the custody of
certain eligible non-U.S. banks and securities depositories. Banks in emerging
market countries that are eligible foreign sub-custodians may be recently
organized or otherwise lack extensive operating experience. In addition, in
certain emerging market countries there may be legal restrictions or limitations
on the ability of the Fund to recover assets held in custody by a foreign
sub-custodian in the event of the bankruptcy of the sub-custodian. Because
settlement systems in emerging market countries may be less organized than in
other developed markets, there may be a risk that settlement may be delayed and
that cash or securities of the Fund may be in jeopardy because of failures of or
defects in the systems. Under the laws in many emerging market countries, the
Fund may be required to release local shares before receiving cash payment or
may be required to make cash payment prior to receiving local shares, creating a
risk that the Fund may surrender cash or securities without ever receiving
securities or cash from the other party. Settlement systems in emerging market
countries also have a higher risk of failed trades and back to back settlements
may not be possible.
The
Fund may not be able to convert a foreign currency to U.S. dollars in time for
the settlement of redemption requests. In the event that the Fund is not able to
convert the foreign currency to U.S. dollars in time for settlement, which may
occur as a result of the delays described above, the Fund may be required to
liquidate certain investments and/or borrow money in order to fund such
redemption. The liquidation of investments, if required, could be at
disadvantageous prices or otherwise have an adverse impact on the Fund’s
performance (e.g.,
by causing the Fund to overweight foreign currency denominated holdings and
underweight other holdings which were sold to fund redemptions). In addition,
the Fund will incur interest expense on any borrowings and the borrowings will
cause the Fund to be leveraged, which may magnify gains and losses on its
investments.
In
certain emerging market countries, the marketability of investments may be
limited due to the restricted opening hours of trading exchanges, and a
relatively high proportion of market value may be concentrated in the hands of a
relatively small number of investors. In addition, because certain emerging
market countries’ trading exchanges on which the Fund’s portfolio securities may
trade are open when the relevant exchanges are closed, the Fund may be subject
to heightened risk associated with market movements. Trading volume may be lower
on certain emerging market countries’ trading exchanges than on more developed
securities markets and securities may be generally less liquid. The
infrastructure for clearing, settlement and registration on the primary and
secondary markets of certain emerging market countries are less developed than
in certain other markets and under certain circumstances this may result in the
Fund experiencing delays in settling and/or registering transactions in the
markets in which it invests, particularly if the growth of foreign and domestic
investment in certain emerging market countries places an undue burden on such
investment infrastructure. Such delays could affect the speed with which the
Fund can transmit redemption proceeds and may inhibit the initiation and
realization of investment opportunities at optimum times.
Certain
issuers in emerging market countries may utilize share blocking schemes. Share
blocking refers to a practice, in certain foreign markets, where voting rights
related to an issuer’s securities are predicated on these securities being
blocked from trading at the custodian or sub-custodian level for a period of
time around a shareholder meeting. These restrictions have the effect of barring
the purchase and sale of certain voting securities within a specified number of
days before and, in certain instances, after a shareholder meeting where a vote
of shareholders will be taken. Share blocking may prevent the Fund from buying
or selling securities for a period of time. During the time that shares are
blocked, trades in such securities will not settle. The blocking period can last
up to several weeks. The process for having a blocking restriction lifted can be
quite onerous with the particular requirements varying widely by country. In
addition, in certain countries, the block cannot be removed. As a result of the
ramifications of voting ballots in markets that allow share blocking, the
Adviser, on behalf of the Fund, reserves the right to abstain from voting
proxies in those markets.
Corporate
and Securities Laws Risk.
Securities laws in emerging market countries are relatively new and unsettled
and, consequently, there is a risk of rapid and unpredictable change in laws
regarding foreign investment, securities regulation, title to securities and
securityholders rights. Accordingly, foreign investors may be adversely affected
by new or amended laws and regulations. In addition, the systems of corporate
governance to which emerging market issuers are subject may be less advanced
than those systems to which issuers located in more developed countries are
subject, and therefore, securityholders of issuers located in emerging market
countries may not receive many of the protections available to securityholders
of issuers located in more developed countries. In circumstances where adequate
laws and securityholders rights exist, it may not be possible to obtain swift
and equitable enforcement of the law. In addition, the enforcement of systems of
taxation at federal, regional and local levels in emerging market countries may
be inconsistent and subject to sudden change. The Fund has limited rights and
few practical remedies in emerging markets and the ability of U.S. authorities
to bring enforcement actions in emerging markets may be limited.
Cash
Transactions Risk.
Unlike other ETFs, the Fund effects its creations and redemptions at least
partially for cash, rather than wholly for in-kind securities. Because the Fund
currently intends to effect all or a portion of redemptions for cash, rather
than in-
kind
distributions, it may be required to sell portfolio securities in order to
obtain the cash needed to distribute redemption proceeds, which involves
transaction costs that the Fund may not have incurred had it effected
redemptions entirely in-kind. These costs may include brokerage costs and/or
taxable gains or losses, which may be imposed on the Fund and decrease the
Fund’s net asset value to the extent such costs are not offset by a transaction
fee payable by an Authorized Participant. If the Fund recognizes a gain on these
sales, this generally will cause the Fund to recognize a gain it might not
otherwise have recognized if it were to distribute portfolio securities in-kind,
or to recognize such gain sooner than would otherwise be required. As a result,
an investment in the Fund may be less tax-efficient than an investment in a more
conventional ETF. Other ETFs generally are able to make in-kind redemptions and
avoid realizing gains in connection with transactions designed to raise cash to
meet redemption requests. The Fund generally intends to distribute these gains
to shareholders to avoid being taxed on this gain at the Fund level and
otherwise comply with the special tax rules that apply to it. This strategy may
cause shareholders to be subject to tax on gains they would not otherwise be
subject to, or at an earlier date than, if they had made an investment in a
different ETF. Additionally, transactions may have to be carried out over
several days if the securities market is relatively illiquid and may involve
considerable transaction fees and taxes.
Market
Risk.
The prices of securities 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 underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including human error, processing and communication errors, errors of the Fund’s
service providers, counterparties or other third-parties, failed or inadequate
processes and technology or system failures.
Sampling
Risk. The
Fund’s use of a representative sampling approach will result in its holding a
smaller number of securities than are in its Index. As a result, an adverse
development respecting an issuer of securities held by the Fund could result in
a greater decline in net asset value than would be the case if the Fund held all
of the securities in its Index. Conversely, a positive development relating to
an issuer of securities in the Index that is not held by the Fund could cause
the Fund to underperform the Index. To the extent the assets in the Fund are
smaller, these risks will be greater.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index, or (if applicable) raising cash to meet redemptions or deploying
cash in connection with inflows into the Fund. Transaction costs, including
brokerage costs, may decrease the Fund’s net asset value.
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. Unusual market conditions may cause the Index provider to postpone a
scheduled rebalance, which could cause the Index to vary from its normal or
expected composition. There is no assurance that the Index provider 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, particularly where the indices are less commonly used as benchmarks 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.
When
the Index is rebalanced and the Fund in turn rebalances its portfolio to attempt
to increase the correlation between the Fund’s portfolio and the Index, any
transaction costs and market exposure arising from such portfolio rebalancing
will be borne directly 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 or
reserves of cash held by the Fund to pay expenses or to meet redemptions. In
addition, the Fund may not 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. The Fund’s performance may also deviate from the
return of the Index for a variety of reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards (where applicable), 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 market events, economic conditions or investor
perceptions. Illiquid securities may be difficult to value and their value may
be lower than the 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. To the extent the Fund encounters any issues with regard to
currency convertibility (including the cost of borrowing funds, if any),
repatriation or economic sanctions, such issues may also increase 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. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to changes to the Index and high turnover of the
Index.
The
Fund may fair value certain of its investments, underlying currencies and/or
other assets. To the extent the Fund calculates its net asset value 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) or if the Fund
otherwise calculates its net asset value based on prices that differ from those
used in calculating the Index, the Fund’s ability to track the Index may be
adversely affected. The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986 may also impact the Fund’s
ability to track the performance of the Index. In addition, if the Fund utilizes
depositary receipts or other derivative instruments, its return may not
correlate as well with the return of the Index as would be the case if the Fund
purchased all the securities in the Index directly. To the extent the Fund
utilizes depositary receipts, the purchase of depositary receipts may negatively
affect the Fund’s ability to track the performance of the Index and increase
tracking error, which may be exacerbated if the issuer of the depositary receipt
discontinues issuing new depositary receipts or withdraws existing depositary
receipts. Actions taken in response to proposed corporate actions could also
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.
Apart
from scheduled rebalances, the Index provider or its agents may carry out
additional ad hoc rebalances to the Index in order, for example, to correct an
error in the selection of index constituents. When the Index is rebalanced and
the Fund in turn rebalances its portfolio to attempt to increase the correlation
between the Fund’s portfolio and the Index, any transaction costs and market
exposure arising from such portfolio rebalancing will be borne directly by the
Fund and its shareholders. Therefore, errors and additional ad hoc rebalances
carried out by the Index provider to the Index may increase the costs to and the
tracking error risk of the Fund.
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 Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk. There
can be no assurance that an active trading market for the Shares will develop or
be maintained, as applicable. 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 Authorized
Participants 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 net asset value.
Van
Eck Securities Corporation, the distributor of the Shares, 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 Authorized Participants creating and redeeming directly
with the Fund.
Decisions
by market makers or Authorized Participants 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 net asset value and also in greater than normal intraday
bid/ask spreads for Fund Shares.
Trading
Issues Risk.
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 relevant 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 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 its 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 Fund’s 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 bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
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 its
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 Fund’s 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.
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 net asset value or to the intraday value of the Fund’s holdings.
The net asset value of the Shares will fluctuate with changes in the market
value of the Fund’s securities holdings. The market price of Shares may
fluctuate, in some cases materially, in accordance with changes in net asset
value and the intraday value of the Fund’s holdings, as well as supply and
demand on the Exchange. Shares may trade below, at or above their net asset
value. 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 net asset value 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 net asset value or sells Shares at a
time when the market price is at a discount to the net asset value, 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 net asset value. In addition, because certain of the Fund’s underlying
securities may trade on exchanges that are closed when 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 net asset value 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’ net asset value 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.
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 net
asset value, and the discount is likely to be greatest during significant market
volatility.
Non-Diversified
Risk.
The Fund is classified as a “non-diversified” fund under the Investment Company
Act of 1940. The Fund is subject to the risk that it will be more volatile than
a diversified fund because 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 net asset value and may make
the Fund more volatile than more diversified funds. The Fund may be particularly
vulnerable to this risk if it is comprised of a limited number of
investments.
Index-Related
Concentration Risk. The
Fund’s assets may be concentrated in a particular sector or sectors or industry
or group of industries to reflect the Index’s allocation to those types of
securities. 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
securities.
High
Portfolio Turnover Risk.
The Fund may engage in active and frequent trading of its portfolio securities,
which will result in increased transaction costs to the Fund, including
brokerage commissions, dealer mark-ups and other transaction costs on the sale
of the securities and on reinvestment in other securities. High portfolio
turnover may also result in higher taxes when Fund Shares are held in a taxable
account. The effects of high portfolio turnover may adversely affect Fund
performance.
ADDITIONAL
NON-PRINCIPAL INVESTMENT STRATEGIES
The
Fund may also invest in securities not included in the Index, money market
instruments, convertible securities, structured notes (notes on which the amount
of principal repayment and interest payments are based on the movement of one or
more specified factors, such as the movement of a particular stock or stock
index), and/or certain derivatives, which the Adviser
believes
will help the Fund track the Index. Depositary receipts not included in the
Fund's Index may be used by the Fund in seeking performance that corresponds to
the Index, and in managing cash flows, and may count towards compliance with the
Fund’s 80% policy. The Fund may also invest, to the extent permitted by the
Investment Company Act of 1940 and the Securities and Exchange Commission
regulations thereunder, in other affiliated and unaffiliated funds, such as
open-end or closed-end management investment companies, including other ETFs.
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
Derivatives
Risk. Derivatives
and other similar instruments (referred to collectively as “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). Counterparty risk also refers to the related risks of
having concentrated exposure to such a counterparty. 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. The Fund may also face
the risk that it may not be able to meet margin and payment requirements and
maintain a derivatives position.
Derivatives
are also subject to operational and legal risks. Operational risk generally
refers to risk related to potential operational issues, including documentation
issues, settlement issues, system failures, inadequate controls, and human
errors. Legal risk generally refers to insufficient documentation, insufficient
capacity or authority of counterparty, or legality or enforceability of a
contract.
Under
Rule 18f-4 (the “derivatives rule”), funds need to trade derivatives and other
transactions that create future fund payment or delivery obligations subject to
a value-at-risk (“VaR”) leverage limit, and certain derivatives risk management
program and reporting requirements. Generally, these requirements apply unless a
fund qualifies as a “limited derivatives user,” as defined in the derivatives
rule. Under the derivatives rule, when a fund trades reverse repurchase
agreements or similar financing transactions, including certain tender option
bonds, it needs to aggregate the amount of indebtedness associated with the
reverse repurchase
agreements
or similar financing transactions with the aggregate amount of any other senior
securities representing indebtedness 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
Securities and Exchange Commission also provided guidance in connection with the
derivatives rule regarding use of securities lending collateral that may limit a
fund's securities lending activities. In addition, under the derivatives rule,
the Fund is permitted to invest in a security on a when-issued or
forward-settling basis, or with a non-standard settlement cycle, and the
transaction will be deemed not to involve a senior security under the Investment
Company Act of 1940, provided that (i) the Fund intends to physically settle the
transaction and (ii) the transaction will settle within 35 days of its trade
date (the “Delayed-Settlement Securities Provision”). The Fund may otherwise
engage in such transactions that do not meet the conditions of the
Delayed-Settlement Securities Provision so long as the Fund treats any such
transaction as a “derivatives transaction” for purposes of compliance with the
derivatives rule. Furthermore, under the derivatives rule, the Fund will be
permitted to enter into an unfunded commitment agreement, and such unfunded
commitment agreement will not be subject to the asset coverage requirements
under the Investment Company Act of 1940, if the Fund reasonably believes, at
the time it enters into such agreement, that it will have sufficient cash and
cash equivalents to meet its obligations with respect to all such agreements as
they come due.
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 Authorized Participant,
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 and may, therefore, have a material effect on the market price of the
Shares.
Leverage
Risk.
To the extent that the Fund borrows money or utilizes certain derivatives, it
may be leveraged. Leveraging generally exaggerates the effect on net asset value
of any increase or decrease in the market value of the Fund’s portfolio
securities. The Fund is required to comply with the derivatives rule when it
engages in transactions that create future Fund payment or delivery obligations.
The Fund is required to comply with the asset coverage requirements under the
Investment Company Act of 1940 when it engages in borrowings and/or transactions
treated as borrowings.
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 [ ], the Adviser managed approximately $[ ] billion in assets.
The
Adviser has been an investment adviser since 1955 and also acts as adviser or
sub-adviser to mutual funds, other exchange-traded funds, other pooled
investment vehicles and separate accounts. The Adviser’s principal business
address is 666 Third Avenue, New York, New York 10017.
A
discussion regarding the Board of Trustees’ approval of the Investment
Management Agreement will be available in the Trust’s [annual] report for the
period ended [ ].
For
the services provided to the Fund under the Investment Management Agreement, the
Fund pays the Adviser monthly fees based on a percentage of the Fund’s average
daily net assets at the annual rate of 0.40%.
Until
at least September 1, 2025, the Adviser has agreed to waive fees and/or pay Fund
expenses to the extent necessary to prevent the operating expenses of the Fund
(excluding acquired fund fees and expenses, interest expense, trading expenses,
taxes and extraordinary expenses) from exceeding 0.50% of its average daily net
assets per year.
The
Fund is responsible for all of its expenses, including the investment advisory
fees, costs of transfer agency, custody, legal, audit and other services,
interest, taxes, any distribution fees or expenses, offering fees or expenses
and extraordinary expenses.
Manager
of Managers Structure.
The Adviser and the Trust may rely on an exemptive order (the “Order”) from the
Securities and Exchange Commission 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 fees, 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.
All
of the Fund’s RMB Bonds (including onshore PRC cash deposits and its onshore RMB
Bond portfolio) will be held by the PRC sub-custodians. A securities account
shall be opened with CSDCC in the name of the Fund. An RMB cash account shall
also be established and maintained with each PRC sub-custodian in the name of
the the Fund. Each PRC sub-custodian shall, in turn, have a cash clearing
account with CSDCC for trade settlement according to applicable
regulations.
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.
Francis
G. Rodilosso has been employed by the Adviser as a portfolio manager since March
2012. Mr. Rodilosso graduated from Princeton University in 1990 with a Bachelor
of Arts and from the Wharton School of Business in 1993 with a Master's of
Business Administration. Mr. Rodilosso serves as portfolio manager of other
funds of the Trust. Mr. Rodilosso also serves as portfolio manager for certain
other investment companies and pooled investment vehicles advised by the
Adviser.
See
the Fund's SAI for additional information about the portfolio manager's
compensation, other accounts managed by the portfolio manager and his ownership
of Shares of the Fund.
DETERMINATION
OF NAV
The
net asset value (“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 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’s 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
Authorized Participant (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, 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 Authorized Participants 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 interest, 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 at least
monthly 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 of 1986. 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 monthly, 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 capital gains, if any, are
generally taxable to you 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 does not expect that any of its distributions will be qualified
dividends eligible for lower tax rates or for the corporate dividends received
deduction.
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 net asset value 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. It is expected
that more than 50% of the Fund’s assets will consist of foreign
securities.
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 Service (“IRS”).
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 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 of 1986 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 1986 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.
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 FTSE Russell Ltd., (the “Index Provider”). The Index
Provider does not sponsor, endorse, or promote the Fund and bears no liability
with respect to the Fund or any security.
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FTSE
CHINESE BROAD BOND 0-10 YEARS DIVERSIFIED SELECT
INDEX |
The
Index is comprised of fixed-rate, RMB-denominated bonds issued in the PRC by
Chinese credit, governmental and quasi-governmental (e.g., policy banks)
issuers. The Index includes bonds with a maturity of less than ten years. There
is no minimum maturity. Credit RMB Bonds or their issuers must have an
investment grade rating by Standard & Poor’s or Moody’s Investors Service to
be included in the Index.
Qualifying
bonds must be traded on the Chinese inter-bank bond market.
The
Index uses a modified market cap weighting methodology.
The
Index is calculated and maintained by the Index Provider. The Index is
rebalanced monthly. The Index Provider 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
Fund has been developed solely by the Adviser. The Fund is not in any way
connected to or sponsored, endorsed, sold or promoted by the London Stock
Exchange Group plc and its group undertakings (collectively, the “LSE Group”).
FTSE Russell is a trading name of certain of the LSE Group companies.
All
rights in the Index vest in the relevant LSE Group company which owns the Index.
“FTSE®” is a trade mark of the relevant LSE Group company and is used by any
other LSE Group company under license.
The
Index is calculated by or on behalf of FTSE Fixed Income, LLC or its affiliate,
agent or partner. The LSE Group does not accept any liability whatsoever to any
person arising out of (a) the use of, reliance on, or any error in, the Index or
(b) investment in or operation of the Fund. The LSE Group makes no claim,
prediction, warranty or representation either as to the results to be obtained
from the Fund.
The
financial highlights table which 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 the 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 the six month period ended October 31, 2023
is unaudited. This information for the fiscal year ended April 30, 2023 has been
audited by [ ], the Trust's independent registered public accounting firm whose
report, along with the Fund’s financial statements, is included in the Fund’s
Annual Report, which is available upon request. The information for periods
prior to the fiscal year ended April 30, 2023 was audited by another independent
registered public accounting firm.
For
a share outstanding throughout each year:
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China
Bond ETF |
|
Period
ended October 31, 2023 (unaudited) |
Year
Ended April 30, |
|
|
2023 |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
|
|
Net
asset value, beginning of year |
[
] |
$ |
23.56 |
|
|
$ |
24.07 |
|
|
$ |
22.39 |
|
|
$ |
22.89 |
|
|
$ |
24.14 |
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|
|
|
Net
investment income (a) |
[
] |
0.57 |
|
|
0.66 |
|
|
0.73 |
|
|
0.87 |
|
|
0.75 |
|
|
|
|
Net
realized and unrealized gain (loss) on |
|
|
|
|
|
|
|
|
|
|
|
|
|
investments |
[
] |
(0.76) |
|
|
(0.40) |
|
|
1.60 |
|
|
(0.49) |
|
|
(1.24) |
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|
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|
Total
from investment operations |
[
] |
(0.19) |
|
|
0.26 |
|
|
2.33 |
|
|
0.38 |
|
|
(0.49) |
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|
Distributions
from: |
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|
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|
|
|
Net
investment income |
[
] |
— |
|
|
(0.76) |
|
|
(0.65) |
|
|
(0.79) |
|
|
(0.38) |
|
|
|
|
Return
of capital |
[
] |
(0.51) |
|
|
(0.01) |
|
|
— |
|
|
(0.09) |
|
|
(0.38) |
|
|
|
|
Total
distributions |
[
] |
(0.51) |
|
|
(0.77) |
|
|
(0.65) |
|
|
(0.88) |
|
|
(0.76) |
|
|
|
|
Net
asset value, end of year |
[
] |
$ |
22.86 |
|
|
$ |
23.56 |
|
|
$ |
24.07 |
|
|
$ |
22.39 |
|
|
$ |
22.89 |
|
|
|
|
Total
return (b) |
[
] |
(0.80) |
|
% |
1.02 |
|
% |
10.56 |
|
% |
1.76 |
|
% |
(1.98) |
|
% |
|
|
Ratios
to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
expenses |
[
] |
0.51 |
|
% |
0.52 |
|
% |
0.68 |
|
% |
3.53 |
|
% |
2.25 |
|
% |
|
|
Net
expenses |
[
] |
0.51 |
|
% |
0.51 |
|
% |
0.50 |
|
% |
0.50 |
|
% |
0.50 |
|
% |
|
|
Net
expenses excluding interest and taxes |
[
] |
0.50 |
|
% |
0.50 |
|
% |
0.50 |
|
% |
0.50 |
|
% |
0.50 |
|
% |
|
|
Net
investment income |
[
] |
2.51 |
|
% |
2.69 |
|
% |
3.07 |
|
% |
3.93 |
|
% |
3.29 |
|
% |
|
|
Supplemental
data |
|
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|
|
|
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|
|
Net
assets, end of year (in millions) |
[
] |
$ |
43 |
|
|
$ |
130 |
|
|
$ |
104 |
|
|
$ |
4 |
|
|
$ |
5 |
|
|
|
|
Portfolio
turnover rate (c) |
[
] |
10 |
|
% |
60 |
|
% |
17 |
|
% |
21 |
|
% |
22 |
|
% |
|
|
(a)Calculated
based upon average shares outstanding.
(b)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.
(c)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 net asset value 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 Investment Company Act of 1940. 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 Investment Company
Act of 1940 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 Investment
Company Act of 1940 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 SEC regulations, including that such investment companies enter into an
agreement with such 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. [ ] 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 Securities and Exchange Commission 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 Securities and Exchange
Commission, 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 [ ], 2024, 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 Investment Company Act of 1940 Registration Number:
811-10325 |
800.826.2333 vaneck.com |
CBONPRO |