As filed with the Securities and Exchange Commission on May 11, 2006
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. 4 |X|
Post Effective Amendment No. |_|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 4 |X|
|
(Check appropriate box or boxes)
MARKET VECTORS ETF TRUST
(PREVIOUSLY NAMED THE VAN ECK ALTERNATIVES INDEX FUND AND MARKET VECTORS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
99 PARK AVENUE, 8TH FLOOR
NEW YORK, NEW YORK 10016
(Address of Principal Executive
Offices)
(212) 687-5200
Registrant's Telephone Number
JOSEPH J. MCBRIEN, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
VAN ECK ASSOCIATES CORPORATION
99 PARK AVENUE, 8TH FLOOR
NEW YORK, NEW YORK 10016
(Name and Address of Agent for Service)
Copy to:
STUART M. STRAUSS, ESQ.
CLIFFORD CHANCE US LLP
31 WEST 52ND STREET
NEW YORK, NEW YORK 10019
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
VAN ECK GLOBAL [Graphic omitted]
PROSPECTUS
2006
[Graphic omitted]
MARKET VECTORS
GOLD
MINERS
EFT
INDEXED
GOLD-MINING
SHARES
VAN ECK GLOBAL WWW.VANECK.COM
99 PARK AVENUE, NEW YORK, NY 10016
1.888.MKT.VCTR
The Market Vectors-Gold Miners ETF is distributed by Van Eck Securities Corporation and tracks the Amex Gold Miners Index, which is published by the American Stock Exchange. The Amex does not sponsor, endorse, or promote the Fund and bears no liability with respect to any such fund or security. For more detailed information, see the Statement of Additional Information (SAI), which is incorporated by reference into this prospectus. Additional information about the investments will be available in the Fund's annual and semi-annual reports to shareholders. In the Fund's annual report, when available, 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 Van Eck at 1.888.MKT.VCTR 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, when available, by visiting the Van Eck website at www.vaneck.com.
Information about the Fund (including the SAI) can also be reviewed and copied at the Securities and Exchange Commission (SEC) Public Reference Room in Washington, D.C. Information about the operation of the Public Reference Room may be obtained by calling 1-202-551-8090.
Reports and other information about the Fund is 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, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102.
VAN ECK GLOBAL [Graphic omitted]
Transfer Agent: Bank of New York
SEC Registration Number: 333-123257
The Trust's registration number
under the 1940 Act is 811-10325.
MARKET VECTORS ETF TRUST
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER OF THE FUND'S SHARES, AND, IF GIVEN OR MADE, THE INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE OF SHARES SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE AFTER THE DATE OF THIS PROSPECTUS.
DEALERS EFFECTING TRANSACTIONS IN THE FUND'S SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE GENERALLY REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO ANY OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS.
THIS PROSPECTUS OFFERS SHARES OF THE MARKET VECTORS ETF TRUST. THE TRUST
CURRENTLY HAS ONE INVESTMENT PORTFOLIO, THE MARKET VECTORS--GOLD MINERS ETF.
THIS PROSPECTUS DATED (______________, 2006) EXPLAINS CONCISELY THE INFORMATION YOU OUGHT TO KNOW BEFORE INVESTING IN THE FUND. WE SUGGEST THAT YOU KEEP IT FOR FUTURE REFERENCE.
TABLE OF CONTENTS
OVERVIEW OF THE FUND...........................................................4 Principal Investment Strategies ............................................4 Principal Risks of Investing in the Fund....................................5 Performance.................................................................7 FEES AND EXPENSES OF THE FUND..................................................8 Expense Example.............................................................8 ADDITIONAL INVESTMENT STRATEGIES..............................................10 MANAGEMENT....................................................................11 PORTFOLIO MANAGERS............................................................11 SHAREHOLDER INFORMATION.......................................................12 Determination of Net Asset Value...........................................12 Buying and Selling Exchange-Traded Shares..................................12 Creation and Redemption of Creation Units..................................13 Distributions..............................................................16 Tax Matters................................................................16 LICENSE AGREEMENT.............................................................18 FINANCIAL HIGHLIGHTS..........................................................18 General Information........................................................18 Additional Information.....................................................19 |
OVERVIEW OF THE FUND
Market Vectors ETF Trust (the "Trust") is an open-end investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), currently consisting of one investment portfolio: the Market Vectors--Gold Miners ETF (the "Fund"). The Fund's investment objective is to replicate as closely as possible, before fees and expenses, the price and yield performance of the AMEX Gold Miners Index, a specific market sector index published by the American Stock Exchange (the "Index"). The Index is comprised of publicly traded companies that are involved in mining for gold and silver. See "The AMEX Gold Miners Index" section in this Prospectus for detailed information respecting the Index. There is no assurance that the Fund will achieve its investment objective. Van Eck Associates Corporation (the "Adviser") is the investment adviser to the Fund.
The Fund has applied to list its Shares (the "Shares") on the American Stock Exchange ("Amex"). The Shares will trade at market prices that may differ to some degree from the net asset value of the Shares ("NAV"). Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis at NAV only in large specified blocks each called a Creation Unit. Creation Units are issued and redeemed principally in kind for securities included in the Index. Except when aggregated in Creation Units, Shares are not redeemable securities of the Fund.
The Fund may be suitable for long term investment in the market or market segment represented in the Index. Shares of the Fund may also be used as an asset allocation or speculative trading vehicle. Unlike many conventional mutual funds which are only bought and sold at closing net asset values, the Fund's Shares have been designed to be tradable in a secondary market on an intraday basis and to be created and redeemed in kind in Creation Units at each day's market close. These arrangements are designed to protect ongoing shareholders from adverse effects on the portfolio that could arise from frequent cash purchase and redemption transactions that affect the net asset value 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 generally will not lead to a tax event for ongoing shareholders.
PRINCIPAL INVESTMENT STRATEGIES
INDEXING INVESTMENT APPROACH. The Fund is not managed according to traditional methods of "active" investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment. Instead, the Fund, utilizing a "passive" or indexing investment approach, attempts to approximate the investment performance of the Index by investing in a portfolio of stocks that generally replicate the Index.
The Adviser anticipates that, generally, the Fund will hold all of the securities which comprise its Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all of those stocks in these weightings. In these circumstances, the Fund may purchase a sample of stocks in the Index. There also may be instances in which the Adviser may choose to overweight another stock in the Index, purchase securities not in the Index which the Adviser believes are appropriate to substitute for certain securities in the Index or utilize various combinations of other available investment techniques in seeking to track the Index. The Fund may sell stocks that are represented in the Index in anticipation of their removal from the Index or purchase stocks not represented in the Index in anticipation of their addition to the Index. The Adviser expects that, over time, the correlation between the Fund's performance and that of the Index before fees and expenses will be 95% or better. A figure of 100% would indicate perfect correlation.
The Fund's policy is to remain as fully invested as practicable in a chosen pool of equity securities. The Fund will normally invest at least 95% of its total assets in stocks that comprise the Index. A lesser percentage may be so invested to the extent that the Adviser needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986 (the "Internal Revenue Code") and other regulatory requirements.
Although the Index underlying the Fund will generally not be subject to frequent or large changes, giving the underlying portfolio many of the characteristics of a long-term investment, periodic changes in the Index may occur as a result of capital changes, E.G., mergers, spin-offs or a change in the business or character of a component company within the Index. Because of the passive investment management approach of the Fund, the portfolio turnover rate is expected to be under 50%, generally a lower turnover rate than for many other investment companies. Sales as a result of Index changes could result in the realization of short or long-term capital gains in the Fund resulting in tax liability for shareholders subject to U.S. federal income tax. See "Tax Matters."
MARKET CAPITALIZATION. The Fund's investment objective is to replicate as closely as possible, before fees and expenses, the price and yield performance of its Index, and the Index only invests in companies with market capitalization greater than $100 million that have traded on an average daily volume of at least 50,000 shares over the past six months. The total market capitalization of the Index as of the end of the trading day on April 12, 2006 was in excess of $137 billion.
BORROWING MONEY. The Fund may borrow money from a bank up to a limit of one-third of the market value of its assets, but only for temporary or emergency purposes. To the extent that the Fund borrows money, it may be leveraged; at such times, the Fund may appreciate or depreciate in value more rapidly than its benchmark Index.
INVESTMENT CONCENTRATION. The Fund will concentrate its investments in the gold and silver mining industry.
FUNDAMENTAL AND NON-FUNDAMENTAL POLICIES. The concentration policy of the Fund is a fundamental policy that may be changed only with shareholder approval. The Fund's investment objective and each of the other investment policies is a non-fundamental policy that may be changed by the Board of Trustees without shareholder approval. However, shareholders would be notified prior to any material change in these policies.
PRINCIPAL RISKS OF INVESTING IN THE FUND
MARKET RISK. The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value. An investment in the Fund may lose money.
INDEX TRACKING RISK. The Fund's return may not match the return of the Index for a number of reasons. For example, the Fund incurs a number of operating expenses not applicable to the Index and incurs costs in buying and selling securities; especially when rebalancing the Fund's securities holdings to reflect changes in the composition of the Index. 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 meet redemptions and pay expenses. The need to comply with the diversification and other requirements of the Internal Revenue Code may also impact the Fund's ability to track the Index.
SECTOR RISK. Because the Fund primarily invests in stocks of companies that are involved in the gold and silver mining industries, it is subject to certain risks associated with such companies.
Competitive pressures may have a significant effect on the financial condition of such companies in the gold and silver mining industry. Also, gold and silver mining companies are highly dependent on the price of gold and silver bullion These prices may fluctuate substantially over short periods of time so the Fund's share price may be more volatile than other types of investments. In times of significant inflation or great economic uncertainty, gold and other precious metals may outperform traditional investments such as bonds and stocks. However, in times of stable economic growth, traditional equity and debt investments could offer greater appreciation potential and the value of gold and other precious metals may be adversely affected, which could in turn affect the Fund's returns.
REPLICATION MANAGEMENT RISK. Unlike many investment companies, the Fund is not actively "managed." Therefore, unless a specific stock is removed from the Index, the Fund would not sell a stock because the stock's issuer was in financial trouble. An investment in the Fund involves risks similar to those of investing in any fund of equity securities traded on exchanges, such as market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock prices. You should anticipate that the value of the Fund's Shares will decline, more or less, in correspondence with any decline in value of the Index.
NON-DIVERSIFIED. The Fund is a separate investment portfolio of the Trust, which is an open-end investment company registered under the 1940 Act. The Fund is classified as a "non-diversified" investment company under the 1940 Act. As a result, the Fund is subject to the risk that it will be more volatile than a diversified fund because the Fund may invest its assets in a smaller number of issuers or may invest larger proportions of the assets of the Fund in a single company within the industries that comprise the Index. As of April 12, 2006, the Index included 44 securities. As a result, the gains and losses on a single security may have a greater impact on the Fund's net asset value and may make the Fund more volatile than diversified funds. Because the Fund's investments are concentrated in the gold and silver mining industry, it will be more susceptible to any single economic, political or regulatory occurrence than an investment company that is more broadly diversified.
INVESTING IN SMALL OR MID-CAP COMPANIES. The Fund may invest in small or mid-cap companies to the extent its benchmark Index includes them. If it does so, it may be subject to certain risks associated with small or mid-cap companies. These companies are often subject to less analyst coverage and may be in early and less predictable periods of their corporate existences. 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 larger companies.
ABSENCE OF PRIOR ACTIVE MARKET. The Fund is a newly organized series of an investment company with no operating history. While the Shares have been listed for trading on the Amex, there can be no assurance that active trading markets for the Shares will develop or be maintained. The Distributor does not maintain a secondary market in the Shares.
TRADING ISSUES. Trading in Shares on the Amex may be halted due to market conditions or for reasons that, in the view of the Amex, make trading in Shares inadvisable. In addition, trading in Shares on the Amex is subject to trading halts caused by extraordinary market volatility pursuant to Amex "circuit breaker" rules. There can be no assurance that the requirements of the Amex necessary to maintain the listing of the Fund will continue to be met or will remain unchanged.
FLUCTUATION OF NET ASSET VALUE. The net asset value of the Shares will fluctuate with changes in the market value of the Fund's securities holdings. The market prices of Shares will fluctuate in
accordance with changes in net asset value and supply and demand on the Amex. The Adviser cannot predict whether Shares will trade below, at or above their net asset value. 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 will be closely related to, but not identical to, the same forces influencing the prices of the stocks of the Index trading individually or in the aggregate at any point in time. However, given that Shares can be created and redeemed daily in Creation Units (unlike shares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes at premiums to, their net asset value), the Adviser believes that large discounts or premiums to the net asset value of the Shares should not be sustained.
FOREIGN INVESTMENTS. The Fund will invest in American Depositary Receipts ("ADRs") to the extent they are included in the Index. These investments may involve additional risks and considerations. These risks include, for example, those related to adverse political and economic developments unique to a country or region, currency fluctuations or controls and the possibility of expropriation, nationalization or confiscatory taxation. At the end of the trading day on April 12, 2006, of the 44 Index securities, five were ADRS which had a combined market capitalization at $21.5 billion, representing approximately 23% of the entire Index.
PERFORMANCE
The Fund has not yet commenced operations and therefore does not have a performance history.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund.(a)(b)
SHAREHOLDER EXPENSES
(fees paid directly from your investment, but see "Creation
and Redemption of Creation Units" for a discussion of Creation and
Redemption Transaction Fees)............................................ 0.00%
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee.......................................................... 0.50% Other Operating Expenses(c)............................................. 0.29% Total Gross Annual Fund Operating Expenses(d)........................... 0.79% Fee Waivers and Expenses Assumption(e).................................. 0.24% Total Net Annual Fund Operating Expenses(e)............................. 0.55% ---------- |
(a) When buying or selling shares through a broker, you will incur customary brokerage commissions and charges.
(b) If a Creation Unit is purchased or redeemed outside the usual process through the National Securities Clearing Corporation or for cash, a variable fee of up to four times the standard creation or redemption transaction fee will be charged.
(c) Other operating expenses are based on estimated amounts for the current fiscal year and calculated as a percentage of Fund net assets.
(d) The Adviser has contractually agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding interest expense, brokerage commissions, offering costs and other trading expenses, taxes and extraordinary expenses) from exceeding 0.55% of average net assets per year at least until May 1, 2007.
(e) The offering costs excluded from the 0.55% expense cap are: (a) legal fees pertaining to the Fund's Shares offered for sale; (b) Securities and Exchange Commission ("SEC") and state registration fees; and (c) initial fees paid to be listed on an exchange.
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 Fund sells and redeems Shares in Creation Units principally on an in-kind basis for portfolio securities of the relevant Index. SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. An investor purchasing a Creation Unit on an in-kind basis would pay the following expenses on a $10,000 investment (payment with a deposit of securities included in the relevant Index), assuming a 5% annual return and that the Fund's operating expenses remain the same. INVESTORS SHOULD NOTE THAT THE PRESENTATION BELOW OF A $10,000 INVESTMENT IN A CREATION UNIT IS FOR ILLUSTRATION PURPOSES ONLY AS SHARES WILL BE ISSUED BY THE FUND ONLY IN CREATION UNITS. FURTHER, THE RETURN OF 5% AND ESTIMATED EXPENSES ARE FOR ILLUSTRATION PURPOSES ONLY, AND SHOULD NOT BE CONSIDERED INDICATIONS OR EXPECTED FUND EXPENSES OR PERFORMANCE, WHICH MAY BE GREATER OR LESSER THAN THE ESTIMATES. Based on these assumptions, your costs would be:
YEAR EXPENSES --------------------------------------- ---------------------------------------- 1 $56 3 $228 |
THE AMEX GOLD MINERS INDEX
The AMEX Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The Index includes common stocks or ADRs of selected companies that are involved in mining for gold and silver and that are listed for trading on the New York Stock Exchange, Amex or quoted on the NASDAQ National Market. Only companies with market capitalization greater than $100 million that have traded an average daily volume of at least 50,000 shares over the past six months are eligible for inclusion in the Index.
The Index is calculated using a modified market capitalization weighting methodology. The Index is weighted based on the market capitalization of each of the component stocks, modified to conform to the following asset diversification requirements, which are applied in conjunction with the scheduled quarterly adjustments to the Index:
(1) the weight of any single component stock may not account for more than 20% of the total value of the Index;
(2) the component stocks are split into two subgroups - large and small, which are ranked by market capitalization weight in the Index. Large stocks are defined as having an index weight greater than or equal to 5%. Small stocks are defined as having an index weight below 5%; and
(3) the aggregate weight of those component stocks which individually represent more than 4.5% of the total value of the Index may not account for more than 50% of the total Index value.
The Index is reviewed quarterly so that the Index components continue to represent the universe of companies involved in the gold and silver mining industry. The Amex may at any time and from time to time change the number of stocks comprising the group by adding or deleting one or more stocks, or replacing one or more stocks contained in the group with one or more substitute stocks of its choice, if in the Amex's discretion such addition, deletion or substitution is necessary or appropriate to maintain the quality and/or character of the Index. Changes to the Index compositions and/or the component share weights in the Index typically take effect after the close of trading on the third Friday of each calendar quarter month in connection with the quarterly index rebalance.
Set forth below is the past ten-year performance of the Index:
AMEX GOLD MINERS INDEX
[GRAPHIC OMITTED]
Source: AMEX
The Index's beta against gold bullion during the period April 1, 1996
through March 31, 2006 was 2.145. The beta describes the sensitivity of the
investment to gold bullion movement. The data suggests that for the period April
1, 1996 through March 31, 2006 for a one-percentage point movement in gold
bullion, the Index would move approximately 2.15 percentage points. Source:
AMEX.
Past performance does not guarantee future results. The Index return does not represent the performance of the Fund. The Index does not charge any fees, including management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown. Investors cannot invest directly in the Index. In addition, the result actual investors in the Fund might have achieved would have differed from these shown because of, among other things, differences in the timing, amounts of their investments and fees and expenses associated with an investment in the Fund.
PORTFOLIO HOLDINGS. A description of the Fund's policies and procedures
with respect to the disclosure of the Fund's portfolio securities is available
(i) in the Fund's Statement of Additional Information and (ii) on the Fund's
website, at www.vaneck.com.
ADDITIONAL INVESTMENT STRATEGIES
The Fund will normally invest at least 95% of its total assets in component securities that comprise the Index. The Fund may invest its remaining assets in money market instruments, including repurchase agreements or other funds which invest exclusively in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), 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 in swaps, options and futures contracts. Swaps, options and futures contracts (and convertible
securities and structured notes) may be used by the Fund in seeking performance that corresponds to its Underlying Index, and in managing cash flows. The Fund will not invest in money market instruments as part of a temporary defensive strategy to protect against potential stock market declines.
MANAGEMENT
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 are provided in the Statement of Additional Information.
INVESTMENT MANAGER. Under the terms of an Investment Management Agreement, Van Eck Associates Corporation serves as the adviser to the Fund and, subject to the supervision of the Board of Trustees, will be responsible for the investment management of the Fund. As of December 31, 2005, the Adviser managed approximately $2.5 billion in assets. The Adviser's principal business address is 99 Park Avenue, 8th Floor, New York, New York 10016.
For the services provided to the Fund under the Investment Management Agreement, the Fund will pay the Adviser monthly fees based on a percentage of the Fund's average daily net assets at the annual rate of 0.50%. From time to time, the Adviser may waive all or a portion of its fee. Until at least May 1, 2007, the Adviser has contractually agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding interest expense, brokerage commissions, offering costs and other trading expenses, taxes and extraordinary expenses) from exceeding 0.55% of average daily net assets per year. The offering costs excluded from the 0.55% expense cap are: (a) legal fees pertaining to the Fund's Shares offered for sale; (b) SEC and state registration fees; and (c) initial fees paid to be listed on an exchange.
The Fund is responsible for all of its expenses, including the investment advisory fees, costs of transfer agency, custody, fund administration, legal, audit and other services, interest, taxes, brokerage commissions and other expenses connected with executions of portfolio transactions, any distribution fees or expenses, offering fees or expenses and extraordinary expenses.
ADMINISTRATOR, CUSTODIAN, AND TRANSFER AGENT. Van Eck Associates Corporation is the administrator for the Fund (the "Administrator"), and The Bank of New York is the custodian of Fund assets and provides transfer agency services to the Fund. As the administrator, Van Eck Associates Corporation is responsible for certain clerical, fund accounting, recordkeeping and bookkeeping services which are provided pursuant to the Investment Management Agreement.
DISTRIBUTOR. Van Eck Securities Corporation is the distributor of the Fund's Shares. The Distributor will not distribute Shares in less than Creation Units, and it does not maintain a secondary market in the Shares. As noted below, the Shares are traded on the Amex.
PORTFOLIO MANAGERS
The portfolio managers who are currently responsible for the day-to-day management of the Fund's portfolio are Edward M. Kuczma, Jr. and Hao-Hung (Peter) Liao. Mr. Kuczma has been employed by the Adviser since January of 2004. Prior to Mr. Kuczma's current role of investment analyst, he worked in Portfolio Administration for the Adviser. After serving as a fund accountant for international portfolios, Mr. Kuczma became an analyst for emerging market companies. He also serves on a committee that reviews managers and changing mandates for a multi-manager absolute return strategy. Mr. Kuczma graduated from Georgetown University in May 2003. Mr. Liao has been employed by the Adviser since the summer of 2004. Mr. Liao has served as investment analyst for the Worldwide Absolute Return Fund for the past two years where his role included manager review, performance attribution, changes in manager mandates and risk management. Mr. Liao graduated from New York University with a Bachelor of Arts majoring in mathematics and economics in 2004. Neither Mr. Kuczma nor Mr. Liao manage any other accounts of any type
for the Adviser and, since the Fund has not commenced operations, neither owns any securities in the Fund. See the Statement of Additional Information for additional information about the portfolio managers' compensation, other accounts managed by the portfolio managers and their respective ownership of securities in the Fund.
SHAREHOLDER INFORMATION
DETERMINATION OF NET ASSET VALUE
Net asset value 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, administration and distribution fees, are accrued daily and taken into account for purposes of determining net asset value. The net asset value of the Fund is determined each business day after the close of trading (ordinarily 4:00 p.m., Eastern time) of the New York Stock Exchange.
BUYING AND SELLING EXCHANGE-TRADED SHARES
The Fund has applied to list and trade its Shares on the Amex. 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 between the bid and the offered price in the secondary market on each leg of a round trip (purchase and sale) transaction. The Shares will trade on the Amex at prices that may differ to varying degrees from the closing net asset values of the Shares. Given, however, that Shares can be created and redeemed daily in Creation Units, the Adviser believes that large discounts and premiums to net asset value should not be sustained for very long.
The Depository Trust Corporation ("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 Fund 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 Statement of Additional Information.
MARKET TIMING AND RELATED MATTERS. The Fund imposes no restrictions on the frequency of purchases and redemptions. In determining not to approve a written, established policy limiting purchases and redemptions, the Board evaluated the nature of the Fund (i.e., a fund whose shares are expected to trade intra-day) and the nature of the securities in which the Fund will invest and the fact that all of the Fund's investments are traded on U.S. markets. In particular, the Board considered that, unlike traditional mutual funds, the Fund generally issues and redeems its Shares at net asset value per Share for a basket of securities intended to mirror the Fund's portfolio, plus a small amount of cash, and the Fund's
Shares may be purchased and sold on the Amex at prevailing market prices. Given this structure, the Board determined that it is unlikely that (a) market timing would be attempted by the Fund's shareholders or (b) any attempts to market time the Fund by shareholders would result in negative impact to the Fund or its shareholders.
CREATION AND REDEMPTION OF CREATION UNITS
The Trust issues and redeems Shares at its net asset value only in a large specified number of Shares called a "Creation Unit." A Creation Unit consists of 50,000 Shares. The Trust generally issues and redeems Creation Units only in-kind in exchange for a designated portfolio of equity securities included in the Index and a relatively small cash payment. Except when aggregated in creation units, the shares are not redeemable securities of the fund. See "Buying and Selling Exchange-Traded Shares," "Creation of Creation Units" and "Redemptions of Creation Units." The Fund issues and redeems Shares only in Creation Units at their net asset value.
PROCEDURES FOR CREATION OF CREATIONS UNITS. The consideration for creation of Creation Units of the Fund generally consists of the in-kind deposit of a designated portfolio of equity securities (the "Deposit Securities") constituting a replication of the Fund's benchmark Index and an amount of cash computed as described below (the "Cash Component"). The list of the names and numbers of shares of the Deposit Securities is made available by the Fund's Administrator through the facilities of the National Securities Clearing Corporation immediately prior to the opening of business each day of the Amex. The Cash Component represents the difference between the net asset value of a Creation Unit and the market value of the Deposit Securities and may include a "Dividend Equivalent Payment" as described in the Statement of Additional Information.
To be eligible to place orders with the Distributor to create Creation Units of the Fund, an entity or person either must be (1) a "Participating Party," I.E., a broker-dealer or other participant in the Clearing Process (the "Clearing Process") through the Continuous Net Settlement System of the National Securities Clearing Corporation (the "NSCC"), a clearing agency that is registered with the SEC; or (2) a DTC Participant (see "Book Entry Only System"); and, in either case, must have executed an agreement with the Trust and with the Distributor with respect to creations and redemptions of Creation Units outside the Clearing Process ("Participant Agreement") (discussed below). All Creation Units of the Fund, however created, will be entered on the records of the Depository in the name of Cede & Co. for the account of a DTC Participant.
All orders to create Creation Units of the Fund must be placed in multiples of 50,000 Shares (Creation Unit size). The Trust does not currently permit cash creations of Creation Units. All orders to create Creation Units, whether through the Clearing Process of the Continuous Net Settlement System of the NSCC or outside the Clearing Process, must be received by the Distributor no later than the closing time of the regular trading session on the NYSE ("Closing Time") (ordinarily 4:00 p.m. New York TIME) (3:00 p.m. for Custom Orders) in each case on the date such order is placed in order for creation of Creation Units to be effected based on the net asset value of the Fund as determined on such date. The date on which a creation order (or order to redeem as discussed below) is placed is herein referred to as the "Transmittal Date." Orders must be transmitted by telephone or other transmission method acceptable to the Distributor pursuant to procedures set forth in the Participant Agreement, as described below (see "Creation and Redemption of Creation Units--Placement of Creation Orders Using Clearing Process" and "Creation and Redemption of Creation Units--Placement of Creation Orders Outside Clearing Process"). Severe economic or market disruptions or changes, or telephone or other communication failure, may impede the ability to reach the Distributor, a Participating Party or a DTC Participant.
Orders to create Creation Units of the Fund shall be placed with a Participating Party or DTC Participant, as applicable, in the form required by such Participating Party or DTC Participant. Investors
should be aware that their particular broker may not have executed a Participant Agreement, and that, therefore, orders to create Creation Units of the Fund may have to be placed by the investor's broker through a Participating Party or a DTC Participant who has executed a Participant Agreement. At any given time, there may be only a limited number of broker-dealers that have executed a Participant Agreement. Those placing orders to create Creation Units of the Fund through the Clearing Process should afford sufficient time to permit proper submission of the order to the Distributor prior to the Closing Time on the Transmittal Date.
Orders for creation that are effected outside the Clearing Process are likely to require transmittal by the DTC Participant earlier on the Transmittal Date than orders effected using the Clearing Process. Those persons placing orders outside the Clearing Process should ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire system by contacting the operations department of the broker or depository institution effectuating such transfer of Deposit Securities and Cash Component. Investors should refer to "Creation of Creation Units" in Statement of Additional Information for details regarding the logistics of placement of orders using and outside the clearing process.
A fixed creation transaction fee of $1,000, which is paid to the Fund (the "Creation Transaction Fee"), is applicable to each transaction regardless of the number of Creation Units purchased in the transaction. An additional charge of up to four times the Creation Transaction Fee may be imposed with respect to transactions effected outside of the Clearing Process (through a DTC Participant) or to the extent that cash is used in lieu of securities to purchase Creation Units. See "Creation and Redemption of Creation Unit Aggregations" in the Statement of Additional Information. The price for each Creation Unit will equal the daily net asset value per Share times the number of Shares in a Creation Unit plus the fees described above and, if applicable, any transfer taxes.
Shares of the Fund may be issued in advance of receipt of all Deposit Securities subject to various conditions, including a requirement to maintain on deposit with the Fund cash at least equal to 115% of the market value of the missing Deposit Securities. See "Creation and Redemption of the Creation Unit Aggregations" in the Statement of Additional Information.
The Trust reserves the absolute right to reject a creation order transmitted to it by the Distributor if, for any reason, (a) the order is not in proper form; (b) the creator or creators, upon obtaining the shares ordered, would own 80% or more of the currently outstanding shares of the Fund; (c) the Deposit Securities delivered are not as specified by the Administrator, as described above; (d) acceptance of the Deposit Securities would have certain adverse tax consequences to the Fund; (e) the acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (f) the acceptance of the Fund Deposit would otherwise, in the discretion of the Trust or the Adviser, have an adverse effect on the Trust or the rights of beneficial owners; or (g) in the event that circumstances outside the control of the Trust, the Distributor and the Adviser make it for all practical purposes impossible to process creation orders. Examples of such circumstances include acts of God or public service or utility problems such as fires, floods, extreme weather conditions and power outages resulting in telephone, telecopy and computer failures; market conditions or activities causing trading halts; systems failures involving computer or other information systems affecting the Trust, the Adviser, the Distributor, DTC, NSCC or any other participant in the creation process, and similar extraordinary events. The Trust shall notify a prospective creator of its rejection of the order of such person. The Trust and the Distributor are under no duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall either of them incur any liability for the failure to give any such notification. The Trust shall notify a prospective creator of its rejection of the order of such person.
All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trust's determination shall be final and binding.
PROCEDURES FOR REDEMPTION OF CREATION UNITS. Shares may be redeemed only in Creation Units at their net asset value next determined after receipt of a redemption request in proper form by the Distributor and only on a day on which the AMEX is open for trading. THE TRUST WILL NOT REDEEM SHARES IN AMOUNTS LESS THAN CREATION UNITS. Beneficial Owners also may sell Shares in the secondary market, but must accumulate enough Shares to constitute a Creation Unit in order to have such shares redeemed by the Trust. There can be no assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a Creation Unit. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of Shares to constitute a redeemable Creation Unit. See "Investment Considerations and Risks" in the Prospectus.
The Administrator, through NSCC, makes available immediately prior to the opening of business on the AMEX (currently 9:30 a.m. Eastern time) on each day that the AMEX is open for business, the Fund Securities that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that day. Fund Securities received on redemption may not be identical to Deposit Securities which are applicable to purchasers of Creation Units. Unless cash redemptions are available or specified for the Fund, the redemption proceeds for a Creation Unit generally consist of Fund Securities, plus cash in an amount equal to the difference between the net asset value of the shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Securities, less the redemption transaction fee described below. The redemption transaction fee of $1,000 is deducted from such redemption proceeds. Should the Fund Securities have a value greater than the net asset value of Shares being redeemed, a compensating cash payment to the Trust equal to the differential, plus the applicable redemption fee and, if applicable, any transfer taxes will be required to be arranged for by or on behalf of the redeeming shareholder.
A redemption transaction fee is imposed on each redemption transaction. The basic redemption transaction fees are the same no matter how many Creation Units are being redeemed pursuant to any one redemption request. The Fund may adjust these fees from time to time based upon actual experience. An additional charge up to four times the redemption transaction fee may be charged with respect to redemptions outside of the Clearing Process. An additional variable charge for cash redemptions or partial cash redemptions (when cash redemptions are available) may also be imposed. Investors who use the services of a broker or other such intermediary may be charged a fee for such services. Investors should refer to "Redemption of Creation Units" in the Statement of Additional Information for details regarding the logistics of redemption orders using and outside the clearing process.
Redemptions of Shares for Fund Securities will be subject to compliance with applicable United States federal and state securities laws, and the Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Fund could not lawfully deliver specific Deposit Securities upon redemptions or could not do so without first registering the Fund Securities under such laws.
The right of redemption may be suspended or the date of payment postponed (1) for any period during which the NYSE is closed (other than customary weekend and holiday closings); (2) for any period during which trading on the NYSE 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 net asset value is not reasonably practicable; or (4) in such other circumstance as is permitted by the SEC.
Investors interested in creating and/or redeeming Creation Units should refer to the more detailed information "Creation of Creation Units" and "Redemption of Creation Units" in the Statement of Additional Information.
DISTRIBUTIONS
DIVIDENDS AND CAPITAL GAINS. As a Fund shareholder, you are entitled to your share of the Fund's income and net realized 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 "income dividend distributions." The Fund realizes capital gains or losses whenever it sells securities. Net capital gains are distributed to shareholders as "capital gain distributions."
Income dividends and net capital gains are typically distributed to shareholders at least annually. Dividends may be declared and paid more frequently to improve Index tracking or to comply with the distribution requirements of the Internal Revenue Code. In addition, the Fund may determine 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 in which case some portion of each distribution may result in a return of capital. 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 only if the broker through which you purchased Shares makes such option available.
TAX MATTERS
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.
Unless your investment in the Fund is through a tax-exempt entity or taxed-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 listed on the Amex or (iii) you create or redeem Creation Units.
TAXES ON DISTRIBUTIONS. The Fund expects to distribute net investment income at least annually, and any net realized long-term or short-term capital gains annually. Each Fund may also pay a special distribution at the end of the calendar year 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. Dividends paid out of the Fund's income and net short-term gains, if any, are taxable as ordinary income. The Fund may receive dividends, the distribution of which the Fund may designate as a qualified dividend. In the event that the Fund receives such dividend and designates the distribution of such dividend as a qualified dividend, the qualified distribution may be taxed at the maximum capital gains rate. Distributions of net long-term capital gains, if any, in excess of net short term capital losses are taxable as long-term capital gains, regardless of how long you have held the Shares.
Distributions in excess of the Fund's current and accumulated earnings and profits are treated as a tax-free return of capital to the extent of your basis in the Shares, and as capital gain thereafter. A distribution will reduce the Fund's net asset value per Share and may be taxable to you as ordinary income or capital gain even though, from an economic standpoint, the distribution may constitute a return of capital.
If you are not a citizen or resident alien of the United States, the Fund's ordinary income dividends (which include distributions of net short-term capital gains) will generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate applies or unless such income is effectively connected with a U.S. trade or business carried on through a permanent establishment in the United States. The Fund may, under certain circumstances, designate all or a portion of a dividend as an "interest-related dividend" that if received by a non resident alien or foreign entity generally would be exempt from the 30% U.S. withholding tax, PROVIDED that certain other requirements are met. The Fund may also, under certain circumstances, designate all or a portion of a dividend as a "short-term capital gain dividend" which if received by a nonresident alien or foreign entity generally would be exempt from the 30% U.S. withholding tax, unless the foreign person is a nonresident alien individual present in the United States for a period or periods aggregating 183 days or more during the foreign person's taxable year.
Dividends and interest from non-U.S. investments received by the Fund may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes.
By law, the Fund must withhold a percentage of your distributions and proceeds if you have not provided a taxpayer identification number or social security number. The backup withholding rate for individuals is currently 28%. This is not an additional tax and may be refunded, or credited against your tax liability, provided certain required information is furnished to the Internal Revenue Service.
TAXES ON THE SALE OF AMEX-LISTED SHARE. 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.
TAXES ON CREATIONS AND REDEMPTIONS OF CREATION UNITS. A person who exchanges equity 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 exchanger's aggregate basis in the securities surrendered, taking into consideration the cash component paid. A person who exchanges Creation Units for equity Securities will generally recognize a gain or loss equal to the difference between the exchangor's basis in the Creation Units and the aggregate market value of the securities received. The Internal Revenue Service, however, may assert that a loss realized upon an exchange of securities for Creation Units cannot be deducted currently under the rules governing "wash sales," or on the basis that there has been no significant change in economic position. Persons exchanging securities should consult their own tax adviser with respect to whether wash sale rules apply and when a loss might be deductible.
Under current U.S. federal tax laws, any capital gain or loss realized upon a redemption of Creation Units 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 the Shares 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.
The foregoing discussion summarizes some of the consequences under current U.S. federal tax law of an investment in the Fund. It is not a substitute for personal tax advice. Consult your personal tax advisor about the potential tax consequences of an investment in the Fund under all applicable tax laws.
LICENSE AGREEMENT
The Adviser has entered into a licensing agreement with the Amex to use the Index as the underlying index for the Fund. The Fund is entitled to use the Index pursuant to a sub-licensing arrangement with the Adviser. The Shares of the Fund are not sponsored, endorsed, sold or promoted by the Amex. The Amex as index compilation agent (the "Index Compilation Agent") makes no representation or warranty, express or implied, to the owners of the Shares of the Funds or any member of the public regarding the advisability of investing in securities generally or in the shares of the Funds particularly or the ability of the indices identified herein to track stock market performance. The Amex is the licensor of certain trademarks, service marks and trade names, including the Amex Gold Miners Index. The Index is determined, composed and calculated without regard to the Shares of the Fund or the issuer thereof. The Index Compilation Agent is not responsible for, nor has it 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 are redeemable. The Index Compilation Agent has no obligation or liability to owners of the Shares of the Fund in connection with the administration, marketing or trading of the Shares of the Fund.
Although the Index Compilation Agent shall obtain information for inclusion in or for use in the calculation of the Indices from sources which it considers reliable, the Index Compilation Agent does not guarantee the accuracy and/or the completeness of the component data of the index obtained from independent sources. The Index Compilation Agent makes no warranty, express or implied, as to results to be obtained by the trust as licensee, licensee's customers and counterparties, owners of the Shares, or any other person or entity from the US of the Indices or any data included therein in connection with the rights licensed as described herein or for any other use. The Index Compilation Agent makes no express or implied warranties, and hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the Index or any data included therein. Without limiting any of the foregoing, in no event shall the Index Compilation Agent have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the Index's possibility of such damages.
FINANCIAL HIGHLIGHTS
The Fund has not yet commenced operations and therefore does not have a financial history.
GENERAL INFORMATION
The Trust was organized as a Delaware statutory trust on March 15, 2001.
Its Declaration of Trust currently permits the Trust to issue an unlimited
number of shares of beneficial interest. If shareholders are required to vote on
any matters, each Share outstanding would be entitled to one vote. Annual
meetings of shareholders will not be held except as required by the 1940 Act and
other applicable law. See the Statement of Additional Information for more
information concerning the Trust's form of organization. Section 12(d)(1) of the
1940 Act restricts investments by investment companies in the securities of
other investment companies, including shares of the Fund. Registered investment
companies are permitted to invest in the Fund beyond the limits set forth in
Section 12(d)(1) subject to certain terms and conditions set forth in an SEC
exemptive order issued to the Trust, including that such investment companies
enter into an agreement with the Fund.
As of the date of this Prospectus, the sole shareholder of the Fund is Van Eck Associates Corporation, a "control" person of the Fund.
Clifford Chance US LLP serves as counsel to the Trust, including the Fund. Ernst & Young LLP serves as the Fund's independent registered public accounting firm and will audit the Fund's financial statements annually.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information included in the Registration Statement filed with the SEC with respect to the Fund's Shares. Information about the Fund can be reviewed and copied at the SEC's Public Reference Room and information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-8090. The Registration Statement, including this Prospectus, the Statement of Additional Information, and the exhibits may be examined at the offices of the SEC (100 F Street, NE, Washington DC 20549) or on the Edgar database at the SEC's Web site (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, or by writing the SEC's Public Reference Section, Washington, DC 20549-0102. These documents and other information concerning the Trust also may be inspected at the offices of the Amex (86 Trinity Place, New York, New York 10006).
A Statement of Additional Information (dated _____________, 2006), which has been filed with the SEC, provides more information about the Fund. The Statement of Additional Information is incorporated herein by reference and is legally part of this Prospectus. It may be obtained without charge by writing to the Fund at Van Eck Securities Corporation, the Fund's distributor, at 99 Park Avenue, New York, NY 10016 or by calling the distributor at the following number:
Investor Information: 1-800-MKT-VCTR.
Shareholder inquiries may be directed to the Fund in writing to 99 Park Avenue, 8th Floor, New York, New York 10016.
The Fund intends to make its Statement of Additional Information available through its website at www.vaneck.com.
MARKET VECTORS ETF TRUST
STATEMENT OF ADDITIONAL INFORMATION
DATED __________, 2006
This Statement of Additional Information is not a Prospectus. It should be read in conjunction with the Prospectus dated ___________, 2006 (the "Prospectus") for the Market Vectors ETF Trust (the "Trust"), as it may be revised from time to time. A copy of the Prospectus for the Trust may be obtained without charge by writing to the Trust or the Distributor. The Trust's address is 99 Park Avenue, 8th Floor, New York, New York 10016. Capitalized terms used herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted.
TABLE OF CONTENTS
GENERAL DESCRIPTION OF THE TRUST...............................................3 THE AMEX GOLD INDEX AND ITS EQUITY MARKETS.....................................4 Index Description...........................................................4 Eligibility Criteria for Index Components...................................4 Index Calculation...........................................................4 Maintenance of the Index....................................................5 INVESTMENT POLICIES AND RESTRICTIONS...........................................6 Repurchase Agreements.......................................................6 Futures Contracts, Options and Swap Agreements..............................7 Restrictions on the Use of Futures and Options..............................7 Swap Agreements.............................................................8 Future Developments.........................................................8 Investment Restrictions.....................................................8 SPECIAL CONSIDERATIONS AND RISKS..............................................10 General....................................................................10 Futures and Options Transactions...........................................11 U.S. Federal Tax Treatment of Futures Contracts............................12 Continuous Offering........................................................12 EXCHANGE LISTING AND TRADING..................................................13 BOARD OF TRUSTEES OF THE TRUST................................................14 Trustees and Officers of the Trust.........................................14 Remuneration of Trustees...................................................19 Approval of Management Agreement...........................................20 PORTFOLIO HOLDINGS DISCLOSURE.................................................20 CODE OF ETHICS................................................................21 PROXY VOTING POLICIES AND PROCEDURES..........................................21 MANAGEMENT....................................................................22 The Investment Manager.....................................................22 |
The Administrator..........................................................23 Custodian and Transfer Agent...............................................23 The Distributor............................................................23 The Portfolio Managers.....................................................24 Portfolio Manager Compensation.............................................24 Portfolio Manager Share Ownership..........................................24 |
BROKERAGE TRANSACTIONS........................................................24 BOOK ENTRY ONLY SYSTEM........................................................25 CREATION AND REDEMPTION OF CREATION UNITS.....................................26 General....................................................................26 Fund Deposit...............................................................26 Procedures for Creation of Creation Units..................................27 Placement of Creation Orders Using Clearing Process........................28 Placement of Creation Orders Outside Clearing Process......................29 Acceptance of Creation Order...............................................29 Creation Transaction Fee...................................................30 Redemption of Creation Units...............................................30 Placement of Redemption Orders Using Clearing Process......................31 Placement of Redemption Orders Outside Clearing Process....................31 DETERMINATION OF NET ASSET VALUE..............................................32 DIVIDENDS AND DISTRIBUTIONS...................................................33 General Policies...........................................................33 DIVIDEND REINVESTMENT SERVICE.................................................33 |
FINANCIAL STATEMENTS..........................................................34 TAXES.........................................................................37 Reportable Transactions....................................................38 CAPITAL STOCK AND SHAREHOLDER REPORTS.........................................39 |
COUNSEL AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.....................40
APPENDIX A: PROXY VOTING POLICIES ADOPTED JULY 30, 2003, AMENDED
APRIL 20, 2004, AMENDED FEBRUARY 5, 2005..................................41
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The information contained herein regarding the Index, securities markets and The Depository Trust Company ("DTC") was obtained from publicly available sources.
THE INDEX IS BASED ON EQUITY SECURITIES OF PUBLIC COMPANIES SELECTED FROM THE UNIVERSE OF ALL U.S. TRADED STOCKS AND AMERICAN DEPOSITORY RECEIPTS AND CLASSIFIED AS APPROPRIATE FOR INCLUSION BY THE AMERICAN STOCK EXCHANGE ("AMEX").
THE SHARES ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY AMEX. THE INDEX COMPILATION AGENT MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE 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 IDENTIFIED HEREIN TO TRACK STOCK MARKET PERFORMANCE. THE AMEX IS THE LICENSOR OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES, INCLUDING THE AMEX GOLD MINERS INDEX. THE INDEX IDENTIFIED HEREIN IS DETERMINED, COMPOSED AND CALCULATED WITHOUT REGARD TO THE SHARES OF THE FUND OR THE ISSUER THEREOF. THE INDEX COMPILATION AGENT IS NOT RESPONSIBLE FOR, NOR HAS IT 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 ARE REDEEMABLE. THE INDEX COMPILATION AGENT HAS NO OBLIGATION OR LIABILITY TO OWNERS OF THE SHARES OF THE FUND IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE SHARES OF THE FUND.
ALTHOUGH THE INDEX COMPILATION AGENT SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE INDEX FROM SOURCES WHICH IT CONSIDERS RELIABLE, THE INDEX COMPILATION AGENT DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE COMPONENT DATA OF THE INDEX OBTAINED FROM INDEPENDENT SOURCES. THE INDEX COMPILATION AGENT MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE TRUST AS LICENSEE, LICENSEE'S CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE SHARES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED AS DESCRIBED HEREIN OR FOR ANY OTHER USE. THE INDEX COMPILATION AGENT MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE INDEX COMPILATION AGENT HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE INDEX'S POSSIBILITY OF SUCH DAMAGES.
GENERAL DESCRIPTION OF THE TRUST
The Trust is an open-end management investment company. The Trust currently consists of a single investment series, the Market Vectors--Gold Miners ETF (the "Fund"). The Fund invests in common stocks consisting of some or all of the component securities of the AMEX Gold Miners Index (the "Index"), compiled by the American Stock Exchange (the "Index Compilation Agent"), selected to
reflect the performance thereof. The Trust was organized as a Delaware statutory trust on March 15, 2001 (with its name change from Van Eck Economex Industries Index Fund filed on February 25, 2003, from Van Eck Alternatives Index Fund on May 3, 2005, from Market Vectors Trust on January 27, 2006 and from Market Vectors ETF Trust on April 28, 2006). The shares of the Fund are referred to herein as "Shares."
The Fund offers and issues Shares at their net asset value only in aggregations of a specified number of Shares (each, a "Creation Unit"), usually in exchange for a basket of Deposit Securities (together with the deposit of a specified cash payment). The Shares have been listed for secondary trading on the American Stock Exchange (the "Amex"). The Shares will trade on the Amex at market prices. Those prices may differ from the Shares' net asset value. Similarly, Shares are also redeemable by the Fund only in Creation Units, and generally in exchange for Fund Securities and a specified cash payment. A Creation Unit consists of 50,000 Shares of the Fund.
The Trust reserves the right to offer a "cash" option for creations and redemptions of Shares (subject to applicable legal requirements) although it has no intention of doing so. In each instance of such cash creations or redemptions, the Trust may impose transaction fees based on transaction expenses in the particular exchange that will be higher than the transaction fees associated with in-kind purchases or redemptions. In all cases, such fees will be limited in accordance with the requirements of the Securities and Exchange Commission (the "SEC") applicable to management investment companies offering redeemable securities.
THE AMEX GOLD INDEX AND ITS EQUITY MARKETS
The Amex Gold Miners Index (the "Index") is intended to give investors an efficient, equal dollar weight investment designed to track the movements of certain gold and silver mining stocks and American Depositary Receipts ("ADRs") traded within the United States.
INDEX DESCRIPTION
The Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The Index divisor was initially determined to yield a benchmark value of 500.00 at the close of trading on December 20, 2002. The Index is calculated and maintained by the Amex. Similar to other stock indices calculated by the Amex, the value of the Index is disseminated every 15 seconds over the Consolidated Tape Association's Network B between the hours of approximately 9:30 a.m. and 4:15 p.m.
ELIGIBILITY CRITERIA FOR INDEX COMPONENTS
The Index includes common stocks or ADRs of selected companies that are involved in mining for gold and silver and that are listed for trading on the New York Stock Exchange, Amex, or quoted on the NASDAQ National Market. Only companies with market capitalization greater than $100 million that have traded on average daily volume of at least 50,000 shares over the past six months are eligible for inclusion in the Index.
INDEX CALCULATION
The Index is calculated using a modified market capitalization weighting methodology. The Index is weighted based on the market capitalization of each of the component stocks, modified to conform to the following asset diversification requirements, which are applied in conjunction with the scheduled quarterly adjustments to the Index:
(1) the weight of any single component stock may not account for more than 20% of the total value of the Index;
(2) the component stocks are split into two subgroups--large and small, which are ranked by market capitalization weight in the Index. Large stocks are defined as having an index weight greater than or equal to 5%. Small stocks are defined as having an index weight below 5%; and
(3) the aggregate weight of those component stocks which individually represent more than 4.5% of the total value of the Index may not account for more than 50% of the total Index value.
The Index is reviewed quarterly so that the Index components continue to represent the universe of companies involved in the gold and silver mining industry. The Amex may at any time and from time to time change the number of stocks comprising the group by adding or deleting one or more stocks, or replace one or more stocks contained in the group with one or more substitute stocks of its choice, if in the Amex's discretion such addition, deletion or substitution is necessary or appropriate to maintain the quality and/or character of the Index. Changes to the Index compositions and/or the component share weights in the Index typically take effect after the close of trading on the third Friday of each calendar quarter month in connection with the quarterly index rebalance. At the time of the Index quarterly rebalance, the weights for the components stocks (taking into account expected component changes and share adjustments) are modified in accordance with the following procedures.
DIVERSIFICATION RULE 1: If any component stock exceeds 20% of the total value of the Index, then all stocks greater than 20% of the Index are reduced to represent 20% of the value of the Index. The aggregate amount by which all component stocks are reduced is redistributed proportionately across the remaining stocks that represent less than 20% of the Index value. After this redistribution, if any other stock then exceeds 20%, the stock is set to 20% of the Index value and the redistribution is repeated.
DIVERSIFICATION RULE 2: The component stocks are sorted into two groups, the large group are component stocks with a starting index weight of 5% or greater and the small group are those component stocks that are under 5% (after any adjustments for Diversification Rule 1). Each group in aggregate will represent 50% of the index weight. The weight of each of the large component stocks will be scaled down proportionately with a floor of 5% so that the aggregate weight of the large component stocks will be reduced to represent 50% of the Index. If any component stock falls below a weight equal to the product of 5% and the proportion by which the stocks were scaled down following this distribution, then the weight of the component stock is set equal to the product of 5% and the proportion by which the component stocks were scaled down, the components with weights greater than 5% will be reduced proportionately. The weight of each of the small component stocks will be scaled up proportionately from the redistribution of the large component stocks. If any component stock exceeds a weight equal to the product of 4.5% and the proportion by which the stocks were scaled down following this distribution, then the weight of the stock is set equal to the product of 4.5% and the proportion by which the stocks were scaled down. The redistribution of weight to the remaining component stocks is repeated until the entire amount has been redistributed.
MAINTENANCE OF THE INDEX
The Index is reviewed quarterly to ensure that at least 90% of the Index weight is accounted for by Index component stocks that continue to meet the initial eligibility requirements. Component stocks will be removed from the Index during the quarterly review, if the market capitalization falls below $50 million or the traded average daily shares for the previous six months is lower than 25,000 shares. In
conjunction with the quarterly review, the share weights used in the calculation of the Index are determined based upon current shares outstanding modified, if necessary, to provide greater Index diversification, as described in the Index Calculation section above. The Index component stocks and their share weights are determined and announced prior to taking effect. The share weight of each component stock in the Index portfolio remains fixed between quarterly reviews except in the event of certain types of corporate actions such as stock splits, reverse stock splits, stock dividends, or similar events. The share weights used in the Index calculation are not typically adjusted for shares issued or repurchased between quarterly reviews. However, in the event of a merger between two components, the share weight of the surviving entity may be adjusted to account for any stock issued in the acquisition. The Amex may substitute stocks or change the number of stocks included in the index, based on changing conditions in the industry or in the event of certain types of corporate actions, including mergers, acquisitions, spin-offs, and reorganizations. In the event of component or share weight changes to the Index portfolio, the payment of dividends other than ordinary cash dividends, spin-offs, rights offerings, re-capitalization, or other corporate actions affecting a component stock of the Index; the Index divisor may be adjusted to ensure that there are no changes to the Index level as a result of non-market forces.
INVESTMENT POLICIES AND RESTRICTIONS
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements with commercial banks, brokers or dealers to generate income from its excess cash balances and to invest securities lending cash collateral. A repurchase agreement is an agreement under which the Fund acquires a money market instrument (generally a security issued by the U.S. Government or an agency thereof, a banker's acceptance or a certificate of deposit) from a seller, subject to resale to the seller at an agreed upon price and date (normally, the next business day). A repurchase agreement may be considered a loan collateralized by securities. The resale price reflects an agreed upon interest rate effective for the period the instrument is held by the Fund and is unrelated to the interest rate on the underlying instrument.
In these repurchase agreement transactions, the securities acquired by the Fund (including accrued interest earned thereon) must have a total value at lease equal to the value of the repurchase agreement and are held by the Trust's custodian bank until repurchased. In addition, the Trust's Board of Trustees ("Board" or "Trustees") monitors the Fund's repurchase agreement transactions generally and has established guidelines and standards for review of the creditworthiness of any bank, broker or dealer counterparty to a repurchase agreement with the Fund. No more than an aggregate of 15% of the Fund's net assets will be invested in repurchase agreements having maturities longer than seven days and securities subject to legal or contractual restrictions on resale, or for which there are no readily available market quotations.
The use of repurchase agreements involves certain risks. For example, if the other party to the agreement defaults on its obligation to repurchase the underlying security at a time when the value of the security has declined, the Fund may incur a loss upon disposition of the security. If the other party to the agreement becomes insolvent and subject to liquidation or reorganization under the Bankruptcy Code or other laws, a court may determine that the underlying security is collateral for a loan by the Fund not within the control of the Fund and, therefore, the Fund may not be able to substantiate its interest in the underlying security and may be deemed an unsecured creditor of the other party to the agreement. While the Trust's management acknowledges these risks, it is expected that they can be controlled through careful monitoring procedures.
FUTURES CONTRACTS, OPTIONS AND SWAP AGREEMENTS
The Fund may utilize futures contracts, options, and swap agreements. Futures contracts generally provide for the future sale by one party and purchase by another party of a specified instrument, index or commodity at a specified future time and at a specified price. Stock index futures contracts are settled daily with a payment by one party to the other of a cash amount based on the difference between the level of the stock index specified in the contract from one day to the next. Futures contracts are standardized as to maturity date and underlying instrument and are traded on futures exchanges. The Fund may use futures contracts, and options on futures contracts based on other indexes or combinations of indexes that the Adviser (defined below) believes to be representative of the benchmark Index.
Although futures contracts (other than cash settled futures contracts including most stock index futures contracts) by their terms call for actual delivery or acceptance of the underlying instrument or commodity, in most cases the contracts are closed out before the maturity date without the making or taking of delivery. Closing out an open futures position is done by taking an opposite position ("buying" a contract which has previously been "sold," or "selling" a contract previously "purchased") in an identical contract to terminate the position. Brokerage commissions are incurred when a futures contract position is opened or closed.
Futures traders are required to make a good faith margin deposit in cash or government securities with a broker or custodian to initiate and maintain open positions in futures contracts. A margin deposit is intended to assure completion of the contract (delivery or acceptance of the underlying instrument or commodity or payment of the cash settlement amount) if it is not terminated prior to the specified delivery date. Brokers may establish deposit requirements which are higher than the exchange minimums. Futures contracts are customarily purchased and sold on margin deposits which may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is marked to market daily. If the futures contract price changes to the extent that the margin on deposit does not satisfy margin requirements, payment of additional "variation" margin will be required.
Conversely, change in the contract value may reduce the required margin, resulting in a repayment of excess margin to the contract holder. Variation margin payments are made to and from the futures broker for as long as the contract remains open. The Fund expects to earn interest income on its margin deposits.
The Fund may use futures contracts and options thereon, together with positions in cash and money market instruments, to simulate full investment in the underlying Index. Liquid futures contracts are not currently available for the benchmark Index of the Fund. Under such circumstances, the Adviser may seek to utilize other instruments that it believes to be correlated to the underlying Index components or a subset of the components.
RESTRICTIONS ON THE USE OF FUTURES AND OPTIONS
Except as otherwise specified in the Prospectus or this Statement of Additional Information, there are no limitations on the extent to which the Fund may engage in transactions involving futures and options thereon. The Fund will take steps to prevent its futures positions from "leveraging" its securities holdings. When it has a long futures position, it will maintain with its custodian bank, cash or liquid securities having a value equal to the notional value of the contract (less any margin deposited in connection with the position). When it has a short futures position, as part of a complex stock replication strategy the Fund will maintain with its custodian bank assets substantially identical to those underlying
the contract or cash and liquid securities (or a combination of the foregoing) having a value equal to the net obligation of the Fund under the contract (less the value of any margin deposits in connection with the position).
SWAP AGREEMENTS
Swap agreements are contracts between parties in which one party agrees to make payments to the other party based on the change in market value or level of a specified index or asset. In return, the other party agrees to make payments to the first party based on the return of a different specified index or asset. Although swap agreements entail the risk that a party will default on its payment obligations thereunder, the Fund seeks to reduce this risk by entering into agreements that involve payments no less frequently than quarterly. The net amount of the excess, if any, of the Fund's obligations over its entitlements with respect to each swap is accrued on a daily basis and an amount of cash or high liquid securities having an aggregate value at least equal to the accrued excess is maintained in an account at the Trust's custodian bank.
FUTURE DEVELOPMENTS
The Fund may take advantage of opportunities in the area of options, futures contracts, options on futures contracts, options on the Fund, warrants, swaps and any other investments which are not presently contemplated for use or which are not currently available, but which may be developed, to the extent such investments are considered suitable for the Fund by the Adviser.
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions as fundamental policies with respect to the Fund. These restrictions cannot be changed without the approval of the holders of a majority of the Fund's outstanding voting securities. For purposes of the Investment Company Act of 1940, as amended (the "1940 Act"), a majority of the outstanding voting securities of the Fund means the vote, at an annual or a special meeting of the security holders of the Trust, of the lesser of (1) 67% or more of the voting securities of the Fund present at such meeting, if the holders of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy, or (2) more than 50% of the outstanding voting securities of the Fund. Under these restrictions:
1. The Fund may not make loans, except that the Fund may (i) lend portfolio securities, (ii) enter into repurchase agreements, (iii) purchase all or a portion of an issue of debt securities, bank loan or participation interests, bank certificates of deposit, bankers' acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities, and (iv) participate in an interfund lending program with other registered investment companies;
2. The Fund may not borrow money, except as permitted under the 1940 Act, and as interpreted or modified by regulation from time to time;
3. The Fund may not issue senior securities except as permitted under the 1940 Act, and as interpreted or modified by regulation from time to time;
4. The Fund may not purchase a security (other than obligations of the U.S. Government, its agencies or instrumentalities) if, as a result, 25% or more of its total assets would be invested in a single issuer;
5. The Fund may not purchase or sell real estate, except that the Fund may
(i) invest in securities of issuers that invest in real estate or interests
therein; (ii) invest in mortgage-related securities and other securities that
are secured by real estate or interests therein; and (iii) hold and sell real
estate acquired by the Fund as a result of the ownership of securities;
6. The Fund may not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be considered an underwriter within the meaning of the Securities Act of 1933 in the disposition of restricted securities or in connection with its investments in other investment companies;
7. The Fund may not purchase or sell commodities, unless acquired as a result of owning securities or other instruments, but it may purchase, sell or enter into financial options and futures, forward and spot currency contracts, swap transactions and other financial contracts or derivative instruments and may invest in securities or other instruments backed by commodities. In addition, the Fund may invest up to 25% of its total assets in gold and silver coins, which are legal tender in the country of issue, and gold and silver bullion, and palladium and platinum group metals bullion; or
8. The Fund may not purchase any security if, as a result of that purchase, 25% or more of its total assets would be invested in securities of issuers having their principal business activities in the same industry except that the Fund will invest 25% or more of its total assets in the gold-mining industry. This limit does not apply to securities issued or guaranteed by the U.S. government, its agencies or instrumentalities.
In addition to the investment restrictions adopted as fundamental policies as set forth above, the Fund observes the following restrictions, which may be changed by the Board without a shareholder vote. The Fund will not:
1. Invest in securities which are "illiquid" securities, including repurchase agreements maturing in more than seven days and options traded over-the-counter, if the result is that more than 15% of a Fund's net assets would be invested in such securities.
2. Mortgage, pledge or otherwise encumber its assets, except to secure borrowing effected in accordance with the fundamental restriction on borrowing set forth below.
3. Make short sales of securities.
4. Purchase any security on margin, except for such short-term loans as are necessary for clearance of securities transactions. The deposit or payment by a Fund or initial or variation margin in connection with futures contracts or related options thereon is not considered the purchase of a security on margin.
5. Participate in a joint or joint-and-several basis in any trading account in securities, although transactions for the Funds and any other account under common or affiliated management may be combined or allocated between the Fund and such account.
If a percentage limitation is adhered to at the time of investment or contract, a later increase or decrease in percentage resulting from any change in value or total or net assets will not result in a violation of such restriction, except that the percentage limitations with respect to the borrowing of money and illiquid securities will be observed continuously.
As long as the aforementioned investment restrictions are complied with, the Fund may invest its remaining assets in money market instruments or funds which reinvest exclusively in money market instruments, in stocks that are in the relevant market but not the Index, and/or in combinations of certain stock index futures contracts, options on such futures contracts, stock options, stock index options, options on the Shares, and stock index swaps and swaptions, each with a view towards providing the Fund with exposure to the stocks in its benchmark Index. These investments may be made to invest uncommitted cash balances or, in limited circumstances, to assist in meeting shareholder redemptions of Creation Units. The Fund also will not invest in money market instruments as part of a temporary defensive strategy to protect against potential stock market declines.
SPECIAL CONSIDERATIONS AND RISKS
A discussion of the risks associated with an investment in the Fund is contained in the Prospectus under the heading "Investment Considerations and Risks." The discussion below supplements, and should be read in conjunction with, such section of the Prospectus.
GENERAL
Investment in the Fund should be made with an understanding that the value of the Fund's portfolio securities may fluctuate in accordance with changes in the financial condition of the issuers of the portfolio securities, the value of common stocks generally and other factors.
An investment in the Fund should also be made with an understanding of the risks inherent in an investment in equity securities, including the risk that the financial condition of issuers may become impaired or that the general condition of the stock market may deteriorate (either of which may cause a decrease in the value of the portfolio securities and thus in the value of Shares). Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change. These investor perceptions are based on various and unpredictable factors including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic and banking crises.
Holders of common stocks incur more risk than holders of preferred stocks and debt obligations because common stockholders, as owners of the issuer, have generally inferior rights to receive payments from the issuer in comparison with the rights of creditors of, or holders of debt obligations or preferred stocks issued by, the issuer. Further, unlike debt securities which typically have a stated principal amount payable at maturity (whose value, however, will be subject to market fluctuations prior thereto), or preferred stocks which typically have a liquidation preference and which may have stated optional or mandatory redemption provisions, common stocks have neither a fixed principal amount nor a maturity. Common stock values are subject to market fluctuations as long as the common stock remains outstanding.
Although most of the securities in the Index are listed on a national securities exchange, the principal trading market for some may be in the over-the-counter market. The existence of a liquid trading market for certain securities may depend on whether dealers will make a market in such securities. There can be no assurance that a market will be made or maintained or that any such market will be or remain liquid. The price at which securities may be sold and the value of the Fund's Shares will be adversely affected if trading markets for the Fund's portfolio securities are limited or absent or if bid/ask spreads are wide.
The Fund is not actively managed by traditional methods, and therefore the adverse financial condition of any one issuer will not result in the elimination of its securities from the Securities held by the Fund unless the Securities of such issuer are removed from the Index.
An investment in the Fund should also be made with an understanding that the Fund will not be able to replicate exactly the performance of the Index because the total return generated by the Securities will be reduced by transaction costs incurred in adjusting the actual balance of the Securities and other Fund expenses, whereas such transaction costs and expenses are not included in the calculation of the Index. It is also possible that for short periods of time, the Fund may not fully replicate the performance of the Index due to the temporary unavailability of certain Index Securities in the secondary market or due to other extraordinary circumstances. Such events are unlikely to continue for an extended period of time because the Fund is required to correct such imbalances by means of adjusting the composition of the Securities. It is also possible that the composition of the Fund may not exactly replicate the composition of the Index if the Fund has to adjust is portfolio holdings in order to continue to qualify as a "regulated investment company" under the Internal Revenue Code of 1986 (the "Internal Revenue Code").
Shares are subject to the risk of an investment in a portfolio of equity securities in an economic sector in which the Index is highly concentrated (I.E., the gold and silver mining industry). In addition, because it is the policy of the Fund to invest in the securities that comprise the Index, because the Index is concentrated in the gold and silver mining industry, the portfolio of Securities also will be concentrated in that industry.
FUTURES AND OPTIONS TRANSACTIONS
Positions in futures contracts and options may be closed out only on an exchange which provides a secondary market therefor. However, there can be no assurance that a liquid secondary market will exist for any particular futures contract or option at any specific time. Thus, it may not be possible to close a futures or options position. In the event of adverse price movements, the Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, the Fund may be required to make delivery of the instruments underlying futures contracts it has sold.
The Fund will seek to minimize the risk that it will be unable to close out a futures or options contract by only entering into futures and options for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts or uncovered call options in some strategies (E.G., selling uncovered stock index futures contracts) is potentially unlimited. The Fund does not plan to use futures and options contracts in this way. The risk of a futures position may still be large as traditionally measured due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to the size of a required margin deposit. The Fund, however, intends to utilize futures and options contracts in a manner designed to limit its risk exposure to that which is comparable to what it would have incurred through direct investment in stocks.
Utilization of futures transactions by the Fund involves the risk of imperfect or even negative correlation to the benchmark Index if the index underlying the futures contracts differs from the benchmark Index. There is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with whom the Fund has an open position in the futures contract or option.
Certain financial futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of future positions and subjecting some futures traders to substantial losses.
SWAPS
The use of swap agreements involves certain risks. For example, if the counterparty, under a swap agreement, defaults on its obligation to make payments due from it as a result of its bankruptcy or otherwise, the Fund may lose such payments altogether or collect only a portion thereof, which collection could involve costs or delay.
U.S. FEDERAL TAX TREATMENT OF FUTURES CONTRACTS
The Fund may be required for federal income tax purposes to mark-to-market and recognize as income for each taxable year its net unrealized gains and losses on certain futures contracts as of the end of the year as well as those actually realized during the year. The Fund may be required to defer the recognition of losses on futures contracts to the extent of any unrecognized gains on related positions held by the Fund.
In order for the Fund to continue to qualify for U.S. federal income tax treatment as a regulated investment company, at least 90% of its gross income for a taxable year must be derived from qualifying income, I.E., dividends, interest, income derived from loans of securities, gains from the sale of securities or of foreign currencies or other income derived with respect to the Fund's business of investing in securities. It is anticipated that any net gain realized from the closing out of futures contracts will be considered gain from the sale of securities and therefore will be qualifying income for purposes of the 90% requirement.
The Fund distributes to shareholders annually any net capital gains which have been recognized for U.S. federal income tax purposes (including unrealized gains at the end of the Fund's fiscal year) on futures transactions. Such distributions are combined with distributions of capital gains realized on the Fund's other investments and shareholders are advised on the nature of the distributions.
CONTINUOUS OFFERING
The method by which Creation Units of Shares are created and traded may raise certain issues under applicable securities laws. Because new Creation Units of Shares are issued and sold by the Trust on an ongoing basis, at any point a "distribution," as such term is used in the Securities Act of 1933 (the "Securities Act"), may occur. 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(3)(C) of the Securities Act, would be unable to take advantage of the prospectus-delivery exemption provided by Section 4(3) of the Securities Act. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not underwriters but are participating in a distribution (as contrasted with ordinary secondary market transactions) and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(3)(a) of the Securities Act would be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act. Firms that incur a prospectus delivery obligation with respect to Shares are reminded that, under the Securities Act Rule 153, 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 NYSE is satisfied by the fact that the prospectus is available at the NYSE upon request. The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions on an exchange.
EXCHANGE LISTING AND TRADING
A discussion of exchange listing and trading matters associated with an investment in the Fund is contained under the headings "Investment Considerations and Risks," "Determination of Net Asset Value" and "Buying and Selling Exchange-Traded Shares." The discussion below supplements, and should be read in conjunction with, such sections of the Prospectus.
The Shares of the Fund have been listed for trading on the Amex. The Shares will trade on the Amex at prices that may differ to some degree from their net asset value. There can be no assurance that the requirements of the Amex necessary to maintain the listing of Shares of the Fund will continue to be met.
The Amex may but is not required to remove the Shares of the Fund from listing if (1) following the initial twelve-month period beginning upon the commencement of trading of the Fund, there are fewer than 50 beneficial holders of the Shares for 30 or more consecutive trading days, (2) the value of the underlying Index or portfolio of securities on which the Fund is based is no longer calculated or available or (3) such other event shall occur or condition exists that, in the opinion of the Amex, makes further dealings on the Amex inadvisable. In addition, the Amex will remove the Shares from listing and trading upon termination of the Trust.
As in the case of other stocks traded on the Amex, brokers' commissions on transactions will be based on negotiated commission rates at customary levels.
In order to provide investors with a basis to gauge whether the market price of the shares on the Amex are approximately consistent with the current value of the assets of the Fund on a per share basis, the Amex disseminates through the facilities of the Consolidated Tape Association's Network B an updated Indicative Per Share Portfolio Value, an underlying trading reference value for the Index
published by the Amex to be used in conjunction with other exchange traded fund information, which is designed to give investors a sense of the relationship between the Index and the Fund on an intraday basis. Indicative Per Share Portfolio Values are disseminated every 15 seconds during regular Amex trading hours based on most recently reported prices of the securities held by the Fund. The Fund is not involved in or responsible for the calculation or dissemination of the Indicative Per Share Portfolio Value and makes no warranty as to the accuracy of the Indicative Per Share Portfolio Value.
The Indicative Per Share Portfolio Value has an equity securities value component and a net other assets value component, each of which are summed and divided by the total estimated Fund shares outstanding, including shares expected to be issued by the Fund on that day, to arrive at an Indicative Per Share Portfolio Value.
The equity securities value component of the Indicative Per Share Portfolio Value represents the estimated value of the portfolio securities held by the Fund on a given day. While the equity securities value component estimates the current market value of the Fund's portfolio securities, it does not necessarily reflect the precise composition or market value of the current portfolio of securities held by the Trust for the Fund at a particular point in time. Therefore, the Indicative Per Share Portfolio Value disseminated during Amex trading hours should be viewed only as an estimate of the Fund's net asset value per share, which is calculated at the close of the regular trading session on the NYSE (ordinarily 4:00 p.m. Eastern time) on each day Business Day.
In addition to the equity securities value component described in the preceding paragraph, the Indicative Per Share Portfolio Value for the Fund includes a net other assets value component consisting of estimates of all other assets and liabilities of the Fund including, among others, current day estimates of dividend income and expense accruals.
BOARD OF TRUSTEES OF THE TRUST
TRUSTEES AND OFFICERS OF THE TRUST
The Board has responsibility for the overall management and operations of the Trust, including general supervision of the duties performed by the Adviser and other service providers. The Board currently consists of five Trustees.
INDEPENDENT TRUSTEES
----------------------------- -------------- ------------------ ---------------------- ----------------- ------------------
PRINCIPAL NUMBER OF
POSITION(S) TERM OF OFFICE(2) OCCUPATION(S) PORTFOLIOS IN OTHER
HELD WITH AND LENGTH OF DURING PAST FIVE FUND COMPLEX(3) DIRECTORSHIPS
NAME, ADDRESS(1) AND AGE FUND TIME SERVED YEARS OVERSEEN HELD BY TRUSTEE
----------------------------- -------------- ------------------ ---------------------- ----------------- ------------------
David H. Chow 48++* Trustee Since 2006 Managing Partner, 1 None
Lithos Capital
Partners LLC
(private equity
firm), January 2006
to present;
Managing Director,
DanCourt Management
LLC (strategy
consulting firm),
March 1999 to
present; Managing
Director, AIG
Horizon Partners,
LLC (venture
capital firm),
May 2000 to
July 2002.
----------------------------- -------------- ------------------ ---------------------- ----------------- ------------------
Phillip D. DeFeo 59++* Chairman and Since 2006 Managing Partner, 1 Director of Visa
Trustee Lithos Capital USA, Computershare
Partners LLC., 2005 Limited, Reflow
to present; Management, LLC and
Chairman and CEO, Berea College.
Pacific Exchange,
Inc., 1999 to 2005.
----------------------------- -------------- ------------------ ---------------------- ----------------- ------------------
R. Alastair Short 52++* Trustee Since 2006 Managing Director, 10 None
The GlenRock Group,
LLC (private equity
investment firm),
May 1, 2004 to
present; President,
Apex Capital
Corporation
(personal investment
vehicle), Jan. 1988
to present;
President, Matrix
Global Investments,
Inc. and predecessor
company (private
investment company),
September 1995 to
January 1999.
----------------------------- -------------- ------------------ ---------------------- ----------------- ------------------
Richard D. Stamberger 46++* Trustee Since 2006 President and CEO, 10 None
SmartBrief, Inc.
----------------------------- -------------- ------------------ ---------------------- ----------------- ------------------
|
INTERESTED TRUSTEES
----------------------------- -------------- ------------------ ---------------------- ----------------- ------------------
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) TERM OF OFFICE(2) OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
TRUSTEE'S/OFFICER'S HELD WITH AND LENGTH OF DURING PAST FIVE OVERSEEN BY HELD OUTSIDE THE
NAME, ADDRESS AND AGE FUND TIME SERVED YEARS TRUSTEE FUND COMPLEX:
----------------------------- -------------- ------------------ ---------------------- ----------------- ------------------
Jan F. van Eck 42 Trustee Since 2006 Director and 1 None
Executive Vice
President, Van Eck
Associates
Corporation;
Director, Executive
Vice President and
Chief Compliance
Officer, Van Eck
Securities
Corporation;
Director and
President, Van Eck
Absolute Return
Advisers Corp.;
Director, Greylock
Capital Associates
LLC.
----------------------------- -------------- ------------------ ---------------------- ----------------- ------------------
|
(1) The address for each Trustee and officer is 99 Park Avenue, 8th Floor, New York, New York 10016.
(2) Each Trustee serves until resignation, death, retirement or removal. Officers are elected yearly by the Trustees.
(3) The Fund Complex consists of the Van Eck Funds, Van Eck Funds, Inc., Van Eck Worldwide Insurance Trust and Market Vectors ETF Trust.
++ Member of the Nominating Committee.
* Member of the Audit Committee.
OFFICER INFORMATION
The Officers of the Trust, their addresses, positions with the Trust, ages and principal occupations during the past five years are set forth below.
------------------------- -------------------- ------------------ ----------------------------------------------------
TERM OF OFFICE(2)
OFFICER'S ADDRESS(1) POSITION(S) HELD AND LENGTH OF
AND AGE WITH FUND TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
----------------------------------------------------------------------------------------------------------------------
OFFICERS:
------------------------- -------------------- ------------------ ----------------------------------------------------
Charles T. Cameron 43 Vice President Since 2006 President, Worldwide Bond Fund; Director of
Trading, Van Eck Associates Corporation;
Co-Portfolio Manager, Worldwide Bond Fund Series;
Officer of two other investment companies advised
by the Adviser.
------------------------- -------------------- ------------------ ----------------------------------------------------
Keith Carlson 49 Chief Executive Since 2006 President, Van Eck Associates Corporation and
Officer and President, Van Eck Securities Corporation since
President February 2004; Private Investor, June 2003 -
January 2004; Independent Consultant, Waddell &
Reed, Inc., April 2003 - May 2003; Senior Vice
President, Waddell & Reed, Inc., December 2002 -
March 2003; President/Chief Executive
Officer/Director/Executive Vice President/Senior
Vice President, Mackenzie Investment Management
Inc., April 1985-December 2002. President/Chief
Executive Officer/Director, Ivy Mackenzie
Distributors, Inc., June 1993 - December 2002;
Chairman/Director/President, Ivy Mackenzie
Services Corporation, June 1993 - December 2002;
Chairman/Director/Senior Vice President, Ivy
Management Inc., January 1992 - December 2002;
Officer of two other investment companies advised
by the Adviser.
------------------------- -------------------- ------------------ ----------------------------------------------------
Susan C. Lashley 51 Vice President Since 2006 Vice President, Van Eck Associates Corporation;
Vice President, Mutual Fund Operations, Van Eck
Securities Corporation; Officer of two other
investment companies advised by the Adviser.
------------------------- -------------------- ------------------ ----------------------------------------------------
Thaddeus Leszczynski 59 Chief Compliance Since 2006 Chief Compliance Officer, Van Eck Absolute Return
Officer Advisers Corporation and Van Eck Associates
Corporation since September 2005; Founder and Vice
President, EARN Corporation, July 2004 to present;
Private Practice Lawyer, January 2002 to present;
Executive Vice President, Asian Financial Network
Ltd., September 2000 - January 2001; Vice
President, Prudential Insurance Company, March
1998 - August 2000; Officer of two other investment
companies advised by the Adviser.
------------------------- -------------------- ------------------ ----------------------------------------------------
Thomas K. Lynch 49 Vice President and Since 2006 Vice President, Van Eck Associates Corporation and
Treasurer Van Eck Absolute Return Advisers Corp., since April
2005; Second Vice President, Investment Reporting,
TIAA-CREF, January 1996 - April 2005; Senior
Manager, Audits, Grant Thornton, December 1993 -
January 1996; Senior Manager, Audits, McGladrey &
Pullen, December 1986 - December 1993.
------------------------- -------------------- ------------------ ----------------------------------------------------
|
------------------------- -------------------- ------------------ ----------------------------------------------------
TERM OF OFFICE(2)
OFFICER'S ADDRESS(1) POSITION(S) HELD AND LENGTH OF
AND AGE WITH FUND TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
------------------------- -------------------- ------------------ ----------------------------------------------------
Joseph J. McBrien 57 Senior Vice Since 2006 Senior Vice President, General Counsel and
President and Secretary, Van Eck Associates Corporation, Van Eck
Secretary Securities Corporation and Van Eck Absolute Return
Advisers Corp., since December 2005; Managing
Director, Chatsworth Securities LLC, March 2001 -
November 2005; Private Investor/Consultant,
September 2000 - February 2001; Executive Vice
President and General Counsel, Mainstay Management
LLC, September 1999 - August 2000.; Officer of two
other investment companies advised by the Adviser.
------------------------- -------------------- ------------------ ----------------------------------------------------
Bruce J. Smith 51 Senior Vice Since 2006 Senior Vice President and Chief Financial Officer,
President and Chief Van Eck Associates Corporation; Senior Vice
Financial Officer President, Chief Financial Officer, Treasurer and
Controller, Van Eck Securities Corporation and Van
Eck Absolute Return Advisers Corp,; Officer of two
other investment companies advised by the Adviser.
------------------------- -------------------- ------------------ ----------------------------------------------------
Derek S. van Eck(3) 41 Executive Vice Since 2006 President of Worldwide Hard Assets Fund series and
President the Worldwide Real Estate Fund series of Van Eck
Worldwide Insurance Trust and the Global Hard
Assets Fund series of Van Eck Funds; Director of
Van Eck Associates Corporation; Director and
Executive Vice President, Van Eck Securities
Corporation; Director and Executive Vice President,
Van Eck Absolute Return Advisers Corp.; Director,
Greylock Capital Associates LLC.
------------------------- -------------------- ------------------ ----------------------------------------------------
Jan F. van Eck 42 Executive Vice Since 2006 Director and Executive Vice President, Van Eck
President Associates Corporation; Director, Executive Vice
President and Chief Compliance Officer, Van Eck
Securities Corporation; Director and President, Van
Eck Absolute Return Advisers Corporation; Director,
Greylock Capital Associates LLC.
------------------------- -------------------- ------------------ ----------------------------------------------------
|
(2) Officers are elected yearly by the Trustees.
(3) Messrs. Jan F. van Eck and Derek S. van Eck are brothers.
The Board of Trustees of the Trust had not yet been established during the fiscal year ended December 31, 2005.
The Board has an Audit Committee, consisting of four Trustees who are
not "interested persons" (as defined in the 1940 Act) of the Trust. Messrs.
Chow, DeFeo, Short and Stamberger currently serve as members of the Audit
Committee. The Audit Committee has the responsibility, among other things, to:
(i) oversee the accounting and financial reporting processes of the Trust and
its internal control
over financial reporting and, as the Audit Committee deems appropriate, to inquire into the internal control over financial reporting of certain third-party service providers, (ii) oversee the quality and integrity of the Trust's financial statements and the independent audit thereof, (iii) oversee or, as appropriate, assist the Board's oversight of the Trust's compliance with legal and regulatory requirements that relate to the Trust's accounting and financial reporting, internal control over financial reporting and independent audit; (iv) approve prior to appointment the engagement of the Trust's independent registered public accounting firm and, in connection therewith, to review and evaluate the qualifications, independence and performance of the Trust's independent registered public accounting firm; and (v) act as a liaison between the Trust's independent registered public accounting firm and the full Board. The Audit Committee had not yet been established during the fiscal year ended December 31, 2005.
The Board also has a Nominating Committee consisting of four Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust. Messrs. Chow, DeFeo, Short and Stamberger currently serve as members of the Nominating Committee. The Nominating Committee has the responsibility, among other things, to: (i) review periodically the effectiveness and composition of the overall Board, Board committees and other related matters; (ii) review periodically the compensation of Board and committee members for reasonableness; and (iii) review activities of Board members as they relate to any relationship with the Adviser to ensure ongoing independence of Board members. The Nominating Committee had not yet been established during the fiscal year ended December 31, 2005.
The officers and Trustees of the Trust, in the aggregate, own less than 1% of the shares of each Fund.
For each Trustee, the dollar range of equity securities beneficially owned by the Trustee in the Trust and in all registered investment companies overseen by the Trustee is shown below.
AGGREGATE DOLLAR RANGE OF
DOLLAR RANGE OF EQUITY SECURITIES IN ALL
EQUITY SECURITIES IN THE REGISTERED INVESTMENT COMPANIES
MARKET VECTORS--GOLD MINERS OVERSEEN BY TRUSTEE IN FAMILY
ETF (AS OF OF INVESTMENT COMPANIES
NAME OF TRUSTEE DECEMBER 31, 2005) (AS OF DECEMBER 31, 2005)
--------------------------------------------------------------------------------
David H. Chow None None
Phillip D. DeFeo None None
R. Alastair Short None $10,001-$50,000
Richard D. Stamberger None over $100,000
Jan F. van Eck None over $100,000
|
As to each Independent Trustee and his immediate family members, no person owned beneficially or of record securities in an investment adviser or principal underwriter of the Fund, or a person (other than a registered investment company) directly or indirectly controlling, controlled by or under common control with the investment manager or principal underwriter of the Fund.
REMUNERATION OF TRUSTEES
The Trust pays each Trustee who is not an "interested person" (as defined in the 1940 Act) a per meeting fee of $2,500 for scheduled quarterly meetings of the Board and each special meeting of the Board. The Trust pays each Trustee
who acts as chairman of a committee $500 for each committee meeting attended. The Trust also reimburses each Trustee for travel and other out-of-pocket expenses incurred in attending such meetings. No pension or retirement benefits are accrued as part of Trustee compensation.
APPROVAL OF MANAGEMENT AGREEMENT
[The Board of Trustees, including all of the Trustees that are not "interested persons" of the Trust (the "Independent Trustees"), have approved the investment management agreement between the Trust and the Adviser (the "Investment Management Agreement") with respect to the Fund through _____, 2008. The Investment Management Agreement was approved at a meeting held on _____, 2006 ("the Meeting").
At the Meeting, the Adviser reviewed the founding of the firm, including a description of the Trust's development process and the Adviser's investment philosophy. The Adviser described the efforts that had been made to obtain the necessary order from the SEC that was required before the Fund could begin operations, and the analysis that had been performed in determining which prospective service providers to recommend to the Board. The Trustees reviewed the Adviser's financial condition in an effort to determine the adequacy of the financial resources of the Adviser to support the operations of the Fund for the foreseeable future. The Adviser described the process that will be used in managing the Fund. The Trustees reviewed the ability of the personnel of the Adviser to mange the portfolio of the Fund in a manner that would cause the Fund to replicate as closely as possible, before fees and expenses, the price and yield performance of the Index. In addition, the Trustees were given data on the exchange-traded fund market and expense ratios of comparative funds (some of which operate as unit investment trusts and do not involve portfolio management). Taking into account the risks assumed by the Adviser, the Trustees considered the character and amount of any other benefits received by the Adviser from serving as adviser of the Fund and from providing administrative services to the Fund, and from an affiliate of the Adviser serving as distributor for the Fund. The Trustees reviewed the terms of the proposed Investment Management Agreement, including the Adviser's commitment to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding interest expense, brokerage commissions, offering costs and other trading expenses, fees, taxes and extraordinary expenses) from exceeding 0.55% of average daily net assets per year for at least a year. In voting to approve the Investment Management Agreement, the Trustees, including the Independent Trustees, concluded that the terms of the Investment Management Agreement are reasonable and fair and that the Investment Management Agreement is in the interest of the Fund and its shareholders. In connection with their deliberations with regard to the Investment Management Agreement, the Trustees, including the Independent Trustees, considered such information and factors as they believed to be appropriate in the light of the legal advice furnished to them and their own business judgment. The Trustees did not consider any single factor as controlling in determining whether or not to enter into the Investment Management Agreement. Based on their consideration of the foregoing factors and conclusions, and such other factors and conclusions as they deemed relevant, the Trustees concluded that the Investment Management Agreement, including fee structures (described therein), is in the interest of the shareholders, and accordingly the Trustees including all of the Independent Trustees, approved the Investment Management Agreement for an initial two year term.]
PORTFOLIO HOLDINGS DISCLOSURE
The Fund's portfolio holdings are publicly disseminated each day the Fund is open for business through financial reporting and news services, including publicly accessible Internet web sites. In addition, a basket composition file, which includes the security names and share quantities to deliver in
exchange for Fund shares, together with estimates and actual cash components is publicly disseminated daily prior to the opening of the AMEX via the National Securities Clearing Corporation (NSCC). The basket represents one Creation Unit of the Fund. The Trust, the Adviser and the Custodian, Distributor and the Administrator will not disseminate non-public information concerning the Trust.
CODE OF ETHICS
The Fund, the Adviser and the Distributor have each adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act, designed to monitor personal securities transactions by their personnel (the "Personnel"). The Code of Ethics requires that all trading in securities that are being purchased or sold, or are being considered for purchase or sale, by the Fund must be approved in advance by the Head of Trading, the Director of Research and the Chief Compliance Officer of the Adviser. Approval will be granted if the security has not been purchased or sold or recommended for purchase or sale for the Fund within seven days, or otherwise if it is determined that the personal trading activity will not have a negative or appreciable impact on the price or market of the security, or is of such a nature that it does not present the dangers or potential for abuses that are likely to result in harm or detriment to the Fund. At the end of each calendar quarter, all Personnel must file a report of all transactions entered into during the quarter. These reports are reviewed by a senior officer of the Adviser.
Generally, all Personnel must obtain approval prior to conducting any transaction in securities. Independent Trustees, however, are not required to obtain prior approval of personal securities transactions. Personnel may purchase securities in an IPO or private placement, PROVIDED that he or she obtains preclearance of the purchase and makes certain representations.
PROXY VOTING POLICIES AND PROCEDURES
The Fund's proxy voting record will be available upon request and on the SEC's website at http://www.sec.gov. Proxies for the Fund's portfolio securities are voted in accordance with the Adviser's proxy voting policies and procedures, which are set forth in Appendix A to this Statement of Additional Information.
The Trust is required to disclose annually the Fund's complete proxy voting record on Form N-PX covering the period July 1 through June 30 and file it with the SEC no later than August 31. Form N-PX for the Fund will be available on the Fund's website, at www.vaneck.com, or by writing to 99 Park Avenue, 8th Floor, New York, New York 10016. The Fund's Form N-PX will also be available on the SEC's website at WWW.SEC.GOV.
QUARTERLY PORTFOLIO SCHEDULE
The Trust is required to disclose, after its first and third fiscal quarters, the complete schedule of the Fund's portfolio holdings with the SEC on Form N-Q. Form N-Q for the Fund is available on the SEC's website at HTTP://WWW.SEC.GOV. The Fund's Form N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. and information on the operation of the Public Reference Room may be obtained by calling 202.551.8090. The Fund's Form N-Q is available on the Fund's website, at www.vaneck.com or by writing to 99 Park Avenue, 8th Floor, New York, New York 10016.
MANAGEMENT
The following information supplements and should be read in conjunction with the section in the Prospectus entitled "Management."
THE INVESTMENT MANAGER
Van Eck Associates Corporation (the "Adviser") acts as investment manager to the Trust and, subject to the supervision of the Board of Trustees, is responsible for the investment management of the Fund. The Adviser is a private company with headquarters in New York and manages other mutual funds and separate accounts.
The Adviser serves as investment manager to the Fund pursuant to an Investment Management Agreement between the Trust and the Adviser. Under the Investment Management Agreement, the Adviser, subject to the supervision of the Board and in conformity with the stated investment policies of the Fund, manages the investment of the Fund's assets. The Adviser is responsible for placing purchase and sale orders and providing continuous supervision of the investment portfolio of the Fund.
Pursuant to the Investment Management Agreement, the Trust has agreed to indemnify the Adviser for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss or liability results from willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its obligations and duties.
COMPENSATION. As compensation for its services under the Investment Management Agreement, the Adviser is paid a monthly fee based on a percentage of the Fund's average daily net assets at the annual rate of 0.50%. From time to time, the Adviser may waive all or a portion of its fees. Until at least May 1, 2007, the Adviser has contractually agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding interest expense, brokerage commissions, offering costs and other trading expenses, fees, taxes and extraordinary expenses) from exceeding 0.55% of average daily net assets per year. The offering costs excluded from the 0.55% expense cap are: (a) legal fees pertaining to the Fund's Shares offered for sale; (b) SEC and state registration fees; and (c) initial fees paid to be listed on an exchange.
TERM. The Investment Management Agreement continues in effect for two
years from its effective date, and thereafter is subject to annual approval by
(1) the Board of Trustees or (2) vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund, PROVIDED that in either
event such continuance also is approved by a majority of the Board of Trustees
who are not interested persons (as defined in the 1940 Act) of the Trust by a
vote cast in person at a meeting called for the purpose of voting on such
approval. The Investment Management Agreement is terminable without penalty, on
60 days notice, by the Board of Trustees or by a vote of the holders of a
majority (as defined in the 1940 Act) of the Fund's outstanding voting
securities. The Investment Management Agreement is also terminable upon 60 days
notice by the Adviser and will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
LEGAL INVESTIGATIONS AND PROCEEDINGS. In connection with their investigations of practices identified as "market timing" and "late trading" of mutual fund shares, during the third quarter of 2003 the Office of the New York State Attorney General and the SEC requested and received information from the Adviser. The investigations are ongoing, and the Adviser is continuing to cooperate with such investigations.
In July 2004, the Adviser has received a so-called "Wells Notice" from the SEC in connection with the SEC's investigation of market-timing activities. This Wells Notice informed the Adviser that the SEC staff is considering recommending that the SEC bring a civil or administrative action alleging violations of U.S. securities laws against the Adviser and two of its senior officers. Under SEC procedures, the Adviser has an opportunity to respond to the SEC staff before the staff makes a formal recommendation. The time period for the Adviser's response has been extended until further notice from the SEC. There cannot be any assurance that, if the SEC and/or the New York Attorney General were to assess sanctions against the Adviser, such sanctions would not materially and adversely affect the Adviser.
THE ADMINISTRATOR
Van Eck Associates Corporation (through its Mutual Fund Services division) also serves as Administrator for the Trust pursuant to the Investment Management Agreement. Under the Investment Management Agreement, the Adviser is obligated on a continuous basis to provide such administrative services as the Board of Trustees of the Trust reasonably deems necessary for the proper administration of the Trust and the Fund. The Adviser will generally assist in all aspects of the Trust's and the Fund's operations; supply and maintain office facilities, statistical and research data, data processing services, clerical, accounting, bookkeeping and record keeping services (including without limitation the maintenance of such books and records as are required under the 1940 Act and the rules thereunder, except as maintained by other agents), internal auditing, executive and administrative services, and stationery and office supplies; prepare reports to shareholders or investors; prepare and file tax returns; supply financial information and supporting data for reports to and filings with the SEC and various state Blue Sky authorities; supply supporting documentation for meetings of the Board of Trustees; provide monitoring reports and assistance regarding compliance with the Declaration of Trust, by-laws, investment objectives and policies and with federal and state securities laws; arrange for appropriate insurance coverage; calculate NAVs, net income and realized capital gains or losses; and negotiate arrangements with, and supervise and coordinate the activities of, agents and others to supply services.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York serves as Custodian for the Fund pursuant to a Custodian Agreement. As Custodian, The Bank of New York holds the Fund's assets. The Bank of New York serves as Fund's Transfer Agent pursuant to a Transfer Agency Agreement. The Bank of New York may be reimbursed by the Fund for its out-of-pocket expenses.
THE DISTRIBUTOR
Van Eck Securities Corporation (the "Distributor") is the principal underwriter and distributor of Shares. Its principal address is 99 Park Avenue, New York, NY 10016 and investor information can be obtained by calling 1-888-MKT-VCTR. The Distributor has entered into an agreement with the Trust which will continue from its effective date unless terminated by either party upon 60 days' prior written notice to the other party by the Trust and the Adviser, or by the Distributor, or until termination of the Trust or the fund offering the shares, and which is renewable annually thereafter (the "Distribution Agreement"), pursuant to which it distributes Trust Shares. Shares will be continuously offered for sale by the Trust through the Distributor only in Creation Units, as described below under "Creation of
Creation Units." Shares in less than Creation Units are not distributed by the Distributor. The Distributor will deliver a prospectus to persons purchasing Shares in Creation Units and will maintain records of both orders placed with it and confirmations of acceptance furnished by it. The Distributor is a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of the National Association of Securities Dealers, Inc. (the "NASD"). The Distributor has no role in determining the investment policies of the Trust or which securities are to be purchased or sold by the Trust.
The Distributor may also enter into sales and investor services agreements with broker-dealers or other persons that are Participating Parties and DTC Participants (as defined below) to provide distribution assistance, including broker-dealer and shareholder support and educational and promotional services but must pay such broker-dealers or other persons, out of its own assets.
The Distribution Agreement provides that it may be terminated at any time, without the payment of any penalty: (i) by vote of a majority of the Independent Trustees or (ii) by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, on at least 60 days written notice to the Distributor. The Distribution Agreement is also terminable upon 60 days notice by the Distributor and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
THE PORTFOLIO MANAGERS
The portfolio managers who are currently responsible for the day-to-day management of the Fund's portfolio are Edward M. Kuczma, Jr. and Hao-Hung (Peter) Liao. Mr. Kuczma has been employed by the Adviser since January of 2004. Prior to Mr. Kuczma's current role of investment analyst, he worked in Portfolio Administration for the Adviser. After serving as a fund accountant for international portfolios, Mr. Kuczma became an analyst for emerging market companies. He also serves on a committee that reviews managers and changing mandates for a multi-manager absolute return strategy. Mr. Kuczma graduated from Georgetown University in May 2003. Mr. Liao has been employed by the Adviser since the summer of 2004. Mr. Liao has served as investment analyst for the Worldwide Absolute Return Fund for the past two years where his role included manager review, performance attribution, changes in manager mandates and risk management. Mr. Liao graduated from New York University with a Bachelor of Arts majoring in mathematics and economics in 2004. Other than the one fund of the Trust, Messrs. Kuczma and Liao do not manage any other registered investment companies, pooled investment vehicles or other accounts.
PORTFOLIO MANAGER COMPENSATION
The portfolio managers are paid a base salary and a bonus. The bonus is based upon the quality of investment analysis and the management of the Fund. The quality of management of the Fund includes issues of replication, rebalancing, portfolio monitoring, efficient operation, among other factors. Managers who oversee accounts with significantly different fee structures are generally compensated by discretionary bonus rather than a set formula to help reduce potential conflicts of interest. At times, the Adviser and affiliates manage accounts with incentive fees.
PORTFOLIO MANAGER SHARE OWNERSHIP
As of May 1, 2006, the dollar range of securities beneficially owned by Mr. Kuczma and Mr. Liao in any of the Van Eck complex of funds, including the Fund, was $0-$10,000 and $10,001-$50,000, respectively.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio securities, the Adviser looks for prompt execution of the order at a favorable price. Generally, the Adviser works with recognized dealers in these securities, except when a better price and execution of the order can be obtained elsewhere. The Fund will not deal with affiliates in principal transactions unless permitted by exemptive order or applicable rule or regulation. The Adviser owes a duty to its clients to provide best execution on trades effected. Since the investment objective of the Fund is investment performance that corresponds to that of an Index, the Adviser does not intend to select brokers
and dealers for the purpose of receiving research services in addition to a favorable price and prompt execution either from that broker or an unaffiliated third party.
The Adviser assumes general supervision over placing orders on behalf of the Trust for the purchase or sale of portfolio securities. If purchases or sales of portfolio securities of the Trust and one or more other investment companies or clients supervised by the Adviser are considered at or about the same time, transactions in such securities are allocated among the several investment companies and clients in a manner deemed equitable to all by the Adviser. In some cases, this procedure could have a detrimental effect on the price or volume of the security so far as the Trust is concerned. However, in other cases, it is possible that the ability to participate in volume transactions and to negotiate lower brokerage commissions will be beneficial to the Trust. The primary consideration is prompt execution of orders at the most favorable net price.
Portfolio turnover may vary from year to year, as well as within a year. High turnover rates are likely to result in comparatively greater brokerage expenses. The portfolio turnover rate for the Fund is expected to be under 50%. See "Investment Policies and Strategies" in the Prospectus. The overall reasonableness of brokerage commissions is evaluated by the Adviser based upon its knowledge of available information as to the general level of commissions paid by other institutional investors for comparable services.
BOOK ENTRY ONLY SYSTEM
The following information supplements and should be read in conjunction with the section in the Prospectus entitled "Buying and Selling Exchange-Traded Shares."
DTC acts as securities depositary for the Shares. Shares of the Fund are represented by securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC. Except in the limited circumstance provided below, certificates will not be issued for Shares.
DTC, a limited-purpose trust company, was created to hold securities of its participants (the "DTC Participants") and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the NYSE, the Amex and the NASD. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (the "Indirect Participants").
Beneficial ownership of Shares is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners of such beneficial interests are referred to herein as "Beneficial Owners") is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of Shares.
Conveyance of all notices, statements and other communications to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the Trust and DTC, DTC is required to make available to the Trust upon request and for a fee to be charged to the Trust a listing of the Shares holdings
of each DTC Participant. The Trust shall inquire of each such DTC Participant as to the number of Beneficial Owners holding Shares, directly or indirectly, through such DTC Participant. The Trust shall provide each such DTC Participant with copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trust shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as the registered holder of all Shares. DTC or its nominee, upon receipt of any such distributions, shall credit immediately DTC Participants' accounts with payments in amounts proportionate to their respective beneficial interests in Shares as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a "street name," and will be the responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspects of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such Shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants.
DTC may determine to discontinue providing its service with respect to Shares at any time by giving reasonable notice to the Trust and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to find a replacement for DTC to perform its functions at a comparable cost or, if such a replacement is unavailable, to issue and deliver printed certificates representing ownership of Shares, unless the Trust makes other arrangements with respect thereto satisfactory to the Amex.
CREATION AND REDEMPTION OF CREATION UNITS
GENERAL
The Trust issues and sells Shares only in Creation Units on a continuous basis through the Distributor, without an initial sales load, at their net asset value next determined after receipt, on any Business Day (as defined herein), of an order in proper form.
A "Business Day" with respect to the Fund is any day on which the NYSE and the Amex are open for business. As of the date of the Prospectus, the NYSE and the Amex observe the following holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day (Washington's Birthday), Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
FUND DEPOSIT
The consideration for creation of Creation Units of the Fund generally consists of the in-kind deposit of a designated portfolio of equity securities (the "Deposit Securities") constituting a replication of the Trust's benchmark Index and an amount of cash computed as described below (the "Cash Component"). Together, the Deposit Securities and the Cash Component constitute the "Fund Deposit,"
which represents the minimum initial and subsequent investment amount for Shares of the Fund. The Cash Component represents the difference between the net asset value of a Creation Unit and the market value of Deposit Securities and may include a Dividend Equivalent Payment. The "Dividend Equivalent Payment" enables the Fund to make a complete distribution of dividends on the next dividend payment date, and is an amount equal, on a per Creation Unit basis, to the dividends on all the Fund Securities with ex-dividend dates within the accumulation period for such distribution (the "Accumulation Period"), net of expenses and liabilities for such period, as if all of the Fund Securities had been held by the Trust for the entire Accumulation Period. The Accumulation Period begins on the ex-dividend date for the Fund and ends on the next ex-dividend date.
The Administrator, through the National Securities Clearing Corporation (discussed below), makes available on each Business Day, immediately prior to the opening of business on the Amex (currently 9:30 a.m., New York time), the list of the names and the required number of shares of each Deposit Security to be included in the current Fund Deposit (based on information at the end of the previous Business Day) as well as the Cash Component for the Fund. Such Fund Deposit is applicable, subject to any adjustments as described below, in order to effect creations of Creation Units of the Fund until such time as the next-announced Fund Deposit composition is made available.
The identity and number of shares of the Deposit Securities required for a Fund Deposit for the Fund changes as rebalancing adjustments and corporate action events are reflected from time to time by the Adviser with a view to the investment objective of the Fund. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the securities constituting the benchmark Index. In addition, the Trust reserves the right to permit or require the substitution of an amount of cash (I.E., a "cash in lieu" amount) to be added to the Cash Component to replace any Deposit Security which may not be available in sufficient quantity for delivery or which may not be eligible for transfer through the Clearing Process (described below), or which may not be eligible for trading by a Participating Party (defined below). Brokerage commissions incurred in connection with acquisition of Deposit Securities not eligible for transfer through the systems of the Depository and hence not eligible for transfer through the Clearing Process will be at the expense of the Fund and will affect the value of all Shares; but the Adviser may adjust the transaction fee to the extent the composition of the Deposit Securities changes or cash in lieu is added to the cash component to protect ongoing shareholders. The adjustments described above will reflect changes, known to the Adviser on the date of announcement to be in effect by the time of delivery of the Fund Deposit, in the composition of the Index or resulting from stock splits and other corporate actions.
In addition to the list of names and numbers of securities constituting
the current Deposit Securities of a Fund Deposit, the Administrator, through the
National Securities Clearing Corporation (discussed below), also makes available
(i) on each Business Day, the Dividend Equivalent Payment, if any, effective
through and including the previous Business Day, per outstanding Shares of the
Fund, and (ii) on a continuous basis throughout the day, the Indicative Per
Share Portfolio Value.
PROCEDURES FOR CREATION OF CREATION UNITS
To be eligible to place orders with the Distributor to create Creation
Units of the Fund, an entity or person either must be (1) a "Participating
Party," I.E., a broker-dealer or other participant in the Clearing Process
through the Continuous Net Settlement System of the National Securities Clearing
Corporation (the "NSCC"), a clearing agency that is registered with the SEC; or
(2) a DTC Participant (see "Book Entry Only System"); and, in either case, must
have executed an agreement with the Trust and with the Distributor with respect
to creations and redemptions of Creation Units outside the Clearing Process
("Participant Agreement") (discussed below). All Creation Units of the Fund,
however created,
will be entered on the records of the Depository in the name of Cede & Co. for the account of a DTC Participant.
All orders to create Creation Units of the Fund must be placed in multiples of 50,000 Shares (Creation Unit size). All orders to create Creation Units, whether through the Clearing Process or outside the Clearing Process, must be received by the Distributor no later than the closing time of the regular trading session on the NYSE ("Closing Time") (ordinarily 4:00 p.m. New York time) (3:00 p.m. for Custom Orders) in each case on the date such order is placed in order for creation of Creation Units to be effected based on the net asset value of the Fund as determined on such date. The date on which a creation order (or order to redeem as discussed below) is placed is herein referred to as the "Transmittal Date." Orders must be transmitted by telephone or other transmission method acceptable to the Distributor pursuant to procedures set forth in the Participant Agreement, as described below (see "Placement of Creation Orders Using Clearing Process" and "Placement of Creation Orders Outside Clearing Process"). Severe economic or market disruptions or changes, or telephone or other communication failure, may impede the ability to reach the Distributor, a Participating Party or a DTC Participant.
Orders to create Creation Units of the Fund shall be placed with a Participating Party or DTC Participant, as applicable, in the form required by such Participating Party or DTC Participant. Investors should be aware that their particular broker may not have executed a Participant Agreement, and that, therefore, orders to create Creation Units of the Fund may have to be placed by the investor's broker through a Participating Party or a DTC Participant who has executed a Participant Agreement. At any given time there may be only a limited number of broker-dealers that have executed a Participant Agreement. Those placing orders to create Creation Units of the Fund through the Clearing Process should afford sufficient time to permit proper submission of the order to the Distributor prior to the Closing Time on the Transmittal Date.
Orders for creation that are effected outside the Clearing Process are likely to require transmittal by the DTC Participant earlier on the Transmittal Date than orders effected using the Clearing Process. Those persons placing orders outside the Clearing Process should ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire system by contacting the operations department of the broker or depository institution effectuating such transfer of Deposit Securities and Cash Component.
PLACEMENT OF CREATION ORDERS USING CLEARING PROCESS
Fund Deposits created through the Clearing Process must be delivered through a Participating Party that has executed a Participant Agreement with the Distributor and with the Trust (as the same may be from time to time amended in accordance with its terms). The Participant Agreement authorizes the Distributor to transmit to NSCC on behalf of the Participating Party such trade instructions as are necessary to effect the Participating Party's creation order. Pursuant to such trade instructions from the Distributor to NSCC, the Participating Party agrees to transfer the requisite Deposit Securities (or contracts to purchase such Deposit Securities that are expected to be delivered in a "regular way" manner by the third (3rd) NSCC Business Day) and the Cash Component to the Trust, together with such additional information as may be required by the Distributor. An order to create Creation Units of the Fund through the Clearing Process is deemed received by the Distributor on the Transmittal Date if (i) such order is received by the Distributor not later than the Closing Time on such Transmittal Date and (ii) all other procedures set forth in the Participant Agreement are properly followed.
Creation Units of the Fund may be created in advance of the receipt by the Trust of all or a portion of the Fund Deposit. In such cases, the Participating Party will remain liable for the full deposit of the missing portion(s) of the Fund Deposit and will be required to post collateral with the Trust
consisting of cash at least equal to 115% of the marked-to-market value of such missing portion(s). Information concerning the procedures for such cash collateralization as applicable will be available from the Distributor prior to the effective date of these provisions and the Distributor will communicate the effective date of the provisions and procedure for cash collateralization by posting such information on its website www.vaneck.com. The Participant Agreement for any Participating Party intending to follow such procedures will contain terms and conditions permitting the Trust to use such collateral to buy the missing portion(s) of the Fund Deposit at any time and will subject such Participating Party to liability for any shortfall between the cost to the Trust of purchasing such securities and the value of such collateral. The Trust will have no liability for any such shortfall. The Trust will return any unused portion of the collateral to the Participating Party once the entire Fund Deposit has been properly received by the Distributor and deposited into the Trust.
PLACEMENT OF CREATION ORDERS OUTSIDE CLEARING PROCESS
Fund Deposits created outside the Clearing Process must be delivered through a DTC Participant that has executed a Participant Agreement with the Distributor and with the Trust. A DTC Participant who wishes to place an order creating Creation Units of the Fund to be effected outside the Clearing Process need not be a Participating Party, but such orders must state that the DTC Participant is not using the Clearing Process and that the creation of Creation Units will instead be effected through a transfer of securities and cash. The Fund Deposit transfer must be ordered by the DTC Participant in a timely fashion so as to ensure the delivery of the requisite number of Deposit Securities through DTC to the account of the Trust by no later than 11:00 a.m. of the next Business Day immediately following the Transmittal Date. All questions as to the number of Deposit Securities to be delivered, and the validity, form and eligibility (including time of receipt) for the deposit of any tendered securities, will be determined by the Trust, whose determination shall be final and binding. The cash equal to the Cash Component must be transferred directly to the Distributor through the Federal Reserve wire system in a timely manner so as to be received by the Distributor no later than 2:00 p.m. on the next Business Day immediately following the Transmittal Date. An order to create Creation Units of the Fund outside the Clearing Process is deemed received by the Distributor on the Transmittal Date if (i) such order is received by the Distributor not later than the Closing Time on such Transmittal Date; and (ii) all other procedures set forth in the Participant Agreement are properly followed. However, if the Distributor does not receive both the requisite Deposit Securities and the Cash Component in a timely fashion on the next Business Day immediately following the Transmittal Date, such order will be cancelled. Upon written notice to the Distributor, such cancelled order may be resubmitted the following Business Day using a Fund Deposit as newly constituted to reflect the current net asset value of the Fund. The delivery of Creation Units of the Fund so created will occur no later than the third (3rd) Business Day following the day on which the creation order is deemed received by the Distributor. Under the current schedule, the total fee charged in connection with the creation of one Creation Unit outside the Clearing Process would not exceed $4,000.
ACCEPTANCE OF CREATION ORDER
The Trust reserves the absolute right to reject a creation order transmitted to it by the Distributor if, for any reason, (a) the order is not in proper form; (b) the creator or creators, upon obtaining the shares ordered, would own 80% or more of the currently outstanding shares of the Fund; (c) the Deposit Securities delivered are not as specified by the Administrator, as described above; (d) acceptance of the Deposit Securities would have certain adverse tax consequences to the Fund; (e) the acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (f) the acceptance of the Fund Deposit would otherwise, in the discretion of the Trust or the Adviser, have an adverse effect on the Trust or the rights of beneficial owners; or (g) in the event that circumstances outside the control of the Trust, the Distributor and the Adviser make it for all practical purposes impossible to process creation orders. Examples of such circumstances include acts
of God or public service or utility problems such as fires, floods, extreme weather conditions and power outages resulting in telephone, telecopy and computer failures; market conditions or activities causing trading halts; systems failures involving computer or other information systems affecting the Trust, the Adviser, the Distributor, DTC, NSCC or any other participant in the creation process, and similar extraordinary events. The Trust shall notify a prospective creator of its rejection of the order of such person. The Trust and the Distributor are under no duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall either of them incur any liability for the failure to give any such notification.
All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trust's determination shall be final and binding.
CREATION TRANSACTION FEE
A creation transaction fee of $1,000 payable to the Custodian is imposed on each creation transaction. In addition, a variable charge for cash creations or for creations outside the Clearing Process currently of up to four times the basic creation fee will be imposed. Where the Trust permits a creator to substitute cash in lieu of depositing a portion of the Deposit Securities, the creator will be assessed the additional variable charge for cash creations on the "cash in lieu" portion of its investment. Creators of Creation Units are responsible for the costs of transferring the securities constituting the Deposit Securities to the account of the Trust.
REDEMPTION OF CREATION UNITS
Shares may be redeemed only in Creation Units at their net asset value next determined after receipt of a redemption request in proper form by the Distributor and only on a Business Day. THE TRUST WILL NOT REDEEM SHARES IN AMOUNTS LESS THAN CREATION UNITS. Beneficial Owners also may sell Shares in the secondary market, but must accumulate enough Shares to constitute a Creation Unit in order to have such shares redeemed by the Trust. There can be no assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a Creation Unit. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of Shares to constitute a redeemable Creation Unit. See "Investment Considerations and Risks" in the Prospectus.
The Administrator, through NSCC, makes available immediately prior to the opening of business on the Amex (currently 9:30 a.m., Eastern time) on each day that the Amex is open for business, the Fund Securities that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that day. Unless cash redemptions are available or specified for the Fund, the redemption proceeds for a Creation Unit generally consist of Fund Securities as announced by the Administrator on the Business Day of the request for redemption, plus cash in an amount equal to the difference between the net asset value of the shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Securities, less the redemption transaction fee described below. Should the Fund Securities have a value greater than the net asset value of the Shares being redeemed, a compensating cash payment to the Trust equal to the differential plus the applicable redemption fee will be required to be arranged for by or on behalf of the redeeming shareholder.
A redemption transaction fee of $1,000 per Creation transaction is required to be paid to the Custodian. The basic redemption transaction fees are the same no matter how many Creation Units are being redeemed pursuant to any one redemption request. The Fund may adjust these fees from time to time based upon actual experience, but will amend its prospectus and the Form N-1A prior to making any adjustments. Investors who use the services of a broker or other such intermediary may be charged a fee for such services.
PLACEMENT OF REDEMPTION ORDERS USING CLEARING PROCESS
Orders to redeem Creation Units of the Fund through the Clearing Process must be delivered through a Participating Party that has executed the Participant Agreement with the Distributor and with the Trust (as the case may be from time to time amended in accordance with its terms). An order to redeem Creation Units of the Fund using the Clearing Process is deemed received on the Transmittal Date if (i) such order is received by the Distributor not later than 4:00 p.m. (3:00 p.m. for Custom Orders) on such Transmittal Date; and (ii) all other procedures set forth in the Participant Agreement are properly followed; such order will be effected based on the net asset value of the Fund as next determined. An order to redeem Creation Units of the Fund using the Clearing Process made in proper form but received by the Fund after 4:00 p.m. will be deemed received on the next Business Day immediately following the Transmittal Date. The requisite Fund Securities (or contracts to purchase such Fund Securities which are expected to be delivered in a "regular way" manner) will be transferred by the third (3rd) NSCC Business Day following the date on which such request for redemption is deemed received, and the applicable cash payment.
PLACEMENT OF REDEMPTION ORDERS OUTSIDE CLEARING PROCESS
Orders to redeem Creation Units of the Fund outside the Clearing Process must be delivered through a DTC Participant that has executed the Participant Agreement with the Distributor and with the Trust. A DTC Participant who wishes to place an order for redemption of Creation Units of the Fund to be effected outside the Clearing Process need not be a Participating Party, but such orders must state that the DTC Participant is not using the Clearing Process and that redemption of Creation Units of the Fund will instead be effected through transfer of Creation Units of the Fund directly through DTC. An order to redeem Creation Units of the Fund outside the Clearing Process is deemed received by the Administrator on the Transmittal Date if (i) such order is received by the Administrator not later than 4:00 p.m. (3:00 p.m. for Custom Orders) on such Transmittal Date; (ii) such order is preceded or accompanied by the requisite number of shares of Creation Units specified in such order, which delivery must be made through DTC to the Administrator no later than 11:00 a.m. on such Transmittal Date (the "DTC Cut-Off-Time"); and (iii) all other procedures set forth in the Participant Agreement are properly followed.
After the Administrator has deemed an order for redemption outside the Clearing Process received, the Administrator will initiate procedures to transfer the requisite Fund Securities (or contracts to purchase such Fund Securities) which are expected to be delivered within three Business Days and the cash redemption payment to the redeeming Beneficial Owner by the third Business Day following the Transmittal Date on which such redemption order is deemed received by the Administrator. An additional variable redemption transaction fee of up to four times the basic transaction fee is applicable to redemptions outside the Clearing Process.
If it is not possible to effect deliveries of the Fund Securities, the Trust may in its discretion exercise its option to redeem such shares in cash, and the redeeming Beneficial Owner will be required to receive its redemption proceeds in cash. In addition, an investor may request a redemption in cash which the Fund may, in its sole discretion, permit. In either case, the investor will receive a cash payment equal to the net asset value of its shares based on the net asset value of Shares of the Fund next determined after
the redemption request is received in proper form (minus a redemption transaction fee and additional variable charge for requested cash redemptions specified above, to offset the Trust's brokerage and other transaction costs associated with the disposition of portfolio securities). The Fund may also, in its sole discretion, upon request of a shareholder, provide such redeemer a portfolio of securities which differs from the exact composition of the Fund Deposit but does not differ in net asset value.
Redemptions of Shares for Fund Securities will be subject to compliance with applicable United States federal and state securities laws and the Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Fund could not lawfully deliver specific Fund Securities upon redemptions or could not do so without first registering the Deposit Securities under such laws.
The right of redemption may be suspended or the date of payment postponed (1) for any period during which the NYSE is closed (other than customary weekend and holiday closings); (2) for any period during which trading on the NYSE 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 net asset value is not reasonably practicable; or (4) in such other circumstance as is permitted by the SEC.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction with the section in the Prospectus entitled "Shareholder Guide--Determination of Net Asset Value."
Net asset value 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, rounded to the nearest cent. Expenses and fees, including management and administration fees, are accrued daily and taken into account for purposes of determining net asset value. The net asset value of the Fund is determined as of the close of the regular trading session on the NYSE (ordinarily 4:00 p.m., Eastern time) on each day that such exchange is open.
In computing the Fund's net asset value, the Fund's securities holdings are valued based on market quotations. When market quotations are not readily available for a portfolio security a Fund must use the security's fair value as determined in good faith in accordance with the Fund's Fair Value Pricing Procedures which are approved by the Board of Trustees.
DIVIDENDS AND DISTRIBUTIONS
The following information supplements and should be read in conjunction with the section in the Prospectus entitled "Distributions."
GENERAL POLICIES
Dividends from net investment income are declared and paid at least annually by the Fund. Distributions of net realized securities gains, if any, generally are declared and paid once a year, but the Trust may make distributions on a more frequent basis for the Fund to improve Index tracking or to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the 1940 Act. In addition, the Trust may distribute at least annually amounts representing the full dividend yield on the underlying portfolio securities of the Fund, net of expenses of the Fund, as if the Fund owned such underlying portfolio securities for the entire dividend period in which case some portion of each distribution may result in a return of capital for tax purposes for certain shareholders.
Dividends and other distributions on Shares are distributed, as described below, on a pro rata basis to Beneficial Owners of such Shares. Dividend payments are made through DTC Participants and Indirect Participants to Beneficial Owners then of record with proceeds received from the Trust. The Trust makes additional distributions to the minimum extent necessary (i) to distribute the entire annual taxable income of the Trust, plus any net capital gains and (ii) to avoid imposition of the excise tax imposed by Section 4982 of the Internal Revenue Code. Management of the Trust reserves the right to declare special dividends if, in its reasonable discretion, such action is necessary or advisable to preserve the status of the Fund as a regulated investment company ("RIC") or to avoid imposition of income or excise taxes on undistributed income.
DIVIDEND REINVESTMENT SERVICE
Broker-dealers may make available the DTC book-entry Dividend Reinvestment Service for use by Beneficial Owners of the Fund through DTC Participants for reinvestment of their dividend distributions. If this service is used, dividend distributions of both income and realized gains will be automatically reinvested in additional whole Shares of the Fund.
FINANCIAL STATEMENTS
MARKET VECTORS ETF TRUST
MARKET VECTORS--GOLD MINERS ETF
STATEMENT OF ASSETS AND LIABILITIES
APRIL 21, 2006
ASSETS:
Cash ..................................... $100,000
--------
Total assets ........................... 100,000
--------
NET ASSETS ............................... $100,000
========
NET ASSETS:
Paid-in capital .......................... $100,000
--------
NET ASSETS ............................... $100,000
========
Shares outstanding (unlimited
amount authorized, $0.001 par value) ... 25,000
========
Net asset value, offering price,
and redemption price per share ......... $ 40.00
========
|
See notes to statement of assets and liabilities.
MARKET VECTORS ETF TRUST
MARKET VECTORS--GOLD MINERS ETF
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
APRIL 21, 2006
NOTE 1: ORGANIZATION
Market Vectors ETF Trust (the "Trust"), which is registered under the Investment Company Act of 1940, as amended, is an open-end non-diversified management investment company that was organized as a Delaware statutory trust on March 15, 2001. The Trust currently consists of one portfolio, the Market Vectors--Gold Miners ETF (the "Fund"), which represents a separate series of beneficial interest in the Trust. The investment objective of the Fund is to provide investment results that replicate as closely as possible before fees and expenses, the price and yield performance of publicly traded equity securities of gold and silver mining companies, as represented by the Amex Gold Miners Index, a specific market sector index published by the American Stock Exchange.
The Trust has had no operations to date other than matters relating to its organization and registration and the sale of its shares to Van Eck Associates Corporation ("VEAC"), the sole shareholder of the Fund.
NOTE 2: ACCOUNTING POLICIES
The preparation of the financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates.
NOTE 3: FEES AND EXPENSES
VEAC, the Trust's Adviser, has agreed to bear the initial costs of organization of the Trust and does not intend to seek reimbursement from the Trust. VEAC is responsible for determining the composition of the portfolio of securities that must be delivered in exchange for the issuance of Creation Units and for periodically adjusting the composition of each of the portfolios of the Trust to conform to changes in the composition of the index. For these services, VEAC receives an advisory fee at the annual rate of 0.50% of the average daily net assets of the Fund.
NOTE 4: CAPITAL
Shares are created and redeemed by the Trust only in Creation Unit size aggregations of 50,000. Transaction fees are charged to those persons creating or redeeming Creation Units. Such transactions are generally permitted only on an in-kind basis.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees Market Vectors--Gold Miners ETF:
We have audited the accompanying statement of assets and liabilities (the "financial statement") of Market Vectors--Gold Miners ETF (the "Fund") as of April 21, 2006. This financial statement is the responsibility of the Fund's management. Our responsibility is to express an opinion on this financial staement based on our audit.
We conducted our audit in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of Market Vectors--Gold Miners ETF at April 21, 2006, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP New York, New York Dated: April 25, 2006 |
TAXES
The following information also supplements and should be read in conjunction with the section in the Prospectus entitled "United States Tax Matters."
The Fund intends to qualify for and to elect treatment as a separate regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code. To qualify for treatment as an RIC, a company must annually distribute at least 90% of its net investment company taxable income (which includes dividends, interest and net short-term capital gains) and meet several other requirements relating to the nature of its income and the diversification of its assets, among others.
The Fund will be subject to a 4% excise tax on certain undistributed income if it does not distribute to its shareholders in each calendar year at least 98% of its ordinary income for the calendar year plus 98% of its capital gain net income for the twelve months ended October 31 of such year. The Fund intends to declare and distribute dividends and distributions in the amounts and at the times necessary to avoid the application of this 4% excise tax.
As a result of U.S. federal income tax requirements, the Trust on behalf of the Fund, has the right to reject an order for a creation of Shares if the creator (or group of creators) would, upon obtaining the Shares so ordered, own 80% or more of the outstanding Shares of the Fund and if, pursuant to section 351 of the Internal Revenue Code, the Fund would have a basis in the Deposit Securities different from the market value of such securities on the date of deposit. The Trust also has the right to require information necessary to determine beneficial share ownership for purposes of the 80% determination. See "Creation of Creation Units."
Dividends and interest received by a Fund from a non-U.S. investment may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes.
Each Fund will report to shareholders annually the amounts of dividends received from ordinary income, the amount of distributions received from capital gains and the portion of dividends which may qualify for the dividends received deduction. Certain ordinary dividends paid to non-corporate shareholders may qualify for taxation at a lower tax rate applicable to long-term capital gains.
In general, a sale of shares results in capital gain or loss, and for individual shareholders, is taxable at a federal rate dependent upon the length of time the shares were held. A redemption of a shareholder's Fund Shares is normally treated as a sale for tax purposes. Fund Shares held for a period of one year or less at the time of such sale or redemption will, for tax purposes, generally result in short-term capital gains or losses and those held for more than one year will generally result in long-term capital gains or losses. Under current law, the maximum tax rate on long-term capital gains available to non-corporate shareholders generally is 15%. Without future congressional action, the maximum tax rate on long-term capital gains will return to 20% in 2009.
Gain or loss on the sale or redemption of Fund Shares is measured by the difference between the amount received and the adjusted tax basis of the Shares. Shareholders should keep records of investments made (including Shares acquired through reinvestment of dividends and distribution) so they can compute the tax basis of their Shares.
A loss realized on a sale or exchange of Shares of a Fund may be disallowed if other Fund Shares are acquired (whether through the automatic reinvestment of dividends or otherwise) within a sixty-one
(61) day period beginning thirty (30) days before and ending thirty (30) days after the date that the Shares are disposed of. In such a case, the basis of the Shares acquired will be adjusted to reflect the disallowed loss. Any loss upon the sale or exchange of Shares held for six (6) months or less will be treated as long-term capital loss to the extent of any capital gain dividends received by the shareholders.
Distribution of ordinary income and capital gains may also be subject to state and local taxes.
Distributions reinvested in additional Fund Shares through the means of the service (see "DIVIDEND REINVESTMENT SERVICE") will nevertheless be taxable dividends to Beneficial Owners acquiring such additional Shares to the same extent as if such dividends had been received in cash.
Distributions of ordinary income paid to shareholders who are nonresident aliens or foreign entities will be subject to a 30% United States withholding tax unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Nonresident shareholders are urged to consult their own tax advisors concerning the applicability of the U.S. withholding tax. A RIC may, under certain circumstances, designate all or a portion of a dividend as an "interest-related dividend" that if received by a nonresident alien or foreign entity generally would be exempt from the 30% U.S. withholding tax, PROVIDED that certain other requirements are met. A RIC may also, under certain circumstances, designate all or a portion of a dividend as a "short-term capital gain dividend" which if received by a nonresident alien or foreign entity generally would be exempt from the 30% U.S. withholding tax, unless the foreign person is a nonresident alien individual present in the United States for a period or periods aggregating 183 days or more during the taxable year. The provisions contained in the legislation relating to dividends to foreign persons would apply to dividends with respect to taxable years of RICs beginning after December 31, 2004 and before January 1, 2008. Prospective investors are urged to consult their tax advisors regarding the specific tax consequences relating to the proposed legislation.
Some shareholders may be subject to a withholding tax on distributions of ordinary income, capital gains and any cash received on redemption of Creation Units ("backup withholding"). The backup withholding rate for individuals is currently 28%. Generally, shareholders subject to backup withholding will be those for whom no certified taxpayer identification number is on file with the Fund or who, to the Fund's knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such investor is not otherwise subject to backup withholding.
The foregoing discussion is a summary only and is not intended as a substitute for careful tax planning. Purchasers of Shares of the Trust should consult their own tax advisers as to the tax consequences of investing in such shares, including under state, local and other tax laws. Finally, the foregoing discussion is based on applicable provisions of the Internal Revenue Code, regulations, judicial authority and administrative interpretations in effect on the date hereof. Changes in applicable authority could materially affect the conclusions discussed above, and such changes often occur.
REPORTABLE TRANSACTIONS
Under promulgated Treasury regulations, if a shareholder recognizes a loss on disposition of a Fund's Shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a RIC that engaged in a reportable transaction are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all
RICs. In addition, pursuant to recently enacted legislation, significant penalties may be imposed for the failure to comply with the reporting requirements. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Shareholders should consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
CAPITAL STOCK AND SHAREHOLDER REPORTS
The Trust currently is comprised of one investment Fund. The Fund issues shares of beneficial interest, par value $.001 per share. The Board may designate additional Funds.
Each Share issued by the Trust has a pro rata interest in the assets of the corresponding Fund. Shares have no pre-emptive, exchange, subscription or conversion rights and are freely transferable. Each Share is entitled to participate equally in dividends and distributions declared by the Board with respect to the relevant Fund, and in the net distributable assets of such Fund on liquidation.
Each Share has one vote with respect to matters upon which a shareholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated thereunder. Shares of all Funds vote together as a single class except that if the matter being voted on affects only a particular Fund it will be voted on only by that Fund and if a matter affects a particular Fund differently from other Funds, that Fund will vote separately on such matter. Under Delaware law, the Trust is not required to hold an annual meeting of shareholders unless required to do so under the 1940 Act. The policy of the Trust is not to hold an annual meeting of shareholders unless required to do so under the 1940 Act. All Shares of the Trust have noncumulative voting rights for the election of Trustees. Under Delaware law, Trustees of the Trust may be removed by vote of the shareholders.
Under Delaware law, shareholders of a statutory trust may have similar limitation liabilities as shareholders of a corporation.
The Trust will issue through DTC Participants to its shareholders semi-annual reports containing unaudited financial statements and annual reports containing financial statements audited by independent auditors approved by the Trust's Trustees and by the shareholders when meetings are held and such other information as may be required by applicable laws, rules and regulations. Beneficial Owners also receive annually notification as to the tax status of the Trust's distributions.
Shareholder inquiries may be made by writing to the Trust, c/o Van Eck Associates Corporation, 99 Park Avenue, 8th Floor, New York, NY 10016.
COUNSEL AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Clifford Chance US LLP is counsel to the Trust and have passed upon the validity of the Fund's shares.
Ernst & Young LLP serves as the Trust's independent registered public accounting firm.
EXHIBIT A
VAN ECK GLOBAL
PROXY VOTING POLICIES
ADOPTED JULY 30, 2003
AMENDED APRIL 20, 2004
AMENDED APRIL 14, 2005
INTRODUCTION
Effective March 10, 2003, the Securities and Exchange Commission (the "Commission") adopted Rule 206(4)-6 under the Investment Advisers Act of 1940 ("Advisers Act"), requiring each investment adviser registered with the Commission to adopt and implement written policies and procedures for voting client proxies, to disclose information about the procedures to its clients, and to inform clients how to obtain information about how their proxies were voted. The Commission also amended Rule 204-2 under the Advisers Act to require advisers to maintain certain proxy voting records. Both rules apply to all investment advisers registered with the Commission that have proxy voting authority over their clients' securities. An adviser that exercises voting authority without complying with Rule 206(4)-6 will be deemed to have engaged in a "fraudulent, deceptive, or manipulative" act, practice or course of business within the meaning of Section 206(4) of the Advisers Act.
When an adviser has been granted proxy voting authority by a client, the adviser owes its clients the duties of care and loyalty in performing this service on their behalf. The duty of care requires the adviser to monitor corporate actions and vote client proxies. The duty of loyalty requires the adviser to cast the proxy votes in a manner that is consistent with the best interests of the client.
PROXY VOTING POLICIES AND PROCEDURES
RESOLVING MATERIAL CONFLICTS OF INTEREST
o A "MATERIAL CONFLICT" means the existence of a business relationship between a portfolio company or an affiliate and Van Eck Associates Corporation, any affiliate or subsidiary (individually and together, as the context may require, "Adviser"), or an "affiliated person" of a Van Eck mutual fund in excess of $60,000. Examples of when a material conflict exists include the situation where the adviser provides significant investment advisory, brokerage or other services to a company whose management is soliciting proxies; an officer of the Adviser serves on the board of a charitable organization that receives charitable contributions from the portfolio company and the charitable organization is a client of the Adviser; a portfolio company that is a significant selling agent of Van Eck's products and services solicits proxies; a broker-dealer or insurance company that controls 5% or more of the Adviser's assets solicits proxies; the Adviser serves as an investment adviser to the pension or other
investment account of the portfolio company; the Adviser and the portfolio company have a lending relationship. In each of these situations voting against management may cause the Adviser a loss of revenue or other benefit.
o Conflict Resolution. When a material conflict exists proxies will be voted in the following manner:
Where the written guidelines set out a pre-determined voting policy, proxies will be voted in accordance with that policy, with no deviations (if a deviation is advisable, one of the other methods may be used;
Where the guidelines permit discretion and an independent third party has been retained to vote proxies, proxies will be voted in accordance with the predetermined policy based on the recommendations of that party; or
The potential conflict will be disclosed to the client (a) with a request that the client vote the proxy, (b) with a recommendation that the client engage another party to determine how the proxy should be voted or (c) if the foregoing are not acceptable to the client disclosure of how VEAC intends to vote and a written consent to that vote by the client.
Any deviations from the foregoing voting mechanisms must be approved by the Compliance Officer with a written explanation of the reason for the deviation.
REASONABLE RESEARCH EFFORTS
When determining whether a vote is in the best interest of the client, the Adviser will use reasonable research efforts. Investment personnel may rely on public documents about the company and other readily available information, which is easily accessible to the investment personnel at the time the vote is cast. Information on proxies by foreign companies may not be readily available.
VOTING CLIENT PROXIES
o The Adviser generally will vote proxies on behalf of clients, unless clients instruct otherwise. There may be times when refraining from voting a proxy is in a client's best interest, such as when the Adviser determines that the cost of voting the proxy exceeds the expected benefit to the client. (For example, casting a vote on a foreign security may involve additional costs such as hiring a translator or traveling to foreign country to vote the security in person).
o The portfolio manager or analyst covering the security is responsible for making voting decisions.
o Portfolio Administration, in conjunction with the portfolio manager and the custodian, is responsible for monitoring corporate actions and ensuring that corporate actions are timely voted.
o For the Hedge Funds, Investment Management Operations, in conjunction with the portfolio manager and custodian, monitors corporate actions and ensures that corporate actions are timely voted.
CLIENT INQUIRIES
All inquiries by clients as to how Van Eck has voted proxies must immediately be forwarded to the Proxy Administrator.
DISCLOSURE TO CLIENTS
o Notification of Availability of Information
Client Brochure.
The Client Brochure or Part II of Form ADV will inform clients that they can obtain information from VEAC on how their proxies were voted. The Client Brochure or Part II of Form ADV will be mailed to each client annually. The Legal Department will be responsible for coordinating the mailing with Sales/Marketing Departments.
o Availability of Proxy Voting Information
At the client's request or if the information is not available on VEAC's website, a hard copy of the account's proxy votes will be mailed to each client.
RECORDKEEPING REQUIREMENTS
o VEAC will retain the following documentation and information for each matter relating to a portfolio security with respect to which a client was entitled to vote:
- proxy statements received;
- identifying number for the portfolio security;
- shareholder meeting date;
- brief identification of the matter voted on;
- whether the vote was cast on the matter and how the vote was cast;
- how the vote was cast (e.g., for or against proposal, or abstain; for or withhold regarding election of directors);
- records of written client requests for information on how VEAC voted proxies on behalf of the client;
- a copy of written responses from VEAC to any written or oral client request for information on how VEAC voted proxies on behalf of the client; and
- any documents prepared by VEAC that were material to the decision on how to vote or that memorialized the basis for the decision, if such documents were prepared.
o Copies of proxy statements filed on EDGAR, and proxy statements and records of proxy votes maintained with a third party (i.e., proxy voting service) need not be maintained. The third party must agree in writing to provide a copy of the documents promptly upon request.
o If applicable, any document memorializing that the costs of voting a proxy exceed the benefit to the client or any other decision to refrain from voting, and that such abstention was in the client's best interest.
o Proxy voting records will be maintained in an easily accessible place for five years, the first two at the office of VEAC. Proxy statements on file with EDGAR or maintained by a third party and proxy votes maintained by a third party are not subject to these particular retention requirements.
PROXY VOTING GUIDELINES
I. GENERAL INFORMATION
Generally, the Adviser will vote in accordance with the following guidelines. Where the proxy vote decision maker determines, however, that voting in such a manner would not be in the best interest of the client, the investment personnel will vote differently.
If there is a conflict of interest on any management or shareholder proposals that are voted on a case by case basis, we will follow the recommendations of an independent proxy service provider.
II. OFFICERS AND DIRECTORS
A. THE BOARD OF DIRECTORS
Director Nominees in Uncontested Elections
Vote on a case-by-case basis for director nominees, examining factors such as:
o long-term corporate performance record relative to a market index;
o composition of board and key board committees;
o nominee's investment in the company;
o whether a retired CEO sits on the board; and
o whether the chairman is also serving as CEO.
In cases of significant votes and when information is readily available, we also review:
o corporate governance provisions and takeover activity;
o board decisions regarding executive pay;
o director compensation;
o number of other board seats held by nominee; and
o interlocking directorships.
B. CHAIRMAN AND CEO ARE THE SAME PERSON
Vote on a case-by-case basis on shareholder proposals that would require the positions of chairman and CEO to be held by different persons.
C. MAJORITY OF INDEPENDENT DIRECTORS
Vote on a case-by-case basis shareholder proposals that request that the board be comprised of a majority of independent directors.
Vote for shareholder proposals that request that the board audit, compensation and/or nominating committees include independent directors exclusively.
D. STOCK OWNERSHIP REQUIREMENTS
Vote on a case-by-case basis shareholder proposals requiring directors to own a minimum amount of company stock in order to qualify as a director, or to remain on the board.
E. TERM OF OFFICE
Vote on a case-by-case basis shareholder proposals to limit the tenure of outside directors.
F. DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION
Vote on a case-by-case basis proposals concerning director and officer indemnification and liability protection.
Generally, vote against proposals to eliminate entirely director and officer liability for monetary damages for violating the duty of care.
Vote for only those proposals that provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (1) the director was found to have acted in good faith and in a manner that he reasonably believed was in the best interests of the company, AND (2) only if the director's legal expenses would be covered.
G. DIRECTOR NOMINEES IN CONTESTED ELECTIONS
Vote on a case-by-case basis when the election of directors is contested, examining the following factors:
o long-term financial performance of the target company relative to its industry;
o management's track record;
o background to the proxy contest;
o qualifications of director nominees (both slates);
o evaluation of what each side is offering shareholders, as well as the likelihood that the proposed objectives and goals can be met; and
o stock ownership positions.
H. BOARD STRUCTURE: STAGGERED VS. ANNUAL ELECTIONS
Generally, vote against proposals to stagger board elections.
Generally, vote for proposals to repeal classified boards and to elect all directors annually.
I. SHAREHOLDER ABILITY TO REMOVE DIRECTORS
Vote against proposals that provide that directors may be removed only for cause.
Vote for proposals to restore shareholder ability to remove directors with or without cause.
Vote against proposals that provide that only continuing directors may elect replacements to fill board vacancies.
Vote for proposals that permit shareholders to elect directors to fill board vacancies.
J. SHAREHOLDER ABILITY TO ALTER THE SIZE OF THE BOARD
Vote for proposals that seek to fix the size of the board.
Vote against proposals that give management the ability to alter the size of the board without shareholder approval.
III. PROXY CONTESTS
A. REIMBURSE PROXY SOLICITATION EXPENSES
Vote on a case-by-case basis proposals to provide full reimbursement for dissidents waging a proxy contest.
IV. AUDITORS
A. RATIFYING AUDITORS
Vote for proposals to ratify auditors, unless information that is readily available to the vote decision-maker demonstrates that an auditor has a financial interest in or association with the company, and is therefore clearly not independent.; or such readily available information creates a reasonable basis to believe that the independent auditor has rendered an opinion which is neither accurate nor indicative of the company's financial position.
Vote for shareholder proposals asking for audit firm rotation unless the rotation period is so short (less than five years) that it would be unduly burdensome to the company.
V. SHAREHOLDER VOTING AND CONTROL ISSUES
A. CUMULATIVE VOTING
Generally, vote against proposals to eliminate cumulative voting.
Generally, vote for proposals to permit cumulative voting.
B. SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS
Generally, vote against proposals to restrict or prohibit shareholder ability to call special meetings.
Generally, vote for proposals that remove restrictions on the right of shareholders to act independently of management.
C. SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT
Generally, vote against proposals to restrict or prohibit shareholder ability to take action by written consent.
Generally, vote for proposals to allow or make easier shareholder action by written consent.
D. POISON PILLS
Vote for shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
Vote on a case-by-case basis shareholder proposals to redeem a company's poison pill.
Vote on a case-by-case basis management proposals to ratify a poison pill.
E. FAIR PRICE PROVISION
Vote on a case-by-case basis when examining fair price proposals, (where market quotations are not readily available) taking into consideration whether the shareholder vote requirement embedded in the provision is no more than a majority of disinterested shares.
Generally, vote for shareholder proposals to lower the shareholder vote requirement in existing fair price provisions.
F. GREENMAIL
Generally, vote for proposals to adopt anti-greenmail charter or bylaw amendments or otherwise restrict a company's ability to make greenmail payments.
Generally, vote on a case-by-case basis anti-greenmail proposals when they are bundled with other charter or bylaw amendments.
H. UNEQUAL VOTING RIGHTS
Vote against dual class exchange offers.
Vote against dual class recapitalizations
I. SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO AMEND THE CHARTER OR BYLAWS
Vote against management proposals to require a supermajority shareholder vote to approve charter and bylaw amendments.
Vote for shareholder proposals to lower supermajority shareholder vote requirements for charter and bylaw amendments.
J. SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO APPROVE MERGERS
Vote against management proposals to require a supermajority shareholder vote to approve mergers and other significant business combinations.
K. WHITE KNIGHT PLACEMENTS
Vote for shareholder proposals to require approval of blank check preferred stock issues for other than general corporate purposes or similar corporate actions.
L. CONFIDENTIAL VOTING
Generally, vote for shareholder proposals that request corporations to adopt confidential voting, use independent tabulators and use independent inspectors of election as long as the proposals include clauses for proxy contests as follows: In the case of a contested election, management is permitted to request that the dissident group honor its confidential voting policy. If the dissidents agree, the policy remains in place. If the dissidents do not agree, the confidential voting policy is waived.
Generally, vote for management proposals to adopt confidential voting.
M. EQUAL ACCESS
Generally, vote for shareholders proposals that would allow significant company shareholders equal access to management's proxy material in order to evaluate and propose voting recommendations on proxy proposals and director nominees, and in order to nominate their own candidates to the board.
N. BUNDLED PROPOSALS
Generally, vote on a case-by-case basis bundled or "conditioned" proxy proposals. In the case of items that are conditioned upon each other, we examine the benefits and costs of the packaged items. In instances when the joint effect of the conditioned items is not in shareholders' best interests, we vote against the proposals. If the combined effect is positive, we support such proposals.
O. SHAREHOLDER ADVISORY COMMITTEES
Vote on a case-by-case basis proposals to establish a shareholder advisory committee.
VI. CAPITAL STRUCTURE
A. COMMON STOCK AUTHORIZATION
Vote on a case-by-case basis proposals to increase the number of shares of common stock authorized for issue.
Generally, vote against proposed common stock authorizations that increase the existing authorization by more than 100% unless a clear need for the excess shares is presented by the company.
B. STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS
Generally, vote for management proposals to increase common share authorization for a stock split, provided that the split does not result in an increase of authorized but unissued shares of more than 100% after giving effect to the shares needed for the split.
C. REVERSE STOCK SPLITS
Generally, vote for management proposals to implement a reverse stock split, provided that the reverse split does not result in an increase of authorized but unissued shares of more than 100% after giving effect to the shares needed for the reverse split.
D. BLANK CHECK PREFERRED AUTHORIZATION
Generally, vote for proposals to create blank check preferred stock in cases when the company expressly states that the stock will not be used as a takeover defense or carry superior voting rights.
Vote on a case-by-case basis proposals that would authorize the creation of new classes of preferred stock with unspecified voting, conversion, dividend and distribution, and other rights.
Vote on a case-by-case basis proposals to increase the number of authorized blank check preferred shares.
E. SHAREHOLDER PROPOSALS REGARDING BLANK CHECK PREFERRED STOCK
Generally, vote for shareholder proposals to have blank check preferred stock placements, other than those shares issued for the purpose of raising capital or making acquisitions in the normal course of business, submitted for shareholder ratification.
F. ADJUST PAR VALUE OF COMMON STOCK
Vote on a case-by-case basis management proposals to reduce the par value of common stock.
G. PREEMPTIVE RIGHTS
Vote on a case-by-case basis proposals to create or abolish preemptive rights. In evaluating proposals on preemptive rights, we look at the size of a company and the characteristics of its shareholder base.
H. DEBT RESTRUCTURINGS
Vote on a case-by-case basis proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan. We consider the following issues:
o DILUTION - How much will ownership interest of existing shareholders be reduced, and how extreme will dilution to any future earnings be?
o CHANGE IN CONTROL - Will the transaction result in a change in control of the company?
o BANKRUPTCY - Is the threat of bankruptcy, which would result in severe losses in shareholder value, the main factor driving the debt restructuring?
Generally, we approve proposals that facilitate debt restructurings unless there are clear signs of self-dealing or other abuses.
I. SHARE REPURCHASE PROGRAMS
Vote for management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms.
VII. EXECUTIVE COMPENSATION
In general, we vote on a case-by-case basis on executive compensation plans, with the view that viable compensation programs reward the creation of stockholder wealth by having a high payout sensitivity to increases in shareholder value.
VIII. COMPENSATION PROPOSALS
A. AMENDMENTS THAT PLACE A CAP ON ANNUAL GRANTS
Vote for plans that place a cap on the annual grants any one participant may receive.
B. AMEND ADMINISTRATIVE FEATURES
Vote for plans that simply amend shareholder-approved plans to include administrative features.
C. AMENDMENTS TO ADDED PERFORMANCE-BASED GOALS
Generally, vote for amendments to add performance goals to existing compensation plans.
D. AMENDMENTS TO INCREASE SHARES AND RETAIN TAX DEDUCTIONS
Vote on amendments to existing plans to increase shares reserved and to qualify the plan for favorable tax treatment should be evaluated on a case-by-case basis.
E. APPROVAL OF CASH OR CASH-AND-STOCK BONUS PLANS
Vote for cash or cash-and-stock bonus plans to exempt the compensation from taxes.
F. SHAREHOLDER PROPOSALS TO LIMIT EXECUTIVE PAY
Vote on a case-by-case basis all shareholder proposals that seek additional disclosure of executive pay information.
Vote on a case-by-case basis all other shareholder proposals that seek to limit executive pay.
Vote for shareholder proposals to expense options, unless the company has already publicly committed to expensing options by a specific date.
G. GOLDEN AND TIN PARACHUTES
Vote for shareholder proposals to have golden and tin parachutes submitted for shareholder ratification.
Vote on a case-by-case basis all proposals to ratify or cancel golden or tin parachutes.
H. EMPLOYEE STOCK OWNERSHIP PLANS (ESOPs)
Vote on a case-by-case basis proposals that request shareholder approval in order to implement an ESOP or to increase authorized shares for existing ESOPs, except in
cases when the number of shares allocated to the ESOP is "excessive" (i.e. , generally greater than 5 % of outstanding shares).
I. 401(k) EMPLOYEE BENEFIT PLANS
Generally, vote for proposals to implement a 401(k) savings plan for employees.
IX. STATE OF INCORPORATION
A. VOTING ON STATE TAKEOVER STATUTES
Vote on a case-by-case basis proposals to opt in or out of state takeover statutes (including control share acquisition statutes, control share cash-out statutes, freezeout provisions, fair price provisions, stakeholder laws, poison pill endorsements, severance pay and labor contract provisions, anti-greenmail provisions, and disgorgement provisions).
B. VOTING ON REINCORPORATION PROPOSALS
Vote on a case-by-case basis proposals to change a company's state of incorporation.
X. MERGERS AND CORPORATE RESTRUCTURINGS
A. MERGERS AND ACQUISITIONS
Vote on a case-by-case basis proposals related to mergers and acquisitions, taking into account at least the following:
o anticipated financial and operating benefits;
o offer price (cost vs. premium);
o prospects of the combined companies;
o how the deal was negotiated; and
o changes in corporate governance and their impact on shareholder rights.
B. CORPORATE RESTRUCTURING
Vote on a case-by-case basis proposals related to a corporate restructuring, including minority squeezeouts, leveraged buyouts, spin-offs, liquidations and asset sales.
C. SPIN-OFFS
Vote on a case-by-case basis proposals related to spin-offs depending on the tax and regulatory advantages, planned use of sale proceeds, market focus, and managerial incentives.
D. ASSET SALES
Vote on a case-by-case basis proposals related to asset sales after considering the impact on the balance sheet/working capital, value received for the asset, and potential elimination of diseconomies.
E. LIQUIDATIONS
Vote on a case-by-case basis proposals related to liquidations after reviewing management's efforts to pursue other alternatives, appraisal value of assets, and the compensation plan for executives managing the liquidation.
F. APPRAISAL RIGHTS
Vote for proposals to restore, or provide shareholders with, rights of appraisal.
G. CHANGING CORPORATE NAME
Vote on a case-by-case basis proposal to change the corporate name.
XI. MUTUAL FUND PROXIES
A. ELECTION OF TRUSTEES
Vote on trustee nominees on a case-by-case basis.
B. INVESTMENT ADVISORY AGREEMENT
Vote on investment advisory agreements on a case-by-case basis.
C. FUNDAMENTAL INVESTMENT RESTRICTIONS
Vote on amendments to a fund's fundamental investment restrictions on a case-by-case basis.
D. DISTRIBUTION AGREEMENTS
Vote on distribution agreements on a case-by-case basis.
XII. SOCIAL AND ENVIRONMENTAL ISSUES
In general we vote on a case-by-case basis on shareholder social and environmental proposals, on the basis that their impact on share value can rarely be anticipated with any high degree of confidence.
In most cases, however, we vote for disclosure reports that seek additional information, particularly when it appears companies have not adequately addressed shareholders' social and environmental concerns.
In determining our vote on shareholder social and environmental proposals, we analyze factors such as:
o whether adoption of the proposal would have either a positive or negative impact on the company's short-term or long-term share value;
o the percentage of sales, assets and earnings affected;
o the degree to which the company's stated position on the issues could affect its reputation or sales, or leave it vulnerable to boycott or selective purchasing; whether the issues presented should be dealt with through government or company - specific action;
o whether the company has already responded in some appropriate manner to the request embodied in a proposal;
o whether the company's analysis and voting recommendation to shareholders is persuasive;
o what other companies have done in response to the issue;
o whether the proposal itself is well framed and reasonable; whether implementation of the proposal would achieve the objectives sought in the proposal; and
o whether the subject of the proposal is best left to the discretion of the board.
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS:
(a) Agreement and Declaration of Trust.*
(b) Bylaws of the Trust.*
(c) Not applicable.
(d) Form of Investment Management Agreement between the Trust and Van Eck Associates Corporation.*
(e)(1) Form of Distribution Agreement between the Trust and Van Eck Securities Corporation.**
(e)(2) Form of Participant Agreement.*
(f) Not applicable.
(g) Form of Custodian Agreement between the Trust and The Bank of New York.*
(h)(1) Form of Fund Accounting Agreement between the Trust and The Bank of New York.*
(h)(2) Form of Transfer Agency Services Agreement between the Trust and The Bank of New York.*
(h)(3) Form of Sub-License Agreement between the Trust and the Van Eck Associates Corp.*
(i) Opinion and consent of Clifford Chance US LLP.**
(j) Consent of Ernst & Young LLP, independent registered public accounting firm.**
(k) Not applicable.
(l) Not applicable.
(m) Not applicable.
(n) Not applicable.
(o) Not applicable
(p)(1) Code of Ethics.*
* Incorporated by reference to the Registrant's Registration Statement filed on April 28, 2006.
** Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Immediately prior to the contemplated public offering of the Trust Shares, the following persons may be deemed individually to control the Fund or the Trust:
Van Eck Associates Corporation and Goldman, Sachs & Co. will be the only shareholders immediately prior to the contemplated public offering of the Trust.
ITEM 25. INDEMNIFICATION
Pursuant to Section 10.2 of the Amended and Restated Declaration of Trust, all persons that are or have been a Trustee or officer of the Trust (collectively, the "Covered Persons") shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit, or proceeding in which he or she becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer and against amounts paid or incurred by him in the settlement thereof. No indemnification will be provided to a Covered Person who shall have been adjudicated by a court or body before which the proceeding was brought to be liable to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office or not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust; or in the event of a settlement, unless there has been a determination that such Trustee or officer did not engage in willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office.
Article XII of the Trust's Bylaws, to the maximum extent permitted by
Delaware law in effect from time to time, the Trust shall indemnify and, without
requiring a preliminary determination of the ultimate entitlement to
indemnification, shall pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any individual who is a present or former
trustee or officer of the Trust and who is made a party to the proceeding by
reason of his or her service in that capacity or (b) any individual who, while a
director of the Trust and at the request of the Trust, serves or has served as a
trustee, officer, partner or trustee of another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made a party to the proceeding by reason of his or
her service in that capacity. The Trust may, with the approval of its Board of
Trustees, provide such indemnification and advance for expenses to a person who
served a predecessor of the Trust in any of the capacities described in (a) or
(b) above and to any employee or agent of the Trust or a predecessor of the
Trust; provided that no provision of Article XII shall be effective to protect
or purport to protect any trustee or officer of the Trust against liability to
the Trust or its stockholders to which he or she would otherwise be subject by
reason of willfulness misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER
See "Management" in the Statement of Additional Information. Information as to the directors and officers of the Adviser is included in its Form ADV filed with the SEC and is incorporated herein by reference thereto.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Van Eck Securities Corporation is the Trust's principal underwriter. Van Eck Securities Corporation also acts as a principal underwriter, depositor, or investment manager for the following other investment companies: Van Eck Funds (which is comprised of three
series: Emerging Markets Fund, Global Hard Assets Fund and International Investors Gold Fund); Worldwide Insurance Trust (which is comprised of five series: Worldwide Absolute Return Fund, Worldwide Bond Fund, Worldwide Emerging Markets Fund, Worldwide Hard Assets Fund and Worldwide Real Estate Fund); and Van Eck Funds, Inc. (which has one series Mid Cap Value Fund).
(b) The following is a list of the executive officers, directors and partners of Van Eck Securities Corporation:
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH UNDERWRITER ----------------------- -------------------------------------- Keith J. Carlson President 99 Park Avenue New York, NY 10016 David Jonas Senior Vice President 99 Park Avenue New York, NY 10016 Susan Lashey Vice President 99 Park Avenue New York, NY 10016 Joseph McBrien Senior Vice President, General 99 Park Avenue Counsel and Secretary New York, NY 10016 Peter Moeller Senior Vice President 99 Park Avenue New York, NY 10016 Bruce J. Smith Senior Vice President, Chief 99 Park Avenue Financial Officer, Treasurer and New York, NY 10016 Controller Jan F. van Eck Director, Executive Vice President 99 Park Avenue and Chief Compliance Officer New York, NY 10016 Derek S. van Eck Director and Executive Vice President 99 Park Avenue New York, NY 10016 |
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder will be maintained at the
offices of The Bank of New York, 101 Barclay Street, New York, New York 10286.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York on the 5th day of May 2006.
MARKET VECTORS ETF TRUST
By: /s/ KEITH J. CARLSON
------------------------------------
Keith J. Carlson
President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following person in the capacities and on the date indicated.
SIGNATURE TITLE DATE
-------------------------- ---------------------------- ------------------------
/s/ Phil DeFeo Chairman May 5, 2006
------------------------
Phil DeFeo
/s/ David H. Chow Trustee May 5, 2006
------------------------
David H. Chow
R. Alastair Short Trustee May 5, 2006
------------------------
R. Alastair Short
/s/ Richard D. Stamberger Trustee May 5, 2006
------------------------
Richard D. Stamberger
/s/ Jan F. van Eck Trustee May 5, 2006
------------------------
Jan F. van Eck
/s/ Keith J. Carlson President and Chief May 5, 2006
------------------------ Executive Officer
Keith J. Carlson
/s/ Bruce J. Smith Chief Financial Officer May 5, 2006
------------------------
Bruce J. Smith
|
EXHIBIT INDEX
(a) Agreement and Declaration of Trust.*
(b) Bylaws of the Trust.*
(c) Not applicable.
(d) Form of Investment Management Agreement between the Trust and Van Eck Associates Corporation.*
(e)(1) Form of Distribution Agreement between the Trust and Van Eck Securities Corporation.**
(e)(2) Form of Participant Agreement.*
(f) Not applicable.
(g) Form of Custodian Agreement between the Trust and The Bank of New York.*
(h)(1) Form of Fund Accounting Agreement between the Trust and The Bank of New York.*
(h)(2) Form of Transfer Agency Services Agreement between the Trust and The Bank of New York.*
(h)(3) Form of Sub-License Agreement between the Trust and the Van Eck Associates Corp.*
(i) Opinion and consent of Clifford Chance US LLP.**
(j) Consent of Ernst & Young LLP, independent registered public accounting firm.**
(k) Not applicable.
(l) Not applicable.
(m) Not applicable.
(n) Not applicable.
(o) Not applicable
(p)(1) Code of Ethics.*
* Incorporated by reference to the Registrant's Registration Statement filed on April 28, 2006. ** Filed herewith.
Exhibit 99(e)(1)
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT (the "Agreement") made as of May ___, 2006, by and among Van Eck Securities Corporation, a Delaware corporation (the "Distributor"), Market Vectors ETF Trust, a Delaware statutory trust (the "Trust") organized under the laws of the State of Delaware, and The Bank of New York as custodian of the Trust (the "Custodian" and "Transfer Agent").
WITNESSETH
WHEREAS, the Trust is governed by an Agreement and Declaration of Trust (the "Trust Agreement") pursuant to which there will be created units of beneficial ownership, in one or more series, which will represent a proportionate interest in the Trust's investment portfolio: currently only the Market Vectors--Gold Miners ETF (the "Fund" and the "Shares," respectively).
WHEREAS, the Trust has filed with the Securities and Exchange SEC (the "SEC") a registration statement on Form N-1A, as amended (Registration No. 811-10325), under the Investment Company Act of 1940, as amended (the "1940 Act"), and the Securities Act of 1933, as amended (the "1933 Act"), the forms of which have heretofore been delivered to the Distributor; and
WHEREAS, the Trust will create and redeem the Shares only in aggregations constituting a Creation Unit, as such term is used in the Registration Statement (as defined herein), in accordance with the terms and conditions set forth therein; and
WHEREAS, the Distributor is a registered broker-dealer under the Securities Exchange Act of 1934, as amended (the "1934 Act"); and
WHEREAS, the Trust desires to retain the Distributor to act as distributor with respect to the creation and distribution of Shares in Creation Unit size aggregations as set forth in the Trust's Registration Statement, to hold itself available to receive and process orders for Shares in the manner set forth in the Trust's then-current prospectus and to enter into arrangements with dealers; and
WHEREAS, the Distributor desires to render these services to the Trust;
NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement,the Trust and the Distributor hereby agree as follows:
SECTION 1
DISTRIBUTION AND BENEFICIAL OWNERS
1.1. APPOINTMENT. The Trust hereby appoints the Distributor as the exclusive distributor for Shares in Creation Unit size aggregations on the terms and for the periods set forth in this Agreement, and the Distributor hereby accepts such appointment and agrees to act in such capacity hereunder.
1.2. DEFINITIONS.
(a) The term "Registration Statement" shall mean the registration statement most recently filed from time to time by the Trust with the SEC and effective under the 1933 Act and the 1940 Act, as such registration statement is amended by any amendments thereto at the time in effect.
(b) The term "Prospectus" shall mean the prospectus included as part of the Trust's Registration Statement, as such prospectus may be amended or supplemented from time to time.
(c) The term "DTC" shall mean The Depository Trust Company, New York, New York.
(d) All capitalized terms used but not defined in this Agreement shall have the meanings ascribed to such terms in the Registration Statement.
1.3. DISTRIBUTOR'S DUTIES. The Distributor shall have the following duties:
(a) The Distributor agrees, as agent for the Trust, that all orders whether through or outside the Clearing Process to create Shares in Creation Unit size aggregations must be placed with the Distributor, and it is the responsibility of the Distributor to transmit and process such orders either through or outside the Clearing Process and deliver them to the Trust, as described in the Registration Statement and in accordance with the provisions thereof.
(b) The right granted to the Distributor to receive all orders to create Shares in Creation Unit size aggregations and to transmit such orders to the Custodian and Transfer Agent for the Fund shall be exclusive, and no other principal underwriter or distributor shall be granted such right; provided, however, that nothing herein shall affect or limit the right and ability of the Custodian to accept Portfolio Deposits and related Cash Components (each as defined in the Prospectus) through or outside of
the Clearing Process, and as provided in and in accordance with the then-current prospectus. The exclusive right to place creation orders for Shares granted to the Distributor may be waived by the Distributor by notice to the Trust and the Custodian in writing, either unconditionally or subject to such conditions and limitations as may be set forth in such notice to the Trust and the Custodian. The Trust hereby acknowledges that the Distributor may render principal underwriting, distribution and other services to other parties, including other exchange-traded funds.
(c) At the request of the Trust, the Distributor shall enter into Participant Agreements, in the form attached hereto as Exhibit A, between and among Participating Parties, the Distributor, the Transfer Agent and the Trust, in accordance with the provisions of the Registration Statement and current Prospectus. The Distributor shall make available for inspection during normal business hours at its offices at 99 Park Avenue, New York, NY 10016, a list of the Participating Parties who have entered into Participant Agreements with the Distributor and the Trust.
(d) The Distributor shall (i) generate and transmit confirmations of Creation Unit purchase order acceptances to the purchaser, (ii) deliver copies of the current Prospectus, included in the Registration Statement, to purchasers of such Creation Units and upon request the current Statement of Additional Information and (iii) maintain telephonic, facsimile and/or access to direct computer communications links with the Transfer Agent.
(e) The Distributor shall provide toll-free lines, by way of the American Stock Exchange Index Share Product Hotline (1-800-THE-AMEX) for direct investor and shareholder use between the hours of 9:00 a.m. and 8:00 p.m. Eastern standard time on each day the New York Stock Exchange is open for business, with appropriate National Association of Securities Dealers, Inc. ("NASD") licensed order taking and distribution services staff.
(f) Except as otherwise noted in the Registration Statement and current Prospectus, the offering price for all Creation Units sold to investors by the Distributor will be the net asset value per Creation Unit calculated in the manner described in the Registration Statement and current Prospectus.
(g) In performing its duties hereunder, the Distributor shall act in conformity with the Trust Agreement, Registration Statement and the then-current Prospectus relating to Shares and the Trust, and in conformity with the instructions and directions of Van Eck Associates Corporation (the "Adviser") and the Board of Trustees (as defined in the Registration Statement) of the Trust, and will comply with and conform in all material respects to the requirements of the 1933 Act, the 1934 Act and the 1940 Act and all other applicable federal and state laws, regulations and rulings, and the rules and regulations of the American Stock Exchange (the "Amex") and the NASD.
(h) The Distributor shall not be obligated to accept any certain number of orders for Creation Unit size aggregations of Shares; provided, however, that the Distributor shall accept all orders submitted in proper form; except, the Distributor shall not accept orders for Creation Units if the Adviser advises that it is in the best interests of the Fund to suspend issuance of Creation Units. Nothing herein contained shall prevent the Distributor from entering into like distribution arrangements with other investment companies.
(i) The Distributor shall review all sales and marketing materials for compliance with applicable laws and the conditions of any applicable exemptive order, clear and file all advertising, sales, marketing and promotional materials of the Trust provided to the Distributor, or in the preparation of which it has participated, with the NASD as required by the 1933 Act and the 1940 Act, and the rules promulgated thereunder, and by the rules of the NASD. The Distributor is not authorized to give any information or to make any representations other than those contained in the Registration Statement or current Prospectus, as amended from time to time, or contained in reports to Beneficial Owners or other materials that may be prepared on behalf of the Trust for the Distributor.
(j) The Distributor shall consult with the Adviser and the Trust with respect to the production and printing of Prospectuses to be used in connection with creations by creators of Creation Unit size aggregations of Shares. The Distributor shall instruct broker-dealers that a Prospectus or a Product Description, as applicable, must be distributed in accordance with all rules and regulations made
or adopted pursuant to the 1933 Act and the 1940 Act by the Commission or any national securities exchange or securities association registered under the 1934 Act, including the NASD and the Amex.
(k) In performing its duties hereunder the Distributor shall be entitled to rely on and shall not be responsible in any way for information provided to it by the Board of Trustees, the Adviser, the Custodian or the Trust and their respective service providers and shall not be liable or responsible for the errors and omissions of such service providers, provided that the foregoing shall not be construed to protect the Distributor against any liability to the Board of Trustees, the Adviser, the Trust or the Trust's Beneficial Owners to which the Distributor would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement.
(l) The Distributor has as of the date hereof, and shall at all times have and maintain, net capital of not less than that required by Rule 15c3-1 of the 1934 Act, or any successor provision thereto. In the event that the net capital of the Distributor shall fall below that required by Rule 15c3-1, or any successor provision thereto, the Distributor shall promptly provide notice to the Trust and the Adviser of such event.
1.4. THE TRUST'S DUTIES. The Trust shall have the following duties:
(a) The Trust agrees to issue Creation Unit size aggregations of Shares, subject to paragraph (e) of this Section 1.4, and to request DTC to record on its books the ownership of such Shares in accordance with the book-entry system procedures described in the Prospectus in such amounts as the Distributor has requested in writing or other means of data transmission, as promptly as practicable after receipt by the Custodian on behalf of the Trust of the requisite Portfolio Deposit and Cash Component, if any (together with any fees), for such creations and acceptance by the Custodian or by the Distributor on behalf of the Trust of a creation order for such Shares, upon the terms described in the Registration Statement.
(b) The Trust shall furnish to the Distributor copies of all information, financial statements and other papers which the Distributor may reasonably request for use in connection with the
distribution of Creation Units. The Trust and the Adviser shall make available to the Distributor such number of copies of the current Prospectus as the Distributor may reasonably request. The Trust and the Adviser authorize the Distributor to use the Prospectus, but the Trust and the Adviser shall not be responsible in any way for any information, statements or representations given or made by the Distributor or its representatives or agents other than such information, statements or representations as are contained in the Prospectus or financial reports filed on behalf of the Trust or in any sales literature or advertisements specifically approved by the Trust and the Adviser in writing.
(c) The Trust agrees that it will take all necessary action to register an indefinite number of Shares under the 1933 Act. The Trust shall take, from time to time, such steps, including payment of the related filing fees, as may be necessary to register Shares under the 1933 Act and the Trust under the 1940 Act to the end that all Creation Unit size aggregations of Shares will be properly registered under the 1933 Act and the 1940 Act. The Trust agrees to file from time to time such amendments, reports and other documents as may be necessary in order that there may be in the Registration Statement or Prospectus no (i) untrue statement of a material fact or (ii) omission to state a material fact necessary in order to make the statements therein, in the case of the Prospectus, in light of the circumstances in which made, not misleading. The Distributor shall furnish such information and other material relating to its affairs and activities as may be required by the Trust for inclusion in the Registration Statement or Prospectus.
(d) The Trust shall keep the Distributor informed of the states and other foreign and domestic jurisdictions in which the Trust has effected notice filings of Shares for sale under the securities laws thereof. The Distributor shall furnish such information and other material relating to its affairs and activities as may be required by the Trust in connection with such filings.
(e) In accordance with the provisions of the then-current Prospectus, the Trust may reject any creation order for Creation Unit size aggregations of Shares or stop all receipts of creation orders for Shares at any time or from time to time upon reasonable notice to the Distributor.
(f) The Trust shall notify the Distributor promptly of:
1. any amendments to the Trust's Registration Statement or Prospectus;
2. any inquiries by the SEC regarding additional information or of any stop order suspending the effectiveness of the Trust's Registration Statement or the initiation of any proceeding for that purpose; and
3. all significant actions of the SEC having a material impact with respect to any amendment to the Trust's Registration Statement or Prospectus.
1.5. REPRESENTATIONS.
(a) The Distributor represents and warrants to the Trust that (i) it is duly organized as a Delaware corporation and is and at all times will remain duly authorized and licensed to carry out its services as contemplated herein; (ii) the execution, delivery and performance of this Agreement are within its power and have been duly authorized by all necessary action; (iii) its entering into this Agreement or providing the services contemplated hereby does not conflict with or constitute a default or require a consent under or breach of any provision of any agreement or document to which the Distributor is a party or by which it is bound, including, but not limited to, any Members Agreement with the Amex (except for any consent in writing which shall have been obtained by the date hereof); (iv) it has in place compliance policies and procedures reasonably designed to assure compliance with the Federal Securities Laws as that term is defined in Rule 38a-1 under the 1940 Act; (v) it understands that pursuant to various U.S. regulations, it is required to establish an anti-money laundering program, which satisfies the requirements of Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001; (vi) it has developed, implemented, and will maintain such an anti-money laundering program and will comply with all applicable laws and regulations designed to guard against money laundering activities set out in such program; (vii) it will allow for appropriate regulators to examine its anti-money laundering books and records; and (viii) it has procedures in place reasonably designed to protect the privacy of non-public personal consumer/customer financial information to the extent required by applicable law, rule and regulation.
(b) The Trust represents and warrants to the Distributor that (i) the Registration Statement and the Prospectus have been prepared in conformity in all material respects with the 1933 Act,
the 1940 Act and the rules and regulations of the SEC (the "Rules and Regulations"); (ii) the Registration Statement and Prospectus contain all statements required to be stated therein in accordance with the 1933 Act, the 1940 Act and the Rules and Regulations; and (iii) all statements of fact contained therein are true and correct in all material respects at the time indicated or the effective date, as the case may be, and neither the Registration Statement nor the Prospectus shall include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances in which made, not misleading. The Trust shall from time to time file such amendment or amendments to the Registration Statement and the Prospectus as, in the light of future developments, shall, in the opinion of the Trust's counsel, be necessary in order to have the Registration Statement and the Prospectus at all times contain all material facts required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances in which made, not misleading to a purchaser of Shares. The Trust shall not file any amendment to the Registration Statement or the Prospectus without giving the Distributor reasonable notice thereof in advance, provided that nothing in this Agreement shall in any way limit the Trust's right to file at any time such amendments to the Registration Statement or the Prospectus as the Trust may deem advisable. Notwithstanding the foregoing, the Trust shall not be deemed to make any representation or warranty as to any information or statement provided by the Distributor for inclusion in the Registration Statement or the Prospectus.
SECTION 2
FEES AND EXPENSES
2.1. EXPENSES.
(a) Each party hereto will bear its own expenses in connection with this Agreement unless otherwise agreed by the parties hereto in writing. In addition, the expenses of the Trust shall be borne by the Trust as described under the caption "Fees and Expenses of the Fund" in the Prospectus.
(b) The Distributor shall bear the following costs and expenses relating to the distribution of Shares: (i) the costs (other than those payable pursuant to the Trust's agreement with the
DTC) of processing and maintaining records of creations of Creation Units; (ii) all costs of maintaining the records required of a broker/dealer registered under the 1934 Act; (iii) the expenses of maintaining its registration or qualification as a dealer or broker under federal or state laws; (iv) the expenses incurred by the Distributor in connection with normal NASD filing fees (expedited NASD filing fees will be billed to the Adviser); and (v) all other expenses incurred in connection with the distribution services as contemplated herein, except as otherwise specifically provided in this Agreement.
SECTION 3
INDEMNIFICATION
3.1. INDEMNIFICATION OF DISTRIBUTOR. The Trust agrees to indemnify, defend and hold the Distributor, any person who controls the Distributor within the meaning of Section 15 of the 1933 Act, and their respective officers and directors (any of the Distributor, such control persons, and their respective officers and directors, for purposes of this Section 3.1, an "Indemnitee"), free and harmless from and against any and all claims, demands, liabilities, and expenses (including costs reasonably incurred in connection with investigating or defending such claims, demands or liabilities and any counsel fees reasonably incurred in connection therewith) which the Indemnitee may incur, under the 1933 Act or under common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Trust's Registration Statement, or the omission or alleged omission to state in such document a material fact required to be stated thereon or necessary to make the statements therein not misleading or, with respect to the Prospectus or any amendment or supplement thereto, any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state in such document a material fact required to be stated therein or necessary to make the statements therein in the light of the circumstances under which they were made, not misleading; provided, however, that nothing in this Section 3.1 shall protect the Indemnitee against any liability to the Trust or its Beneficial Owners that the Indemnitee would otherwise be subject to (i) by reason of willful malfeasance, bad faith, or gross negligence in the performance of its duties, (ii) by reason of the Indemnitee's reckless disregard of its obligations and duties under this Agreement, or (iii) where such
liability arises out of or is based upon an untrue statement or omission or alleged untrue statement or omission in the Trust's Registration Statement or Prospectus that was made in reliance upon and in conformity with written information furnished by the Distributor to the Trust and the Adviser; and provided, further, that the Trust will not be liable in any such case to the Indemnitee with respect to any untrue statement or omission or alleged untrue statement or omission made in the Registration Statement or the Prospectus that is subsequently corrected in such document (or an amendment thereof or supplement thereto), if a copy of the Prospectus (or such amendment thereof or supplement thereto) was not sent or given to the person asserting any such claim, demand, liability or expense at or before the written confirmation of the sale to such person in any case where such delivery is required by the 1933 Act, and the Trust had notified the Distributor of the amendment or supplement prior to the sending of the written confirmation of sale.
The Trust's obligation to indemnify the Indemnitee is expressly conditioned upon the Indemnitee's notification of the Trust of the commencement of any action against the Indemnitee, which notification shall be given by letter or by facsimile transmission addressed to the Trust at its principal offices in New York, New York, and sent to the Trust by the person against whom such action is brought within 10 days after the summons or other first legal process shall have been served. The Indemnitee's failure to so notify the Trust shall not relieve the Trust of any liability which it may have to the Indemnitee by reason of any such untrue statement or omission or alleged untrue statement or omission independent of this indemnification. The Trust will be entitled to assume the defense of any suit brought to enforce any such claim, demand or liability and to retain legal counsel of good standing chosen by the Trust and approved by the Indemnitee (such approval not to be unreasonably withheld). If the Trust elects to assume the defense of any such suit and retain counsel approved by the Indemnitee, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them. In the event the Trust does not elect to assume the defense of any such suit and retain counsel of good standing approved by the Indemnitee, or the Indemnitee does not approve of the counsel chosen by the Trust (such approval not to be unreasonably withheld), the Trust shall bear the fees and
expenses of any counsel retained by the Indemnitee. The indemnification agreement contained in this Section 3.1 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Indemnitee and shall survive the sale of any Creation Units made pursuant to purchase orders obtained by the Indemnitee or the termination of this Agreement. This indemnification will inure exclusively to the benefit of the Indemnitee and its successors, assigns and estate. The Trust shall promptly notify the Distributor of the commencement of any litigation or proceeding against the Trust in connection with the issue and sale of any Creation Units.
3.2. INDEMNIFICATION OF THE TRUST. The Distributor agrees to indemnify, defend, and hold the Trust and each of its trustees and officers and any person who controls the Trust within the meaning of Section 15 of the 1933 Act (for purposes of this Section 3.2, the Trust and each of its trustees and officers and its controlling persons are collectively referred to as the "Trust Affiliates"), free and harmless from and against any and all claims, demands, liabilities, and expenses (including costs reasonably incurred in investigating or defending such claims, demands or liabilities and any counsel fees reasonably incurred in connection therewith) which the Trust Affiliates may incur, under the 1933 Act or under common law or otherwise, arising out of or based upon (i) any untrue statement or alleged untrue statement of a material fact contained in information furnished by the Distributor to the Trust for use in the Registration Statement or Prospectus in effect from time to time, or (ii) any omission or alleged omission, on the part of the Distributor, to state a material fact in connection with such information required to be stated in the Registration Statement or Prospectus or necessary to make such information not misleading, it being understood that the Trust will rely upon the information provided by the Distributor for use in the preparation of the Registration Statement and the Prospectus, or (iii) any alleged act or omission on the Distributor's part as the Trust's agent that has not been expressly authorized by the Trust in writing.
The Distributor's obligation to indemnify the Trust Affiliates is expressly conditioned upon the Distributor being notified of the commencement of any action brought against the Trust Affiliates, which notification shall be given by letter or facsimile transmission addressed to the Distributor at its principal offices in New York, New York, and sent to the Distributor by the person against whom such action is
brought within 10 days after the summons or other first legal process shall have been served. The Trust Affiliates' failure to notify the Distributor of the commencement of any such action shall not relieve the Distributor from any liability which it may have to the Trust Affiliates by reason of any such untrue statement or omission, alleged untrue statement or omission, or alleged act or omission on the part of the Distributor independent of this indemnification. The Distributor will be entitled to assume the defense of any suit brought to enforce any such claim, demand or liability and to retain legal counsel of good standing chosen by the Distributor and approved by the Trust Affiliate (such approval not to be unreasonably withheld). If the Distributor elects to assume the defense of any such suit and retain counsel approved by the Trust Affiliate, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them. In the event the Distributor does not elect to assume the defense of any such suit and retain counsel of good standing approved by the Trust Affiliate, or the Trust Affiliate does not approve of the counsel chosen by the Distributor (such approval not to be unreasonably withheld), the Distributor shall bear the fees and expenses of any counsel retained by the Trust Affiliate. The indemnification agreement contained in this Section 3.2 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Trust Affiliate and shall survive the sale of any Creation Units made pursuant to purchase orders obtained by the Distributor or the termination of this Agreement. This indemnification will inure exclusively to the benefit of the Trust Affiliate and its successors, assigns and estate. The Distributor shall promptly notify the Trust of the commencement of any litigation or proceeding against the Distributor in connection with the issue and sale of any Creation Units.
3.3. SETTLEMENT OF CLAIMS. No Indemnitee or indemnified Trust Affiliate shall settle any claim against it for which it intends to seek indemnification from the indemnifying party, under the terms of Section 3.1 or 3.2 above, without the prior written notice to and consent from the indemnifying party, which consent shall not be unreasonably withheld. No indemnified or indemnifying party shall settle any claim unless the settlement contains a full release of liability with respect to the other party in respect of such action. This section shall survive the termination of this Agreement.
SECTION 4
DURATION, TERMINATION, AND AMENDMENT
4.1. DURATION. This Agreement shall become effective on May ___, 2006, and continue for two years from its effective date, and thereafter from year to year, provided such continuance is approved annually by the vote of a majority of the Board of Trustees, and by the vote of those Trustees who are not "interested persons" of the Trust (the "Independent Trustees") and if a plan under Rule 12b-l under the 1940 Act (a "Plan") is in effect, by the vote of those Trustees who are not "interested persons" of the Trust and who are not parties to such Plan or this Agreement and have no financial interest in the operation of such Plan or in any agreements related to such Plan, cast in person at a meeting called for the purpose of voting on the approval. This Agreement may be terminated at any time, without the payment of any penalty, as to each Fund (i) by vote of a majority of the Independent Trustees or (ii) by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, on at least sixty (60) days' prior written notice to the Distributor. In addition, this Agreement may be terminated at any time by the Distributor upon at least sixty (60) days prior written notice to the Trust. This Agreement shall automatically terminate in the event of its assignment. As used in this paragraph, the terms "assignment" and "interested persons" shall have the respective meanings specified in the 1940 Act.
4.2. AMENDMENT. This Agreement may be amended by mutual consent, provided that no provision of this Agreement may be changed, waived, discharged or terminated except by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.
SECTION 5
NOTICE
5.1. NOTIFICATION OF PARTIES. Any notice or other communication required or permitted to be given pursuant to this Agreement shall be deemed duly given if addressed and delivered, mailed by registered mail, postage prepaid, or sent by facsimile transmission (with confirmation of receipt) to (1) Van Eck Securities Corporation, at 99 Park Avenue, 8th Floor, New York, NY 10016,
Attention: ______________________________, ____________________________________, facsimile # 212-687-5248, and (2) Market Vectors ETF Trust, 99 Park Avenue, 8th Floor, New York, NY 10016, Attention: _____________________________________, ____________________________________, facsimile # 212-687-5248.
SECTION 6
MISCELLANEOUS
6.1. CHOICE OF LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
6.2. CAPTIONS. The captions in this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction.
6.3. SEVERABILITY. If any provisions of this Agreement shall be held or made invalid, in whole or in part, then the other provisions of this Agreement shall remain in force. Invalid provisions shall, in accordance with this Agreement's intent and purpose, be amended, to the extent legally possible, by valid provisions in order to effectuate the intended results of the invalid provisions.
6.4. INSURANCE. The Distributor will maintain at its expense an errors and omissions insurance policy which covers services by the Distributor hereunder.
6.5. FORCE MAJEURE. In the event a party hereto is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable to any other party for any damages resulting from such failure to perform or otherwise from such causes.
6.6. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first written above.
MARKET VECTORS ETF TRUST
Title:
VAN ECK SECURITIES CORPORATION
Title:
Exhibit 99(i)
[LETTERHEAD OF CLIFFORD CHANCE US LLP]
May 10, 2006
Market Vectors ETF Trust
99 Park Avenue, 8th Floor
New York, New York 10016
Re: Opinion of Counsel regarding Pre-Effective Amendment No. 4 to the Registration Statement filed on Form N-1A under the Securities Act of 1933 (File Nos. 333-123257; 811-10325)
Dear Ladies and Gentlemen:
We have acted as counsel to Market Vectors ETF Trust, a Delaware statutory trust (the "Fund"), in connection with the above-referenced Registration Statement (as amended, the "Registration Statement"), which relates to the Fund's shares of beneficial interest, $0.001 par value (collectively, the "Shares"). This opinion is being delivered to you in connection with the Fund's filing of Pre-Effective Amendment No. 4 to the Registration Statement (the "Amendment") to be filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933 (the "1933 Act") and Amendment No. 4 pursuant to the Investment Company Act of 1940, as amended. With your permission, all assumptions and statements of reliance herein have been made without any independent investigation or verification on our part except to the extent otherwise expressly stated, and we express no opinion with respect to the subject matter or accuracy of such assumptions or items relied upon. We have reviewed the Fund's Agreement and Declaration of Trust, as amended, and such other documents and matters as we have deemed necessary to enable us to render this opinion.
Based upon, and subject to, the foregoing, we are of the opinion that the Shares proposed to be sold pursuant to the Amendment, when effective, will have been duly authorized and, when sold in accordance with the terms of the Amendment and the requirements of applicable federal and state law and delivered by the Fund against receipt of the net asset value of the Shares, will have been legally issued, fully paid and non-assessable by the Fund (except for the potential liability of shareholders described in the Fund's current Statement of Additional Information under the caption "Capital Stock and Shareholder Reports").
We are attorneys licensed to practice only in the State of New York. The foregoing opinion is limited to the Federal laws of the United States and the Delaware Statutory Trust Act, and we are expressing no opinion as to the effect of the laws of any other jurisdiction.
We have consented to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the headings "General Information" in the Prospectus and "Counsel and Independent Registered Public Accounting Firm" in the Statement of Additional Information, each forming a part of the Registration Statement. In giving this consent, we do not concede that we are in the category of persons whose consent is required under Section 7 of the 1933 Act.
Very truly yours,
/s/ Clifford Chance US LLP Clifford Chance US LLP |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the reference to our firm under the captions "Financial Highlights" in the Prospectus and "Independent Registered Public Accounting Firm" in the Statement of Additional Information and to the inclusion of our report dated April 25,2006 for Market Vectors-Gold Miners ETF in this Registration Statement (Form N- 1A No. 333- 123257) of Market Vectors ETF Trust.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
New York, New York
May 10, 2006
|