ck0001432353-20221031
Global X MSCI Emerging
Markets Covered Call ETF
NYSE
Arca: EMCC
Prospectus
October
24, 2023
The
Securities and Exchange Commission ("SEC") has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
Shares
in the Fund (defined below) are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other agency of the U.S. Government, nor are shares
deposits or obligations of any bank. Such shares in the Fund involve investment
risks, including the loss of principal.
TABLE
OF CONTENTS
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FUND
SUMMARY |
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ADDITIONAL
INFORMATION ABOUT THE FUND |
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A
FURTHER DISCUSSION OF PRINCIPAL RISKS |
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A
FURTHER DISCUSSION OF OTHER RISKS |
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PORTFOLIO
HOLDINGS INFORMATION |
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FUND
MANAGEMENT |
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DISTRIBUTOR |
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BUYING
AND SELLING FUND SHARES |
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FREQUENT
TRADING |
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DISTRIBUTION
AND SERVICE PLAN |
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DIVIDENDS
AND DISTRIBUTIONS |
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TAXES |
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DETERMINATION
OF NET ASSET VALUE |
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PREMIUM/DISCOUNT
AND SHARE INFORMATION |
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INFORMATION
REGARDING THE INDEX AND THE INDEX PROVIDER |
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OTHER
SERVICE PROVIDERS |
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ADDITIONAL
INFORMATION |
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FINANCIAL
HIGHLIGHTS |
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OTHER
INFORMATION |
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Global
X MSCI Emerging Markets Covered Call ETF
Ticker:
EMCC Exchange: NYSE Arca
INVESTMENT
OBJECTIVE
The
Global X MSCI Emerging Markets Covered Call ETF ("Fund") seeks to provide
investment results that correspond generally to the price and yield performance,
before fees and expenses, of the Cboe MSCI Emerging Markets IMI BuyWrite Index
("Underlying Index").
FEES AND
EXPENSES
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares (“Shares”) of the Fund. 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.
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment):
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Management
Fees: |
0.60% |
Distribution
and Service (12b-1) Fees: |
None |
Other
Expenses:1 |
0.00% |
Acquired
Fund Fees and Expenses:2 |
0.09% |
Total
Annual Fund Operating Expenses: |
0.69% |
Expense
Reimbursement and/or Fee Waiver:3 |
(0.09)% |
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense
Reimbursement: |
0.60% |
1
Other Expenses are based
on estimated amounts for the current fiscal
year.
2
“Acquired Fund Fees
and Expenses” sets forth the Fund’s pro rata portion of the cumulative expenses
charged by the exchange-traded funds and other investment companies in which the
Fund invests. These expenses are calculated based on the Fund’s portfolio
holdings during the prior fiscal period. The actual Acquired Fund Fees and
Expenses will vary with changes in the allocations of the Fund’s assets. Total
annual fund operating expenses do not correlate with the ratios of expenses to
average net assets reported in the financial highlights tables in the Fund’s
Prospectus and in the Fund’s shareholder reports, which reflect the Fund’s
operating expenses and do not include acquired fund fees and
expenses.
3
Pursuant to an Expense
Limitation Agreement, the Adviser has contractually agreed to reimburse or waive
fees and/or limit Fund expenses to the extent necessary to assure that the
operating expenses of the Fund (exclusive of taxes, brokerage fees, commissions,
and other transaction expenses, interest, and extraordinary expenses (such as
litigation and indemnification expenses)) will not exceed 0.60% of the Fund's
average daily net assets per year, effective September 24,
2023 until at least March 1, 2025.
Example:
The following 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 customary
brokerage commissions that you pay when purchasing or selling Shares of the Fund
in the secondary market. The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell all of your
Shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
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One
Year |
Three
Years |
$61 |
$212 |
Portfolio
Turnover:
The Fund pays transaction costs, such as commissions, when it buys
and sells securities (or "turns over" its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the example, affect the Fund's
performance. This is a new fund and does not yet have a portfolio turnover rate
to disclose.
PRINCIPAL INVESTMENT
STRATEGIES
The Fund invests at least 80% of its net assets, plus
borrowings for investment purposes (if any), in the securities of the Cboe MSCI
Emerging Markets IMI BuyWrite Index (the "Underlying Index") or in investments
that are substantially identical to
such
component securities, either individually or in the aggregate. The Fund's 80%
investment policy is non-fundamental and requires 60 days prior written notice
to shareholders before it can be changed.
The
Underlying Index measures the performance of a theoretical portfolio that
employs a covered call strategy. A covered call strategy is generally considered
to be an investment strategy in which an investor buys a security, and "writes"
(or sells) a call option on that security in an attempt to generate more income.
Each time a fund writes a covered call option, the fund receives a payment of
money from the investor who buys the option from the fund, which is called the
premium. If the fund's value declines because of a decline in the value of a
reference index, the premium that the fund received for writing the covered call
option offsets this loss to some extent. The Underlying Index’s covered call
strategy buys the underlying securities of a reference index and “writes” (or
sells) covered call options on the underlying securities of a reference fund.
Specifically, the Underlying Index holds a theoretical portfolio of the
underlying securities of the MSCI Emerging Markets Investable Market Index (the
“Reference Index”) and "writes" (or sells) a succession of one-month
at-the-money (“ATM”) covered call options on the iShares Core MSCI Emerging
Markets ETF (“Reference Fund”), or such other fund that seeks to track the
performance of the Reference Index, as determined by the Index Provider. The
call options written (sold) by the Fund will be FLexible EXchange (“FLEX”)
options. The Fund invests in the securities reflected in the Underlying Index or
in investments (including other underlying ETFs) that are substantially
identical to such component securities and cannot invest directly in the
Underlying Index itself. The implications of the written (sold) FLEX call
options are described in more detail here:
Call
Options
– When the Fund sells a call option, the Fund receives a premium in exchange for
an obligation to sell shares of a reference asset at a strike price on the
expiration date if the buyer of the call option exercises it. If the reference
asset closes above the strike price as of the expiration date and the buyer
exercises the call option, the Fund will have to pay the difference between the
value of the reference asset and the strike price. If the reference asset closes
below the strike price as of the expiration date, the call option may end up
worthless and the Fund retains the premium.
FLEX
Options
– FLEX options are options guaranteed by the Options Clearing Corporation (OCC),
that allow investors to customize key contract terms, including expiration date,
exercise style, exercise price, and expanded position limits.
On
a monthly basis, the Underlying Index’s hypothetical portfolio will write (sell)
a succession of one-month FLEX call options on the Reference Fund corresponding
to approximately 100% of the value of the securities in the Reference Index, and
will cover such options by holding investments (including other underlying ETFs)
that are substantially identical to such component securities. The exercise
price of each FLEX call option written is the listed option reference price
closest to the Volume Weighted Average Price (“VWAP”) of the Reference Fund from
12:59 p.m. ET to 1:00 p.m. ET on the roll date or, if the Reference Fund does
not trade during this period, the last mid-price of the Reference Fund before
1:00 p.m. ET. The roll date is a specified day of each month when the open call
options position of the Underlying Index is liquidated, and a new call option
position is opened that will expire as of the next roll date. The roll date for
the Underlying Index is the business day prior to the standard monthly listed
option expiry date, the latter typically being the third Friday of each month.
Each option position will (i) be held until one day prior to the expiration date
(i.e., generally the Thursday preceding the third Friday of the month) and
liquidated at a price determined at 2:00p.m. ET; (ii) expire on its date of
maturity (in the next calendar month); and (iii) only be subject to exercise on
its expiration date. Because FLEX options may not trade regularly, the
Underlying Index will utilize a model-based valuation for the FLEX options that
references the quoted prices for listed options on the Reference
Fund.
In
seeking to track the Underlying Index, the Fund follows a "buy-write" investment
strategy on the Reference Index in which the Fund purchases investments
(including other underlying ETFs) that are substantially identical to the
Reference Index and also writes (or sells) call options on the Reference Fund
that correspond to approximately 100% of the value of securities in the
Reference Index. The
call options sold by the Fund will be collateralized by the Fund's equity
holdings at the time the Fund sells the options.
If
the price of the Reference Fund is above the strike price of the Fund’s call
options positions upon the closing out of the call option, then the Fund would
owe the purchaser of the call option the difference between the strike price and
the value of the Reference Fund, so the amount owed with respect to the call
option would offset any gains the Fund may experience from the securities held.
For example, if the price of the Reference Fund were to increase by 15% from the
time the call options were sold to the time the call options were closed out,
then the call options would be expected to have a value equal to approximately
15% of the value the portfolio had at the time when the call options were sold,
which would offset approximately all of the Fund’s gains from the increase in
the Reference Index over the relevant period, as long as the performance of the
Reference Fund generally corresponds to the performance of the Reference Index.
However, if the price of the Reference Fund is below the strike price of the
Fund’s call options positions when closed out, the call options will be
worthless and the Fund will retain the premium. An investor that purchases Fund
shares other than on the day that the Fund writes (sells) monthly call options,
or who sells shares other than on the day that the call options are closed out,
may experience different investment returns, depending on the relative
difference between the strike price of the Fund’s call options positions,
and
the price of the Reference Fund.
In
return for the payment of a premium to the Fund, a purchaser of the call options
written by the Fund is entitled to receive a cash payment from the Fund equal to
the difference between the value of the Reference Fund and the exercise price of
the option if the value of the option on the expiration date is above its
exercise price. The Fund's covered call options may partially protect the Fund
from loss associated with a decline in the price of the Reference Index through
means of the premiums received by the Fund. However, when the equity market is
rallying rapidly, the Underlying Index is expected to underperform the Reference
Index.
The
Reference Index is an equity benchmark which measures the performance of the
large, mid and small-capitalization equity market across Emerging Markets, as
defined by MSCI, Inc. (the “Index Provider”). The Reference Index is a free
float-adjusted market capitalization weighted index that includes securities
classified as Emerging Markets according to the Index Provider, which screens
companies using size, liquidity and other criteria in order to determine the
investable universe. As of August 31, 2023, the Reference Index’s largest
exposures were to constituents with material exposure to China, India and
Taiwan, and to constituents representing the financials and information
technology sectors.
The
Underlying Index is sponsored by the Index Provider, which is an organization
that is independent of, and unaffiliated with, the Fund and Global X Management
Company LLC, the investment adviser for the Fund ("Adviser"). The Index Provider
determines the relative weightings of the securities in the Underlying Index and
publishes information regarding the market value of the Underlying
Index.
The
Adviser uses a "passive" or indexing approach to try to achieve the Fund's
investment objective. Unlike many investment companies, the Fund does not try to
outperform the Underlying Index and does not seek temporary defensive positions
when markets decline or appear overvalued.
The
Fund generally uses a representative sampling strategy with respect to the
Underlying Index. "Representative sampling" is an indexing strategy that
involves investing in a representative sample of securities (including indirect
investments through underlying ETFs) that collectively has an investment profile
similar to the Underlying Index in terms of key risk factors, performance
attributes and other characteristics. Underlying ETFs may constitute a
substantial portion of the Fund's assets. These include country weightings,
market capitalization and other financial characteristics of securities. Under
normal circumstances, at least 80% of the Fund's total assets will be invested
in component securities of the Underlying Index or in investments that are
substantially identical to such component securities, either individually or in
the aggregate. The Adviser expects that, over time, the correlation between the
Fund's performance and that of the Underlying Index, before fees and expenses,
will exceed 95%. A correlation percentage of 100% would indicate perfect
correlation.
The
Fund concentrates its investments (i.e., holds 25% or more of its total assets)
in a particular industry or group of industries to approximately the same extent
that the Underlying Index is concentrated. As of August 31, 2023, the Underlying
Index was not concentrated in any industry or
sector.
SUMMARY OF PRINCIPAL
RISKS
As with any investment, you
could lose all or part of your investment in the Fund, and the Fund's
performance could trail that of other investments. There is no
guarantee that the Fund will achieve its investment objective. An
investment in the Fund is not a bank deposit and it is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency, the
Adviser or any of its affiliates. The Fund is subject to the
principal risks noted below, any of which may adversely affect the Fund's net
asset value ("NAV"), trading price, yield, total return and ability to meet its
investment objective, as well as other risks that are described in greater
detail in the Additional
Information About the Fund
section of this Prospectus and in the Statement of Additional Information
("SAI"). The order of the below risk factors does not indicate the significance
of any particular risk factor.
Asset
Class Risk:
Securities and other assets in the Underlying Index or otherwise held in the
Fund's portfolio may underperform in comparison to the general securities
markets, a particular securities market or other asset classes.
Derivatives
Risk: The
Fund will invest in options, a type of derivative instrument. Derivatives can be
more sensitive to changes in interest rates or to sudden fluctuations in market
prices than conventional securities, which can result in greater losses for the
Fund. In addition, the prices of the derivative instruments and the prices of
underlying securities, interest rates or currencies they are designed to reflect
may not move together as expected. A risk of the Fund’s use of derivatives is
that the fluctuations in their values may not correlate perfectly with the
relevant reference index. Derivatives are usually traded on margin, which may
subject the Fund to margin calls. Margin calls may force the Fund to liquidate
assets.
Equity
Securities Risk:
Equity securities are subject to changes in value, and their values may be more
volatile than other asset classes, as a result of such factors as a company’s
business performance, investor perceptions, stock market trends and general
economic conditions.
ETF
Investment Risk:
The Fund is expected to primarily hold ETFs to gain exposure to certain asset
classes. As a result, the Fund will be subject to the same risks as the
underlying ETFs. While the risks of owning shares of an underlying ETF generally
reflect the risks of owning the underlying securities of the index the ETF is
designed to track, lack of liquidity in the underlying ETF can result in its
value being more volatile than the underlying portfolio securities. Because the
value of an underlying ETF's shares depends on the demand in the market, the
Adviser may not be able to liquidate the Fund’s holdings in those shares at the
most optimal time, thereby adversely affecting the Fund’s performance. An
underlying ETF may experience tracking error in relation to the index tracked by
the underlying ETF, which could contribute to tracking error for the Fund. In
addition, an underlying ETF's shares may trade at a premium or discount to NAV.
In
addition, investments in the securities of underlying ETFs may involve
duplication of advisory fees and certain other expenses. The Fund will pay
brokerage commissions in connection with the purchase and sale of shares of the
underlying ETFs, which could result in greater expenses to the Fund. By
investing in an underlying ETF, the Fund becomes a shareholder thereof. As a
result, Fund shareholders indirectly bear the Fund’s proportionate share of the
fees and expenses indirectly paid by shareholders of the underlying ETF, in
addition to the fees and expenses Fund shareholders indirectly bear in
connection with the Fund’s own operations.
If
the underlying ETF fails to achieve its investment objective, the value of the
Fund’s investment may decline, adversely affecting the Fund’s performance.
Additionally, some ETFs are not registered under the Investment Company Act of
1940 (“1940 Act”) and therefore, are not subject to the regulatory scheme and
investor protections of the 1940 Act.
Capitalization
Risk:
Investing in issuers within the same market capitalization category carries the
risk that the category may be out of favor due to current market conditions or
investor sentiment.
Large-Capitalization
Companies Risk: Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Mid-Capitalization
Companies Risk: Mid-capitalization
companies may have greater price volatility, lower trading volume and less
liquidity than large-capitalization companies. In addition, mid-capitalization
companies may 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.
Small-Capitalization
Companies Risk:
Compared to mid- and large-capitalization companies, small-capitalization
companies may be less stable and more susceptible to adverse developments, and
their securities may be more volatile and less liquid.
Covered
Call Option Writing Risk:
By writing covered call options in return for the receipt of premiums, the Fund
will give up the opportunity to benefit from potential increases in the value of
the Reference Index above the exercise prices of such options, but will continue
to bear the risk of declines in the value of the Reference Index. The premiums
received from the options may not be sufficient to offset any losses sustained
from the volatility of the underlying stocks over time. As a result, the risks
associated with writing covered call options may be similar to the risks
associated with writing put options. In addition, the Fund’s ability to sell the
securities underlying the options will be limited while the options are in
effect unless the Fund cancels out the option positions through the purchase of
offsetting identical options prior to the expiration of the written options.
Exchanges may suspend the trading of options in volatile markets. If trading is
suspended, the Fund may be unable to write options at times that may be
desirable or advantageous to do so, which may increase the risk of tracking
error.
Currency
Risk:
The Fund may invest in underlying ETF(s), which are expected to invest in
securities denominated in foreign currencies. Because the Fund's NAV is
determined in U.S. dollars, the Fund's NAV could decline if currencies of the
underlying securities depreciate against the U.S. dollar or if there are delays
or limits on repatriation of such currencies. Currency exchange rates can be
very volatile and can change quickly and unpredictably. As a result, the Fund's
NAV may change quickly and without warning, which could have a significant
negative impact on the Fund.
Focus
Risk:
To the extent that the Underlying Index focuses in investments related to a
particular industry or group of industries, the Fund will also focus its
investments to approximately the same extent. Similarly, if the Underlying Index
has significant exposure to one or more sectors, the Fund’s investments will
likely have significant exposure to such sectors. In such event, the Fund’s
performance will be particularly susceptible to adverse events impacting such
industry or sector, which may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively
affect supply and demand; competition for resources; adverse labor relations;
political or world events; obsolescence of technologies; and increased
competition or new product introductions that may affect the profitability or
viability of companies in a particular industry or sector. As a result, the
value of the Fund’s investments may rise and fall more than the value of shares
of a fund that invests in securities of companies in a broader range of
industries or sectors.
Geographic
Economic Exposure Risk: The
underlying ETF(s) in which the Fund invests may hold constituents which may have
partners, suppliers and/or customers located in various geographic regions, and
the geographic regions in which Fund constituents are located may have trading
partners in other geographic regions. As a result, an economic downturn in one
or more of these regions may impact the performance of the constituents in which
the Fund invests, even if the Fund does not invest directly in companies located
in such region. The risks related to such regions may include:
Asian
Economic Risk: Many
Asian economies have experienced rapid growth and industrialization in recent
years, but there is no assurance that this growth rate will be maintained. Other
Asian economies, however, have experienced high inflation, high unemployment,
currency devaluations and restrictions, and over-extension of credit.
Geopolitical hostility, political instability, as well as economic or
environmental events in any one Asian country may have a significant economic
effect on the entire Asian region, as well as on major trading partners outside
Asia. Any adverse event in the Asian markets may have a significant adverse
effect on some or all of the economies of the countries in which the Fund
invests. Many Asian countries are subject to political risk, including political
instability, corruption and regional conflict with neighboring countries. Hong
Kong is currently administered as a Special Administrative Region under the
sovereignty of the People’s Republic of China, but pro-independence sentiment
and political dissatisfaction towards China have resulted and may continue to
result in widespread protests. In 2020, China passed the National Security Law
in Hong Kong, which tightened political freedoms and heightens risk for any
businesses or individuals that express pro-independence views. North Korea and
South Korea each have substantial military capabilities, and historical tensions
between the two countries present the risk of war. Escalated tensions involving
the two countries and any outbreak of hostilities between the two countries, or
even the threat of an outbreak of hostilities, could have a severe adverse
effect on the entire Asian region. Maritime disputes in the South China Sea are
complex and involve conflicting claims by China, Brunei, Indonesia, Malaysia,
the Philippines, Taiwan and Vietnam, and there is a risk that these disputes
could escalate into armed conflict between any of the aforementioned countries.
Furthermore, there are numerous disputes over islands in East Asia that pose
security risks, including but not necessarily limited to the Liancourt Rocks
dispute between Japan and Korea, the Senkaku/Diaoyu Islands dispute between
China and Japan, and the Kuril Islands dispute between Japan and Russia.
Although Taiwan currently has a government that is separate from that of the
People’s Republic of China, the PRC lays claim to Taiwan and has enacted
legislation mandating military invasion should Taiwan’s government formally
declare independence. China may also choose to launch an invasion of Taiwan even
without the Taiwanese government formally declaring independence and there is a
high risk that such a conflict would draw in other actors such as the United
States and Japan. In response to the elevated risk of conflict in Taiwan, in
2022 the government of Japan moved to dramatically raise its defense budget and
lift longstanding restrictions on obtaining missiles with strike capabilities.
Certain Asian countries have also developed increasingly strained relationships
with the U.S., and if these relations were to worsen, they could adversely
affect Asian issuers that rely on the U.S. for trade. In addition, many Asian
countries are subject to social and labor risks associated with demands for
improved political, economic and social conditions.
European
Economic Risk: The
economies of Europe are highly dependent on each other, both as key trading
partners and, in many cases, as fellow members maintaining the euro. Decreasing
European imports, new trade regulations, changes in exchange rates, a recession
in Europe, or a slowing of economic growth in this region could have an adverse
impact on the securities in which the Fund invests. Reduction in trading
activity among European countries may cause an adverse impact on each nation’s
individual economies. The Economic and Monetary Union of the European Union (the
“EU”) requires compliance with restrictions on inflation rates, deficits,
interest rates, debt levels and fiscal and monetary controls, each of which may
significantly affect every country in Europe, including those countries that are
not members of the EU. Decreasing imports or exports, changes in governmental or
EU regulations on trade, changes in the exchange rate of the euro, the default
or threat of default by an EU member country on its sovereign debt, and
recessions in an EU member country may have a significant adverse effect on the
economies of EU member countries and their trading partners. The European
financial markets have historically experienced volatility and adverse trends
due to concerns about economic downturns or rising government debt levels in
several European countries, including, but not limited to, Austria, Belgium,
Cyprus, France, Greece, Ireland, Italy, Portugal,
Spain
and Ukraine. These events have adversely affected the exchange rate of the euro
and may continue to significantly affect European countries.
Responses
to financial problems by European governments, central banks and others,
including austerity measures and reforms, may not produce the desired results,
may result in social unrest, may limit future growth and economic recovery or
may have other unintended consequences. Further defaults or restructurings by
governments and other entities of their debt could have additional adverse
effects on economies, financial markets and asset valuations around the world.
In addition, one or more countries may abandon the euro and/or withdraw from the
EU. In a referendum held on June 23, 2016, the United Kingdom resolved to leave
the European Union, which departure has become known as “Brexit”. Brexit
introduced significant uncertainties and instability in the financial markets as
the United Kingdom negotiated its departure from the European Union. The United
Kingdom officially stopped being a member of the European Union on January 31,
2020. Prior to the end of the “transition period” for Brexit, the European Union
and the United Kingdom ratified the EU-UK Trade and Cooperation Agreement (TCA),
which lays out the terms of the United Kingdom's future cooperation with the
European Union. The political, economic and legal consequences of Brexit and the
TCA are not yet fully known. Secessionist movements, such as the Catalan
movement in Spain and the independence movement in Scotland, as well as
governmental or other responses to such movements, may also create instability
and uncertainty in the region. In addition, the national politics of countries
in the EU have been unpredictable and subject to influence by varying political
groups and ideologies. The governments of EU countries may be subject to change
and such countries may experience social and political unrest. Unanticipated or
sudden political or social developments may result in sudden and significant
investment losses. The occurrence of terrorist incidents throughout Europe also
could impact financial markets. The impact of these events is not clear but
could be significant and far-reaching and could adversely affect the value and
liquidity of the Fund’s investments.
Economies
of certain Eastern European countries rely heavily on the export of commodities,
including oil and gas, and certain metals. As a result, such economies will be
impacted by international commodity prices and are particularly vulnerable to
global demand for these products. Acts of terrorism in certain Eastern European
countries may cause uncertainty in their financial markets and adversely affect
the performance of the issuers to which the Fund has exposure. The securities
markets in Eastern European countries are substantially smaller and
inexperienced, with less government supervision and regulation of stock
exchanges and are less liquid and more volatile than securities markets in the
United States or Western European countries. Other risks related to the
economies of Eastern European include: the absence of legal structures governing
private and foreign investments and private property; the possibility of
expropriation; certain national policies which may restrict the capital market
activity, including, without limitation, restrictions on investing in issuers or
industries deemed sensitive to relevant national interests.
North
American Economic Risk: A
decrease in imports or exports, changes in trade regulations or an economic
recession in any North American country can have a significant economic effect
on the entire North American region and on some or all of the North American
countries to which the Fund has economic exposure. The U.S. is Canada's and
Mexico's largest trading and investment partner. The Canadian and Mexican
economies are significantly affected by developments in the U.S. economy. Since
the implementation of the North American Free Trade Agreement (“NAFTA”) in 1994
among Canada, the U.S. and Mexico, total merchandise trade among the three
countries has increased. However, political developments in the U.S., including
the renegotiation of NAFTA and imposition of tariffs by the U.S., may have
implications for the trade arrangements among the U.S., Mexico and Canada, which
could negatively affect the value of securities held by the Fund. Policy and
legislative changes in any of the three countries may have a significant effect
on North American economies generally, as well as on the value of certain
securities held by the Fund.
Geographic
Risk: A
natural, biological or other disaster could occur in a geographic region in
which the Fund invests, which could affect the economy or particular business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in the affected region or in a region
economically tied to the affected region. The securities in which the Fund
invests and, consequently, the Fund are also subject to specific risks as a
result of their business operations, including, but not limited to:
Risk
of Investing in Brazil: Investment
in Brazilian issuers involves risks that are specific to Brazil, including
legal, regulatory, political and economic risks. The Brazilian economy has
historically been exposed to high rates of inflation, debt, corruption, and
violence, each of which may reduce and/or prevent economic growth.
Risk
of Investing in China:
Investment exposure to China subjects the Fund to risks specific to China.
Economic,
Political and Social Risk
China
may be subject to considerable degrees of economic, political and social
instability. Concerns about the rising government and household debt levels
could impact the stability of the Chinese economy. China is an emerging market
and demonstrates significantly higher volatility from time to time in comparison
to developed markets. Over the last few decades, the Chinese government has
undertaken reform of economic and market practices, including recent reforms to
liberalize its capital markets and expand the sphere for private ownership of
property in China. However, Chinese markets generally continue to experience
inefficiency, volatility and pricing anomalies resulting from governmental
influence, a lack of publicly available information and/or political and social
instability. Chinese companies are also subject to the risk that Chinese
authorities can intervene in their operations and structure. Internal social
unrest or confrontations with other neighboring countries, including military
conflicts in response to such events, may also disrupt economic development in
China and result in a greater risk of currency fluctuations, currency
convertibility, interest rate fluctuations and higher rates of inflation.
China
has experienced major health crises. These health crises include, but are not
limited to, the rapid and pandemic spread of novel viruses commonly known as
SARS, MERS, and COVID-19 (Coronavirus). Such health crises could exacerbate
political, social, and economic risks previously mentioned.
Export
growth continues to be a major driver of China’s rapid economic growth. Elevated
trade tensions between China and its trading partners, including the imposition
of U.S. tariffs on certain Chinese goods and increased international pressure
related to Chinese trade policy and forced technology transfers and intellectual
property protections, may have a substantial impact on the Chinese economy.
Reduction in spending on Chinese products and services, institution of
additional tariffs or other trade barriers (including as a result of heightened
trade tensions between China and the U.S. or in response to actual or alleged
Chinese cyber activity), or a downturn in any of the economies of China’s key
trading partners may have an adverse impact on the Chinese economy. The
continuation or worsening of the current political climate between China and the
U.S. could result in additional regulatory restrictions being contemplated or
imposed in the U.S. or in China that could impact the Fund’s ability to invest
in certain companies.
Security
Risk
China
has experienced security concerns, such as terrorism and strained international
relations. Additionally, China is alleged to have participated in
state-sponsored cyberattacks against foreign companies and foreign governments.
Actual and threatened responses to such activity, including purchasing
restrictions, sanctions, tariffs or cyberattacks on the Chinese government or
Chinese companies, may impact China’s economy and Chinese issuers of securities
in which the Fund invests. Incidents involving China’s or the region’s security,
including the contagion of infectious viruses or diseases, may cause uncertainty
in Chinese markets and may adversely affect the Chinese economy and the Fund’s
investments.
Heavy
Government Control and Regulation
Chinese
companies, including Chinese companies that are listed on U.S. exchanges, are
not subject to the same degree of regulatory requirements, accounting standards
or auditor oversight as companies in more developed countries, and as a result,
information about the Chinese securities in which the Fund invests may be less
reliable or complete. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against Chinese
companies and shareholders may have limited legal remedies. Investments in China
may be subject to loss due to expropriation or nationalization of assets and
property or the imposition of restrictions on foreign investments and
repatriation of capital. Furthermore, government actions against leaders or
other key figures within companies, or speculation about such actions, may lead
to sudden and unpredictable falls in the value of securities within the
Fund.
Tax
Risk
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 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 the 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.
Special
Risk Considerations of Investing in China – Variable Interest Entity
Investments
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the Chinese government restricts foreign
ownership to raise capital from foreign investors. While the shell company has
no equity ownership of the VIE, these contractual arrangements permit the shell
company to consolidate the VIE’s financial statements with its own for
accounting purposes and provide for
economic
exposure to the performance of the underlying Chinese operating
company.
Therefore,
an investor in the listed shell company, such as the Fund, will have exposure to
the Chinese-based operating company only through contractual arrangements and
has no ownership in the Chinese-based operating company. Furthermore, because
the shell company only has specific rights provided for in these service
agreements with the VIE, its abilities to control the activities at the
Chinese-based operating company are limited and the operating company may engage
in activities that negatively impact investment value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or forfeiture of ownership interest. In addition, the listed
shell company’s control over a VIE may also be jeopardized if a natural person
who holds the equity interest in the VIE breaches the terms of the agreement, is
subject to legal proceedings or if any physical instruments for authenticating
documentation, such as chops and seals, are used without the Chinese-based
issuer’s authorization to enter into contractual arrangements in China. Chops
and seals, which are carved stamps used to sign documents, represent a legally
binding commitment by the company. Moreover, any future regulatory action may
prohibit the ability of the shell company to receive the economic benefits of
the Chinese-based operating company, which may cause the value of the Fund’s
investment in the listed shell company to suffer a significant loss. For
example, in 2021, the Chinese government prohibited use of the VIE structure for
investment in after-school tutoring companies. There is no guarantee that the
Chinese government will not place similar restrictions on other
industries.
Chinese
equities that utilize the VIE structure to list in the U.S. as ADRs face the
risk of regulatory action from U.S. authorities, including the risk of
delisting. This will depend in part on whether U.S. regulatory authorities are
satisfied with their access to mainland China and Hong Kong for the purpose of
conducting inspections on the quality of audits for these companies. Although
the U.S. and China reached an agreement in September 2022 to grant the U.S.
access for such inspections, there is no guarantee that the agreement will be
enforced or that U.S. regulatory authorities will continue to feel satisfied
with their access.
Risk
of Investing in Emerging Markets: Investments
in emerging markets may be subject to a greater risk of loss than investments in
developed markets. Securities markets of emerging market countries are less
liquid, subject to greater price volatility, have smaller market
capitalizations, have less government regulation, and are not subject to as
extensive and frequent accounting, financial, and other reporting requirements
as the securities markets of more developed countries, and there may be greater
risk associated with the custody of securities in emerging markets. It may be
difficult or impossible for the Fund to pursue claims against an emerging market
issuer in the courts of an emerging market country.
There
may be significant obstacles to obtaining information necessary for
investigations into or litigation against emerging market companies and
shareholders may have limited legal rights and remedies. Emerging markets may be
more likely to experience inflation, political turmoil and rapid changes in
economic conditions than more developed markets. Emerging market economies’
exposure to specific industries, such as tourism, and lack of efficient or
sufficient health care systems, could make these economies especially vulnerable
to global crises, including but not limited to, pandemics such as the global
COVID-19 pandemic. Certain emerging market countries may have privatized, or
have begun the process of privatizing, certain entities and industries.
Privatized entities may lose money or be re-nationalized.
Risk
of Investing in India:
Political and legal uncertainty, greater government control over the economy,
currency fluctuations or blockage, relatively underdeveloped securities markets
and the risk of nationalization or expropriation of assets may result in higher
potential for losses for investments in Indian securities.
Risk
of Investing in South Korea: Investments
in South Korean issuers may subject the Fund to legal, regulatory, political,
currency, security, and economic risks that are specific to South Korea. In
addition, economic and political developments of South Korea’s neighbors,
including escalated tensions involving North Korea and any outbreak of
hostilities involving North Korea, or even the threat of an outbreak of
hostilities, may have a severe adverse effect on the South Korean
economy.
Risk
of Investing in Taiwan: Investments
in Taiwanese issuers involve risks that are specific to Taiwan, including legal,
regulatory, political and economic risks. Political and economic developments of
Taiwan’s neighbors may have an adverse effect on Taiwan’s economy. Specifically,
Taiwan’s geographic proximity and history of political
contention
with China have resulted in ongoing tensions, which may materially affect the
Taiwanese economy and its securities market.
International
Closed Market Trading Risk: To
the extent that the underlying investments held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
Shares trade is open, there are likely to be deviations between the current
price of such an underlying security and the last quoted price for the
underlying security (i.e., the Fund’s quote from the closed foreign market).
These deviations could result in premiums or discounts to the Fund’s NAV that
may be greater than those experienced by other exchange-traded funds
("ETFs").
Issuer
Risk:
Fund performance depends on the performance of individual companies in which the
Fund invests. Changes to the financial condition of any of those companies may
cause the value of such company's securities to decline.
Market
Risk:
Turbulence in the financial markets and reduced liquidity may negatively affect
issuers, which could have an adverse effect on the Fund. If the securities held
by the Fund experience poor liquidity, the Fund may be unable to transact at
advantageous times or prices, which may decrease the Fund’s returns. In
addition, there is a risk that policy changes by central governments and
governmental agencies, including the U.S. Federal Reserve or the European
Central Bank, which could include increasing interest rates, could cause
increased volatility in financial markets and lead to higher levels of Fund
redemptions from Authorized Participants, which could have a negative impact on
the Fund. Furthermore, local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health issues,
recessions, or other events could have a significant impact on the Fund and its
investments and trading of its Shares. For example, at the start of 2023,
central banks had already increased interest rates at the fastest rate on
record, and it is unknown how long this trend will continue and when inflation
will return to target levels. This increases the risk that monetary policy may
provide less support should economic growth slow. Additionally, China’s shift
away from a zero-COVID policy creates both opportunities and risks, causing
uncertainty for global economic growth. Market risk factors may result in
increased volatility and/or decreased liquidity in the securities markets. The
Fund’s NAV could decline over short periods due to short-term market movements
and over longer periods during market downturns.
New
Fund Risk: The
Fund is a new fund, with no operating history, which may result in additional
risks for investors in the Fund. There can be no assurance that the Fund will
grow to or maintain an economically viable size, in which case the Board of
Trustees may determine to liquidate the Fund. While shareholder interests will
be the paramount consideration, the timing of any liquidation may not be
favorable to certain individual shareholders. New funds are also subject to
Large Shareholder Risk.
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 systems failures. Additionally,
cyber security failures or breaches of the electronic systems of the Fund, the
Adviser, and the Fund's other service providers, market makers, Authorized
Participants or the issuers of securities in which the Fund invests have the
ability to cause disruptions and negatively impact the Fund's business
operations, potentially resulting in financial losses to the Fund and its
shareholders. The Fund and the Adviser seek to reduce these operational risks
through controls and procedures. However, these measures do not address every
possible risk and may be inadequate for those risks that they are intended to
address.
Options
Premium Tax Risk:
The Fund’s investment strategy may limit its ability to distribute dividends
eligible for treatment as qualified dividend income, which for non-corporate
shareholders are subject to federal income tax at rates of up to 20%. The Fund’s
investment strategy may also limit its ability to distribute dividends eligible
for the dividends-received deduction for corporate shareholders. For these
reasons, a significant portion of distributions received by Fund shareholders
may be subject to tax at effective tax rates that are higher than the rates that
would apply if the Fund were to engage in a different investment strategy. You
should consult your tax advisor as to the tax consequences of acquiring, owning
and disposing of Shares in the Fund.
Passive
Investment Risk:
The Fund is not actively managed, and the Adviser does not attempt to take
defensive positions in declining markets. Unlike many investment companies, the
Fund does not seek to outperform its Underlying Index. Therefore, it would not
necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is
underperforming. Additionally, if a constituent of the Underlying Index were
removed, even outside of a regular rebalance of the Underlying Index, the
Adviser anticipates that the Fund would sell such security. Maintaining
investments in securities regardless of market conditions or the performance of
individual securities could cause the Fund’s return to be lower than if the Fund
employed an active strategy.
Index-Related
Risk:
There is no guarantee that the Fund will achieve a high degree of correlation to
the Underlying Index and therefore achieve its investment objective. 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 Underlying Index. Errors in index data, index computations
and/or the construction of the Underlying Index in accordance with its
methodology may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time or at all, which may have an adverse
impact on the Fund and its shareholders.
Management
Risk:
The Fund may not fully replicate its Underlying Index and may hold securities
not included in its Underlying Index. The Adviser’s investment strategy, the
implementation of which is subject to a number of constraints, may cause the
Fund to underperform the market or its relevant benchmark or adversely affect
the ability of the Fund to achieve its investment objective.
Tracking
Error Risk:
Tracking error may occur because of differences between the instruments held in
the Fund's portfolio and those included in the Underlying Index, pricing
differences, transaction costs incurred by the Fund, the Fund's holding of
uninvested cash, size of the Fund, differences in timing of the accrual of or
the valuation of dividends or interest, tax gains or losses, changes to the
Underlying Index or the costs to the Fund of complying with various new or
existing regulatory requirements. This risk may be heightened during times of
increased market volatility or other unusual market conditions. Tracking error
also may result because the Fund incurs fees and expenses, while the Underlying
Index does not. ETFs that track indices with significant weight in emerging
markets issuers may experience higher tracking error than other ETFs that do not
track such indices.
Risks
Associated with Exchange-Traded Funds:
As an ETF, the Fund is subject to the following risks:
Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants and engage in creation or redemption transactions
directly with the Fund, and none of those Authorized Participants is obligated
to engage in creation and/or redemption transactions. To the extent that those
Authorized Participants exit the business or are unable to process creation
and/or redemption orders, such as in times of market stress, Shares may be more
likely to trade at a premium or discount to NAV and/or at wider intraday bid-ask
spreads, and possibly face trading halts and/or delisting from an
exchange.
Large
Shareholder Risk: Redemptions
by large shareholders could have a significant negative impact on the Fund. If a
large shareholder were to redeem all, or a large portion, of its Shares, there
is no guarantee that the Fund will be able to maintain sufficient assets to
continue operations in which case the Board of Trustees may determine to
liquidate the Fund. In addition, transactions by large shareholders may account
for a large percentage of the trading volume on a national securities exchange
and may, therefore, have a material upward or downward effect on the market
price of the Shares.
Listing
Standards Risk: The
Fund is required to comply with listing requirements adopted by the listing
exchange. Non-compliance with such requirements may result in the Fund's shares
being delisted by the listing exchange. Any resulting liquidation of the Fund
could cause the Fund to incur elevated transaction costs and could result in
negative tax consequences for its shareholders.
Market
Trading Risks and Premium/Discount Risks:
Shares of the Fund are publicly traded on a national securities exchange, which
may subject shareholders to numerous market trading risks. In stressed market
conditions, the market for the Shares may become less liquid in response to the
deteriorating liquidity of the Fund’s portfolio. This adverse effect on the
liquidity of the Shares, as well as disruptions to creations and redemptions,
the existence of extreme market volatility or potential lack of assets in the
Fund or an active trading market for Shares may result in Shares trading at a
significant premium or discount to NAV. 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 sustain
losses. The NAV of the Fund is calculated at the end of each business day and
fluctuates with changes in the market value of the Fund’s holdings. The trading
price of the Fund’s Shares fluctuates, in some cases materially, throughout
trading hours in response to changes in the Fund’s NAV.
Trading
Halt Risk:
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading losses.
Turnover
Risk: The
Fund may engage in frequent and active trading, which may significantly increase
the Fund’s portfolio turnover rate. At
times, the Fund may have a portfolio turnover rate substantially greater than
100%. For example, a portfolio turnover rate of 300%
is equivalent to the Fund buying and selling all of its securities three times
during the course of a year. A
high
portfolio turnover rate would result in
high brokerage costs for the Fund, may result in higher taxes when shares are
held in a taxable account and lower Fund
performance.
Valuation Risk: The sales price the Fund could receive for a security may differ
from the Fund’s valuation of the security and may differ from the value used by
the Underlying Index, particularly for securities that trade in low value or
volatile markets or that are valued using a fair value methodology (such as
during trading halts). The value of the securities in the Fund's portfolio
may change on days when shareholders will not be able to purchase or sell the
Fund's Shares.
PERFORMANCE
INFORMATION
The Fund does not have a full calendar year
of performance. Once the Fund
has completed a full calendar year of operations, a bar chart and table will be
included that will provide some indication of the risks of investing in the Fund
by showing the variability of the Fund's returns and comparing the Fund's
performance to the Underlying Index. The Fund's
performance is not necessarily indicative of how the Fund will perform in the
future.
FUND
MANAGEMENT
Investment
Adviser:
Global X Management Company LLC.
Portfolio
Managers:
The professionals primarily responsible for the day-to-day management of the
Fund are Nam To, CFA; Wayne Xie; Vanessa Yang; and Sandy Lu, CFA (“Portfolio
Managers”). Messrs. To, Xie and Lu and Ms. Yang have been Portfolio Managers of
the Fund since the Fund's inception.
PURCHASE
AND SALE OF FUND SHARES
Shares
of the Fund are or will be listed and traded at market prices on a national
securities exchange. Shares may only be purchased and sold on the exchange
through a broker-dealer. The price of Shares is based on market price, and
because ETF shares trade at market prices rather than at NAV, Shares may trade
at a price greater than NAV (a premium) or less than NAV (a discount). Only
"Authorized Participants" (as defined in the SAI) who have entered into
agreements with the Fund's distributor, SEI Investments Distribution Co.
("Distributor"), may engage in creation or redemption transactions directly with
the Fund. The Fund will only issue or redeem Shares that have been aggregated
into blocks called "Creation Units". The Fund will issue or redeem Creation
Units in return for a basket of cash and/or securities that the Fund specifies
any day that the national securities exchanges are open for business (“Business
Day”). An investor may incur costs attributable to the difference between the
highest price a buyer is willing to pay to purchase shares of the Fund (bid) and
the lowest price a seller is willing to accept for shares of the Fund (ask) when
buying or selling shares in the secondary market (the “bid-ask spread”). To
access information regarding the Fund’s net asset value, market price, premiums
and discounts, and bid-ask spreads, please go to
www.globalxetfs.com.
TAX
INFORMATION
The
Fund intends to make distributions that may be taxable to you as ordinary income
or capital gains, unless you are investing through a tax-advantaged arrangement
such as a 401(k) plan or an individual retirement account ("IRA"), in which case
distributions from such tax-advantaged arrangement may be taxable to you.
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 Fund Shares and related
services. These payments may create a conflict of interest by influencing your
broker-dealer, sales persons 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.
ADDITIONAL
INFORMATION ABOUT THE FUND
This
Prospectus contains information about investing in the Fund. Please read this
Prospectus carefully before you make any investment decisions. Shares of the
Fund are listed for trading on a national securities exchange. The market price
for a Share of the Fund may be different from the Fund's most recent NAV. ETFs
are funds that trade like other publicly-traded securities. The Fund is designed
to track the Underlying Index. Similar to shares of an index mutual fund, each
Share of the Fund represents an ownership interest in an underlying portfolio of
securities. Unlike shares of a mutual fund, which can be bought and redeemed
from the issuing fund by all shareholders at a price based on NAV, Shares of the
Fund may be purchased or redeemed directly from the Fund at NAV solely by
Authorized Participants and only in Creation Unit increments. Also, unlike
shares of a mutual fund, Shares of the Fund are listed on a national securities
exchange and trade in the secondary market at market prices that change
throughout the day. The Fund is designed to be used as part of broader asset
allocation strategies. Accordingly, an investment in the Fund should not
constitute a complete investment program. An index is a financial calculation,
based on a grouping of financial instruments, and is not an investment product,
while the Fund is an actual investment portfolio. The performance of the Fund
and its Underlying Index may vary for a number of reasons, including transaction
costs, non-U.S. currency valuations, asset valuations, corporate actions (such
as mergers and spin-offs), timing variances and differences between the Fund's
portfolio and the Underlying Index resulting from the Fund's legal restrictions
(such as diversification requirements) that apply to the Fund but not to the
Underlying Index.
The
investment objective of the Fund is to seek to provide investment results that
correspond generally to the price and yield performance, before fees and
expenses, of the Underlying Index. The Fund invests at least 80% of its net
assets, plus the amount of any borrowings for investment purposes (if any), in
the securities of the Underlying Index or in investments that are substantially
identical to such component securities, either individually or in the aggregate.
The Fund's 80% investment policy is non-fundamental and requires 60 days prior
written notice to shareholders before it can be changed. The Fund generally uses
a representative sampling strategy with respect to the Underlying Index.
"Representative sampling" is an indexing strategy that involves investing in a
representative sample of securities (including indirect investments through
underlying ETFs) that collectively has an investment profile similar to the
Underlying Index in terms of key risk factors, performance attributes and other
characteristics. Underlying ETFs may constitute a substantial portion of the
Fund's assets. These include country weightings, market capitalization and other
financial characteristics of securities. In addition, the Fund may also invest
in equity index futures for cash flow management purposes and as a portfolio
management technique. The Fund may sell securities that are represented in its
Underlying Index in anticipation of their removal from such Underlying Index or
purchase securities not represented in its Index in anticipation of their
addition to such Underlying Index. The Fund's investment objective and its
Underlying Index may be changed without shareholder approval upon at least 60
days prior written notice to shareholders.
A
FURTHER DISCUSSION OF PRINCIPAL RISKS
The
Fund is subject to various risks, including the principal risks noted below, any
of which may adversely affect the Fund's NAV, trading price, yield, total return
and ability to meet its investment objective. You could lose all or part of your
investment in the Fund, and the Fund could underperform other
investments.
Asset
Class Risk
The
returns from the types of securities and/or assets in which the Fund invests may
under-perform returns from the various general securities markets or different
asset classes. The assets in the Underlying Index may under-perform investments
that track other markets, segments, sectors or assets. Different types of assets
tend to go through cycles of out-performance and under-performance in comparison
to the general securities markets.
Derivatives
Risk
The
Fund will invest in options, which are a type of derivative instrument. There is
no assurance that sufficient trading interest to create a liquid secondary
market on a securities exchange will exist for any particular option or at any
particular time, and, for some options, no such secondary market may exist. The
possible absence of a liquid secondary market for options and/or possible
exchange-imposed price fluctuation limits, may make it difficult or impossible
to close out a position when desired. Options are subject to the risk that the
counterparty will not perform its obligations, which could leave the Fund worse
off than if it had not entered into the position. The value of an option
position will reflect, among other things, the current market value of the
underlying instrument, the time remaining until expiration, the relationship of
the strike price to the market price of the underlying instrument, the
historical price volatility of the underlying instrument and general market
conditions. Options can be more sensitive to sudden fluctuations in market
prices than conventional securities, which can result in greater losses for the
Fund.
Equity
Securities Risk
The
Fund may invest in equity securities, which are subject to changes in value that
may be attributable to market perception of a particular issuer, general stock
market fluctuations that affect all issuers, or as a result of such factors as a
company’s business performance, investor perceptions, stock market trends and
general economic conditions. Investments in equity securities may be more
volatile than investments in other asset classes.
ETF
Investment Risk
The
Fund may hold ETFs to gain exposure to certain asset classes. As a result, the
Fund may be subject to the same risks as the underlying ETFs. While the risks of
owning shares of an underlying ETF generally reflect the risks of owning the
underlying securities the ETF is designed to track, lack of liquidity in an
underlying ETF can result in its value being more volatile than the underlying
portfolio securities. Because the value of an underlying ETF's shares depends on
the demand in the market, the Adviser may not be able to liquidate the Fund’s
holdings in those shares at the most optimal time, thereby adversely affecting
the Fund’s performance. An underlying ETF may experience tracking error in
relation to the index tracked by the underlying ETF, which could contribute to
tracking error for the Fund. In addition, an underlying ETF's shares may trade
at a premium or discount to NAV.
In
addition, investments in the securities of underlying ETFs may involve
duplication of advisory fees and certain other expenses. The Fund will pay
brokerage commissions in connection with the purchase and sale of shares of
underlying ETFs, which could result in greater expenses to the Fund. By
investing in an underlying ETF, the Fund becomes a shareholder thereof. As a
result, Fund shareholders indirectly bear the Fund’s proportionate share of the
fees and expenses indirectly paid by shareholders of the underlying ETF, in
addition to the fees and expenses Fund shareholders indirectly bear in
connection with the Fund’s own operations. In addition, certain of the
underlying ETFs may hold common portfolio positions, thereby reducing the
diversification benefits of an asset allocation style.
If
an underlying ETF fails to achieve its investment objective, the value of the
Fund’s investment may decline, adversely affecting the Fund’s performance.
Additionally, some ETFs are not registered under the 1940 Act and therefore, are
not subject to the regulatory scheme and investor protections of the 1940 Act.
A
complete list of each underlying ETF held by the Fund can be found daily on the
Trust’s website. Each investor should review the complete description of the
principal risks of each underlying ETF prior to investing in the
Fund.
Capitalization
Risk
Investing
in issuers within the same market capitalization category carries the risk that
the category may be out of favor due to current market conditions or investor
sentiment.
Large-Capitalization
Companies Risk
Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Mid-Capitalization
Companies Risk
Mid-capitalization
companies may have greater price volatility, lower trading volume and less
liquidity than large-capitalization companies. In addition, mid-capitalization
companies may 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.
Small-Capitalization
Companies Risk
The
Fund may invest a significant percentage of its assets in small-capitalization
companies. If it does so, it may be subject to certain risks associated with
small-capitalization companies. These companies often have greater price
volatility, lower trading volume and less liquidity than larger, more
established companies. In addition, these companies are often subject to less
analyst coverage and may be in early and less predictable periods of their
corporate existences. 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 larger companies.
Covered
Call Option Writing Risk
By
writing covered call options in return for the receipt of premiums, the Fund
will give up the opportunity to benefit from potential increases in the value of
the Reference Index above the exercise prices of such options, but will continue
to bear the risk of declines in the value of the Reference Index. The premiums
received from the options may not be sufficient to offset any losses sustained
from the volatility of the underlying stocks over time. As a result, the risks
associated with writing covered call options may be similar to the risks
associated with writing put options. In addition, the Fund’s ability to sell the
securities underlying the options will be limited while the options are in
effect unless the Fund cancels out the option positions through the purchase of
offsetting identical options prior to the expiration of the written options.
Exchanges may suspend the trading of options in volatile markets. If trading is
suspended, the Fund may be unable to write options at times that may be
desirable or advantageous to do so, which may increase the risk of tracking
error.
Currency
Risk
Foreign
currencies are subject to risks, which include changes in the debt level and
trade deficit of the country issuing the foreign currency; inflation rates of
the United States and the country issuing the foreign currency; investors’
expectations concerning inflation rates; interest rates of the United States and
the country issuing the foreign currency; investors’ expectations concerning
interest rates; investment and trading activities of mutual funds, hedge funds
and currency funds; and global or regional political, economic or financial
events and situations.
In
addition, a foreign currency in which the Fund invests may not maintain its
long-term value in terms of purchasing power in the future. When the price of a
foreign currency in which the Fund invests declines, it may have an adverse
impact on the Fund.
Foreign
exchange rates are influenced by the factors identified above and may also be
influenced by: changing supply and demand for a particular currency; monetary
policies of governments (including exchange control programs, restrictions on
local exchanges or markets and limitations on foreign investment in a country or
on investment by residents of a country in other countries); changes in balances
of payments and trade; trade restrictions; and currency devaluations and
revaluations. Also, governments from time to time intervene in the currency
markets, directly and by regulation, in order to influence prices directly.
These events and actions are unpredictable. The resulting volatility in the
USD/foreign currency exchange rate could materially and adversely affect the
performance of the Fund.
Focus
Risk
In
following its methodology, the Underlying Index may be focused to a significant
degree in securities of issuers in a particular industry or group of industries
and/or may have significant exposure to one or more sectors. To the extent that
the Underlying Index focuses in the securities of issuers in such an area, the
Fund will also focus its investments to approximately the same extent. In such
event, the Fund’s performance will be particularly susceptible to adverse events
impacting such industry or sector, and the Fund will face greater risk than if
it were diversified broadly over numerous such areas. Such heightened risks, any
of which may adversely affect the companies in which the Fund invests, may
include, but are not limited to, the following: general economic conditions or
cyclical market patterns that could negatively affect supply and demand;
competition for resources; adverse labor relations; political or world events;
obsolescence of technologies; and increased competition or new product
introductions that may affect the profitability or viability of companies in a
particular industry or sector. In addition, at times, such industry, group of
industries or sector may be out of favor and underperform other such categories
or the market as a whole.
Geographic
Economic Exposure Risk
The
constituents held by the Fund may have partners, suppliers and/or customers
located in various geographic regions, and the geographic regions in which Fund
constituents are located may have trading partners in other geographic regions.
As a result, an economic downturn in one or more of these regions may impact the
performance of the constituents in which the Fund invests, even if the Fund does
not invest directly in companies located in such region. The risks related to
such regions may include:
Asian
Economic Risk
Many
Asian economies have experienced rapid growth and industrialization in recent
years, but there is no assurance that this growth rate will be maintained. Other
Asian economies, however, have experienced high inflation, high unemployment,
currency devaluations and restrictions, and over-extension of credit.
Geopolitical hostility, political
instability,
as well as economic or environmental events in any one Asian country may have a
significant economic effect on the entire Asian region, as well as on major
trading partners outside Asia. Any adverse event in the Asian markets may have a
significant adverse effect on some or all of the economies of the countries in
which the Fund invests. Many Asian countries are subject to political risk,
including political instability, corruption and regional conflict with
neighboring countries. Hong Kong is currently administered as a Special
Administrative Region under the sovereignty of the People’s Republic of China,
but pro-independence sentiment and political dissatisfaction towards China have
resulted and may continue to result in widespread protests. In 2020, China
passed the National Security Law in Hong Kong, which tightened political
freedoms and heightens risk for any businesses or individuals that express
pro-independence views. North Korea and South Korea each have substantial
military capabilities, and historical tensions between the two countries present
the risk of war. Escalated tensions involving the two countries and any outbreak
of hostilities between the two countries, or even the threat of an outbreak of
hostilities, could have a severe adverse effect on the entire Asian region.
Maritime disputes in the South China Sea are complex and involve conflicting
claims by China, Brunei, Indonesia, Malaysia, the Philippines, Taiwan and
Vietnam, and there is a risk that these disputes could escalate into armed
conflict between any of the aforementioned countries. Furthermore, there are
numerous disputes over islands in East Asia that pose security risks, including
but not necessarily limited to the Liancourt Rocks dispute between Japan and
Korea, the Senkaku/Diaoyu Islands dispute between China and Japan, and the Kuril
Islands dispute between Japan and Russia. Although Taiwan currently has a
government that is separate from that of the People’s Republic of China, the PRC
lays claim to Taiwan and has enacted legislation mandating military invasion
should Taiwan’s government formally declare independence. China may also choose
to launch an invasion of Taiwan even without the Taiwanese government formally
declaring independence and there is a high risk that such a conflict would draw
in other actors such as the United States and Japan. In response to the elevated
risk of conflict in Taiwan, in 2022 the government of Japan moved to
dramatically raise its defense budget and lift longstanding restrictions on
obtaining missiles with strike capabilities. Certain Asian countries have also
developed increasingly strained relationships with the U.S., and if these
relations were to worsen, they could adversely affect Asian issuers that rely on
the U.S. for trade. In addition, many Asian countries are subject to social and
labor risks associated with demands for improved political, economic and social
conditions.
European
Economic Risk
The
economies of Europe are highly dependent on each other, both as key trading
partners and, in many cases, as fellow members maintaining the euro. Decreasing
European imports, new trade regulations, changes in exchange rates, a recession
in Europe, or a slowing of economic growth in this region could have an adverse
impact on the securities in which the Fund invests. Reduction in trading
activity among European countries may cause an adverse impact on each nation’s
individual economies. The Economic and Monetary Union of the European Union (the
“EU”) requires compliance with restrictions on inflation rates, deficits,
interest rates, debt levels and fiscal and monetary controls, each of which may
significantly affect every country in Europe, including those countries that are
not members of the EU. Decreasing imports or exports, changes in governmental or
EU regulations on trade, changes in the exchange rate of the euro, the default
or threat of default by an EU member country on its sovereign debt, and
recessions in an EU member country may have a significant adverse effect on the
economies of EU member countries and their trading partners. The European
financial markets have historically experienced volatility and adverse trends
due to concerns about economic downturns or rising government debt levels in
several European countries, including, but not limited to, Austria, Belgium,
Cyprus, France, Greece, Ireland, Italy, Portugal, Spain and Ukraine. These
events have adversely affected the exchange rate of the euro and may continue to
significantly affect European countries.
Responses
to financial problems by European governments, central banks and others,
including austerity measures and reforms, may not produce the desired results,
may result in social unrest, may limit future growth and economic recovery or
may have other unintended consequences. Further defaults or restructurings by
governments and other entities of their debt could have additional adverse
effects on economies, financial markets and asset valuations around the world.
In addition, one or more countries may abandon the euro and/or withdraw from the
EU. In a referendum held on June 23, 2016, the United Kingdom resolved to leave
the European Union, which departure has become known as “Brexit”. Brexit
introduced significant uncertainties and instability in the financial markets as
the United Kingdom negotiated its departure from the European Union. The United
Kingdom officially stopped being a member of the European Union on January 31,
2020. Prior to the end of the “transition period” for Brexit, the European Union
and the United Kingdom ratified the EU-UK Trade and Cooperation Agreement (TCA),
which lays out the terms of the United Kingdom's future cooperation with the
European Union. The political, economic and legal consequences of Brexit and the
TCA are not yet fully known. Secessionist movements, such as the Catalan
movement in Spain and the independence movement in Scotland, as well as
governmental or other responses to such movements, may also create instability
and uncertainty in the region. In addition, the national politics of countries
in the EU have been unpredictable and subject to influence by varying political
groups and ideologies. The governments of EU countries
may
be subject to change and such countries may experience social and political
unrest. Unanticipated or sudden political or social developments may result in
sudden and significant investment losses. The occurrence of terrorist incidents
throughout Europe also could impact financial markets. The impact of these
events is not clear but could be significant and far-reaching and could
adversely affect the value and liquidity of the Fund’s investments.
Economies
of certain Eastern European countries rely heavily on the export of commodities,
including oil and gas, and certain metals. As a result, such economies will be
impacted by international commodity prices and are particularly vulnerable to
global demand for these products. Acts of terrorism in certain Eastern European
countries may cause uncertainty in their financial markets and adversely affect
the performance of the issuers to which the Fund has exposure. The securities
markets in Eastern European countries are substantially smaller and
inexperienced, with less government supervision and regulation of stock
exchanges and are less liquid and more volatile than securities markets in the
United States or Western European countries. Other risks related to the
economies of Eastern European include: the absence of legal structures governing
private and foreign investments and private property; the possibility of
expropriation; certain national policies which may restrict the capital market
activity, including, without limitation, restrictions on investing in issuers or
industries deemed sensitive to relevant national interests.
North
American Economic Risk
A
decrease in imports or exports, changes in trade regulations or an economic
recession in any North American country can have a significant economic effect
on the entire North American region and on some or all of the North American
countries to which the Fund has economic exposure. The U.S. is Canada's and
Mexico's largest trading and investment partner. The Canadian and Mexican
economies are significantly affected by developments in the U.S. economy. Since
the implementation of the North American Free Trade Agreement (“NAFTA”) in 1994
among Canada, the U.S. and Mexico, total merchandise trade among the three
countries has increased. However, political developments in the U.S., including
the renegotiation of NAFTA and imposition of tariffs by the U.S., may have
implications for the trade arrangements among the U.S., Mexico and Canada, which
could negatively affect the value of securities held by the Fund. Policy and
legislative changes in any of the three countries may have a significant effect
on North American economies generally, as well as on the value of certain
securities held by the Fund.
Geographic
Risk
Geographic
risk is the risk that the Fund’s assets may be focused in countries located in
the same geographic region. This investment focus will subject the Fund to risks
associated with that particular region, or a region economically tied to that
particular region, such as a natural, biological or other disaster. Outbreaks of
contagious viruses and diseases may reduce business activity or disrupt market
activity, and have the potential to exacerbate market risks in the countries and
regions in which they occur. The securities in which the Fund invests and,
consequently, the Fund are also subject to specific risks as a result of their
business operations, including, but not limited to:
Risk
of Investing in Brazil
Investment
in Brazilian issuers involves risks that are specific to Brazil, including
legal, regulatory, political, currency and economic risks. Specifically,
Brazilian issuers are subject to possible regulatory and economic interventions
by the Brazilian government, including the imposition of wage and price controls
and the limitation of imports. In addition, the market for Brazilian securities
is directly influenced by the flow of international capital and economic and
market conditions of certain countries, especially other emerging market
countries in Central and South America. The Brazilian economy has historically
been exposed to high rates of inflation, a high level of debt, and violence,
each of which may reduce and/or prevent economic growth. A rising unemployment
rate could also have the same effect. Corruption and subsequent legal
consequences have led to political instability and sudden changes in
leadership.
Brazil
has historically experienced high rates of inflation and may continue to do so
in the future. An increase in prices for commodities, the depreciation of the
Brazilian currency (the real) and potential future governmental measures seeking
to maintain the value of the real in relation to the U.S. dollar, may trigger
increases in inflation in Brazil and may slow the rate of growth of the
Brazilian economy. Inflationary pressures also may limit the ability of certain
Brazilian issuers to access foreign financial markets and may lead to further
government intervention in the economy, including the introduction of government
policies that may adversely affect the overall performance of the Brazilian
economy, which in turn could adversely affect a Fund's investments.
The
Brazilian government has exercised, and continues to exercise, significant
influence over the Brazilian economy, which may have significant effects on
Brazilian companies and on market conditions and prices of Brazilian securities.
The
Brazilian economy has been characterized by frequent, and occasionally drastic,
intervention by the Brazilian government. The Brazilian government has often
changed monetary, taxation, credit, tariff and other policies to influence the
core of Brazil’s economy. The Brazilian government’s actions to control
inflation and affect other economic policies have involved, among other actions,
the setting of wage and price controls, blocking access to bank accounts,
fluctuation of the base interest rates, imposing exchange controls and limiting
imports into Brazil. In the past, the Brazilian government has maintained
domestic price controls, and there can be no assurances that price controls will
not be re-imposed in the future.
Investments
in Brazilian securities may be subject to certain restrictions on foreign
investment. Although Brazilian law has provided greater certainty with respect
to the free exchange of currency, any restrictions or restrictive exchange
control policies in the future could have the effect of preventing or
restricting access to foreign currency.
The
market for Brazilian securities is directly influenced by the flow of
international capital, and economic and market conditions of certain countries,
especially other emerging market countries in Central and South America. Adverse
economic conditions or developments in other emerging market countries have at
times significantly affected the availability of credit in the Brazilian economy
and resulted in considerable outflows of funds and declines in the amount of
foreign currency invested in Brazil. Crises in neighboring emerging market
countries also may increase investors’ risk aversion, which may adversely impact
the market value of the securities issued by Brazilian companies, including
securities in which a Fund may invest.
Risk
of Investing in China
The
Chinese economy is subject to a considerable degree of economic, political and
social instability.
Political
and Social Risk
The
Chinese government is authoritarian and has periodically used force to suppress
civil dissent. Disparities of wealth and the pace of economic liberalization may
lead to social turmoil, violence and labor unrest. In addition, China continues
to experience disagreements related to integration with Hong Kong and religious
and nationalist disputes in Tibet and Xinjiang. There is also a greater risk in
China than in many other countries of currency fluctuations, currency
nonconvertibility, interest rate fluctuations and higher rates of inflation as a
result of internal social unrest or conflicts with other countries.
Unanticipated political or social developments may result in sudden and
significant investment losses. China’s growing income inequality, rapidly aging
population and significant environmental issues also are factors that may affect
the Chinese economy. Concerns about the rising government and household debt
levels could impact the stability of the Chinese economy.
Heavy
Government Control and Regulation
The
Chinese government has implemented significant economic reforms in order to
liberalize trade policy, promote foreign investment in the economy, reduce
government control of the economy and develop market mechanisms. There can be no
assurance these reforms will continue or that they will be effective. Despite
recent reform and privatizations, government control over certain sectors or
enterprises and significant regulation of investment and industry is still
pervasive, including restrictions on investment in companies or industries
deemed to be sensitive to particular national interests, and the Chinese
government may restrict foreign ownership of Chinese corporations and/or the
repatriation of assets by foreign investors. Chinese companies that maintain
large amounts of sensitive data or produce some form of adverse social cost are
particularly at risk as the government moves forward with the Common Prosperity
agenda. Limitations or restrictions on foreign ownership of securities may have
adverse effects on the liquidity and performance of the Fund and could lead to
higher tracking error. Chinese government intervention in the market may have a
negative impact on market sentiment, which may in turn affect the performance of
the Chinese economy and the Fund’s investments. Chinese markets generally
continue to experience inefficiency, volatility and pricing anomalies that may
be connected to governmental influence, lack of publicly-available information,
and political and social instability.
Economic
Risk
The
Chinese economy has grown rapidly in the recent past and there is no assurance
that this growth rate will be maintained. In fact, the Chinese economy may
experience a significant slowdown as a result of, among other factors, a
deterioration in global demand for Chinese exports, a systemic failure in the
property sector, as well as contraction in spending on domestic goods by Chinese
consumers. In addition, China may experience substantial rates of inflation or
economic
recessions, which would have a negative effect on its economy and securities
market. Delays in enterprise restructuring, slow development of well-functioning
financial markets and widespread corruption have also hindered performance of
the Chinese economy. China continues to receive substantial pressure from
trading partners to liberalize official currency exchange rates.
Elevated
geopolitical tensions between China and its trading partners, including the
imposition of U.S. tariffs on certain Chinese goods, the imposition of trade and
non-trade related barriers for certain Chinese companies, and increased
international pressure related to Chinese trade policy, forced technology
transfers and intellectual property protections, may have a substantial impact
on the Chinese economy. The continuation or worsening of the current political
climate between China and the U.S. could result in additional regulatory
restrictions being contemplated or imposed on the U.S. or in China that could
impact the Fund’s ability to invest in certain companies. Reduction in spending
on Chinese products and services, institution of additional tariffs or other
trade barriers (including as a result of heightened trade tensions between China
and the U.S. or in response to actual or alleged Chinese cyber activity), or a
downturn in any of the economies of China’s key trading partners may have an
adverse impact on the Chinese economy and the Chinese issuers of securities in
which the Fund invests. For example, the U.S. has added certain foreign
technology companies to the U.S. Department of Commerce’s Bureau of Industry and
Security’s “Entity List,” which is a list of companies believed to pose a
national security risk to the U.S. U.S. investors may also be barred by U.S.
authorities from investing in certain companies, including those with ties to
the military, intelligence, and security services in China. Actions like these
may have unanticipated and disruptive effects on the Chinese economy. Any such
response that targets Chinese financial markets or securities exchanges could
interfere with orderly trading, delay settlement or cause market disruptions.
Public health crises or major health-related developments may have a substantial
impact on the Chinese economy or holdings in the Fund. Outbreaks of contagious
viruses and diseases, including the novel viruses commonly known as SARS, MERS,
and Covid-19 (Coronavirus), may reduce business activity or disrupt market
activity, and have the potential to exacerbate market risks such as volatility
in exchange rates or the trading of Chinese securities listed domestically or
abroad. Likewise, factories, ports, and critical infrastructure in China may
close to limit contagion risk. In response to the Covid-19 crisis, China is
implementing strict lockdowns to keep cases extremely low and there is no
assurance that China will relax this approach or not revert back to it after an
attempt at relaxation. Foreign investors’ access to domestic markets may also be
limited during such health crises, especially if domestic exchanges are closed
for an extended period. Market closures could interfere with the orderly trading
or settlement mechanisms of Chinese securities listed domestically or abroad.
The Chinese economy or holdings in the Fund may also be adversely impacted
should health crises create political uncertainty or social unrest. The
implications of such health crises are difficult to ascertain but may put strain
on China’s supply chains, trading relationships, and international
relations.
Expropriation
Risk
The
Chinese government maintains a major role in economic policy making and
investing in China involves risk of loss due to expropriation, nationalization,
confiscation of assets and property or the imposition of restrictions on foreign
investments and on repatriation of capital invested.
Security
Risk
China
has strained international relations with Taiwan, India, Russia and other
neighbors due to territorial disputes, historical animosities, defense concerns
and other security concerns. Relations between China’s Han ethnic majority and
other ethnic groups in China, including Tibetans and Uighurs, are also strained
and have been marked by protests and violence. Additionally, China is alleged to
have participated in state-sponsored cyberattacks against foreign companies and
foreign governments. Actual and threatened responses to such activity, including
purchasing restrictions, sanctions, tariffs or cyberattacks on the Chinese
government or Chinese companies, may impact China’s economy and Chinese issuers
of securities in which the Fund invests. These situations may cause uncertainty
in the Chinese market and may adversely affect the Chinese economy. In addition,
conflict on the Korean Peninsula could adversely affect the Chinese economy.
Tax
Risk
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 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 the Fund invests. Uncertainties in Chinese tax
rules could result in unexpected tax liabilities for the Fund.
Hong
Kong Political Risk
Hong
Kong reverted to Chinese sovereignty on July 1, 1997 as a Special Administrative
Region (SAR) of the People’s Republic of China under the principle of “one
country, two systems.” Although China is obligated to maintain the current
capitalist economic and social system of Hong Kong through June 30, 2047, the
continuation of economic and social freedoms enjoyed in Hong Kong is dependent
on the government of China. Since 1997, there have been tensions between the
Chinese government and many people in Hong Kong who perceive China as tightening
of control over Hong Kong’s semi-autonomous liberal political, economic, legal,
and social framework. Recent protests and unrest have increased tensions even
further. Due to the interconnected nature of the Hong Kong and Chinese
economies, this instability in Hong Kong may cause uncertainty in the Hong Kong
and Chinese markets. In addition, the Hong Kong dollar trades at a fixed
exchange rate in relation to (or, is “pegged” to) the U.S. dollar, which has
contributed to the growth and stability of the Hong Kong economy. However, it is
uncertain how long the currency peg will continue or what effect the
establishment of an alternative exchange rate system would have on the Hong Kong
economy. Because the Fund’s NAV is denominated in U.S. dollars, the
establishment of an alternative exchange rate system could result in a decline
in the Fund’s NAV.
Special
Risk Considerations of Investing in China – Variable Interest Entity
Investments
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the government restricts foreign ownership to
raise capital from foreign investors. While the shell company has no equity
ownership of the VIE, these contractual arrangements permit the shell company to
consolidate the VIE’s financial statements with its own for accounting purposes
and provide for economic exposure to the performance of the underlying Chinese
operating company. Therefore, an investor in the listed shell company, such as
the Fund, will have exposure to the Chinese-based operating company only through
contractual arrangements and has no ownership in the Chinese-based operating
company. Furthermore, because the shell company only has specific rights
provided for in these service agreements with the VIE, its abilities to control
the activities at the Chinese-based operating company are limited and the
operating company may engage in activities that negatively impact investment
value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or forfeiture of ownership interest. In addition, the listed
shell company’s control over a VIE may also be jeopardized if a natural person
who holds the equity interest in the VIE breaches the terms of the agreement, is
subject to legal proceedings or if any physical instruments for authenticating
documentation, such as chops and seals, are used without the Chinese-based
issuer’s authorization to enter into contractual arrangements in China. Chops
and seals, which are carved stamps used to sign documents, represent a legally
binding commitment by the company. Moreover, any future regulatory action may
prohibit the ability of the shell company to receive the economic benefits of
the Chinese-based operating company, which may cause the value of the Fund’s
investment in the listed shell company to suffer a significant loss. For
example, in 2021, the Chinese government prohibited use of the VIE structure for
investment in after-school tutoring companies. There is no guarantee that the
government will not place similar restrictions on other
industries.
Chinese equities that utilize the VIE structure to list in
the U.S. as ADRs face the risk of regulatory action from U.S. authorities,
including the risk of delisting. This will depend in part on whether U.S.
regulatory authorities are satisfied with their access to mainland China and
Hong Kong for the purpose of conducting inspections on the quality of audits for
these companies. Although the U.S. and China reached an agreement in September
2022 to grant the U.S. access for such inspections, there is no guarantee that
the agreement will be enforced or that U.S. regulatory authorities will continue
to feel satisfied with their access.
Risk
of Investing in Emerging Markets
The
securities markets of emerging market countries may be less liquid, subject to
greater price volatility, have smaller market capitalizations, have less
government regulation and not be subject to as extensive and frequent
accounting, financial and other reporting requirements as the securities markets
of more developed countries, as has historically been the case. Issuers and
securities markets in emerging markets are generally not subject to as extensive
and frequent accounting, financial and other reporting requirements or as
comprehensive government regulations as are issuers and securities markets in
the developed markets. In particular, the assets and profits appearing on the
financial statements of emerging market issuers may not reflect their financial
position or results of operations in the same manner as financial statements for
developed market issuers. Substantially less information may be publicly
available about emerging market issuers than is available about issuers in
developed markets. It may be difficult or impossible for the Fund to pursue
claims against an emerging market issuer in the courts of an emerging market
country. There may be significant obstacles to obtaining information necessary
for investigations into or litigation against emerging market companies and
shareholders may have limited legal rights and remedies.
Emerging
markets are generally located in the Asia and Pacific regions, the Middle East,
Eastern Europe, Latin America, and Africa. Emerging markets typically are
classified as such by lacking one or more of the following characteristics:
sustainability of economic development, large and liquid securities markets,
openness to foreign ownership, ease of capital inflows and outflows, efficiency
of the market’s operational framework, and/or stability of the institutional
framework. The Fund’s purchase and sale of portfolio securities in certain
emerging market countries may be constrained by limitations relating to daily
changes in the prices of listed securities, periodic trading or settlement
volume and/or limitations on aggregate holdings of foreign investors. Such
limitations may be computed based on the aggregate trading volume by or holdings
of the Fund, the Adviser, its affiliates and their respective clients and other
service providers. The Fund may not be able to sell securities in circumstances
where price, trading or settlement volume limitations have been reached.
Foreign
investment in the securities markets of certain emerging market countries is
restricted or controlled to varying degrees, which may limit investment in such
countries or increase the administrative costs of such investments. For example,
certain Asian countries require government approval prior to investments by
foreign persons or limit investment by foreign persons to only a specified
percentage of an issuer's outstanding securities or a specific class of
securities which may have less advantageous terms (including price) than
securities of the issuer available for purchase by nationals. In addition,
certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by the Fund. The repatriation of both investment income and capital
from certain emerging market countries is subject to restrictions, such as the
need for governmental consents. In situations where a country restricts direct
investment in securities (which may occur in certain Asian, Latin American and
other countries), the Fund may invest in such countries through other investment
funds in such countries. Certain emerging market countries may have privatized,
or have begun the process of privatizing, certain entities and industries.
Privatized entities may lose money or be re-nationalized.
Many
emerging market countries have experienced currency devaluations, substantial
(and, in some cases, extremely high) rates of inflation, and economic
recessions. These circumstances have had a negative effect on the economies and
securities markets of those emerging market countries. Economies in emerging
market countries generally are dependent upon commodity prices and international
trade and, accordingly, have been, and may continue to be, affected adversely by
the economies of their trading partners, trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist measures
imposed or negotiated by the countries with which they trade. As a result,
emerging market countries are particularly vulnerable to downturns of the world
economy. The 2008-2009 global financial crisis tightened international credit
supplies and weakened the global demand for their exports. As a result, certain
of these economies faced significant economic difficulties, which caused some
emerging market economies to fall into recession. Recovery from such conditions
may be gradual and/or halting as weak economic conditions in developed markets
may continue to suppress demand for exports from emerging market countries.
Many
emerging market countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging market countries
are authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging market countries have
periodically used force to suppress civil dissent. Disparities of wealth, the
pace and success of democratization, and ethnic, religious and racial
disaffection, among other factors, have also led to social unrest, violence
and/or labor unrest in some emerging market countries. Many emerging market
countries have experienced strained international relations due to border
disputes, historical animosities or other defense concerns. These situations may
cause uncertainty in the markets and may adversely affect the performance of
these economies. Unanticipated political, social, and public health developments
may
result in sudden and significant investment losses. Many emerging markets may be
underprepared for global health crises. For example, the rapid and global spread
of a highly contagious novel coronavirus respiratory disease, designated
COVID-19, has resulted in extreme volatility in the financial markets and severe
losses; reduced liquidity of many instruments; restrictions on international
and, in some cases, local travel; significant disruptions to business operations
(including business closures); strained healthcare systems; disruptions to
supply chains, consumer demand and employee availability; and widespread
uncertainty regarding the duration and long-term effects of this pandemic.
Investing in emerging market countries involves greater risk of loss due to
expropriation, nationalization, confiscation of assets and property or the
imposition of restrictions on foreign investments and on repatriation of capital
invested. As an example, in the past some Eastern European governments have
expropriated substantial amounts of private property, and many claims of the
property owners have never been fully settled. There is no assurance that
similar expropriations will not occur in other emerging market countries,
including China.
As
a result of heightened geopolitical tensions, various countries have imposed
economic sanctions, imposed non-trade barriers and renewed existing economic
sanctions on specific emerging markets and on issuers within those markets.
These non-trade barriers consist of prohibiting certain securities trades,
prohibiting certain private transactions in certain sectors and with respect to
certain companies, asset freezes, and prohibition of all business, against
certain individuals and companies. The United States and other nations or
international organizations may impose additional, broader economic sanctions or
take other actions that may adversely affect certain emerging markets in the
future. These actions, any future sanctions or other actions, or even the threat
of further sanctions or other actions, may negatively affect the value and
liquidity of the Fund’s investments. For example, the Fund may be prohibited
from investing in securities issued by companies subject to such sanctions. In
addition, sanctions may require the Fund to freeze its existing investments,
prohibiting the Fund from buying, selling or otherwise transacting in these
investments. Also, if an affected security is included in the Fund's Underlying
Index, the Fund may, where practicable, seek to eliminate its holdings of the
affected security by employing or augmenting its representative sampling
strategy to seek to track the investment results of the Underlying Index. The
use of (or increased use of) a representative sampling strategy may increase the
Fund’s tracking error risk. Actions barring some or all transactions with a
specific company will likely have a substantial, negative impact on the value of
such company’s securities. These sanctions may also lead to changes in the
Fund’s Underlying Index. The Fund’s index provider may remove securities from
the Underlying Index or implement caps on the securities of certain issuers that
have been subject to recent economic sanctions. In such an event, it is expected
that the Fund will rebalance its portfolio to bring it in line with its
Underlying Index as a result of any such changes, which may result in
transaction costs and increased tracking error. The Fund’s investment in
emerging market countries may also be subject to withholding or other taxes,
which may be significant and may reduce the return to the Fund from an
investment in such countries.
Settlement
and clearance procedures in emerging market countries are frequently less
developed and reliable than those in the United States and may involve the
Fund’s delivery of securities before receipt of payment for their sale. In
addition, significant delays may occur in certain markets in registering the
transfer of securities. Settlement, clearance or registration problems may make
it more difficult for the Fund to value its portfolio securities and could cause
the Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to pay
for securities the Fund has delivered or the Fund’s inability to complete its
contractual obligations because of theft or other reasons. In addition, local
agents and depositories are subject to local standards of care that may not be
as rigorous as developed countries. Governments and other groups may also
require local agents to hold securities in depositories that are not subject to
independent verification. The less developed a country’s securities market, the
greater the risk to the Fund.
The
creditworthiness of the local securities firms used by the Fund in emerging
market countries may not be as sound as the creditworthiness of firms used in
more developed countries. As a result, the Fund may be subject to a greater risk
of loss if a securities firm defaults in the performance of its
responsibilities.
The
Fund’s use of foreign currency management techniques in emerging market
countries may be limited. Due to the limited market for these instruments in
emerging market countries, all or a significant portion of the Fund's currency
exposure in emerging market countries may not be covered by such instruments.
Rising
interest rates, combined with widening credit spreads, could negatively impact
the value of emerging market debt and increase funding costs for foreign
issuers. In such a scenario, foreign issuers might not be able to service their
debt obligations, the market for emerging market debt could suffer from reduced
liquidity, and the Fund could lose money.
Certain
issuers in emerging market countries may utilize share blocking schemes. Share
blocking refers to a practice, in certain foreign markets, where voting rights
related to an issuer's securities are predicated on these securities being
blocked from trading at the custodian or sub-custodian level, for a period of
time around a shareholder meeting. These restrictions have the effect of barring
the purchase and sale of certain voting securities within a specified number of
days before and, in certain instances, after a shareholder meeting where a vote
of shareholders will be taken. Share blocking may prevent the Fund from buying
or selling securities for a period of time. During the time that shares are
blocked, trades in such securities will not settle. The blocking period can last
up to several weeks. The process for having a blocking restriction lifted can be
quite onerous with the particular requirements varying widely by country. In
addition, in certain countries, the block cannot be removed. As a result of the
ramifications of voting ballots in markets that allow share blocking, the
Adviser, on behalf of the Fund, reserves the right to abstain from voting
proxies in those markets.
Risk
of Investing in India
India
is an emerging market country and exhibits significantly greater market
volatility from time to time in comparison to more developed markets. Political
and legal uncertainty, greater government control over the economy, currency
fluctuations or blockage, and the risk of nationalization or expropriation of
assets may result in higher potential for losses.
Moreover,
governmental actions can have a significant effect on the economic conditions in
India, which could adversely affect the value and liquidity of the Fund’s
investments. The securities markets in India are comparatively underdeveloped,
and stockbrokers and other intermediaries may not perform as well as their
counterparts in the United States and other more developed securities markets.
The limited liquidity of the Indian securities markets may also affect the
Fund’s ability to acquire or dispose of securities at the price and time that it
desires. The government’s efforts to combat the shadow economy and counterfeit
cash have previously resulted in disruptions to the economy, notably with the
demonetization of certain denominations of the Indian Rupee in 2016, which
brought about cash shortages and damaged foreign investor trust.
Global
factors and foreign actions may inhibit the flow of foreign capital on which
India is dependent to sustain its growth. India’s strained relations with
neighboring countries like Pakistan and China could result in geopolitical risk
that has an adverse impact on the Indian economy and stock market. In addition,
the Reserve Bank of India (“RBI”) has imposed limits on foreign ownership of
Indian securities, which may limit the amount the Fund can invest in certain
types of companies. Foreign ownership limits generally apply to investment in
certain sectors which the RBI has determined that local ownership is
strategically important, such as banking and insurance, but may be applied to
other types of companies by the RBI from time to time. These factors, coupled
with the lack of extensive accounting, auditing and financial reporting
standards and practices, as compared to the U.S., may increase the Fund’s risk
of loss. In addition, a significant portion of India’s non-agricultural
employment remains concentrated in the informal labor market, which may lower
visibility into India’s economy and the activities of Indian companies.
Further,
certain Indian regulatory approvals, including approvals from the Securities and
Exchange Board of India (“SEBI”), the RBI, the central government and the tax
authorities (to the extent that tax benefits need to be utilized), may be
required before the Fund can make investments in the securities of Indian
companies. Capital gains from Indian securities may be subject to local
taxation.
Risk
of Investing in South Korea
Investments
in South Korean issuers involve risks that are specific to South Korea,
including legal, regulatory, political, currency, security and economic risks.
Substantial political tensions exist between North Korea and South Korea.
Escalated tensions involving the two nations and the outbreak of hostilities
between the two nations, or even the threat of an outbreak of hostilities, could
have a severe adverse effect on the South Korean economy. In addition, South
Korea’s economic growth potential has recently been on a decline because of a
rapidly aging population and structural problems, among other factors. The South
Korean economy is heavily reliant on trading exports and disruptions or
decreases in trade activity could lead to further declines.
Risk
of Investing in Taiwan
Investments
in Taiwanese issuers may subject the Fund to legal, regulatory, political,
currency and economic risks that are specific to Taiwan. Specifically, Taiwan’s
geographic proximity and history of political contention with China have
resulted in ongoing tensions between the two countries. These tensions may
materially affect the Taiwanese
economy
and its securities market. These tensions may evolve into a military conflict
between China and Taiwan, with potential participation by other regional powers
such as the US and Japan. Taiwan’s lack of formal recognition by most countries
around the world leaves its legal status ambiguous and often prevents Taiwan
from membership in international organizations. The establishment of diplomatic
ties between Taiwan and another country could result in both Taiwan and that
country facing economic or diplomatic retaliation from China. Taiwan’s economy
is export-oriented, so it depends on an open world trade regime and remains
vulnerable to fluctuations in the world economy. Rising labor costs and
increasing environmental consciousness have led some labor-intensive industries
to relocate to countries with cheaper work forces, and continued labor
outsourcing may adversely affect the Taiwanese economy.
International
Closed Market Trading Risk
To
the extent that the underlying investments held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
Shares trade is open, there are likely to be deviations between the current
price of such an underlying security and the last quoted price for the
underlying security (i.e., the Fund’s quote from the closed foreign market).
These deviations could result in premiums or discounts to the Fund’s NAV that
may be greater than those experienced by other ETFs.
Issuer
Risk
Issuer
risk is the risk that any of the individual companies that the Fund invests in
may perform badly, causing the value of its securities to decline. Poor
performance may be caused by poor management decisions, competitive pressures,
changes in technology, disruptions in supply, labor problems or shortages,
corporate restructurings, fraudulent disclosures or other factors. Issuers may,
in times of distress or on their own discretion, decide to reduce or eliminate
dividends, which would also cause their stock prices to decline.
Market
Risk
Market
risk is the risk that the value of the securities in which the Fund invests may
go up or down in response to the prospects of individual issuers and/or general
economic conditions. Turbulence in the financial markets and reduced liquidity
may negatively affect issuers, which could have an adverse effect on the Fund.
If the securities held by the Fund experience poor liquidity, the Fund may be
unable to transact at advantageous times or prices, which may decrease the
Fund’s returns. In addition, there is a risk that policy changes by central
governments and governmental agencies, including the Federal Reserve or the
European Central Bank, which could include increasing interest rates, could
cause increased volatility in financial markets and lead to higher levels of
Fund redemptions from Authorized Participants, which could have a negative
impact on the Fund. Furthermore, local, regional or global events such as war,
acts of terrorism, the spread of infectious illness or other public health
issues, recessions, or other events could have a significant impact on the Fund
and its investments and trading of its Shares. For example, at the start of
2023, central banks had already increased interest rates at the fastest rate on
record, the unknown is the length of time they remain restrictive and when
inflation returns to target levels. This increases the risk that monetary policy
may provide less support should economic growth slow. Additionally, China’s
shift away from their zero-COVID policy creates both opportunities and risks,
establishing China as the wildcard for global economic growth. Market risk
factors may result in increased volatility and/or decreased liquidity in the
securities markets. The Fund’s NAV could decline over short periods due to
short-term market movements and over longer periods during market
downturns.
New
Fund Risk
The
Fund is a new fund, with no operating history, which may result in additional
risks for investors in the Fund. There can be no assurance that the Fund will
grow to or maintain an economically viable size, in which case the Board of
Trustees may determine to liquidate the Fund. While shareholder interests will
be the paramount consideration, the timing of any liquidation may not be
favorable to certain individual shareholders. From time to time an Authorized
Participant, a third-party investor, the Adviser or another affiliate of the
Adviser or the Fund may invest in the Fund and hold its investment for a
specific period of time in order to facilitate commencement of the Fund’s
operations or for the Fund to achieve size or scale. There can be no assurance
that any such entity would not redeem its investment or that the size of the
Fund would be maintained at such levels which could negatively impact the
Fund.
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 systems failures.
With
the increased use of technologies such as the internet to conduct business, the
Fund, Authorized Participants, service providers and the relevant listing
exchange are susceptible to operational, information security and related
“cyber” risks both directly and through their service providers. Similar types
of cyber security risks are also present for issuers of securities in which the
Fund invests, which could result in material adverse consequences for such
issuers and may cause the Fund’s investment in such portfolio companies to lose
value. Unlike many other types of risks faced by the Fund, these risks typically
are not covered by insurance. In general, cyber incidents can result from
deliberate attacks or unintentional events. Cyber incidents include, but are not
limited to, gaining unauthorized access to digital systems (e.g., through
“hacking” or malicious software coding) for purposes of misappropriating assets
or sensitive information, corrupting data, or causing operational disruption.
Cyber-attacks may also be carried out in a manner that does not require gaining
unauthorized access, such as causing denial-of-service attacks on websites
(i.e., efforts to make network services unavailable to intended users).
Recently, geopolitical tensions may have increased the scale and sophistication
of deliberate attacks, particularly those from nation-states or from entities
with nation-state backing. Cyber security failures by or breaches of the systems
of the Adviser and the Fund’s distributor and other service providers
(including, but not limited to, the Index Provider, fund accountants,
custodians, transfer agents and administrators), market makers, Authorized
Participants, or the issuers of securities in which the Fund invests, have the
ability to cause disruptions and impact business operations, potentially
resulting in: financial losses, interference with the Fund’s ability to
calculate its NAV, disclosure of confidential trading information, impediments
to trading, submission of erroneous trades or erroneous creation or redemption
orders, the inability of the Fund or its service providers to transact business,
violations of applicable privacy and other laws, regulatory fines, penalties,
reputational damage, reimbursement or other compensation costs, or additional
compliance costs. In addition, cyber-attacks may render records of Fund assets
and transactions, shareholder ownership of Fund Shares, and other data integral
to the functioning of the Fund inaccessible or inaccurate or incomplete.
Substantial costs may be incurred by the Fund in order to resolve or prevent
cyber incidents in the future. While the Fund has established business
continuity plans in the event of, and risk management systems to prevent, such
cyber-attacks, there are inherent limitations in such plans and systems,
including the possibility that certain risks have not been identified and that
prevention and remediation efforts will not be successful. Furthermore, the Fund
cannot control the cyber security plans and systems put in place by service
providers to the Fund, issuers in which the Fund invests, the Index
Provider, market makers or Authorized Participants. The Fund and its
shareholders could be negatively impacted as a result.
The
Fund and the Adviser seek to reduce these operational risks through controls and
procedures. However, these measures do not address every possible risk and may
be inadequate for those risks that they are intended to address.
Options
Premium Tax Risk
The
Fund’s investment strategy may increase the amount of capital gain that the Fund
realizes. As a result, the Fund will not be able to designate a portion of its
distributions as being eligible for lower rates of tax in the hands of
non-corporate shareholders (dividends that are commonly referred to as
“qualified dividend income”) or as being eligible for the dividends received
deduction when received by certain corporate shareholders. For these reasons, a
significant portion of income received from the Fund may be subject to tax at
effective tax rates that are higher than the rates that would apply if the Fund
were to engage in a different investment strategy. You should consult your tax
advisor as to the tax consequences of acquiring, owning and disposing of Shares
in the Fund.
Passive
Investment Risk
The
Fund is not actively managed and may be affected by a general decline in market
segments relating to the Underlying Index. The Fund invests in securities
included in, or representative of, the Underlying Index regardless of their
investment merits, and the Adviser does not otherwise attempt to take defensive
positions in declining markets. Unlike many investment companies, the Fund does
not seek to outperform its Underlying Index. Therefore, the Fund would not
necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is
underperforming. Additionally, if a constituent of the Underlying Index were
removed, even outside of a regular rebalance of the Underlying Index, the
Adviser anticipates that the Fund would sell such security. Maintaining
investments in securities regardless of market conditions or the performance of
individual securities could cause the Fund’s return to be lower than if the Fund
employed an active strategy.
Index-Related
Risk
There
is no guarantee that the Fund will achieve a high degree of correlation to the
Underlying Index and therefore achieve its investment objective. 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 Underlying Index. Errors in index data, index computations and/or the
construction of the Underlying Index in accordance with its methodology may
occur
from
time to time and may not be identified and corrected by the Index Provider for a
period of time or at all, which may have an adverse impact on the Fund and its
shareholders.
Management
Risk
The
Fund may not fully replicate its Underlying Index and may hold securities not
included in its Underlying Index. Therefore, the Fund is subject to management
risk. That is, the Adviser’s investment strategy, the implementation of which is
subject to a number of constraints, may cause the Fund to underperform the
market or its relevant benchmark or adversely affect the ability of the Fund to
achieve its investment objective. While the Fund is passively managed,
implementation of the Fund’s principal investment strategy may result in
tracking error risk, which is described below. The ability of the Adviser to
successfully implement the Fund’s investment strategies will influence the
Fund’s performance significantly.
Tracking
Error Risk
Tracking
error is the divergence of the Fund's performance from that of the Underlying
Index. Tracking error may occur because of differences between the securities
and other instruments held in the Fund's portfolio and those included in the
Underlying Index, pricing differences (including differences between a
security's price at the local market close and the Fund's valuation of a
security at the time of calculation of the Fund's NAV), transaction costs
incurred by the Fund, the Fund's holding of uninvested cash, differences in
timing of the accrual of or the valuation of dividends or interest, tax gains or
losses, changes to the Underlying Index or the costs to the Fund of complying
with various new or existing regulatory requirements. This risk may be
heightened during times of increased market volatility or other unusual market
conditions. Tracking error also may result because the Fund incurs fees and
expenses, while the Underlying Index does not. ETFs that track indices with
significant weight in emerging markets issuers may experience higher tracking
error than other ETFs that do not track such indices.
Risks
Associated with Exchange-Traded Funds
As
an ETF, the Fund is subject to the following risks:
Authorized
Participants Concentration Risk
The
Fund has a limited number of financial institutions that may act as Authorized
Participants. Only Authorized Participants who have entered into agreements with
the Fund's distributor may engage in creation or redemption transactions
directly with the Fund, and none of those Authorized Participants is obligated
to engage in creation and/or redemption transactions. To the extent that those
Authorized Participants exit the business or are unable to process creation
and/or redemption orders, such as in times of market stress, and no other
Authorized Participant is able to step forward to create and redeem in either of
those cases, Shares may trade like closed-end fund shares at a discount to NAV
and/or at wider intraday bid-ask spreads, and may possibly face trading halts
and/or delisting from the Exchange.
Large
Shareholder Risk
Certain
shareholders, including an Authorized Participant, the Adviser or an affiliate
of the Adviser, may own a substantial amount of the Fund’s Shares. Additionally,
from time to time an Authorized Participant, a third-party investor, the
Adviser, or an affiliate of the Adviser may invest in the Fund and hold its
investment for a specific period of time in order to facilitate commencement of
the Fund’s operations or to allow the Fund to achieve size or scale.
Redemptions by large shareholders could have a significant negative impact on
the Fund. If a large shareholder were to redeem all, or a large portion, of its
Shares, there is no guarantee that the Fund will be able to maintain sufficient
assets to continue operations in which case the Board of Trustees may determine
to liquidate the Fund. In addition, transactions by large shareholders may
account for a large percentage of the trading volume on the Exchange and may,
therefore, have a material upward or downward effect on the market price of the
Shares.
Listing
Standards Risk
The
Fund is required to comply with listing requirements adopted by the listing
exchange. Non-compliance with such requirements may result in the Fund's Shares
being delisted by the listing exchange. Any resulting liquidation of the Fund
could cause the Fund to incur elevated transaction costs and could result in
negative tax consequences for its shareholders.
Market
Trading Risks and Premium/Discount Risks
Absence
of Active Market
Although
Shares of the Fund are or will be listed for trading on a U.S. exchange and may
be listed on certain foreign exchanges, there can be no assurance that an active
trading market for the Shares will develop or be maintained.
Risks
of Secondary Listings
The
Fund's Shares may be listed or traded on U.S. and non-U.S. exchanges other than
the U.S. exchange where the Fund’s primary listing is maintained. There can be
no assurance that the Fund’s Shares will continue to trade on any such exchange
or in any market or that the Fund's Shares will continue to meet the
requirements for listing or trading on any exchange or in any market. The Fund's
Shares may be less actively traded in certain markets than others, and investors
are subject to the execution and settlement risks and market standards of the
market where they or their brokers direct their trades for execution. Certain
information available to investors who trade Shares on a U.S. exchange during
regular U.S. market hours may not be available to investors who trade in other
markets, which may result in secondary market prices in such markets being less
efficient.
Secondary
Market Trading Risk
Shares
of the Fund may trade in the secondary market on days when the Fund does not
accept orders to purchase or redeem Shares. On such days, Shares may trade in
the secondary market with more significant premiums or discounts than might be
experienced on days when the Fund accepts purchase and redemption orders.
Secondary
market trading in Fund Shares may be halted by a stock exchange because of
market conditions or other reasons. In addition, trading in Fund Shares on a
stock exchange or in any market may be subject to trading halts caused by
extraordinary market volatility pursuant to "circuit breaker" rules on the stock
exchange or market. There can be no assurance that the requirements necessary to
maintain the listing or trading of Fund Shares will continue to be met or will
remain unchanged.
Shares
of the Fund May Trade at Prices Other Than NAV
Shares
of the Fund may trade at, above or below NAV. The per share NAV of the Fund will
fluctuate with changes in the market value of the Fund’s holdings. The trading
prices of Shares will fluctuate in accordance with changes in the Fund's NAV as
well as market supply and demand. The trading prices of the Fund's Shares may
deviate significantly from NAV during periods of market volatility or when the
Fund has relatively few assets or experiences a lower trading volume. In
stressed market conditions, the market for the Shares may become less liquid in
response to the deteriorating liquidity of the Fund’s portfolio. Any of these
factors may lead to the Fund's Shares trading at a premium or discount to NAV.
While the creation/redemption feature is designed to make it likely that Shares
normally will trade close to the Fund’s NAV, market prices are not expected to
correlate exactly with the Fund's NAV due to timing reasons as well as market
supply and demand factors. In addition, disruptions to creations and redemptions
or the existence of extreme market volatility may result in trading prices that
differ significantly from NAV. If a shareholder purchases at a time when the
market price is at a premium to the NAV or sells at a time when the market price
is at a discount to the NAV, the shareholder may sustain losses.
Since
foreign exchanges may be open on days when the Fund does not price 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 Shares.
Costs
of Buying or Selling Fund Shares
Buying
or selling Fund Shares involves two types of costs that apply to all securities
transactions. When buying or selling Shares of the Fund through a broker, you
will likely incur a brokerage commission or other charges imposed by brokers as
determined by that broker. In addition, you may incur the cost of the "spread" -
that is, the difference between what professional investors are willing to pay
for Fund Shares (the "bid" price) and the market price at which they are willing
to sell Fund Shares (the "ask" price). Because of the costs inherent in buying
or selling Fund Shares, frequent trading may detract significantly from
investment results and an investment in Fund Shares may not be advisable for
investors who anticipate regularly making small investments.
Trading
Halt Risk
An
exchange or market may close or issue trading halts on specific securities, or
the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading losses.
Turnover
Risk
The
Fund may engage in frequent and active trading, which may significantly increase
the Fund’s portfolio turnover rate. At times, the Fund may have a portfolio
turnover rate substantially greater than 100%. For example, a portfolio turnover
rate of 300% is equivalent to the Fund buying and selling all of its securities
three times during the course of a year. A high portfolio turnover rate would
result in high brokerage costs for the Fund, may result in higher taxes when
shares are held in a taxable account and lower Fund performance.
Valuation
Risk
The
sales price the Fund could receive for a security may differ from the Fund’s
valuation of the security and may differ from the value used by the Underlying
Index, particularly for securities that trade in low value or volatile markets
or that are valued using a fair value methodology (such as during trading
halts). Because non-U.S. exchanges may be open on days when the Fund does not
price its Shares, the value of the securities in the Fund's portfolio may change
on days when shareholders will not be able to purchase or sell the Fund's
Shares.
A
FURTHER DISCUSSION OF OTHER RISKS
The
Fund may also be subject to certain other risks associated with its investments
and investment strategies.
Leverage
Risk
Under
the 1940 Act, the Fund is permitted to borrow from a bank up to 33 1/3% of its
net assets for short term or emergency purposes. The Fund may borrow money at
fiscal quarter end to maintain the required level of diversification to qualify
as a regulated investment company ("RIC") for purposes of the Internal Revenue
Code of 1986, as amended (the "Code"). As a result, the Fund may be exposed to
the risks of leverage, which may be considered a speculative investment
technique. Leverage magnifies the potential for gain and loss on amounts
invested and therefore increases the risks associated with investing in the
Fund. If the value of the Fund's assets increases, then leveraging would cause
the Fund's NAV to increase more sharply than it would have had the Fund not
leveraged. Conversely, if the value of the Fund's assets decreases, leveraging
would cause the Fund's NAV to decline more sharply than it otherwise would have
had the Fund not leveraged. The Fund may incur additional expenses in connection
with borrowings.
Qualification
as a Regulated Investment Company Risk
The
Fund must meet a number of diversification requirements to qualify as a RIC
under Section 851 of the Code and, if qualified, to continue to qualify. If the
Fund experiences difficulty in meeting those requirements for any fiscal
quarter, it might enter into borrowings in order to increase the portion of the
Fund’s total assets represented by cash, cash items, and U.S. government
securities shortly thereafter and, as of the close of the following fiscal
quarter, to attempt to meet the requirements. However, the Fund may incur
additional expenses in connection with any such borrowings, and increased
investments by the Fund in cash, cash items, and U.S. government securities
(whether the Fund makes such investments from borrowings) are likely to reduce
the Fund’s return to investors.
Tax
Treaty Reclaims Uncertainty
When
the Fund receives dividend and interest income (if any) from issuers in certain
countries, such distributions may be subject to partial withholding by local tax
authorities in order to satisfy potential local tax obligations. The Fund may
file claims to recover such withholding tax in jurisdictions where withholding
tax reclaim is possible, which may be the case as a result of bilateral treaties
between the United States and local governments. Whether or when the Fund will
receive a withholding tax refund in the future is within the control of the tax
authorities in such countries. Where the Fund expects to recover withholding tax
based on a continuous assessment of probability of recovery, the NAV of the Fund
generally includes accruals for such tax refunds. The Fund continues to evaluate
tax developments for potential impact to the probability of recovery. If the
likelihood of receiving refunds materially decreases, for example due to a
change in tax regulation or approach,
accruals
in the Fund’s NAV for such refunds may need to be written down partially or in
full, which will adversely affect that Fund’s NAV. Investors in the Fund at the
time an accrual is written down will bear the impact of any resulting reduction
in NAV regardless of whether they were investors during the accrual period.
Conversely, if the Fund receives a tax refund that has not been previously
accrued, investors in the Fund at the time the claim is successful will benefit
from any resulting increase in the Fund’s NAV. Investors who sold their shares
prior to such time will not benefit from such NAV increase.
PORTFOLIO
HOLDINGS INFORMATION
A
description of the policies and procedures of Global X Funds®
(the "Trust") with respect to the disclosure of the Fund's portfolio securities
is available in the Fund's Statement of Additional Information ("SAI"). The top
holdings of the Fund and Fund Fact Sheets providing information regarding the
Fund's top holdings can be found at www.globalxetfs.com/explore/(click on the
name of your Fund) and may be requested by calling 1-888-493-8631.
FUND
MANAGEMENT
Investment
Adviser
Global
X Management Company LLC (the "Adviser") serves as the investment adviser and
the administrator for the Fund. Subject to the supervision of the Board of
Trustees, the Adviser is responsible for managing the investment activities of
the Fund and the Fund's business affairs and other administrative matters. The
Adviser has been a registered investment adviser since 2008. The Adviser is a
Delaware limited liability company with its principal offices located at 605 3rd
Avenue, 43rd Floor, New York, New York 10158. As of October 16, 2023, the
Adviser provided investment advisory services for assets of approximately $41
billion.
Pursuant
to a Supervision and Administration Agreement and subject to the general
supervision of the Board of Trustees, the Adviser provides, or causes to be
furnished, all supervisory, administrative and other services reasonably
necessary for the operation of the Fund and also bears the costs of various
third-party services required by the Fund, including audit, certain custody,
portfolio accounting, legal, transfer agency and printing costs. The Supervision
and Administration Agreement also requires the Adviser to provide investment
advisory services to the Fund pursuant to an Investment Advisory
Agreement.
The
Fund pays the Adviser a fee ("Management Fee") in return for providing
investment advisory, supervisory and administrative services under an all-in fee
structure. The Fund will pay a monthly Management Fee to the Adviser at the
annual rate set forth in the table below (stated as a percentage of the Fund's
average daily net assets).
|
|
|
|
|
|
Fund |
Management
Fee |
Global
X MSCI Emerging Markets Covered Call ETF |
0.60% |
In
addition, the Fund bears other fees and expenses that are not covered by the
Supervision and Administration Agreement, which may vary and will affect the
total expense ratio of the Fund, such as taxes, brokerage fees, commissions and
other transaction expenses, interest and extraordinary expenses (such as
litigation and indemnification expenses). The Adviser may earn a profit on the
Management Fee paid by the Fund. Also, the Adviser, and not the shareholders of
the Fund, would benefit from any price decreases in third-party services,
including decreases resulting from an increase in net assets.
Pursuant
to an Expense Limitation Agreement, the Adviser has contractually agreed to
reimburse or waive fees and/or limit expenses for the Fund to the extent
necessary to assure that the operating expenses of the Fund (exclusive of taxes,
brokerage fees, commissions, and other transaction expenses, interest, and
extraordinary expenses (such as litigation and indemnification expenses)) will
not exceed 0.60% of the average daily net assets of the Fund per year until at
least March 1, 2025.
The
Adviser or its affiliates may pay compensation out of profits derived from the
Adviser's Management Fee or other resources and not as an additional charge to
the Fund, to certain financial institutions (which may include banks, securities
dealers and other industry professionals) for the sale and/or distribution of
Fund Shares or the retention and/or servicing of Fund investors and Fund Shares
("revenue sharing"). These payments are in addition to any other fees described
in the fee table or elsewhere in the Prospectus or SAI. Examples of "revenue
sharing" payments include, but are not limited to, payments to financial
institutions for "shelf space" or access to a third party platform or fund
offering list or other marketing programs, including, but not limited to,
inclusion of the Fund on preferred or recommended sales lists, mutual fund
"supermarket" platforms and other formal sales programs; granting the Adviser
access to the financial institution's sales force; granting the Adviser access
to the financial institution's conferences and meetings; assistance in training
and educating the financial institution's personnel; and obtaining other forms
of marketing support. The level of revenue sharing payments made to financial
institutions may be a fixed fee or based upon one or more of the following
factors: gross sales, current assets and/or
number
of accounts of the Fund attributable to the financial institution, or other
factors as agreed to by the Adviser and the financial institution or any
combination thereof. The amount of these revenue sharing payments is determined
at the discretion of the Adviser, from time to time, may be substantial, and may
be different for different financial institutions depending upon the services
provided by the financial institution. Such payments may provide an incentive
for the financial institution to make Shares of the Fund available to its
customers and may allow the Fund greater access to the financial institution's
customers.
Approval
of Advisory Agreement
Discussions
regarding the basis for the Board of Trustees' approval of the Supervision and
Administration Agreement and the related Investment Advisory Agreement for the
Fund will be available in the Fund's first shareholder report, either the
Semi-Annual Report or Annual Report to shareholders for the period ended April
30 or October 31, respectively.
Portfolio
Management
The
Portfolio Managers who are currently responsible for the day-to-day management
of the Fund's portfolio are Nam To, Wayne Xie, Vanessa Yang and Sandy Lu.
Nam
To:
Nam To, CFA, Portfolio Manager, joined the Adviser in July 2017. Prior to that,
Mr. To was a Global Economics Research Analyst at Bunge Limited from 2014 to
2017. Mr. To received his Bachelor of Arts in Philosophy and Economics from
Cornell University in 2014.
Wayne
Xie:
Wayne Xie, Director of Portfolio Management, joined the Adviser in July 2018 as
a Portfolio Management Associate. Previously, Mr. Xie was an Analyst at VanEck
Associates on the Equity ETF Investment Management team from 2010 to 2018 and a
Portfolio Administrator at VanEck Associates from 2007 to 2010. Mr. Xie received
his Bachelor of Science from the State University of New York at Buffalo in
2002.
Vanessa
Yang:
Vanessa Yang, Portfolio Manager, joined the Adviser in 2016 as a Portfolio
Administrator. She was appointed to the portfolio management team in June 2019.
Previously, Ms. Yang was a Portfolio Administrator at VanEck Associates from
2011 to 2014. Ms. Yang received her MS in Financial Engineering from Drucker
School of Management in 2010 and her BS in Economics from Guangdong University
of Foreign Studies in 2008.
Sandy
Lu:
Sandy Lu, CFA, Portfolio Manager, joined the Adviser in September 2021.
Previously, Mr. Lu worked at PGIM Fixed Income from 2014 to 2021, where he led
the portfolio analyst team covering Emerging Markets Debt. He began his career
in 2010 as an Investment Analyst at Lincoln Financial Group. Mr. Lu graduated
with a B.S. in Economics from the Wharton School of the University of
Pennsylvania. He earned his CFA designation in September 2015, and holds the
Series 3 license.
The
SAI provides additional information about the Portfolio Managers' compensation
structure, other accounts managed by the Portfolio Managers, and the Portfolio
Managers' ownership of Shares of the Fund.
DISTRIBUTOR
SEI
Investments Distribution Co. ("Distributor") distributes Creation Units for the
Fund on an agency basis. The Distributor does not maintain a secondary market in
Shares. The Distributor has no role in determining the policies of the Fund or
the securities that are purchased or sold by the Fund. The Distributor's
principal address is One Freedom Valley Drive, Oaks, PA 19456. The Distributor
is not affiliated with the Adviser.
BUYING
AND SELLING FUND SHARES
Shares
of the Fund trade on a national securities exchange and in the secondary market
during the trading day. Shares can be bought and sold throughout the trading day
like other shares of publicly-traded securities. There is no minimum investment
for purchases made on a national securities exchange. When buying or selling
Shares through a broker, you will incur customary brokerage commissions and
charges. In addition, you will also incur the cost of the "spread," which is the
difference between what professional investors are willing to pay for Shares
(the "bid" price) and the price at which they are willing to sell Shares (the
"ask" price). The commission is frequently a fixed amount and may be a
significant proportional cost for investors seeking to buy or sell small amounts
of Shares. The spread with respect to Shares varies over time based on the
Fund's trading volume and market liquidity, and is generally lower if the Fund
has significant trading volume and market liquidity and higher if the Fund has
little trading volume and market liquidity. Because of the costs of buying and
selling Shares, frequent trading may reduce investment return.
Shares
of the Fund may be acquired or redeemed directly from the Fund only by
Authorized Participants (as defined in the SAI) and only in Creation Units or
multiples thereof, as discussed in the "Creations and Redemptions" section in
the SAI.
Shares
generally trade in the secondary market in amounts less than a Creation Unit.
Shares of the Fund trade under the trading symbol listed for the Fund in the
Fund Summary section of this Prospectus.
The
Fund is listed on a national securities exchange, which is open for trading
Monday through Friday and is closed on weekends and the following holidays, as
observed: 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.
Book
Entry
Shares
of the Fund are held in book-entry form, which means that no stock certificates
are issued. The Depository Trust Company ("DTC") or its nominee is the record
owner of all outstanding Shares and is recognized as the owner of all Shares for
all purposes. Investors owning Shares are beneficial owners as shown on the
records of DTC or its participants. DTC serves as the securities depository for
all Shares. Participants include DTC, securities brokers and dealers, banks,
trust companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
Shares, you are not entitled to receive physical delivery of stock certificates
or to have Shares registered in your name, and you are not considered a
registered owner of Shares. Therefore, to exercise any rights as an owner of
Shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any securities that you hold in
book entry or "street name" form.
FREQUENT
TRADING
Unlike
frequent trading of shares of a traditional open-end mutual fund (i.e., not
exchange-traded shares), frequent trading of Shares on the secondary market does
not disrupt portfolio management, increase the Fund's trading costs, lead to
realization of capital gains, or otherwise harm Fund shareholders because these
trades do not involve the Fund directly. A few institutional investors are
authorized to purchase and redeem the Fund's Shares directly with the Fund. When
these trades are effected in-kind (i.e., for securities, and not for cash), they
do not cause any of the harmful effects (noted above) that may result from
frequent cash trades. Moreover, the Fund imposes transaction fees on in-kind
purchases and redemptions of the Fund intended to cover the custodial and other
costs incurred by the Fund in effecting in-kind trades. These fees increase if
an investor substitutes cash in part or in whole for securities, reflecting the
fact that the Fund's trading costs increase in those circumstances, although
transaction fees are subject to certain limits and therefore may not cover all
related costs incurred by the Fund. For these reasons, the Board of Trustees has
determined that it is not necessary to adopt policies and procedures to detect
and deter frequent trading and market-timing in Shares of the Fund.
DISTRIBUTION
AND SERVICE PLAN
The
Board of Trustees of the Trust has adopted a Distribution and Services Plan
("Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund is
authorized to pay distribution fees in connection with the sale and distribution
of its Shares and pay service fees in connection with the provision of ongoing
services to shareholders of each class and the maintenance of shareholder
accounts in an amount up to 0.25% of its average daily net assets each
year.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no current plans
to impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing Shares subject to distribution fees and service fees, you may pay
more over time than you would by purchasing Shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the rules of
FINRA. The net income attributable to Shares will be reduced by the amount of
distribution fees and service fees and other expenses of the Fund.
DIVIDENDS
AND DISTRIBUTIONS
Dividends
from net investment income, including any net foreign currency gains, generally
are declared and paid at least annually and any net realized capital gains are
distributed at least annually. In order to improve tracking error or comply with
the distribution requirements of the Code, dividends may be declared and paid
more frequently than annually for the Fund.
Dividends
and other distributions on Shares are distributed on a pro rata basis to
beneficial owners of such Shares. Dividend payments are made through DTC
participants to beneficial owners then of record with proceeds received from the
Fund. Dividends and security gain distributions are distributed in U.S. dollars
and cannot be automatically reinvested in additional Shares.
No
dividend reinvestment service is provided by the Trust. Broker-dealers may make
available the DTC book-entry Dividend Reinvestment Service for use by beneficial
owners of the Fund for reinvestment of their dividend distributions. Beneficial
owners should contact their broker to determine the availability and costs of
the service and the details of participation therein. Brokers may require
beneficial owners to adhere to specific procedures and timetables. If this
service is available and used, dividend distributions of both income and
realized gains will be automatically reinvested in additional whole Shares
purchased in the secondary market.
TAXES
The
following is a summary of certain tax considerations that may be relevant to an
investor in the Fund. Except where otherwise indicated, the discussion relates
to investors who are individual United States citizens or residents and is based
on current tax law. You should consult your tax advisor for further information
regarding federal, state, local and/or foreign tax consequences relevant to your
specific situation.
Distributions.
The Fund receives income and gains on its investments. The income, less expenses
incurred in the operation of the Fund, constitutes the Fund's net investment
income from which dividends may be paid to you. The Fund intends to qualify as a
RIC under the Code for federal tax purposes and to distribute to shareholders
substantially all of its net investment income and net capital gain each year.
Except as otherwise noted below, you will generally be subject to federal income
tax on the Fund's distributions to you. For federal income tax purposes, Fund
distributions attributable to short-term capital gains and net investment income
are taxable to you as ordinary income. Distributions attributable to net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) of the Fund generally are taxable to you as long-term capital gains.
This is true no matter how long you own your Shares or whether you take
distributions in cash or additional Shares. The maximum long-term capital gain
rate applicable to individuals is 20%.
Distributions
of "qualifying dividends" will also generally be taxable to you at long-term
capital gain rates as long as certain requirements are met. In general, if 95%
or more of the gross income of the Fund (other than net capital gain) consists
of dividends received from domestic corporations or "qualified" foreign
corporations ("qualifying dividends"), then all distributions received by
individual shareholders of the Fund will be treated as qualifying dividends. But
if less than 95% of the gross income of the Fund (other than net capital gain)
consists of qualifying dividends, then distributions received by individual
shareholders of the Fund will be qualifying dividends only to the extent they
are derived from qualifying dividends earned by the Fund. For the lower rates to
apply, you must have owned your Shares for at least 61 days during the 121-day
period beginning on the date that is 60 days before the Fund's ex-dividend date
(and the Fund will need to have met a similar holding period requirement with
respect to the Shares of the corporation paying the qualifying dividend). The
amount of the Fund's distributions that qualify for this favorable treatment may
be reduced as a result of the Fund's securities lending activities (if any), a
high portfolio turnover rate or investments in debt securities or
"non-qualified" foreign corporations. In addition, whether distributions
received from foreign corporations are qualifying dividends will depend on
several factors including the country of residence of the corporation making the
distribution. Accordingly, distributions from many of the Fund's holdings may
not be qualifying dividends.
A
portion of distributions paid to shareholders that are corporations may also
qualify for the dividends-received deduction for corporations, subject to
certain holding period requirements and debt financing limitations. The amount
of the dividends qualifying for this deduction may, however, be reduced as a
result of the Fund's securities lending activities, by a high portfolio turnover
rate or by investments in debt securities or foreign corporations.
Distributions
from the Fund will generally be taxable to you in the year in which they are
paid, with one exception. Dividends and distributions declared by the Fund in
October, November or December and paid in January of the following year are
taxed as though they were paid on December 31.
You
should note that if you buy Shares of the Fund shortly before it makes a
distribution, the distribution will be fully taxable to you even though, as an
economic matter, it simply represents a return of a portion of your investment.
This adverse tax result is known as "buying into a dividend."
You
will be informed of the amount of your ordinary income dividends, qualifying
dividend income, and capital gain distributions at the time they are paid, and
you will be advised of the tax status for federal income tax purposes shortly
after the
close
of each calendar year. If you have not held Shares for a full year, the Fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund.
The
Fund's investments in partnerships, including in partnerships defined as
Qualified Publicly Traded Partnerships for tax purposes, may result in the Fund
being subject to state, local or foreign income, franchise or withholding tax
liabilities.
Excise
Tax Distribution Requirements.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
RIC's "required distribution" for the calendar year ending within the RIC's
taxable year over the "distributed amount" for such calendar year. The term
"required distribution" means the sum of (a) 98% of ordinary income (generally
net investment income) for the calendar year, (b) 98.2% of capital gain (both
long-term and short-term) for the one-year period ending on October 31 (or
December 31, if the Fund so elects), and (c) the sum of any untaxed,
undistributed net investment income and net capital gains of the RIC for prior
periods. The term "distributed amount" generally means the sum of (a) amounts
actually distributed by the Fund from its current year's ordinary income and
capital gain net income and (b) any amount on which the Fund pays income tax for
the taxable year ending in the calendar year. Although the Fund intends to
distribute its net investment income and net capital gains so as to avoid excise
tax liability, the Fund may determine that it is in the interest of shareholders
to distribute a lesser amount. The Fund intends to declare and pay these amounts
in December (or in January, which must be treated by you as received in
December) to avoid these excise taxes, but can give no assurances that its
distributions will be sufficient to eliminate all such taxes.
Foreign
Currencies.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency, and the
time the Fund actually collects such receivables or pays such liabilities, are
treated as ordinary income or ordinary loss. Similarly, gains or losses from the
disposition of foreign currencies, from the disposition of debt securities
denominated in a foreign currency, or from the disposition of a forward foreign
currency contract which are attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the asset and the date of
disposition also are treated as ordinary income or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, increase or
decrease the amount of the Fund's investment company taxable income available to
be distributed to its shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain.
Foreign
Taxes.
The Fund will be subject to foreign withholding taxes with respect to certain
payments received from sources in foreign countries. If at the close of the
taxable year more than 50% in value of the Fund's assets consists of stock in
foreign corporations, the Fund will be eligible to make an election to treat a
proportionate amount of those taxes as constituting a distribution to each
shareholder, which would allow you either (subject to certain limitations) (1)
to credit that proportionate amount of taxes against your U.S. Federal income
tax liability as a foreign tax credit or (2) to take that amount as an itemized
deduction. If the Fund is not eligible or chooses not to make this election, it
will be entitled to deduct such taxes in computing the amounts it is required to
distribute.
Sales
and Exchanges.
The sale of Shares is a taxable event on which a gain or loss is recognized. The
amount of gain or loss is based on the difference between your tax basis in
Shares and the amount you receive for them upon disposition. Generally, you will
recognize long-term capital gain or loss if you have held your Shares for over
one year at the time you sell or exchange them. Gains and losses on Shares held
for one year or less will generally constitute short-term capital gains, except
that a loss on Shares held six months or less will be re-characterized as a
long-term capital loss to the extent of any long-term capital gain distributions
that you have received on the Shares. A loss realized on a sale or exchange of
Shares may be disallowed under the so-called "wash sale" rules to the extent the
Shares disposed of are replaced with other Shares of that same Fund within a
period of 61 days beginning 30 days before and ending 30 days after the Shares
are disposed of, such as pursuant to a dividend reinvestment in Shares of the
Fund. If disallowed, the loss will be reflected in an adjustment to the basis of
the Shares acquired.
Taxes
on Purchase and Redemption of Creation Units.
An Authorized Participant who exchanges equity securities for Creation Units
generally will recognize a gain or a loss. The gain or loss will be equal to the
difference between the market value of the Creation Units at the time of
purchase (plus any cash received by the Authorized Participant as part of the
issue) and the Authorized Participant's aggregate basis in the securities
surrendered (plus any cash paid by the Authorized Participant as part of the
issue). An Authorized Participant who exchanges Creation Units for equity
securities generally will recognize a gain or loss equal to the difference
between the Authorized Participant's basis in the Creation Units (plus any cash
paid by the Authorized Participant as part of the redemption) and the aggregate
market value of the securities received (plus any cash received by the
Authorized Participant as part of the redemption). The Internal Revenue Service
(the "IRS"), however, may assert that a loss realized upon an exchange of
securities for Creation Units cannot be deducted currently under the rules
governing "wash sales," or on the basis that there has been no significant
change in economic position. Persons exchanging
securities
should consult their own tax advisor with respect to whether the wash sale rules
apply and when a loss might be deductible.
IRAs
and Other Tax-Qualified Plans.
The one major exception to the preceding tax principles is that distributions
on, and sales, exchanges and redemptions of, Shares held in an IRA or other
tax-qualified plan are not currently taxable but may be taxable when funds are
withdrawn from the tax qualified plan unless the Shares were purchased with
borrowed funds.
Medicare
Tax. An
additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from the
Fund and net gains from redemptions or other taxable dispositions of Fund
Shares) of U.S. individuals, estates and trusts to the extent that such person's
"modified adjusted gross income" (in the case of an individual) or "adjusted
gross income" (in the case of an estate or trust) exceeds a threshold amount.
This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
Backup
Withholding.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury backup withholding at the applicable rate on dividends and gross sales
proceeds paid to any shareholder (i) who has either provided an incorrect tax
identification number or no number at all, (ii) who is subject to backup
withholding by the IRS, or (iii) who has failed to certify to the Fund, when
required to do so, that he or she is not subject to backup withholding or is an
"exempt recipient."
Cost
Basis Reporting. Federal
law requires that shareholders' cost basis, gain/loss, and holding period be
reported to the IRS and to shareholders on the Consolidated Form 1099s when
"covered" securities are sold. Covered securities are any RIC and/or dividend
reinvestment plan shares acquired on or after January 1, 2012.
For
those securities defined as "covered" under current IRS cost basis tax reporting
regulations, accurate cost basis and tax lot information must be maintained for
tax reporting purposes. This information is not required for Shares that are not
"covered." The Fund and its service providers do not provide tax advice. You
should consult independent sources, which may include a tax professional, with
respect to any decisions you may make with respect to choosing a tax lot
identification method. Shareholders should contact their financial
intermediaries with respect to reporting of cost basis and available elections
for their accounts.
State
and Local Taxes.
You may also be subject to state and local taxes on income and gain attributable
to your ownership of Shares. You should consult your tax advisor regarding the
tax status of distributions in your state and locality.
U.S.
Tax Treatment of Foreign Shareholders.
A non-U.S. shareholder generally will not be subject to U.S. withholding tax on
gain from the redemption of Shares or on capital gain dividends (i.e., dividends
attributable to long-term capital gains of the Fund) unless, in the case of a
shareholder who is a non-resident 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. Non-U.S. shareholders generally will be subject to
U.S. withholding tax at a rate of 30% (or a lower treaty rate, if applicable) on
distributions by the Fund of net investment income, other ordinary income, and
the excess, if any, of net short-term capital gain over net long-term capital
loss for the year, unless the distributions are effectively connected with a
U.S. trade or business of the shareholder. Exemptions from U.S. withholding tax
are provided for certain capital gain dividends paid by the Fund from net
long-term capital gains, if any, interest-related dividends paid by the Fund
from its qualified net interest income from U.S. sources and short-term capital
gain dividends if such amounts are reported by the Fund. Non-U.S. shareholders
are subject to special U.S. tax certification requirements to avoid backup
withholding and claim any treaty benefits. Non-U.S. shareholders should consult
their tax advisors regarding the U.S. and foreign tax consequences of investing
in the Fund.
Other
Reporting and Withholding Requirements. Under
the Foreign Account Tax Compliance Act ("FATCA"), a 30% withholding tax is
imposed on income dividends paid by the Fund to certain foreign entities,
referred to as foreign financial institutions or nonfinancial foreign entities,
that fail to comply (or be deemed compliant) with extensive reporting and
withholding requirements designed to inform the U.S. Department of the Treasury
of U.S.-owned foreign investment accounts. After December 31, 2018, FATCA
withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Fund
Shares, however based on proposed regulations issued by the IRS, which may be
relied upon currently, such withholding is no longer required unless final
regulations provide otherwise (which is not expected). Information about a
shareholder in the Fund may be disclosed to the IRS, non-U.S. taxing authorities
or other parties as necessary to comply with FATCA. Withholding also may be
required if a foreign entity that is a shareholder of the Fund fails to provide
the appropriate certifications or other documentation concerning its status
under FATCA.
Consult
Your Tax Professional.
Your investment in the Fund could have additional tax consequences. You should
consult your tax professional for information regarding all tax consequences
applicable to your investments in the Fund. More tax information relating to the
Fund is also provided in the SAI. This short summary is not intended as a
substitute for careful tax planning.
DETERMINATION
OF NET ASSET VALUE
The
Fund calculates its NAV as of the regularly scheduled close of business of the
Exchange (normally 4:00 p.m. Eastern time) on each day that the Exchange is open
for business, based on prices at the time of closing, provided that any assets
or liabilities denominated in currencies other than the U.S. dollar shall be
translated into U.S. dollars at the prevailing market rates on the date of
valuation as quoted by one or more major banks or dealers that make a two-way
market in such currencies (or a data service provider based on quotations
received from such banks or dealers). The NAV of the Fund is calculated 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 outstanding Shares,
generally rounded to the nearest cent. The price of Fund Shares is based on
market price, and because ETF shares trade at market prices rather than NAV,
Shares may trade at a price greater than NAV (a premium) or less than NAV (a
discount).
In
calculating the Fund's NAV, the Fund's investments are generally valued using
market valuations. A market valuation generally means a valuation (i) obtained
from an exchange or a major market maker (or dealer), (ii) based on a price
quotation or other equivalent indication of value supplied by an exchange, a
pricing service, or a major market maker (or dealer), or (iii) based on
amortized cost, provided the amortized cost is approximately the value on
current sale of the security. In the case of shares of funds that are not traded
on an exchange, a market valuation means such fund's published NAV per share.
The Fund may use various pricing services or discontinue the use of any pricing
service.
In
the event that current market valuations are not readily available or such
valuations do not reflect current market values, the affected investments will
be valued using fair value pricing pursuant to the pricing policy and procedures
approved by the Board of Trustees. A price obtained from a pricing service based
on such pricing service's valuation matrix may be used to fair value a security.
The frequency with which the Fund's investments are valued using fair value
pricing is primarily a function of the types of securities and other assets in
which the Fund invests pursuant to its investment objective, strategies and
limitations.
Investments
that may be valued using fair value pricing include, but are not limited to: (i)
an unlisted security related to corporate actions; (ii) a restricted security
(i.e., one that may not be publicly sold without registration under the
Securities Act of 1933, as amended (the "Securities Act")); (iii) a security
whose trading has been suspended or which has been de-listed from its primary
trading exchange; (iv) a security that is thinly traded; (v) a security in
default or bankruptcy proceedings for which there is no current market
quotation; (vi) a security affected by currency controls or restrictions; and
(vii) a security affected by a significant event (i.e., an event that occurs
after the close of the markets on which the security is traded but before the
time as of which the Fund's NAV is computed and that may materially affect the
value of the Fund's investments). Examples of events that may be "significant
events" are government actions, natural disasters, armed conflict, acts of
terrorism, and significant market fluctuations.
Valuing
the Fund's investments using fair value pricing will result in using prices for
those investments that may differ from current market valuations. Use of fair
value prices and certain current market valuations could result in a difference
between the prices used to calculate the Fund's NAV and the prices used by the
Fund's Underlying Index, which, in turn, could result in a difference between
the Fund's performance and the performance of the Fund's Underlying
Index.
Because
foreign markets may be open on different days than the days during which a
shareholder may purchase Shares, the value of the Fund's investments may change
on days when shareholders are not able to purchase Shares. Additionally, due to
varying holiday schedules, redemption requests made on certain dates may result
in a settlement period exceeding seven calendar days.
The
value of assets denominated in foreign currencies is converted into U.S. dollars
using exchange rates deemed appropriate by the Adviser. Any use of a different
rate from the rates used by the Index Provider may adversely affect the Fund's
ability to track its Underlying Index.
The
right of redemption may be suspended or the date of payment postponed with
respect to the Fund (1) for any period during which the NYSE Arca or listing
exchange is closed (other than customary weekend and holiday closings), (2) for
any period during which trading on the NYSE Arca or listing exchange is
suspended or restricted, (3) for any period during which an emergency exists as
a result of which disposal of the Fund's portfolio securities or determination
of its NAV is not reasonably practicable, or (4) in such other circumstances as
the SEC permits.
Subject
to oversight by the Board of Trustees, the Adviser, as “valuation designee,”
performs fair value determinations of Fund investments. In addition, the
Adviser, as the valuation designee, is responsible for periodically assessing
any material risks associated with the determination of the fair value of a
Fund's investments; establishing and applying fair value methodologies;
testing
the appropriateness of fair value methodologies; and overseeing and evaluating
third-party pricing services. The Adviser has established a fair value committee
to assist with its designated responsibilities as valuation
designee.
PREMIUM/DISCOUNT
AND SHARE INFORMATION
Once
available, information regarding how often the Shares of the Fund traded on a
national securities exchange at a price above (i.e., at a premium to) or below
(i.e., at a discount to) the NAV of the Fund; the Fund’s per share NAV, and the
median bid-ask spread of the Shares can be found at
www.globalxetfs.com.
INFORMATION
REGARDING THE INDEX AND THE INDEX PROVIDER
Cboe
MSCI Emerging Markets IMI BuyWrite Index
The
Cboe MSCI Emerging Markets IMI BuyWrite Index measures the performance of a
theoretical portfolio that employs a covered call strategy. A covered call
strategy is generally considered to be an investment strategy in which an
investor buys a security, and "writes" (or sells) a call option on that security
in an attempt to generate more income. Each time a fund writes a covered call
option, the fund receives a payment of money from the investor who buys the
option from the fund, which is called the premium. If the fund's value declines
because of a decline in the value of a reference index, the premium that the
fund received for writing the covered call option offsets this loss to some
extent. The Cboe MSCI Emerging Markets IMI BuyWrite Index’s covered call
strategy buys the underlying securities of a reference index and “writes” (or
sells) covered call options on the underlying securities of a reference fund.
Specifically, the Cboe MSCI Emerging Markets IMI BuyWrite Index holds a
theoretical portfolio of the underlying securities of the Cboe MSCI Emerging
Markets Investable Market Index (the “Reference Index”) and "writes" (or sells)
a succession of one-month at-the-money (“ATM”) covered call options on the
iShares Core Cboe MSCI Emerging Markets ETF (“Reference Fund”), or such other
fund that seeks to track the performance of the Cboe MSCI Emerging Markets
Investable Market Index, as determined by the Index Provider. The call options
written (sold) by the Fund will be FLexible EXchange (“FLEX”) options. The Fund
invests in the securities reflected in the Cboe MSCI Emerging Markets IMI
BuyWrite Index or in investments (including other underlying ETFs) that are
substantially identical to such component securities and cannot invest directly
in the Cboe MSCI Emerging Markets IMI BuyWrite Index itself. The implications of
the written (sold) FLEX call options are described in more detail
here:
Call
Options
– When the Fund sells a call option, the Fund receives a premium in exchange for
an obligation to sell shares of a reference asset at a strike price on the
expiration date if the buyer of the call option exercises it. If the reference
asset closes above the strike price as of the expiration date and the buyer
exercises the call option, the Fund will have to pay the difference between the
value of the reference asset and the strike price. If the reference asset closes
below the strike price as of the expiration date, the call option may end up
worthless and the Fund retains the premium.
FLEX
Options
– FLEX options are options guaranteed by the Options Clearing Corporation (OCC),
that allow investors to customize key contract terms, including expiration date,
exercise style, exercise price, and expanded position limits.
On
a monthly basis, the Cboe MSCI Emerging Markets IMI BuyWrite Index’s
hypothetical portfolio will write (sell) a succession of one-month FLEX call
options on the Reference Fund corresponding to approximately 100% of the value
of the securities in the Cboe MSCI Emerging Markets Investable Market Index, and
will cover such options by holding investments (including other underlying ETFs)
that are substantially identical to such component securities. The exercise
price of each FLEX call option written is the listed option reference price
closest to the Volume Weighted Average Price (“VWAP”) of the Reference Fund from
12:59 p.m. ET to 1:00 p.m. ET on the roll date or, if the Reference Fund does
not trade during this period, the last mid-price of the Reference Fund before
1:00 p.m. ET. The roll date is a specified day of each month when the open call
options position of the Cboe MSCI Emerging Markets IMI BuyWrite Index is
liquidated, and a new call option position is opened that will expire as of the
next roll date. The roll date for the Cboe MSCI Emerging Markets IMI BuyWrite
Index is the business day prior to the standard monthly listed option expiry
date, the latter typically being the third Friday of each month. Each option
position will (i) be held until one day prior to the expiration date (i.e.,
generally the Thursday preceding the third Friday of the month) and liquidated
at a price determined at 2:00p.m. ET; (ii) expire on its date of maturity (in
the next calendar month); and (iii) only be subject to exercise on its
expiration date. Because FLEX options may not trade regularly, the Cboe MSCI
Emerging Markets IMI BuyWrite Index will utilize a model-based valuation for the
FLEX options that references the quoted prices for listed options on the
Reference Fund.
The
MSCI Emerging Markets Investable Market Index is an equity benchmark which
measures the performance of the large, mid and small-capitalization equity
market across Emerging Markets, as defined by MSCI, Inc. (the “Index Provider”).
The
MSCI
Emerging Markets Investable Market Index is a free float-adjusted market
capitalization weighted index that includes securities classified as Emerging
Markets according to the Index Provider, which screens companies using size,
liquidity and other criteria in order to determine the investable universe. As
of August 31, 2023, the MSCI Emerging Markets Investable Market Index’s largest
exposures were to constituents with material exposure to China, India and
Taiwan, and to constituents representing the financials and information
technology sectors.
Disclaimer
THE
FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MSCI INC. ("MSCI"), ANY OF
ITS AFFILIATES, ANY OF ITS INFORMATION PROVIDERS OR ANY OTHER THIRD PARTY
INVOLVED IN, OR RELATED TO, COMPILING, COMPUTING OR CREATING ANY MSCI INDEX
(COLLECTIVELY, THE ''MSCI PARTIES"). THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY
OF MSCI. MSCI AND THE MSCI INDEX NAMES ARE SERVICE MARK (S) OF MSCI OR ITS
AFFILIATES AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY THE ADVISER.
NONE OF THE MSCI PARTIES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, TO THE ISSUER OR OWNERS OF THIS FUND OR ANY OTHER PERSON OR ENTITY
REGARDING THE ADVISABILITY OF INVESTING IN FUNDS GENERALLY OR IN THIS FUND
PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO TRACK CORRESPONDING STOCK
MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN
TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI INDEXES WHICH ARE
DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO THIS FUND OR THE
ISSUER OR OWNERS OF THIS FUND OR ANY OTHER PERSON OR ENTITY. NONE OF THE MSCI
PARTIES HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUER OR OWNERS OF THIS
FUND OR ANY OTHER PERSON OR ENTITY INTO CONSIDERATION IN DETERMINING, COMPOSING
OR CALCULATING THE MSCI INDEXES. NONE OF THE MSCI PARTIES IS RESPONSIBLE FOR OR
HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES
OF THIS FUND TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION
BY OR THE CONSIDERATION INTO WHICH THIS FUND IS REDEEMABLE. FURTHER, NONE OF THE
MSCI PARTIES HAS ANY OBLIGATION OR LIABILITY TO THE ISSUER OR OWNERS OF THIS
FUND OR ANY OTHER PERSON OR ENTITY IN CONNECTION WITH THE ADMINISTRATION,
MARKETING OR OFFERING OF THIS FUND. ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR
INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI INDEXES FROM SOURCES THAT
MSCI CONSIDERS RELIABLE, NONE OF THE MSCI PARTIES WARRANTS OR GUARANTEES THE
ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX OR ANY DATA
INCLUDED THEREIN. NONE OF THE MSCI PARTIES MAKES ANY WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ISSUER OF THE FUND. OWNERS OF THE
FUND, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF ANY MSCI INDEX OR ANY DATA
INCLUDED THEREIN. NONE OF THE MSCI PARTIES SHALL HAVE ANY LIABILITY FOR ANY
ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX OR
ANY DATA INCLUDED THEREIN. FURTHER, NONE OF THE MSCI PARTIES MAKES ANY EXPRESS
OR IMPLIED WARRANTIES OF ANY KIND. AND THE MSCI PARTIES HEREBY EXPRESSLY
DISCLAIM ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
WITH RESPECT TO EACH MSCI INDEX AND ANY DATA INCLUDED THERE IN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL ANY OF THE MSCI PARTIES HAVE ANY
LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY
OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.
No
purchaser, seller or holder of this Fund, or any other person or entity, should
use or refer to any MSCI trade name, trademark or service mark to sponsor,
endorse, market or promote this Fund without first contacting MSCI to determine
whether MSCI's permission is required. Under no circumstances may any person or
entity claim any affiliation with MSCI without the prior written permission of
MSCI.
OTHER
SERVICE PROVIDERS
SEI
Investments Global Funds Services is the sub-administrator for the
Fund.
The
Bank of New York Mellon is the custodian and transfer agent for the
Fund.
Stradley
Ronon Stevens & Young, LLP serves as counsel for the Trust and the Trust's
Independent Trustees.
PricewaterhouseCoopers
LLP will serve as the Fund's independent registered public accounting firm for
the fiscal year ending October 31, 2023.
ADDITIONAL
INFORMATION
The
Trust enters into contractual arrangements with various parties, including among
others, the Fund's Adviser, sub-adviser(s) (if applicable), custodian, and
transfer agent who provide services to the Fund. Shareholders are not parties to
any such contractual arrangements and are not intended beneficiaries of those
contractual arrangements, and those contractual arrangements are not intended to
create in any shareholder any right to enforce them against the service
providers or to seek any remedy under them against the service providers, either
directly or on behalf of the Trust.
This
Prospectus provides information concerning the Fund that investors should
consider in determining whether to purchase Fund Shares. Neither this Prospectus
nor the SAI is intended, or should be read, to be or give rise to an agreement
or contract between the Trust or the Fund and any investor, or to give rise to
any rights in any shareholder or other person other than any rights under
federal or state law that may not be waived.
FINANCIAL
HIGHLIGHTS
Because
the Fund had not commenced operations as of the October 31, 2022 fiscal
year end, financial highlights are not yet available.
OTHER
INFORMATION
The
Fund is not sponsored, endorsed, sold or promoted by any national securities
exchange. No national securities exchange makes any representation or warranty,
express or implied, to the owners of Shares or any member of the public
regarding the advisability of investing in securities generally or in the Fund
particularly or the ability of the Fund to achieve its objective. No national
securities exchange has any obligation or liability in connection with the
administration, marketing or trading of the Fund.
For
purposes of the 1940 Act, shares that are issued by a registered investment
company and purchases of such shares by investment companies and companies
relying on Sections 3(c)(1) or 3(c)(7) of the 1940 Act are subject to the
restrictions set forth in Section 12(d)(1) of the 1940 Act.
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 Fund 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 with 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 NYSE Arca is satisfied by the fact that the
prospectus is available at NYSE Arca upon request. The prospectus delivery
mechanism provided in Rule 153 is only available with respect to transactions on
an exchange.
For
more information visit our website at
www.globalxetfs.com
or
call 1-888-493-8631
|
|
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Investment
Adviser and Administrator Global
X Management Company LLC 605 3rd Avenue, 43rd Floor New York, NY
10158 |
|
Distributor
SEI
Investments Distribution Co.
One
Freedom Valley Drive
Oaks,
PA 19456
|
|
Custodian
and Transfer Agent
The
Bank of New York Mellon
240
Greenwich Street
New
York, New York 10286 |
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Sub-Administrator
SEI
Investments Global Funds Services
One
Freedom Valley Drive
Oaks,
PA 19456
|
|
Legal
Counsel to the Global X Funds®
and Independent Trustees
Stradley
Ronon Stevens & Young, LLP
2000
K Street N.W., Suite 700
Washington,
DC 20006
|
|
Independent
Registered Public Accounting Firm
PricewaterhouseCoopers
LLP
Two
Commerce Square, Suite 1800
2001
Market Street
Philadelphia,
PA 19103 |
|
A
Statement of Additional
Information
dated October 24, 2023, which contains more details about the Fund, is
incorporated by reference in its entirety into this Prospectus, which means that
it is legally part of this Prospectus.
Additional
information about the Fund and its investments is available in its annual and
semi-annual reports to shareholders. The annual report explains the market
conditions and investment strategies affecting the Fund's performance during its
last fiscal year.
You
can ask questions or obtain a free copy of the Fund's semi-annual and annual
report or the Statement of Additional Information by calling 1-888-493-8631.
Free copies of the Fund's semi-annual and annual report and the Statement of
Additional Information are available from our website at
www.globalxetfs.com.
Information
about the Fund, including its semi-annual and annual reports and the Statement
of Additional Information, has been filed with the SEC. It can be reviewed and
copied on the EDGAR database on the SEC's internet site (http://www.sec.gov).
You can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
([email protected]).
PROSPECTUS
Distributor
SEI
Investments Distribution Co.
One
Freedom Valley Drive
Oaks,
PA 19456
October
24, 2023
Investment
Company Act File No.: 811-22209