cik0001137360-20220930
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PROSPECTUS
February
1, 2023 |
VanEck®
Digital Assets Mining ETF DAM
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Principal
U.S. Listing Exchange for the Fund: The NASDAQ Stock Market
LLC |
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U.S. Securities and Exchange Commission (“SEC”) has not approved or
disapproved these securities or passed upon the accuracy or adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense. |
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800.826.2333 vaneck.com
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VANECK®
DIGITAL ASSETS MINING ETF |
SUMMARY
INFORMATION
INVESTMENT
OBJECTIVE
VanEck® Digital Assets Mining
ETF (the “Fund”) seeks to track as closely as possible, before
fees and expenses, the price and yield performance of the MVIS®
Global Digital Assets Mining Index (the “Index”).
FUND FEES AND
EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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Management
Fee |
0.50 |
% |
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Other
Expenses(a)(b) |
0.00 |
% |
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Total
Annual Fund Operating Expenses(b) |
0.50 |
% |
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(a)“Other Expenses” are based
on estimated amounts for the current fiscal
year.
(b)
Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, except for the
fee payment under the investment management agreement, acquired fund fees and
expenses, interest expense, offering costs, trading expenses, taxes and
extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to
pay the offering costs until at least February 1,
2024.
EXPENSE
EXAMPLE
This example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other funds. This example does not
take into account brokerage commissions that you pay when purchasing or selling
Shares of the Fund.
The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell or hold all of your Shares at the end of those periods.
The example also assumes that your investment has a 5% annual return and that
the Fund’s operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions, your costs
would be:
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YEAR
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EXPENSES |
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1 |
$51 |
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3 |
$160 |
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5 |
$280 |
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10 |
$628 |
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PORTFOLIO
TURNOVER
The Fund will pay transaction costs, such as commissions, when it
purchases and sells securities (or “turns over” its portfolio). A higher
portfolio turnover will cause the Fund to incur additional transaction costs and
may result in higher taxes when Fund Shares are held in a taxable account. These
costs, which are not reflected in annual fund operating expenses or in the
example, may affect the Fund’s performance. During the period from March 8, 2022
(the Fund's commencement of operations) through September 30, 2022, the Fund’s
portfolio turnover rate was 39% of the average value of its
portfolio.
PRINCIPAL
INVESTMENT STRATEGIES
The
Fund normally invests at least 80% of its total assets in securities of Digital
Assets Mining Companies, as defined below. The Index is a global index that
tracks the performance of Digital Assets Mining Companies. “Digital Assets
Mining Companies” are companies that engage in and/or assist digital asset
mining activities, including mining-technology companies that provide hardware,
software services or other technologies to companies engaged in digital asset
mining activities, and companies engaged in digital asset-related projects that
facilitate the adoption of digital assets.
The
Fund will not invest in digital assets (including cryptocurrencies) (i) directly
or (ii) indirectly through the use of digital asset derivatives.
The
Fund also will not invest in initial coin offerings. Therefore the Fund is not
expected to track the price movement of any digital asset. The Fund may,
however, have indirect exposure to digital assets by virtue of its investments
in
Digital
Assets Mining Companies that use one or more digital assets as part of their
business activities or that hold digital assets as proprietary
investments.
To
be initially eligible for inclusion in the Index, a Digital Assets Mining
Company must (i) generate at least 50% of its revenues from digital assets
mining activities or mining-related technology or (ii) have projects that, when
developed, have the potential to generate at least 50% of their revenues from
digital asset mining activities or mining-related technologies. In addition,
Digital Assets Mining Companies that generate at least 50% of their revenues
from other digital asset-related projects, including those that operate digital
asset exchanges, payment gateways, software services, services to the digital
assets industry, digital asset infrastructure businesses, companies facilitating
commerce with the use of digital assets, or companies that otherwise generate
revenues related to digital asset operations, are initially eligible for
inclusion in the Index because such companies facilitate the adoption of digital
assets generally, which supports the global digital asset mining segment.
“Digital
assets” are assets issued and transferred using distributed ledger or blockchain
technology. As used herein, “digital assets” refers to all digital assets,
including both digital asset securities (i.e.,
digital assets that are securities under U.S. securities laws) and
cryptocurrencies. Many digital assets and, consequently, many Digital Asset
Mining Companies, rely on “blockchain” technologies. A “blockchain” is a
peer-to-peer shared, distributed ledger that facilitates the process of
recording transactions and tracking assets in a business network. A blockchain
stores transaction data in “blocks” that are linked together to form a “chain.”
As the number of transactions grow, so does the blockchain. Blocks record and
confirm the time and sequence of transactions, which are then logged into the
blockchain, within a discrete network governed by rules agreed on by the network
participants. Although initially associated with digital commodities, it can be
used to track tangible, intangible and digital assets and companies in all
business sectors.
Digital
Assets Mining Companies process, validate, and securely transfer digital assets.
The digital asset mining industry is a necessary and core component of the
digital asset ecosystem. Any party that chooses to participate in digital asset
mining will run various computers and machines to solve a variety of math
problems. As a result of solving these problems, the digital asset network is
secured, and transactions are recorded and stored on the blockchain. For
example, if someone (a sender) wanted to send two units of a digital asset to
another person (the recipient), digital asset miners would play the role of
processing, validating, and securely transferring the transaction. Due to
Digital Asset Mining Companies providing value to the ecosystem, they are
rewarded with newly issued units of the digital asset and/or transaction fees
when they successfully validate and secure transactions.
Digital
Asset Mining Companies may include small- and medium-capitalization companies
and foreign and emerging market issuers, and the Fund may invest in depositary
receipts and securities denominated in foreign currencies. As of December 31,
2022, the Index included 20 securities of companies with a market capitalization
range of between approximately $49.47 million and $33.77 billion and a weighted
average market capitalization of $2.33 billion. These amounts are subject to
change. The Fund’s 80% investment policy is non-fundamental and may be changed
without shareholder approval upon 60 days’ prior written notice to
shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Index by investing in a portfolio of
securities that generally replicates the Index. Unlike many investment companies
that try to “beat” the performance of a benchmark index, the Fund does not try
to “beat” the Index and does not seek temporary defensive positions that are
inconsistent with its investment objective of seeking to track the Index.
The
Fund is classified as a non-diversified fund under the Investment Company Act of
1940, as amended (the “Investment Company Act of 1940”) and, therefore, may
invest a greater percentage of its assets in a particular issuer. The Fund may
concentrate its investments in a particular industry or group of industries to
the extent that the Index concentrates in an industry or group of industries. As
of September 30, 2022, each of the information technology and financials sectors
represented a significant portion of the Fund.
PRINCIPAL
RISKS OF INVESTING IN THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk. An investment
in the Fund is not a deposit with a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government
agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Risk
of Investing in Digital Asset Miners.
Digital
asset miners and other hardware necessary for digital asset mining are subject
to the risk of malfunction, technological obsolescence, the global supply chain
issues and difficulty and cost in obtaining new hardware. Malfunctions and
normal wear and tear will, at any point in time, cause a certain number of
digital asset miners to be taken off-line for maintenance or repair. Any major
digital asset miner malfunction could cause significant economic damage. The
physical degradation of miners will require replacement of miners. Additionally,
as technology evolves, there may be a need to acquire newer models of miners to
remain competitive, which can be costly and may be in short supply. Given the
long production period to manufacture and assemble digital asset miners and the
current global semiconductor chip shortage, there can be no
assurance
that miners can acquire or maintain enough digital asset mining computers or
replace parts on a cost-effective basis for efficient and profitable digital
asset mining operations. Many engaged in mining rely on third parties to supply
digital asset miners and shortages of digital asset miners or their component
parts, material increases in digital asset miner costs, or delays in delivery of
orders, including due to trade restrictions and COVID-19-related supply chain
disruptions, could significantly interrupt plans for expanding digital asset
mining capacity in the near term and future.
Mining
operations are energy-intensive. Digital asset mining operations consume
significant amounts of electricity, which may have a negative environmental
impact and give rise to public opinion against allowing, or government
regulations restricting, the use of electricity for mining operations. Many
digital asset mining operations rely on fossil fuels to power their operations.
Public perception of the impact of digital asset mining on climate change may
reduce the demand for digital assets and increase the likelihood of government
regulation. Given the energy-intensiveness and electricity costs of mining,
miners may be restricted in where they can locate mining operations. Any
shortage of electricity supply or increase in related costs will negatively
impact the viability and expected economic return from digital asset mining.
Miners
generate revenue from both newly created digital assets, known as the “block
reward” and from fees taken upon verification of transactions. If the aggregate
revenue from transaction fees and the block reward is below a miner’s cost, the
miner may cease operations. The fixed reward for solving a new block on certain
networks, like the Bitcoin network, is being progressively reduced. This
reduction in incentives for certain digital asset mining activity, including
bitcoin mining, may cause miners to reduce or cease operations, which may reduce
the collective processing power on the applicable network. This would make such
network more vulnerable to a malicious attack and hinder transactions. While
miners have previously accepted relatively low transaction confirmation fees,
there is a risk that miners could collude to demand higher fees, which would
increase costs to digital asset users.
Special
Risk Considerations of Investing in Asian Issuers. Investments
in securities of Asian issuers involve risks and special considerations not
typically associated with investments in the U.S. securities markets. Certain
Asian economies have experienced over-extension of credit, currency devaluations
and restrictions, high unemployment, high inflation, decreased exports and
economic recessions. Economic events in any one Asian country can have a
significant effect on the entire Asian region as well as on major trading
partners outside Asia, and any adverse effect on some or all of the Asian
countries and regions in which the Fund invests. The securities markets in some
Asian economies are relatively underdeveloped and may subject the Fund to higher
action costs or greater uncertainty than investments in more developed
securities markets. Such risks may adversely affect the value of the Fund’s
investments.
Special
Risk Considerations of Investing in Chinese Issuers. Investments
in securities of Chinese issuers, including issuers outside of China, involve
certain risks and considerations not typically associated with investments in
U.S securities. These risks include among others (i) more frequent (and
potentially widespread) trading suspensions and government interventions with
respect to Chinese issuers resulting in a lack of liquidity and in price
volatility, (ii) currency revaluations and other currency exchange rate
fluctuations or blockage, (iii) the nature and extent of intervention by the
Chinese government in the Chinese securities markets, whether such intervention
will continue and the impact of such intervention or its discontinuation, (iv)
the risk of nationalization or expropriation of assets, (v) the risk that the
Chinese government may decide not to continue to support economic reform
programs, (vi) limitations on the use of brokers, (vii) higher rates of
inflation, (viii) greater political, economic and social uncertainty, (ix)
market volatility caused by any potential regional or territorial conflicts or
natural or other disasters, and (x) the risk of increased trade tariffs,
embargoes, sanctions investment restrictions and other trade limitations.
Certain securities are, or may in the future become restricted, and the Fund may
be forced to sell such securities and incur a loss as a result. In addition, the
economy of China differs, often unfavorably, from the U.S. economy in such
respects as structure, general development, government involvement, wealth
distribution, rate of inflation, growth rate, interest rates, allocation of
resources and capital reinvestment, among others. The Chinese central government
has historically exercised substantial control over virtually every sector of
the Chinese economy through administrative regulation and/or state ownership and
actions of the Chinese central and local government authorities continue to have
a substantial effect on economic conditions in China. In addition, the Chinese
government has from time to time taken actions that influence the prices at
which certain goods may be sold, encourage companies to invest or concentrate in
particular industries, induce mergers between companies in certain industries
and induce private companies to publicly offer their securities to increase or
continue the rate of economic growth, control the rate of inflation or otherwise
regulate economic expansion. The Chinese government may do so in the future as
well, potentially having a significant adverse effect on economic conditions in
China.
Equity Securities Risk. The
value of the equity securities held by the Fund may fall due to general market
and economic conditions, perceptions regarding the markets in which the issuers
of securities held by the Fund participate, or factors relating to specific
issuers in which the Fund invests. Equity securities are subordinated to
preferred securities and debt in a company’s capital structure with respect to
priority to a share of corporate income, and therefore will be subject to
greater dividend risk than preferred securities or debt instruments. In
addition, while broad market measures of equity securities have historically
generated higher average returns than fixed income securities, equity securities
have generally also experienced significantly more volatility in those returns.
Micro-Capitalization
Companies Risk.
Micro-capitalization companies are subject to substantially greater risks of
loss and price fluctuations because their earnings and revenues tend to be less
predictable (and some companies may be experiencing significant losses), and
their share prices tend to be more volatile and their markets less liquid than
companies with larger market capitalizations. The shares of micro-capitalization
companies tend to trade less frequently than those of larger, more established
companies, which can adversely affect the pricing of these securities and the
future ability to sell those securities.
Small-
and Medium-Capitalization Companies Risk.
The
Fund may invest in small- and medium-capitalization companies and, therefore
will be subject to certain risks associated with small- and medium-
capitalization companies. These companies are often subject to less analyst
coverage and may be in early and less predictable periods of their corporate
existences, with little or no record of profitability. In addition, these
companies often have greater price volatility, lower trading volume and less
liquidity than larger more established companies. These companies tend to have
smaller revenues, narrower product lines, less management depth and experience,
smaller shares of their product or service markets, fewer financial resources
and less competitive strength than large-capitalization companies. Returns on
investments in securities of small- and medium-capitalization companies could
trail the returns on investments in securities of larger companies.
Information
Technology Sector Risk.
Information technology companies face intense competition, both domestically and
internationally, which may have an adverse effect on profit margins. Information
technology companies may have limited product lines, markets, financial
resources or personnel. The products of information technology companies may
face product obsolescence due to rapid technological developments and frequent
new product introduction, unpredictable changes in growth rates and competition
for the services of qualified personnel. Companies in the information technology
sector are heavily dependent on patent protection and the expiration of patents
may adversely affect the profitability of these companies.
Financials
Sector Risk.
Companies
in the financials sector may be subject to extensive government regulation that
affects the scope of their activities, the prices they can charge and the amount
of capital they must maintain. The profitability of companies in the financials
sector may be adversely affected by increases in interest rates, by loan losses,
which usually increase in economic downturns, and by credit rating downgrades.
In addition, the financials sector is undergoing numerous changes, including
continuing consolidations, development of new products and structures and
changes to its regulatory framework. Furthermore, some companies in the
financials sector perceived as benefiting from government intervention in the
past may be subject to future government-imposed restrictions on their
businesses or face increased government involvement in their operations.
Increased government involvement in the financials sector, including measures
such as taking ownership positions in financial institutions, could result in a
dilution of the Fund’s investments in financial institutions.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s
investments.
Emerging
Market Issuers Risk.
Investments in securities of emerging market issuers involve risks not typically
associated with investments in securities of issuers in more developed countries
that may negatively affect the value of your investment in the Fund. Such
heightened risks may include, among others, expropriation and/or nationalization
of assets, restrictions on and government intervention in international trade,
confiscatory taxation, political instability, including authoritarian and/or
military involvement in governmental decision making, armed conflict, the impact
on the economy as a result of civil war, crime (including drug violence) and
social instability as a result of religious, ethnic and/or socioeconomic unrest.
Issuers in certain emerging market countries are subject to less stringent
requirements regarding accounting, auditing, financial reporting and record
keeping than are issuers in more developed markets, and therefore, all material
information may not be available or reliable. Emerging markets are also more
likely than developed markets to experience problems with the clearing and
settling of trades, as well as the holding of securities by local banks, agents
and depositories. Low trading volumes and volatile prices in less developed
markets may make trades harder to complete and settle, and governments or trade
groups may compel local agents to hold securities in designated depositories
that may not be subject to independent evaluation. Local agents are held only to
the standards of care of their local markets. In general, the less developed a
country’s securities markets are, the greater the likelihood of custody
problems. The Adviser may be limited in its ability to assess the Index
provider’s due diligence process over Index data prior to its use in Index
computation, construction and/or rebalancing. Additionally, each of the factors
described below could have a negative impact on the Fund’s performance and
increase the volatility of the Fund.
Securities
Markets.
Securities markets in emerging market countries are underdeveloped and are often
considered to be less correlated to global economic cycles than those markets
located in more developed countries. Securities markets in emerging market
countries are subject to greater risks associated with market volatility, lower
market capitalization, lower trading volume, illiquidity, inflation, greater
price fluctuations, uncertainty regarding the existence of trading markets,
governmental control and heavy regulation of labor and industry. These factors,
coupled with restrictions on foreign investment and other factors, limit the
supply of securities available for investment by the Fund. This will affect the
rate at which the Fund is able to invest in emerging market countries, the
purchase and sale prices for such securities and the timing
of
purchases and sales. Emerging markets can experience high rates of inflation,
deflation and currency devaluation. The prices of certain securities listed on
securities markets in emerging market countries have been subject to sharp
fluctuations and sudden declines, and no assurance can be given as to the future
performance of listed securities in general. Volatility of prices may be greater
than in more developed securities markets. Moreover, securities markets in
emerging market countries may be closed for extended periods of time or trading
on securities markets may be suspended altogether due to political or civil
unrest. Market volatility may also be heightened by the actions of a small
number of investors. Brokerage firms in emerging market countries may be fewer
in number and less established than brokerage firms in more developed markets.
Since the Fund may need to effect securities transactions through these
brokerage firms, the Fund is subject to the risk that these brokerage firms will
not be able to fulfill their obligations to the Fund. This risk is magnified to
the extent the Fund effects securities transactions through a single brokerage
firm or a small number of brokerage firms. In addition, the infrastructure for
the safe custody of securities and for purchasing and selling securities,
settling trades, collecting dividends, initiating corporate actions, and
following corporate activity is not as well developed in emerging market
countries as is the case in certain more developed markets.
Political
and Economic Risk.
Certain emerging market countries have historically been subject to political
instability and their prospects are tied to the continuation of economic and
political liberalization in the region. Instability may result from factors such
as government or military intervention in decision making, terrorism, civil
unrest, extremism or hostilities between neighboring countries. Any of these
factors, including an outbreak of hostilities could negatively impact the Fund’s
returns. Limited political and democratic freedoms in emerging market countries
might cause significant social unrest. These factors may have a significant
adverse effect on an emerging market country’s economy.
Many
emerging market countries may be heavily dependent upon international trade and,
consequently, may continue to be negatively affected by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which it
trades. They also have been, and may continue to be, adversely affected by
economic conditions in the countries with which they trade.
In
addition, commodities (such as oil, gas and minerals) represent a significant
percentage of certain emerging market countries’ exports and these economies are
particularly sensitive to fluctuations in commodity prices. Adverse economic
events in one country may have a significant adverse effect on other countries
of this region. In addition, most emerging market countries have experienced, at
one time or another, severe and persistent levels of inflation, including, in
some cases, hyperinflation. This has, in turn, led to high interest rates,
extreme measures by governments to keep inflation in check, and a generally
debilitating effect on economic growth.
Although
inflation in many countries has lessened, there is no guarantee it will remain
at lower levels. The political history of certain emerging market countries has
been characterized by political uncertainty, intervention by the military in
civilian and economic spheres, and political corruption. Such events could
reverse favorable trends toward market and economic reform, privatization, and
removal of trade barriers, and result in significant disruption in securities
markets in the region.
Also,
from time to time, certain issuers located in emerging market countries in which
the Fund invests may operate in, or have dealings with, countries subject to
sanctions and/or embargoes imposed by the U.S. Government and the United Nations
and/or countries identified by the U.S. Government as state sponsors of
terrorism. As a result, an issuer may sustain damage to its reputation if it is
identified as an issuer which operates in, or has dealings with, such countries.
The Fund, as an investor in such issuers, will be indirectly subject to those
risks.
The
economies of one or more countries in which the Fund may invest may be in
various states of transition from a planned economy to a more market oriented
economy. The economies of such countries differ from the economies of most
developed countries in many respects, including levels of government
involvement, states of development, growth rates, control of foreign exchange
and allocation of resources. Economic growth in these economies may be uneven
both geographically and among various sectors of their economies and may also be
accompanied by periods of high inflation. Political changes, social instability
and adverse diplomatic developments in these countries could result in the
imposition of additional government restrictions, including expropriation of
assets, confiscatory taxes or nationalization of some or all of the property
held by the underlying issuers of securities included in the Fund’s Index. There
is no guarantee that the governments of these countries will not revert back to
some form of planned or non-market oriented economy, and such governments
continue to be active participants in many economic sectors through ownership
positions and regulation. The allocation of resources in such countries is
subject to a high level of government control. Such countries’ governments may
strictly regulate the payment of foreign currency denominated obligations and
set monetary policy. Through their policies, these governments may provide
preferential treatment to particular industries or companies. The policies set
by the government of one of these countries could have a substantial effect on
that country’s economy.
Investment
and Repatriation Restrictions.
The government in an emerging market country may restrict or control to varying
degrees the ability of foreign investors to invest in securities of issuers
located or operating in such emerging market countries. These restrictions
and/or controls may at times limit or prevent foreign investment in securities
of issuers located or operating in emerging market countries and may inhibit the
Fund’s ability to track its Index. In addition, the Fund may not be able to buy
or sell securities or receive full value for such securities. Moreover, certain
emerging market countries may require
governmental
approval or special licenses prior to investments by foreign investors and may
limit the amount of investments by foreign investors in a particular industry
and/or issuer; may limit such foreign investment to a certain class of
securities of an issuer that may have less advantageous rights than the classes
available for purchase by domiciliaries of such emerging market countries;
and/or may impose additional taxes on foreign investors. A delay in obtaining a
required government approval or a license would delay investments in those
emerging market countries, and, as a result, the Fund may not be able to invest
in certain securities while approval is pending. The government of certain
emerging market countries may also withdraw or decline to renew a license that
enables the Fund to invest in such country. These factors make investing in
issuers located or operating in emerging market countries significantly riskier
than investing in issuers located or operating in more developed countries, and
any one of them could cause a decline in the value of the Fund’s
Shares.
Additionally,
investments in issuers located in certain emerging market countries may be
subject to a greater degree of risk associated with governmental approval in
connection with the repatriation of investment income, capital or the proceeds
of sales of securities by foreign investors. Moreover, there is the risk that if
the balance of payments in an emerging market country declines, the government
of such country may impose temporary restrictions on foreign capital
remittances. Consequently, the Fund could be adversely affected by delays in, or
a refusal to grant, required governmental approval for repatriation of capital,
as well as by the application to the Fund of any restrictions on investments.
Furthermore, investments in emerging market countries may require the Fund to
adopt special procedures, seek local government approvals or take other actions,
each of which may involve additional costs to the Fund.
Available
Disclosure About Emerging Market Issuers.
Issuers located or operating in emerging market countries are not subject to the
same rules and regulations as issuers located or operating in more developed
countries. Therefore, there may be less financial and other information publicly
available with regard to issuers located or operating in emerging market
countries and such issuers are not subject to the uniform accounting, auditing
and financial reporting standards applicable to issuers located or operating in
more developed countries.
Foreign
Currency Considerations.
The Fund’s assets that are invested in securities of issuers in emerging market
countries will generally be denominated in foreign currencies, and the proceeds
received by the Fund from these investments will be principally in foreign
currencies. The value of an emerging market country’s currency may be subject to
a high degree of fluctuation. This fluctuation may be due to changes in interest
rates, the effects of monetary policies issued by the United States, foreign
governments, central banks or supranational entities, the imposition of currency
controls or other national or global political or economic developments. The
economies of certain emerging market countries can be significantly affected by
currency devaluations. Certain emerging market countries may also have managed
currencies which are maintained at artificial levels relative to the U.S. dollar
rather than at levels determined by the market. This type of system can lead to
sudden and large adjustments in the currency which, in turn, can have a
disruptive and negative effect on foreign investors.
The
Fund’s exposure to an emerging market country’s currency and changes in value of
such foreign currencies versus the U.S. dollar may reduce the Fund’s investment
performance and the value of your investment in the Fund. Meanwhile, the Fund
will compute and expects to distribute its income in U.S. dollars, and the
computation of income will be made on the date that the income is earned by the
Fund at the foreign exchange rate in effect on that date. Therefore, if the
value of the respective emerging market country’s currency falls relative to the
U.S. dollar between the earning of the income and the time at which the Fund
converts the relevant emerging market country’s currency to U.S. dollars, the
Fund may be required to liquidate certain positions in order to make
distributions if the Fund has insufficient cash in U.S. dollars to meet
distribution requirements under the Internal Revenue Code. The liquidation of
investments, if required, could be at disadvantageous prices or otherwise have
an adverse impact on the Fund’s performance.
Certain
emerging market countries also restrict the free conversion of their currency
into foreign currencies, including the U.S. dollar. There is no significant
foreign exchange market for many such currencies and it would, as a result, be
difficult for the Fund to engage in foreign currency transactions designed to
protect the value of the Fund’s interests in securities denominated in such
currencies. Furthermore, if permitted, the Fund may incur costs in connection
with conversions between U.S. dollars and an emerging market country’s currency.
Foreign exchange dealers realize a profit based on the difference between the
prices at which they are buying and selling various currencies. Thus, a dealer
normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell
that currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into forward, futures or options contracts to purchase or
sell foreign currencies.
Operational
and Settlement Risk.
In addition to having less developed securities markets, emerging market
countries have less developed custody and settlement practices than certain
developed countries. Rules adopted under the Investment Company Act of 1940
permit the Fund to maintain its foreign securities and cash in the custody of
certain eligible non-U.S. banks and securities depositories. Banks in emerging
market countries that are eligible foreign sub-custodians may be recently
organized or otherwise lack extensive operating experience. In addition, in
certain emerging market countries there may be legal restrictions or limitations
on the ability of the Fund to recover assets held in custody by a foreign
sub-custodian in the event of the bankruptcy of the sub-custodian. Because
settlement systems in emerging market countries may be less
organized
than in other developed markets, there may be a risk that settlement may be
delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws in many emerging market
countries, the Fund may be required to release local shares before receiving
cash payment or may be required to make cash payment prior to receiving local
shares, creating a risk that the Fund may surrender cash or securities without
ever receiving securities or cash from the other party. Settlement systems in
emerging market countries also have a higher risk of failed trades and back to
back settlements may not be possible.
The
Fund may not be able to convert a foreign currency to U.S. dollars in time for
the settlement of redemption requests. In the event of a redemption request from
an Authorized Participant, the Fund will be required to deliver U.S. dollars to
the Authorized Participant on the settlement date. In the event that the Fund is
not able to convert the foreign currency to U.S. dollars in time for settlement,
which may occur as a result of the delays described above, the Fund may be
required to liquidate certain investments and/or borrow money in order to fund
such redemption. The liquidation of investments, if required, could be at
disadvantageous prices or otherwise have an adverse impact on the Fund’s
performance (e.g.,
by causing the Fund to overweight foreign currency denominated holdings and
underweight other holdings which were sold to fund redemptions). In addition,
the Fund will incur interest expense on any borrowings and the borrowings will
cause the Fund to be leveraged, which may magnify gains and losses on its
investments.
In
certain emerging market countries, the marketability of investments may be
limited due to the restricted opening hours of trading exchanges, and a
relatively high proportion of market value may be concentrated in the hands of a
relatively small number of investors. In addition, because certain emerging
market countries’ trading exchanges on which the Fund’s portfolio securities may
trade are open when the relevant Exchanges are closed, the Fund may be subject
to heightened risk associated with market movements. Trading volume may be lower
on certain emerging market countries’ trading exchanges than on more developed
securities markets and securities may be generally less liquid. The
infrastructure for clearing, settlement and registration on the primary and
secondary markets of certain emerging market countries are less developed than
in certain other markets and under certain circumstances this may result in the
Fund experiencing delays in settling and/or registering transactions in the
markets in which it invests, particularly if the growth of foreign and domestic
investment in certain emerging market countries places an undue burden on such
investment infrastructure. Such delays could affect the speed with which the
Fund can transmit redemption proceeds and may inhibit the initiation and
realization of investment opportunities at optimum times.
Certain
issuers in emerging market countries may utilize share blocking schemes. Share
blocking refers to a practice, in certain foreign markets, where voting rights
related to an issuer’s securities are predicated on these securities being
blocked from trading at the custodian or sub-custodian level for a period of
time around a shareholder meeting. These restrictions have the effect of barring
the purchase and sale of certain voting securities within a specified number of
days before and, in certain instances, after a shareholder meeting where a vote
of shareholders will be taken. Share blocking may prevent the Fund from buying
or selling securities for a period of time. During the time that shares are
blocked, trades in such securities will not settle. The blocking period can last
up to several weeks. The process for having a blocking restriction lifted can be
quite onerous with the particular requirements varying widely by country. In
addition, in certain countries, the block cannot be removed. As a result of the
ramifications of voting ballots in markets that allow share blocking, the
Adviser, on behalf of the Fund, reserves the right to abstain from voting
proxies in those markets.
Corporate
and Securities Laws.
Securities laws in emerging market countries are relatively new and unsettled
and, consequently, there is a risk of rapid and unpredictable change in laws
regarding foreign investment, securities regulation, title to securities and
securityholders rights. Accordingly, foreign investors may be adversely affected
by new or amended laws and regulations. In addition, the systems of corporate
governance to which emerging market issuers are subject may be less advanced
than those systems to which issuers located in more developed countries are
subject, and therefore, securityholders of issuers located in emerging market
countries may not receive many of the protections available to securityholders
of issuers located in more developed countries. In circumstances where adequate
laws and securityholders rights exist, it may not be possible to obtain swift
and equitable enforcement of the law. In addition, the enforcement of systems of
taxation at federal, regional and local levels in emerging market countries may
be inconsistent and subject to sudden change. The Fund has limited rights and
few practical remedies in emerging markets and the ability of U.S. authorities
to bring enforcement actions in emerging markets may be limited.
Depositary Receipts
Risk.
The Fund may invest in depositary receipts (including American Depositary
Receipts), which involve similar risks to those associated with investments in
foreign securities. Depositary receipts are receipts listed on U.S. or foreign
exchanges issued by banks or trust companies that entitle the holder to all
dividends and capital gains that are paid out on the underlying foreign shares.
The issuers of certain depositary receipts are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities. Investments
in depositary receipts may be less liquid than the underlying shares in their
primary trading market. The issuers of depositary receipts may discontinue
issuing new depositary receipts and withdraw existing depositary receipts at any
time, which may result in costs and delays in the distribution of the underlying
assets to the Fund and may negatively impact the Fund’s
performance.
Market
Risk.
The prices of securities are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments.
An investment
may lose money.
Operational
Risk.
The
Fund is exposed to operational risk arising from a number of factors, including
human error, processing and communication errors, errors of the Fund’s service
providers, counterparties or other third-parties, failed or inadequate processes
and technology or system failures.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (to the extent the Fund effects creations and redemptions in
cash) raising cash to meet redemptions or deploying cash in connection with
newly created Creation Units. Transaction costs, including brokerage costs, will
decrease the Fund’s net asset value to the extent not offset by the transaction
fee payable by an Authorized Participant.
Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in them in the exact proportions in which they are
represented in the Index. The Fund’s performance may also deviate from the
return of the Index for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards, a lack of liquidity in markets in which such securities
trade, potential adverse tax consequences or other regulatory reasons (such as
diversification requirements). To the extent the Fund utilizes depositary
receipts, the purchase of depositary receipts may negatively affect the Fund’s
ability to track the performance of the Index and increase tracking error, which
may be exacerbated if the issuer of the depositary receipt discontinues issuing
new depositary receipts or withdraws existing depositary receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to changes to the Index and high turnover of the Index.
When markets are volatile, the ability to sell securities at fair value prices
may be adversely impacted and may result in additional trading costs and/or
increase the index tracking risk. The Fund may also need to rely on borrowings
to meet redemptions, which may lead to increased expenses. For tax efficiency
purposes, the Fund may sell certain securities, and such sale may cause the Fund
to realize a loss and deviate from the performance of the Index. In light of the
factors discussed above, the Fund’s return may deviate significantly from the
return of the Index. Changes to the composition of the Index in connection with
a rebalancing or reconstitution of the Index may cause the Fund to experience
increased volatility, during which time the Fund’s index tracking risk may be
heightened.
Authorized
Participant Concentration Risk.
The
Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk. There
can be no assurance that an active trading market for the Shares will develop or
be maintained, as applicable. Further, secondary markets may be subject to
irregular trading activity, wide bid/ask
spreads
and extended trade settlement periods in times of market stress because market
makers and Authorized Participants may step away from making a market in the
Shares and in executing creation and redemption orders, which could cause a
material deviation in the Fund’s market price from its net asset value.
Trading
Issues Risk.
Trading
in shares on the exchange may be halted due to market conditions or for reasons
that, in the view of the exchange, make trading in shares inadvisable. In
addition, trading in shares on the exchange is subject to trading halts caused
by extraordinary market volatility pursuant to the relevant exchange’s “circuit
breaker” rules. If a trading halt or unanticipated early close of the exchange
occurs, a shareholder may be unable to purchase or sell Shares of the Fund.
There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk.
Unlike many investment companies, the Fund is not “actively” managed. Therefore,
unless a specific security is removed from its Index, the Fund generally would
not sell a security because the security’s issuer is in financial trouble. If a
specific security is removed from the Fund’s Index, the Fund may be forced to
sell such security at an inopportune time or for prices other than at current
market values. An investment in the Fund involves risks similar to those of
investing in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares.
The
market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time when the
market price is at a discount to the net asset value, the shareholder may pay
significantly more or receive significantly less than the underlying value of
the Shares. The securities held by the Fund may be traded in markets that close
at a different time than the exchange on which the Shares are traded. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times, bid/ask spreads on the exchange and
the resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in stressed market conditions, the market for the Fund’s Shares
may become less liquid in response to deteriorating liquidity in the markets for
the Fund’s underlying portfolio holdings and a shareholder may be unable to sell
his or her Shares.
Non-Diversified
Risk.
The Fund is
classified as a “non-diversified” fund under the Investment Company Act of 1940.
The Fund is subject to the risk that it will be more volatile than a diversified
fund because the Fund may invest a relatively high percentage of its assets in a
smaller number of issuers or may invest a larger proportion of its assets in a
single issuer. Moreover, the gains and losses on a single investment may have a
greater impact on the Fund’s net asset value and may make the Fund more volatile
than more diversified funds. The Fund may be particularly vulnerable to this
risk if its Index is comprised of securities of a limited number of
companies.
Index-Related
Concentration Risk. The Fund’s assets may be concentrated
in a particular sector or sectors or industry or group of industries to reflect
the Index’s allocation to those types of securities. The securities of many or
all of the companies in the same sector or industry may decline in value due to
developments adversely affecting such sector or industry. By concentrating its
assets in a particular sector or sectors or industry or group of industries, the
Fund is subject to the risk that economic, political or other conditions that
have a negative effect on those sectors and/or industries may negatively impact
the Fund to a greater extent than if the Fund’s assets were invested in a wider
variety of securities.
PERFORMANCE
The Fund
commenced operations on March 8, 2022 and therefore does not have a performance
history for the calendar year ended December 31, 2022. Once
available, the Fund’s performance information will be accessible on the Fund’s
website at www.vaneck.com.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Manager. The
following individual is primarily responsible for the day-to-day management of
the Fund’s portfolio:
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Name |
Title
with Adviser |
Date
Began Managing the Fund |
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Peter
H. Liao |
Portfolio
Manager |
March
2022 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information About Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
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SUMMARY
INFORMATION ABOUT PURCHASES AND SALES OF FUND SHARES, TAXES
AND
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL
INTERMEDIARIES |
PURCHASE
AND SALE OF FUND SHARES
Individual
Shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at a market price. Shares of the Fund
are listed on the Exchange, and because Shares trade at market prices rather
than NAV, Shares of the Fund may trade at a price greater than NAV (i.e.,
a “premium”) or less than NAV (i.e.,
a “discount”).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares of the Fund (bid) and the
lowest price a seller is willing to accept for Shares (ask) when buying or
selling Shares in the secondary market (the “bid-ask spread”).
Recent
information, including information about the Fund’s NAV, market price, premiums
and discounts, and bid-ask spreads, is included on the Fund’s website at
www.vaneck.com.
TAX
INFORMATION
The
Fund’s distributions are taxable and will generally be taxed as ordinary income
or capital gains.
PAYMENTS
TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
The
Adviser and its related companies may pay broker-dealers or other financial
intermediaries (such as a bank) for the sale of the Fund Shares and related
services. These payments may create a conflict of interest by influencing your
broker-dealer or other intermediary or its employees or associated persons to
recommend the Fund over another investment. Ask your financial adviser or visit
your financial intermediary’s website for more information.
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| ADDITIONAL
INFORMATION ABOUT THE FUND’S INVESTMENT STRATEGIES AND
RISKS |
PRINCIPAL
INVESTMENT STRATEGIES
The
Adviser anticipates that, generally, the Fund will hold or gain exposure to all
of the securities that comprise the Index in proportion to their weightings in
the Index. However, to the extent it is not possible or practicable to purchase
all of those securities in those weightings, the Fund may purchase a sample of
securities in the Index. The Adviser may also choose to underweight or
overweight a security in the Index, purchase securities not in the Index that
the Adviser believes are appropriate to substitute for certain securities in the
Index, or utilize various combinations of other available investment techniques
in seeking to track as closely as possible, before fees and expenses, the price
and yield performance of the Index. The Fund may sell securities that are
represented in the Index in anticipation of their removal from the Index or
purchase securities not represented in the Index in anticipation of their
addition to the Index. The Fund may also, in order to comply with tax
diversification requirements of the Internal Revenue Code, temporarily invest in
securities not included in the Index that are expected to be highly correlated
with the securities included in the Index.
FUNDAMENTAL
AND NON-FUNDAMENTAL POLICIES
The
Fund’s investment objective and each of its other investment policies are
non-fundamental policies that may be changed by the Board of Trustees (the
“Board of Trustees”) of VanEck ETF Trust (the “Trust”) without shareholder
approval, except as noted in this Prospectus or the Statement of Additional
Information (“SAI”) under the section entitled “Investment Policies and
Restrictions— Investment Restrictions.”
RISKS
OF INVESTING IN THE FUND
The
following section provides additional information regarding the principal risks
identified under “Principal Risks of Investing in the Fund” in the Fund’s
“Summary Information” section followed by additional risk information.
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk. An investment in the Fund is not
a deposit with a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Therefore, you should
consider carefully the following risks before investing in the Fund, each of
which could significantly and adversely affect the value of an investment in the
Fund.
Risk
of Investing in Digital Asset Miners.
Digital asset miners and other hardware necessary for digital asset mining are
subject to the risk of malfunction, technological obsolescence, the global
supply chain issues and difficulty and cost in obtaining new hardware.
Malfunctions and normal wear and tear will, at any point in time, cause a
certain number of digital asset miners to be taken off-line for maintenance or
repair. Any major digital asset miner malfunction could cause significant
economic damage. The physical degradation of miners will require replacement of
miners. Additionally, as technology evolves, there may be a need to acquire
newer models of miners to remain competitive, which can be costly and may be in
short supply. Given the long production period to manufacture and assemble
digital asset miners and the current global semiconductor chip shortage, there
can be no assurance that miners can acquire or maintain enough digital asset
mining computers or replace parts on a cost-effective basis for efficient and
profitable digital asset mining operations. Many engaged in mining rely on third
parties to supply digital asset miners and shortages of digital asset miners or
their component parts, material increases in digital asset miner costs, or
delays in delivery of orders, including due to trade restrictions and
COVID-19-related supply chain disruptions, could significantly interrupt plans
for expanding digital asset mining capacity in the near term and
future.
Mining
operations are energy-intensive. Digital asset mining operations consume
significant amounts of electricity, which may have a negative environmental
impact and give rise to public opinion against allowing, or government
regulations restricting, the use of electricity for mining operations. Many
digital asset mining operations rely on fossil fuels to power their operations.
Public perception of the impact of digital asset mining on climate change may
reduce the demand for digital assets and increase the likelihood of government
regulation. Given the energy-intensiveness and electricity costs of mining,
miners may be restricted in where they can locate mining operations. Any
shortage of electricity supply or increase in related costs will negatively
impact the viability and expected economic return from digital asset
mining.
Miners
generate revenue from both newly created digital assets, known as the “block
reward” and from fees taken upon verification of transactions. If the aggregate
revenue from transaction fees and the block reward is below a miner’s cost, the
miner may cease operations. The fixed reward for solving a new block on certain
networks, like the Bitcoin network, is being progressively reduced. This
reduction in incentives for certain digital asset mining activity, including
bitcoin mining, may cause miners to reduce or cease operations, which may reduce
the collective processing power on the applicable network. This would make such
network more vulnerable to a malicious attack and hinder transactions. While
miners have previously accepted relatively low transaction confirmation fees,
there is a risk that miners could collude to demand higher fees, which would
increase costs to digital asset users.
Special
Risk Considerations of Investing in Asian Issuers. Investments
in securities of Asian issuers involve risks and special considerations not
typically associated with investments in the U.S. securities markets. Certain
Asian economies have experienced over-extension of credit, currency devaluations
and restrictions, high unemployment, high inflation, decreased exports and
economic recessions. Economic events in any one Asian country can have a
significant effect on the entire Asian region as well as on major trading
partners outside Asia, and any adverse effect on some or all of the Asian
countries and regions in which the Fund invests. The securities markets in some
Asian economies are relatively underdeveloped and may subject the Fund to higher
action
costs
or greater uncertainty than investments in more developed securities markets.
Such risks may adversely affect the value of the Fund’s
investments.
Governments
of many Asian countries have implemented significant economic reforms in order
to liberalize trade policy, promote foreign investment in their economies,
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, significant regulation of investment
and industry is still pervasive in many Asian countries and may restrict foreign
ownership of domestic corporations and repatriation of assets, which may
adversely affect the Fund’s investments. Governments in some Asian countries are
authoritarian in nature, have been installed or removed as a result of military
coups or have periodically used force to suppress civil dissent. Disparities of
wealth, the pace and success of democratization, and ethnic, religious and
racial disaffection have led to social turmoil, violence and labor unrest in
some countries. Unanticipated or sudden political or social developments may
result in sudden and significant investment losses. Investing in certain Asian
countries involves risk of loss due to expropriation, nationalization, or
confiscation of assets and property or the imposition of restrictions on foreign
investments and on repatriation of capital invested. In addition, several
countries in Asia may be impacted by the occurrence of global events such as
war, terrorism, environmental disasters, natural disasters or events, country
instability, and infectious disease epidemics and pandemics.
Special
Risk Considerations of Investing in Chinese Issuers. Investments
in securities of Chinese issuers, including issuers outside of China, involve
certain risks and considerations not typically associated with investments in
U.S securities. These risks include among others (i) more frequent (and
potentially widespread) trading suspensions and government interventions with
respect to Chinese issuers resulting in a lack of liquidity and in price
volatility, (ii) currency revaluations and other currency exchange rate
fluctuations or blockage, (iii) the nature and extent of intervention by the
Chinese government in the Chinese securities markets, whether such intervention
will continue and the impact of such intervention or its discontinuation, (iv)
the risk of nationalization or expropriation of assets, (v) the risk that the
Chinese government may decide not to continue to support economic reform
programs, (vi) limitations on the use of brokers, (vii) higher rates of
inflation, (viii) greater political, economic and social uncertainty, (ix)
market volatility caused by any potential regional or territorial conflicts or
natural or other disasters, and (x) the risk of increased trade tariffs,
embargoes, sanctions investment restrictions and other trade limitations.
Certain securities are, or may in the future become restricted, and the Fund may
be forced to sell such securities and incur a loss as a result. In addition, the
economy of China differs, often unfavorably, from the U.S. economy in such
respects as structure, general development, government involvement, wealth
distribution, rate of inflation, growth rate, interest rates, allocation of
resources and capital reinvestment, among others. The Chinese central government
has historically exercised substantial control over virtually every sector of
the Chinese economy through administrative regulation and/or state ownership and
actions of the Chinese central and local government authorities continue to have
a substantial effect on economic conditions in China. In addition, the Chinese
government has from time to time taken actions that influence the prices at
which certain goods may be sold, encourage companies to invest or concentrate in
particular industries, induce mergers between companies in certain industries
and induce private companies to publicly offer their securities to increase or
continue the rate of economic growth, control the rate of inflation or otherwise
regulate economic expansion. The Chinese government may do so in the future as
well, potentially having a significant adverse effect on economic conditions in
China.
Equity Securities Risk. The
value of the equity securities held by the Fund may fall due to general market
and economic conditions, perceptions regarding the markets in which the issuers
of securities held by the Fund participate, or factors relating to specific
issuers in which the Fund invests. For example, an adverse event, such as an
unfavorable earnings report, may result in a decline in the value of equity
securities of an issuer held by the Fund; the price of the equity securities of
an issuer may be particularly sensitive to general movements in the securities
markets; or a drop in the securities markets may depress the price of most or
all of the equities securities held by the Fund. In addition, the equity
securities of an issuer in the Fund’s portfolio may decline in price if the
issuer fails to make anticipated dividend payments. Equity securities are
subordinated to preferred securities and debt in a company’s capital structure
with respect to priority to a share of corporate income, and therefore will be
subject to greater dividend risk than preferred securities or debt instruments.
In addition, while broad market measures of equity securities have historically
generated higher average returns than fixed income securities, equity securities
have generally also experienced significantly more volatility in those returns.
Micro-Capitalization
Companies Risk.
The Fund may invest in micro-capitalization companies. These companies are
subject to substantially greater risks of loss and price fluctuations because
their earnings and revenues tend to be less predictable (and some companies may
be experiencing significant losses), and their share prices tend to be more
volatile and their markets less liquid than companies with larger market
capitalizations. Micro-capitalization companies may be newly formed or in the
early stages of development, with limited product lines, markets or financial
resources and may lack management depth. In addition, there may be less public
information available about these companies. The shares of micro-capitalization
companies tend to trade less frequently than those of larger, more established
companies, which can adversely affect the pricing of these securities and the
future ability to sell these securities. Also, it may take a long time before
the Fund realizes a gain, if any, on an investment in a micro-capitalization
company.
Small-
and Medium-Capitalization Companies Risk.
The Fund may invest in small- and medium-capitalization companies and, therefore
will be subject to certain risks associated with small- and medium-
capitalization companies. These companies are often subject to less analyst
coverage and may be in early and less predictable periods of their corporate
existences, with little or
no
record of profitability. In addition, these companies often have greater price
volatility, lower trading volume and less liquidity than larger more established
companies. These companies tend to have smaller revenues, narrower product
lines, less management depth and experience, smaller shares of their product or
service markets, fewer financial resources and less competitive strength than
large-capitalization companies. Returns on investments in securities of small-
and medium-capitalization companies could trail the returns on investments in
securities of larger companies.
Information
Technology Sector Risk.
Information technology companies face intense competition, both domestically and
internationally, which may have an adverse effect on profit margins. Information
technology companies may have limited product lines, markets, financial
resources or personnel. The products of information technology companies may
face product obsolescence due to rapid technological developments and frequent
new product introduction, unpredictable changes in growth rates and competition
for the services of qualified personnel. Companies in the information technology
sector are heavily dependent on patent protection and the expiration of patents
may adversely affect the profitability of these companies.
Financials
Sector Risk.
Companies in the financials sector may be subject to extensive government
regulation that affects the scope of their activities, the prices they can
charge and the amount of capital they must maintain. The profitability of
companies in the financials sector may be adversely affected by increases in
interest rates, by loan losses, which usually increase in economic downturns,
and by credit rating downgrades. In addition, the financials sector is
undergoing numerous changes, including continuing consolidations, development of
new products and structures and changes to its regulatory framework.
Furthermore, some companies in the financials sector perceived as benefiting
from government intervention in the past may be subject to future
government-imposed restrictions on their businesses or face increased government
involvement in their operations. Increased government involvement in the
financials sector, including measures such as taking ownership positions in
financial institutions, could result in a dilution of the Fund’s investments in
financial institutions.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s
investments.
Certain
foreign markets that have historically been considered relatively stable may
become volatile in response to changed conditions or new developments. Increased
interconnectivity of world economies and financial markets increases the
possibility that adverse developments and conditions in one country or region
will affect the stability of economies and financial markets in other countries
or regions. Because the Fund may invest in securities denominated in foreign
currencies and some of the income received by the Fund may be in foreign
currencies, changes in currency exchange rates may negatively impact the Fund’s
return.
Foreign
issuers are often subject to less stringent requirements regarding accounting,
auditing, financial reporting and record keeping than are U.S. issuers, and
therefore, not all material information may be available or reliable. Securities
exchanges or foreign governments may adopt rules or regulations that may
negatively impact the Fund’s ability to invest in foreign securities or may
prevent the Fund from repatriating its investments. The Fund may also invest in
depositary receipts which involve similar risks to those associated with
investments in foreign securities. In addition, the Fund may not receive
shareholder communications or be permitted to vote the securities that it holds,
as the issuers may be under no legal obligation to distribute shareholder
communications.
Certain
foreign markets may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments, the imposition of economic
sanctions against a particular country or countries, organizations, entities
and/or individuals, changes in international trade patterns, trade barriers, and
other protectionist or retaliatory measures. The United States and other nations
or international organizations may impose economic sanctions or take other
actions that may adversely affect issuers of specific countries. Economic
sanctions could, among other things, effectively restrict or eliminate the
Fund’s ability to purchase or sell securities or groups of securities for a
substantial period of time, and may make the Fund’s investments in such
securities harder to value. These sanctions, any future sanctions or other
actions, or even the threat of further sanctions or other actions, may
negatively affect the value and liquidity of the Fund.
Also,
certain issuers located in foreign countries in which the Fund invests may
operate in, or have dealings with, countries subject to sanctions and/or
embargoes imposed by the U.S. Government and the United Nations and/or countries
identified by the U.S. Government as state sponsors of terrorism. As a result,
an issuer may sustain damage to its reputation if it is identified as an issuer
which operates in, or has dealings with, such countries. The Fund, as an
investor in such issuers, will be indirectly subject to those
risks.
Emerging
Market Issuers Risk.
Investments in securities of emerging market issuers involve risks not typically
associated with investments in securities of issuers in more developed countries
that may negatively affect the value of your investment in the Fund. Such
heightened risks may include, among others, expropriation and/or nationalization
of assets, restrictions on and government intervention in international trade,
confiscatory taxation, political instability, including authoritarian and/or
military involvement in governmental decision making, armed conflict, the impact
on the economy as a result of civil war, crime (including
drug
violence) and social instability as a result of religious, ethnic and/or
socioeconomic unrest. Issuers in certain emerging market countries are subject
to less stringent requirements regarding accounting, auditing, financial
reporting and record keeping than are issuers in more developed markets, and
therefore, all material information may not be available or reliable. Emerging
markets are also more likely than developed markets to experience problems with
the clearing and settling of trades, as well as the holding of securities by
local banks, agents and depositories. Low trading volumes and volatile prices in
less developed markets may make trades harder to complete and settle, and
governments or trade groups may compel local agents to hold securities in
designated depositories that may not be subject to independent evaluation. Local
agents are held only to the standards of care of their local markets. In
general, the less developed a country’s securities markets are, the greater the
likelihood of custody problems. The Adviser may be limited in its ability to
assess the Index provider’s due diligence process over Index data prior to its
use in Index computation, construction and/or rebalancing. Additionally, each of
the factors described below could have a negative impact on the Fund’s
performance and increase the volatility of the Fund.
Securities
Markets.
Securities markets in emerging market countries are underdeveloped and are often
considered to be less correlated to global economic cycles than those markets
located in more developed countries. Securities markets in emerging market
countries are subject to greater risks associated with market volatility, lower
market capitalization, lower trading volume, illiquidity, inflation, greater
price fluctuations, uncertainty regarding the existence of trading markets,
governmental control and heavy regulation of labor and industry. These factors,
coupled with restrictions on foreign investment and other factors, limit the
supply of securities available for investment by the Fund. This will affect the
rate at which the Fund is able to invest in emerging market countries, the
purchase and sale prices for such securities and the timing of purchases and
sales. Emerging markets can experience high rates of inflation, deflation and
currency devaluation. The prices of certain securities listed on securities
markets in emerging market countries have been subject to sharp fluctuations and
sudden declines, and no assurance can be given as to the future performance of
listed securities in general. Volatility of prices may be greater than in more
developed securities markets. Moreover, securities markets in emerging market
countries may be closed for extended periods of time or trading on securities
markets may be suspended altogether due to political or civil unrest. Market
volatility may also be heightened by the actions of a small number of investors.
Brokerage firms in emerging market countries may be fewer in number and less
established than brokerage firms in more developed markets. Since the Fund may
need to effect securities transactions through these brokerage firms, the Fund
is subject to the risk that these brokerage firms will not be able to fulfill
their obligations to the Fund. This risk is magnified to the extent the Fund
effects securities transactions through a single brokerage firm or a small
number of brokerage firms. In addition, the infrastructure for the safe custody
of securities and for purchasing and selling securities, settling trades,
collecting dividends, initiating corporate actions, and following corporate
activity is not as well developed in emerging market countries as is the case in
certain more developed markets.
Political
and Economic Risk.
Certain emerging market countries have historically been subject to political
instability and their prospects are tied to the continuation of economic and
political liberalization in the region. Instability may result from factors such
as government or military intervention in decision making, terrorism, civil
unrest, extremism or hostilities between neighboring countries. Any of these
factors, including an outbreak of hostilities could negatively impact the Fund’s
returns. Limited political and democratic freedoms in emerging market countries
might cause significant social unrest. These factors may have a significant
adverse effect on an emerging market country’s economy.
Many
emerging market countries may be heavily dependent upon international trade and,
consequently, may continue to be negatively affected by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which it
trades. They also have been, and may continue to be, adversely affected by
economic conditions in the countries with which they trade.
In
addition, commodities (such as oil, gas and minerals) represent a significant
percentage of certain emerging market countries’ exports and these economies are
particularly sensitive to fluctuations in commodity prices. Adverse economic
events in one country may have a significant adverse effect on other countries
of this region. In addition, most emerging market countries have experienced, at
one time or another, severe and persistent levels of inflation, including, in
some cases, hyperinflation. This has, in turn, led to high interest rates,
extreme measures by governments to keep inflation in check, and a generally
debilitating effect on economic growth.
Although
inflation in many countries has lessened, there is no guarantee it will remain
at lower levels. The political history of certain emerging market countries has
been characterized by political uncertainty, intervention by the military in
civilian and economic spheres, and political corruption. Such events could
reverse favorable trends toward market and economic reform, privatization, and
removal of trade barriers, and result in significant disruption in securities
markets in the region.
Also,
from time to time, certain issuers located in emerging market countries in which
the Fund invests may operate in, or have dealings with, countries subject to
sanctions and/or embargoes imposed by the U.S. Government and the United Nations
and/or countries identified by the U.S. Government as state sponsors of
terrorism. As a result, an issuer may sustain damage to its reputation if it is
identified as an issuer which operates in, or has dealings with, such countries.
The Fund, as an investor in such issuers, will be indirectly subject to those
risks.
The
economies of one or more countries in which the Fund may invest may be in
various states of transition from a planned economy to a more market oriented
economy. The economies of such countries differ from the economies of most
developed countries in many respects, including levels of government
involvement, states of development, growth rates, control of foreign exchange
and allocation of resources. Economic growth in these economies may be uneven
both geographically and among various sectors of their economies and may also be
accompanied by periods of high inflation. Political changes, social instability
and adverse diplomatic developments in these countries could result in the
imposition of additional government restrictions, including expropriation of
assets, confiscatory taxes or nationalization of some or all of the property
held by the underlying issuers of securities included in the Fund’s Index. There
is no guarantee that the governments of these countries will not revert back to
some form of planned or non-market oriented economy, and such governments
continue to be active participants in many economic sectors through ownership
positions and regulation. The allocation of resources in such countries is
subject to a high level of government control. Such countries’ governments may
strictly regulate the payment of foreign currency denominated obligations and
set monetary policy. Through their policies, these governments may provide
preferential treatment to particular industries or companies. The policies set
by the government of one of these countries could have a substantial effect on
that country’s economy.
Investment
and Repatriation Restrictions.
The government in an emerging market country may restrict or control to varying
degrees the ability of foreign investors to invest in securities of issuers
located or operating in such emerging market countries. These restrictions
and/or controls may at times limit or prevent foreign investment in securities
of issuers located or operating in emerging market countries and may inhibit the
Fund’s ability to track its Index. In addition, the Fund may not be able to buy
or sell securities or receive full value for such securities. Moreover, certain
emerging market countries may require governmental approval or special licenses
prior to investments by foreign investors and may limit the amount of
investments by foreign investors in a particular industry and/or issuer; may
limit such foreign investment to a certain class of securities of an issuer that
may have less advantageous rights than the classes available for purchase by
domiciliaries of such emerging market countries; and/or may impose additional
taxes on foreign investors. A delay in obtaining a required government approval
or a license would delay investments in those emerging market countries, and, as
a result, the Fund may not be able to invest in certain securities while
approval is pending. The government of certain emerging market countries may
also withdraw or decline to renew a license that enables the Fund to invest in
such country. These factors make investing in issuers located or operating in
emerging market countries significantly riskier than investing in issuers
located or operating in more developed countries, and any one of them could
cause a decline in the value of the Fund’s Shares.
Additionally,
investments in issuers located in certain emerging market countries may be
subject to a greater degree of risk associated with governmental approval in
connection with the repatriation of investment income, capital or the proceeds
of sales of securities by foreign investors. Moreover, there is the risk that if
the balance of payments in an emerging market country declines, the government
of such country may impose temporary restrictions on foreign capital
remittances. Consequently, the Fund could be adversely affected by delays in, or
a refusal to grant, required governmental approval for repatriation of capital,
as well as by the application to the Fund of any restrictions on investments.
Furthermore, investments in emerging market countries may require the Fund to
adopt special procedures, seek local government approvals or take other actions,
each of which may involve additional costs to the Fund.
Available
Disclosure About Emerging Market Issuers.
Issuers located or operating in emerging market countries are not subject to the
same rules and regulations as issuers located or operating in more developed
countries. Therefore, there may be less financial and other information publicly
available with regard to issuers located or operating in emerging market
countries and such issuers are not subject to the uniform accounting, auditing
and financial reporting standards applicable to issuers located or operating in
more developed countries.
Foreign
Currency Considerations.
The Fund’s assets that are invested in securities of issuers in emerging market
countries will generally be denominated in foreign currencies, and the proceeds
received by the Fund from these investments will be principally in foreign
currencies. The value of an emerging market country’s currency may be subject to
a high degree of fluctuation. This fluctuation may be due to changes in interest
rates, the effects of monetary policies issued by the United States, foreign
governments, central banks or supranational entities, the imposition of currency
controls or other national or global political or economic developments. The
economies of certain emerging market countries can be significantly affected by
currency devaluations. Certain emerging market countries may also have managed
currencies which are maintained at artificial levels relative to the U.S. dollar
rather than at levels determined by the market. This type of system can lead to
sudden and large adjustments in the currency which, in turn, can have a
disruptive and negative effect on foreign investors.
The
Fund’s exposure to an emerging market country’s currency and changes in value of
such foreign currencies versus the U.S. dollar may reduce the Fund’s investment
performance and the value of your investment in the Fund. Meanwhile, the Fund
will compute and expects to distribute its income in U.S. dollars, and the
computation of income will be made on the date that the income is earned by the
Fund at the foreign exchange rate in effect on that date. Therefore, if the
value of the respective emerging market country’s currency falls relative to the
U.S. dollar between the earning of the income and the time at which the Fund
converts the relevant emerging market country’s currency to U.S. dollars, the
Fund may be required to liquidate certain positions in order to make
distributions if the Fund has insufficient cash in U.S. dollars to meet
distribution
requirements
under the Internal Revenue Code. The liquidation of investments, if required,
could be at disadvantageous prices or otherwise have an adverse impact on the
Fund’s performance.
Certain
emerging market countries also restrict the free conversion of their currency
into foreign currencies, including the U.S. dollar. There is no significant
foreign exchange market for many such currencies and it would, as a result, be
difficult for the Fund to engage in foreign currency transactions designed to
protect the value of the Fund’s interests in securities denominated in such
currencies. Furthermore, if permitted, the Fund may incur costs in connection
with conversions between U.S. dollars and an emerging market country’s currency.
Foreign exchange dealers realize a profit based on the difference between the
prices at which they are buying and selling various currencies. Thus, a dealer
normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell
that currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into forward, futures or options contracts to purchase or
sell foreign currencies.
Operational
and Settlement Risk.
In addition to having less developed securities markets, emerging market
countries have less developed custody and settlement practices than certain
developed countries. Rules adopted under the Investment Company Act of 1940
permit the Fund to maintain its foreign securities and cash in the custody of
certain eligible non-U.S. banks and securities depositories. Banks in emerging
market countries that are eligible foreign sub-custodians may be recently
organized or otherwise lack extensive operating experience. In addition, in
certain emerging market countries there may be legal restrictions or limitations
on the ability of the Fund to recover assets held in custody by a foreign
sub-custodian in the event of the bankruptcy of the sub-custodian. Because
settlement systems in emerging market countries may be less organized than in
other developed markets, there may be a risk that settlement may be delayed and
that cash or securities of the Fund may be in jeopardy because of failures of or
defects in the systems. Under the laws in many emerging market countries, the
Fund may be required to release local shares before receiving cash payment or
may be required to make cash payment prior to receiving local shares, creating a
risk that the Fund may surrender cash or securities without ever receiving
securities or cash from the other party. Settlement systems in emerging market
countries also have a higher risk of failed trades and back to back settlements
may not be possible.
The
Fund may not be able to convert a foreign currency to U.S. dollars in time for
the settlement of redemption requests. In the event of a redemption request from
an Authorized Participant, the Fund will be required to deliver U.S. dollars to
the Authorized Participant on the settlement date. In the event that the Fund is
not able to convert the foreign currency to U.S. dollars in time for settlement,
which may occur as a result of the delays described above, the Fund may be
required to liquidate certain investments and/or borrow money in order to fund
such redemption. The liquidation of investments, if required, could be at
disadvantageous prices or otherwise have an adverse impact on the Fund’s
performance (e.g.,
by causing the Fund to overweight foreign currency denominated holdings and
underweight other holdings which were sold to fund redemptions). In addition,
the Fund will incur interest expense on any borrowings and the borrowings will
cause the Fund to be leveraged, which may magnify gains and losses on its
investments.
In
certain emerging market countries, the marketability of investments may be
limited due to the restricted opening hours of trading exchanges, and a
relatively high proportion of market value may be concentrated in the hands of a
relatively small number of investors. In addition, because certain emerging
market countries’ trading exchanges on which the Fund’s portfolio securities may
trade are open when the relevant Exchanges are closed, the Fund may be subject
to heightened risk associated with market movements. Trading volume may be lower
on certain emerging market countries’ trading exchanges than on more developed
securities markets and securities may be generally less liquid. The
infrastructure for clearing, settlement and registration on the primary and
secondary markets of certain emerging market countries are less developed than
in certain other markets and under certain circumstances this may result in the
Fund experiencing delays in settling and/or registering transactions in the
markets in which it invests, particularly if the growth of foreign and domestic
investment in certain emerging market countries places an undue burden on such
investment infrastructure. Such delays could affect the speed with which the
Fund can transmit redemption proceeds and may inhibit the initiation and
realization of investment opportunities at optimum times.
Certain
issuers in emerging market countries may utilize share blocking schemes. Share
blocking refers to a practice, in certain foreign markets, where voting rights
related to an issuer’s securities are predicated on these securities being
blocked from trading at the custodian or sub-custodian level for a period of
time around a shareholder meeting. These restrictions have the effect of barring
the purchase and sale of certain voting securities within a specified number of
days before and, in certain instances, after a shareholder meeting where a vote
of shareholders will be taken. Share blocking may prevent the Fund from buying
or selling securities for a period of time. During the time that shares are
blocked, trades in such securities will not settle. The blocking period can last
up to several weeks. The process for having a blocking restriction lifted can be
quite onerous with the particular requirements varying widely by country. In
addition, in certain countries, the block cannot be removed. As a result of the
ramifications of voting ballots in markets that allow share blocking, the
Adviser, on behalf of the Fund, reserves the right to abstain from voting
proxies in those markets.
Corporate
and Securities Laws.
Securities laws in emerging market countries are relatively new and unsettled
and, consequently, there is a risk of rapid and unpredictable change in laws
regarding foreign investment, securities regulation, title to securities and
securityholders rights. Accordingly, foreign investors may be adversely affected
by new or amended laws and regulations. In addition, the systems of corporate
governance to which emerging market issuers are subject may be less advanced
than those systems to which issuers located in more developed countries are
subject, and therefore, securityholders of issuers located in emerging market
countries may not receive many of the protections available to securityholders
of issuers located in more developed countries. In circumstances where adequate
laws and securityholders rights exist, it may not be possible to obtain swift
and equitable enforcement of the law. In addition, the enforcement of systems of
taxation at federal, regional and local levels in emerging market countries may
be inconsistent and subject to sudden change. The Fund has limited rights and
few practical remedies in emerging markets and the ability of U.S. authorities
to bring enforcement actions in emerging markets may be limited.
Depositary Receipts
Risk. The
Fund may invest in depositary receipts (including American Depositary Receipts),
which involve similar risks to those associated with investments in foreign
securities. Depositary receipts are receipts listed on U.S. or foreign exchanges
issued by banks or trust companies that entitle the holder to all dividends and
capital gains that are paid out on the underlying foreign shares. The issuers of
certain depositary receipts are under no obligation to distribute shareholder
communications to the holders of such receipts, or to pass through to them any
voting rights with respect to the deposited securities. Investments in
depositary receipts may be less liquid than the underlying shares in their
primary trading market. The issuers of depositary receipts may discontinue
issuing new depositary receipts and withdraw existing depositary receipts at any
time, which may result in costs and delays in the distribution of the underlying
assets to the Fund and may negatively impact the Fund’s
performance.
Market
Risk.
The prices of securities are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including human error, processing and communication errors, errors of the Fund’s
service providers, counterparties or other third-parties, failed or inadequate
processes and technology or system failures.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index, or (to the extent the Fund effects creations and redemptions in
cash) raising cash to meet redemptions or deploying cash in connection with
newly created Creation Units. Transaction costs, including brokerage costs, will
decrease the Fund’s net asset value to the extent not offset by the transaction
fee payable by an Authorized Participant.
Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Index. Unusual market conditions may cause the Index provider to postpone a
scheduled rebalance, which could cause the Index to vary from its normal or
expected composition. There is no assurance that the Index provider or any
agents that may act on its behalf will compile the Index accurately, or that the
Index will be determined, composed or calculated accurately. Errors in respect
of the quality, accuracy and completeness of the data used to compile the Index
may occur from time to time and may not be identified and corrected by the Index
provider, particularly where the indices are less commonly used as benchmarks by
funds or managers. Therefore, gains, losses or costs associated with errors of
the Index provider or its agents will generally be borne by the Fund and its
shareholders. For example, during a period where the Index contains incorrect
constituents, the Fund would have market exposure to such constituents and would
be underexposed to the Index’s other constituents. Such errors may negatively or
positively impact the Fund and its shareholders.
When
the Index is rebalanced and the Fund in turn rebalances its portfolio to attempt
to increase the correlation between the Fund’s portfolio and the Index, any
transaction costs and market exposure arising from such portfolio rebalancing
will be borne directly by the Fund and its shareholders. The Fund may not be
fully invested at times either as a result of cash flows into the Fund or
reserves of cash held by the Fund to pay expenses or to meet redemptions. The
Fund may accept cash in connection with a purchase of Creation Units or effect
its redemptions in cash rather than in-kind and, as a result, the Fund’s ability
to match the return of the Index will be affected. In addition, the Fund may not
invest in certain securities and/or other assets included in the Index, or
invest in them in the exact proportions in which they are represented in the
Index. The Fund’s performance may also deviate from the return of the Index for
a variety of reasons, including legal restrictions or limitations imposed by the
governments of certain countries, certain exchange listing standards, a lack of
liquidity in markets in which such securities trade, potential adverse tax
consequences or other regulatory reasons (such as diversification requirements).
A lack of liquidity may be due to various events, including market events,
economic conditions or investor perceptions. Illiquid securities may be
difficult to value and their value may be lower than the market price of
comparable liquid securities, which would negatively affect the Fund’s
performance.
Moreover, the Fund may be delayed in purchasing or selling securities included
in the Index. When markets are volatile, the ability to sell securities at fair
value prices may be adversely impacted and may result in additional trading
costs and/or increase the index tracking risk. To the extent the Fund encounters
any issues with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions, such issues may
also increase index tracking risk. The Fund may also need to rely on borrowings
to meet redemptions, which may lead to increased expenses. For tax efficiency
purposes, the Fund may sell certain securities, and such sale may cause the Fund
to realize a loss and deviate from the performance of the Index. The Fund’s
performance may also deviate from the performance of the Index due to the impact
of withholding taxes, late announcements relating to changes to the Index and
high turnover of the Index.
The
Fund may fair value certain of its investments, underlying currencies and/or
other assets. To the extent the Fund calculates its net asset value based on
fair value prices and the value of the Index is based on securities’ closing
prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices) or if the Fund
otherwise calculates its net asset value based on prices that differ from those
used in calculating the Index, the Fund’s ability to track the Index may be
adversely affected. The need to comply with the tax diversification and other
requirements of the Internal Revenue Code may also impact the Fund’s ability to
track the performance of the Index. In addition, if the Fund utilizes depositary
receipts or other derivative instruments, its return may not correlate as well
with the return of the Index as would be the case if the Fund purchased all the
securities in the Index directly. To the extent the Fund utilizes depositary
receipts, the purchase of depositary receipts may negatively affect the Fund’s
ability to track the performance of the Index and increase tracking error, which
may be exacerbated if the issuer of the depositary receipt discontinues issuing
new depositary receipts or withdraws existing depositary receipts. Actions taken
in response to proposed corporate actions could also result in increased
tracking error. In light of the factors discussed above, the Fund’s return may
deviate significantly from the return of the Index.
Apart
from scheduled rebalances, the Index provider or its agents may carry out
additional ad hoc rebalances to the Index in order, for example, to correct an
error in the selection of index constituents. When the Index is rebalanced and
the Fund in turn rebalances its portfolio to attempt to increase the correlation
between the Fund’s portfolio and the Index, any transaction costs and market
exposure arising from such portfolio rebalancing will be borne directly by the
Fund and its shareholders. Therefore, errors and additional ad hoc rebalances
carried out by the Index provider to the Index may increase the costs to and the
tracking error risk of the Fund.
Index
tracking risk may be heightened during times of increased market volatility or
other unusual market conditions. Changes to the composition of the Index in
connection with a rebalancing or reconstitution of the Index may cause the Fund
to experience increased volatility, during which time the Fund’s index tracking
risk may be heightened.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk. There
can be no assurance that an active trading market for the Shares will develop or
be maintained, as applicable. Further, secondary markets may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods in times of market stress because market makers and Authorized
Participants may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its net asset value.
Van
Eck Securities Corporation, the distributor of the Shares, does not maintain a
secondary market in the Shares. Investors purchasing and selling Shares in the
secondary market may not experience investment results consistent with those
experienced by those Authorized Participants creating and redeeming directly
with the Fund.
Decisions
by market makers or Authorized Participants to reduce their role or “step away”
from these activities in times of market stress could inhibit the effectiveness
of the arbitrage process in maintaining the relationship between the underlying
value of the Fund’s portfolio securities and the Fund’s market price. This
reduced effectiveness could result in Fund Shares trading at a price which
differs materially from net asset value and also in greater than normal intraday
bid/ask spreads for Fund Shares.
Trading
Issues Risk.
Trading in shares on the exchange may be halted due to market conditions or for
reasons that, in the view of the exchange, make trading in shares inadvisable.
In addition, trading in shares on the exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the relevant exchange’s
“circuit breaker” rules. If a trading halt or unanticipated early close of the
exchange occurs, a shareholder may be unable to purchase or sell Shares of the
Fund. There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk.
Unlike many investment companies, the Fund is not “actively” managed. Therefore,
unless a specific security is removed from its Index, the Fund generally would
not sell a security because the security’s issuer is in financial
trouble.
If a specific security is removed from the Fund’s Index, the Fund may be forced
to sell such security at an inopportune time or for prices other than at current
market values. An investment in the Fund involves risks similar to those of
investing in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares. Disruptions
to creations and redemptions, the existence of market volatility or potential
lack of an active trading market for Shares (including through a trading halt),
as well as other factors, may result in Shares trading at a significant premium
or discount to net asset value or to the intraday value of the Fund’s holdings.
The net asset value of the Shares will fluctuate with changes in the market
value of the Fund’s securities holdings. The market price of Shares may
fluctuate, in some cases materially, in accordance with changes in net asset
value and the intraday value of the Fund’s holdings, as well as supply and
demand on the Exchange. Shares may trade below, at or above their net asset
value. While the creation/redemption feature is designed to make it likely that
Shares normally will trade close to the value of the Fund’s holdings, market
prices are not expected to correlate exactly to the Fund’s net asset value due
to timing reasons, supply and demand imbalances and other factors. The price
differences may be due, in large part, to the fact that supply and demand forces
at work in the secondary trading market for Shares may be closely related to,
but not necessarily identical to, the same forces influencing the prices of the
securities of the Fund’s portfolio of investments trading individually or in the
aggregate at any point in time. If a shareholder purchases Shares at a time when
the market price is at a premium to the net asset value or sells Shares at a
time when the market price is at a discount to the net asset value, the
shareholder may pay significantly more or receive significantly less than the
underlying value of the Shares that were bought or sold or the shareholder may
be unable to sell his or her Shares. Any of these factors, discussed above and
further below, may lead to the Shares trading at a premium or discount to the
Fund’s net asset value. In addition, because certain of the Fund’s underlying
securities trade on exchanges that are closed when the exchange that Shares of
the Fund trade on is open, there are likely to be deviations between the
expected value of an underlying security and the closing security’s price
(i.e.,
the last quote from its closed foreign market) resulting in premiums or
discounts to net asset value that may be greater than those experienced by other
ETFs. In addition, the securities held by the Fund may be traded in markets that
close at a different time than the Exchange. Liquidity in those securities may
be reduced after the applicable closing times. Accordingly, during the time when
the Exchange is open but after the applicable market closing, fixing or
settlement times, bid/ask spreads and the resulting premium or discount to the
Shares’ net asset value may widen. Additionally, in stressed market conditions,
the market for the Fund’s Shares may become less liquid in response to
deteriorating liquidity in the markets for the Fund’s underlying portfolio
holdings.
When
you buy or sell Shares of the Fund through a broker, you will likely incur a
brokerage commission or other charges imposed by brokers. In addition, the
market price of Shares, like the price of any exchange-traded security, includes
a bid/ask spread charged by the market makers or other participants that trade
the particular security. The spread of the Fund’s Shares varies over time based
on the Fund’s trading volume and market liquidity and may increase if the Fund’s
trading volume, the spread of the Fund’s underlying securities, or market
liquidity decrease. In times of severe market disruption, including when trading
of the Fund’s holdings may be halted, the bid/ask spread may increase
significantly. This means that Shares may trade at a discount to the Fund’s net
asset value, and the discount is likely to be greatest during significant market
volatility.
Non-Diversified
Risk.
The Fund is classified as a “non-diversified” fund under the Investment Company
Act of 1940. The Fund is subject to the risk that it will be more volatile than
a diversified fund because the Fund may invest a relatively high percentage of
its assets in a smaller number of issuers or may invest a larger proportion of
its assets in a single issuer. Moreover, the gains and losses on a single
investment may have a greater impact on the Fund’s net asset value and may make
the Fund more volatile than more diversified funds. The Fund may be particularly
vulnerable to this risk if its Index is comprised of securities of a limited
number of companies.
Index-Related
Concentration Risk. The
Fund’s assets may be concentrated in a particular sector or sectors or industry
or group of industries to reflect the Index’s allocation to those types of
securities. The securities of many or all of the companies in the same sector or
industry may decline in value due to developments adversely affecting such
sector or industry. By concentrating its assets in a particular sector or
sectors or industry or group of industries, the Fund is subject to the risk that
economic, political or other conditions that have a negative effect on those
sectors and/or industries may negatively impact the Fund to a greater extent
than if the Fund’s assets were invested in a wider variety of
securities.
ADDITIONAL
NON-PRINCIPAL INVESTMENT STRATEGIES
The
Fund may invest in securities not included in the Index, money market
instruments, including repurchase agreements or other funds which invest
exclusively in money market instruments, convertible securities, structured
notes (notes on which the amount of principal repayment and interest payments
are based on the movement of one or more specified factors, such as the movement
of
a particular stock or stock index) and/or certain derivatives, which the Adviser
believes will help the Fund track the Index. Depositary receipts not included in
the Fund’s Index may be used by the Fund in seeking performance that corresponds
to the Index and in managing cash flows, and may count towards compliance with
the Fund’s 80% policy. The Fund may also invest, to the extent permitted by the
Investment Company Act of 1940, in other affiliated and unaffiliated funds, such
as open-end or closed-end management investment companies, including other ETFs.
The Fund does not have a temporary defensive strategy to protect against
potential stock market declines.
BORROWING
MONEY
The
Fund may borrow money from a bank up to a limit of one-third of the market value
of its assets. The Fund is expected to enter into a credit facility to borrow
money for temporary, emergency or other purposes, including the funding of
shareholder redemption requests, trade settlements and as necessary to
distribute to shareholders any income required to maintain the Fund’s status as
a regulated investment company. To the extent that the Fund borrows money, it
may be leveraged; at such times, the Fund will appreciate or depreciate in value
more rapidly than the Index. Leverage generally has the effect of increasing the
amount of loss or gain the Fund might realize, and may increase volatility in
the value of the Fund’s investments.
LENDING
PORTFOLIO SECURITIES
The
Fund may lend its portfolio securities to brokers, dealers and other financial
institutions desiring to borrow securities to complete transactions and for
other purposes. In connection with such loans, the Fund receives cash, U.S.
government securities and stand-by letters of credit not issued by the Fund’s
bank lending agent equal to at least 102% of the value of the portfolio
securities being loaned. This collateral is marked-to-market on a daily basis.
Although the Fund will receive collateral in connection with all loans of its
securities holdings, the Fund would be exposed to a risk of loss should a
borrower fail to return the borrowed securities (e.g.,
the Fund would have to buy replacement securities and the loaned securities may
have appreciated beyond the value of the collateral held by the Fund) or become
insolvent. The Fund may pay fees to the party arranging the loan of securities.
In addition, the Fund will bear the risk that it may lose money because the
borrower of the loaned securities fails to return the securities in a timely
manner or at all. The Fund could also lose money in the event of a decline in
the value of any cash collateral or in the value of investments made with the
cash collateral. These events could trigger adverse tax consequences for the
Fund. Substitute payments for dividends received by the Fund for securities
loaned out by the Fund will not be considered qualified dividend
income.
ADDITIONAL
NON-PRINCIPAL RISKS
Special
Risk Considerations of Investing in Canadian Issuers. Investments
in securities of Canadian issuers, including issuers located outside of Canada
that generate significant revenue from Canada, involve risks and special
considerations not typically associated with investments in the U.S. securities
markets. The Canadian economy is very dependent on the demand for, and supply
and price of, natural resources. The Canadian market is relatively concentrated
in issuers involved in the production and distribution of natural resources.
There is a risk that any changes in natural resources sectors could have an
adverse impact on the Canadian economy. Additionally, the Canadian economy is
heavily dependent on relationships with certain key trading partners, including
the United States, countries in the European Union and China. Because the United
States is Canada’s largest trading partner and foreign investor, the Canadian
economy is dependent on and may be significantly affected by the U.S. economy.
Reduction in spending on Canadian products and services or changes in the U.S.
economy may adversely impact the Canadian economy. Trade agreements may further
increase Canada’s dependency on the U.S. economy, and uncertainty as to the
future of such trade agreements may cause a decline in the value of the Fund’s
Shares. Past periodic demands by the Province of Quebec for sovereignty have
significantly affected equity valuations and foreign currency movements in the
Canadian market and such demands may have this effect in the future. In
addition, certain sectors of Canada’s economy may be subject to foreign
ownership limitations. This may negatively impact the Fund’s ability to
invest in Canadian issuers and to track the Fund’s Index.
Derivatives
Risk. Derivatives
and other similar instruments (referred to collectively as “derivatives”) are
financial instruments whose values are based on the value of one or more
reference assets or indicators, such as a security, currency, interest rate, or
index. The Fund’s use of derivatives involves risks different from, and possibly
greater than, the risks associated with investing directly in securities and
other more traditional investments. Moreover, although the value of a derivative
is based on an underlying asset or indicator, a derivative typically does not
carry the same rights as would be the case if the Fund invested directly in the
underlying securities, currencies or other assets.
Derivatives
are subject to a number of risks, such as potential changes in value in response
to market developments or, in the case of “over-the-counter” derivatives, as a
result of a counterparty’s credit quality and the risk that a derivative
transaction may not have the effect the Adviser anticipated. Derivatives also
involve the risk of mispricing or improper valuation and the risk that changes
in the value of a derivative may not achieve the desired correlation with the
underlying asset or indicator. Derivative transactions can create investment
leverage and may be highly volatile, and the Fund could lose more than the
amount it invests. The use of derivatives may increase the amount and affect the
timing and character of taxes payable by shareholders of the Fund.
Many
derivative transactions are entered into “over-the-counter” without a central
clearinghouse; as a result, the value of such a derivative transaction will
depend on, among other factors, the ability and the willingness of the Fund’s
counterparty to perform its obligations under the transaction. If a counterparty
were to default on its obligations, the Fund’s contractual remedies against such
counterparty
may be subject to bankruptcy and insolvency laws, which could affect the Fund’s
rights as a creditor (e.g.,
the Fund may not receive the net amount of payments that it is contractually
entitled to receive). Counterparty risk also refers to the related risks of
having concentrated exposure to such a counterparty. A liquid secondary market
may not always exist for the Fund’s derivative positions at any time, and the
Fund may not be able to initiate or liquidate a swap position at an advantageous
time or price, which may result in significant losses. The Fund may also face
the risk that it may not be able to meet margin and payment requirements and
maintain a derivatives position.
Derivatives
are also subject to operational and legal risks. Operational risk generally
refers to risk related to potential operational issues, including documentation
issues, settlement issues, system failures, inadequate controls, and human
errors. Legal risk generally refers to insufficient documentation, insufficient
capacity or authority of counterparty, or legality or enforceability of a
contract.
Under
Rule 18f-4 (the “derivatives rule”), funds need to trade derivatives and other
transactions that create future fund payment or delivery obligations subject to
a value-at-risk (“VaR”) leverage limit, and certain derivatives risk management
program and reporting requirements. Generally, these requirements apply unless a
fund qualifies as a “limited derivatives user,” as defined in the derivatives
rule. Under the derivatives rule, when a fund trades reverse repurchase
agreements or similar financing transactions, including certain tender option
bonds, it needs to aggregate the amount of indebtedness associated with the
reverse repurchase agreements or similar financing transactions with the
aggregate amount of any other senior securities representing indebtedness when
calculating the fund’s asset coverage ratio or treat all such transactions as
derivatives transactions. Reverse repurchase agreements or similar financing
transactions aggregated with other indebtedness do not need to be included in
the calculation of whether a fund is a limited derivatives user, but for funds
subject to the VaR testing, reverse repurchase agreements and similar financing
transactions must be included for purposes of such testing whether treated as
derivatives transactions or not. The Securities and Exchange Commission also
provided guidance in connection with the derivatives rule regarding use of
securities lending collateral that may limit a fund's securities lending
activities. In addition, under the derivatives rule, the Fund is permitted to
invest in a security on a when-issued or forward-settling basis, or with a
non-standard settlement cycle, and the transaction will be deemed not to involve
a senior security under the Investment Company Act of 1940, provided that (i)
the Fund intends to physically settle the transaction and (ii) the transaction
will settle within 35 days of its trade date (the “Delayed-Settlement Securities
Provision”). The Fund may otherwise engage in such transactions that do not meet
the conditions of the Delayed-Settlement Securities Provision so long as the
Fund treats any such transaction as a “derivatives transaction” for purposes of
compliance with the derivatives rule. Furthermore, under the derivatives rule,
the Fund will be permitted to enter into an unfunded commitment agreement, and
such unfunded commitment agreement will not be subject to the asset coverage
requirements under the Investment Company Act of 1940, if the Fund reasonably
believes, at the time it enters into such agreement, that it will have
sufficient cash and cash equivalents to meet its obligations with respect to all
such agreements as they come due.
Shareholder
Risk. Certain
shareholders, including other funds advised by the Adviser, may from time to
time own a substantial amount of the Fund’s Shares. In addition, a third party
investor, the Adviser or an affiliate of the Adviser, an Authorized Participant,
a market maker, or another entity may invest in the Fund and hold its investment
for a limited period of time. There can be no assurance that any large
shareholder would not redeem its investment. Redemptions by shareholders could
have a negative impact on the Fund. In addition, transactions by large
shareholders may account for a large percentage of the trading volume on the
exchange and may, therefore, have a material effect on the market price of the
Shares.
Leverage
Risk.
To the extent that the Fund borrows money or utilizes certain derivatives, it
may be leveraged. Leveraging generally exaggerates the effect on net asset value
of any increase or decrease in the market value of the Fund’s portfolio
securities. The Fund is required to comply with the derivatives rule when it
engages in transactions that create future Fund payment or delivery obligations.
The Fund is required to comply with the asset coverage requirements under the
Investment Company Act of 1940 when it engages in borrowings and/or transactions
treated as borrowings.
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ADVANTAGED PRODUCT STRUCTURE |
Unlike
many conventional mutual funds which are only bought and sold at closing NAVs,
the Shares of the Fund have been designed to be tradable in a secondary market
on an intra-day basis and to be redeemed principally in-kind in Creation Units
at each day’s market close. These in-kind arrangements are designed to mitigate
the adverse effects on the Fund’s portfolio that could arise from frequent cash
redemption transactions that affect the NAV of the Fund. Moreover, in contrast
to conventional mutual funds, where frequent redemptions can have an adverse tax
impact on taxable shareholders because of the need to sell portfolio securities
which, in turn, may generate taxable gain, the in-kind redemption mechanism of
the Fund, to the extent used, generally is not expected to lead to a tax event
for shareholders whose Shares are not being redeemed.
A
description of the Fund’s policies and procedures with respect to the disclosure
of the Fund’s portfolio securities is available in the Fund’s SAI.
Board
of Trustees.
The Board of Trustees of the Trust has responsibility for the general oversight
of the management of the Fund, including general supervision of the Adviser and
other service providers, but is not involved in the day-to-day management of the
Trust. A list of the Trustees and the Trust officers, and their present
positions and principal occupations, is provided in the Fund’s SAI.
Investment
Adviser.
Under the terms of an investment management agreement between the Trust and Van
Eck Associates Corporation with respect to the Fund (the “Investment Management
Agreement”), Van Eck Associates Corporation serves as the adviser to the Fund
and, subject to the supervision of the Board of Trustees, is responsible for the
day-to-day investment management of the Fund. As of December 31, 2022, the
Adviser managed approximately $69.03
billion
in assets. The Adviser has been an investment adviser since 1955 and also acts
as adviser or sub-adviser to mutual funds, other ETFs, other pooled investment
vehicles and separate accounts. The Adviser’s principal business address is 666
Third Avenue, 9th Floor, New York, New York 10017. A discussion regarding the
Board of Trustees’ approval of the Investment Management Agreement is available
in the Trust’s annual report for the period ended September 30,
2022.
Pursuant
to the Investment Management Agreement, the Adviser is responsible for all
expenses of the Fund, including the costs of transfer agency, custody, fund
administration, legal, audit and other services, except for the fee payment
under the Investment Management Agreement, acquired fund fees and expenses,
interest expense, offering costs, trading expenses, taxes and extraordinary
expenses. For its services to the Fund, the Fund has agreed to pay the Adviser
an annual unitary management fee equal to 0.50% of its average daily net assets.
Offering costs excluded from the annual unitary management fee are: (a) legal
fees pertaining to the Fund’s Shares offered for sale, (b) SEC and state
registration fees; and (c) initial fees paid for Shares of the Fund to be listed
on an exchange. Notwithstanding the foregoing, the Adviser has agreed to pay all
such offering costs until at least February 1, 2024.
Manager
of Managers Structure.
The Adviser and the Trust may rely on an exemptive order (the “Order”) from the
SEC that permits the Adviser to enter into investment sub-advisory agreements
with unaffiliated sub-advisers without obtaining shareholder approval. The
Adviser, subject to the review and approval of the Board of Trustees, may select
one or more sub- advisers for the Fund and supervise, monitor and evaluate the
performance of each sub-adviser.
The
Order also permits the Adviser, subject to the approval of the Board of
Trustees, to replace sub-advisers and amend investment sub-advisory agreements,
including applicable fee arrangements, without shareholder approval whenever the
Adviser and the Board of Trustees believe such action will benefit the Fund and
its shareholders. The Adviser thus would have the responsibility (subject to the
oversight of the Board of Trustees) to recommend the hiring and replacement of
sub-advisers as well as the discretion to terminate any sub-adviser and
reallocate the Fund’s assets for management among any other sub-adviser(s) and
itself. This means that the Adviser would be able to reduce the sub-advisory
fees and retain a larger portion of the management fee, or increase the
sub-advisory fees and retain a smaller portion of the management fee. The
Adviser would compensate each sub-adviser out of its management
fee.
Administrator,
Custodian and Transfer Agent.
Van Eck Associates Corporation is the administrator for the Fund (the
“Administrator”), and State Street Bank and Trust Company is the custodian of
the Fund’s assets and provides transfer agency and fund accounting services to
the Fund. The Administrator is responsible for certain clerical, recordkeeping
and/or bookkeeping services which are required to be provided pursuant to the
Investment Management Agreement.
Distributor.
Van Eck Securities Corporation is the distributor of the Shares (the
“Distributor”). The Distributor will not distribute Shares in less than a
specified number of Shares, each called a “Creation Unit,” and does not maintain
a secondary market in the Shares. The Shares are traded in the secondary
market.
The
portfolio manager currently responsible for the day-to-day management of the
Fund’s portfolio is Peter H. Liao, CFA. Mr.
Liao has been employed by the Adviser as an analyst since the summer of 2004 and
has been a portfolio manager since 2006. Mr. Liao graduated from New York
University in 2004 with a Bachelor of Arts in Economics and Mathematics. Mr.
Liao also serves as portfolio manager for certain other investment companies and
pooled investment vehicles advised by the Adviser.
See
the Fund’s SAI for additional information about the portfolio manager’s
compensation, other accounts managed and respective ownership of
Shares.
DETERMINATION
OF NAV
The
NAV per Share for the Fund is computed by dividing the value of the net assets
of the Fund (i.e.,
the value of its total assets less total liabilities) by the total number of
Shares outstanding. Expenses and fees, including the management fee, are accrued
daily and taken into account for purposes of determining NAV. The NAV of the
Fund is determined each business day as of the close of trading (ordinarily 4:00
p.m., Eastern time) on the New York Stock Exchange.
The
values of the Fund’s portfolio securities are based on the securities’ closing
prices on the markets on which the securities trade, when available. Due to the
time differences between the United States and certain countries in which the
Fund invests, securities on these exchanges may not trade at times when Shares
of the Fund will trade. In the absence of a last reported sales price, or if no
sales were reported, and for other assets for which market quotes are not
readily available, values may be based on quotes obtained from a quotation
reporting system, established market makers or by an outside independent pricing
service. Debt instruments with remaining maturities of more than 60 days are
valued at the evaluated mean price provided by an outside independent pricing
service. If an outside independent pricing service is unable to provide a
valuation, the instrument is valued at the mean of the highest bid and the
lowest asked quotes obtained from one or more brokers or dealers selected by the
Adviser. Prices obtained by an outside independent pricing service may use
information provided by market makers or estimates of market values obtained
from yield data related to investments or securities with similar
characteristics and may use a computerized grid matrix of securities and its
evaluations in determining what it believes is the fair value of the portfolio
securities. Short-term debt instruments having a maturity of 60 days or less are
valued at amortized cost. Any assets or liabilities denominated in currencies
other than the U.S. dollar are converted into U.S. dollars at the current market
rates on the date of valuation as quoted by one or more sources. If a market
quotation for a security or other asset is not readily available or the Adviser
believes it does not otherwise accurately reflect the market value of the
security or asset at the time the Fund calculates its NAV, the security or asset
will be fair valued by the Adviser in accordance with the Trust’s valuation
policies and procedures approved by the Board of Trustees. The Fund may also use
fair value pricing in a variety of circumstances, including but not limited to,
situations when the value of a security in the Fund’s portfolio has been
materially affected by events occurring after the close of the market on which
the security is principally traded (such as a corporate action or other news
that may materially affect the price of a security) or trading in a security has
been suspended or halted. In addition, the Fund currently expects that it will
fair value certain of the foreign equity securities held by the Fund, if any,
each day the Fund calculates its NAV, except those securities principally traded
on exchanges that close at the same time the Fund calculates its
NAV.
Accordingly,
the Fund’s NAV may reflect certain portfolio securities’ fair values rather than
their market prices at the time the exchanges on which they principally trade
close. Fair value pricing involves subjective judgments and it is possible that
a fair value determination for a security or other asset is materially different
than the value that could be realized upon the sale of such security or asset.
In addition, fair value pricing could result in a difference between the prices
used to calculate the Fund’s NAV and the prices used by the Fund’s Index. This
may adversely affect the Fund’s ability to track its Index. With respect to
securities that are principally traded on foreign exchanges, the value of the
Fund’s portfolio securities may change on days when you will not be able to
purchase or sell your Shares.
INTRADAY
VALUE
The
trading prices of the Fund’s Shares in the secondary market generally differ
from the Fund’s daily NAV and are affected by market forces such as the supply
of and demand for Fund Shares and underlying securities held by the Fund,
economic conditions and other factors. Information regarding the intraday value
of the Fund’s Shares (“IIV”) may be disseminated throughout each trading day by
the Exchange or by market data vendors or other information providers. The IIV
is based on the current market value of the securities and/or cash required to
be deposited in exchange for a Creation Unit. The IIV does not necessarily
reflect the precise composition of the current portfolio of securities held by
the Fund at a particular point in time or the best possible valuation of the
current portfolio. Therefore, the IIV should not be viewed as a “real-time”
update of the Fund’s NAV, which is computed only once a day. The IIV is
generally determined by using current market quotations and/or price quotations
obtained from broker-dealers and other market intermediaries that may trade in
the portfolio securities held by the Fund and valuations based on current market
rates. The quotations and/or valuations of certain Fund holdings may not
be
updated
during U.S. trading hours if such holdings do not trade in the United States.
The Fund is not involved in, or responsible for, the calculation or
dissemination of the IIV and makes no warranty as to its accuracy.
RULE
144A AND OTHER UNREGISTERED SECURITIES
An
AP (i.e.,
a person eligible to place orders with the Distributor to create or redeem
Creation Units of the Fund) that is not a “qualified institutional buyer,” as
such term is defined under Rule 144A of the Securities Act of 1933, as amended
(the “Securities Act”), will not be able to receive, as part of a redemption,
restricted securities eligible for resale under Rule 144A or other unregistered
securities.
BUYING
AND SELLING EXCHANGE-TRADED SHARES
The
Shares of the Fund are expected to be listed on the Exchange. If you buy or sell
Shares in the secondary market, you will incur customary brokerage commissions
and charges and may pay some or all of the “spread,” which is any difference
between the bid price and the ask price. The spread varies over time for the
Fund’s Shares based on the Fund’s trading volume and market liquidity, and is
generally lower if the Fund has high trading volume and market liquidity, and
generally higher if the Fund has little trading volume and market liquidity
(which is often the case for funds that are newly launched or small in size). In
times of severe market disruption or low trading volume in the Fund’s Shares,
this spread can increase significantly. It is anticipated that the Shares will
trade in the secondary market at prices that may differ to varying degrees from
the NAV of the Shares. During periods of disruptions to creations and
redemptions or the existence of extreme market volatility, the market prices of
Shares are more likely to differ significantly from the Shares’
NAV.
The
Depository Trust Company (“DTC”) serves as securities depository for the Shares.
(The Shares may be held only in book- entry form; stock certificates will not be
issued.) DTC, or its nominee, is the record or registered owner of all
outstanding Shares. Beneficial ownership of Shares will be shown on the records
of DTC or its participants (described below). Beneficial owners of Shares are
not entitled to have Shares registered in their names, will not receive or be
entitled to receive physical delivery of certificates in definitive form and are
not considered the registered holder thereof. Accordingly, to exercise any
rights of a holder of Shares, each beneficial owner must rely on the procedures
of: (i) DTC; (ii) “DTC Participants,” i.e.,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations, some of whom (and/or their representatives) own
DTC; and (iii) “Indirect Participants,” i.e.,
brokers, dealers, banks and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly,
through which such beneficial owner holds its interests. The Trust understands
that under existing industry practice, in the event the Trust requests any
action of holders of Shares, or a beneficial owner desires to take any action
that DTC, as the record owner of all outstanding Shares, is entitled to take,
DTC would authorize the DTC Participants to take such action and that the DTC
Participants would authorize the Indirect Participants and beneficial owners
acting through such DTC Participants to take such action and would otherwise act
upon the instructions of beneficial owners owning through them. As described
above, the Trust recognizes DTC or its nominee as the owner of all Shares for
all purposes. For more information, see the section entitled “Book Entry Only
System” in the Fund’s SAI.
The
Exchange is open for trading Monday through Friday and is closed on weekends and
the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’
Day, Good Friday, Memorial Day, Juneteenth National Independence Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Because
non-U.S. exchanges may be open on days when the Fund does not price its Shares,
the value of the securities in the Fund’s portfolio may change on days when
shareholders will not be able to purchase or sell the Fund’s
Shares.
The
right of redemption by an AP may be suspended or the date of payment postponed
(1) for any period during which the Exchange is closed (other than customary
weekend and holiday closings); (2) for any period during which trading on the
Exchange is suspended or restricted; (3) for any period during which an
emergency exists as a result of which disposal of the Shares of the Fund or
determination of its NAV is not reasonably practicable; or (4) in such other
circumstance as is permitted by the SEC.
Market
Timing and Related Matters.
The Fund imposes no restrictions on the frequency of purchases and redemptions.
Frequent purchases and redemptions of Fund Shares may attempt to take advantage
of a potential arbitrage opportunity presented by a lag between a change in the
value of the Fund’s portfolio securities after the close of the primary markets
for the Fund’s portfolio securities and the reflection of that change in the
Fund’s NAV (“market timing”). The Board of Trustees considered the nature of the
Fund (i.e.,
a fund whose Shares are expected to trade intraday), that the Adviser monitors
the trading activity of APs for patterns of abusive trading, that the Fund
reserves the right to reject orders that may be disruptive to the management of
or otherwise not in the Fund’s best interests, and that the Fund may fair value
certain of its securities. Given this structure, the Board of Trustees
determined that it is not necessary to impose restrictions on the frequency of
purchases and redemptions for the Fund at the present time.
DISTRIBUTIONS
Net
Investment Income and Capital Gains.
As a shareholder of the Fund, you are entitled to your share of the Fund’s
distributions of net investment income and net realized capital gains on its
investments. The Fund pays out substantially all of its net earnings to its
shareholders as “distributions.”
The
Fund typically earns income dividends from stocks and interest from debt
securities. These amounts, net of expenses, are typically passed along to Fund
shareholders as dividends from net investment income. The Fund realizes capital
gains or losses
whenever
it sells securities. Net capital gains are distributed to shareholders as
“capital gain distributions.” Dividends paid by the Fund that are properly
reported as exempt-interest dividends will not be subject to regular federal
income tax. Distributions from the Fund’s net investment income (other than net
tax-exempt income, if applicable), including net short-term capital gains, if
any, are taxable to you as ordinary income. Any long-term capital gains
distributions you receive from the Fund are taxable as long-term capital
gains.
Net
investment income and net realized capital gains, if any, is typically
distributed to shareholders annually. Dividends may be declared and paid more
frequently to improve index tracking or to comply with the distribution
requirements of the Code. In addition, in situations where the Fund acquires
investment securities after the beginning of a dividend period, the Fund may
elect to distribute at least annually amounts representing the full dividend
yield net of expenses on the underlying investment securities, as if the Fund
owned the underlying investment securities for the entire dividend period. If
the Fund so elects, some portion of each distribution may result in a return of
capital, which, for tax purposes, is treated as a return of your investment in
Shares. You will be notified regarding the portion of the distribution which
represents a return of capital.
Distributions
in cash may be reinvested automatically in additional Shares of the Fund only if
the broker through which you purchased Shares makes such option
available.
TAX
INFORMATION
As
with any investment, you should consider how your Fund investment will be taxed.
The tax information in this Prospectus is provided as general information. You
should consult your own tax professional about the tax consequences of an
investment in the Fund, including the possible application of foreign, state and
local taxes. Unless your investment in the Fund is through a tax-exempt entity
or tax-deferred retirement account, such as a 401(k) plan, you need to be aware
of the possible tax consequences when: (i) the Fund makes distributions, (ii)
you sell Shares in the secondary market or (iii) you create or redeem Creation
Units.
Taxes
on Distributions. As
noted above, the Fund expects to distribute net investment income, if any, at
least annually, and any net realized long-term or short-term capital gains, if
any, annually. The Fund may also pay a special distribution at any time to
comply with U.S. federal tax requirements.
In
general, your distributions are subject to U.S. federal income tax when they are
paid, whether you take them in cash or reinvest them in the Fund. Distributions
of net investment income, including net short-term gains, if any, are generally
taxable as ordinary income. Whether distributions of capital gains represent
long-term or short-term capital gains is determined by how long the Fund owned
the investments that generated them, rather than how long you have owned your
Shares. Distributions of net short-term capital gains in excess of net long-term
capital losses, if any, are generally taxable as ordinary income. Distributions
of net long- term capital gains in excess of net short-term capital losses, if
any, that are properly reported as capital gain dividends are generally taxable
as long-term capital gains. Long-term capital gains of a non-corporate
shareholder are generally taxable at a maximum rate of 15% or 20%, depending on
whether the shareholder’s income exceeds certain threshold amounts.
The
Fund may receive dividends, the distribution of which the Fund may report as
qualified dividends. In the event that the Fund receives such a dividend and
reports the distribution of such dividend as a qualified dividend, the dividend
may be taxed at the maximum capital gains rates of 15% or 20%, provided holding
period and other requirements are met at both the shareholder and the Fund
level. There can be no assurance that any significant portion of the Fund’s
distributions will be eligible for qualified dividend treatment.
Distributions
in excess of the Fund’s current and accumulated earnings and profits are treated
as a tax-free return of your investment to the extent of your basis in the
Shares, and generally as capital gain thereafter. A return of capital, which for
tax purposes is treated as a return of your investment, reduces your basis in
Shares, thus reducing any loss or increasing any gain on a subsequent taxable
disposition of Shares. A distribution will reduce the Fund’s NAV per Share and
may be taxable to you as ordinary income or capital gain even though, from an
economic standpoint, the distribution may constitute a return of
capital.
Dividends,
interest and gains from non-U.S. investments of the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may, in some cases, reduce or
eliminate such taxes.
If
more than 50% of the Fund’s total assets at the end of its taxable year consist
of foreign securities, the Fund may elect to “pass through” to its investors
certain foreign income taxes paid by the Fund, with the result that each
investor will (i) include in gross income, even though not actually received,
the investor’s pro rata share of the Fund’s foreign income taxes, and (ii)
either deduct (in calculating U.S. taxable income) or credit (in calculating
U.S. federal income), subject to certain holding period and other limitations,
the investor’s pro rata share of the Fund’s foreign income taxes.
Backup
Withholding. The
Fund may be required to withhold a percentage of your distributions and proceeds
if you have not provided a taxpayer identification number or social security
number or otherwise established a basis for exemption from backup withholding.
The backup withholding rate for individuals is currently 24%. This is not an
additional tax and may be refunded, or credited against your U.S. federal income
tax liability, provided certain required information is furnished to the
Internal Revenue Service (“IRS”).
Taxes
on the Sale or Cash Redemption of Exchange Listed Shares.
Currently, any capital gain or loss realized upon a sale of Shares is generally
treated as long-term capital gain or loss if the Shares have been held for more
than one year and as a short-term capital gain or loss if held for one year or
less. However, any capital loss on a sale of Shares held for six months or less
is treated as long-term capital loss to the extent that capital gain dividends
were paid with respect to such Shares. The ability to deduct capital losses may
be limited. To the extent that the Fund shareholder’s Shares are redeemed for
cash, this is normally treated as a sale for tax purposes.
Taxes
on Creations and Redemptions of Creation Units.
A person who exchanges securities for Creation Units generally will recognize a
gain or loss. The gain or loss will be equal to the difference between the
market value of the Creation Units at the time of exchange and the sum of the
exchanger’s aggregate basis in the securities surrendered and the amount of any
cash paid for such Creation Units. A person who exchanges Creation Units for
securities will generally recognize a gain or loss equal to the difference
between the exchanger’s basis in the Creation Units and the sum of the aggregate
market value of the securities received. The IRS, however, may assert that a
loss realized upon an exchange of primarily securities for Creation Units cannot
be deducted currently under the rules governing “wash sales,” or on the basis
that there has been no significant change in economic position. Persons
exchanging securities for Creation Units or redeeming Creation Units should
consult their own tax adviser with respect to whether wash sale rules apply and
when a loss might be deductible and the tax treatment of any creation or
redemption transaction.
Under
current U.S. federal income tax laws, any capital gain or loss realized upon a
redemption (or creation) of Creation Units held as capital assets is generally
treated as long-term capital gain or loss if the Shares (or securities
surrendered) have been held for more than one year and as a short-term capital
gain or loss if the Shares (or securities surrendered) have been held for one
year or less.
If
you create or redeem Creation Units, you will be sent a confirmation statement
showing how many Shares you created or sold and at what price.
Medicare
Tax.
An additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from the
Fund and net gains from redemptions or other taxable dispositions of Fund
Shares) of U.S. individuals, estates and trusts to the extent that such person’s
“modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold
amounts.
Non-U.S.
Shareholders.
Dividends paid by the Fund to Non-U.S. shareholders are generally subject to
withholding tax at a 30% rate or a reduced rate specified by an applicable
income tax treaty to the extent derived from investment income and short-term
capital gains. Dividends paid by the Fund from net tax-exempt income or
long-term capital gains are generally not subject to such withholding tax.
Properly-reported dividends are generally exempt from U.S. federal withholding
tax where they (i) are paid in respect of the Fund’s “qualified net interest
income” (generally, the Fund’s U.S. source interest income, other than certain
contingent interest and interest from obligations of a corporation or
partnership in which the Fund is at least a 10% shareholder, reduced by expenses
that are allocable to such income); or (ii) are paid in respect of the Fund’s
“qualified short-term capital gains” (generally, the excess of the Fund’s net
short-term capital gain over the Fund’s long-term capital loss for such taxable
year). However, depending on its circumstances, the Fund may report all, some or
none of its potentially eligible dividends as such qualified net interest income
or as qualified short-term capital gains and/or treat such dividends, in whole
or in part, as ineligible for this exemption from withholding.
Any
capital gain realized by a Non-U.S. shareholder upon a sale of Shares of the
Fund will generally not be subject to U.S. federal income or withholding tax
unless (i) the gain is effectively connected with the shareholder’s trade or
business in the United States, or in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
met or (ii) the Fund is or has been a U.S. real property holding corporation, as
defined below, at any time within the five-year period preceding the date of
disposition of the Fund’s Shares or, if shorter, within the period during which
the Non-U.S. shareholder has held the Shares. Generally, a corporation is a U.S.
real property holding corporation if the fair market value of its U.S. real
property interests, as defined in the Code and applicable regulations, equals or
exceeds 50% of the aggregate fair market value of its worldwide real property
interests and its other assets used or held for use in a trade or business. The
Fund may be, or may prior to a Non-U.S. shareholder’s disposition of Shares
become, a U.S. real property holding corporation. If the Fund is or becomes a
U.S. real property holding corporation, so long as the Fund’s Shares are
regularly traded on an established securities market, only a Non-U.S.
shareholder who holds or held (at any time during the shorter of the five year
period preceding the date of disposition or the holder’s holding period) more
than 5% (directly or indirectly as determined under applicable attribution rules
of the Code) of the Fund’s Shares will be subject to United States federal
income tax on the disposition of Shares.
As
part of the Foreign Account Tax Compliance Act, (“FATCA”), the Fund may be
required to withhold 30% tax on certain types of U.S. sourced income
(e.g.,
dividends, interest, and other types of passive income) paid to (i) foreign
financial institutions (“FFIs”), including non-U.S. investment funds, unless
they agree to collect and disclose to the IRS information regarding their direct
and indirect U.S. account holders and (ii) certain nonfinancial foreign entities
(“NFFEs”), unless they certify certain information regarding their direct and
indirect U.S. owners. To avoid possible withholding, FFIs will need to enter
into agreements with the IRS which state that they will provide the IRS
information, including the names, account numbers and balances, addresses and
taxpayer
identification
numbers of U.S. account holders and comply with due diligence procedures with
respect to the identification of U.S. accounts as well as agree to withhold tax
on certain types of withholdable payments made to non-compliant foreign
financial institutions or to applicable foreign account holders who fail to
provide the required information to the IRS, or similar account information and
required documentation to a local revenue authority, should an applicable
intergovernmental agreement be implemented. NFFEs will need to provide certain
information regarding each substantial U.S. owner or certifications of no
substantial U.S. ownership, unless certain exceptions apply, or agree to provide
certain information to the IRS.
The
Fund may be subject to the FATCA withholding obligation, and also will be
required to perform due diligence reviews to classify foreign entity investors
for FATCA purposes. Investors are required to agree to provide information
necessary to allow the Fund to comply with the FATCA rules. If the Fund is
required to withhold amounts from payments pursuant to FATCA, investors will
receive distributions that are reduced by such withholding amounts.
Non-U.S.
shareholders are advised to consult their tax advisors with respect to the
particular tax consequences to them of an investment in the Fund, including the
possible applicability of the U.S. estate tax.
The
foregoing discussion summarizes some of the consequences under current U.S.
federal income tax law of an investment in the Fund. It is not a substitute for
personal tax advice. Consult your own tax advisor about the potential tax
consequences of an investment in the Fund under all applicable tax laws. Changes
in applicable tax authority could materially affect the conclusions discussed
above and could adversely affect the Fund, and such changes often
occur.
The
Index is published by MarketVector IndexesTM
GmbH (“MarketVector”), which is an indirectly wholly owned subsidiary of the
Adviser.
MarketVector
does not sponsor, endorse, or promote the Fund and bears no liability with
respect to the Fund or any security.
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MVIS®
GLOBAL DIGITAL ASSETS MINING
INDEX |
The
Index is a rules based, modified market capitalization weighted, float adjusted
index intended to give investors a means of tracking the overall performance of
companies involved in the digital asset mining segment.
To
be initially eligible for the Index, a company must (i) generate at least 50% of
its revenues from digital assets mining activities or mining-related technology
or (ii) have projects that, when developed, have the potential to generate at
least 50% of their revenues from digital asset mining activities or
mining-related technologies. Companies that are current components of the Index
must generate at least 25% of their revenues from digital assets mining
activities or mining-related technology or have projects that, when developed,
have the potential to generate at least 25% of their revenues from digital asset
mining activities or mining-related technologies in order to remain in the
Index. Additionally, companies that generate at least 50% of their revenues from
other digital asset-related projects, including those that operate digital asset
exchanges, payment gateways, software services, services to the digital assets
industry, digital asset infrastructure businesses, companies facilitating
commerce with the use of digital assets, or companies that otherwise generate
revenues related to digital asset operations, are initially eligible for
inclusion in the Index because such companies facilitate the adoption of digital
assets generally, which supports the global digital asset mining
segment.
The
Index currently includes a minimum of 20 Index components.
The
Index is the exclusive property of MarketVector, which has contracted with
Solactive AG to maintain and calculate the Index. Solactive AG uses its best
efforts to ensure that the Index is calculated correctly. Irrespective of its
obligations towards MarketVector, Solactive AG has no obligation to point out
errors in the Index to third parties. The Fund is not sponsored, endorsed, sold
or promoted by MarketVector and MarketVector makes no representation regarding
the advisability of investing in the Fund.
The
Index is reconstituted and rebalanced quarterly. MarketVector may delay or
change a scheduled rebalancing or reconstitution of the Index or the
implementation of certain rules at its sole discretion.
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| LICENSE
AGREEMENT AND DISCLAIMERS |
The
Adviser has entered into a licensing agreement with MarketVector to use the
Index. The Index provider is a wholly owned subsidiary of the Adviser. The Fund
is entitled to use the Index pursuant to a sub-licensing arrangement with the
Adviser.
Shares
of the Fund are not sponsored, endorsed, sold or promoted by MarketVector.
MarketVector makes no representation or warranty, express or implied, to the
owners of Shares of the Fund or any member of the public regarding the
advisability of investing in securities generally or in the Shares of the Fund
particularly or the ability of the Index to track the performance of its
respective securities market. The Index is determined and composed by
MarketVector without regard to the Adviser or the Shares of the Fund.
MarketVector has no obligation to take the needs of the Adviser or the owners of
Shares of the Fund into consideration in determining and composing the Index.
MarketVector
is not responsible for and has not participated in the determination of the
timing of prices at, or quantities of the Shares of the Fund to be issued or in
the determination or calculation of the equation by which the Shares of the Fund
are to be converted into cash. MarketVector has no obligation or liability in
connection with the administration, marketing or trading of the Shares of the
Fund.
The
Index is the exclusive property of MarketVector, which has contracted with
Solactive AG to maintain and calculate the Index. Solactive AG uses its best
efforts to ensure that the Index is calculated correctly. Irrespective of its
obligations towards the MarketVector, Solactive AG has no obligation to point
out errors in the Index to third parties including but not limited to investors
and/or financial intermediaries of the financial instrument.
The
Fund is not sponsored, promoted, sold or supported in any other manner by
Solactive AG nor does Solactive AG offer any express or implicit guarantee or
assurance either with regard to the results of using the Index and/or its
trademark or its price at any time or in any other respect. Neither publication
of the Index by Solactive AG nor the licensing of the Index or its trademark for
the purpose of use in connection with the Fund constitutes a recommendation by
Solactive AG to invest capital in the Fund nor does it in any way represent an
assurance or opinion of Solactive AG with regard to any investment in the Fund.
Solactive AG is not responsible for fulfilling the legal requirements concerning
the accuracy and completeness of the prospectus of the Fund.
MARKETVECTOR
DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA
INCLUDED THEREIN AND MARKETVECTOR SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. MARKETVECTOR MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF SHARES OF THE
FUND OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX, OR THE FUND OR ANY
DATA INCLUDED THEREIN. MARKETVECTOR MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MARKETVECTOR
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The
financial highlights table which follows is intended to help you understand the
Fund’s financial performance for the past five years or as indicated. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This
information for the fiscal year ended September 30, 2022 has been audited by
PricewaterhouseCoopers LLP, the Trust's independent registered public accounting
firm, whose report, along with the Fund’s financial statements, is included in
the Fund’s Annual Report, which is available upon request.
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| For
a share outstanding throughout each period: |
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Digital
Assets
Mining
ETF |
|
Period
Ended September 30, 2022 (a) |
| Net
asset value, beginning of period |
$ |
33.43 |
|
|
| Net
investment loss (b) |
(0.06) |
|
| Net
realized and unrealized loss on investments |
(21.05) |
|
| Total
from investment operations |
(21.11) |
|
| Net
asset value, end of period |
$ |
12.32 |
|
|
| Total
return (c) |
(63.15) |
|
%(d) |
| Ratios
to average net assets |
|
|
| Expenses |
0.50 |
|
%(e) |
| Net
investment loss |
(0.50) |
|
%(e) |
| Supplemental
data |
|
|
| Net
assets, end of period (in millions) |
$1 |
|
|
| Portfolio
turnover rate (f) |
39 |
|
%(d) |
|
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(a)For
the period March 8, 2022 (commencement of operations) through September 30,
2022.
(b)Calculated
based upon average shares outstanding
(c)Returns
include adjustments in accordance with U.S. Generally Accepted Accounting
Principles. Net asset values and returns for financial reporting purposes may
differ from those for shareholder transactions.
(d)Not
Annualized
(e)Annualized
(f)Portfolio
turnover rate excludes in-kind transactions.
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| PREMIUM/DISCOUNT
INFORMATION |
Information
regarding how often the closing trading price of the Shares of each Fund was
above (i.e.,
at a premium) or below (i.e.,
at a discount) the NAV of the Fund for the most recently completed calendar year
and the most recently completed calendar quarter(s) since that year (or the life
of the Fund, if shorter) can be found at www.vaneck.com.
CONTINUOUS
OFFERING
The
method by which Creation Units are created and traded may raise certain issues
under applicable securities laws. Because new Creation Units are issued and sold
by the Trust on an ongoing basis, a “distribution,” as such term is used in the
Securities Act may occur at any point. Broker dealers and other persons are
cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
manner which could render them statutory underwriters and subject them to the
prospectus delivery and liability provisions of the Securities Act.
For
example, a broker dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with the
Distributor, breaks them down into constituent Shares, and sells such Shares
directly to customers, or if it chooses to couple the creation of a supply of
new Shares with an active selling effort involving solicitation of secondary
market demand for Shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a categorization
as an underwriter.
Broker
dealers who are not “underwriters” but are participating in a distribution (as
contrasted to ordinary secondary trading transactions), and thus dealing with
Shares that are part of an “unsold allotment” within the meaning of Section
4(a)(3)(C) of the Securities Act, would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act.
This is because the prospectus delivery exemption in Section 4(a)(3) of the
Securities Act is not available in respect of such transactions as a result of
Section 24(d) of the Investment Company Act of 1940. As a result, broker dealer
firms should note that dealers who are not underwriters but are participating in
a distribution (as contrasted with ordinary secondary market transactions) and
thus dealing with the Shares that are part of an overallotment within the
meaning of Section 4(a)(3)(A) of the Securities Act would be unable to take
advantage of the prospectus delivery exemption provided by Section 4(a)(3) of
the Securities Act. Firms that incur a prospectus delivery obligation with
respect to Shares are reminded that, under Rule 153 of the Securities Act, a
prospectus delivery obligation under Section 5(b)(2) of the Securities Act owed
to an exchange member in connection with a sale on the Exchange is satisfied by
the fact that the prospectus is available at the Exchange upon request. The
prospectus delivery mechanism provided in Rule 153 is only available with
respect to transactions on an exchange.
In
addition, certain affiliates of the Fund and the Adviser may purchase and resell
Fund Shares pursuant to this Prospectus.
OTHER
INFORMATION
The
Trust was organized as a Delaware statutory trust on March 15, 2001. Its
Declaration of Trust currently permits the Trust to issue an unlimited number of
Shares of beneficial interest. If shareholders are required to vote on any
matters, each Share outstanding would be entitled to one vote. Annual meetings
of shareholders will not be held except as required by the Investment Company
Act of 1940 and other applicable law. See the Fund’s SAI for more information
concerning the Trust’s form of organization. Section 12(d)(1) of the Investment
Company Act of 1940 restricts investments by investment companies in the
securities of other investment companies, including Shares of the Fund.
Registered investment companies are permitted to invest in the Fund beyond the
limits set forth in Section 12(d)(1) subject to certain terms and conditions set
forth in SEC regulations, including that such investment companies enter into an
agreement with the Fund.
The
Prospectus, SAI and any other Fund communication do not create any contractual
obligations between the Fund’s shareholders and the Trust, the Fund, the Adviser
and/or the Trustees. Further, shareholders are not intended third party
beneficiaries of any contracts entered into by (or on behalf of) the Fund,
including contracts with the Adviser or other parties who provide services to
the Fund.
Dechert
LLP serves as counsel to the Trust, including the Fund. PricewaterhouseCoopers
LLP serves as the Trust’s independent registered public accounting firm and
audits the Fund’s financial statements annually.
ADDITIONAL
INFORMATION
This
Prospectus does not contain all the information included in the Registration
Statement filed with the SEC with respect to the Fund’s Shares. The Fund’s
Registration Statement, including this Prospectus, the Fund’s SAI and the
exhibits are available on the EDGAR database at the SEC’s website
(http://www.sec.gov), and copies may be obtained, after paying a duplicating
fee, by electronic request at the following email address:
publicinfo@sec.gov.
The
SAI for the Fund, which has been filed with the SEC, provides more information
about the Fund. The SAI for the Fund is incorporated herein by reference and is
legally part of this Prospectus. Additional information about the Fund’s
investments is available in the Fund’s annual and semi-annual reports to
shareholders. In the Fund’s annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund’s performance during its last fiscal year. The SAI and the Fund’s annual
and semi-annual reports may be obtained without charge by writing to the Fund at
Van Eck Securities Corporation, the Fund’s Distributor, at 666 Third Avenue, 9th
Floor, New York, New York 10017 or by calling the Distributor at the following
number: Investor Information: 800.826.2333.
Shareholder
inquiries may be directed to the Fund in writing to 666 Third Avenue, 9th Floor,
New York, New York 10017 or by calling 800.826.2333.
The
Fund’s SAI is available at www.vaneck.com.
(Investment
Company Act file no. 811-10325)
[THIS
PAGE INTENTIONALLY LEFT BLANK]
For
more detailed information about the Fund, see the SAI dated February 1, 2023, as
may be supplemented from time to time. Additional information about the Fund’s
investments is or will be available in the Fund’s annual and semi-annual reports
to shareholders. In the Fund’s annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund’s performance during its last fiscal year.
Call
VanEck at 800.826.2333 to request, free of charge, the annual or semi-annual
reports, the SAI, or other information about the Fund or to make shareholder
inquiries. You may also obtain the SAI or the Fund’s annual or semi-annual
reports, by visiting the VanEck website at www.vaneck.com.
Reports
and other information about the Fund are available on the EDGAR Database on the
SEC’s internet site at http://www.sec.gov. In addition, copies of this
information may be obtained, after paying a duplicating fee, by electronic
request at the following email address: publicinfo@sec.gov.
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Transfer
Agent: State Street Bank and Trust Company
SEC
Registration Number: 333-123257
1940
Act Registration Number: 811-10325
DAMPRO |
800.826.2333
www.vaneck.com |
