ck0001137360-20211231
VANECK®
China
Growth Leaders ETF GLCN
ChiNext
ETF CNXT
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Principal
U.S. Listing Exchange for each Fund: NYSE Arca, Inc. |
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The
U.S. Securities and Exchange Commission (“SEC”) has not approved or
disapproved these securities or passed upon the accuracy or adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense. |
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800.826.2333 vaneck.com
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TABLE
OF CONTENTS |
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Summary
Information |
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VANECK®
CHINA GROWTH LEADERS ETF |
SUMMARY
INFORMATION
INVESTMENT OBJECTIVE
VanEck®
China
Growth Leaders ETF1
(the “Fund”) seeks to replicate as closely as possible, before fees and
expenses, the price and yield performance of the MarketGrader China All-Cap
Growth Leaders Index (the “China 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 |
0.50 |
% |
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Other
Expenses(a) |
0.90 |
% |
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Total
Annual Fund Operating Expenses(b) |
1.40 |
% |
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Fee
Waivers and Expense Reimbursement(b) |
-0.80 |
% |
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Total
Annual Fund Operating Expenses After Fee Waivers and Expense
Reimbursement(a)(b) |
0.60 |
% |
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(a) “Other Expenses” have been
restated to reflect current fees.
(b) 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, trading expenses, taxes and extraordinary
expenses) from exceeding 0.60% of the Fund’s average daily net assets per year
until at least May 1,
2023. 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 |
$61 |
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3 |
$364 |
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5 |
$689 |
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10 |
$1,610 |
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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
59% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The Fund will normally invest at
least 80% of its total assets in securities that comprise the Fund’s benchmark
index and/or in investments that have economic characteristics that are
substantially identical to the economic characteristics of the securities that
comprise its benchmark index.
________________________________________
1Prior
to September 1, 2021, the Fund's name was VanEck Vectors®
China Growth Leaders ETF.
The
China Index is comprised of Chinese equity securities which are generally
considered by MarketGrader.com Corp. (the “Index Provider”) to exhibit favorable
fundamental characteristics according to the Index Provider’sproprietary scoring
methodology. For each company eligible for the China Index, the Index Provider
creates a numerical score based on indicators measuring four fundamental
characteristics, derived from public company filings and stock prices. The four
fundamental characteristics are growth, value, profitability and cash flow. The
resulting score is a weighted average of these indicators. To be initially
eligible for inclusion in the China Index, companies must be domiciled in China
and listed on an eligible stock exchange, as determined by the Index Provider.
From this universe of companies, the top-ranked names according to the Index
Provider’s proprietary score are included, and then weighted according to their
free-float market capitalization.
As
of December 31, 2021, the China Index included 198 securities of companies with
a market capitalization range of between approximately $0.36 billion and $548
billion and a weighted average market capitalization of $69.9 billion. These
amounts are subject to change. 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 China Index by investing in a portfolio of
securities that generally replicates the China Index. Unlike many investment
companies that try to “beat” the performance of a benchmark index, the Fund does
not try to “beat” the China Index and does not seek temporary defensive
positions that are inconsistent with its investment objective of seeking to
replicate the China Index.
The
Fund will seek to achieve its investment objective by primarily investing
directly in A-shares and shares of companies domiciled in China and listed on
Chinese or eligible offshore exchanges. A-shares are issued by companies
incorporated in the People’s Republic of China (“China” or the “PRC”). A-shares
are traded in renminbi (“RMB”) on the Shenzhen or Shanghai Stock Exchanges. The
A-share market in China is made available to domestic PRC investors and foreign
investors through the Shanghai-Hong Kong Stock Connect Program and the
Shenzhen-Hong Kong Stock Connect Program (together, “Stock Connect”), and
through licenses obtained under the Renminbi Qualified Foreign Institutional
Investor (“RQFII”) or Qualified Foreign Institutional Investor (“QFII”)
programs. After obtaining a RQFII or QFII license, the RQFII or QFII would
register itself with China’s State Administration of Foreign Exchange (“SAFE”).
Because the Fund does not satisfy the criteria to qualify as a RQFII or QFII
itself, the Fund intends to invest directly in A-shares via Stock Connect, as
described below, or via the license granted to the Fund’s sub-adviser, China
Asset Management (Hong Kong) Limited (the “Sub-Adviser”), by CSRC (“RQFII
license”). The Sub-Adviser has obtained RQFII status, which the Sub-Adviser will
use to invest in A-shares on behalf of the Fund. The Fund may also invest in
A-shares listed and traded on the Shanghai and Shenzhen Stock Exchanges through
Stock Connect. Stock Connect is a securities trading and clearing program
between the Shanghai and Shenzhen Stock Exchanges, the Stock Exchange of Hong
Kong Limited, China Securities Depository and Clearing Corporation Limited
(“CSDCC”) and Hong Kong Securities Clearing Company Limited (“HKSCC”) designed
to permit mutual stock market access between mainland China and Hong Kong by
allowing investors to trade and settle shares on each market via their local
exchanges. Other exchanges in China may participate in Stock Connect in the
future. Purchases of A-shares through Stock Connect are subject to a daily quota
which does not belong to the Fund and can only be utilized on a
first-come-first-serve basis. Once the daily quota is exceeded, buy orders will
be rejected. Accordingly, the Fund's investments in A-shares via Stock Connect
will be subject to the abovementioned daily quota limits on daily net
purchases.
The
Fund may also invest a portion of its assets in swaps, futures contracts and
other types of derivative instruments that have economic characteristics that
are substantially identical to the economic characteristics of A-shares and
shares of Chinese companies, including swaps on the China Index, swaps on the
A-shares and shares of Chinese companies which comprise the China Index and/or
swaps on funds that seek to replicate the performance of the China Index or
funds that invest in A-shares and shares of Chinese companies or the Fund may
invest directly in shares of such funds. The notional values of these swaps,
futures contracts and other derivative instruments will count towards the Fund’s
80% investment policy and cash and cash equivalents related to the swaps,
futures contracts and other derivative instruments will not be counted towards
the calculation of total assets. The Fund may also invest in exchange-traded
funds (“ETFs”), including ETFs listed on a Hong Kong or other foreign
exchange.
The
Fund may become “non-diversified” as defined under the Investment Company Act of
1940, as amended (the “1940 Act”), solely as a result of a change in relative
market capitalization or index weighting of one or more constituents of the
China Index. This means that the Fund may invest a greater percentage of its
assets in a limited number of issuers than would be the case if the Fund were
always managed as a diversified management investment company. The Fund intends
to be diversified in approximately the same proportion as the China Index.
Shareholder approval will not be sought when the Fund crosses from diversified
to non-diversified status due solely to a change in the relative market
capitalization or index weighting of one or more constituents of the China
Index.
The Fund may concentrate its
investments in a particular industry or group of industries to the extent that
the China Index concentrates in an industry or group of industries. As of
December 31, 2021, each of the consumer discretionary, consumer staples, health
care, industrials and information technology 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.
Risk
of the RQFII Regime and the Fund’s Principal Investment Strategy.
The China Index is comprised of A-shares and shares of companies domiciled in
China and listed on Chinese or eligible offshore exchanges. In seeking to
replicate the China Index, the Fund intends to invest directly in A-shares
through the Sub-Adviser’s RQFII license and Stock Connect and in other shares
directly. Because the Fund will not be able to invest in A-shares beyond the
limits that may be imposed by Stock Connect and the RQFII, the size of the
Fund’s direct investment in A-shares may be limited. In addition, the RQFII
license of the Sub-Adviser may be revoked by the Chinese regulators if, among
other things, the Sub-Adviser fails to observe China Securities Regulatory
Commission (“CSRC”), SAFE and other applicable Chinese regulations. There can be
no assurance the Fund could retain a replacement sub-adviser with an RQFII
license or other means of investing in A-shares if that became necessary or
appropriate for any reason.
The
Fund cannot predict what would occur if the RQFII of the Sub-Adviser generally
were eliminated, although such an occurrence would likely have a material
adverse effect on the Fund, including the requirement that the Sub-Adviser on
behalf of the Fund dispose of certain or all of its A-shares holdings, and may
adversely affect the willingness and ability of potential swap counterparties to
engage in swaps with the Fund linked to the performance of A-shares. These risks
are compounded by the fact that there are only a limited number of firms and
potential counterparties that have RQFII or QFII status or are willing and able
to enter into swap transactions linked to the performance of A-shares. To the
extent the Fund invests in swaps, there can be no guarantee that the Fund will
be able to invest in appropriate swaps, and the PRC government may at times
restrict the ability of firms regulated in the PRC to make such swaps available.
Therefore, any such reduction or elimination may have a material adverse effect
on the ability of the Fund to achieve its investment objective. If the Fund is
unable to obtain sufficient exposure to the performance of the China Index due
to the limited availability of investments that provide exposure to the
performance of A-shares, the Fund, subject to any necessary regulatory relief,
could, among other things, as a defensive measure limit or suspend creations
until the Adviser and/or the Sub-Adviser determine that the requisite exposure
to the China Index is obtainable. If any of the above events were to occur, the
Fund could trade at a significant premium or discount to its net asset value
(“NAV”) and could experience substantial redemptions and the Fund could, among
other things, change its investment objective by, for example, seeking to track
an alternative index focused on Chinese-related stocks other than A-shares or
other appropriate investments, or decide to liquidate. Although the regulations
on RQFII have recently been revised to relax regulatory restrictions on shore
capital management by RQFIIs (including removal of RQFII quota limits and
simplifying the repatriation of investment proceeds), it is a very new
development that is subject to uncertainties in the implementation in practice,
especially at early stages.
There
are also risks associated with the taxation of RQFIIs. Please refer to the
section titled “PRC Taxation” below for more details.
A-Shares
invested via the RQFII will be maintained by a local custodian pursuant to PRC
regulations. The Fund may incur losses due to the acts or omissions of the local
custodian in execution or settlement of any transaction. Any cash maintained by
the local custodian is commingled with cash of other clients of the local
custodian. Therefore, in the event of the bankruptcy or liquidation of the local
custodian, the Fund may face difficulty and/or encounter delays in recovering
such debt, or may not be able to recover it in full or at all, in which case the
Fund will suffer losses.
The
Fund may also suffer substantial losses if any of the key RQFII key operators or
parties defaults, becomes bankrupt or disqualified from performing their
obligations.
The
Sub-Adviser, as a licensed RQFII, is currently permitted to repatriate RMB daily
and is not subject to RMB repatriation restrictions or prior approval, provided
that final repatriation of capital and profits at the liquidation of the Fund
will be subject to an audit report and tax filing. However, there is no
assurance that RQFII may not be subject to restrictions or prior approval
requirements in the future. Any additional restrictions imposed on the
Sub-Adviser or RQFIIs generally may have an adverse effect on a Fund’s ability
to invest directly in A-shares and its ability to meet redemption
requests.
If
the Fund’s direct investments in A-shares through the Sub-Adviser’s RQFII
license become subject to repatriation restrictions, the Fund may be unable to
satisfy distribution requirements applicable to regulated investment companies
(“RICs”) under the Internal Revenue Code of 1986, as amended (the “Internal
Revenue Code”), 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 re- qualifying for taxation as a RIC. See the
prospectus under “Shareholder Information—Tax Information—Taxes on
Distributions” for more information. 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 in anticipation of the imposition of withholding taxes not
currently in effect (as discussed above). 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 section of this prospectus entitled “Shareholder
Information—Tax Information” for a further description of this risk. There is no
guarantee that the
temporary
tax exemption or non-taxable treatment with respect to assets traded via QFIIs
and RQFIIs described above will continue to apply.
Special
Risk Considerations of Investing in China and A-shares.
Investments in securities of Chinese issuers, including A-shares, involve risks
and special considerations not typically associated with investments in the U.S.
securities markets. These risks may include, among others, (i) more frequent
(and potentially widespread) trading suspensions and government interventions
with respect to Chinese issuers, resulting in lack of liquidity and in price
volatility, (ii) currency revaluations and other currency exchange rate
fluctuations or blockage, (iii) the nature and extent of intervention by the
Chinese government in the Chinese securities markets (including both direct and
indirect market stabilization efforts, which may affect valuations of Chinese
issuers), whether such intervention will continue and the impact of such
intervention or its discontinuation, (iv) the risk of nationalization or
expropriation of assets, (v) the risk that the Chinese government may decide not
to continue to support economic reform programs, (vi) limitations on the use of
brokers (or action by the Chinese government that discourages brokers from
serving international clients), (vii) higher rates of inflation, (viii) greater
political, economic and social uncertainty, (ix) market volatility caused by any
potential regional or territorial conflicts or natural or other disasters (x)
the risk of increased trade tariffs, embargoes, sanctions, investment
restrictions and other trade limitations, (xi) custody risks associated with
investing via the Stock Connect Program or through a RQFII, where due to
requirements regarding establishing a custody account in the joint names of the
Fund and the Sub-Adviser the Fund’s assets may not be as well protected from the
claims of the Sub-Adviser’s creditors than if the Fund had an account in its
name only, (xii) both interim and permanent market regulations which may affect
the ability of certain stockholders to sell Chinese securities when it would
otherwise be advisable, (xiii) foreign ownership limits of any listed Chinese
company and (xiv) the general risks applicable to RQFIIs and the Stock
Connect.
The
economy of China differs, often unfavorably, from the U.S. economy in such
respects as structure, general development, government involvement, wealth
distribution, rate of inflation, growth rate, interest rates, allocation of
resources and capital reinvestment, among others. The Chinese central government
has historically exercised substantial control over virtually every sector of
the Chinese economy through administrative regulation and/or state ownership and
actions of the Chinese central and local government authorities continue to have
a substantial effect on economic conditions in China. In addition, 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. It may do so in the future as well, potentially
having a significant adverse effect on economic conditions in
China.
The
Chinese securities markets are emerging markets characterized by greater price
volatility relative to U.S. markets. Liquidity risks may be more pronounced for
the A-share market than for Chinese securities markets generally because the
A-share market is subject to greater government restrictions and control,
including trading suspensions as discussed above. Price fluctuations of A-shares
are limited per trading day. In addition, there is less regulation and
monitoring of Chinese securities markets and the activities of investors,
brokers and other participants than in the United States. Accounting, auditing
and financial reporting standards in China are different from U.S. standards
and, therefore, disclosure of certain material information may not be made. In
addition, 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. There is also generally less governmental regulation of the
securities industry in China, and less enforcement of regulatory provisions
relating thereto, than in the United States. Moreover, it may be more difficult
to obtain a judgment in a court outside the United States.
The
A-share market is volatile with a risk of suspension of trading in a particular
security or government intervention. Securities on the A-share market, including
securities in the China Index, may be suspended from trading without an
indication of how long the suspension will last, which may impair the liquidity
of such securities.
The
Chinese government strictly regulates the payment of foreign currency
denominated obligations and sets monetary policy. In addition, the Chinese
economy is export-driven and highly reliant on trade. 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. Moreover, a slowdown in other significant economies of the world,
such as the United States, the European Union and certain Asian countries, may
adversely affect economic growth in China. An economic downturn in China would
adversely impact the Fund’s investments.
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 RMB and sets the value of the RMB to levels dependent on
the value of the U.S. dollar, but the Chinese government has been under pressure
to manage the currency in a less restrictive fashion so that it is less
correlated to 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. 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. Although offshore RMB
(CNH) and onshore RMB (CNY) are the same currency, they trade at different
rates. Any divergence between CNH and CNY may adversely impact investors. 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 (defined herein) into RMB to purchase A-shares. As a result, these
restrictions may adversely affect the Fund and its investments and may increase
the risk of index tracking error.
Risks
of Investing through Stock Connect.
The Fund may invest in A-shares listed and traded on the Shanghai Stock Exchange
and the Shenzhen Stock Exchange through Stock Connect, or on such other stock
exchanges in China which participate in Stock Connect from time to time or in
the future. Trading through Stock Connect is subject to a number of restrictions
that may affect the Fund’s investments and returns. For example, purchases of
A-shares through Stock Connect are subject to a daily quota which does not
belong to the Fund and can only be utilized on a first-come-first-serve basis.
Once the daily quota is exceeded, buy orders will be rejected. The Fund's
ability to invest in A-Shares may therefore be limited. In addition, investments
made through Stock Connect are subject to trading, clearance and settlement
procedures that are relatively untested in the PRC, which could pose risks to
the Fund. Furthermore, securities purchased via Stock Connect will be held via a
book entry omnibus account in the name of HKSCC, Hong Kong’s clearing entity, at
the CSDCC. The Fund’s ownership interest in Stock Connect securities will not be
reflected directly in book entry with CSDCC and will instead only be reflected
on the books of its Hong Kong sub-custodian. The Fund may therefore depend on
HKSCC’s ability or willingness as record-holder of Stock Connect securities to
enforce the Fund’s shareholder rights. PRC law did not historically recognize
the concept of beneficial ownership; while PRC regulations and the Hong Kong
Stock Exchange have issued clarifications and guidance supporting the concept of
beneficial ownership via Stock Connect, the interpretation of beneficial
ownership in the PRC by regulators and courts may continue to evolve. Moreover,
Stock Connect A-shares generally may not be sold, purchased or otherwise
transferred other than through Stock Connect in accordance with applicable
rules.
A
primary feature of Stock Connect is the application of the home market’s laws
and rules applicable to investors in A-shares. Therefore, the Fund’s investments
in Stock Connect A-shares are generally subject to PRC securities regulations
and listing rules, among other restrictions. Stock Connect is only available on
days when markets in both the PRC and Hong Kong are open, which may limit the
Fund’s ability to trade when it would be otherwise attractive to do so.
Uncertainties in permanent PRC tax rules governing the taxation of income and
gains from investments in Stock Connect A-shares could result in unexpected tax
liabilities for the Fund. Please refer to the section titled “PRC taxation”
below.
The
Stock Connect program is a relatively new program and may be subject to further
interpretation and guidance. There can be no assurance as to the program’s
continued existence or whether future developments regarding the program may
restrict or adversely affect the Fund’s investments or returns. In addition, the
application and interpretation of the laws and regulations of Hong Kong and the
PRC, and the rules, policies or guidelines published or applied by relevant
regulators and exchanges in respect of the Stock Connect program are uncertain,
and they may have a detrimental effect on the Fund’s investments and
returns.
Risks
associated with the Science and Technology Innovation Board (also known as the
“STAR Board”). The
Fund may access securities listed on the STAR Board of the Shanghai Stock
Exchange. Listed companies on the STAR Board are usually of an emerging nature
with smaller operating scale, focused on emerging sectors such as new
technologies and have a limited history. Rapid changes in technology could
render obsolete the products and services offered by these listed companies, and
cause severe or complete declines in the prices of the securities of such
companies.
In
general, the securities on the STAR Board are subject to higher fluctuations in
securities prices and liquidity and have higher risks and turnover ratios than
companies listed on the main board of the Shanghai Stock Exchange. Due to having
fewer securities in circulation, securities prices may be more susceptible to
manipulation. Securities listed on the STAR Board may be overvalued and such
exceptionally high valuations may not be sustainable.
As
the STAR Board allows companies to list by way of a registration system, it may
be more common and faster for companies listed on the STAR Board to list and
delist. If the companies that the Fund invests in are delisted, this may have an
adverse impact on the value of the Fund. Also, the rules and regulations
regarding companies listed on the STAR Board are less stringent in terms of
profitability and share capital than those on the main board of the Shanghai
Stock Exchange. Listed companies may list on the STAR Board with neither a track
record of profitability nor any obligation to forecast future profitability.
Investments in securities listed on the STAR Board may result in significant
losses for the Fund and its investors.
PRC
Taxation.
Currently, there are no specific tax rules relating to investment in A-shares
via the Stock Connect and RQFII. Instead, the income and gains from such
investment are subject to general PRC tax rules and temporary provisions. Under
these provisions, a corporation that does not have permanent establishment in
the PRC will be subject to withholding income tax of 10% (“PRC WIT”) on its
PRC-sourced income, including but not limited to passive income (e.g. dividends,
interest, gains arising from transfer of assets) subject to reduction under an
applicable double tax treaty and agreement by PRC tax authorities. Value added
tax
of 6%, as well as urban maintenance and construction tax, educational surcharge
and local educational surcharge (which are all based on value added tax) should
also be levied on gains derived from trading of marketable
securities.
Under
Circular Caishui [2014] No. 79, the PRC Ministry of Finance (MOF) clarified that
capital gains on the transfer of A-shares derived by QFIIs and RQFIIs that do
not have permanent establishments in the PRC on or after 17 November 2014 are
temporarily exempt from PRC WIT. According to Circular Caishui [2014] No. 81 and
Circular Caishui [2016] No. 127, the MOF clarified that capital gains realized
from the transfer of A-shares via Stock Connect are temporarily exempt from PRC
WIT.
The
Fund, prior to December 22, 2014, reserved 10% of its realized and unrealized
gains from its A-share investments to apply towards withholding tax liability
with respect to realized and unrealized gains from the Fund’s investments in
A-shares of “land- rich” enterprises, which are companies that have greater than
50% of their assets in land or real properties in the PRC. The tax reserve was
reflected in the Fund’s daily NAV calculations as a deduction from the Fund’s
NAV. During 2015, revenue authorities in the PRC made arrangements for the
collection of capital gains taxes for investments realized between November 17,
2009 and November 16, 2014.
Actual
tax imposed by the PRC tax authorities may be different and may be changed from
time to time. There is a possibility of the tax rules being changed and taxes
being applied retrospectively. As such, any provision for taxation made by the
Fund may be excessive or inadequate to meet the final PRC tax liabilities.
Consequently, shareholders may be advantaged or disadvantaged depending on the
final tax liabilities, the level of provision and the timing of the
shareholder's subscription and redemption.
Risk
of Investing in Foreign Securities.
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.
Risk
of Investing in Emerging Market Issuers. Investments
in securities of emerging market issuers are exposed to a number of risks that
may make these investments volatile in price or difficult to trade. Emerging
markets are 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. Political risks may include unstable
governments, nationalization, restrictions on foreign ownership, laws that
prevent investors from getting their money out of a country and legal systems
that do not protect property rights as well as the laws of the United States.
Market risks may also include economies that concentrate in only a few
industries, securities issues that are held by only a few investors, liquidity
issues and limited trading capacity in local exchanges and the possibility that
markets or issues may be manipulated by foreign nationals who have inside
information. The frequency, availability and quality of financial information
about investments in emerging markets varies. 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, and the Fund's
passive investment approach does not take account of these risks. All of these
factors can make emerging market securities more volatile and potentially less
liquid than securities issued in more developed markets.
Foreign
Currency Risk. Because
all or a portion of the income received by the Fund from its investments and/or
the revenues received by the underlying issuer will generally be denominated in
foreign currencies, the Fund’s exposure to foreign currencies and changes in the
value of foreign currencies versus the U.S. dollar may result in reduced returns
for the Fund, and the value of certain foreign currencies may be subject to a
high degree of fluctuation. Moreover, the Fund may incur costs in connection
with conversions between U.S. dollars and foreign currencies.
Risk
of Investing in the Consumer Discretionary Sector.
The
Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition of the consumer discretionary sector. The consumer
discretionary sector comprises companies whose businesses are sensitive to
economic cycles, such as manufacturers of high-end apparel and automobile and
leisure companies. Companies engaged in the consumer discretionary sector are
subject to fluctuations in supply and demand. These companies may also be
adversely affected by changes in consumer spending as a result of world events,
political and economic conditions, commodity price volatility, changes in
exchange rates, imposition of import controls, increased competition, depletion
of resources and labor relations.
Risk
of Investing in the Consumer Staples Sector.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition of the consumer staples sector. The consumer
staples sector comprises companies whose businesses are less sensitive to
economic cycles, such as manufacturers and distributors of food and beverages
and producers of non-durable household goods and personal products. Companies in
the consumer staples sector may be adversely affected by changes in the
worldwide economy, consumer spending, competition, demographics and consumer
preferences, exploration and production spending. Companies in this sector are
also affected by changes in government regulation, world events and economic
conditions.
Risk
of Investing in the Health Care Sector.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition of the health care sector. Companies in the
health care sector may be affected by extensive government
regulation,
restrictions on government reimbursement for medical expenses, rising costs of
medical products and services, pricing pressure, an increased emphasis on
outpatient services, limited number of products, industry innovation, changes in
technologies and other market developments. Many health care companies are
heavily dependent on patent protection and are subject to extensive litigation
based on product liability and similar claims.
Risk
of Investing in the Industrials Sector.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition of the industrials sector. The industrials
sector comprises companies who produce capital goods used in construction and
manufacturing, such as companies that make and sell machinery, equipment and
supplies that are used to produce other goods. Companies in the industrials
sector may be adversely affected by changes in government regulation, world
events and economic conditions. In addition, companies in the industrials sector
may be adversely affected by environmental damages, product liability claims and
exchange rates.
Risk
of Investing in the Information Technology Sector.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition of the information technology sector.
Information technology companies face intense competition, both domestically and
internationally, which may have an adverse effect on profit margins. Information
technology companies may have limited product lines, markets, financial
resources or personnel. The products of information technology companies may
face product obsolescence due to rapid technological developments and frequent
new product introduction, unpredictable changes in growth rates and competition
for the services of qualified personnel. Companies in the information technology
sector are heavily dependent on patent protection and the expiration of patents
may adversely affect the profitability of these companies.
Risk
of Investing in Swaps.
The Fund may invest in swaps on the China Index or on securities comprising the
China Index. The Fund may also invest in swaps on other funds that track the
China Index or funds that invest in A-shares and shares of offshore listed
Chinese companies. The use of swap agreements entails certain risks, which may
be different from, and possibly greater than, the risks associated with
investing directly in the underlying asset for the swap agreement. Investments
in swaps linked to the performance of A-shares and shares of offshore listed
Chinese companies are subject to general risks associated with investments in
China and A-shares and the RQFII/QFII system discussed above in “Principal Risks
of Investing in the Fund—Risk of the RQFII Regime and the Fund’s Principal
Investment Strategy.”
Because
a swap is an obligation of the counterparty rather than a direct investment in
shares, the Fund may suffer losses potentially equal to, or greater than, the
full value of the swap if the counterparty to a non-controlled cleared swap
fails to perform its obligations under the swap as a result of bankruptcy or
otherwise. Any loss would result in a reduction in the NAV of the Fund and may
impair the Fund’s ability to achieve its investment objective. The counterparty
risk associated with the Fund’s investments is expected to be greater than most
other funds because there are only a limited number of counterparties that are
willing and able to enter into swaps on shares of Chinese companies. In fact,
because there are so few potential counterparties, the Fund, subject to
applicable law, may enter into swap transactions with as few as one counterparty
at any time.
Investments
in swaps may also be subject to liquidity risk if the transaction is
particularly large or if the relevant market is illiquid. Due to the limited
number of potential swap counterparties, the liquidity risk associated with the
Fund’s investments is expected to be greater than most other funds as 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
swap market is subject to extensive regulation under the Dodd-Frank Wall Street
Reform and Consumer Protection Act and certain Securities and Exchange
Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) rules
promulgated thereunder. It is possible that developments in the swaps market,
including new and additional government regulation, could result in higher Fund
costs and expenses and could adversely affect the Fund’s ability, among other
things, to enter into or to terminate existing swap agreements or to realize
amounts to be received under such agreements. Moreover, certain swap
transactions may be subject to the Fund’s limitation on investments in illiquid
securities. Because swaps are generally entered into between two parties and may
take longer than seven days to be sold or disposed of in the ordinary course of
business, certain swaps may be considered to be illiquid.
Investments
in swaps require additional ongoing payments to the counterparty to the swap. In
addition, the Fund’s investments in swaps and other derivative instruments may
be less tax-efficient than direct investment in A-shares and may be subject to
special U.S. federal income tax rules that could negatively affect the Fund.
Investments in swaps and other derivatives may be subject to special U.S.
federal income tax rules that could negatively affect the character, timing and
amount of income earned by the Fund (e.g.,
by causing amounts that would be capital gain to be taxed as ordinary income or
to be taken into income earlier than would otherwise be necessary). Also, the
Fund may be required to periodically adjust its positions in swaps and
derivatives to comply with certain regulatory requirements which may further
cause these investments to be less efficient than a direct investment in
A-shares. In addition, because the application of these special rules may be
uncertain, the manner in which they are applied by the Fund may be determined to
be incorrect and, as a result the Fund may be found to have failed to maintain
its qualification as a RIC or to be subject to additional U.S. tax
liability.
Changes
to or new regulations applicable to an ETF’s use of derivatives could
potentially limit or impact the Fund’s ability to invest in derivatives and
negatively affect the Fund’s performance and ability to pursue its stated
investment objectives.
Risk
of Investing in Futures.
Futures contracts generally provide for the future sale by one party and
purchase by another party of a specified instrument, index or commodity at a
specified future time and at a specified price. The value of a futures contract
tends to increase and decrease in tandem with the value of the underlying
instrument. The prices of futures can be highly volatile and using futures can
increase the volatility of the Fund’s NAV and/or lower total return.
Additionally, as a result of low collateral deposits normally involved in
futures trading, a relatively small movement in the price or value of a futures
transaction may result in substantial losses to the Fund, and the potential loss
from futures can exceed the Fund’s initial investment in such contracts. Futures
contracts involve the risk of mispricing or improper valuation and the risk that
changes in the value of a futures contract may not correlate perfectly with the
underlying indicator. Even a well-conceived futures transaction may be
unsuccessful due to market events. There is also the risk of loss by the Fund of
margin deposits in the event of bankruptcy of a broker with whom the Fund has an
open position in the futures contract. A liquid secondary market may not always
exist for the Fund’s futures contract positions at any time.
Risk
of Investing in Other Funds. The
Fund may invest in shares of other funds, including ETFs. As a result, the Fund
will indirectly be exposed to the risks of an investment in the underlying
funds. As a shareholder in a fund (as with ETFs), the Fund would bear its
ratable share of that entity’s expenses. At the same time, the Fund would
continue to pay its own investment management fees and other expenses. As a
result, the Fund and its shareholders will be absorbing duplicate levels of fees
with respect to investments in other funds, including ETFs.
In
October 2020, the SEC adopted certain regulatory changes and took other actions
related to the ability of an investment company to invest in another investment
company, including the rescission of exemptive relief issued by the SEC
permitting such investments in excess of statutory limits. These regulatory
changes may adversely impact the Fund’s investment strategies and
operations.
Risk
of Investing in Small- and Medium-Capitalization Companies.
Small- and medium-capitalization companies may be more volatile and more likely
than large-capitalization companies to have narrower product lines, fewer
financial resources, less management depth and experience and less competitive
strength. In addition, these companies often have greater price volatility,
lower trading volume and less liquidity than larger more established companies.
Returns on investments in securities of small- and medium-capitalization
companies could trail the returns on investments in securities of
large-capitalization companies.
Risk
of Cash Transactions.
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.
Equity
Securities Risk.
The value of the equity securities held by the Fund may fall due to general
market and economic conditions, perceptions regarding the markets in which the
issuers of securities held by the Fund participate, or factors relating to
specific issuers in which the Fund invests. Equity securities are subordinated
to preferred securities and debt in a company’s capital structure with respect
to priority in right to a share of corporate income, and therefore will be
subject to greater dividend risk than preferred securities or debt instruments.
In addition, while broad market measures of equity securities have historically
generated higher average returns than fixed income securities, equity securities
have generally also experienced significantly more volatility in those returns,
although under certain market conditions fixed income securities may have
comparable or greater price volatility.
Market
Risk.
The prices of the securities in the Fund are subject to the risks associated
with investing in the securities market, including general economic conditions,
sudden and unpredictable drops in value, exchange trading suspensions and
closures and public health risks. These risks may be magnified if certain
social, political, economic and other conditions and events (such as natural
disasters, epidemics and pandemics, terrorism, conflicts and social unrest)
adversely interrupt the global economy; in these and other circumstances, such
events or developments might affect companies world-wide. An investment in the Fund may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including, but not limited to, human error, processing and communication errors,
errors of the Fund’s service providers, counterparties or other third parties,
failed or inadequate processes and technology or system failures.
Index
Tracking Risk.
The Fund’s return may not match the return of the China Index for a number of
reasons. For example, the Fund incurs a number of operating expenses, including
taxes, not applicable to the China Index and incurs costs associated with buying
and selling securities, especially when rebalancing the Fund’s securities
holdings to reflect changes in the composition of the China Index, or (to the
extent the Fund effects creations and redemptions for cash) raising cash to meet
redemptions or deploying cash in connection with newly created Creation Units,
which are not factored into the return of the China Index. Transaction costs,
including brokerage costs, will decrease the Fund’s NAV to the extent not offset
by the transaction fee payable by an Authorized Participant (“AP”). Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the China Index. Errors in the China Index data, the China Index computations
and/or the construction of the China Index in accordance with its methodology
may occur from time to time and
may
not be identified and corrected by the China Index provider for a period of time
or at all, which may have an adverse impact on the Fund and its shareholders.
Shareholders
should understand that any gains from the China Index provider's errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
China Index provider's errors will be borne by the Fund and its shareholders.
When
the China Index is rebalanced and the Fund in turn rebalances its portfolio to
attempt to increase the correlation between the Fund’s portfolio and the China
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 (if the Fund effects creations and redemptions for cash) or reserves of
cash held by the Fund to meet redemptions or pay expenses. Apart
from scheduled rebalances, the China Index provider or its agents may carry out
additional ad hoc rebalances to the China Index. Therefore, errors and
additional ad hoc rebalances carried out by the China Index provider or its
agents to the China Index may increase the costs to and the tracking error risk
of the Fund. In
addition, the Fund may not invest in certain securities included in the China
Index, or invest in them in the exact proportions in which they are represented
in the China Index. As discussed above, one or more securities included the
China Index may be suspended from trading and such securities would be valued by
the China Index at the last closing price. The Fund’s performance may also
deviate from the return of the China Index due to legal restrictions or
limitations imposed by the governments of certain countries, certain listing
standards of the Fund’s listing exchange (the “Exchange”), a lack of liquidity
on stock exchanges in which such securities trade, potential adverse tax
consequences or other regulatory reasons or legal restrictions or limitations
(such as diversification requirements). The Fund may value certain of its
investments, underlying securities, underlying currencies and/or other assets
based on fair value prices. To the extent the Fund calculates its NAV based on
fair value prices and the value of the China Index is based on securities’
closing prices on local foreign markets (i.e.,
the value of the China Index is not based on fair value prices), the Fund’s
ability to track the China 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) and repatriation may also increase the index
tracking risk. The Fund will be required to remit RMB to settle the purchase of
A-shares and repatriate RMB to U.S. dollars to settle redemption orders. In the
event such remittance is delayed or disrupted, the Fund will not be able to
fully replicate the China Index by investing in the relevant A-shares, which may
lead to increased tracking error, and may need to rely on borrowings to meet
redemptions, which may lead to increased expenses. Because the China Index is
priced in Chinese RMB and the Fund is priced in U.S. dollars, the ability of the
Fund to track the China Index is in part subject to foreign exchange
fluctuations as between the U.S. dollar and the RMB. The Fund’s performance may
also deviate from the performance of the China Index due to the impact of
withholding taxes, late announcements relating to changes to the China Index and
high turnover of the China 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
underperform the China Index when the value of the U.S. dollar increases
relative to the value of the RMB. Additionally, the terms of the swaps require
the payment of the U.S. dollar equivalent of the RMB distributions and dividends
received by the QFII, meaning that the Fund is exposed to foreign exchange risk
and fluctuations in value between the U.S. dollar and the RMB. 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 China Index. In light of the factors discussed above, the Fund’s return
may deviate significantly from the return of the China Index. Changes to the
composition of the China Index in connection with a rebalancing or
reconstitution of the China Index may cause the Fund to experience increased
volatility, during which time the Fund’s index tracking risk may be
heightened.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of financial institutions that act as APs,
none of which are obligated to engage in creation and/or redemption
transactions. To the extent that those APs exit the business, or are unable to
or choose not to process creation and/or redemption orders, and no other AP is
able to step forward to create and redeem, there may be a significantly
diminished trading market for Shares or Shares may trade like closed-end funds
at a greater discount (or premium) to NAV and possibly face trading halts and/or
de-listing. The AP concentration risk may be heightened in scenarios where APs
have limited or diminished access to the capital required to post collateral.
No
Guarantee of Active Trading Market.
While Shares are listed on the Exchange, there can be no assurance that an
active trading market for the Shares will be maintained. Further, secondary
markets may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods in times of market stress because market
makers and APs may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its NAV.
Trading
Issues.
Trading in Shares on the Exchange may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange
necessary to maintain the listing of the Fund will continue to be met or will
remain unchanged.
Passive
Management Risk.
An investment in the Fund involves risks similar to those of investing in any
fund invested in equity securities traded on an exchange, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. However,
because the Fund is not “actively” managed, unless a specific security is
removed from the China Index, the Fund generally would not sell a security
because the security’s issuer was in financial trouble. Additionally, unusual
market conditions may cause the China Index provider to postpone a scheduled
rebalance
or
reconstitution, which could cause the China Index to vary from its normal or
expected composition. Therefore, the Fund’s performance could be lower than
funds that may actively shift their portfolio assets to take advantage of market
opportunities or to lessen the impact of a market decline or a decline in the
value of one or more issuers.
Fund
Shares Trading, Premium/Discount Risk and Liquidity of Fund Shares.
The market price of the Shares may fluctuate in response to the Fund’s NAV, the
intraday value of the Fund’s holdings and supply and demand for Shares. The
Adviser cannot predict whether Shares will trade above, below, or at their most
recent NAV. Disruptions to creations and redemptions, the existence of market
volatility or potential lack of an active trading market for Shares (including
through a trading halt), as well as other factors, may result in Shares trading
at a significant premium or discount to NAV or to the intraday value of the
Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the NAV or sells Shares at a time when the market price
is at a discount to the NAV, the shareholder may pay significantly more or
receive significantly less than the underlying value of the Shares that were
bought or sold or the shareholder may be unable to sell his or her Shares. The
securities held by the Fund may be traded in markets that close at a different
time than the Exchange. Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time when the Exchange is open
but after the applicable market closing, fixing or settlement times, bid/ask
spreads on the Exchange and the resulting premium or discount to the Shares’ NAV
may widen. Additionally, in stressed market conditions, the market for the
Fund’s Shares may become less liquid in response to deteriorating liquidity in
the markets for the Fund’s underlying portfolio holdings. There are various
methods by which investors can purchase and sell Shares. Investors should
consult their financial intermediaries before purchasing or selling Shares of
the Fund.
Non-Diversification
Risk.
The Fund may become classified as
non-diversified under the Investment Company Act of 1940, as amended, solely as
a result of a change in relative market capitalization or index weighting of one
or more constituents of the China Index. If the Fund becomes non-diversified, it
may invest a greater portion of assets in securities of a smaller number of
individual issuers than a diversified fund. As a result, changes in the market
value of a single investment could cause greater fluctuations in share price
than would occur in a more diversified fund.
Concentration
Risk. The
Fund’s assets may be concentrated in a particular sector or sectors or industry
or group of industries to the extent the China Index concentrates in a
particular sector or sectors or industry or group of industries. To the extent
that the Fund is concentrated in a particular sector or sectors or industry or
group of industries, the Fund will be subject to the risk that economic,
political or other conditions that have a negative effect on those sectors
and/or industries may negatively impact the Fund to a greater extent than if the
Fund’s assets were invested in a wider variety of sectors or
industries.
PERFORMANCE
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 1, 2020, the
Fund sought to replicate as closely as possible, before fees and expenses, the
price and yield performance of the CSI 300 Index (the “Prior Index”). Therefore,
performance information prior to May 1, 2020 reflects the performance of the
Fund while seeking to track the Prior Index. As a result, the Fund’s future
performance may differ substantially from the performance information shown
below. All returns assume reinvestment of dividends and distributions.
The Fund’s past performance
(before and after income taxes) is not necessarily indicative of how the Fund
will perform in the future. Updated performance information is
available online at www.vaneck.com.
Annual Total Returns (%)—Calendar
Years
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Best
Quarter: |
41.64% |
4Q 2014 |
Worst
Quarter: |
-30.54% |
3Q
2015 |
Average Annual Total Returns for the Periods
Ended December 31, 2021
The after-tax returns presented
in the table below are calculated using the highest historical individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Your actual after-tax returns will depend on your
specific tax situation and may differ from those shown below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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Past One
Year |
Past Five
Years |
Past Ten
Years |
|
|
VanEck China Growth Leaders ETF (return
before taxes) |
-14.67% |
6.44% |
5.98% |
|
|
VanEck China Growth Leaders ETF (return
after taxes distributions) |
-15.83% |
5.07% |
5.04% |
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VanEck China Growth Leaders ETF (return
after taxes distributions and sale of Fund
Shares) |
-8.10% |
5.03% |
4.67% |
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|
MarketGrader China All-Cap Growth
Leaders Index (reflects no deduction for fees, expenses or taxes, except
withholding taxes)* |
-14.31% |
9.31% |
8.31% |
|
|
S&P
500®
Index (reflects no deduction for
fees, expenses or taxes) |
28.71% |
18.47% |
16.55% |
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*Prior to May 1, 2020, the
Fund sought to replicate as closely as possible, before fees and expenses, the
price and yield performance of the Prior Index. Therefore, the performance
information prior to May 1, 2020 reflects the performance of the Fund while
seeking to track the Prior Index. Prior to May 1, 2020, the index data included
in this table reflects that of the Prior Index, which did not reflect
withholding taxes. From May 1, 2020, the index data reflects that of the China
Index.
See “License Agreements
and Disclaimers” for important information.
PORTFOLIO
MANAGEMENT
Investment
Adviser. Van
Eck Associates Corporation.
Investment
Sub-Adviser.
China Asset Management (Hong Kong) Limited
Portfolio
Managers.
The following individuals are primarily and jointly responsible for the
day-to-day management of the Fund’s portfolio:
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Name |
Title
with Adviser |
Date
Began Managing the Fund |
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Peter
H. Liao |
Portfolio
Manager |
October
2010 |
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|
Guo
Hua (Jason) Jin |
Portfolio
Manager |
March
2018 |
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Name |
Title
with Sub-Adviser |
Date
Began Managing the Fund |
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Max
Lan |
Portfolio
Manager |
March
2020 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information About Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT OBJECTIVE
VanEck®
ChiNext ETF1
(the
“Fund”) seeks to replicate as closely as possible, before fees and expenses, the
price and yield performance of the ChiNext Index (the “ChiNext
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Fee |
0.50 |
% |
|
|
Other
Expenses(a) |
0.39 |
% |
|
|
|
|
|
|
Total
Annual Fund Operating Expenses(b) |
0.89 |
% |
|
|
Fee
Waivers and Expense Reimbursement |
-0.24 |
% |
|
|
Total
Annual Fund Operating Expenses After Fee Waivers and Expense
Reimbursement(b) |
0.65 |
% |
|
|
|
|
|
(a) “Other Expenses” have been
restated to reflect current fees.
(b) 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, trading expenses, taxes and extraordinary
expenses) from exceeding 0.65% of the Fund’s average daily net assets per year
until at least May 1,
2023. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR |
EXPENSES |
|
|
1 |
$66 |
|
|
|
3 |
$260 |
|
|
|
5 |
$470 |
|
|
|
10 |
$1,074 |
|
|
|
|
|
|
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
59% of the average value of its
portfolio.
____________________________
1Prior
to December 10, 2021, the Fund's name was VanEck Vectors®
ChinaAMC
SME-ChiNext ETF.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund normally invests at least 80% of its total assets in securities that
comprise the Fund’s benchmark index. The ChiNext Index is a free-float adjusted
index intended to track the performance of the 100 largest and most liquid
stocks listed and trading on the ChiNext Market of the Shenzhen Stock Exchange
(the “ChiNext Market”). The ChiNext Index is comprised of China A-shares
(“A-shares”).
As
of December 31, 2021, the ChiNext Index included 100 securities of companies
with a market capitalization range of between approximately $1.99 billion and
$215.09 billion and a weighted average market capitalization of $55.83 billion.
The ChiNext Index may include securities of medium capitalization companies. 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 ChiNext Index by investing in a portfolio of
securities that generally replicates the ChiNext Index. Unlike many investment
companies that try to “beat” the performance of a benchmark index, the Fund does
not try to “beat” the ChiNext Index and does not seek temporary defensive
positions that are inconsistent with its investment objective of seeking to
replicate the ChiNext Index.
The
Fund will seek to achieve its investment objective by primarily investing
directly in A-shares. A-shares are issued by companies incorporated in the
People’s Republic of China (“China” or the “PRC”). A-shares are traded in
renminbi (“RMB”) on the Shenzhen or Shanghai Stock Exchanges. The A-share market
in China is made available to domestic PRC investors and foreign investors
through the Shanghai-Hong Kong Stock Connect Program and the Shenzhen-Hong Kong
Stock Connect Program (together, “Stock Connect”), and through licenses obtained
under the Renminbi Qualified Foreign Institutional Investor (“RQFII”) or a
Qualified Foreign Institutional Investor (“QFII”) programs. After obtaining a
RQFII or QFII license, the RQFII or QFII would register itself with China’s
State Administration of Foreign Exchange (“SAFE”). Because the Fund does not
satisfy the criteria to qualify as a RQFII or QFII itself, the Fund intends to
invest directly in A-shares via Stock Connect, as described below, or via the
license granted to the Fund’s sub-adviser, China Asset Management (Hong Kong)
Limited (the “Sub-Adviser”), by CSRC (“RQFII license”). The Sub-Adviser has
obtained RQFII status, which the Sub-Adviser will use to invest in A-shares on
behalf of the Fund. The Fund may also invest in A-shares listed and traded on
the Shanghai and Shenzhen Stock Exchanges through Stock Connect. Stock Connect
is a securities trading and clearing program between the Shanghai and Shenzhen
Stock Exchanges, the Stock Exchange of Hong Kong Limited, China Securities
Depository and Clearing Corporation Limited (“CSDCC”) and Hong Kong Securities
Clearing Company Limited (“HKSCC”) designed to permit mutual stock market access
between mainland China and Hong Kong by allowing investors to trade and settle
shares on each market via their local exchanges. Other exchanges in China may
participate in Stock Connect in the future. Purchases of A-shares through Stock
Connect are subject to a daily quota which does not belong to the Fund and can
only be utilized on a first-come-first-serve basis. Once the daily quota is
exceeded, buy orders will be rejected. Accordingly, the Fund's investments in
A-shares via Stock Connect will be subject to the abovementioned daily quota
limits on daily net purchases.
The
Fund may become non-diversified as defined under the Investment Company Act of
1940, as amended, solely as a result of a change in relative market
capitalization or index weighting of one or more constituents of the ChiNext
Index. This means that the Fund may invest a greater percentage of its assets in
a limited number of issuers than would be the case if the Fund were always
managed as a diversified management investment company. The Fund intends to be
diversified in approximately the same proportion as the ChiNext Index.
Shareholder approval will not be sought when the Fund crosses from diversified
to non-diversified status due solely to a change in the relative market
capitalization or index weighting of one or more constituents of the
Fund.
The Fund may concentrate its
investments in a particular industry or group of industries to the extent that
the ChiNext Index concentrates in an industry or group of industries. As of
December 31, 2021, each of the industrials, health care and information
technology sectors represented a significant portion of the ChiNext
Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk. An investment in the Fund is not a
deposit with a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Risk
of the RQFII Regime and the Fund’s Principal Investment Strategy.
The ChiNext Index is comprised of A-shares. In seeking to replicate the ChiNext
Index, the Fund intends to invest directly in A-shares through the Sub-Adviser’s
RQFII license and Stock Connect and in other shares directly. Because the Fund
will not be able to invest in A-shares beyond the limits that may be imposed by
Stock Connect and the RQFII, the size of the Fund’s direct investment in
A-shares may be limited. In addition, the RQFII license of the Sub-Adviser may
be revoked by the Chinese regulators if, among other things, the Sub-Adviser
fails to observe SAFE and other applicable Chinese regulations. There can be no
assurance the Fund could retain a replacement sub-adviser with an RQFII license
or other means of investing in A-shares if that became necessary or appropriate
for any reason.
The
Fund cannot predict what would occur if the RQFII of the Sub-Adviser generally
were eliminated, although such an occurrence would likely have a material
adverse effect on the Fund, including the requirement that the Sub-Adviser on
behalf of the Fund dispose of certain or all of its A-shares holdings.
Therefore, any elimination may have a material adverse effect on the ability of
the Fund to achieve its investment objective. If the Fund is unable to obtain
sufficient exposure to the performance of the ChiNext Index due to the limited
availability of investments that provide exposure to the performance of
A-shares, the Fund could, subject to any necessary regulatory relief, among
other things, as a defensive measure limit or suspend creations until the
Adviser and/or the Sub-Adviser determine that the requisite exposure to the
ChiNext Index is obtainable. If any of the above events were to occur, the Fund
could trade at a significant premium or discount to its net asset value (“NAV”)
and could experience substantial redemptions and the Fund could, among other
things, change its investment objective by, for example, seeking to track an
alternative index focused on Chinese-related stocks other than A-shares or other
appropriate investments, or decide to liquidate. Although the regulations on
RQFII have recently been revised to relax regulatory restrictions on offshore
capital management by RQFIIs (including removal of RQFII quota limits and
simplifying the repatriation of investment proceeds), it is a very new
development that is subject to uncertainties in the implementation in practice,
especially at early stages.
There
are also risks associated with the taxation of RQFIIs. Please refer to the
section titled “PRC Taxation” below for more details.
A-Shares
invested via the RQFII will be maintained by a local custodian pursuant to PRC
regulations. The Fund may incur losses due to the acts or omissions of the local
custodian in execution or settlement of any transaction. Any cash maintained by
the local custodian is commingled with cash of other clients of the local
custodian. Therefore, in the event of the bankruptcy or liquidation of the local
custodian, the Fund may face difficulty and/or encounter delays in recovering
such debt, or may not be able to recover it in full or at all, in which case the
Fund will suffer losses.
The
Fund may also suffer substantial losses if any of the RQFII key operators or
parties defaults or becomes bankrupt or disqualified from performing their
obligations.
The
Sub-Adviser, as a licensed RQFII, is currently permitted to repatriate RMB daily
and is not subject to RMB repatriation restrictions or prior approval, provided
that final repatriation of capital and profits at the liquidation of the Fund
will be subject to an audit report and tax filing. However, there is no
assurance that RQFII may not be subject to restrictions or prior approval
requirements in the future. Any additional restrictions imposed on the
Sub-Adviser or RQFIIs generally may have an adverse effect on a Fund’s ability
to invest directly in A-shares and its ability to meet redemption
requests.
If
the Fund’s direct investments in A-shares through the Sub-Adviser’s RQFII
license become subject to repatriation restrictions, the Fund may be unable to
satisfy distribution requirements applicable to regulated investment companies
(“RICs”) under the Internal Revenue Code of 1986, as amended (the “Internal
Revenue Code”), 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 re- qualifying for taxation as a RIC. See the
prospectus under “Shareholder Information—Tax Information—Taxes on
Distributions” for more information. 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 in anticipation of the imposition of withholding taxes not
currently in effect (as discussed above). 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 section of this prospectus entitled “Shareholder
Information—Tax Information” for a further description of this risk. There is no
guarantee that the temporary tax exemption or non-taxable treatment with respect
to assets traded via QFIIs and RQFIIs described above will continue to apply.
Special
Risk Considerations of Investing in China and A-shares.
Investments in securities of Chinese issuers, including A-shares, involve risks
and special considerations not typically associated with investments in the U.S.
securities markets. These risks include, among others, (i) more frequent (and
potentially widespread) trading suspensions and government interventions with
respect to Chinese issuers, resulting in lack of liquidity and in price
volatility, (ii) currency revaluations and other currency exchange rate
fluctuations or blockage, (iii) the nature and extent of intervention by the
Chinese government in the Chinese securities markets (including both direct and
indirect market stabilization efforts, which may affect valuations of Chinese
issuers), whether such intervention will continue and the impact of such
intervention or its discontinuation, (iv) the risk of nationalization or
expropriation of assets, (v) the risk that the Chinese government may decide not
to continue to support economic reform programs, (vi) limitations on the use of
brokers (or action by the Chinese government that discourages brokers from
serving international clients), (vii) higher rates of inflation, (viii) greater
political, economic and social uncertainty, (ix) market volatility caused by any
potential regional or territorial conflicts or natural or other disasters (x)
the risk of increased trade tariffs, embargoes, sanctions, investment
restrictions and other trade limitations, (xi) custody risks associated with
investing via the Stock Connect Program or through a RQFII, where due to
requirements regarding establishing a custody account in the joint names of the
Fund and the Sub-Adviser the Fund’s assets may not be as well protected from the
claims of the Sub-Adviser’s creditors than if the Fund had an account in its
name only, (xii) both interim and permanent market regulations which may affect
the ability of certain stockholders to sell Chinese securities when it would
otherwise be advisable, (xiii) foreign ownership limits of any listed Chinese
company and (xiv) the general risks applicable to RQFIIs and the Stock
Connect.
The
economy of China differs, often unfavorably, from the U.S. economy in such
respects as structure, general development, government involvement, wealth
distribution, rate of inflation, growth rate, interest rates, allocation of
resources and capital reinvestment, among others. The Chinese central government
has historically exercised substantial control over virtually every sector of
the Chinese economy through administrative regulation and/or state ownership and
actions of the Chinese central and local government authorities continue to have
a substantial effect on economic conditions in China. In addition, 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. It may do so in the future as well, potentially
having a significant adverse effect on economic conditions in
China.
The
Chinese securities markets are emerging markets characterized by greater price
volatility relative to U.S. markets. Liquidity risks may be more pronounced for
the A-share market than for Chinese securities markets generally because the
A-share market is subject to greater government restrictions and control,
including trading suspensions as discussed above. Price fluctuations of A-shares
are limited per trading day. In addition, there is less regulation and
monitoring of Chinese securities markets and the activities of investors,
brokers and other participants than in the United States. Accounting, auditing
and financial reporting standards in China are different from U.S. standards
and, therefore, disclosure of certain material information may not be made. In
addition, 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. There is also generally less governmental regulation of the
securities industry in China, and less enforcement of regulatory provisions
relating thereto, than in the United States. Moreover, it may be more difficult
to obtain a judgment in a court outside the United States.
The
A-share market is volatile with a risk of suspension of trading in a particular
security or government intervention. Securities on the A-share market, including
securities in the ChiNext Index, may be suspended from trading without an
indication of how long the suspension will last, which may impair the liquidity
of such securities.
The
Chinese government strictly regulates the payment of foreign currency
denominated obligations and sets monetary policy. In addition, the Chinese
economy is export-driven and highly reliant on trade. 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. Moreover, a slowdown in other significant economies of the world,
such as the United States, the European Union and certain Asian countries, may
adversely affect economic growth in China. An economic downturn in China would
adversely impact the Fund’s investments.
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 RMB and sets the value of the RMB to levels dependent on
the value of the U.S. dollar, but the Chinese government has been under pressure
to manage the currency in a less restrictive fashion so that it is less
correlated to 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. 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. Although offshore RMB (CNH) and onshore RMB
(CNY) are the same currency, they trade at different rates. Any divergence
between CNH and CNY may adversely impact investors.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 (defined herein) into
RMB to purchase A-shares. As a result, these restrictions may adversely affect
the Fund and its investments and may increase the risk of index tracking
error.
Risks
associated with the ChiNext Market. The
Fund may, through the Shenzhen-Hong Kong Stock Connect, access securities listed
on the ChiNext Market. Listed companies on the ChiNext Market are usually of an
emerging nature with smaller operating scale. They are subject to higher
fluctuation in stock prices and liquidity and have higher risks and turnover
ratios than companies listed on the main board of the Shenzhen Stock Exchange.
Securities listed on the ChiNext may be overvalued and such exceptionally high
valuation may not be sustainable. Stock prices may be more susceptible to
manipulation due to fewer circulating shares. It may be more common and faster
for companies listed on ChiNext to delist. This may have an adverse impact on
the Fund if the companies that they invest in are delisted. Also, the rules and
regulations regarding companies listed on ChiNext Market are less stringent in
terms of profitability and share capital than those on the main board.
Investments in the ChiNext Market may result in significant losses for the Fund
and its investors.
Risks
of Investing through Stock Connect.
The Fund may invest in A-shares listed and traded on the Shanghai Stock Exchange
and the Shenzhen Stock Exchange through Stock Connect, or on such other stock
exchanges in China which
participate
in Stock Connect from time to time or in the future. Trading through Stock
Connect is subject to a number of restrictions that may affect the Fund’s
investments and returns. For example, trading through Stock Connect is subject
to daily quotas that limit the maximum daily net purchases on any particular
day, which may restrict or preclude the Fund’s ability to invest in Stock
Connect A-shares. In addition, investments made through Stock Connect are
subject to trading, clearance and settlement procedures that are relatively
untested in the PRC, which could pose risks to the Fund. Furthermore, securities
purchased via Stock Connect will be held via a book entry omnibus account in the
name of HKSCC, Hong Kong’s clearing entity, at the CSDCC. The Fund’s ownership
interest in Stock Connect securities will not be reflected directly in book
entry with CSDCC and will instead only be reflected on the books of its Hong
Kong sub-custodian. The Fund may therefore depend on HKSCC’s ability or
willingness as record-holder of Stock Connect securities to enforce the Fund’s
shareholder rights. PRC law did not historically recognize the concept of
beneficial ownership; while PRC regulations and the Hong Kong Stock Exchange
have issued clarifications and guidance supporting the concept of beneficial
ownership via Stock Connect, the interpretation of beneficial ownership in the
PRC by regulators and courts may continue to evolve. Moreover, Stock Connect
A-shares generally may not be sold, purchased or otherwise transferred other
than through Stock Connect in accordance with applicable rules.
A
primary feature of Stock Connect is the application of the home market’s laws
and rules applicable to investors in A-shares. Therefore, the Fund’s investments
in Stock Connect A-shares are generally subject to PRC securities regulations
and listing rules, among other restrictions. Stock Connect is only available on
days when markets in both the PRC and Hong Kong are open, which may limit the
Fund’s ability to trade when it would be otherwise attractive to do so.
Uncertainties in permanent PRC tax rules governing the taxation of income and
gains from investments in Stock Connect A-shares could result in unexpected tax
liabilities for the Fund. Please refer to the section titled “PRC Taxation”
below.
The
Stock Connect program is a relatively new program and may be subject to further
interpretation and guidance. There can be no assurance as to the program’s
continued existence or whether future developments regarding the program may
restrict or adversely affect the Fund’s investments or returns. In addition, the
application and interpretation of the laws and regulations of Hong Kong and the
PRC, and the rules, policies or guidelines published or applied by relevant
regulators and exchanges in respect of the Stock Connect program are uncertain,
and they may have a detrimental effect on the Fund’s investments and
returns.
PRC
Taxation. Currently,
there are no specific tax rules relating to investment in A-shares via the Stock
Connect and RQFII. Instead, the income and gains from such investment are
subject to general PRC tax rules and temporary provisions. Under these
provisions, a corporation that does not have a permanent establishment in the
PRC will be subject to withholding income tax of 10% (“PRC WIT”) on its PRC
sourced income, including but not limited to passive income (e.g. dividends,
interest, gains arising from transfer of assets), subject to reduction under an
applicable double tax treat and agreement by PRC tax authorities. Value added
tax of 6%, as well as urban maintenance and construction tax, educational
surcharge and local educational surcharge (which are all based on value added
tax) should also be levied on gains derived from trading of marketable
securities.
Under
Circular Caishui [2014] No. 79, the PRC Ministry of Finance (MOF) clarified that
capital gains on the transfer of A-shares derived by QFIIs and RQFIIs that do
not have a permanent establishment in the PRC on or after 17 November 2014 are
temporarily exempt from PRC WIT. According to Circular Caishui [2014] No. 81 and
Circular Caishui [2016] No. 127, the MOF clarified that capital gains realized
from the transfer of A-shares via Stock Connect are temporarily exempt from PRC
WIT.
The
Fund, prior to December 22, 2014, reserved 10% of its realized and unrealized
gains from its A-share investments to apply towards withholding tax liability
with respect to realized and unrealized gains from the Fund’s investments in
A-shares of “land-rich” enterprises, which are companies that have greater than
50% of their assets in land or real properties in the PRC. The tax reserve was
reflected in the Fund’s daily NAV calculations as a deduction from the Fund’s
NAV. During 2015, revenue authorities in the PRC made arrangements for the
collection of capital gains taxes for investments realized between November 17,
2009 and November 16, 2014.
Actual
tax imposed by the PRC tax authorities may be different and may be changed from
time to time. There is a possibility of the tax rules being changed and taxes
being applied retrospectively. As such, any provision for taxation made by the
Fund may be excessive or inadequate to meet the final PRC tax liabilities.
Consequently, shareholders may be advantaged or disadvantaged depending on the
final tax liabilities, the level of provision and the timing of the
shareholder's subscription and redemption.
Risk
of Investing in Foreign Securities.
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.
Risk
of Investing in Emerging Market Issuers. Investments
in securities of emerging market issuers are exposed to a number of risks that
may make these investments volatile in price or difficult to trade. Emerging
markets are 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. Political risks may include unstable governments,
nationalization, restrictions on foreign ownership, laws that prevent investors
from getting their money out of a country and legal systems that do not protect
property rights as well as the laws of the United States. Market risks may also
include economies that concentrate in only a few industries, securities issues
that are held by only a few investors, liquidity issues and limited trading
capacity in local exchanges and the possibility that markets or issues may be
manipulated by foreign nationals who have inside information. The frequency,
availability and quality of financial information about investments in emerging
markets varies. 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, and the Fund's passive investment
approach does not take account of these risks. All of these factors can make
emerging market securities more volatile and potentially less liquid than
securities issued in more developed markets.
Foreign
Currency Risk. Because
the Fund’s assets may be invested in securities denominated in foreign
currencies, the proceeds received by the Fund from its investments and/or the
revenues received by the issuer will generally be in foreign currencies. The
Fund’s exposure to foreign currencies and changes in the value of foreign
currencies versus the U.S. dollar may result in reduced returns for the Fund,
and the value of certain foreign currencies may be subject to a high degree of
fluctuation. Moreover, the Fund may incur costs in connection with conversions
between U.S. dollars and foreign currencies.
Risk
of Investing in the Health Care Sector.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition of the health care sector. Companies in the
health care sector may be affected by extensive government regulation,
restrictions on government reimbursement for medical expenses, rising costs of
medical products and services, pricing pressure, an increased emphasis on
outpatient services, limited number of products, industry innovation, changes in
technologies and other market developments. Many health care companies are
heavily dependent on patent protection and are subject to extensive litigation
based on product liability and similar claims.
Risk
of Investing in the Industrials Sector.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition of the industrials sector. The industrials
sector comprises companies who produce capital goods used in construction and
manufacturing, such as companies that make and sell machinery, equipment and
supplies that are used to produce other goods. Companies in the industrials
sector may be adversely affected by changes in government regulation, world
events and economic conditions. In addition, companies in the industrials sector
may be adversely affected by environmental damages, product liability claims and
exchange rates.
Risk
of Investing in the Information Technology Sector.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition of the information technology sector.
Information technology companies face intense competition, both domestically and
internationally, which may have an adverse effect on profit margins. Information
technology companies may have limited product lines, markets, financial
resources or personnel. The products of information technology companies may
face product obsolescence due to rapid technological developments and frequent
new product introduction, unpredictable changes in growth rates and competition
for the services of qualified personnel. Companies in the information technology
sector are heavily dependent on patent protection and the expiration of patents
may adversely affect the profitability of these companies.
Risk
of Investing in Medium-Capitalization Companies. Medium-capitalization
companies may be more volatile and more likely than large-capitalization
companies to have narrower product lines, fewer financial resources, less
management depth and experience and less competitive strength. In addition,
these companies often have greater price volatility, lower trading volume and
less liquidity than larger more established companies. Returns on investments in
securities of medium-capitalization companies could trail the returns on
investments in securities of large-capitalization companies.
Risk
of Cash Transactions.
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.
Equity
Securities Risk.
The value of the equity securities held by the Fund may fall due to general
market and economic conditions, perceptions regarding the markets in which the
issuers of securities held by the Fund participate, or factors relating to
specific issuers in which the Fund invests. Equity securities are subordinated
to preferred securities and debt in a company’s capital structure with respect
to priority in right to a share of corporate income, and therefore will be
subject to greater dividend risk than preferred securities or debt instruments.
In addition, while broad market measures of equity securities have historically
generated higher average returns than fixed income securities, equity securities
have generally also experienced significantly more volatility in those returns,
although under certain market conditions fixed income securities may have
comparable or greater price volatility.
Market
Risk.
The prices of the securities in the Fund are subject to the risks associated
with investing in the securities market, including general economic conditions,
sudden and unpredictable drops in value, exchange trading suspensions and
closures and public health risks. These risks may be magnified if certain
social, political, economic and other conditions and events (such as natural
disasters, epidemics and pandemics, terrorism, conflicts and social unrest)
adversely interrupt the global economy; in these
and
other circumstances, such events or developments might affect companies
world-wide. An investment in the Fund may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including, but not limited to, human error, processing and communication errors,
errors of the Fund’s service providers, counterparties or other third parties,
failed or inadequate processes and technology or system failures.
Index
Tracking Risk.
The Fund’s return may not match the return of the ChiNext Index for a number of
reasons. For example, the Fund incurs a number of operating expenses, including
taxes, not applicable to the ChiNext Index and incurs costs associated with
buying and selling securities and entering into derivatives transactions,
especially when rebalancing the Fund’s securities holdings to reflect changes in
the composition of the ChiNext Index, or (to the extent the Fund effects
creations and redemptions for cash) raising cash to meet redemptions or
deploying cash in connection with newly created Creation Units, which are not
factored into the return of the ChiNext Index. Transaction costs, including
brokerage costs, will decrease the Fund’s NAV to the extent not offset by the
transaction fee payable by an Authorized Participant (“AP”). Market disruptions
and regulatory restrictions could have an adverse effect on the Fund’s ability
to adjust its exposure to the required levels in order to track the ChiNext
Index. Errors in the ChiNext Index data, the ChiNext Index computations and/or
the construction of the ChiNext Index in accordance with its methodology may
occur from time to time and may not be identified and corrected by the ChiNext
Index provider for a period of time or at all, which may have an adverse impact
on the Fund and its shareholders. When the ChiNext Index is rebalanced and the
Fund in turn rebalances its portfolio to attempt to increase the correlation
between the Fund’s portfolio and the ChiNext Index, any transaction costs and
market exposure arising from such portfolio rebalancing will be borne directly
by the Fund and its shareholders. Shareholders
should understand that any gains from the ChiNext
Index
provider's errors will be kept by the Fund and its shareholders and any losses
or costs resulting from the ChiNext
Index provider's errors will be borne by the Fund and its shareholders. The Fund
may not be fully invested at times either as a result of cash flows into the
Fund (if the Fund effects creations and redemptions for cash) or reserves of
cash held by the Fund to meet redemptions or pay expenses. Apart from scheduled
rebalances, the ChiNext
Index provider or its agents may carry out additional ad hoc rebalances to the
ChiNext
Index. Therefore, errors and additional ad hoc rebalances carried out by the
ChiNext
Index
provider or its agents to the Fund’s Index may increase the costs to and the
tracking error risk of the Fund. In
addition, the Fund may not be able to invest in certain securities included in
the ChiNext Index, or invest in them in the exact proportions in which they are
represented in the ChiNext Index. As discussed above, one or more securities
included the ChiNext Index may be suspended from trading and such securities
would be valued by the ChiNext Index at the last closing price. The Fund’s
performance may also deviate from the return of the ChiNext Index due to legal
restrictions or limitations imposed by the governments of certain countries,
certain listing standards of the Fund’s listing exchange (the “Exchange”), a
lack of liquidity on stock exchanges in which such securities trade, potential
adverse tax consequences or other regulatory reasons or legal restrictions or
limitations (such as diversification requirements). The Fund may value certain
of its investments, underlying securities, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its NAV
based on fair value prices and the value of the ChiNext Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the ChiNext Index is not based on fair value prices), the Fund’s
ability to track the ChiNext 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) and repatriation may also increase the index
tracking risk. The Fund will be required to remit RMB to settle the purchase of
A-shares and repatriate RMB to U.S. dollars to settle redemption orders. In the
event such remittance is delayed or disrupted, the Fund will not be able to
fully replicate the ChiNext Index by investing in the relevant A-shares, which
may lead to increased tracking error, and may need to rely on borrowings to meet
redemptions, which may lead to increased expenses. Because the ChiNext Index is
priced in Chinese RMB and the Fund is priced in U.S. dollars, the ability of the
Fund to track the ChiNext Index is in part subject to foreign exchange
fluctuations as between the U.S. dollar and the RMB. The Fund’s performance may
also deviate from the performance of the ChiNext Index due to the impact of
withholding taxes, late announcements relating to changes to the ChiNext Index
and high turnover of the ChiNext 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 underperform the ChiNext Index when the value of the U.S. dollar increases
relative to the value of the RMB. 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 ChiNext Index. In
light of the factors discussed above, the Fund’s return may deviate
significantly from the return of the ChiNext Index. Changes to the composition
of the ChiNext Index in connection with a rebalancing or reconstitution of the
ChiNext Index may cause the Fund to experience increased volatility, during
which time the Fund’s index tracking risk may be heightened.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of financial institutions that act as APs,
none of which are obligated to engage in creation and/or redemption
transactions. To the extent that those APs exit the business, or are unable to
or choose not to process creation and/or redemption orders, and no other AP is
able to step forward to create and redeem, there may be a significantly
diminished trading market for Shares or Shares may trade like closed-end funds
at a greater discount (or premium) to NAV and possibly face trading halts and/or
de-listing. The AP concentration risk may be heightened in scenarios where APs
have limited or diminished access to the capital required to post collateral.
No
Guarantee of Active Trading Market.
While Shares are listed on the Exchange, there can be no assurance that an
active trading market for the Shares will be maintained. Further, secondary
markets may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods in times of market stress because market
makers and APs may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its NAV.
Trading
Issues.
Trading in Shares on the Exchange may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange
necessary to maintain the listing of the Fund will continue to be met or will
remain unchanged.
Passive
Management Risk.
An investment in the Fund involves risks similar to those of investing in any
fund invested in equity securities traded on an exchange, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. However,
because the Fund is not “actively” managed, unless a specific security is
removed from the ChiNext Index, the Fund generally would not sell a security
because the security’s issuer was in financial trouble. Additionally, unusual
market conditions may cause the ChiNext Index provider to postpone a scheduled
rebalance or reconstitution, which could cause the ChiNext Index to vary from
its normal or expected composition. Therefore, the Fund’s performance could be
lower than funds that may actively shift their portfolio assets to take
advantage of market opportunities or to lessen the impact of a market decline or
a decline in the value of one or more issuers.
Fund
Shares Trading, Premium/Discount Risk and Liquidity of Fund Shares.
The market price of the Shares may fluctuate in response to the Fund’s NAV, the
intraday value of the Fund’s holdings and supply and demand for Shares. The
Adviser cannot predict whether Shares will trade above, below, or at their most
recent NAV. Disruptions to creations and redemptions, the existence of market
volatility or potential lack of an active trading market for Shares (including
through a trading halt), as well as other factors, may result in Shares trading
at a significant premium or discount to NAV or to the intraday value of the
Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the NAV or sells Shares at a time when the market price
is at a discount to the NAV, the shareholder may pay significantly more or
receive significantly less than the underlying value of the Shares that were
bought or sold or the shareholder may be unable to sell his or her Shares. The
securities held by the Fund may be traded in markets that close at a different
time than the Exchange. Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time when the Exchange is open
but after the applicable market closing, fixing or settlement times, bid/ask
spreads on the Exchange and the resulting premium or discount to the Shares’ NAV
may widen. Additionally, in stressed market conditions, the market for the
Fund’s Shares may become less liquid in response to deteriorating liquidity in
the markets for the Fund’s underlying portfolio holdings. There are various
methods by which investors can purchase and sell Shares. Investors should
consult their financial intermediaries before purchasing or selling Shares of
the Fund.
Non-Diversification
Risk. The Fund may become classified as
non-diversified under the Investment Company Act of1940, as amended, solely as a
result of a change in relative market capitalization or index weighting of one
or more constituents of the ChiNext Index. If the Fund becomes non-diversified,
it may invest a greater portion of assets in securities of a smaller number of
individual issuers than a diversified fund. As a result, changes in the market
value of a single investment could cause greater fluctuations in share price
than would occur in a more diversified fund.
Concentration
Risk.
The Fund’s assets may be concentrated in a particular sector or sectors or
industry or group of industries to the extent the ChiNext Index concentrates in
a particular sector or sectors or industry or group of industries. To the extent
that the Fund is concentrated in a particular sector or sectors or industry or
group of industries, the Fund will be subject to the risk that economic,
political or other conditions that have a negative effect on those sectors
and/or industries may negatively impact the Fund to a greater extent than if the
Fund’s assets were invested in a wider variety of sectors or
industries.
PERFORMANCE
The bar chart that follows
shows how the Fund performed for the calendar years shown. The table below the
bar chart shows the Fund’s average annual returns (before and after taxes).
The bar chart
and table provide an indication of the risks of investing in the Fund by
comparing the Fund’s performance from year to year and by showing how the Fund’s
average annual returns for the one year, five year, ten year and/or since
inception periods, as applicable, compared with the Fund’s benchmark index and a
broad measure of market performance. Prior to December 10, 2021,
the Fund sought to replicate as closely as possible, before fees and expenses,
the price and yield performance of the SME-ChiNext 100 Index (the “Prior
Index”). Therefore, performance information prior to December 10, 2021 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
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Best
Quarter: |
49.51% |
1Q 2015 |
Worst
Quarter: |
-29.80% |
3Q
2015 |
Average Annual Total Returns for the Periods
Ended December 31, 2021
The after-tax returns presented
in the table below are calculated using the highest historical individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Your actual after-tax returns will depend on your
specific tax situation and may differ from those shown below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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Past
One Year |
Past
Five Years |
Since
Inception (07/23/2014) |
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VanEck ChiNext ETF (return before
taxes) |
8.21% |
12.80% |
10.91% |
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VanEck ChiNext ETF (return after taxes
on distributions) |
6.37% |
12.41% |
10.65% |
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VanEck ChiNext ETF (return after taxes
on distributions and sale of Fund Shares) |
6.16% |
10.27% |
8.90% |
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ChiNext Index (reflects no deduction for
fees, expenses or taxes)* |
9.12% |
15.11% |
13.63% |
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S&P
500®
Index (reflects no deduction for fees, expenses or
taxes) |
28.71% |
18.47% |
14.68% |
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*Prior to December 10,
2021, the Fund sought to replicate as closely as possible, before fees and
expenses, the price and yield performance of the Prior Index. Therefore,
performance information prior to December 10, 2021 reflects the performance of
the Fund while seeking to track the Prior Index. Prior to December 10, 2021, the
index data reflects that of the Prior Index. From December 10, 2021, the index
data reflects that of the ChiNext
Index.
See “License Agreements
and Disclaimers” for important information.
PORTFOLIO
MANAGEMENT
Investment
Adviser. Van
Eck Associates Corporation.
Investment
Sub-Adviser.
China Asset Management (Hong Kong) Limited.
Portfolio
Managers.
The following individuals are primarily and jointly responsible for the
day-to-day management of the Fund’s portfolio:
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Name |
Title
with Adviser |
Date
Began Managing the Fund |
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Peter
H. Liao |
Portfolio
Manager |
July
2014 |
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Guo
Hua (Jason) Jin |
Portfolio
Manager |
March
2018 |
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Name |
Title
with Sub-Adviser |
Date
Began Managing the Fund |
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Max
Lan |
Portfolio
Manager |
March
2020 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information About Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
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SUMMARY
INFORMATION ABOUT PURCHASES AND SALES OF FUND SHARES, TAXES AND PAYMENTS
TO
BROKER-DEALERS
AND OTHER FINANCIAL
INTERMEDIARIES |
PURCHASE
AND SALE OF FUND SHARES
Individual
Shares of a Fund may only be purchased and sold in secondary market transactions
through a broker or dealer at a market price. Shares of the Funds are listed on
the Exchange, and because Shares trade at market prices rather than NAV, Shares
of the Funds may trade at a price greater than NAV (i.e.,
a “premium”) or less than NAV (i.e.,
a “discount”).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares of a 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 each Fund’s NAV, market price, premiums
and discounts, and bid/ask spreads, is included on the Fund’s website at
www.vaneck.com.
TAX
INFORMATION
Each
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 FUNDS’ INVESTMENT STRATEGIES AND
RISKS |
PRINCIPAL
INVESTMENT STRATEGIES
The
Adviser and/or the Sub-Adviser anticipate that, generally, the portion of each
Fund for which they are responsible will hold or gain exposure to all of the
securities that comprise its benchmark index (the “Index”) in proportion to
their weightings in such Index. However, under various circumstances, it may not
be possible or practicable to purchase all of those securities in those
weightings. In these circumstances, a Fund may purchase a sample of securities
in its Index. There also may be instances in which the Adviser and/or the
Sub-Adviser may choose to underweight or overweight a security in a Fund’s
Index, purchase securities not in a Fund’s Index that the Adviser and/or the
Sub-Adviser believe are appropriate to substitute for certain securities in such
Index or utilize various combinations of other available investment techniques
in seeking to replicate as closely as possible, before fees and expenses, the
price and yield performance of the Fund’s Index. Each Fund may sell securities
that are represented in its Index in anticipation of their removal from such
Index or purchase securities not represented in its Index in anticipation of
their addition to such Index. Each Fund may also, in order to comply with the
tax diversification requirements of the Internal Revenue Code, temporarily
invest in securities not included in its Index that are expected to be highly
correlated with the securities included in its Index.
VanEck
China Growth Leaders ETF’s assets will be primarily invested in A-shares and
shares of companies domiciled in China and listed on Chinese or eligible
offshore exchanges. In addition, VanEck China Growth Leaders ETF’s assets that
are not allocated to the Sub-Adviser for investment will be managed by the
Adviser for investment either in shares of Chinese companies or directly in
A-shares through Stock Connect and/or in swaps, futures contracts and other
types of derivative instruments that have economic characteristics that are
substantially identical to the economic characteristics of A-shares or shares of
Chinese companies, including swaps on the China Index, swaps on the A-shares or
shares of Chinese companies which comprise the China Index and/or swaps on funds
that seek to replicate the performance of the China Index or funds that invest
in A-shares or shares of Chinese companies. Additionally, VanEck China Growth
Leaders ETF may invest directly in shares of such funds. The notional values of
these swaps, futures contracts and other derivative instruments will count
towards VanEck China Growth Leaders ETF’s 80% investment policy and cash and
cash equivalents related to the swaps, futures contracts and other derivative
instruments will not be counted towards the calculation of total assets. The
Adviser on behalf of VanEck China Growth Leaders ETF may also invest, to the
extent permitted by the Investment Company Act of 1940, as amended (the “1940
Act”), in other affiliated and unaffiliated funds, such as open-end or
closed-end management investment companies, including other ETFs. Assets managed
by the Adviser on behalf of VanEck China Growth Leaders ETF that are not
invested in other funds, including ETFs listed on a Hong Kong or other foreign
exchange, swaps and other derivatives will be invested primarily in money market
instruments.
VanEck
ChiNext ETF’s assets will be primarily invested in A-shares. In addition, VanEck
ChiNext ETF’s assets that are not allocated to the Sub-Adviser for investment
will be managed by the Adviser for investment through Stock Connect, to the
extent available.
Because
the Funds do not satisfy the criteria to qualify as a RQFII or QFII themselves,
each Fund intends to invest directly in A-shares via the Sub-Adviser’s RQFII
license and may also invest through Stock Connect (to the extent available). In
the event that the Sub-Adviser is unable to maintain its RQFII status or to seek
to replicate a Fund’s Index through the other means described in this
Prospectus, a Fund may retain one or more additional sub-advisers that maintain
RQFII licenses and/or the Adviser may obtain a RQFII or QFII license and the
Adviser or additional sub-adviser(s), on behalf of the Fund, may invest in
A-shares and other permitted China securities listed on the Shenzhen and
Shanghai Stock Exchanges.
FUNDAMENTAL
AND NON-FUNDAMENTAL POLICIES
Each
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 FUNDS
The
following section provides additional information regarding the principal risks
identified under “Principal Risks of Investing in the Fund” in each Fund’s
“Summary Information” section followed by additional risk information. The risks
listed below are applicable for each Fund unless otherwise noted.
Investors
in the Funds should be willing to accept a high degree of volatility in the
price of the Funds’ Shares and the possibility of significant losses. An
investment in the Funds involves a substantial degree of risk. An investment in
the Funds 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 Funds,
each of which could significantly and adversely affect the value of an
investment in a Fund.
Risk
of the RQFII Regime and the Funds’ Principal Investment Strategies.
The China Index is comprised of A-shares and shares of companies domiciled in
China and listed on Chinese or eligible offshore exchanges and the ChiNext Index
is comprised of A-shares. In seeking to replicate its Index, each Fund intends
to invest directly in A-shares through the Sub-Adviser’s RQFII license and Stock
Connect. Because the Funds will not be able to invest in A-shares beyond the
limits that may be imposed by Stock Connect and the RQFII, the size of each
Fund’s direct investment in A-shares may be limited. In addition, the RQFII
license of the Sub-Adviser may be revoked by the Chinese regulators if, among
other things, the Sub-Adviser fails to observe SAFE and
other
applicable Chinese regulations. There can be no assurance a Fund could retain a
replacement sub-adviser with an RQFII license or other means of investing in
A-shares if that became necessary or appropriate for any reason.
The
Funds cannot predict what would occur if the RQFII license of the Sub-Adviser
generally were eliminated, although such an occurrence would likely have a
material adverse effect on the Funds, including the requirement that the
Sub-Adviser on behalf of the Funds dispose of certain or all of its A-shares
holdings, and may adversely affect the willingness and ability of potential swap
counterparties to engage in swaps with the Funds linked to the performance of
A-shares. These risks are compounded by the fact that, at present, there are
only a limited number of firms and potential counterparties that have RQFII or
QFII status or are willing and able to enter into swap transactions linked to
the performance of A-shares. To the extent a Fund invests in swaps, there can be
no guarantee that the Fund will be able to invest in appropriate swaps, and the
PRC government may at times restrict the ability of firms regulated in the PRC
to make such swaps available. Therefore, any such elimination may have a
material adverse effect on the ability of a Fund to achieve its investment
objective. If a Fund is unable to obtain sufficient exposure to the performance
of its Index due to the limited availability of investments that provide
exposure to the performance of A-shares, the Fund, subject to any necessary
regulatory relief, could, among other things, as a defensive measure limit or
suspend creations until the Adviser and/or the Sub-Adviser determine that the
requisite exposure to the Index is obtainable. If any of the above events were
to occur, a Fund could trade at a significant premium or discount to its net
asset value (“NAV”) and could experience substantial redemptions and a Fund
could, among other things, change its investment objective by, for example,
seeking to track an alternative index focused on Chinese-related stocks other
than A-shares or other appropriate investments, or decide to liquidate the
Fund.
Although
the regulations on RQFII have recently been revised to relax regulatory
restrictions on offshore capital management by RQFIIs (including removal of
RQFII quota limits and simplifying the repatriation of investment proceeds), it
is a very new development that is subject to uncertainties in the implementation
in practice, especially at early stages.
There
are also risks associated with the taxation of RQFIIs. Please refer to the
section titled “PRC Taxation” below for more details.
The
Sub-Adviser, as a licensed RQFII, is currently permitted to repatriate RMB daily
and is not subject to RMB repatriation restrictions or prior approval, provided
that final repatriation of capital and profits at the liquidation of the Fund
will be subject to an audit report and tax filing. However, there is no
assurance that RQFII may not be subject to restrictions or prior approval
requirements in the future. Any additional restrictions imposed on the
Sub-Adviser or RQFIIs generally may have adverse effect on a Fund’s ability to
invest directly in A-shares and its ability to meet redemption
requests.
If
a Fund’s direct investments in A-shares through the Sub-Adviser’s RQFII license
become subject to repatriation restrictions, the Fund may be unable to satisfy
distribution requirements applicable to RICs under the Internal Revenue Code,
and be subject to income and excise tax at the Fund level. In addition, a Fund
could be required to recognize unrealized gains, pay taxes and make
distributions before re-qualifying for taxation as a RIC. See below under
“Shareholder Information—Tax Information—Taxes on Distributions” for more
information. Each 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 a Fund is qualified to make that election and does so this
treatment will not apply with respect to amounts the Fund reserves in
anticipation of the imposition of withholding taxes not currently in effect (as
discussed above). If these amounts are used to pay any tax liability of a 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 section of this prospectus entitled “Shareholder Information—Tax
Information” for a further description of this risk.
Special
Risk Considerations of Investing in China.
Investments in securities of Chinese issuers involve risks and special
considerations not typically associated with investments in the U.S. securities
markets, including the following:
Political
and Economic Risk.
The economy of China, 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, in
recent years, 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 economy of China has
experienced significant growth in the past 30 years, but growth has been uneven
both geographically and among various sectors of the economy. Economic growth
has also been accompanied by periods of high inflation. The PRC government has
implemented various measures from time to time to control inflation and restrain
the rate of economic growth.
For
more than 30 years, the PRC government has carried out economic reforms to
achieve decentralization and utilization of market forces to develop the economy
of the PRC. These reforms have resulted in significant economic growth and
social progress. There can, however, be no assurance that the PRC government
will continue to pursue such economic policies or, if it does, that those
policies will continue to be successful. Any such adjustment and modification of
those economic policies may have an adverse impact on the securities market in
the PRC as well as the underlying securities of a Fund’s Index. Further, the PRC
government may from time to time adopt corrective measures to control the growth
of the PRC economy which may also have an adverse impact on the capital growth
and performance of a Fund.
Political
changes, social instability and adverse diplomatic developments in the PRC could
result in the imposition of additional government restrictions including
expropriation of assets, confiscatory taxes or nationalization of some or all of
the property held by the issuers of a Fund’s A-share investments or contained in
a Fund’s Index.
Market
volatility caused by potential regional or territorial conflicts, including
military conflicts, either in response to internal social unrest or conflicts
with other countries, popular unrest associated with demands for improved
political, economic and social conditions, the impact of regional conflict on
the economy and hostile relations with neighboring countries, or natural or
other disasters, may have an adverse impact on the performance of the
Fund.
The
laws, regulations, including the investment regulations allowing RQFIIs (and
QFIIs) to invest in A-shares, government policies and political and economic
climate in China may change with little or no advance notice. Any such change
could adversely affect market conditions and the performance of the Chinese
economy and, thus, the value of the A-shares in a Fund’s portfolio.
Since
1949, the PRC has been a socialist state controlled by the Communist party.
China has only recently opened up to foreign investment and has only begun to
permit private economic activity. There is no guarantee that the Chinese
government will not revert from its current open-market economy to the economic
policy of central planning that it implemented prior to 1978.
Under
the economic reforms implemented by the Chinese government, the Chinese economy
has experienced tremendous growth, developing into one of the largest economies
in the world. There is no assurance, however, that such growth will be sustained
in the future.
The
Chinese government continues to be an active participant in many economic
sectors through ownership positions and regulation. The allocation of resources
in China is subject to a high level of government control. The Chinese
government strictly regulates the payment of foreign currency denominated
obligations and sets monetary policy. Through its policies, the government may
provide preferential treatment to particular industries or companies. The
policies set by the government could have a substantial adverse effect on the
Chinese economy and a Fund’s investments.
The
Chinese economy is export-driven and highly reliant on trade, and much of
China’s growth in recent years has been the result of focused investments in
economic sectors intended to produce goods and services for export purposes. The
performance of the Chinese economy may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rate of
inflation, currency revaluation, capital reinvestment, resource self-sufficiency
and balance of payments position. Adverse changes to the economic conditions of
its primary trading partners, such as the United States, Japan and South Korea,
would adversely impact the Chinese economy and a Fund’s investments.
International trade tensions involving China and its trading counterparties may
arise from time to time which can result in trade tariffs, embargoes, sanctions,
investment restrictions, trade limitations, trade wars and other negative
consequences. Such actions and consequences may ultimately result in a
significant reduction in international trade, an oversupply of certain
manufactured goods, devaluations of existing inventories and potentially the
failure of individual companies and/or large segments of China’s export industry
with a potentially severe negative impact to a Fund.
Moreover,
the current slowdown or any future recessions in other significant economies of
the world, such as the United States, the European Union and certain Asian
countries, may adversely affect economic growth in China. An economic downturn
in China would adversely impact a Fund’s investments.
Inflation.
Economic growth in China has also historically been accompanied by periods of
high inflation. Beginning in 2004, the Chinese government commenced the
implementation of various measures to control inflation, which included the
tightening of the money supply, the raising of interest rates and more stringent
control over certain industries. Rising inflation may, in the future, adversely
affect the performance of the Chinese economy and a Fund’s
investments.
Tax
Changes.
The Chinese system of taxation is not as well settled as that of the United
States. China has implemented a number of tax reforms in recent years and may
amend or revise its existing tax laws and/or procedures in the future, possibly
with retroactive effect. Changes in applicable Chinese tax law, such as the
cessation of tax exemptions in respect of investments in A-shares via RQFII
and/or the Stock Connect, could reduce the after-tax profits of the Fund,
directly or indirectly, including by reducing the after-tax profits of companies
in China in which a Fund invests. Uncertainties in Chinese tax rules could
result in unexpected tax liabilities for the Fund. Should legislation limit U.S.
investors’ ability to invest in specific Chinese companies through A-shares or
other share class listings that are part of the underlying holdings, these
shares may be excluded from Fund holdings. In addition, changes in the Chinese
tax system may have retroactive effects.
Nationalization
and Expropriation.
After the formation of the Chinese socialist state in 1949, the Chinese
government renounced various debt obligations and nationalized private assets
without providing any form of compensation. There can be no assurance that the
Chinese government will not take similar actions in the future. Accordingly, an
investment in a Fund involves a risk of a total loss.
Hong
Kong Policy.
As part of Hong Kong’s transition from British to Chinese sovereignty in 1997,
China agreed to allow Hong Kong to maintain a high degree of autonomy with
regard to its political, legal and economic systems for a period of at least 50
years. China controls matters that relate to defense and foreign affairs. Under
the agreement, China does not tax Hong Kong, does not limit the exchange of the
Hong Kong dollar for foreign currencies and does not place restrictions on free
trade in Hong Kong. However, there is no guarantee that China will continue to
honor the agreement, and China may change its policies regarding Hong Kong at
any time. As of July 2020, the Chinese Standing Committee of the National
People's Congress enacted the Law of the People's Republic of China on
Safeguarding National Security in the Hong Kong Special Administrative Region.
As of the same month, Hong Kong is no longer afforded preferential economic
treatment by the United States under US law, and there is uncertainty as to how
the economy of Hong Kong will be affected. Any further changes in PRC’s policies
could adversely affect market conditions and the performance of the Hong Kong
economy and, thus, the value of securities in the Fund’s portfolio.
Any
such change could adversely affect market conditions and the performance of the
Chinese economy and, thus, the value of securities in the Fund’s portfolio.
Furthermore, as demonstrated by Hong Kong protests in recent years over
political, economic, and legal freedoms, and the Chinese government's response
to them, there continues to exist political uncertainty within Hong
Kong.
Chinese
Securities Markets.
The securities markets in China have a limited operating history and are not as
developed as those in the United States. These markets tend to have had greater
volatility than markets in the United States and some other countries. In
addition, there is less regulation and monitoring of Chinese securities markets
and the activities of investors, brokers and other participants than in the
United States. Accordingly, issuers of securities in China are not subject to
the same degree of regulation as are U.S. issuers with respect to such matters
as insider trading rules, tender offer regulation, stockholder proxy
requirements and the requirements mandating timely disclosure of information.
During periods of significant market volatility, the Chinese government has,
from time to time, intervened in its domestic securities markets to a greater
degree than would be typical in more developed markets. Stock markets in China
are in the process of change and further development. This may lead to trading
volatility, unpredictable trading suspensions, difficulty in the settlement and
recording of transactions and difficulty in interpreting and applying the
relevant regulations. These risks may be more pronounced for the A-share market
than for Chinese securities markets generally because the A-share market is
subject to greater government restrictions and control, including trading
suspensions, as described in greater detail above.
Available
Disclosure About Chinese Companies.
Disclosure and regulatory standards in emerging market countries, such as China,
are in many respects less stringent than U.S. standards. There is substantially
less publicly available information about Chinese issuers than there is about
U.S. issuers. The Chinese government has taken positions that prevent the United
States Public Company Accounting Oversight Board (“PCAOB”) from inspecting the
audit work and practices of accounting firms in mainland China and Hong Kong for
compliance with U.S. law and professional standards. Audits performed by
PCAOB-registered accounting firms in mainland China and Hong Kong may be less
reliable than those performed by firms subject to PCAOB inspection. Therefore,
disclosure of certain material information may not be made, and less information
may be available to a Fund and other investors than would be the case if a
Fund’s investments were restricted to securities of U.S. issuers. Chinese
issuers are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of a Chinese issuer may not reflect its financial position or results
of operations in the way they would be reflected had such financial statements
been prepared in accordance with U.S. Generally Accepted Accounting Principles.
As a result, there is substantially greater risk that disclosures will be
incomplete or misleading and, in the event of investor harm, that there may be
substantially less access to recourse, in comparison to U.S. domestic companies.
Furthermore, under amendments to the Sarbanes-Oxley Act enacted in December
2020, which require that the PCAOB be permitted to inspect the accounting firm
of a U.S.-listed Chinese issuer, Chinese companies with securities listed on
U.S. exchanges may be delisted if the PCAOB is unable to inspect the accounting
firm.
Chinese
Corporate and Securities Law.
The regulations on investments and repatriation of capital by QFIIs and RQFIIs
are relatively new. As a result, the application and interpretation of such
investment regulations are therefore relatively untested. In addition, PRC
authorities have broad discretion in this regard. A Fund’s rights with respect
to its investments in A-shares through Stock Connect or the Sub-Adviser’s RQFII
license will not be governed by U.S. law, and instead will be governed by
Chinese law. China operates under a civil law system, in which court precedent
is not binding. Because there is no binding precedent to interpret existing
statutes, there is uncertainty regarding the implementation of existing
law.
Legal
principles relating to corporate affairs and the validity of corporate
procedures, directors’ fiduciary duties and liabilities and stockholders’ rights
often differ from those that may apply in the United States and other countries.
Chinese laws providing protection to investors, such as laws regarding the
fiduciary duties of officers and directors, are undeveloped and will not provide
investors, such as a Fund, with protection in all situations where protection
would be provided by comparable law in the United States. China lacks a national
set of laws that address all issues that may arise with regard to a foreign
investor such as a Fund.
It
may therefore be difficult for a Fund to enforce its rights as an investor under
Chinese corporate and securities laws, and it may be difficult or impossible for
a Fund to obtain a judgment in court. Moreover, as Chinese corporate and
securities laws continue to develop, these developments may adversely affect
foreign investors, such as a Fund.
Special
Risk Considerations of Investing in A-shares.
Each Fund’s investments in A-shares via the Stock Connect are limited by the
market- wide quotas imposed by Stock Connect. In addition, there may be
significant restrictions on the repatriation of gains and income related to the
Sub-Adviser’s RQFII license that may affect a Fund’s ability to satisfy
redemption requests. Currently, there are two stock exchanges in mainland China,
the Shanghai and Shenzhen Stock Exchanges, and there is one stock exchange in
Hong Kong. The Shanghai and Shenzhen Stock Exchanges are supervised by the China
Securities Regulatory Commission (“CSRC”) and are highly automated with trading
and settlement executed electronically. The Shanghai and Shenzhen Stock
Exchanges are more volatile than the major securities markets in the United
States. In comparison to the mainland Chinese securities markets, the securities
markets in Hong Kong are relatively well developed and active.
The
Shanghai Stock Exchange commenced trading on December 19, 1990, the Shenzhen
Stock Exchange commenced trading on July 3, 1991 and the Hong Kong Stock
Exchange commenced trading on April 2, 1986. The Shanghai and Shenzhen Stock
Exchanges divide listed shares into two classes: A-shares and B-shares.
Companies whose shares are traded on the Shanghai and Shenzhen Stock Exchanges
that are incorporated in mainland China may issue both A-shares and B-shares. In
China, the A-shares and B-shares of an issuer may only trade on one exchange.
A-shares and B-shares may both be listed on either the Shanghai or Shenzhen
Stock Exchanges. Both classes represent an ownership interest comparable to a
share of common stock and all shares are entitled to substantially the same
rights and benefits associated with ownership. A-shares are traded on the
Shanghai and Shenzhen Stock Exchanges in RMB.
Stock
Connect provides a daily market-wide quota of approximately $8 billion. Because
restrictions continue to exist and capital therefore cannot flow freely into the
A-share market, it is possible that in the event of a market disruption, the
liquidity of the A-share market and trading prices of A-shares could be more
severely affected than the liquidity and trading prices of markets where
securities are freely tradable and capital therefore flows more freely. A Fund
cannot predict the nature or duration of such a market disruption or the impact
that it may have on the A-share market and the short-term and long-term
prospects of its investments in the A-share market.
The
A-share market may be considered volatile with a risk of suspension of trading
in a particular security or government intervention. Securities on the A-share
market, including one or more securities in an Index, may be suspended from
trading without an indication of how long the suspension will last, which may
impair the liquidity of such securities.
The
Chinese government has in the past taken actions that benefited holders of
A-shares. As A-shares become more available to foreign investors, such as a
Fund, the Chinese government may be less likely to take action that would
benefit holders of A-shares. In addition, there is no guarantee that the
Sub-Adviser will continue to maintain its RQFII if the RQFII license is
eliminated by SAFE at some point in the future. A Fund cannot predict what would
occur if an RQFII license of the Sub-Adviser were eliminated, although such an
occurrence would likely have a material adverse effect on a Fund.
From
time to time, certain of the companies in which a 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, a Fund will be indirectly subject to those risks.
Investment
Restrictions. The
Chinese government limits foreign investment in the securities of certain
Chinese issuers entirely if foreign investment is banned in respect of the
industry in which the relevant Chinese issuers are conducting their business.
These restrictions or limitations may have adverse effects on the liquidity and
performance of the Fund holdings as compared to the performance of its Index.
This may increase the risk of tracking error and may adversely affect a Fund’s
ability to achieve its investment objective.
Tax
Risk.
For a discussion regarding the tax risks applicable to the Fund’s investments in
A-shares, please see “PRC Taxation” below.
The
sale or transfer by the Sub-Adviser of A-shares or B-shares will be subject to
PRC Stamp Duty at a rate of 0.1% on the transacted value. However, the
Sub-Adviser will not be subject to PRC Stamp Duty when it acquires A-shares and
B-shares.
It
is unclear how China’s business tax may apply to activities of an RQFII and how
such application may be affected by tax treaty provisions. A Fund’s
shareholder’s ability to claim a credit for certain Chinese taxes may be limited
under general U.S. tax principles. There is no guarantee that the temporary tax
exemption or non-taxable treatment with respect to assets traded via QFIIs and
RQFIIs described below will continue to apply. Such uncertainties may operate to
the advantage or disadvantage of investors and may result in an increase or
decrease in NAV of the Fund.
Risk
of Loss of Favorable U.S. Tax Treatment.
Each Fund intends to distribute annually all or substantially all of its
investment company taxable income and net capital gain. However, if a Fund does
not repatriate funds associated with direct investment in A-shares on a timely
basis, it may be unable to satisfy the distribution requirements required to
qualify for the favorable tax treatment otherwise generally afforded to RICs
under the Internal Revenue Code. If a Fund fails to qualify for any taxable year
as a RIC, the Fund would be treated as a corporation subject to U.S. federal
income tax, thereby subjecting any income earned by the Fund to tax at the
corporate level currently at a 21% U.S. federal tax rate and, when such income
is distributed, to a further tax at the shareholder level to the extent of the
Fund’s current or accumulated earnings and profits. In addition, the Fund would
not be eligible for a deduction for dividends paid to shareholders. In addition,
the Fund could be required to recognize unrealized gains, pay taxes and make
distributions (any of which could be subject to interest charges) before
re-qualifying for taxation as a RIC. See below under “Shareholder
Information—Tax Information—Taxes on Distributions” for more
information.
Tax
on Retained Income and Gains.
To the extent a Fund does not distribute to shareholders all of its investment
company taxable income and net capital gain in a given year, it will be required
to pay U.S. federal income and excise tax on the retained income and gains,
thereby reducing the Fund’s return. A Fund may elect to treat its net capital
gain as having been distributed to shareholders. In that case, shareholders of
record on the last day of the Fund’s taxable year will be required to include
their attributable share of the retained gain in income for the year as a
long-term capital gain despite not actually receiving the dividend, and will be
entitled to a tax credit or refund for the tax deemed paid on their behalf by
the Fund as well as an increase in the basis of their shares to reflect the
difference between their attributable share of the gain and the related credit
or refund.
Foreign
Exchange Control.
The Chinese government heavily regulates the domestic exchange of foreign
currencies within China. Chinese law requires that all domestic transactions
must be settled in RMB, places significant restrictions on the remittance of
foreign currency and strictly regulates currency exchange from RMB. 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 a Fund and its investments. There may not be sufficient amounts
of RMB for a 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 a Fund. There can be no
assurance that the RMB exchange rate will not fluctuate widely against the US
dollar or any other foreign currency in the future. Under exceptional
circumstances, payment of redemptions and/or dividend payment in RMB may be
delayed due to the exchange controls and restrictions applicable to
RMB.
Custody
Risks of Investing in A-shares.
Industrial and Commercial Bank of China Limited (“ICBC” or the “PRC sub-
custodian”), which is approved by CSRC and SAFE as a qualified RQFII custodian,
has been appointed to provide custody services to the Funds’ assets invested in
A-shares and investments in the PRC. The PRC sub-custodian maintains the Funds’
RMB deposit accounts and oversees the Funds’ investments in A-shares to ensure
compliance with the rules and regulations of the CSRC and the People’s Bank of
China. A-shares that are traded on the Shanghai or Shenzhen Stock Exchange are
dealt and held in book-entry form through the CSDCC. The securities purchased by
the Sub-Adviser, in its capacity as a RQFII, on behalf of a Fund, will be
received by the CSDCC as credited to a securities trading account maintained by
the PRC sub-custodian in the joint names of the Fund and the Sub-Adviser, and
the Fund will pay the cost of the account. The Sub-Adviser may not use the
account for any other purpose than for maintaining the Fund’s assets. However,
given that the securities trading account will be maintained in the joint names
of the Sub-Adviser and the Fund, the Fund’s assets may not be as well protected
as they would be if it were possible for them to be registered and held solely
in the name of the Fund. In particular, there is a risk that creditors of the
Sub-Adviser may assert that the securities are owned by the Sub-Adviser and not
the Fund, and that a court would uphold such an assertion, in which case
creditors of the Sub-Adviser could seize assets of the Fund.
Investment
via Stock Connect is subject to similar custody risks. Securities purchased by
the Fund through Stock Connect will be held via a book entry in an omnibus
account in the name of HKSCC, Hong Kong’s clearing entity, at CSDCC. The Fund’s
ownership interest in Stock Connect securities will not be reflected directly in
the book entry with CSDCC and will instead only be reflected on the books of its
Hong Kong sub-custodian.
Investors
should also note that cash deposits in a Fund’s account with the PRC
sub-custodian will not be segregated from the proprietary assets of the PRC
sub-custodian or the assets of its other clients. Therefore, to the extent a
Fund’s assets are commingled, the cash deposits will be vulnerable in the event
of a liquidation or bankruptcy by the PRC sub-custodian. Under such
circumstances, a Fund will not have any proprietary rights to the cash deposited
in the account, and the Fund will become an unsecured creditor, and would have
no priority over the claims of any other unsecured creditors to the assets of
the PRC sub-custodian. A Fund may encounter difficulties or delays in recovering
such debt, or may not be able to recover it in full or at all, in which case the
Fund will suffer losses.
Use
of Brokers.
CSRC and SAFE regulations specify that all securities traded by the Sub-Adviser,
as a licensed RQFII, on behalf of a Fund must be executed through one of the
specified brokers per exchange. As a result, the Sub-Adviser will have less
flexibility to choose among brokers on behalf of a Fund than is typically the
case for investment managers.
Foreign
Currency Considerations.
Emerging markets such as China can experience high rates of inflation, deflation
and currency devaluation. The value of the RMB may be subject to a high degree
of fluctuation due to, among other things, changes in interest rates, the
effects of monetary policies issued by the PRC, the United States, foreign
governments, central banks or supranational entities, the imposition of currency
controls or other national or global political or economic developments. Each
Fund invests a significant portion of its assets in investments denominated in
RMB and the income received by each Fund will principally be in RMB. A 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, a Fund may incur costs in
connection with conversions between U.S. dollars and RMB. The RMB is currently
not a freely convertible currency. The value of the RMB is based on a managed
floating exchange rate based on market supply and demand with reference to a
basket of foreign currencies. The daily trading price of the RMB is allowed to
float within a narrow band around the central parity published by the People’s
Bank of China. The Chinese government’s imposition of restrictions on the
repatriation of RMB out of mainland China may limit the depth of the offshore
RMB market and reduce the liquidity of a Fund’s investments. These restrictions
as well as any accelerated appreciation or depreciation of RMB may adversely
affect a Fund and its investments. 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.
Each
Fund’s assets are expected to be primarily invested in the A-shares of Chinese
issuers and the income received by each Fund will be principally in RMB.
Meanwhile, each 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 RMB falls relative to the U.S. dollar between the
earning of the income and the time at which a Fund converts the RMB 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. The liquidation of
investments, if required, may also have an adverse impact on a Fund’s
performance.
Furthermore,
a Fund may incur costs in connection with conversions between U.S. dollars and
RMB. Foreign exchange dealers realize a profit based on the difference between
the prices at which they are buying and selling various currencies. Thus, a
dealer normally will offer to sell a foreign currency to a Fund at one rate,
while offering a lesser rate of exchange should the Fund desire immediately to
resell that currency to the dealer. A Fund will conduct its foreign currency
exchange transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into forward, futures or options contracts to purchase or
sell foreign currencies.
RMB
can be further categorized into onshore RMB (“CNY”), which can be traded only in
the PRC, and offshore RMB (“CNH”), which can be traded outside the PRC. CNY and
CNH are traded at different exchange rates and their exchange rates may not move
in the same direction. Although there has been a growing amount of RMB held
offshore, CNH cannot be freely remitted into the PRC and is subject to certain
restrictions, and vice versa. A 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 a 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
A-shares, and this may result in settlement delays and increased tracking error.
A Fund will be required to remit CNH to settle the purchase of A-shares by the
Fund from time to time. In the event such remittance is disrupted, a Fund will
not be able to fully replicate its Index by investing in the relevant A-shares,
which may lead to increased tracking error. Moreover, the trading and settlement
of RMB-denominated securities are recent developments in Hong Kong and there is
no assurance that problems will not be encountered with the systems or that
other logistical problems will not arise.
Currently,
there is no market in China in which the Funds may engage in hedging
transactions to minimize RMB foreign exchange risk, and there can be no
guarantee that instruments suitable for hedging currency will be available to
the Funds in China at any time in the future. In the event that in the future it
becomes possible to hedge RMB currency risk in China, a Fund may seek to protect
the value of some portion or all of its portfolio holdings against currency
risks by engaging in hedging transactions. In that case, such Fund may enter
into forward currency exchange contracts and currency futures contracts and
options on such futures contracts, as well as purchase put or call options on
currencies, in China. Currency hedging would involve special risks, including
possible default by the other party to the transaction, illiquidity and, to the
extent the Adviser’s and/or the Sub-Adviser’s view as to certain market
movements is incorrect, the risk that the use of hedging could result in losses
greater than if they had not been used. The use of currency transactions could
result in a Fund’s incurring losses as a result of the imposition of exchange
controls, exchange rate regulation, suspension of settlements or the inability
to deliver or receive a specified currency.
Disclosure
of Interests and Short Swing Profit Rule.
A Fund may be subject to shareholder disclosure of interest regulations
promulgated by the CSRC. These regulations currently require a Fund to make
certain public disclosures when the Fund and parties acting in concert with the
Fund acquire 5% or more of the issued securities of a listed company (which
include A-shares and B-shares of the listed company). If the reporting
requirement is triggered, a Fund will be required to
report
information which includes, but is not limited to: (a) information about the
Fund and the type and extent of its holdings in the company; (b) a statement of
the Fund’s purposes for the investment and whether the Fund intends to increase
its holdings over the following 12-month period; (c) a statement of the Fund’s
historical investments in the company over the previous six months; (d) the time
of, and other information relating to, the transaction that triggered the Fund’s
holding in the listed company reaching the 5% reporting threshold; and (e) other
information that may be required by the CSRC or the stock exchange. Additional
information may be required if a Fund and its concerted parties constitute the
largest shareholder or actual controlling shareholder of the listed company. The
report must be made to the CSRC, the stock exchange, the invested company, and
the CSRC local representative office where the listed company is located. A Fund
would also be required to make a public announcement through a media outlet
designated by the CSRC. The public announcement must contain the same content as
the official report.
The
relevant PRC regulations presumptively treat all affiliated investors and
investors under common control as parties acting in concert. As such, under a
conservative interpretation of these regulations, a Fund may be deemed as a
“concerted party” of other funds managed by the Adviser and its affiliates
and/or the Sub-Adviser and its affiliates and therefore may be subject to the
risk that the Fund’s holdings may be required to be reported in the aggregate
with the holdings of such other funds should the aggregate holdings trigger the
reporting threshold under the PRC law.
If
the 5% shareholding threshold is triggered by a Fund and parties acting in
concert with the Fund, the Fund would be required to file its report within
three days of the date the threshold is reached. During the time limit for
filing the report, a trading freeze applies and the Fund would not be permitted
to make subsequent trades in the invested company’s securities. Any such trading
freeze may negatively impact a Fund’s performance, if the Fund would otherwise
make trades during that period but is prevented from doing so by the
regulation.
Once
a Fund and parties acting in concert reach the 5% trading threshold as to any
listed company, any subsequent incremental increase or decrease of 5% or more
will trigger a further reporting requirement and an additional three-day trading
freeze, and also an additional freeze on trading within two days of the Fund’s
report and announcement of the incremental change. These trading freezes may
undermine a Fund’s performance as described above. Also, Shanghai Stock Exchange
requirements currently require a Fund and parties acting in concert, once they
have reached the 5% threshold, to disclose whenever their shareholding drops
below this threshold (even as a result of trading which is less than the 5%
incremental change that would trigger a reporting requirement under the relevant
CSRC regulation).
CSRC
regulations also contain additional disclosure (and tender offer) requirements
that apply when an investor and parties acting in concert reach thresholds of
20% and greater than 30% shareholding in a company. Because no single underlying
foreign investor investing through a RQFII or QFII (e.g.,
a Fund) may currently hold more than 10% of the total outstanding shares in one
listed company, it is currently unlikely that a Fund’s trading would trigger the
more detailed reporting or tender offer requirements at the higher
thresholds.
Subject
to the interpretation of PRC courts and PRC regulators, the operation of the PRC
short swing profit rule may be applicable to the trading of a Fund with the
result that where the holdings of the Fund (possibly with the holdings of other
accounts managed by the Adviser or Sub-Adviser) exceed 5% of the total issued
shares of a listed company, the Fund may not reduce its holdings in the company
within six months of the last purchase of shares of the company. If a Fund
violates the rule, it may be required by the listed company to return any
profits realized from such trading to the listed company. In addition, the rule
limits the ability of a Fund to repurchase securities of the listed company
within six months of such sale. Moreover, under PRC civil procedures, a Fund’s
assets may be frozen to the extent of the claims made by the company in
question. If the operation of the PRC short swing profit rule is triggered as
described above, it may greatly impair the performance of a Fund.
Risks
associated with the ChiNext Market.
(VanEck
ChiNext ETF only.) The Fund may, through the Shenzhen-Hong Kong Stock Connect,
access securities listed on the ChiNext Market. Listed companies on the ChiNext
Market are usually of an emerging nature with smaller operating scale. They are
subject to higher fluctuation in stock prices and liquidity and have higher
risks and turnover ratios than companies listed on the main board of the
Shenzhen Stock Exchange. Securities listed on the ChiNext Market may be
overvalued and such exceptionally high valuation may not be sustainable. Stock
prices may be more susceptible to manipulation due to fewer circulating shares.
It may be more common and faster for companies listed on ChiNext Market to
delist. This may have an adverse impact on the Fund if the companies that they
invest in are delisted. Also, the rules and regulations regarding companies
listed on ChiNext Market are less stringent in terms of profitability and share
capital than those on the main board. Investments in the ChiNext Market may
result in significant losses for the Fund and their investors.
Risks
associated with the Science and Technology Innovation Board (also known as the
“STAR Board”).
(VanEck China Growth Leaders ETF only.) The Fund may access securities listed on
the STAR Board of the Shanghai Stock Exchange. Listed companies on the STAR
Board are usually of an emerging nature with smaller operating scale, focused on
emerging sectors such as new technologies and have a limited history. Rapid
changes in technology could render obsolete the products and services offered by
these listed companies, and cause severe or complete declines in the prices of
the securities of such companies.
In
general, the securities on the STAR Board are subject to higher fluctuations in
securities prices and liquidity and have higher risks and turnover ratios than
companies listed on the main board of the Shanghai Stock Exchange. Due to having
fewer securities in circulation, securities prices may be more susceptible to
manipulation. Securities listed on the STAR Board may be overvalued and such
exceptionally high valuations may not be sustainable.
As
the STAR Board allows companies to list by way of a registration system, it may
be more common and faster for companies listed on the STAR Board to list and
delist. If the companies that the Fund invests in are delisted, this may have an
adverse impact on the value of the Fund. Also, the rules and regulations
regarding companies listed on the STAR Board are less stringent in terms of
profitability and share capital than those on the main board of the Shanghai
Stock Exchange. Listed companies may list on the STAR Board with neither a track
record of profitability nor any obligation to forecast future profitability.
Investments in securities listed on the STAR Board may result in significant
losses for the Fund and its investors.
Risks
of Investing through Stock Connect.
Each Fund may invest in A-shares listed and traded on the Shanghai Stock
Exchange and the Shenzhen Stock Exchange through Stock Connect, or on such other
stock exchanges in China which participate in Stock Connect from time to time or
in the future. Trading through Stock Connect is subject to a number of
restrictions that may affect a Fund’s investments and returns. For example,
trading through Stock Connect is subject to daily quotas that limit the maximum
daily net purchases on any particular day, which may restrict or preclude the
Fund’s ability to invest in Stock Connect A-shares. In addition, investments
made through Stock Connect are subject to trading, clearance and settlement
procedures that are relatively untested in the PRC, which could pose risks to a
Fund. Furthermore, securities purchased via Stock Connect will be held via a
book entry omnibus account in the name of HKSCC, Hong Kong’s clearing entity, at
the CSDCC. A Fund’s ownership interest in Stock Connect securities will not be
reflected directly in book entry with CSDCC and will instead only be reflected
on the books of its Hong Kong sub-custodian. A Fund may therefore depend on
HKSCC’s ability or willingness as record-holder of Stock Connect securities to
enforce the Fund’s shareholder rights. PRC law did not historically recognize
the concept of beneficial ownership; while PRC regulations and the Hong Kong
Stock Exchange have issued clarifications and guidance supporting the concept of
beneficial ownership via Stock Connect, the interpretation of beneficial
ownership in the PRC by regulators and courts may continue to evolve. Moreover,
Stock Connect A-shares generally may not be sold, purchased or otherwise
transferred other than through Stock Connect in accordance with applicable
rules.
A
primary feature of Stock Connect is the application of the home market’s laws
and rules applicable to investors in A-shares. Therefore, a Fund’s investments
in Stock Connect A-shares are generally subject to PRC securities regulations
and listing rules, among other restrictions. Stock Connect is only available on
days when markets in both the PRC and Hong Kong are open, which may limit the
Fund’s ability to trade when it would be otherwise attractive to do so.
Uncertainties in permanent PRC tax rules governing the taxation of income and
gains from investments in Stock Connect A-shares could result in unexpected tax
liabilities for the Fund. Please refer to the section titled “PRC Taxation”
below.
The
Stock Connect program is a relatively new program and may be subject to further
interpretation and guidance. There can be no assurance as to the program’s
continued existence or whether future developments regarding the program may
restrict or adversely affect a Fund’s investments or returns. In addition, the
application and interpretation of the laws and regulations of Hong Kong and the
PRC, and the rules, policies or guidelines published or applied by relevant
regulators and exchanges in respect of the Stock Connect program are uncertain,
and they may have a detrimental effect on a Fund’s investments and
returns.
PRC
Taxation.
Currently, there are no specific tax rules relating to investment in A-shares
via the Stock Connect and RQFII. Instead, the income and gains from such
investment are subject to general PRC tax rules and temporary provisions. Under
these provisions, a corporation that does not have a permanent establishment in
the PRC will be subject to withholding income tax of 10% (“PRC WIT”) on its PRC
sourced income, including but not limited to passive income (e.g. dividends,
interest, gains arising from transfer of assets), subject to reduction under an
applicable double tax treaty and agreement by PRC tax authorities. Value added
tax of 6%, as well as urban maintenance and construction tax, educational
surcharge and local educational surcharge (which are all based on value added
tax) should also be levied on gains derived from trading of marketable
securities.
Under
Circular Caishui [2014] No. 79, the PRC Ministry of Finance (MOF) clarified that
capital gains on the transfer of A-shares derived by QFIIs and RQFIIs that do
not have a permanent establishment in the PRC on or after 17 November 2014 are
temporarily exempt from PRC WIT. According to Circular Caishui [2014] No. 81 and
Circular Caishui [2016] No. 127, the MOF clarified that capital gains realized
from the transfer of A-shares via Stock Connect are temporarily exempt from PRC
WIT.
The
Fund, prior to December 22, 2014, reserved 10% of its realized and unrealized
gains from its A-share investments to apply towards withholding tax liability
with respect to realized and unrealized gains from the Fund’s investments in
A-shares of “land- rich” enterprises, which are companies that have greater than
50% of their assets in land or real properties in the PRC. The tax reserve was
reflected in the Fund’s daily NAV calculations as a deduction from the Fund’s
NAV. During 2015, revenue authorities in the PRC made arrangements for the
collection of capital gains taxes for investments realized between November 17,
2009 and November 16, 2014.
Actual
tax imposed by the PRC tax authorities may be different and may be changed from
time to time. There is a possibility of the tax rules being changed and taxes
being applied retrospectively. As such, any provision for taxation made by the
Fund may be
excessive
or inadequate to meet the final PRC tax liabilities. Consequently, shareholders
may be advantaged or disadvantaged depending on the final tax liabilities, the
level of provision and the timing of the shareholder's subscription and
redemption.
Risk
of Investing in Foreign Securities.
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. 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. Each 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 a
Fund’s investments. Because each Fund may invest in securities denominated in
foreign currencies and some of the income received by each Fund may be in
foreign currencies, changes in currency exchange rates may negatively impact
each Fund’s return. The risks of investing in emerging and frontier market
countries are greater than risks associated with investments in foreign
developed countries.
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 a Fund’s ability to invest in foreign securities or may
prevent the Fund from repatriating its investments. A Fund may also invest in
depositary receipts which involve similar risks to those associated with
investments in foreign securities. In addition, a 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 a 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 future sanctions or other actions, may negatively affect the value and
liquidity of a Fund.
Also,
certain issuers located in foreign countries in which a 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. A Fund, as an investor
in such issuers, will be indirectly subject to those risks.
Risk
of Investing in Emerging Market Issuers.
The Funds invest their assets in securities of emerging market issuers.
Investment in securities of emerging market issuers involves 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 Funds. 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. The frequency, availability and quality of financial information about
investments in emerging markets varies. 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, and the Fund's
passive investment approach does not take account of these risks. All of these
factors can make emerging market securities more volatile and potentially less
liquid than securities issued in more developed markets.
Foreign
Currency Risk.
Because a Fund’s assets that are invested in equity securities of issuers in
foreign countries may be denominated in foreign currencies, the proceeds
received by the Fund from these investments will generally be in foreign
currencies. A Fund’s exposure to foreign currencies and changes in the value of
foreign currencies versus the U.S. dollar may result in reduced returns for the
Fund. Moreover, a Fund may incur costs in connection with conversions between
U.S. dollars and
foreign
currencies. The value of certain emerging market countries' currency may be
subject to a high degree of fluctuation. This fluctuation may be due to changes
in interest rates, investors’ expectations concerning inflation and interest
rates, the emerging market country’s debt levels and trade deficit, 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. For example, certain
emerging market countries have experienced economic challenges and liquidity
issues with respect to their currency. 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 could lead to sudden and large
adjustments in the currency, which in turn, may have a negative effect on a Fund
and its investments.
Risk
of Investing in the Consumer Discretionary Sector.
(VanEck China Growth Leaders ETF only.) A Fund will be sensitive to, and its
performance will depend to a greater extent on, the overall condition of the
consumer discretionary sector. The consumer discretionary sector comprises
companies whose businesses are sensitive to economic cycles, such as
manufacturers of high-end apparel and automobile and leisure companies.
Companies in the consumer discretionary sector are subject to fluctuations in
supply and demand. These companies may also be adversely affected by changes in
consumer spending as a result of world events, political and economic
conditions, commodity price volatility, changes in exchange rates, imposition of
import controls, increased competition, depletion of resources and labor
relations.
Risk
of Investing in the Consumer Staples Sector.
(VanEck China Growth Leaders ETF only.) A Fund will be sensitive to, and its
performance will depend to a greater extent on, the overall condition of the
consumer staples sector. Companies in the consumer staples sector may be
adversely affected by changes in the worldwide economy, consumer spending,
competition, demographics and consumer preferences, exploration and production
spending. Companies in this sector are also affected by changes in government
regulation, world events and economic conditions.
Risk
of Investing in the Health Care Sector.
A Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition of the health care sector. Companies in the health
care sector may be affected by extensive government regulation, restrictions on
government reimbursement for medical expenses, rising costs of medical products
and services, pricing pressure, an increased emphasis on outpatient services,
limited number of products, industry innovation, changes in technologies and
other market developments. Many health care companies are heavily dependent on
patent protection. The expiration of patents may adversely affect the
profitability of these companies. Many health care companies are subject to
extensive litigation based on product liability and similar claims. Health care
companies are subject to competitive forces that may make it difficult to raise
prices and, in fact, may result in price discounting. Many new products in the
health care sector may be subject to regulatory approvals. The process of
obtaining such approvals may be long and costly. Companies in the health care
sector may be thinly capitalized and may be susceptible to product
obsolescence.
Risk
of Investing in the Industrials Sector.
A Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition of the industrials sector. The industrials sector
comprises companies who produce capital goods used in construction and
manufacturing, such as companies that make and sell machinery, equipment and
supplies that are used to produce other goods. Companies in the industrials
sector may be adversely affected by changes in government regulation, world
events and economic conditions. In addition, companies in the industrials sector
may be adversely affected by environmental damages, product liability claims and
exchange rates. The stock prices of companies in the industrials sector are
affected by supply and demand both for their specific product or service and for
industrial sector products in general. The products of manufacturing companies
may face product obsolescence due to rapid technological developments and
frequent new product introduction. In addition, the industrials sector may also
be adversely affected by changes or trends in commodity prices, which may be
influenced or characterized by unpredictable factors.
Risk
of Investing in the Information Technology Sector.
A Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition of the information technology sector. Information
technology companies face intense competition, both domestically and
internationally, which may have an adverse effect on profit margins. Information
technology companies may have limited product lines, markets, financial
resources or personnel. The products of information technology companies may
face product obsolescence due to rapid technological developments and frequent
new product introduction, unpredictable changes in growth rates and competition
for the services of qualified personnel. Companies in the information technology
sector are heavily dependent on patent protection and the expiration of patents
may adversely affect the profitability of these companies.
Risk
of Investing in Swaps.
(VanEck China Growth Leaders ETF only.) A Fund also expects to invest in swaps
and other types of derivative instruments that have economic characteristics
that are substantially identical to the economic characteristics of A-shares or
shares of Chinese companies, including swaps on the China Index, swaps on the
A-shares or shares of Chinese companies which comprise the China Index and/or
swaps on funds that seek to replicate the performance of the China Index or
funds that invest in A-shares or shares of Chinese companies. The use of swap
agreements entails certain risks, which may be different from, and possibly
greater than, the risks associated with investing directly in the underlying
asset for the swap agreement. These risks include:
Limited
Availability of Swaps.
A Fund’s ability to achieve its stated investment objective may depend upon the
continuing availability of A-shares and the willingness and ability of potential
swap counterparties to engage in swaps with the Fund linked to the performance
of A-shares. To the extent that the RQFII or QFII license of a potential swap
counterparty eliminated due to actions by the Chinese government or as a result
of transactions entered into by the counterparty with other investors, the
counterparty’s ability to continue to enter into swaps or other derivative
transactions with a Fund may be reduced or eliminated, which could have a
material adverse effect on the Fund. These risks are compounded by the fact that
at present there are only a limited number of potential counterparties willing
and able to enter into swap transactions linked to the performance of A-shares.
Furthermore, swaps are of limited duration and there is no guarantee that swaps
entered into with a counterparty will continue indefinitely. Accordingly, the
duration of a swap depends on, among other things, the ability of a Fund to
renew the expiration period of the relevant swap at agreed upon terms.
Therefore, subject to interpretation by SAFE, QFIIs or RQFIIs may be limited or
prohibited from providing a Fund access to RQFII licenses by entering into swap
or other derivative transactions, which, in turn, could adversely affect the
Fund.
Counterparty
Risk.
Because a swap is an obligation of the counterparty rather than a direct
investment in A-shares or shares of Chinese companies, a Fund may suffer losses
potentially equal to, or greater than, the full value of the swap if the
counterparty to an “over- the-counter” swap fails to perform its obligations
under the swap as a result of bankruptcy or otherwise. Any loss would result in
a reduction in the NAV of a Fund and will likely impair the Fund’s ability to
achieve its investment objective. The counterparty risk associated with a Fund’s
investments is expected to be greater than most other funds because there are
only a limited number of counterparties that are willing and able to enter into
swaps on A-shares. In fact, because there are so few potential counterparties, a
Fund, subject to applicable law, may enter into swap transactions with as few as
one counterparty at any time.
Liquidity
Risk.
Swap agreements may be subject to liquidity risk, which exists when a particular
swap is difficult to purchase or sell. If a swap transaction is particularly
large or if the relevant market is illiquid, it may not be possible to initiate
a transaction or liquidate a position at an advantageous time or price, which
may result in significant losses to a Fund. This is especially true given the
limited number of potential counterparties willing and able to enter into swap
transactions on A-shares.
Tax
Risk.
A Fund’s investments in swaps and other derivative instruments may be less
tax-efficient than a direct investment in A-shares. Investments in swaps and
other derivatives may be subject to special U.S. federal income tax rules that
could negatively affect the character, timing and amount of income earned by the
Fund (e.g.,
by causing amounts that would be capital gain to be taxed as ordinary income or
to be taken into income earlier than would otherwise be necessary). Also, a Fund
may be required to periodically adjust its positions in swaps and derivatives to
comply with certain regulatory requirements which may further cause these
investments to be less efficient than a direct investment in A-shares. For
example, swaps in which a Fund may invest may need to be reset on a regular
basis in order to maintain compliance with the 1940 Act or for other reasons,
which may increase the likelihood that the Fund will generate short-term capital
gains. In addition, because the application of these special rules may be
uncertain, the manner in which they are applied by a Fund may be determined to
be incorrect. In that event, a Fund may be found to have failed to maintain its
qualification as a RIC or to be subject to additional U.S. tax liability.
Moreover, a Fund may make investments, both directly and through swaps or other
derivative positions, in companies classified as passive foreign investment
companies for U.S. federal income tax purposes (“PFICs”). Investments in PFICs
are subject to special tax rules which may result in adverse tax consequences to
a Fund and its shareholders.
In
addition, a swap transaction may be subject to a Fund’s limitation on
investments in illiquid securities. Because swaps are generally entered into
between two parties and may take longer than seven days to be sold or disposed
of in the ordinary course of business, certain swaps may be considered to be
illiquid. Swap agreements may be subject to pricing risk, which exists when a
particular swap agreement becomes extraordinarily expensive (or inexpensive)
relative to historical prices or the prices of corresponding cash market
instruments. The swaps market is subject to extensive regulation under the
Dodd-Frank Act and certain SEC and CFTC rules promulgated thereunder. It is
possible that developments in the swaps market, including new and additional
government regulation, could result in higher Fund costs and expenses and could
adversely affect a Fund’s ability, among other things, to enter into or to
terminate existing swap agreements or to realize amounts to be received under
such agreements.
Risk
of Investing in Futures.
(VanEck China Growth Leaders ETF only.) Futures contracts generally provide for
the future sale by one party and purchase by another party of a specified
instrument, index or commodity at a specified future time and at a specified
price. The value of a futures contract tends to increase and decrease in tandem
with the value of the underlying instrument. The prices of futures can be highly
volatile and using futures can increase the volatility of a Fund’s NAV and/or
lower total return. Additionally, as a result of the low collateral deposits
normally involved in futures trading, a relatively small movement in the price
or value of a futures transaction may result in substantial losses to a Fund,
and the potential loss from futures can exceed the Fund’s initial investment in
such contracts. Futures contacts involve the risk of mispricing or improper
valuation and the risk that changes in the value of a futures contract may not
correlate perfectly with the underlying indicator. Even a well-conceived futures
transaction may be unsuccessful due to market events. There is also the risk of
loss by a Fund of margin deposits in the
event
of bankruptcy of a broker with whom the Fund has an open position in the futures
contract. A liquid secondary market may not always exist for the Fund’s futures
contract positions at any time.
Risk
of Investing in Other Funds. (VanEck
China Growth Leaders ETF only.)
A
Fund may invest in shares of other funds, including ETFs that track the China
Index. As a result, a Fund will indirectly be exposed to the risks of an
investment in the underlying funds. Shares of other funds have many of the same
risks as direct investments in common stocks or bonds. In addition, the market
value of such funds’ shares is expected to rise and fall as the value of the
underlying index or bond rises and falls. The market value of such funds’ shares
may differ from the NAV of the particular fund. As a shareholder in a fund (as
with ETFs), the Fund would bear its ratable share of that entity’s expenses. At
the same time, the Fund would continue to pay its own investment management fees
and other expenses. As a result, the Fund and its shareholders will be absorbing
duplicate levels of fees with respect to investments in other funds, including
ETFs. Such fees will not, however, be counted towards the Fund’s expense
cap.
In
October 2020, the SEC adopted certain regulatory changes and took other actions
related to the ability of an investment company to invest in another investment
company, including the rescission of exemptive relief issued by the SEC
permitting such investments in excess of statutory limits. These regulatory
changes may adversely impact the Fund’s investment strategies and
operations.
Risk
of Investing in Small- and/or Medium-Capitalization Companies.
A Fund may invest in small- and/or medium- capitalization companies and,
therefore will be subject to certain risks associated with small- and/or
medium-capitalization companies. These companies are often subject to less
analyst coverage and may be in early and less predictable periods of their
corporate existences, with little or no record of profitability. In addition,
these companies often have greater price volatility, lower trading volume and
less liquidity than larger more established companies. These companies tend to
have smaller revenues, narrower product lines, less management depth and
experience, smaller shares of their product or service markets, fewer financial
resources and less competitive strength than large-capitalization companies.
Returns on investments in securities of small- and/or medium-capitalization
companies could trail the returns on investments in securities of larger
companies.
Risk
of Cash Transactions.
Unlike most other ETFs, VanEck ChiNext ETF effects all of its creations and
redemptions for cash, rather than wholly for in-kind securities, and VanEck
China Growth Leaders ETF effects its creations and redemptions at least
partially for cash, rather than wholly for in-kind securities, due to various
legal and operational constraints in certain countries in which the Funds
invest. Because these Funds currently intend to effect all or a portion of
redemptions for cash, rather than in-kind distributions, they may be required to
sell portfolio securities in order to obtain the cash needed to distribute
redemption proceeds, which involves transaction costs that the Funds may not
have incurred had they effected redemptions entirely in kind. These costs may
include brokerage costs and/or taxable gains or losses, which may be imposed on
a Fund and decrease the Fund’s NAV to the extent such costs are not offset by a
transaction fee payable by an AP. If a Fund recognizes gain on these sales, this
generally will cause the Fund to recognize 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
such 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 Funds generally intend 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.
Equity
Securities Risk.
The value of the equity securities held by each Fund may fall due to general
market and economic conditions, perceptions regarding the markets in which the
issuers of securities held by a Fund participate, or factors relating to
specific issuers in which a Fund invests. For example, an adverse event, such as
an unfavorable earnings report, may result in a decline in the value of equity
securities of an issuer held by a Fund; the price of the equity securities of an
issuer may be particularly sensitive to general movements in the securities
markets; or a drop in the securities markets may depress the price of most or
all of the equities securities held by a Fund. In addition, the equity
securities of an issuer in a Fund’s portfolio may decline in price if the issuer
fails to make anticipated dividend payments. Equity securities are subordinated
to preferred securities and debt in a company’s capital structure with respect
to priority in right to a share of corporate income, and therefore will be
subject to greater dividend risk than preferred securities or debt instruments.
In addition, while broad market measures of equity securities have historically
generated higher average returns than fixed income securities, equity securities
have generally also experienced significantly more volatility in those returns,
although under certain market conditions fixed income securities may have
comparable or greater price volatility.
A
change in the financial condition, market perception or the credit rating of an
issuer of securities included in a Fund’s Index may cause the value of its
securities to decline.
Market
Risk.
The prices of the securities in the Funds are subject to the risks associated
with investing in the securities market, including general economic conditions,
sudden and unpredictable drops in value, exchange trading suspensions and
closures and public health risks. These risks may be magnified if certain
social, political, economic and other conditions and events (such as natural
disasters, epidemics and pandemics, terrorism, conflicts and social unrest)
adversely interrupt the global economy; in these
and
other circumstances, such events or developments might affect companies
world-wide. Overall securities values could decline generally or could
underperform other investments.
An
investment in the Funds may lose money.
High
Portfolio Turnover Risk.
The Fund may engage in active and frequent trading of its portfolio securities.
High portfolio turnover may result in increased transaction costs to the Fund,
including brokerage commissions, dealer mark-ups and other transaction costs on
the sale of the securities and on reinvestment in other securities.
Additionally, the sale of Fund portfolio securities may result in the
realization and/or distribution to shareholders of higher capital gains or
losses as compared to a fund with less active trading. These effects of higher
than normal portfolio turnover may adversely affect Fund performance. High
portfolio turnover may also result in higher taxes when Fund Shares are held in
a taxable account.
Operational
Risk.
Each Fund is exposed to operational risk arising from a number of factors,
including but not limited to, human error, processing and communication errors,
errors of the Fund’s service providers, counterparties or other third- parties,
failed or inadequate processes and technology or system failures.
Index
Tracking Risk.
A Fund’s return may not match the return of its Index for a number of reasons.
For example, a Fund incurs a number of operating expenses, including taxes, not
applicable to its 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 its Index or (to the extent a Fund effects creations and
redemptions are effected in cash) raising cash to meet redemptions or deploying
cash in connection with newly created Creation Units, which are not factored
into the return of each Fund's Index. Transaction costs, including brokerage
costs, will decrease a Fund’s NAV to the extent not offset by the transaction
fee payable by an AP. Market disruptions and regulatory restrictions could have
an adverse effect on a Fund’s ability to adjust its exposure to the required
levels in order to track its respective 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 an Index Provider (as defined herein) or any agents that may act on its
behalf will compile each Fund’s Index accurately, or that each Index will be
determined, composed or calculated accurately. Errors in respect of the quality,
accuracy and completeness of the data used to compile an Index may occur from
time to time and may not be identified and corrected by the Index Providers for
a period of time or at all, 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 Providers or their agents will generally be
borne by the applicable Fund and its shareholders. For example, during a period
where a Fund’s Index contains incorrect constituents, the Fund would have market
exposure to such constituents and would be underexposed to an Index’s other
constituents. Such errors may negatively or positively impact a Fund and its
shareholders. Any gains due to the Index Providers’ or others’ errors will be
kept by the applicable Fund and its shareholders and any losses resulting from
an Index Provider’s or others’ errors will be borne by the applicable Fund and
its shareholders. When a Fund’s Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and its respective Index, any transaction costs and market
exposure arising from such portfolio rebalancing will be borne directly by the
applicable Fund and its shareholders. The Fund may not be fully invested at
times either as a result of cash flows into the Fund (if the Fund effects
creations and redemptions for cash) or reserves of cash held by the Fund to meet
redemptions or pay expenses. Apart
from scheduled rebalances, the Index Provider or their agents may carry out
additional ad hoc rebalances to a Fund's Index. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider or their agents to a
respective Index may increase the costs to and the tracking error risk of the
Funds. In
addition, a Fund may not be able to invest in certain securities and/or other
assets included in its Index, or invest in them in the exact proportions in
which they are represented in its Index, due to legal restrictions or
limitations imposed by the governments of certain countries, certain Exchange
listing standards, a lack of liquidity on 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 a
Fund's performance. To the extent a Fund is unable to invest in A-shares or
enter into swaps or other derivatives linked to the performance of its Index or
securities comprising its Index, it may enter into swaps or other derivatives
linked to the performance of other funds that seek to track the performance of
its Index. These funds may trade at a premium or discount to NAV, which may
result in additional tracking error for a Fund. Moreover, the ability of a Fund
to track its Index may be affected by foreign exchange fluctuations as between
the U.S. dollar and the RMB. 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. A Fund may
underperform its Index when the value of the U.S. dollar increases relative to
the value of the RMB. Moreover, a Fund may be delayed in purchasing or selling
securities included in its Index. The Funds may also need to rely on borrowings
to meet redemptions, which may lead to increased expenses. For tax efficiency
purposes, a Fund may sell certain securities, and such sale may cause the Fund
to realize a loss and deviate from the performance of its Index.
A
Fund may encounter issues with regard to currency convertibility (including the
cost of borrowing funds, if any) or repatriation, which may increase the
tracking error risk. A Fund will be required to remit RMB to settle the purchase
of A-shares and repatriate RMB to U.S. dollars to settle redemption orders. In
the event such remittance or repatriation is delayed or disrupted, a Fund will
not be able to fully replicate its Index by investing in the relevant A-shares,
which may lead to increased tracking error. These and any other issues a Fund
encounters with regard to investment restrictions, trade settlements, currency
convertibility (including the cost of borrowing funds, if any) and repatriation
may also increase the index tracking risk.
Relevant
PRC laws and regulations may limit the ability of the Adviser and/or potential
swap counterparties to acquire A-shares in certain PRC issuers from time to
time. In addition, a potential swap counterparty may not be able to acquire
A-shares to hedge the swaps in which the Fund invests. In such cases, this may
restrict a Fund’s ability to invest in certain A-shares and also may restrict
the issuance, and therefore the purchase, of swaps linked to these A-shares by a
Fund. Furthermore, the tracking error of a Fund may be increased by the overall
costs of maintaining the swaps. As a result of such costs the value of the swaps
may differ from the price of the A-shares to which such swaps are linked,
leading to an increased tracking error.
As
discussed above, one or more securities in each Fund’s respective Index may be
suspended from trading and such securities would be valued by such Index at the
last closing price. Each Fund may fair value certain of the foreign securities
and/or underlying currencies or other assets it holds, except those securities
primarily traded on exchanges that close at the same time the Fund calculates
its NAV. To the extent a Fund calculates its NAV based on fair value prices and
the value of its Index is based on securities’ closing prices on local foreign
markets (i.e.,
the value of its Index is not based on fair value prices) or if a Fund otherwise
calculates its NAV based on prices that differ from those used in calculating
its Index, the Fund’s ability to track its Index may be adversely affected. The
need to comply with the tax diversification and other requirements of the
Internal Revenue Code may also impact a Fund’s ability to replicate the
performance of its Index. In addition, if a Fund utilizes depositary receipts
and other derivative instruments, its return may not correlate as well with the
return of its Index as would be the case if the Fund purchased all the
securities in its Index directly. Actions taken in response to proposed
corporate actions may result in increased tracking error. In light of the
factors discussed above, a Fund’s return may deviate significantly from the
return of its Index.
Each
Fund’s performance may also deviate from the performance of its respective Index
due to the impact of withholding taxes, late announcements relating to changes
to the Fund’s respective Index and high turnover of the Fund’s
Index.
Index
tracking risk may be heightened during times of increased market volatility or
other unusual market conditions. Changes to the composition of a Fund’s 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.
A Fund may have a limited number of financial institutions that act as APs, none
of which are obligated to engage in creation and/or redemption transactions. To
the extent that those APs exit the business, or are unable to or choose not to
process creation and/or redemption orders, and no other AP is able to step
forward to create and redeem, there may be a significantly diminished trading
market for Shares or Shares may trade like closed-end funds at a discount (or
premium) to NAV and possibly face trading halts and/or de-listing. The AP
concentration risk may be heightened in scenarios where APs have limited or
diminished access to the capital required to post collateral.
No
Guarantee of Active Trading Market.
While Shares are listed on the Exchange, there can be no assurance that an
active trading market for the Shares will be maintained. Further, secondary
markets may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods in times of market stress because market
makers and APs may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in a
Fund’s market price from its NAV. The Distributor (defined herein), does not
maintain a secondary market in the Shares. Investors purchasing and selling
Shares in the secondary market may not experience investment results consistent
with those experienced by those APs creating and redeeming directly with a
Fund.
Decisions
by market makers or APs to reduce their role or “step away” from these
activities in times of market stress could inhibit the effectiveness of the
arbitrage process in maintaining the relationship between the underlying value
of a Fund’s portfolio securities and the Fund’s market price. This reduced
effectiveness could result in Fund Shares trading at a price which differs
materially from NAV and also in greater than normal intraday bid/ask spreads for
Fund Shares.
Trading
Issues.
Trading in Shares on an 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 an 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 an Exchange
occurs, a shareholder may be unable to purchase or sell Shares of a Fund. There
can be no assurance that the requirements of an Exchange necessary to maintain
the listing of a Fund will continue to be met or will remain
unchanged.
Passive
Management Risk.
Unlike many investment companies, the Funds are not “actively” managed.
Therefore, unless a specific security is removed from its Index, a Fund
generally would not sell a security because the security’s issuer is in
financial trouble. If a specific security is removed from a 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 a Fund involves risks
similar to those of investing in any fund that invests in equity securities
traded on an exchange, such as market fluctuations caused by such factors as
economic and political developments, changes in interest rates and perceived
trends in security prices. Each 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 a 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 and/or the Sub-Adviser do 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 a Fund's Index Provider to postpone a scheduled rebalance or
reconstitution, which could cause a Fund's Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
a 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 NAV or to the intraday value of a Fund’s
holdings. The NAV of the Shares will fluctuate with changes in the market value
of a Fund’s securities holdings. The market price of Shares will fluctuate, in
some cases materially, in accordance with changes in NAV and the intraday value
of a Fund’s holdings, as well as supply and demand on the Exchange. The Adviser
cannot predict whether Shares will trade below, at or above their NAV. Given the
fact that Shares can be created and redeemed by APs in Creation Units, the
Adviser believes that large discounts or premiums to the NAV of Shares should
not be sustained in the long-term. While the creation/redemption feature is
designed to make it likely that Shares normally will trade close to the value of
a Fund’s holdings, market prices are not expected to correlate exactly to the
Fund’s NAV due to timing reasons, supply and demand imbalances and other
factors. The price differences may be due, in large part, to the fact that
supply and demand forces at work in the secondary trading market for Shares may
be closely related to, but not necessarily identical to, the same forces
influencing the prices of the securities of a Fund’s portfolio of investments
trading individually or in the aggregate at any point in time. If a shareholder
purchases Shares at a time when the market price is at a premium to the NAV or
sells Shares at a time when the market price is at a discount to the NAV, the
shareholder may pay significantly more or receive significantly less than the
underlying value of the Shares that were bought or sold or the shareholder may
be unable to sell his or her Shares. Any of these factors, discussed above and
further below, may lead to the Shares trading at a premium or discount to a
Fund’s NAV. In addition, because certain of a Fund’s underlying securities trade
on exchanges that are closed when the Exchange (i.e.,
the exchange that Shares of the Fund trade on) is open, there are likely to be
deviations between the expected value of an underlying security and the closing
security’s price (i.e.,
the last quote from its closed foreign market) resulting in premiums or
discounts to NAV that may be greater than those experienced by other ETFs. In
addition, the securities held by a Fund may be traded in markets that close at a
different time than the Exchange. Liquidity in those securities may be reduced
after the applicable closing times. Accordingly, during the time when the
Exchange is open but after the applicable market closing, fixing or settlement
times, bid/ask spreads and the resulting premium or discount to the Shares’ NAV
may widen. Additionally, in stressed market conditions, the market for a Fund’s
Shares may become less liquid in response to deteriorating liquidity in the
markets for the Fund’s underlying portfolio holdings. There are various methods
by which investors can purchase and sell Shares. Investors should consult their
financial intermediaries before purchasing or selling Shares of the
Funds.
When
you buy or sell Shares of a 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 a 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 a Fund’s holdings may be halted, the bid/ask spread may increase
significantly. This means that Shares may trade at a discount to a Fund’s NAV,
and the discount is likely to be greatest during significant market
volatility.
Non-Diversification
Risk.
A
Fund may become classified as non-diversified under the Investment Company Act
of 1940, as amended, solely as a result of a change in relative market
capitalization or index weighting of one or more constituents of the respective
Index. If a Fund becomes non-diversified, it may invest a greater portion of
assets in securities of a smaller number of individual issuers than a
diversified fund. As a result, changes in the market value of a single
investment could cause greater fluctuations in share price than would occur in a
more diversified fund.
Concentration
Risk.
Each Fund’s assets may be concentrated in a particular sector or sectors or
industry or group of industries to the extent that its respective Index
concentrates in a particular sector or sectors or industry or group of
industries. The securities of many or all of the companies in the same sector or
industry may decline in value due to developments adversely affecting such
sector or industry. By concentrating its assets in a particular sector or
sectors or industry or group of industries, a Fund is subject to the risk that
economic, political or other conditions that have a negative effect on those
sectors and/or industries may negatively impact the Fund to a greater extent
than if the Fund’s assets were invested in a wider variety of sectors or
industries.
ADDITIONAL
NON-PRINCIPAL INVESTMENT STRATEGIES
Each
Fund may invest in securities not included in their respective Index, money
market instruments, including repurchase agreements or other funds which invest
exclusively in 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 and/or Sub-Adviser believes will help a Fund track its
Index.
As
an additional investment strategy, VanEck ChiNext ETF may also seek to invest a
portion of its assets in swaps, futures contracts and other types of derivative
instruments that have economic characteristics that are similar to the economic
characteristics of A-shares, including swaps on the ChiNext Index, swaps on
A-shares which comprise the ChiNext Index and/or
swaps
on funds that seek to replicate the performance of the ChiNext Index or funds
that invest in A-shares or the VanEck ChiNext ETF may invest directly in shares
of such funds. In addition, the Funds may invest in B-shares, which are shares
of companies incorporated in mainland China that are traded in the mainland
B-share markets; China H-shares, which are shares of companies incorporated in
mainland China and listed on the Hong Kong Stock Exchange; securities of Red
Chip Companies, which are companies with certain minimum proportions of mainland
Chinese entity shareholders that are incorporated outside mainland China and
listed on the Hong Kong Stock Exchange; and securities of Chinese-related
companies, which are companies listed on the Hong Kong Stock Exchange, the
Singapore Stock Exchange or other exchanges. Depositary receipts and derivative
instruments such as swaps, options, warrants, futures contracts, currency
forwards, structured notes and participation notes may be used by VanEck China
Growth Leaders ETF in seeking performance that corresponds to the China Index,
and in managing cash flows, and may count towards compliance with the Fund’s 80%
policy. Depositary receipts may be used by VanEck ChiNext ETF in seeking
performance that corresponds to the ChiNext Index, and in managing cash flows,
and may count towards compliance with the Fund’s 80% policy.
BORROWING
MONEY
Each
Fund may borrow money from a bank up to a limit of one-third of the market value
of its assets. Each 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 such Fund’s status
as a regulated investment company. To the extent that a Fund borrows money, it
may be leveraged; at such times, the Fund will appreciate or depreciate in value
more rapidly than its Index. Leverage generally has the effect of increasing the
amount of loss or gain a Fund might realize, and may increase volatility in the
value of such Fund’s investments.
LENDING
PORTFOLIO SECURITIES
Each
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, a 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 a 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. A Fund may pay fees to the party arranging the loan of securities. In
addition, a 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. A 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 a Fund. Substitute
payments for dividends received by a Fund for securities loaned out by the Fund
will not be considered qualified dividend income.
ADDITIONAL
NON-PRINCIPAL RISKS
Risk
of Investing in Derivatives.
Derivatives are financial instruments whose values are based on the value of one
or more reference assets or indicators, such as a security, currency, interest
rate, or index. The Funds’ 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 a 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 a 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 a 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 a Fund’s
counterparty to perform its obligations under the transaction. If a counterparty
were to default on its obligations, a Fund’s contractual remedies against such
counterparty may be subject to bankruptcy and insolvency laws, which could
affect the Fund’s rights as a creditor (e.g., the Fund may not receive the net
amount of payments that it is contractually entitled to receive). A liquid
secondary market may not always exist for a Fund’s derivative positions at any
time, and a Fund may not be able to initiate or liquidate a swap position at an
advantageous time or price, which may result in significant losses.
In
October 2020, the Securities and Exchange Commission (the “SEC”) adopted a final
rule related to the use of derivatives, short sales, reverse repurchase
agreements and certain other transactions by registered investment companies
that will rescind and withdraw the guidance of the SEC and its staff regarding
asset segregation and cover transactions. The final rule requires funds to trade
derivatives and other transactions that create future payment or delivery
obligations (except reverse repurchase agreements and similar financing
transactions) subject to a value-at-risk (“VaR”) leverage limit, certain
derivatives risk management program and reporting requirements. Generally, these
requirements apply unless a fund qualifies as a “limited derivatives user,” as
defined in the final rule. Under the final rule, when a fund trades reverse
repurchase agreements or similar financing transactions, including certain
tender option bonds, it needs to aggregate the amount of indebtedness associated
with the reverse repurchase
agreements
or similar financing transactions with the aggregate amount of any other senior
securities representing indebtedness when calculating the fund’s asset coverage
ratio or treat all such transactions as derivatives transactions. Reverse
repurchase agreements or similar financing transactions aggregated with other
indebtedness do not need to be included in the calculation of whether a fund is
a limited derivatives user, but for funds subject to the VaR testing, reverse
repurchase agreements and similar financing transactions must be included for
purposes of such testing whether treated as derivatives transactions or not. The
SEC also provided guidance in connection with the new rule regarding use of
securities lending collateral that may limit a fund's securities lending
activities. Compliance with these new requirements will be required after an
eighteen-month transition period.
Risk
of Investing in Depositary Receipts.
Depositary receipts involve similar risks to those associated with investments
in foreign securities. Depositary receipts are receipts listed on U.S. exchanges
issued by banks or trust companies that entitle the holder to all dividends and
capital gains that are paid out on the underlying foreign shares. The issuers of
certain depositary receipts are under no obligation to distribute shareholder
communications to the holders of such receipts, or to pass through to them any
voting rights with respect to the deposited securities. Investments in
depositary receipts may be less liquid than the underlying shares in their
primary trading market and, if not included in an Index, may negatively affect a
Fund’s ability to replicate the performance of the Index. In addition,
investments in depositary receipts that are not included in a Fund’s Index may
increase tracking error. The issuers of depositary receipts may discontinue
issuing new depositary receipts and withdraw existing depositary receipts at any
time, which may result in costs and delays in the distribution of the underlying
assets to the Fund and may negatively impact the Fund’s performance and the
Fund’s ability to replicate/track the performance of its Index.
Shareholder
Risk.
Certain shareholders, including other funds advised by the Adviser, may from
time to time own a substantial amount of a Fund’s Shares. In addition, a third
party investor, the Adviser or an affiliate of the Adviser, an AP, a market
maker, or another entity may invest in a 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 a 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 a Fund borrows money or utilizes certain derivatives, it may be
leveraged. Leveraging generally exaggerates the effect on NAV of any increase or
decrease in the market value of a Fund’s portfolio securities. To manage the
risk associated with leveraging, under current SEC guidance a Fund may segregate
liquid assets, or otherwise “cover” its derivatives position in a manner
consistent with the 1940 Act and the rules and SEC interpretations thereunder. A
Fund may modify its asset segregation policies at any time to comply with any
changes in the SEC’s positions regarding asset segregation.
A
description of each Fund’s policies and procedures with respect to the
disclosure of the Fund’s portfolio securities is available in the Funds’
SAI.
Board
of Trustees.
The Board of Trustees of the Trust has responsibility for the general oversight
of the management of the Funds, 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 Funds’ SAI.
Investment
Adviser and Sub-Adviser.
Under the terms of an investment management agreement between the Trust and Van
Eck Associates Corporation with respect to each Fund (the “Investment Management
Agreement”), Van Eck Associates Corporation serves as the adviser to each Fund
and, subject to the supervision of the Board of Trustees, is responsible for the
day-to-day investment management of the Funds. China Asset Management (Hong
Kong) Limited acts as investment sub-adviser to each Fund and, subject to the
oversight of the Adviser, is responsible for the day-to-day investment
management of the assets allocated to it by the Adviser. The Sub-Adviser serves
as investment sub-adviser to the Funds pursuant to an investment sub-advisory
agreement between the Adviser and the Sub-Adviser (each, an “Investment
Sub-Advisory Agreement”).
As
of December 31, 2021, the Adviser managed approximately $81.93 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, 9th Floor, New York, New York
10017.
The
Sub-Adviser was established in September 2008 as a wholly owned subsidiary of
China Asset Management Co., Ltd. (“ChinaAMC”). The Sub-Adviser has been licensed
by Hong Kong Securities and Futures Commission to engage in asset management
activities, dealing in securities and advising on securities. As of December 31,
2021, assets under management were approximately $271.7 billion for ChinaAMC and
$7.3 billion for the Sub-Adviser. The Sub-Adviser currently provides both asset
management and advisory services to Hong Kong and overseas clients, including
institutional mandates from Taiwan region, Japan, Korea, Australia and Germany.
The Sub-Adviser’s principal place of business is 37F, Bank of China Tower, 1
Garden Road, Central, Hong Kong.
A
discussion regarding the Board of Trustees’ approval of the Investment
Management Agreement and the Investment Sub- Advisory Agreement is available in
the Trust’s semi-annual report for the period ended June 30, 2021.
For
the services provided to each Fund under the Investment Management Agreement,
each Fund pays the Adviser monthly fees based on a percentage of each Fund’s
average daily net assets at the annual rate of 0.50%.
Until
at least May 1, 2023, the Adviser has agreed to waive fees and/or pay Fund
expenses to the extent necessary to prevent the operating expenses of each Fund
(excluding acquired fund fees and expenses, trading expenses, taxes and
extraordinary expenses) from exceeding 0.60% (with respect to VanEck China
Growth Leaders ETF) and 0.65% (with respect to VanEck ChiNext ETF) of its
average daily net assets per year.
Each
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. For the services provided and the expenses assumed
by the Sub-Adviser pursuant to the Investment Sub-Advisory Agreements, the
Adviser (not the Funds) will pay a monthly fee to the Sub-Adviser based on a
percentage of the management fee paid to the Adviser after taking into account
the Index license fees and expenses paid by the Adviser.
Manager
of Managers Structure.
The Adviser and the Trust may rely on an exemptive order (the “Order”) from the
SEC that permits the Adviser to enter into investment sub-advisory agreements
with unaffiliated sub-advisers without obtaining shareholder approval. The
Adviser, subject to the review and approval of the Board of Trustees, may select
sub-advisers for each 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 a 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 a 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 Funds (the
“Administrator”), and State Street Bank and Trust Company is the custodian of
the Funds’ assets and provides transfer agency and fund accounting services to
the Funds. 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 Funds’ China A-share assets in the PRC (including onshore PRC cash
deposits and its onshore A-shares portfolio) will be held by ICBC, the PRC
sub-custodian. A securities account shall be opened with CSDCC in the joint
names of the Sub-Adviser (as the RQFII holder) and a Fund. An RMB cash account
shall also be established and maintained with the PRC sub-custodian in
the
joint names of the Sub-Adviser (as the RQFII holder) and a Fund. The 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.
Peter
H. Liao, CFA, has been employed by the Adviser as an analyst since the summer of
2004 and has been a portfolio manager since 2006. Mr. Liao graduated from New
York University in 2004 with a Bachelor of Arts in Economics and Mathematics.
Guo Hua (Jason) Jin has been employed by the Adviser as an analyst since January
2007 and has been a portfolio manager since 2018. Mr. Jin graduated from the
State University of New York at Buffalo in 2004 with a Bachelor of Science
degree in Business Administration with a concentration in Financial Analysis.
Messrs. Liao and Jin also serve as portfolio managers for certain other
investment companies and pooled investment vehicles advised by the
Adviser.
Max
Lan joined the Sub-Adviser as a Portfolio Manager in April 2016. Prior to
joining the Sub-Adviser, Mr. Lan worked as a portfolio manager at Hang Seng
Investment Management Limited from November 2006 to April 2016.
See
the Funds’ SAI for additional information about the portfolio managers’
compensation, other accounts managed by the portfolio managers and their
respective ownership of Shares of each Fund.
DETERMINATION
OF NAV
The
NAV per Share for each Fund is computed by dividing the value of the net assets
of the Fund (i.e.,
the value of its total assets less total liabilities) by the total number of
Shares outstanding. Expenses and fees, including the management fee, are accrued
daily and taken into account for purposes of determining NAV. The NAV of each
Fund is determined each business day as of the close of trading (ordinarily 4:00
p.m., Eastern time) on the New York Stock Exchange.
The
values of each Fund’s portfolio securities are based on the securities’ closing
prices on the markets on which the securities trade, when available. Due to the
time differences between the United States and certain countries in which
certain Funds invest, securities on these exchanges may not trade at times when
Shares of the Fund will trade. In the absence of a last reported sales price, or
if no sales were reported, and for other assets for which market quotes are not
readily available, values may be based on quotes obtained from a quotation
reporting system, established market makers or by an outside independent pricing
service. Debt instruments with remaining maturities of more than 60 days are
valued at the evaluated mean price provided by an outside independent pricing
service. If an outside independent pricing service is unable to provide a
valuation, the instrument is valued at the mean of the highest bid and the
lowest asked quotes obtained from one or more brokers or dealers selected by the
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 a 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. Each Fund may also
use fair value pricing in a variety of circumstances, including but not limited
to, situations when the value of a security in the Fund’s portfolio has been
materially affected by events occurring after the close of the market on which
the security is principally traded (such as a corporate action or other news
that may materially affect the price of a security) or trading in a security has
been suspended or halted. In addition, each Fund that holds foreign equity
securities currently expects that it will fair value certain of the foreign
equity securities held by the Fund, if any, each day the Fund calculates its
NAV, except those securities principally traded on exchanges that close at the
same time the Fund calculates its NAV.
Accordingly,
a Fund’s NAV may reflect certain portfolio securities’ fair values rather than
their market prices at the time the exchanges on which they principally trade
close. Fair value pricing involves subjective judgments and it is possible that
a fair value determination for a security or other asset is materially different
than the value that could be realized upon the sale of such security or asset.
In addition, fair value pricing could result in a difference between the prices
used to calculate a Fund’s NAV and the prices used by such Fund’s respective
Index. This may adversely affect a Fund’s ability to track its Index. With
respect to
securities
that are principally traded on foreign exchanges, the value of a Fund’s
portfolio securities may change on days when you will not be able to purchase or
sell your Shares.
INTRADAY
VALUE
The
trading prices of the Funds’ Shares in the secondary market generally differ
from the Funds’ daily NAV and are affected by market forces such as the supply
of and demand for Fund Shares and underlying securities held by each Fund,
economic conditions and other factors. Information regarding the intraday value
of the Funds’ Shares (“IIV”) may be disseminated throughout each trading day by
an 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 each 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 Funds’ 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 each Fund and valuations based on current market
rates. The quotations and/or valuations of certain Fund holdings may not be
updated during U.S. trading hours if such holdings do not trade in the United
States. Each Fund is not involved in, or responsible for, the calculation or
dissemination of the IIV and makes no warranty as to its accuracy.
RULE
144A AND OTHER UNREGISTERED SECURITIES
An
AP (i.e.,
a person eligible to place orders with the Distributor to create or redeem
Creation Units of a Fund) that is not a “qualified institutional buyer,” as such
term is defined under Rule 144A of the Securities Act of 1933, as amended (the
“Securities Act”), will not be able to receive, as part of a redemption,
restricted securities eligible for resale under Rule 144A or other unregistered
securities.
BUYING
AND SELLING EXCHANGE-TRADED SHARES
The
Shares of the Funds 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 a Fund’s Shares based
on the Fund’s trading volume and market liquidity, and is generally lower if the
Funds have high trading volume and market liquidity, and generally higher if the
Funds have 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 a 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 Funds’ SAI.
Each
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 a 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 a 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 an Exchange is closed (other than customary
weekend and holiday closings); (2) for any period during which trading on an
Exchange is suspended or restricted; (3) for any period during which an
emergency exists as a result of which disposal of the Shares of a 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 Funds impose 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 a Fund’s portfolio securities after the close of the primary markets
for a
Fund’s
portfolio securities and the reflection of that change in a Fund’s NAV (“market
timing”). The Board of Trustees considered the nature of each Fund (i.e.,
a fund whose Shares are expected to trade intraday), that the Adviser monitors
the trading activity of APs for patterns of abusive trading, that the Funds
reserve the right to reject orders that may be disruptive to the management of
or otherwise not in the Funds’ best interests, and that each 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 Funds at the present time.
DISTRIBUTIONS
Net
Investment Income and Capital Gains.
As a shareholder of a Fund, you are entitled to your share of such Fund’s
distributions of net investment income and net realized capital gains on its
investments. Each Fund pays out substantially all of its net earnings to its
shareholders as “distributions.”
Each
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. Each 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
gain.
Net
investment income, if any, and net 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 Code. In addition, in
situations where a Fund acquires investment securities after the beginning of a
dividend period, a 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 a 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 a 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 a Fund, including the possible application of foreign, state and
local taxes. Unless your investment in a 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, each Fund expects to distribute net investment income, if any,
at least annually, and any net realized long-term or short-term capital gains,
if any, annually. Each Fund may also pay a special distribution at any time to
comply with U.S. federal tax requirements.
If
a Fund fails to distribute on a timely basis with respect to each taxable year
at least 90% of its “investment company taxable income” and its net tax-exempt
interest income, the Fund would fail to qualify for the special tax treatment
applicable to RICs. In such a case, a Fund would be subject to U.S. federal
income tax at regular corporate rates on its taxable income, including its net
capital gain, even if such income were distributed to its shareholders, and all
distributions out of earnings and profits would be taxed to shareholders as
ordinary dividend income. Such distributions generally would be eligible for the
dividends-received deduction in the case of corporate shareholders and may be
eligible to be qualified dividend income for a non-corporate shareholder. In
addition, a 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 RIC. Additionally, to the extent a Fund does not
distribute to shareholders all of its investment company taxable income and net
capital gain in a given year, it will be required to pay U.S. federal income tax
on the retained income and gains, thereby reducing the Fund’s
return.
A
Fund will be subject to a 4% excise tax on certain undistributed income if it
does not distribute to its shareholders in each calendar year in an amount at
least equal to the sum of 98% of its ordinary income (taking into account
certain deferrals and elections) for the calendar year, 98.2% of its capital
gain net income for the twelve months ended October 31 of such year and 100% of
any undistributed amounts from the prior years. Although a Fund generally
intends to declare and distribute dividends and distributions in the amounts and
at the times necessary to avoid the application of this 4% excise tax, the Fund
may elect to retain a portion of its income and gains, and in such a case, the
Fund may be subject to excise tax.
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 a Fund. Distributions of
net investment income, including net short-term gains, if any, are generally
taxable as ordinary income. Whether distributions of capital gains represent
long-term or short-term capital gains is determined by how long a 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
Funds may receive dividends, the distribution of which a Fund may report as
qualified dividends. In the event that a Fund receives such a dividend and
reports the distribution of such dividend as a qualified dividend, the dividend
may be taxed at the maximum capital gains rates of 15% or 20%, provided holding
period and other requirements are met at both the shareholder and the Fund
level. There can be no assurance that any significant portion of a Fund’s
distributions will be eligible for qualified dividend treatment.
Distributions
in excess of a 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 a Fund’s NAV per Share and may
be taxable to you as ordinary income or capital gain even though, from an
economic standpoint, the distribution may constitute a return of
capital.
Special
tax rules may change the normal treatment of gains and losses recognized by a
Fund if the Fund makes certain investments such as investments in structured
notes, swaps, options and futures transactions. Those special tax rules can
negatively affect the character, timing and amount of income earned by a Fund
(e.g.,
by causing amounts that would be capital gain to be taxed as ordinary income or
to be taken into income earlier than would otherwise be necessary). Each Fund
intends to invest in swaps and other derivative instruments that are linked to
the performance of A-shares. The U.S. tax treatment of such investments may
generally be less efficient than a direct investment in A- shares. Furthermore,
a Fund may be required to periodically adjust its positions in these swaps or
derivatives to comply with certain regulatory requirements which may further
cause these investments to be less efficient than a direct investment in
A-shares. In addition, because the application of these special rules may be
uncertain, it is possible that the manner in which they are applied by a Fund
may be determined to be incorrect. In that event, a Fund may be found to have
failed to maintain its qualification as a RIC or to be subject to additional
U.S. tax liability.
Each
Fund may make investments, both directly and through swaps or other derivative
positions, in companies classified as PFICs for U.S. federal income tax
purposes. Investments in PFICs are subject to special tax rules which may result
in adverse tax consequences to the Fund and its shareholders. Each Fund
generally intends to elect to “mark to market” these investments at the end of
each taxable year. By making this election, a Fund will recognize as ordinary
income any increase in the value of such shares as of the close of the taxable
year over their adjusted basis and as ordinary loss any decrease in such
investment (but only to the extent of prior income from such investment under
the mark to market rules). Gains realized with respect to a disposition of a
PFIC that a Fund has elected to mark to market will be ordinary income. By
making the mark to market election, a Fund may recognize income in excess of the
distributions that it receives from its investments. Accordingly, a Fund may
need to borrow money or dispose of some of its investments in order to meet its
distribution requirements. If a Fund does not make the mark to market election
with respect to an investment in a PFIC, the Fund could become subject to U.S.
federal income tax with respect to certain distributions from, and gain on the
dispositions of, the PFIC which cannot be avoided by distributing such amounts
to the Fund’s shareholders.
Dividends,
interest and gains from non-U.S. investments of a 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 a 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. This treatment
will not apply with respect to amounts a Fund reserves in anticipation of the
imposition of Chinese withholding taxes not currently in effect (if any). If
these amounts are used to pay any tax liability of a 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. It is expected that more than
50% of each Fund's assets will consist of foreign securities.
Backup
Withholding.
Each 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.
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. The ability to deduct capital losses may be limited. To the extent that a
Fund shareholder’s Shares are redeemed for cash is normally treated as a sale
for tax purposes.
Taxes
on In-Kind Creations and In-Kind Redemptions of Creation Units.
To the extent a person exchanges securities or securities and cash for Creation
Units, such person 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 or securities and cash 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 and the amount of any cash received for such
Creation Units. 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 primarily 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 will be imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from a
Fund and net gains from redemptions or other taxable dispositions of Fund
Shares) of U.S. individuals, estates and trusts to the extent that such person’s
“modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold
amounts.
Non-U.S.
Shareholders.
Dividends paid by the Funds 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 Funds from net tax-exempt income or
long-term capital gains are generally not subject to such withholding tax.
Properly-reported dividends are generally exempt from U.S. federal withholding
tax where they (i) are paid in respect of the Funds’ “qualified net interest
income” (generally, the Funds’ U.S. source interest income, other than certain
contingent interest and interest from obligations of a corporation or
partnership in which the Funds are at least a 10% shareholder, reduced by
expenses that are allocable to such income); or (ii) are paid in respect of the
Funds’ “qualified short-term capital gains” (generally, the excess of the Funds’
net short-term capital gain over the Fund’s long-term capital loss for such
taxable year). However, depending on its circumstances, the Funds may report
all, some or none of their 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 a Fund
will generally not be subject to U.S. federal income or withholding tax unless
(i) the gain is effectively connected with the shareholder’s trade or business
in the United States, or in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the United States for 183 days or more
during the taxable year and certain other conditions are met or (ii) the Fund is
or has been a U.S. real property holding corporation, as defined below, at any
time within the five-year period preceding the date of disposition of the Fund’s
Shares or, if shorter, within the period during which the Non-U.S. shareholder
has held the Shares. Generally, a corporation is a U.S. real property holding
corporation if the fair market value of its U.S. real property interests, as
defined in the Internal Revenue Code and applicable regulations, equals or
exceeds 50% of the aggregate fair market value of its worldwide real property
interests and its other assets used or held for use in a trade or business. A
Fund may be, or may prior to a Non-U.S. shareholder’s disposition of Shares
become, a U.S. real property holding corporation. If a Fund is or becomes a U.S.
real property holding corporation, so long as the Fund’s Shares are regularly
traded on an established securities market, 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 Code) of
the Fund’s Shares will be subject to United States federal income tax on the
disposition of Shares.
As
part of the Foreign Account Tax Compliance Act, (“FATCA”), a 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.
A
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 a Fund to comply with the FATCA rules. If a 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 Funds, 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 a Fund. It is not a substitute for
personal tax advice. Consult your own tax advisor about the potential tax
consequences of an investment in a Fund under all applicable tax laws. Changes
in applicable tax authority could materially affect the conclusions discussed
above and could adversely affect the Funds, and such changes often
occur.
The
China Index is published by MarketGrader.com Corp. (“MarketGrader”), an
independent global equity research, and index provider and the ChiNext Index is
published by the Shenzhen Securities Information Co., Ltd. (“Shenzhen
Securities”), which is a subsidiary of the Shenzhen Stock Exchange.
MarketGrader
and Shenzhen Securities are each referred to herein as an “Index Provider” and
collectively, the “Index Providers.” The Index Providers do not sponsor,
endorse, or promote the Funds and bear no liability with respect to the Funds or
any security.
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MARKETGRADER
CHINA ALL-CAP GROWTH LEADERS
INDEX |
The
China Index is a modified market capitalization weighted, float adjusted index
designed to track Chinese companies that MarketGrader has determined exhibit
favorable fundamental characteristics according to MarketGrader’s proprietary
scoring methodology. MarketGrader creates a numerical score based on indicators
measuring four fundamental characteristics for companies that are eligible for
index inclusion, derived from public company filings and stock prices. The four
fundamental characteristics are growth, value, profitability and cash flow. The
resulting score is an aggregate of these indicators.
To
be initially eligible for the China Index, companies must be domiciled in China
and listed on an eligible stock exchange, as determined by MarketGrader. From
this universe of companies, the top-ranked names according to MarketGrader’s
proprietary score are included, and then weighted according to their free-float
market capitalization.
The
China Index is rebalanced semi-annually. MarketGrader may delay or change a
scheduled rebalancing or reconstitution of the China Index or the implementation
of certain rules at its sole discretion.
The
ChiNext Index is a free-float adjusted index intended to track the performance
of the 100 largest and most liquid stocks listed and trading on the ChiNext
Market. The ChiNext Index is comprised of A-shares.
When
selecting constituent stocks for the ChiNext Index, Shenzhen Securities: (1)
calculates the daily average total market capitalization and daily average
trading value during the previous six months for all the stocks in the stock
universe; (2) ranks the stocks in the stock universe in descending order
according to daily average trading value and excludes the bottom 10%; and (3)
ranks the remaining stocks in descending order according to daily average total
market capitalization and selects those which rank in the top 100 as constituent
stocks of the ChiNext Index. The weighting of a company in the ChiNext Index is
intended to be a reflection of the current representativeness of that company in
the market as a whole.
The
periodic reviews are implemented semi-annually on the next trading day after
market closing of the second Friday in June and December. The number of new
constituents in each periodic review shall not exceed 10% of the total number of
index constituents. Announcements of periodic reviews are published two weeks
before implementation. Shenzhen Securities may delay or change a scheduled
rebalancing or reconstitution of the ChiNext Index or the implementation of
certain rules at its sole discretion.
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LICENSE
AGREEMENTS AND DISCLAIMERS |
The
Adviser has entered into a licensing agreement with MarketGrader to use the
China Index. The Fund is entitled to use the China Index pursuant to a
sub-licensing arrangement with the Adviser.
VanEck
China Growth Leaders ETF is not sponsored, endorsed, sold or promoted by
MarketGrader. MarketGrader's only relationship to Van Eck Associates Corporation
(“Licensee”) is the licensing of the China Index which is determined, composed
and calculated by MarketGrader and Solactive AG, as Index Calculation Agent,
without regard to Licensee. MarketGrader has no obligation to take the needs of
Licensee or the owners of the Fund into consideration in determining, composing
or calculating the China Index.
MARKETGRADER
SHALL NOT BE A PARTY TO THE TRANSACTION CONTEMPLATED HEREBY, AND IS NOT
PROVIDING ANY ADVICE, RECOMMENDATION, REPRESENTATION OR WARRANTY REGARDING THE
ADVISABILITY OF THIS TRANSACTION OR THE FUND OR THE ABILITY OF THE CHINA INDEX
TO TRACK INVESTMENT PERFORMANCE. MARKETGRADER HEREBY EXPRESSLY DISCLAIMS ALL
WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, REGARDING THIS TRANSACTION AND ANY
USE OF THE CHINA INDEX, INCLUDING BUT NOT LIMITED TO ALL IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR USE, AND NON-INFRINGEMENT
AND ALL WARRANTIES ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING AND
USAGE OF TRADE OR THEIR EQUIVALENTS UNDER THE LAWS OF ANY JURISDICTION. UNDER NO
CIRCUMSTANCES AND UNDER NO THEORY OF LAW, TORT, CONTRACT, STRICT LIABILITY OR
OTHERWISE, SHALL MARKETGRADER OR ANY OF ITS AFFILIATES BE LIABLE TO ANY PERSON
FOR ANY DAMAGES, REGARDLESS OF WHETHER THEY ARE DIRECT, INDIRECT, SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER, INCLUDING DAMAGES FOR
TRADING LOSSES OR LOST PROFITS, OR FOR ANY CLAIM OR DEMAND BY ANY THIRD PARTY,
EVEN IF MARKETGRADER KNEW OR HAD REASON TO KNOW OF THE POSSIBILITY OF SUCH
DAMAGES, CLAIM OR DEMAND.
The
China Index is not sponsored, promoted, sold or supported in any other manner by
Solactive AG nor does Solactive AG offer any express or implicit guarantee or
assurance either with regard to the results of using the China Index and/or the
Index Price at any time or in any other respect. The China Index is calculated
and published by Solactive AG. Solactive AG uses its best efforts to ensure that
the China Index is calculated correctly. Irrespective of its obligations towards
MarketGrader, Solactive AG has no obligation to point out errors in the China
Index to third parties including but not limited to investors and/or financial
intermediaries of the financial instrument. Neither publication of the China
Index by Solactive AG nor the licensing of the China Index or for the purpose of
use in connection with the financial instrument constitutes a recommendation by
Solactive AG to invest capital in said financial instrument nor does it in any
way represent an assurance or opinion of Solactive AG with regard to any
investment in this financial instrument.
The
information contained herein regarding the ChiNext Index was provided by
Shenzhen Securities Information Co., Ltd (the “Index Provider”).
Shares
of the VanEck ChiNext ETF are not sponsored, endorsed, sold or promoted by the
Shenzhen Securities. Shenzhen Securities makes no representation or warranty,
express or implied, to the owners of the Shares of VanEck ChiNext ETF or any
member of the public regarding the advisability of investing in securities
generally or in the Shares of the Fund particularly or the ability of the
ChiNext Index to track the performance of the securities markets. The ChiNext
Index is determined and composed by Shenzhen Securities without regard to the
Adviser or the Shares of the Fund. Shenzhen Securities has no obligation to take
the needs of the Adviser or the owners of the Shares of VanEck ChiNext ETF into
consideration in determining or composing the ChiNext Index. Shenzhen Securities
is not responsible for and has not participated in the determination of the
timing of, prices at, or quantities of the Shares of VanEck ChiNext ETF to be
issued or in the determination or calculation of the equation by which the
Shares of VanEck ChiNext ETF are to be converted into cash. Shenzhen Securities
has no obligation or liability in connection with the administration, marketing
or trading of the Shares of VanEck ChiNext ETF.
SHENZHEN
SECURITIES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
CHINEXT INDEX OR ANY DATA INCLUDED THEREIN AND SHENZHEN SECURITIES SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. SHENZHEN
SECURITIES MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED
BY THE ADVISER, OWNERS OF THE SHARES OF THE FUND, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE CHINEXT INDEX OR ANY DATA INCLUDED THEREIN. SHENZHEN
SECURITIES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE CHINEXT INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL SHENZHEN SECURITIES HAVE ANY LIABILITY FOR
ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The
S&P 500®
Index included in the Fund’s performance table is a product of S&P Dow Jones
Indices LLC and/or its affiliates and has been licensed for use by the Adviser.
Copyright© 2021 S&P Dow Jones Indices LLC, a division of S&P Global,
Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction
in whole or in part are prohibited without written permission of S&P Dow
Jones Indices LLC. For more information on any of S&P Dow Jones Indices
LLC’s indices please visit www.spdji.com. S&P®
is a registered trademark of S&P Global and Dow Jones®
is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P
Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor
their third party licensors make any
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LICENSE
AGREEMENTS AND DISCLAIMERS |
representation
or warranty, express or implied, as to the ability of any index to accurately
represent the asset class or market sector that it purports to represent and
neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their
affiliates nor their third party licensors shall have any liability for any
errors, omissions, or interruptions of any index or the data included
therein.
S&P
DOW JONES INDICES DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR
THE COMPLETENESS OF THE INDEX OR ANY DATA RELATED THERETO, OR ANY COMMUNICATION
INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING
ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL
NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS
THEREIN. S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX, OR WITH RESPECT TO ANY DATA
RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER
SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL,
PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO, LOSS OF
PROFITS, TRADING LOSSES, LOST TIME, OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY,
OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR
ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND THE ADVISER, OTHER THAN THE
LICENSORS OF S&P DOW JONES INDICES.
The
financial highlights tables which follow are intended to help you understand the
Funds’ 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 a Fund (assuming reinvestment of all dividends and
distributions).
The
information below has been audited by Ernst & Young LLP, the Trust’s
independent registered public accounting firm, whose report, along with the
Funds’ financial statements, are included in the Funds’ Annual Report, which is
available upon request.
For
a share outstanding throughout each year:
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China
Growth Leaders ETF |
|
Year
Ended December 31, |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
2017 |
|
Net
asset value, beginning of year |
$ |
46.83 |
|
|
$ |
42.14 |
|
|
$ |
31.58 |
|
|
$ |
48.37 |
|
|
$ |
37.08 |
|
|
Net
investment income (a) |
0.26 |
|
0.38 |
|
0.63 |
|
0.41 |
|
0.41 |
|
Net
realized and unrealized gain (loss) on investments |
(7.13) |
|
10.29 |
|
10.55 |
|
(14.35) |
|
11.40 |
|
Payment
from Adviser |
— |
|
0.05 |
(b) |
— |
|
— |
|
— |
|
Total
from investment operations |
(6.87) |
|
10.72 |
|
11.18 |
|
(13.94) |
|
11.81 |
|
Distributions
from: |
|
|
|
|
|
|
|
|
|
|
Net
investment income |
(0.36) |
|
(0.07) |
|
(0.62) |
|
(0.31) |
|
(0.52) |
|
Net
realized capital gains |
(1.65) |
|
|
(5.96) |
|
|
— |
|
|
(2.54) |
|
— |
|
|
Total
distributions |
(2.01) |
|
(6.03) |
|
(0.62) |
|
(2.85) |
|
(0.52) |
|
Net
asset value, end of year |
$ |
37.95 |
|
|
$ |
46.83 |
|
|
$ |
42.14 |
|
|
$ |
31.58 |
|
|
$ |
48.37 |
|
|
Total
return (c) |
(14.67) |
|
% |
25.95 |
|
%(b) |
35.40 |
|
% |
(28.79) |
|
% |
31.86 |
|
% |
Ratios
to average net assets |
|
|
|
|
|
|
|
|
|
|
Gross
expenses |
1.40 |
|
% |
1.27 |
|
% |
1.07 |
|
% |
1.17 |
|
% |
0.82 |
|
% |
Net
expenses |
0.60 |
|
% |
0.60 |
|
% |
0.61 |
|
% |
0.85 |
|
% |
0.78 |
|
% |
Net
expenses excluding interest expense (d) |
0.60 |
|
% |
0.60 |
|
% |
0.61 |
|
% |
0.72 |
|
% |
0.72 |
|
% |
Net
Investment Income |
0.57 |
|
% |
0.90 |
|
% |
1.60 |
|
% |
0.95 |
|
% |
0.96 |
|
% |
Supplemental
data |
|
|
|
|
|
|
|
|
|
|
Net
assets, end of year (in millions) |
$ |
27 |
|
|
$ |
52 |
|
|
$ |
67 |
|
|
$ |
54 |
|
|
$ |
94 |
|
|
Portfolio
turnover rate (e) |
59 |
|
% |
199 |
|
% |
42 |
|
% |
34 |
|
% |
37 |
|
% |
(a)Calculated
based upon average shares outstanding.
(b)For
the year ended December 31, 2020, 0.12% of total return, representing $0.05 per
share, consisted of a payment from the Adviser.
(c)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.
(d)Effective
January 10, 2019, the Fund includes interest expense in the calculation of the
expense limitation. The ratio only excludes interest expense accrued prior to
January 10, 2019 and not waived under the expense limit agreement.
(e)Portfolio
turnover rate excludes in-kind transactions.
For
a share outstanding throughout each year:
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|
ChiNext
ETF |
|
Year
Ended December 31, |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, beginning of year |
$ |
48.95 |
|
|
$ |
29.81 |
|
|
$ |
20.97 |
|
|
$ |
34.79 |
|
|
$ |
29.20 |
|
|
Net
investment income (loss) (a) |
(0.06) |
|
|
0.03 |
|
0.10 |
|
0.03 |
|
(0.01) |
|
Net
realized and unrealized gain (loss) on investments |
4.03 |
|
19.09 |
|
8.88 |
|
(13.85) |
|
5.67 |
|
Payment
from Adviser |
0.02 |
(b) |
0.02 |
(c) |
— |
|
— |
|
— |
|
Total
from investment operations |
3.99 |
|
19.14 |
|
8.98 |
|
(13.82) |
|
5.66 |
|
Distributions
from: |
|
|
|
|
|
|
|
|
|
|
Net
investment income |
— |
|
|
— |
|
(d) |
(0.14) |
|
|
— |
|
|
(0.07) |
|
Net
realized capital gains |
(3.74) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Return
of capital |
(0.73) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Total
distributions |
(4.47) |
|
|
— |
|
|
(0.14) |
|
|
— |
|
|
(0.07) |
|
|
Net
asset value, end of year |
$ |
48.47 |
|
|
$ |
48.95 |
|
|
$ |
29.81 |
|
|
$ |
20.97 |
|
|
$ |
34.79 |
|
|
Total
return (e) |
8.21 |
|
%(b) |
64.23 |
|
%(c) |
42.80 |
|
% |
(39.72) |
|
% |
19.37 |
|
% |
Ratios
to average net assets |
|
|
|
|
|
|
|
|
|
|
Gross
expenses |
0.89 |
|
% |
1.15 |
|
% |
1.08 |
|
% |
1.33 |
|
% |
1.38 |
|
% |
Net
expenses |
0.65 |
|
% |
0.65 |
|
% |
0.65 |
|
% |
0.82 |
|
% |
0.82 |
|
% |
Net
expenses excluding interest expense (f) |
0.65 |
|
% |
0.65 |
|
% |
0.65 |
|
% |
0.78 |
|
% |
0.78 |
|
% |
Net
investment income (loss) |
(0.12) |
|
% |
0.07 |
|
% |
0.39 |
|
% |
0.09 |
|
% |
(0.04) |
|
% |
Supplemental
data |
|
|
|
|
|
|
|
|
|
|
Net
assets, end of year (in millions) |
$41 |
|
|
$49 |
|
|
$30 |
|
|
$16 |
|
|
$23 |
|
|
Portfolio
turnover rate (g) |
59 |
|
% |
96 |
|
% |
43 |
|
% |
36 |
|
% |
34 |
|
% |
(a)Calculated
based upon average shares outstanding.
(b)For
the year ended December 31, 2021, 0.04% of total return, representing $0.02 per
share, consisted of a payment from the Adviser.
(c)For
the year ended December 31, 2020, 0.07% of total return, representing $0.02 per
share, consisted of a payment from the Adviser.
(d)Amount
represents less than $0.005 per share.
(e)Returns
include adjustments in accordance with U.S. Generally Accepted Accounting
Principles. Net asset values and returns for financial reporting purposes may
differ from those for shareholder transactions.
(f)Effective
January 10, 2019, the Fund includes interest expense in the calculation of the
expense limitation. The ratio only excludes interest expense accrued prior to
January 10, 2019 and not waived under the expense limit agreement.
(g)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 each Fund was
above (i.e., at a premium) or below (i.e., at a discount) the NAV of the Fund
for the most recently completed calendar year and the most recently completed
calendar quarter(s) since that year (or the life of the Fund, if shorter) can be
found at www.vaneck.com.
CONTINUOUS
OFFERING
The
method by which Creation Units are created and traded may raise certain issues
under applicable securities laws. Because new Creation Units are issued and sold
by the Trust on an ongoing basis, a “distribution,” as such term is used in the
Securities Act, may occur at any point. Broker dealers and other persons are
cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
manner which could render them statutory underwriters and subject them to the
prospectus delivery and liability provisions of the Securities Act.
For
example, a broker dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with the
Distributor, breaks them down into constituent Shares, and sells such Shares
directly to customers, or if it chooses to couple the creation of a supply of
new Shares with an active selling effort involving solicitation of secondary
market demand for Shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a categorization
as an underwriter.
Broker
dealers who are not “underwriters” but are participating in a distribution (as
contrasted to ordinary secondary trading transactions), and thus dealing with
Shares that are part of an “unsold allotment” within the meaning of Section
4(a)(3)(C) of the Securities Act, would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act.
This is because the prospectus delivery exemption in Section 4(a)(3) of the
Securities Act is not available in respect of such transactions as a result of
Section 24(d) of the 1940 Act. As a result, broker dealer firms should note that
dealers who are not underwriters but are participating in a distribution (as
contrasted with ordinary secondary market transactions) and thus dealing with
the Shares that are part of an overallotment within the meaning of Section
4(a)(3)(A) of the Securities Act would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act.
Firms that incur a prospectus delivery obligation with respect to Shares are
reminded that, under Rule 153 of the Securities Act, a prospectus delivery
obligation under Section 5(b)(2) of the Securities Act owed to an exchange
member in connection with a sale on an Exchange is satisfied by the fact that
the prospectus is available at an 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 Funds and the Adviser may purchase and
resell Fund shares pursuant to this Prospectus.
OTHER
INFORMATION
The
Trust was organized as a Delaware statutory trust on March 15, 2001. Its
Declaration of Trust currently permits the Trust to issue an unlimited number of
Shares of beneficial interest. If shareholders are required to vote on any
matters, each Share outstanding would be entitled to one vote. Annual meetings
of shareholders will not be held except as required by the 1940 Act and other
applicable law. See the Funds’ SAI for more information concerning the Trust’s
form of organization. Section 12(d)(1) of the 1940 Act restricts investments by
investment companies in the securities of other investment companies, including
Shares of a Fund. Registered investment companies are permitted to invest in the
Funds 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 the Funds.
The
Prospectus, SAI and any other Fund communication do not create any contractual
obligations between the Funds’ shareholders and the Trust, the Funds, the
Adviser and/or the Trustees. Further, shareholders are not intended third party
beneficiaries of any contracts entered into by (or on behalf of) any 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 Funds. Ernst & Young LLP
serves as the Trust’s independent registered public accounting firm and will
audit the Fund’s financial statements annually.
ADDITIONAL
INFORMATION
This
Prospectus does not contain all the information included in the Registration
Statement filed with the SEC with respect to the Funds’ Shares. The Funds’
Registration Statement, including this Prospectus, the Funds’ 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 Funds, which has been filed with the SEC, provides more information
about the Funds. The SAI for the Funds is incorporated herein by reference and
is legally part of this Prospectus. Additional information about the Funds’
investments is available in each Fund’s annual and semi-annual reports to
shareholders. In each 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 Funds’ annual
and semi-annual reports may be obtained without charge by writing to the Funds
at Van Eck Securities Corporation, the Funds’ 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 Funds in writing to 666 Third Avenue, 9th
Floor, New York, New York 10017 or by calling 800.826.2333.
The
Funds’ SAI is available at www.vaneck.com.
(Investment
Company Act file no. 811-10325)
For
more detailed information about the Funds, see the SAI dated May 1, 2022, as may
be supplemented from time to time. Additional information about each of the
Funds’ investments is or will be available in each Fund’s annual and semi-annual
reports to shareholders. In each Fund’s annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected each 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 Funds or to make shareholder
inquiries. You may also obtain the SAI or a Fund’s annual or semi-annual
reports, by visiting the VanEck website at www.vaneck.com.
Reports
and other information about the Funds are available on the EDGAR Database on the
SEC’s internet site at http://www.sec.gov. In addition, copies of this
information may be obtained, after paying a duplicating fee, by electronic
request at the following email address: [email protected].
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Transfer
Agent: State Street Bank and Trust Company SEC Registration Number:
333-123257 1940 Act Registration Number: 811-10325 |
800.826.2333 vaneck.com |
CHINAPRO |
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