INTRODUCTION
This
Prospectus contains important information about investing in the Funds. Please
read this Prospectus carefully before you make any investment decision. An
investment in the Funds is not a bank deposit and it is not guaranteed by the
Federal Deposit Insurance Corporation or any governmental agency.
The Funds are
non-diversified series of the Trust. The Trust is an open-end management
investment company, registered under the Investment Company Act of 1940, as
amended (“1940 Act”). The investment adviser to the Funds is Global X
Management Company LLC (“Adviser”). The Adviser provides the day-to-day
portfolio management of the Funds. Information regarding the Adviser is
included under the section entitled “Fund Management” in this Prospectus.
The Funds are
designed to be used as part of broader asset allocation strategies.
Accordingly, investments in the Funds may not be appropriate as a complete
investment program.
How Are These Funds Different From Conventional
Mutual Funds?
Conventional
mutual fund shares are bought from and redeemed with the issuing fund for cash
at net asset value (“NAV”) typically calculated once a day. Shares of an ETF,
by contrast, cannot be purchased from or redeemed with the issuing ETF except
by or through Authorized Participants, and then often only for an in-kind
basket of securities.
An organized
trading market is expected to exist for Shares, unlike conventional mutual fund
shares, because Shares are listed for trading on the Exchange. Investors can
purchase and sell Shares on the secondary market through a broker.
Secondary-market transactions occur not at NAV, but at market prices that
change throughout the day, based on the supply of, and demand for, Shares and
on changes in the prices of the Fund’s portfolio holdings. The market price of
Shares will differ somewhat from the NAV of each Fund. The difference between
market price of Shares and the NAV of each Fund is expected to be small most of
the time, but in times of extreme market volatility, the difference may become
significant.
INVESTMENT OBJECTIVES OF THE FUNDS
Each Fund
seeks investment results that correspond generally to the price and yield
performance, before fees and expenses, of its “Underlying Index”. Each of the
Fund’s investment objectives and Underlying Index may be changed without
shareholder approval. Shareholders will be given 60 days’ prior notice of any
such change.
The Underlying
Index is sponsored by an organization (“Index Provider”) that is independent of
the Funds and the Adviser. The Index Provider determines the relative
weightings of the securities in the Underlying Index and publishes information
regarding the market value of the Underlying Index. Each Fund’s Index Provider
is FTSE International Limited (“FTSE”).
The Board of
Trustees of the Trust (“Board”) reserves the right to substitute a replacement
index if: the Index Provider no longer calculates the index, the Underlying
Index license is terminated
1
for any
reason, the identity or the character of the Underlying Index is materially
changed, or for any other reason determined by the Board in good faith. If the
Board determines that it is impracticable to substitute a replacement index, it
will take whatever action is deemed to be in the best interests of the Fund’s
shareholders.
P
RINCIPAL INVESTMENT STRATEGIES OF THE FUNDS
The Adviser
uses a “passive” or indexing approach to try to achieve each Fund’s investment
objective. Unlike many investment companies, the Funds do not try to “beat” the
Underlying Index and do not seek temporary defensive positions when markets
decline or appear overvalued.
Each Fund will
normally invest at least 80% of its total assets in the securities of the
Underlying Index and in American Depositary Receipts (“ADRs”), Global
Depositary Receipts (“GDRs”) and Euro Depositary Receipts (“EDRs”)
(collectively, “Depositary Receipts”) based on the securities in the Underlying
Index.
Each Fund may
also invest up to 20% of its assets (its “20% Asset Basket”) in certain
futures, options and swap contracts (which may be leveraged and are considered
derivatives), cash and cash equivalents, as well as in stocks not included in
its Underlying Index, but which the Adviser believes will help the Fund track
its Underlying Index.
Each Fund will
use a replication strategy. A replication strategy is an indexing strategy that
involves investing in the securities of the Underlying Index in approximately
the same proportions as in the Underlying Index. However, the Funds may utilize
a representative sampling strategy with respect to its Underlying Index when a
replication strategy might be detrimental to its shareholders, such as when
there are practical difficulties or substantial costs involved in compiling a
portfolio of equity securities to follow its Underlying Index, in instances
when a security in an Underlying Index become temporarily illiquid, unavailable
or less liquid, or due to legal restrictions (such as diversification
requirements that apply to the Funds but not the Underlying Indexes).
Correlation
Correlation is
the extent to which the values of different types of investments move in tandem
with one another in response to changing economic and market conditions. An
index is a theoretical financial calculation, while a Fund is an actual
investment portfolio. The performance of a Fund and its Underlying Index may
vary somewhat due to transaction costs, asset valuations, foreign currency
valuations, market impact, corporate actions (such as mergers and spin-offs),
legal restrictions (such as diversification requirements that apply to the
Funds but not to the Underlying Indexes), illiquid or unavailable securities,
and timing variances.
The Adviser
expects that, over time, the correlation between the Fund’s performance and that
of its Underlying Index, before fees and expenses, will exceed 90%. A
correlation percentage of 100% would indicate perfect correlation. If the Fund
uses a replication strategy, it can be expected to have greater correlation to
its Underlying Index than the Fund using a representative sampling.
2
Industry Concentration Policy
Each of the
Funds will concentrate their investments (i.e., hold 25% or more of its total
assets) in a particular industry or group of industries to approximately the
same extent that their Underlying Indexes are concentrated.
Securities Lending
Each Fund may
lend its portfolio securities. In connection with such loans, each Fund
receives liquid collateral equal to at least 105% of the value of the portfolio
securities being lent. This collateral is marked-to-market on a daily basis.
PRINCIPAL
RISK FACTORS COMMON TO ALL FUNDS
Each Fund is
subject to the principal risks described below. Additional principal risks
associated with a Fund are discussed under the description of that Fund in the
Description
of the Funds
section. Some or all of these risks may adversely
affect the Fund’s NAV, trading price, yield, total return and/or its ability to
meet its objectives.
Asset Class Risk
The returns
from the types of securities in which a Fund invests may under-perform returns
from the various general securities markets or different asset classes. The
stocks in the Underlying Indexes may under-perform fixed-income investments and
stock market investments that track other markets, segments and sectors.
Different types of securities tend to go through cycles of out-performance and
under-performance in comparison to the general securities markets.
Concentration Risk
To the extent
that its Underlying Index or portfolio is concentrated in the securities of
companies in a particular market, industry, group of industries, sector or
asset class, a Fund may be adversely affected by the performance of those
securities, may be subject to increased price volatility and may be more
susceptible to adverse economic, market, political or regulatory occurrences
affecting that market, industry, group of industries, sector or asset class.
Counterparty Risk
Counterparty
Risk is the risk that a counterparty to a swap contract or other similar
investment instrument may default on its payment obligation to a Fund. Such a
default may cause the value of an investment in a Fund to decrease.
Currency Risk
Currency risk
is the potential for price fluctuations in the dollar value of foreign
securities because of changing currency exchange rates. Because each Fund’s NAV
is determined on the basis of U.S. dollars, you may lose money if the local
currency of a foreign market depreciates against the U.S. dollar, even if the
local currency value of the Fund’s holdings goes up.
3
Custody Risk
Custody risk
refers to risks in the process of clearing and settling trades and to the
holding of securities by local banks, agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to complete
and settle. Local agents are held only to the standard of care of the local
markets. Governments or trade groups may compel local agents to hold securities
in designated depositories that are subject to independent evaluation. The less
developed a country’s securities market is, the greater the likelihood of
custody problems occurring.
Derivatives Risk
Derivatives
risk is the risk that loss may result from a Fund’s investments in options,
futures and swap contracts, which may be leveraged and are types of
derivatives. Investments in leveraged instruments may result in losses
exceeding the amounts invested. The Funds may use these instruments to help the
Funds track their Underlying Indexes. Compared to conventional securities,
derivatives can be more sensitive to changes in interest rates or to sudden
fluctuations in market prices and thus a Fund’s losses may be greater if it
invests in derivates than if it invests only in conventional securities.
Emerging Market Risk
Emerging
market risk is the risk that the securities markets of emerging countries are
less liquid, are especially subject to greater price volatility, have smaller
market capitalizations, have less government regulation and are not subject to
as extensive and frequent accounting, financial and other reporting
requirements as the securities markets of more developed countries, as has
historically been the case.
The risks of
foreign investment are heightened when the issuer is located in an emerging
country. Emerging countries are generally located in the Asia and Pacific
regions, the Middle East, Eastern Europe, Latin, Central and South America and
Africa. A Fund’s purchase and sale of portfolio securities in certain emerging
countries may be constrained by limitations relating to daily changes in the
prices of listed securities, periodic trading or settlement volume and/or
limitations on aggregate holdings of foreign investors. Such limitations may be
computed based on the aggregate trading volume by or holdings of a Fund, the
Adviser, its affiliates and their respective clients and other service
providers. A Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached.
Foreign
investment in the securities markets of certain emerging countries is
restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to investments
by foreign persons or limit investment by foreign persons to only a specified
percentage of an issuer’s outstanding securities or a specific class of
securities which may have less advantageous terms (including price) than
securities of the issuer available for purchase by nationals. In addition,
certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased
4
by a Fund. The
repatriation of both investment income and capital from certain emerging
countries is subject to restrictions such as the need for governmental
consents. In situations where a country restricts direct investment in
securities (which may occur in certain Asian, Latin, Central and South American
and other countries), a Fund may invest in such countries through other
investment funds in such countries.
Many emerging
countries have recently experienced currency devaluations and substantial (and,
in some cases, extremely high) rates of inflation. Other emerging countries
have experienced economic recessions. These circumstances have had a negative
effect on the economies and securities markets of those emerging countries.
Economies in emerging countries generally are dependent heavily upon commodity
prices and international trade and, accordingly, have been and may continue to
be affected adversely by the economies of their trading partners, trade
barriers, exchange controls, managed adjustments in relative currency values
and other protectionist measures imposed or negotiated by the countries with
which they trade.
Many emerging
countries are subject to a substantial degree of economic, political and social
instability. Governments of some emerging countries are authoritarian in nature
or have been installed or removed as a result of military coups, while
governments in other emerging countries have periodically used force to
suppress civil dissent. Disparities of wealth, the pace and success of
democratization, and ethnic, religious and racial disaffection, among other
factors, have also led to social unrest, violence and/or labor unrest in some
emerging countries. Many emerging markets have experienced strained international
relations due to border disputes, historical animosities or other defense
concerns. These situations may cause uncertainty in the markets and may
adversely affect the performance of these economies. Unanticipated political or
social developments may result in sudden and significant investment losses.
Investing in emerging countries involves greater risk of loss due to
expropriation, nationalization, confiscation of assets and property or the
imposition of restrictions on foreign investments and on repatriation of
capital invested. As an example, in the past some Eastern European governments
have expropriated substantial amounts of private property, and many claims of
the property owners have never been fully settled. There is no assurance that
similar expropriations will not recur in Eastern European or other countries.
A Fund’s
investment in emerging countries may also be subject to withholding or other
taxes, which may be significant and may reduce the return from an investment in
such countries to the Fund.
Settlement and
clearance procedures in emerging countries are frequently less developed and
reliable than those in the United States and may involve a Fund’s delivery of
securities before receipt of payment for their sale. In addition, significant
delays may occur in certain markets in registering the transfer of securities.
Settlement, clearance or registration problems may make it more difficult for a
Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets uninvested
or to incur losses due to the failure of a counterparty to pay for securities
the Fund has delivered or the Fund’s inability to complete its contractual
obligations because of theft or other reasons. In addition, local agents and
depositories are subject to local standards of care that may not be as rigorous
as developed countries. Governments and other groups may also require local
agents to hold
5
securities in
depositories that are not subject to independent verification. The less
developed a country’s securities market, the greater the risk to a Fund.
The
creditworthiness of the local securities firms used by a Fund in emerging
countries may not be as sound as the creditworthiness of firms used in more
developed countries. As a result, the Fund may be subject to a greater risk of
loss if a securities firm defaults in the performance of its responsibilities.
A Fund’s use
of foreign currency management techniques in emerging countries may be limited.
Due to the limited market for these instruments in emerging countries, all or a
significant portion of the Funds’ currency exposure in emerging countries may
not be covered by such instruments.
Foreign Security Risk
Each Fund
invests substantially all of its assets within the equity markets of countries
outside of the U.S. These markets are subject to special risks associated with
foreign investment including, but not limited to: lower levels of liquidity and
market efficiency; greater securities price volatility; exchange rate
fluctuations and exchange controls; less availability of public information
about issuers; limitations on foreign ownership of securities; imposition of
withholding or other taxes; imposition of restrictions on the expatriation of
the funds or other assets of the Funds; higher transaction and custody costs
and delays in settlement procedures; difficulties in enforcing contractual
obligations; lower levels of regulation of the securities market; and weaker
accounting, disclosure and reporting requirements. Shareholder rights under the
laws of some foreign countries may not be as favorable as U.S. laws. Thus, a
shareholder may have more difficulty in asserting its rights or enforcing a
judgment against a foreign company than a shareholder of a comparable U.S.
company. Investment of more than 25% of a Fund’s total assets in securities
located in one country or region will subject the Fund to increased country or
region risk with respect to that country or region.
Geographic Risk
Geographic
risk is the risk that a Fund’s assets may be concentrated in countries located
in the same geographic region. This concentration will subject a Fund to risks
associated with that particular region, such as general and local economic,
political and social conditions.
Issuer Risk
Issuer risk is
the risk that any of the individual companies that a Fund invests in may
perform badly, causing the value of its securities to decline. Poor performance
may be caused by poor management decisions, competitive pressures, changes in
technology, disruptions in supply, labor problems or shortages, corporate
restructurings, fraudulent disclosures or other factors. Issuers may, in times
of distress or on their own discretion, decide to reduce or eliminate dividends
which would also cause their stock prices to decline.
Management Risk
Each Fund may
not fully replicate its Underlying Index and may hold securities not included
in its Underlying Index. Therefore, each Fund is subject to management risk.
That is, the
6
Adviser’s
investment strategy, the implementation of which is subject to a number of
constraints, may not produce the intended results. The Adviser has no prior
experience managing an investment company. The ability of the Adviser to
successfully implement each Fund’s investment strategies will influence each
Fund’s performance significantly.
The Funds are
not actively managed. Each Fund may be affected by a general decline in the
market segments relating to its Underlying Index. Each Fund invests in securities
included in, or representative of, its Underlying Index regardless of their
investment merit. The Adviser does not attempt to take defensive positions in
declining markets.
Market Risk
Market risk is
the risk that the value of the securities in which a Fund invests may go up or
down in response to the prospects of individual issuers and/or general economic
conditions. Price changes may be temporary or last for extended periods. You
could lose money over short periods due to fluctuation in a Fund’s NAV in
response to market movements, and over longer periods during market downturns.
Market Trading Risks
Absence of Prior Active Market
Although
Shares are or will be listed for trading on the Exchange and may be listed on
certain foreign exchanges, there can be no assurance that an active trading
market for such Shares will develop or be maintained.
Lack of Market Liquidity
Secondary
market trading in Shares may be halted by the Exchange because of market
conditions or for other reasons. In addition, trading in Shares is subject to
trading halts caused by extraordinary market volatility pursuant to “circuit
breaker” rules. There can be no assurance that the requirements necessary to
maintain the listing of Shares will continue to be met or will remain unchanged.
Shares of the Funds May Trade at Prices Other Than NAV
Shares of the
Funds may trade at, above or below their NAV. The per share NAV of each Fund
will fluctuate with changes in the market value of such Fund’s holdings. The
trading prices of Shares will fluctuate in accordance with changes in its NAV
as well as market supply and demand. However, given that Shares can be created
and redeemed only in Creation Units at NAV (unlike shares of many closed-end
funds, which frequently trade at appreciable discounts from, and sometimes at
premiums to, their NAVs), the Adviser believes that large discounts or premiums
to the NAV of the Shares should not be sustained. While the creation/redemption
feature is designed to make it likely that Shares normally will trade close to
the Fund’s NAV, disruptions to creations and redemptions may result in trading
prices that differ significantly from NAV.
7
Since foreign exchanges may be open on days when the
Funds do not price Shares, the value of the securities in the Fund’s portfolio
may change on days when shareholders will not be able to purchase or sell
Shares.
Secondary Market Trading
Risk
Shares of the Fund may trade in the secondary market
on days when the Funds do not accept orders to purchase or redeem Shares. On
such days, Shares may trade in the secondary market with more significant
premiums or discounts than might be experienced on days when the Fund accepts
purchase and redemption orders.
Non-Diversification
Risk
Each Fund is classified as “non-diversified.” This
means that each Fund may invest most of its assets in securities issued by or
representing a small number of companies. As a result, each Fund may be more
susceptible to the risks associated with these particular companies, or to a
single economic, political or regulatory occurrence affecting these companies.
Securities
Lending Risk
Each Fund may engage in lending its portfolio securities.
Although a Fund will receive collateral in connection with all loans of its
securities holdings, a Fund would be exposed to a risk of loss should a
borrower default on its obligation to return the borrowed securities (e.g., the
loaned securities may have appreciated beyond the value of the collateral held
by a Fund). In addition, a Fund will bear the risk of loss of any cash
collateral that it invests.
Securities
Market Risk
Because the securities markets in the countries in
which each Fund invests are small in size, underdeveloped and are less
correlated to global economic cycles than those markets located in more
developed countries (such as the United States, Japan and most Western European
countries), the securities markets in such countries are subject to greater
risks associated with market volatility, lower market capitalization, lower
trading volume, illiquidity, inflation, greater price fluctuations and
uncertainty regarding the existence of trading markets. Moreover, trading on securities
markets may be suspended altogether. A Fund’s investment in securities in these
countries are subject to the risk that the liquidity of a particular security
or investments generally, will shrink or disappear suddenly and without warning
as a result of adverse economic, market or political conditions or adverse
investor perceptions, whether or not accurate. Because of the lack of
sufficient market liquidity, a Fund may incur losses because it will be
required to effect sales at a disadvantageous time and then only at a
substantial drop in price. Investments in these countries may be more difficult
to price precisely because of the characteristics discussed above and lower
trading volumes.
Market volatility in the countries in which each Fund
invests may also be heightened by the actions of a small number of investors.
Brokerage firms in these countries may be fewer in number and less established
than brokerage firms in more developed markets. Since the Funds may need to
effect securities transactions through these brokerage firms, the Funds are
subject to
8
the risk that these brokerage firms will not be able
to fulfill their obligations to the Funds (counterparty risk). This risk is
magnified to the extent the Funds effect securities transactions through a
single brokerage firm or a small number of brokerage firms.
Tracking
Risk
Tracking risk is the risk that a Fund’s performance
may vary substantially from the performance of the Underlying Index it tracks
as a result of imperfect correlation between the Fund’s securities and those of
the Underlying Index. Imperfect correlation may result from share purchases and
redemptions, expenses, changes in the Underlying Indexes, asset valuations,
foreign currency valuations, market impact, corporate actions (such as mergers
and spin-offs), legal restrictions (such as tax-related diversification
requirements that apply to the Funds but not to the Underlying Index) and
timing variances, among other factors.
P
ORTFOLIO HOLDINGS INFORMATION
A description of the Trust’s policies and procedures
with respect to the disclosure of the Funds’ portfolio securities is available
in the Funds’ combined Statement of Additional Information (“SAI”). The top
largest holdings of each Fund can be found at www.globalxfunds.com and Fund
Fact sheets provide information regarding each Fund’s top holdings and may be
requested by calling 1-888-GX-Fund-1 (1-888-493-8631).
9
D
ESCRIPTION OF THE
FUNDS
Global X FTSE Argentina 20 ETF
Investment
Objective
The Global X FTSE Argentina 20 ETF seeks to provide
investment results that correspond generally to the price and yield
performance, before fees and expenses, of the FTSE Argentina 20 Index (the
“Underlying Index”).
Principal
Investment Strategy
The Underlying Index is free float adjusted, liquidity
tested and market capitalization-weighted index that is designed to measure
broad based equity market performance in Argentina. As of October 3, 2008, the
Underlying Index’s three largest stocks were Tenaris S.A., Telecom Argentina,
and Siderar S.A.
Principal
Risks Specific to Fund
In addition to the risks listed in the section
“Principal Risk Factors Common to All Funds,” the Fund is subject to the risks
listed below.
Risks
Related to Investing in Argentina.
Argentina’s economy is
heavily dependent on exports. Argentina’s key trading and foreign investment
partners are Brazil, China and the U.S. Reduction in spending on Argentinean
products and services, or changes in China, the U.S., or any of the Central and
South American economies, trade regulations or currency exchange rates may
adversely impact the Argentinean economy.
The economies of certain Central and South American
countries, including Argentina, have experienced high interest rates, economic
volatility, inflation, currency devaluations and high unemployment rates. In
addition, commodities (such as oil, gas and minerals) represent a significant
percentage of the region’s exports and many economies in this region are
particularly sensitive to fluctuations in commodity prices. Adverse economic
events in any of the countries in this region may have a significant adverse
effect on Argentina’s economy.
Argentina has experienced a high level of debt and
public spending. Argentina’s default on its debt in 2001, and a proposed plan
to nationalize private pensions in the country, continues to impact the
confidence of investors in Argentina, which might adversely impact returns in
the Fund. Argentina has experienced periods of significant political instability
and certain sectors and regions of Argentina experience high unemployment,
which may cause downturns in the Argentinean market and adversely impact
investments in the Fund. Heavy regulation of labor and product markets is
pervasive in Argentina and may stifle Argentinean economic growth or contribute
to prolonged periods of recession.
10
Performance
Information
The Fund has only recently
begun operations, so performance information is not yet available.
Fees and
Expenses
This table describes the fees and expenses that you
may pay if you buy and hold Shares of the Fund. You will also incur usual and
customary brokerage commission when buying and selling Shares.
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Shareholder
Fees
(fees paid directly from your investment, but see the Creation Unit
Transactions Fees and Redemption Transaction Fees below)
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None
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Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
1
|
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Management Fee:
2
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0.74
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%
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Distribution and/or service
(12b-1) fees:
3
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None
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Other
Expenses:
4
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-
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Custody Fees
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0.05
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%
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-
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Other Expenses
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None
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Total Annual Fund Operating Expenses:
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0.79
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%
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The following example is
intended to help retail investors compare the cost of investing in the Fund
with the cost of investing in other funds. The example illustrates the
hypothetical expenses that such investors would incur over various periods if
they invest $10,000 in the Fund. The example assumes that the Fund provides a
return of 5% a year and that operating expenses remain the same. This example
does not include the brokerage commissions that retail investors will pay to
buy and sell Shares. It also does not include the transaction fees on purchases
and redemptions of Creation Units, because these fees will not be imposed on
retail investors.
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One Year
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Three Years
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81
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252
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These examples should not be considered to represent
actual expenses on performance from the past or for the future.
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1
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Operating Expenses are
expressed as a percentage of average daily net assets and are based upon
estimated amounts for the current fiscal year.
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2
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Management Fees reflect an
investment advisory fee and a supervisory and administrative fee. For more
information about the supervisory and administrative fee, see “Investment Adviser”
under “Fund Management”.
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3
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The Fund has adopted a
Distribution and Service (12b-1) Plan pursuant to which the Fund may bear a
12b-1 fee not to exceed 0.25% per annum of the Fund’s average daily net
assets. However, no such fee is currently paid by the Fund.
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4
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The Fund bears other
expenses that are not covered under the supervisory and administrative fee,
which may vary and affect the total level of expenses paid by the Fund, such
as asset-based custody fees, taxes and governmental fees, brokerage fees,
commissions and other transaction expenses, costs of borrowing money,
including interest expenses and extraordinary expenses (such as litigation
and indemnification expenses).
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11
Creation
Unit Transactions Fees and Redemption Transaction Fees
The Fund issues and redeems Shares at NAV and only in
large blocks of 50,000 Shares (each block of 50,000 Shares called a “Creation
Unit” or multiples thereof. As a practical matter, only broker-dealers or large
institutional investors with creation and redemption agreements known as
Authorized Participants can purchase or redeem these Creation Units. Purchasers
of Creation Units at NAV must pay a standard Creation Transaction Fee of $1,300
per transaction (assuming 50,000 Shares in each Creation Unit). The fee is a
single charge and will be the same regardless of the number of Creation Units
purchased by an investor on the same day The value of a Creation Unit as of
first creation was approximately $750,000. An Authorized Participant who holds
Creation Units and wishes to redeem at NAV would also pay a standard Redemption
Fee of $1,300 per transaction (assuming 50,000 Shares in each Creation Unit),
on the date of such redemption, regardless of the number of Creation Units
redeemed that day. If a Creation Unit is purchased or redeemed for cash, a
higher Transaction Fee will be charged. See “Transaction Fees” later in this
Prospectus.
Investors who hold Creation Units will also pay the
Annual Fund Operating Expenses described in the table above. Assuming an
investment in a Creation Unit of $750,000 and a 5% return each year, and
assuming that the Fund’s gross operating expenses remain the same, the total
cost would be $7,350 if the Creation Unit is redeemed after one year, and
$20,224 if the Creation Unit is redeemed after three years.
The Transaction Fee is not an expense of the Fund and
does not impact the Fund’s expense ratio.
12
Global X/InterBolsa FTSE Colombia
20 ETF
Investment
Objective
The Global X/InterBolsa FTSE Colombia 20 ETF seeks to
provide investment results that correspond generally to the price and yield
performance, before fees and expenses, of the FTSE Colombia 20 Index (the
“Underlying Index”).
Principal
Investment Strategy
The Underlying Index is free
float adjusted, liquidity tested and market capitalization-weighted index that
is designed to measure broad based equity market performance in Colombia.
As of December 22, 2008, the Underlying Index’s three largest stocks were
Ecopetrol, Bancolombia and Suramericana.
Principal
Risks Specific to Fund
In addition to the risks listed in the section
“Principal Risk Factors Common to All Funds,” the Fund is subject to the risks
listed below.
Risks
Related to Investing in Colombia.
Colombia’s economy is
heavily dependent on exports. The oil, coal and coffee sectors of Colombia’s
economy account for a large portion of its exports. Any changes in these
sectors could have an adverse impact on the Colombian economy. Colombia’s key
trading and foreign investment partners are the U.S., Brazil, and Mexico.
Reduction in spending on Colombian products and services, or changes in the
U.S. or any of the Central and South American economies, trade regulations or
currency exchange rates may adversely impact the Colombian economy.
The economies of certain Central and South American
countries, including Colombia, have experienced high interest rates, economic
volatility, inflation, currency devaluations and high unemployment rates. In
addition, commodities (such as oil, gas and minerals) represent a significant
percentage of the region’s exports and many economies in this region are
particularly sensitive to fluctuations in commodity prices. Adverse economic
events in any of the countries in this region may have a significant adverse
effect on Colombia’s economy.
Colombia has experienced a high level of debt and
public spending, which may stifle economic growth, contribute to prolonged
periods of recession or lower the country’s sovereign debt rating and adversely
impact investments in the Fund. Colombia has experienced periods of political
instability, violence, and social unrest in the past. Although levels of
violence associated with internal conflicts and drug-trafficking have fallen,
they remain high by international standards.
In the recent past, Colombia has imposed stringent
capital controls that have restricted the inflow and repatriation of capital
and the free transfers of securities. These controls have since been eased but
there can be no assurance that they will be reinstated or changed again and
without prior warning. These capital controls could disrupt the
creation/redemption process thereby adversely affecting trading of the Fund’s
shares. For example, these controls could cause the Fund’s shares to trade at a
price that is materially different from its NAV.
13
Performance
Information
The Fund has only recently
begun operations, so performance information is not yet available.
Fees and
Expenses
This table describes the fees and expenses that you may
pay if you buy and hold Shares of the Fund. You will also incur usual and
customary brokerage commission when buying and selling Shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder Fees
(fees paid directly from your investment, but see the Creation Unit
Transactions Fees and Redemption Transaction Fees below)
|
|
None
|
|
|
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
1
|
|
|
|
|
Management Fee:
2
|
|
0.68
|
%
|
|
Distribution and/or service
(12b-1) fees:
3
|
|
None
|
|
|
Other
Expenses:
4
|
|
|
|
|
-
|
Custody Fees
|
|
0.18
|
%
|
|
-
|
Other Expenses
|
|
None
|
|
|
|
|
Total Annual Fund Operating Expenses:
|
|
0.86
|
%
|
|
|
|
|
|
The following example is
intended to help retail investors compare the cost of investing in the Fund
with the cost of investing in other funds. The example illustrates the hypothetical
expenses that such investors would incur over various periods if they invest
$10,000 in the Fund. The example assumes that the Fund provides a return of 5%
a year and that operating expenses remain the same. This example does not
include the brokerage commissions that retail investors will pay to buy and
sell Shares. It also does not include the transaction fees on purchases and
redemptions of Creation Units, because these fees will not be imposed on retail
investors.
|
|
|
|
|
|
|
|
|
|
|
|
One Year
|
Three Years
|
|
|
|
88
|
274
|
|
|
|
|
|
|
These examples should not be considered to represent
actual expenses on performance from the past or for the future.
|
|
|
|
|
|
1
|
Operating Expenses are
expressed as a percentage of average daily net assets and are based upon
estimated amounts for the current fiscal year.
|
|
|
|
|
|
2
|
Management Fees reflect an
investment advisory fee and a supervisory and administrative fee. For more
information about the supervisory and administrative fee, see “Investment
Adviser” under “Fund Management”.
|
|
|
|
|
|
3
|
The Fund has adopted a
Distribution and Service (12b-1) Plan pursuant to which the Fund may bear a
12b-1 fee not to exceed 0.25% per annum of the Fund’s average daily net
assets. However, no such fee is currently paid by the Fund.
|
|
|
|
|
|
|
|
|
|
4
|
The Fund bears other
expenses that are not covered under the supervisory and administrative fee,
which may vary and affect the total level of expenses paid by the Fund, such
as asset-based custody fees, taxes and governmental fees, brokerage fees,
commissions and other transaction expenses, costs of borrowing money,
including interest expenses and extraordinary expenses (such as litigation
and indemnification expenses).
|
|
|
|
14
Creation
Unit Transactions Fees and Redemption Transaction Fees
The Fund issues and redeems Shares at NAV and only in
large blocks of 50,000 Shares (each block of 50,000 Shares called a “Creation
Unit” or multiples thereof. As a practical matter, only broker-dealers or large
institutional investors with creation and redemption agreements known as
Authorized Participants can purchase or redeem these Creation Units. Purchasers
of Creation Units at NAV must pay a standard Creation Transaction Fee of $2,600
per transaction (assuming 50,000 Shares in each Creation Unit). The fee is a single
charge and will be the same regardless of the number of Creation Units
purchased by an investor on the same day The value of a Creation Unit as of
first creation was approximately $750,000. An Authorized Participant who holds
Creation Units and wishes to redeem at NAV would also pay a standard Redemption
Fee of $2,600 per transaction (assuming 50,000 Shares in each Creation Unit),
on the date of such redemption, regardless of the number of Creation Units
redeemed that day. If a Creation Unit is purchased or redeemed for cash, a
higher Transaction Fee will be charged. See “Transaction Fees” later in this
Prospectus.
Investors who hold Creation Units will also pay the
Annual Fund Operating Expenses described in the table above. Assuming an
investment in a Creation Unit of $750,000 and a 5% return each year, and
assuming that the Fund’s gross operating expenses remain the same, the total
cost would be $9,184 if the Creation Unit is redeemed after one year, and
$23,180 if the Creation Unit is redeemed after three years.
The Transaction Fee is not an expense of the Fund and
does not impact the Fund’s expense ratio.
15
Global X FTSE Egypt 30 ETF
Investment
Objective
The Global X FTSE Egypt 30 ETF seeks to provide
investment results that correspond generally to the price and yield
performance, before fees and expenses, of the FTSE Egypt 30 Index (the
“Underlying Index”).
Principal
Investment Strategy
The Underlying Index is free float adjusted, liquidity
tested and market capitalization-weighted index that is designed to measure
broad based equity market performance in Egypt. As of December 22, 2008, the
Underlying Index’s three largest stocks were Orascom Construction, Orascom
Telecom and Commercial International Bank.
Principal
Risks Specific to Fund
In addition to the risks listed in the section
“Principal Risk Factors Common to All Funds,” the Fund is subject to the risks
listed below.
Risks
Related to Investing in Egypt.
The service sector of
Egypt’s economy, led by tourism, trade, banking, and shipping services on the
Suez Canal, account for a large portion of its economy and exports. Both
tourism and shipping services on the Suez Canal were hit hard by conflicts in
the Middle East in the 1990s as well as the September 11 terrorist attacks in
the U.S. Egypt borders Gaza and Israel. The current war in Gaza between Israel
and Hamas and further instability and violence in the region may have a
significant adverse effect on Egypt’s economy. In addition, limited political
and democratic freedoms in Egypt might cause significant social unrest in the
country.
Egypt has experienced a high level of debt and public
spending. The Egyptian economy is subject to risks of high inflation,
unemployment, governmental control and heavy regulation of labor and industry
which may stifle economic growth or contribute to prolonged periods of
recession. Egypt has a large structural trade deficit and changes in the
currency exchange rates might adversely impact Egypt’s economy.
Certain issuers located in Egypt in which the Fund
invests may operate in, or have dealings with, countries subject to sanctions
and/or embargoes imposed by the U.S. government and the United Nations and/or
countries identified by the U.S. government as state sponsors of terrorism. As
a result, an issuer may sustain damage to its reputation if it is identified as
an issuer which operates in, or has dealings with, such countries. The Fund, as
an investor in such issuers will be indirectly subject to those risks.
16
Performance
Information
The Fund has only recently
begun operations, so performance information is not yet available.
Fees and Expenses
This table describes
the fees and expenses that you may pay if you buy and hold Shares of the Fund.
You will also incur usual and customary brokerage commission when buying and
selling Shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder Fees
(fees paid directly from your investment, but see the Creation Unit
Transactions Fees and Redemption Transaction Fees below)
|
|
None
|
|
|
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
1
|
|
|
|
|
Management Fee:
2
|
|
0.68
|
%
|
|
Distribution and/or
service (12b-1) fees:
3
|
|
None
|
|
|
Other Expenses:
4
|
|
|
|
|
-
|
Custody Fees
|
|
0.13
|
%
|
|
-
|
Other Expenses
|
|
None
|
|
|
|
|
Total Annual Fund
Operating Expenses:
|
|
0.81
|
%
|
|
|
|
|
|
The following example is
intended to help retail investors compare the cost of investing in the Fund
with the cost of investing in other funds. The example illustrates the
hypothetical expenses that such investors would incur over various periods if
they invest $10,000 in the Fund. The example assumes that the Fund provides a
return of 5% a year and that operating expenses remain the same. This example
does not include the brokerage commissions that retail investors will pay to
buy and sell Shares. It also does not include the transaction fees on purchases
and redemptions of Creation Units, because these fees will not be imposed on
retail investors.
|
|
|
|
|
|
|
|
|
|
|
|
One Year
|
Three Years
|
|
|
|
83
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Operating Expenses are
expressed as a percentage of average daily net assets and are based upon
estimated amounts for the current fiscal year.
|
|
|
|
|
|
2
|
Management Fees reflect an
investment advisory fee and a supervisory and administrative fee. For more
information about the supervisory and administrative fee, see “Investment
Adviser” under “Fund Management”.
|
|
|
|
|
|
3
|
The Fund has adopted a
Distribution and Service (12b-1) Plan pursuant to which the Fund may bear a
12b-1 fee not to exceed 0.25% per annum of the Fund’s average daily net
assets. However, no such fee is currently paid by the Fund.
|
|
|
|
|
|
|
|
|
4
|
The Fund bears other
expenses that are not covered under the supervisory and administrative fee,
which may vary and affect the total level of expenses paid by the Fund, such
as asset-based custody fees, taxes and governmental fees, brokerage fees,
commissions and other transaction expenses, costs of borrowing money,
including interest expenses and extraordinary expenses (such as litigation
and indemnification expenses).
|
|
|
|
17
These examples should not be considered to represent
actual expenses on performance from the past or for the future.
Creation
Unit Transactions Fees and Redemption Transaction Fees
The Fund issues and redeems Shares at NAV and only in
large blocks of 50,000 Shares (each block of 50,000 Shares called a “Creation
Unit” or multiples thereof. As a practical matter, only broker-dealers or large
institutional investors with creation and redemption agreements known as
Authorized Participants can purchase or redeem these Creation Units. Purchasers
of Creation Units at NAV must pay a standard Creation Transaction Fee of $3,000
per transaction (assuming 50,000 Shares in each Creation Unit). The fee is a
single charge and will be the same regardless of the number of Creation Units
purchased by an investor on the same day The value of a Creation Unit as of
first creation was approximately $750,000. An Authorized Participant who holds
Creation Units and wishes to redeem at NAV would also pay a standard Redemption
Fee of $3,000 per transaction (assuming 50,000 Shares in each Creation Unit),
on the date of such redemption, regardless of the number of Creation Units
redeemed that day. If a Creation Unit is purchased or redeemed for cash, a
higher Transaction Fee will be charged. See “Transaction Fees” later in this
Prospectus.
Investors who hold Creation Units will also pay the
Annual Fund Operating Expenses described in the table above. Assuming an
investment in a Creation Unit of $750,000 and a 5% return each year, and
assuming that the Fund’s gross operating expenses remain the same, the total
cost would be $9,202 if the Creation Unit is redeemed after one year, and
$22,397 if the Creation Unit is redeemed after three years.
The Transaction Fee is not an expense of the Fund and
does not impact the Fund’s expense ratio.
18
Global X
FTSE Peru 20 ETF
Investment
Objective
The Global X FTSE Peru 20 ETF seeks to provide
investment results that correspond generally to the price and yield
performance, before fees and expenses, of the FTSE Peru 20 Index (the
“Underlying Index”).
Principal
Investment Strategy
The Underlying Index is free float adjusted, liquidity
tested and market capitalization-weighted index that is designed to measure
broad based equity market performance in Peru. As of December 22, 2008, the
Underlying Index’s three largest stocks were Credicorp Ltd., Cia de Minas
Buenaventura SA and Sociedad Minera Cerro Verde SA.
Principal
Risks Specific to Fund
In addition to the risks listed in the section
“Principal Risk Factors Common to All Funds,” the Fund is subject to the risks
listed below.
Risks
Related to Investing in Peru.
The Peruvian economy is
dependent on the economies of other Central and South American countries,
Europe, Asia, particularly China, and the United States as key trading
partners. The agriculture, fisheries and mining sectors of Peru’s economy
account for a large portion of its exports. Any changes in these sectors, a
reduction in spending on Peruvian products and services by any of these trading
partners, or a downturn in any of these economies could adversely affect the
Peruvian economy.
The economies of certain Central and South American
countries, including Peru, have experienced high interest rates, economic
volatility, inflation, currency devaluations and high unemployment rates. In
addition, commodities (such as oil, gas and minerals) represent a significant
percentage of the region’s and Peru’s exports and many economies in this region
are particularly sensitive to fluctuations in commodity prices. Adverse economic
events in any of the countries in this region may have a significant adverse
effect on Peru’s economy.
Peru has experienced periods of political instability
and social unrest in the past. Peru continues to experience significant
unemployment in certain regions as well as widespread underemployment. Heavy
regulation of labor is pervasive in Peru and may stifle Peruvian economic
growth.
Peru has historically experienced strained
international relations due to border disputes, historical animosities or other
defense concerns. These situations may cause uncertainty in the Peruvian market
and may adversely affect the performance of the Peruvian economy.
Peru is located in a part of the world that has
historically been prone to natural disasters such as earthquakes, volcanoes,
droughts, floods and tsunamis. Any natural disaster could have a significant
adverse impact on the economies of this geographic area.
19
Performance
Information
The Fund has only recently
begun operations, so performance information is not yet available.
Fees and
Expenses
This table describes the fees and expenses that you
may pay if you buy and hold Shares of the Fund. You will also incur usual and
customary brokerage commission when buying and selling Shares.
|
|
|
|
|
|
|
|
|
|
|
Shareholder Fees
(fees paid directly from your investment, but see the Creation Unit
Transactions Fees and Redemption Transaction Fees below)
|
|
None
|
|
|
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
1
|
|
|
|
|
Management Fee:
2
|
|
0.68
|
%
|
|
Distribution and/or service
(12b-1) fees:
4
|
|
None
|
|
|
Other Expenses:
5
|
|
|
|
|
- Custody
Fees
|
|
0.14
|
%
|
|
- Other
Expenses
|
|
None
|
|
|
|
|
|
|
|
Total Annual Fund Operating Expenses:
|
|
0.82
|
%
|
|
|
|
|
|
The following example is
intended to help retail investors compare the cost of investing in the Fund
with the cost of investing in other funds. The example illustrates the
hypothetical expenses that such investors would incur over various periods if
they invest $10,000 in the Fund. The example assumes that the Fund provides a
return of 5% a year and that operating expenses remain the same. This example
does not include the brokerage commissions that retail investors will pay to
buy and sell Shares. It also does not include the transaction fees on purchases
and redemptions of Creation Units, because these fees will not be imposed on
retail investors.
|
|
|
|
One Year
|
Three Years
|
|
84
|
262
|
|
|
|
|
|
1
|
Operating Expenses are
expressed as a percentage of average daily net assets and are based upon
estimated amounts for the current fiscal year.
|
|
|
|
|
2
|
Management Fees reflect an
investment advisory fee and a supervisory and administrative fee. For more
information about the supervisory and administrative fee, see “Investment
Adviser” under “Fund Management”.
|
|
|
|
|
4
|
The Fund has adopted a
Distribution and Service (12b-1) Plan pursuant to which the Fund may bear a
12b-1 fee not to exceed 0.25% per annum of the Fund’s average daily net
assets. However, no such fee is currently paid by the Fund.
|
|
|
|
|
|
|
|
5
|
The Fund bears other
expenses that are not covered under the supervisory and administrative fee,
which may vary and affect the total level of expenses paid by the Fund, such
as asset-based custody fees, taxes and governmental fees, brokerage fees,
commissions and other transaction expenses, costs of borrowing money,
including interest expenses and extraordinary expenses (such as litigation
and indemnification expenses).
|
|
|
|
20
These examples should not be considered to represent
actual expenses on performance from the past or for the future.
Creation
Unit Transactions Fees and Redemption Transaction Fees
The Fund issues and redeems Shares at NAV and only in
large blocks of 50,000 Shares (each block of 50,000 Shares called a “Creation
Unit” or multiples thereof. As a practical matter, only broker-dealers or large
institutional investors with creation and redemption agreements known as
Authorized Participants can purchase or redeem these Creation Units. Purchasers
of Creation Units at NAV must pay a standard Creation Transaction Fee of $2,600
per transaction (assuming 50,000 Shares in each Creation Unit). The fee is a
single charge and will be the same regardless of the number of Creation Units
purchased by an investor on the same day The value of a Creation Unit as of
first creation was approximately $750,000. An Authorized Participant who holds
Creation Units and wishes to redeem at NAV would also pay a standard Redemption
Fee of $2,600 per transaction (assuming 50,000 Shares in each Creation Unit),
on the date of such redemption, regardless of the number of Creation Units
redeemed that day. If a Creation Unit is purchased or redeemed for cash, a
higher Transaction Fee will be charged. See “Transaction Fees” later in this
Prospectus.
Investors who hold Creation Units will also pay the
Annual Fund Operating Expenses described in the table above. Assuming an
investment in a Creation Unit of $750,000 and a 5% return each year, and
assuming that the Fund’s gross operating expenses remain the same, the total
cost would be $8,879 if the Creation Unit is redeemed after one year, and
$22,234 if the Creation Unit is redeemed after three years.
The Transaction Fee is not an expense of the Fund and
does not impact the Fund’s expense ratio.
21
Global X
FTSE Philippines 30 ETF
Investment
Objective
The Global X FTSE Philippines 30 ETF seeks to provide
investment results that correspond generally to the price and yield
performance, before fees and expenses, of the FTSE Philippines 30 Index (the
“Underlying Index”).
Principal
Investment Strategy
The Underlying Index is free float adjusted, liquidity
tested and market capitalization-weighted index that is designed to measure
broad based equity market performance in the Philippines. As of October 3,
2008, the Underlying Index’s three largest stocks were Philippine Long Distance
Telephone Co., Bank of the Philippine Islands and Ayala Corporation.
Principal
Risks Specific to Fund
In addition to the risks listed in the section
“Principal Risk Factors Common to All Funds,” the Fund is subject to the risks
listed below.
Risks
Related to Investing in the Philippines.
The Philippines’
economy is heavily dependent on exports, particularly electronics and
semiconductors. The Philippines’ reliance on these sectors makes it vulnerable
to economic downturns during period of slumps in the information technology
sectors.
The Philippines’ key trading partners are China, the
U.S., Japan, and Singapore. The economies of China, Japan, and Singapore are,
in turn, dependent on the economies of each other and other Asian countries. As
such, the Philippines’ continued growth is dependent on the growth of these
economies. Reduction in spending on products and services from the Philippines,
or changes in the U.S. or any of the Asian economies, trade regulations or
currency exchange rates may adversely impact the Malaysian economy.
Most Asian economies are characterized by periods of
over extension of credit, currency devaluations and restrictions, rising
unemployment, high inflation, decreased exports and economic recessions. China,
in particular, has suffered social strife, inadequate job growth and corruption
as it seeks to decentralize its economy. The Chinese government exercises
significant control over China’s economic growth through allocation of
resources, controlling payment of foreign currency-denominated obligations,
setting monetary policy and providing preferential treatment for particular
industries or companies. Japan’s economy has experienced periods of recession,
including stagnant consumer demand and high unemployment. Japan has attempted
to address these problems with structural reforms but progress has been slow on
these initiatives. Singapore’s economy, like the Philippines’, is heavily
dependent on the electronics sector and its economy is subject to down times in
the information technology sector. Currency devaluations in any one Asian
country can have a significant effect on the entire Asian region. Economic
downturns and significant volatility have characterized most Asian economies
more recently. Increased political and social unrest in any Asian country could
cause further economic and market uncertainty in the region.
22
The Philippines has experienced a high level of debt
and public spending, which may stifle economic growth, contribute to prolonged
periods of recession or lower the country’s sovereign debt rating and adversely
impact investments in the Fund.
As an emerging country, the Philippines’ economy is
susceptible to a substantial degree to economic, political and social
instability. Unanticipated social, political and economic developments in the
Philippines could result in substantial investment loses. The Philippines has
periodically experienced and is currently experiencing violence and terrorism.
These factors could adversely impact economic growth.
Many Asian countries, including the Philippines, are
prone to frequent typhoons, damaging floods, earthquakes and/or other natural
disasters, which may adversely impact their economies.
Performance
Information
The Fund has only recently
begun operations, so performance information is not yet available.
Fees and
Expenses
This table describes the fees and expenses that you
may pay if you buy and hold Shares of the Fund. You will also incur usual and customary
brokerage commission when buying and selling Shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder
Fees
(fees paid directly from your investment, but see the
Creation Unit Transactions Fees and Redemption Transaction Fees below)
|
|
|
None
|
|
|
Annual
Fund Operating Expenses
(expenses that are deducted from Fund assets)
1
|
|
|
|
|
|
Management Fee:
2
|
|
|
0.68
|
%
|
|
Distribution
and/or service (12b-1) fees:
3
|
|
|
None
|
|
|
Other
Expenses:
4
|
|
|
|
|
|
- Custody
Fees
|
|
|
0.03
|
%
|
|
- Other
Expenses
|
|
|
None
|
|
|
|
|
|
|
|
|
Total Annual
Fund Operating Expenses:
|
|
|
0.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Operating Expenses are
expressed as a percentage of average daily net assets and are based upon
estimated amounts for the current fiscal year.
|
|
|
|
|
2
|
Management Fees reflect an
investment advisory fee and a supervisory and administrative fee. For more
information about the supervisory and administrative fee, see “Investment
Adviser” under “Fund Management”.
|
|
|
|
|
3
|
The Fund has adopted a
Distribution and Service (12b-1) Plan pursuant to which the Fund may bear a
12b-1 fee not to exceed 0.25% per annum of the Fund’s average daily net
assets. However, no such fee is currently paid by the Fund.
|
|
|
|
|
|
|
|
4
|
The Fund bears other
expenses that are not covered under the supervisory and administrative fee,
which may vary and affect the total level of expenses paid by the Fund, such
as asset-based custody fees, taxes and governmental fees, brokerage fees,
commissions and other transaction expenses, costs of borrowing money,
including interest expenses and extraordinary expenses (such as litigation
and indemnification expenses).
|
|
|
|
23
The following example is
intended to help retail investors compare the cost of investing in the Fund
with the cost of investing in other funds. The example illustrates the
hypothetical expenses that such investors would incur over various periods if
they invest $10,000 in the Fund. The example assumes that the Fund provides a
return of 5% a year and that operating expenses remain the same. This example
does not include the brokerage commissions that retail investors will pay to
buy and sell Shares. It also does not include the transaction fees on purchases
and redemptions of Creation Units, because these fees will not be imposed on
retail investors.
|
|
|
|
One Year
|
Three Years
|
|
73
|
227
|
These examples should not be considered to represent
actual expenses on performance from the past or for the future.
Creation
Unit Transactions Fees and Redemption Transaction Fees
The Fund issues and redeems Shares at NAV and only in
large blocks of 50,000 Shares (each block of 50,000 Shares called a “Creation
Unit” or multiples thereof. As a practical matter, only broker-dealers or large
institutional investors with creation and redemption agreements known as
Authorized Participants can purchase or redeem these Creation Units. Purchasers
of Creation Units at NAV must pay a standard Creation Transaction Fee of $2,500
per transaction (assuming 50,000 Shares in each Creation Unit). The fee is a
single charge and will be the same regardless of the number of Creation Units
purchased by an investor on the same day The value of a Creation Unit as of
first creation was approximately $750,000. An Authorized Participant who holds
Creation Units and wishes to redeem at NAV would also pay a standard Redemption
Fee of $2,500 per transaction (assuming 50,000 Shares in each Creation Unit),
on the date of such redemption, regardless of the number of Creation Units
redeemed that day. If a Creation Unit is purchased or redeemed for cash, a
higher Transaction Fee will be charged. See “Transaction Fees” later in this
Prospectus.
Investors who hold Creation Units will also pay the
Annual Fund Operating Expenses described in the table above. Assuming an
investment in a Creation Unit of $750,000 and a 5% return each year, and assuming
that the Fund’s gross operating expenses remain the same, the total cost would
be $7,939 if the Creation Unit is redeemed after one year, and $19,528 if the
Creation Unit is redeemed after three years.
The Transaction Fee is not an expense of the Fund and
does not impact the Fund’s expense ratio.
24
B
UYING AND SELLING FUND SHARES
Shares of the Funds trade on the Exchange and
elsewhere during the trading day. Shares can be bought and sold throughout the
trading day like other shares of publicly traded securities. There is no
minimum investment for purchases made on the Exchange. When buying or selling
Shares through a broker, you will incur customary brokerage commissions and
charges. In addition, you will also incur the cost of the “spread,” which is
the difference between what professional investors are willing to pay for
Shares (the “bid” price) and the price at which they are willing to sell Shares
(the “ask” price). The commission is frequently a fixed amount and may be a
significant proportional cost for investors seeking to buy or sell small
amounts of Shares. The spread with respect to Shares varies over time based on
the Fund’s trading volume and market liquidity, and is generally lower if the
Fund has a lot of trading volume and market liquidity and higher if the Fund
has little trading volume and market liquidity. Because of the costs of buying
and selling Shares, frequent trading may reduce investment return.
Shares of a Fund may be acquired or redeemed directly
from the Fund only in Creation Units or multiples thereof, as discussed in the
Creations and Redemptions
section. Once
created, Shares generally trade in the secondary market in amounts less than a
Creation Unit.
Shares of the Funds trade under the trading symbols
listed for each Fund in the Description of the Funds section.
The Funds will be listed on the Exchange. The Exchange
is open for trading Monday through Friday and is closed on weekends and the
following holidays, as observed: New Year’s Day, Martin Luther King, Jr. Day,
Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Book
Entry
Shares of the Funds are held in book-entry form, which
means that no stock certificates are issued. The Depository Trust Company (“DTC”)
or its nominee, is the record owner of all outstanding Shares and is recognized
as the owner of all Shares for all purposes.
Investors owning Shares are beneficial owners as shown
on the records of DTC or its participants. DTC serves as the securities depository
for all Shares. Participants include DTC, securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that
directly or indirectly maintain a custodial relationship with DTC. As a
beneficial owner of Shares, you are not entitled to receive physical delivery
of stock certificates or to have Shares registered in your name, and you are
not considered a registered owner of Shares. Therefore, to exercise any rights
as an owner of Shares, you must rely upon the procedures of DTC and its
participants. These procedures are the same as those that apply to any
securities that you hold in book entry or “street name” form.
25
F
UND MANAGEMENT
Investment
Adviser
Global X Management Company LLC serves as the investment
adviser and the administrator for the Fund. Subject to the supervision of the
Board of Trustees, the Adviser is responsible for managing the investment
activities of the Fund and the Fund’s business affairs and other administrative
matters. The Adviser is a Delaware limited liability company with its principal
offices located at 220 Fifth Avenue, 20th Floor, New York, New York 10001.
The Fund pays for the advisory and supervisory and
administrative services it requires under what is essentially an all-in fee
structure. The Management Fees shown in the Annual Fund Operating Expenses
table reflect both an investment advisory fee and a supervisory and
administrative fee. The Adviser provides or procures supervisory and
administrative services for the Fund and also bears the costs of various
third-party services required by the Fund, including audit, portfolio
accounting, legal, transfer agency and printing costs.
For its investment advisory, supervisory and
administrative services, each Fund will pay monthly a fee to the Adviser at the
annual rate set forth in the table below (stated as a percentage of each Fund’s
respective average daily net assets):
|
|
|
|
|
Fund
|
|
Management
Fee
|
|
|
|
|
Global X FTSE Argentina 20 ETF
|
|
0.74%
|
|
Global X/InterBolsa FTSE Colombia
20 ETF
|
|
0.68%
|
|
Global X FTSE Egypt 30 ETF
|
|
0.68%
|
|
Global X FTSE Peru 20 ETF
|
|
0.68%
|
|
Global X FTSE Philippines 30 ETF
|
|
0.68%
|
The Trust, the Adviser and the Distributor each have
adopted a code of ethics, (“Code”) as required by applicable law, which is
designed to prevent affiliated persons of the Trust, the Adviser, and the
Distributor from engaging in deceptive, manipulative, or fraudulent activities
in connection with securities held or to be acquired by each Fund (which may
also be held by persons subject to a Code). There can be no assurance that the
Codes will be effective in preventing such activities. The Codes permit
personnel subject to them to invest in securities, including securities that
may be held or purchased by the Funds. The Codes are on file with the SEC and
are available to the public.
The Adviser and InterBolsa S.A. (“InterBolsa”), one of
the leading broker-dealers located in Colombia, have entered into an agreement,
pursuant to which Interbolsa agrees to provide certain marketing,
marketing-related and other services and allow the use of InterBolsa’s name and
brand with respect to the Global X/InterBolsa FTSE Colombia 20 ETF. Under this agreement,
InterBolsa has agreed to make an initial payment to the Adviser regarding certain
start up expenses for the Fund and the Adviser has agreed to share with
InterBolsa fifty percent (50%) of the Adviser’s legitimate profits with respect
to the Global X/InterBolsa FTSE
Colombia 20 ETF.
26
In addition, the Adviser may make payments out of its
own internal resources and profits from all sources to other financial
intermediaries to encourage the sale of Shares of the Funds. The payments are
intended to compensate financial intermediaries (including broker-dealers) for,
among other things: marketing Shares, which may consist of payments relating to
the Funds, including but not limited to: inclusion on preferred or recommended
fund lists or in certain sales programs from time to time sponsored by the
financial intermediaries; access to the financial intermediaries registered
sales persons; and/or other specified services or persons intended to assist in
the marketing of the Funds. Such payments may be based on various factors,
including levels of assets and/or sales (based on gross or net sales or some
other criteria). These payments may create an incentive for a financial
intermediary to sell and recommend certain investment products, including the
Funds, over other products for which it may receive less compensation. You may
contact your financial intermediary if you want information regarding the any
payment it receives from the Adviser.
Approval
of Advisory Agreement
A discussion regarding the basis for the Board of
Trustees’ approval of the investment advisory agreement will be available in
the Funds’ first annual or semi-annual report to shareholders.
Portfolio
Management
The portfolio managers who are currently responsible
for the day-to-day management of the Fund’s portfolio are Bruno del Ama and
Jose Gonzalez.
Bruno del Ama:
Bruno del Ama has been Chief Executive Officer of the Adviser since March 2008.
Prior to joining the Adviser, Mr. del Ama was a director at Radian Asset
Assurance from 2004 to 2008. Prior to 2004, Mr. del Ama was senior consultant
at Oliver Wyman. Mr. del Ama received a Masters in Business Administration from
the Wharton Business School.
Jose Gonzalez:
Jose Gonzalez has been a Principal of the Adviser since March 2008. Mr.
Gonzalez is also a registered representative of GWM Group, Inc. (“GWM”), a
registered broker-dealer and an affiliate of the Adviser. Mr. Gonzalez has been
affiliated with GWM since 2006. Prior to joining GWM, Mr. Gonzalez was a
registered representative of Broad Street Securities, Inc. Prior to 2004, Mr.
Gonzalez was a financial advisor with Lloyd, Scott, & Valenti, Ltd.
The SAI provides additional information about the
portfolio managers’ compensation structure, other accounts managed by the
portfolio managers, and the portfolio manager’s ownership of securities of the
Funds.
D
ISTRIBUTOR
SEI Investments Distribution Co. distributes Creation
Units for the Fund on an agency basis. The Distributor does not maintain a
secondary market in Shares. The Distributor has no role in determining the
policies of the Funds or the securities that are purchased or sold by each
Fund. The Distributor’s principal address is Freedom Valley Drive Oaks, PA
19456. The Distributor is not affiliated with the Adviser.
27
O
THER SERVICE PROVIDERS
SEI Investments Global Trusts Services is the
sub-administrator for each Fund.
Brown Brothers Harriman & Co. is the custodian and
transfer agent for each Fund.
Dechert LLP serves as legal counsel to each Fund.
Sanville & Company serves as the Funds’
independent registered public accounting firm. The independent registered public
accounting firm is responsible for auditing the annual financial statements of
each Fund.
S
HAREHOLDER INFORMATION
Investors may acquire Shares on the Exchange and in
the secondary markets through a broker or dealer. On the Exchange and in the
secondary markets, there is no minimum share amount you must buy or sell, with
the result that you may purchase or sell as little as one Share. Shares qualify
as margin borrowing collateral.
When you buy or sell Shares on the Exchange or in the
secondary markets, your broker will normally charge you a commission or other
transaction charges and you may pay market premiums or discounts on purchases
and sales of Shares. For information about buying and selling Shares on the
Exchange or in the secondary markets, please contact your broker or dealer.
F
REQUENT TRADING
Unlike frequent trading of shares of a traditional
open-end mutual funds (i.e., not exchange-traded shares), frequent trading of
Shares on the secondary market does not disrupt portfolio management, increase
the Funds’ trading costs, lead to realization of capitalization gains, or
otherwise harm Funds shareholders because these trades does not involve the
Funds directly. A few institutional investors are authorized to purchase and
redeem each Fund’s Shares directly with the Fund. When these trades are
effected in-kind (i.e., for securities, and not for cash), they do not cause
any of the harmful effects (noted above) that may result from frequent cash
trades. Moreover, the Fund imposes transaction fees on in-kind purchases and
redemptions of the Fund to cover the custodial and other costs incurred by the
Funds in effecting in-kind trades. These fees increase if an investor
substitutes cash in part or in whole for securities, reflecting the fact that
the Funds’ trading costs increase in those circumstances. For these reasons,
the Board of Trustees has determined that it is not necessary to adopt policies
and procedures to detect and deter frequent trading and market-timing in Shares
of the Funds.
D
ISTRIBUTION AND SERVICE PLAN
The Board of Trustees of the Trust has adopted a
distribution and services plan (“Plan”) pursuant to Rule 12b-1 under the 1940
Act. Under the Plan, each Fund is authorized to pay distribution fees in
connection with the sale and distribution of its Shares and pay service fees in
connection with the provision of ongoing services to shareholders of each class
and the maintenance of shareholder accounts in an amount up to 0.25% of its
average daily net assets each year.
28
No Rule 12b-1 fees are currently paid by the Funds,
and there are no current plans to impose these fees. However, in the event Rule
12b-1 fees are charged in the future, because these fees are paid out of each
Fund’s assets on an ongoing basis, these fees will increase the cost of your
investment in the Funds. By purchasing Shares subject to distribution fees and
service fees, you may pay more over time than you would by purchasing Shares
with other types of sales charge arrangements. Long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the rules of FINRA. The net income attributable to Shares will be
reduced by the amount of distribution fees and service fees and other expenses
of the Funds.
D
ETERMINATION OF NET ASSET VALUE
Each Fund calculates its NAV generally once daily
Monday through Friday generally as of the regularly scheduled close of business
of the New York Stock Exchange (“NYSE”) (normally 4:00 p.m. Eastern time) on
each day that the NYSE, the Exchange and the Funds’ custodian are open for
business, based on prices at the time of closing, provided that any assets or
liabilities denominated in currencies other than the U.S. dollar shall be
translated into U.S. dollars at the prevailing market rates on the date of
valuation as quoted by one or more major banks or dealers that make a two-way
market in such currencies (or a data service provider based on quotations
received from such banks or dealers). The NAV of each Fund is calculated by
dividing the value of the net assets of such Fund (i.e., the value of its total
assets less total liabilities) by the total number of outstanding Shares,
generally rounded to the nearest cent.
In calculating the Fund’s NAV, the Fund’s investments
are generally valued using market valuations. A market valuation generally
means a valuation (i) obtained from an exchange, a pricing service, or a major
market maker (or dealer), (ii) based on a price quotation or other equivalent
indication of value supplied by an exchange, a pricing service, or a major
market maker (or dealer), or (iii) based on amortized cost. In the case of
shares of funds that are not traded on an exchange, a market valuation means
such Fund’s published NAV per share. A Fund may use various pricing services or
discontinue the use of any pricing service. A price obtained from a pricing
service based on such pricing service’s valuation matrix may be considered a
market valuation.
In the event that current market valuations are not
readily available or such valuations do not reflect current market values, the
affected investments will be valued using fair value pricing pursuant to the
pricing policy and procedures approved by the Fund’s Board of Trustees. The
frequency with which a Fund’s investments are valued using fair value pricing
is primarily a function of the types of securities and other assets in which
the Fund invests pursuant to its investment objective, strategies and
limitations.
Investments that may be valued using fair value
pricing include, but are not limited to: (i) an unlisted security related to
corporate actions; (ii) a restricted security (i.e., one that may not be
publicly sold without registration under the Securities Act of 1933, as amended
(the “Securities Act”)); (iii) a security whose trading has been suspended or
which has been de-listed from its primary trading exchange; (iv) a security
that is thinly traded; (v) a security in default or bankruptcy proceedings for
which there is no current market quotation; (vi) a security affected by currency
controls or restrictions; and (vii) a security affected by a significant event
(i.e., an
29
event that occurs after the close of the markets on
which the security is traded but before the time as of which the Fund’s NAV is
computed and that may materially affect the value of the Fund’s investments).
Examples of events that may be “significant events” are government actions,
natural disasters, armed conflict, acts of terrorism, and significant market
fluctuations.
Valuing a Fund’s investments using fair value pricing
will result in using prices for those investments that may differ from current
market valuations. Use of fair value prices and certain current market
valuations could result in a difference between the prices used to calculate
the Fund’s net asset value and the prices used by the Fund’s Underlying Index,
which, in turn, could result in a difference between the Fund’s performance and
the performance of the Fund’s Underlying Index.
Because foreign markets may be open on different days
than the days during which a shareholder may purchase Shares, the value of the
Fund’s investments may change on days when shareholders are not able to
purchase Shares. Additionally, due to varying holiday schedules redemption
requests made on certain dates may result in a settlement period exceeding
seven calendar days. A list of the holiday schedules of the foreign exchanges
of the Funds’ Underlying Indexes, as well as the dates on which a settlement
period would exceed seven calendar days in 2008 is contained in the SAI.
The value of assets denominated in foreign currencies
is converted into U.S. dollars using exchange rates deemed appropriate by the
Adviser as investment adviser. Any use of a different rate from the rates used
by each Index Provider may adversely affect the Fund’s ability to track its
Underlying Index.
D
IVIDENDS AND DISTRIBUTIONS
Dividends from net investment income, including any
net foreign currency gains, generally are declared and paid at least annually
and any net realized securities gains are distributed at least annually. In
order to improve tracking error or comply with the distribution requirements of
the Internal Revenue Code of 1986, dividends may be declared and paid more
frequently than annually for the Funds.
Dividends and other distributions on Shares are distributed on a pro
rata basis to beneficial owners of such Shares. Dividend payments are made
through DTC participants to beneficial owners then of record with proceeds
received from a Fund. Dividends and securities gains distributions are
distributed in U.S. dollars and cannot be automatically reinvested in
additional Shares.
No dividend reinvestment service is provided by the Trust.
Broker-dealers may make available the DTC book-entry Dividend Reinvestment
Service for use by beneficial owners of the Fund for reinvestment of their
dividend distributions. Beneficial owners should contact their broker to
determine the availability and costs of the service and the details of
participation therein. Brokers may require beneficial owners to adhere to
specific procedures and timetables. If this service is available and used,
dividend distributions of both income and realized gains will be automatically
reinvested in additional whole Shares purchased in the secondary market.
30
TAXES
The following is a summary of certain tax
considerations that may be relevant to an investor in the Funds. Except where
otherwise indicated, the discussion relates to investors who are individual
United States citizens or residents and is based on current tax law. You should
consult your tax advisor for further information regarding federal, state,
local and/or foreign tax consequences relevant to your specific situation.
Distributions
.
Each Fund intends to qualify as a regulated investment company for federal tax
purposes, and to distribute to shareholders substantially all of its net
investment income and net capital gain each year. Except as otherwise noted
below, you will generally be subject to federal income tax on a Fund’s
distributions to you. For federal income tax purposes, Fund distributions
attributable to short-term capital gains and net investment income are taxable
to you as ordinary income. Distributions attributable to net capital gains (the
excess of net long-term capital gains over net short-term capital losses) of a
Fund generally are taxable to you as long-term capital gains. This is true no
matter how long you own your Shares. The maximum long-term capital gain rate
applicable to individuals, estates and trusts of currently 15% is currently
scheduled to expire after 2010. You will be notified annually of the tax status
of distributions to you.
Distributions of “qualifying dividends” will also
generally be taxable to you at long-term capital gain rates, as long as certain
requirements are met. After 2010, qualifying dividends are currently scheduled
to be taxed as ordinary income, rather than at capital gain rates. In general,
if 95% or more of the gross income of a Fund (other than net capital gain)
consists of dividends received from domestic corporations or “qualified”
foreign corporations (“qualifying dividends”), then all distributions paid by a
Fund to individual shareholders will be treated as qualifying dividends. But if
less than 95% of the gross income of a Fund (other than net capital gain)
consists of qualifying dividends, then distributions paid by such Fund to
individual shareholders will be qualifying dividends only to the extent they
are derived from qualifying dividends earned by such Fund. For the lower rates
to apply, you must have owned your Shares for at least 61 days during the
121-day period beginning on the date that is 60 days before such Fund’s
ex-dividend date (and such Fund will need to have met a similar holding period
requirement with respect to the shares of the corporation paying the qualifying
dividend). The amount of a Fund’s distributions that qualify for this favorable
treatment may be reduced as a result of such Fund’s securities lending
activities (if any), a high portfolio turnover rate or investments in debt
securities or “non-qualified” foreign corporations. In addition, whether
distributions received from foreign corporations are qualifying dividends will
depend on several factors including the country of residence of the corporation
making the distribution. Accordingly, distributions from many of the Fund’s
holdings may not be qualifying dividends.
A portion of distributions paid by a Fund to
shareholders who are corporations may also qualify for the dividends-received
deduction for corporations, subject to certain holding period requirements and
debt financing limitations. The amount of the dividends qualifying for this
deduction may, however, be reduced as a result of such Fund’s securities
lending activities, by a high portfolio turnover rate or by investments in debt
securities or foreign corporations.
Distributions from a Fund will generally be taxable to
you in the year in which they are paid, with one exception. Dividends and
distributions declared by a Fund in October, November or
31
December and paid in January of the following year are
taxed as though they were paid on December 31.
You should note that if you buy Shares of a Fund
shortly before it makes a distribution, the distribution will be fully taxable
to you even though, as an economic matter, it simply represents a return of a
portion of your investment. This adverse tax result is known as “buying into a
dividend.”
Cash
Redemptions
.
The
Global X FTSE Egypt 20 ETF, Global X FTSE Argentina 20 ETF, Global X/InterBolsa
FTSE Colombia 20 ETF, and Global X FTSE Peru 20 do not generally make in-kind
redemptions. However, the Funds may be required to sell portfolio securities to
obtain the cash needed to distribute redemption proceeds. This may cause the
Funds to recognize a capital gain they might not have recognized if they had
made a redemption in-kind. As a result, the Funds may pay out higher annual
capital gain distributions than if in-kind redemptions were made.
Foreign
Taxes
. Each Fund will be subject to foreign withholding taxes
with respect to certain dividends or interest received from sources in foreign
countries. If at the close of the taxable year more than 50% in value of a
Fund’s assets consists of stock in foreign corporations, such Fund will be
eligible to make an election to treat a proportionate amount of those taxes as
constituting a distribution to each shareholder, which would allow you either
(subject to certain limitations) (1) to credit that proportionate amount of
taxes against U.S. Federal income tax liability as a foreign tax credit or (2)
to take that amount as an itemized deduction. If a Fund is not eligible or
chooses not to make this election it will be entitled to deduct such taxes in
computing the amounts it is required to distribute.
Sales
and Exchanges
. The sale of Shares is a taxable event on which
a gain or loss may be recognized. The amount of gain or loss is based on the
difference between your tax basis in Shares and the amount you receive for them
upon disposition. Generally, you will recognize long-term capital gain or loss
if you have held your Fund Shares for over one-year at the time you sell or
exchange them. Gains and losses on Shares held for one-year or less will
generally constitute short-term capital gains, except that a loss on Shares
held six months or less will be recharacterized as a long-term capital loss to
the extent of any long-term capital gains distributions that you have received
on the Shares. A loss realized on a sale or exchange of Fund Shares may be
disallowed under the so-called “wash sale” rules to the extent the Shares
disposed of are replaced with other Shares of that same Fund within a period of
61 days beginning 30 days before and ending 30 days after the Shares are
disposed of, such as pursuant to a dividend reinvestment in Shares of a Fund.
If disallowed, the loss will be reflected in an adjustment to the basis of the
Shares acquired.
IRAs
and Other Tax-Qualified Plans
. The one major exception to the
preceding tax principles is that distributions on, and sales, exchanges and
redemptions of, Shares held in an IRA or other tax-qualified plan will not be
currently taxable unless the Shares were purchased with borrowed funds.
Backup
Withholding
. Each Fund will be required in certain cases to
withhold and remit to the U.S. Treasury 28% of the dividends and gross sales
proceeds paid to any shareholder (i) who had
32
provided either an incorrect tax identification number
or no number at all, (ii) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of taxable interest or
dividend income properly, or (iii) who has failed to certify to a Fund, when
required to do so, that he or she is not subject to backup withholding or is an
“exempt recipient.”
U.S.
Tax Treatment of Foreign Shareholders
. A foreign shareholder
generally will not be subject to U.S. withholding tax in respect of proceeds
from, or gain on, the redemption of Shares or in respect of capital gain
dividends (i.e., dividends attributable to long-term capital gains of a Fund)
unless, in the case of a shareholder who is a non-resident alien individual,
the shareholder is present in the United States for 183 days or more during the
taxable year and certain other conditions are met. Foreign shareholders
generally will be subject to U.S. withholding tax at a rate of 30% (or a lower
treaty rate, if applicable) on distributions by such Fund of net investment
income, other ordinary income, and the excess, if any, of net short-term
capital gain over net long-term capital loss for the year, unless the
distributions are effectively connected with a U.S. trade or business of the
shareholder. Foreign shareholders should consult their tax advisors regarding
the U.S. and foreign tax consequences of investing in the Fund.
State
and Local Taxes
. You may also be subject to state and local
taxes on income and gain attributable to your ownership of Shares. State income
taxes may not apply, however, to the portions of the Fund’s distributions, if
any, that are attributable to interest earned by a Fund on U.S. government
securities. You should consult your tax advisor regarding the tax status of
distributions in your state and locality.
Consult
Your Tax Professional
. Your investment in a Fund could have
additional tax consequences. You should consult your tax professional for
information regarding all tax consequences applicable to your investments in a
Fund. More tax information relating to the Funds is also provided in the
Statement of Additional Information. This short summary is not intended as a
substitute for careful tax planning.
Creations and Redemptions
Shares traded in the secondary market are “created” at
NAV by market makers, large investors and institutions only in block-size
Creation Units. The number of Shares per Creation Unit for each Fund is listed
below:
|
|
|
|
|
|
Fund
|
|
Number of
Shares
per Creation Unit
|
|
|
|
|
|
|
Global X FTSE Argentina 20 ETF
|
|
50,000
|
|
|
Global X/InterBolsa FTSE
Colombia 20 ETF
|
|
50,000
|
|
|
Global X FTSE Egypt 30 ETF
|
|
50,000
|
|
|
Global X FTSE Peru 20 ETF
|
|
50,000
|
|
|
Global X FTSE Philippines 30 ETF
|
|
50,000
|
|
Each “creator” enters into an authorized participant
agreement with SEI Investments Distribution Co., the Fund’s Distributor, which
is subject to acceptance by the transfer agent, and then deposits into the
applicable Fund a portfolio of securities closely approximating the holdings of
the Fund and/or, depending on the Fund, a specified amount of cash in exchange
for a specified
33
number of Creation Units. Shares can be redeemed only
in a specified number of Creation Units, principally in-kind for a portfolio of
securities held by the Fund and a specified amount of cash. Except when
aggregated in Creation Units, Shares are not redeemable. The prices at which creations
and redemptions occur are based on the next calculation of NAV after an order
is received in a form described in the authorized participant agreement.
Certain countries have instituted capital controls
that prohibit the repatriation of capital and free transfers of securities.
Certain countries may also have settlement, clearance and/or registration
problems. In this regard, it is anticipated that the Global X FTSE Egypt 20 ETF
will make creations and redemptions in U.S. dollars, rather than in-kind. The
Global X FTSE Argentina 20 ETF, Global X/InterBolsa FTSE Colombia 20 ETF and
Global X FTSE Peru 20 ETF will make creations and redemptions substantially
(e.g., approximately over 50%) in U.S. dollars and the remainder in-kind. The
Global X FTSE Philippines 30 ETF will make creations and redemptions in-kind.
The Trust may in its discretion make available purchases and redemptions of
Creation Units of Shares in U.S. dollars rather than on an in-kind basis.
The Fund intends to comply with the federal securities
laws in accepting securities for deposits and satisfying redemptions with
redemption securities, including requiring that the securities accepted for
deposits and the securities delivered to satisfy redemption requests are
securities that may be sold in transactions that would be exempt from
registration under the Securities Act. Further, an Authorized Participant that
is not a “qualified institutional buyer,” as such term is defined under Rule
144A of the Securities Act, will not be able to receive Fund securities that
are restricted securities eligible for resale under Rule 144A.
Creations and redemptions must be made through a firm
that is either a member of the Continuous Net Settlement System of the National
Securities Clearing Corporation (“NSCC”) or a DTC participant, and in each
case, must have executed an authorized participant agreement with the
Distributor with respect to creations and redemptions of Creation Units.
Information about the procedures regarding creation and redemption of Creation
Units (including the cutoff times for receipt of creation and redemption
orders) is included in the SAI.
Because new Shares may be created and issued on an
ongoing basis, at any point during the life of a Fund a “distribution,” as such
term is used in the Securities Act, may be occurring. 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 that could render them statutory underwriters and subject to the
prospectus delivery and liability provisions of the Securities Act.
Nonetheless, any determination of whether one is an underwriter must take into
account all the relevant facts and circumstances of each particular case.
Broker-dealers should also note that dealers who are
not “underwriters,” but are participating in a distribution (as contrasted to
ordinary secondary 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. For delivery of prospectuses to
exchange members, the prospectus delivery mechanism of Rule 153 under the
Securities Act is available only with respect to transactions on a national
securities exchange.
34
TRANSACTION FEES
Each Fund will impose a purchase transaction fee and a
redemption transaction fee to offset transfer and other transaction costs
associated with the issuance and redemption of Creation Units. Purchasers and
redeemers of Creation Units for cash are required to pay a higher fee to
compensate for brokerage and market impact expenses and other associated costs.
The standard creation and redemption transaction fees for creations and
redemptions in kind for the Fund are discussed below. The standard creation
transaction fee is charged to each purchaser on the day such purchaser creates
a Creation Unit. The fee is a single charge and will be the amount indicated
below regardless of the number of Creation Units purchased by an investor on
the same day. Similarly, the redemption transaction fee will be the amount
indicated regardless of the number of Creation Units redeemed that day. The
Adviser may, from time to time, at its own expense, compensate purchasers of
Creation Units who have purchased substantial amounts of Creation Units and
other financial institutions for administrative or marketing services.
The standard creation and redemption transaction fees
for creations and redemptions through DTC for cash (when cash creations and
redemptions are available or specified) will also be subject to a higher fee up
to the maximum amount shown below under “Maximum Additional Variable Charge for
Cash Purchases/Maximum Additional Variable Charge for Cash Redemptions.” In
addition, purchasers of shares in Creation Units are responsible for payment of
the costs of transferring the securities to the Fund. Redeemers of shares in
Creation Units are responsible for the costs of transferring the securities
from the Fund. Investors who use the services of a broker or other such
intermediary may pay fees for such services.
The following table shows
the Standard Fee for in-kind and cash purchases and redemptions for each Fund:
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|
|
|
|
|
|
Fund
|
|
Fee for
In-
Kind and Cash
Purchases and
Redemptions
|
|
Maximum
Additional Variable
Charge for Cash
Purchases*
|
|
Maximum
Additional
Variable Charge
for Cash
Redemptions*
|
|
|
|
|
|
|
|
|
Global X FTSE Argentina 20 ETF
|
|
$1,300
|
|
**
|
|
***
|
|
Global X/InterBolsa FTSE
Colombia 20 ETF
|
|
$2,600
|
|
**
|
|
***
|
|
Global X FTSE Egypt 30 ETF
|
|
$3,000
|
|
**
|
|
***
|
|
Global X FTSE Peru 20 ETF
|
|
$2,600
|
|
**
|
|
***
|
|
Global X FTSE Philippines 30 ETF
|
|
$2,500
|
|
3%
|
|
2%
|
|
|
|
|
*
|
As a percentage of the
value of the amount invested
|
|
|
|
|
|
|
|
**
|
The maximum additional
variable charge for cash purchases and redemptions will be a percentage of
the value of the portfolio securities comprising the Creation Units purchased
or redeemed, which will not exceed 3%.
|
|
|
|
|
***
|
The maximum additional
variable charge for cash redemptions will be a percentage of the value of the
portfolio securities comprising the Creation Units redeemed, which will not
exceed 2%.
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|
|
|
OTHER INFORMATION
The Funds are not sponsored, endorsed, sold or
promoted by the Exchange. The Exchange makes no representation or warranty,
express or implied, to the owners of Shares or any member
35
of the public regarding the advisability of investing
in securities generally or in the Funds particularly or the ability of the
Funds to achieve their objectives. The Exchange has no obligation or liability
in connection with the administration, marketing or trading of the Funds.
For purposes of the 1940 Act, Shares are issued by a
registered investment company and purchases of such Shares by investment
companies and companies relying on Section 3(c)(1) or 3(c)(7) of the 1940 Act
are subject to the restrictions set forth in Section 12(d)(1) of the 1940 Act,
except as permitted by an exemptive order that permits registered investment
companies to invest in Shares beyond the limits in Section 12(d)(1)(A), subject
to certain terms and conditions, including that the registered investment
company and companies relying on Section 3(c)(1) or 3(c)(7) of the 1940 Act
enter into an agreement with the Trust regarding the terms of the investment.
The Trust has obtained an SEC order permitting
registered investment companies to invest in Shares as described above. One
such condition stated in the order is that registered investment companies
relying on the order must enter into a written agreement with the Trust.
INFORMATION REGARDING THE INDEX PROVIDER
FTSE International Limited (“FTSE”) is a world-leader
in the creation and management of over 100,000 equity, bond and hedge fund
indices. With offices in Beijing, London, Frankfurt, Hong Kong, Boston,
Shanghai, Madrid, Paris, New York, San Francisco, Sydney and Tokyo, FTSE Group
services clients in 77 countries worldwide. FTSE is an independent company
owned by The Financial Times and the London Stock Exchange. FTSE does not give
financial advice to clients, which allows for the provision of truly objective
market information. FTSE indices are used extensively by investors world-wide
such as consultants, asset owners, asset managers, investment banks, stock
exchanges and brokers. FTSE does not sponsor, endorse or promote any of the
Funds and is not in any way connected to them and does not accept any liability
in relation to their issue, operation and trading.
FINANCIAL HIGHLIGHTS
The Funds are newly organized and therefore has not
yet had any operations as of the date of this Prospectus.
36
For more
information visit our website at or
call
1-888-GXFund-1 (1-888-493-8631)
www.globalxfunds.com
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Investment Adviser
Global X Management Company LLC
220 Fifth Avenue, 20th Floor
New York, NY 10001
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Distributor
SEI Investments Distribution Co.
Freedom Valley Drive
Oaks, PA 19456
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Custodian and Transfer
Agent
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
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Sub-Administrator
SEI Investments Global Trusts Services
Freedom Valley Drive
Oaks, PA 19456
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|
Legal Counsel
Dechert LLP
1775 I Street
Washington, DC 20006-2401
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Independent
Registered Public
Accounting Firm
Sanville & Company
1514 Old York Road
Abington, PA 19001
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37
A Statement of Additional Information dated January
20, 2009, which contains more details about the Funds, is incorporated by
reference in its entirety into this Prospectus, which means that it is legally
part of this Prospectus.
You will find additional information about each Fund
in its annual and semi-annual reports to shareholders, when available. The
annual report will explain the market conditions and investment strategies
affecting each Fund’s performance during its last fiscal year.
You can ask questions or obtain a free copy of each
Fund’s shareholder report or the Statement of Additional Information by calling
1-888-GXFund-1 (1-888-493-8631). Free copies of the Fund’s shareholder report
and the Statement of Additional Information are available from our website at
www.globalxfunds.com.
Information about each Fund, including its reports and
the Statement of Additional Information, has been filed with the SEC. It can be
reviewed and copied at the SEC’s Public Reference Room in Washington, DC or on
the EDGAR database on the SEC’s internet site (http://www.sec.gov). Information
on the operation of the SEC’s Public Reference Room may be obtained by calling
the SEC at 1-202-551-8090. You can also request copies of these materials, upon
payment of a duplicating fee, by electronic request at the SEC’s e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the SEC, 100
F Street NE, Room 1580, Washington, DC 20549.
PROSPECTUS
Distributor
SEI
Investments Distribution Co.
Freedom Valley Drive
Oaks, PA 19456
January 20,
2009
Investment Company Act File No.: 811-22209
GLOBAL X FUNDS
Statement of Additional Information
Dated January 20, 2009
This Statement
of Additional Information (“Additional Statement”) is not a prospectus. It
should be read in conjunction with the current Prospectus (“Prospectus”) for
the following Funds (“Funds”) of Global X Funds (“Trust”) as such Prospectus
may be revised or supplemented from time to time:
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|
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Global X FTSE Argentina 20 ETF
|
|
Global X/InterBolsa FTSE Colombia 20 ETF
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|
Global X
FTSE Egypt 30 ETF
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|
Global X
FTSE Peru 20 ETF
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|
Global X
FTSE Philippines 30 ETF
|
The Prospectus
for the various Funds is dated January 20, 2009. Capitalized terms used herein
that are not defined have the same meaning as in the Prospectus, unless
otherwise noted. A copy of the Prospectus may be obtained without charge by
writing to SEI Investments Global Trusts Services, Freedom Valley Drive Oaks,
PA 19456, calling 1-888-GXFund-1 (1-888-493-8631) or visiting
www.globalxfunds.com.
i
ii
GENERAL
DESCRIPTION OF THE TRUST AND ITS FUNDS
The Trust
currently consists of six investment portfolios. The Trust was formed as a
Delaware Statutory Trust on March 6, 2008 and is authorized to have multiple
series or portfolios. The Trust is an open-end management investment company,
registered under the Investment Company Act of 1940, as amended (“1940 Act”).
The offering of the Trust’s shares is registered under the Securities Act of
1933, as amended (“Securities Act”). This Statement of Additional Information
relates to the following Funds:
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|
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Global X FTSE Argentina 20 ETF
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|
Global X/InterBolsa FTSE Colombia 20 ETF
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|
Global X
FTSE Egypt 30 ETF
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|
Global X
FTSE Peru 20 ETF
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|
Global X
FTSE Philippines 20 ETF
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|
The investment
objective of each Fund is to provide investment results that correspond
generally to the price and yield performance, before fees and expenses, of a
specified benchmark index (“Underlying Index”). Each Fund is managed by Global
X Management Company LLC (“Adviser”).
The Funds
offer and issue shares at its net asset value per share (“NAV”) only in
aggregations of a specified number of shares (each, a “Creation Unit” or a
“Creation Unit Aggregation”), generally in exchange for a basket of equity
securities included in its Underlying Index (“Deposit Securities”), together
with the deposit of a specified cash payment (“Cash Component”). The shares of
the Funds are, or will be, listed and expected to be traded on the NYSE Arca
(“Exchange”).
Shares trade
in the secondary market and elsewhere at market prices that may be at, above or
below NAV. Shares are redeemable only in Creation Unit Aggregations and,
generally, in exchange for portfolio securities and a Cash Component. Creation
Units typically are a specified number of shares. The number of shares per
Creation Unit of each Fund are as follows:
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Fund
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Number of Shares per
Creation Unit
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Global X FTSE Argentina 20 ETF
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50,000
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Global X/InterBolsa FTSE Colombia 20 ETF
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50,000
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Global X FTSE Egypt 30 ETF
|
|
50,000
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|
Global X
FTSE Peru 20 ETF
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|
50,000
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Global X
FTSE Philippines 30 ETF
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50,000
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|
The Trust
reserves the right to offer a “cash” option for creations and redemptions of
shares. Shares may be issued in advance of receipt of Deposit Securities
subject to various conditions including a requirement to maintain on deposit
with the Trust cash at least equal to 110% of the market value of the missing
Deposit Securities. The required amount of deposit may be changed by the
Adviser from time to time. See the Purchase and Redemption of Creation Units
section of this Statement of Additional Information for further discussion. In
each instance of such cash creations or redemptions, transaction fees may be
imposed that will be in addition to the transaction fees associated with
in-kind creations or redemptions. In all cases, such conditions and fees will
be limited in accordance with the requirements of the Securities and Exchange
Commission (“SEC”) applicable to management investment companies offering
redeemable securities.
ADDITIONAL
INVESTMENT INFORMATION
EXCHANGE LISTING AND TRADING
A discussion
of exchange listing and trading matters associated with an investment in each
Fund is contained in the Prospectus. The discussion below supplements, and
should be read in conjunction with, that section of the Prospectus.
1
Shares of each
Fund are listed for trading on the Exchange and trade throughout the day on the
Exchange and other secondary markets. There can be no assurance that the
requirements of the Exchange necessary to maintain the listing of shares of any
Fund will continue to be met. The Exchange may, but is not required to, remove
the shares of a Fund from its listing if (1) following the initial twelve-month
period beginning upon the commencement of trading of a Fund, there are fewer
than fifty (50) record and/or beneficial holders of the Fund for thirty (30) or
more consecutive trading days, (2) the value of the Underlying Index on which
the Fund is based is no longer calculated or available, (3) the “indicative
optimized portfolio value” (“IOPV”) of a Fund is no longer calculated or
available, or (4) any other event shall occur or condition exist that, in the
opinion of the Exchange, makes further dealings on the Exchange inadvisable.
The Exchange will remove the shares of a Fund from listing and trading upon
termination of the Fund.
As in the case
of other publicly-traded securities, brokers’ commissions on transactions will
be based on negotiated commission rates at customary levels.
In order to
provide additional information regarding the indicative value of shares of each
Fund, the Exchange disseminates every fifteen seconds, through the facilities
of the Consolidated Tape Association, an updated IOPV for each Fund as
calculated by an information provider or a market data vendor. The Trust is not
involved in or responsible for any aspect of the calculation or dissemination
of the IOPVs, and makes no representation or warranty as to the accuracy of the
IOPVs.
An IOPV has an
equity securities value component and a cash component. The equity securities
values included in an IOPV are the values of the Deposit Securities for the
applicable Fund. While the IOPV reflects the current market value of the
Deposit Securities required to be deposited in connection with the purchase of
a Creation Unit Aggregation, it does not necessarily reflect the precise
composition of the current portfolio of securities held by the applicable Fund
at a particular point in time because the current portfolio of the Fund may
include securities that are not a part of the Deposit Securities. Therefore, a
Fund’s IOPV disseminated during the Exchange trading hours should not be viewed
as a real time update of the Fund’s NAV, which is calculated only once a day.
In addition to
the equity component described in the preceding paragraph, the IOPV for each
Fund includes a cash component consisting of estimated accrued dividends and
other income, less expenses. If applicable, each IOPV also reflects changes in
currency exchange rates between the U.S. Dollar and the applicable foreign
currency.
The Trust
reserves the right to adjust the share prices of Funds in the future to
maintain convenient trading ranges for investors. Any adjustments would be
accomplished through stock splits or reverse stock splits, which would have no
effect on the net assets of the applicable Fund.
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
Each Fund
seeks to achieve its objective by investing primarily in securities issued by
companies that comprise the relevant Underlying Index and through transactions
that provide substantially similar exposure to securities in the Underlying
Index. Each Fund operates as an index fund and will not be actively managed.
Adverse performance of a security in a Fund’s portfolio will ordinarily not
result in the elimination of the security from the Fund’s portfolio. The Fund
will normally invest at least 80% of its total assets in the securities of its
Underlying Index and in American Depositary Receipts (“ADRs”), Global
Depositary Receipts (“GDRs”) and Euro Depositary Receipts (“EDRs”)
(collectively “Depositary Receipts”) based on the securities in its Underlying
Index. Each Fund may also invest up to 20% of its assets in certain futures,
options and swap contracts, cash and cash equivalents, as well as in stocks not
included in its Underlying Index but which the Adviser believes will help the
Fund track its Underlying Index.
The Funds will
use a replication strategy. A replication strategy is an indexing strategy that
involves investing in the securities of the Underlying Index in approximately
the same proportions as in the Underlying Index. However, the Funds may utilize
a representative sampling strategy with respect to its Underlying Index when a
replication strategy might be detrimental to its shareholders, such as when
there are practical difficulties or substantial costs involved in compiling a
portfolio of equity securities to follow its Underlying Index, in certain
instances, when a securities in the Underlying Index become temporarily
illiquid, unavailable or less liquid, or due to legal restrictions (such as
2
diversification
requirements that apply to the Funds but not the Underlying Indexes). This is
particularly important given the limited liquidity and diversification in the
emerging and frontier markets represented by these Funds.
Each Fund has
adopted a non-fundamental investment policy in accordance with Rule 35d-1 under
the 1940 Act to invest, under normal circumstances, at least 80% of the value
of its net assets, plus the amount of any borrowings for investment purposes,
in securities of the Fund’s Underlying Index and in Depositary Receipts based
on securities in the Underlying Index. Each Fund has also adopted a policy to
provide its shareholders with at least 60 days’ prior written notice of any
change in such policy. If, subsequent to an investment, the 80% requirement is
no longer met, a Fund’s future investments will be made in a manner that will
bring the Fund into compliance with this policy.
The following
supplements the information contained in the Prospectus concerning the
investment objectives and policies of the Funds.
DEPOSITARY RECEIPTS.
Each
Fund will normally invest at least 80% of its total assets in the securities of
its Underlying Index and in Depositary Receipts based on the securities in its
Underlying Index. ADRs are receipts that are traded in the United States
evidencing ownership of the underlying foreign securities and are denominated
in U.S. dollars. EDRs and GDRs are receipts issued by a non-U.S. financial
institution evidencing ownership of underlying foreign or U.S. securities and
usually are denominated in foreign currencies. EDRs and GDRs may not be
denominated in the same currency as the securities they represent. Generally,
EDRs and GDRs are designed for use in the foreign securities markets.
To the extent
a Fund invests in ADRs, such ADRs will be listed on a national securities
exchange. To the extent a Fund invests in GDRs or EDRs, such GDRs and EDRs will
be listed on a foreign exchange. A Fund will not invest in any unlisted
Depositary Receipt or any Depository Receipt for which pricing information is
not readily available. Generally, all depositary receipts must be sponsored.
The Fund, however, may invest in unsponsored depositary receipts under certain
limited circumstances. A non-sponsored depository may not provide the same
shareholder information that a sponsored depository is required to provide
under its contractual arrangement with the issuer. Therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the depositary receipts.
NON-DIVERSIFICATION RISK.
Non-diversification
risk is the risk that a non-diversified fund may be more susceptible to adverse
financial, economic or other developments affecting any single issuer, and more
susceptible to greater losses because of these developments. Each Fund is
classified as “non-diversified” for purposes of the 1940 Act. A
“non-diversified” classification means that the Fund is not limited by the 1940
Act with regard to the percentage of its assets that may be invested in the
securities of a single issuer. The securities of a particular issuer may
dominate the Underlying Index of such a Fund and, consequently, the Fund’s
investment portfolio. Each Fund may also concentrate its investments in a
particular industry or group of industries, as noted in the description of the
Fund. The securities of issuers in particular industries may dominate the
Underlying Index of such a Fund and, consequently, the Fund’s investment
portfolio. This may adversely affect its performance or subject the Fund’s
shares to greater price volatility than that experienced by less concentrated
investment companies. Additionally, each Fund invests substantially all of its
assets within the equity markets of a single country outside the U.S.
Each Fund
intends to maintain the required level of diversification and otherwise conduct
its operations so as to qualify as a “regulated investment company” for
purposes of the Internal Revenue Code (the “IRC”), and to relieve the Fund of
any liability for federal income tax to the extent that its earnings are
distributed to shareholders. Compliance with the diversification requirements
of the IRC may limit the investment flexibility of certain Funds and may make
it less likely that such Funds will meet their investment objectives.
SHORT-TERM INSTRUMENTS AND TEMPORARY INVESTMENTS
.
To the extent consistent with its investment policies, each Fund may invest in
short-term instruments, including money market instruments, on an ongoing basis
to provide liquidity or for other reasons. Money market instruments are
generally short-term investments that may include but are not limited to: (i)
shares of money market funds; (ii) obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities (including government-sponsored
enterprises); (iii) negotiable certificates of deposit (“CDs”), bankers’
acceptances, fixed time deposits, bank notes and other obligations of U.S. and
foreign banks (including foreign branches) and similar institutions; (iv)
commercial paper rated at the date of purchase “Prime-1” by Moody’s Investors
Service, Inc. (“Moody’s”), “A-1” by Standard &
3
Poors Rating
Service (“S&P”) or, if unrated, of comparable quality as determined by the
Adviser; (v) non-convertible corporate debt securities (
e.g.
, bonds and debentures) with remaining
maturities at the date of purchase of not more than 397 days and that satisfy
the rating requirements set forth in Rule 2a-7 under the 1940 Act; (vi)
repurchase agreements; and (vii) short-term U.S. dollar-denominated obligations
of foreign banks (including U.S. branches) that, in the opinion of the Adviser,
are of comparable quality to obligations of U.S. banks which may be purchased
by a Fund. Any of these instruments may be purchased on a current or a
forward-settled basis.
Time deposits
are non-negotiable deposits maintained in banking institutions for specified
periods of time at stated interest rates. Bankers’ acceptances are time drafts
drawn on commercial banks by borrowers, usually in connection with
international transactions. Commercial paper represents short-term unsecured
promissory notes issued in bearer form by banks or bank holding companies,
corporations and finance companies. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return. Bankers’ acceptances are
negotiable drafts or bills of exchange, normally drawn by an importer or
exporter to pay for specific merchandise, which are “accepted” by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on maturity. Fixed time deposits are bank obligations payable
at a stated maturity date and bearing interest at a fixed rate. Fixed time
deposits may be withdrawn on demand by the investor, but may be subject to
early withdrawal penalties that vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party. Bank notes generally rank junior to deposit liabilities of banks and
pari passu with other senior, unsecured obligations of the bank. Bank notes are
classified as “other borrowings” on a bank’s balance sheet, while deposit notes
and certificates of deposit are classified as deposits. Bank notes are not
insured by the FDIC or any other insurer. Congress has temporarily increased
FDIC deposit insurance on deposit notes from $100,000 to $250,000 per depositor
through December 31, 2009.
Congress has
temporarily increased FDIC deposit insurance from $100,000 to $250,000 per
depositor through December 31, 2009.
Each Fund may
invest a portion of its assets in the obligations of foreign banks and foreign
branches of domestic banks. Such obligations include Eurodollar Certificates of
Deposit (“ECDs”), which are U.S. dollar-denominated certificates of deposit
issued by offices of foreign and domestic banks located outside the United
States; Eurodollar Time Deposits (“ETDs”), which are U.S. dollar-denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; Canadian Time
Deposits (“CTDs”), which are essentially the same as ETDs except they are
issued by Canadian offices of major Canadian banks; Schedule Bs, which are
obligations issued by Canadian branches of foreign or domestic banks; Yankee
Certificates of Deposit (“Yankee CDs”), which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank and held in
the United States; and Yankee Bankers’ Acceptances (“Yankee BAs”), which are
U.S. dollar-denominated bankers’ acceptances issued by a U.S. branch of a
foreign bank and held in the United States.
Commercial
paper purchased by the Funds may include asset-backed commercial paper.
Asset-backed commercial paper is issued by a special purpose entity that is
organized to issue the commercial paper and to purchase trade receivables or
other financial assets. The credit quality of asset-backed commercial paper
depends primarily on the quality of these assets and the level of any additional
credit support.
EQUITY SWAPS, TOTAL RATE OF RETURN SWAPS AND
CURRENCY SWAPS.
Each Fund may invest up to 20% of its
total assets in swap contracts.
A Fund may
enter into equity swap contracts to invest in a market without owning or taking
physical custody of securities in circumstances in which direct investment is
restricted for legal reasons or is otherwise impracticable. These instruments
are privately negotiated over-the-counter derivative products. A great deal of
flexibility is possible in the way these instruments are structured. The
counterparty to an equity swap contract will typically be a bank, investment
banking firm or broker/dealer. Equity swap contracts may be structured in
different ways. For example, a counterparty may agree to pay a Fund the amount,
if any, by which the notional amount of the equity swap contract would have
increased in value had it been invested in particular stocks (or an index of
stocks), plus the dividends that would have been received on those stocks. In these
cases, the Fund may agree to pay to the counterparty the amount, if any, by
which that notional amount would have decreased in value had it been invested
4
in the stocks.
Therefore, the return to the Fund on any equity swap contract should be the gain
or loss on the notional amount plus dividends on the stocks less the interest
paid by the Fund on the notional amount. In other cases, the counterparty and
the Fund may each agree to pay the other the difference between the relative
investment performances that would have been achieved if the notional amount of
the equity swap contract had been invested in different stocks (or indices of
stocks).
Total rate of
return swaps are contracts that obligate a party to pay or receive interest in
exchange for the payment by the other party of the total return generated by a
security, a basket of securities, an index or an index component. The Funds
also may enter into currency swaps, which involve the exchange of the rights of
a Fund and another party to make or receive payments in specific currencies.
Currency swaps involve the exchange of rights of a Fund and another party to
make or receive payments in specific currencies.
Some
transactions are entered into on a net basis,
i.e
.,
the two payment streams are netted out, with a Fund receiving or paying, as the
case may be, only the net amount of the two payments. A Fund will enter into
equity swaps only on a net basis. Payments may be made at the conclusion of an
equity swap contract or periodically during its term. Equity swaps do not
involve the delivery of securities or other underlying assets. Accordingly, the
risk of loss with respect to equity swaps is limited to the net amount of
payments that such Fund is contractually obligated to make. If the other party
to an equity swap, or any other swap entered into on a net basis, defaults, a
Fund’s risk of loss consists of the net amount of payments that such Fund is
contractually entitled to receive, if any. In contrast, other transactions may
involve the payment of the gross amount owed. For example, currency swaps
usually involve the delivery of the entire principal amount of one designated
currency in exchange for the other designated currency. Therefore, the entire
principal value of a currency swap is subject to the risk that the other party
to the swap will default on its contractual delivery obligations. To the extent
that the amount payable by a Fund under a swap is covered by segregated cash or
liquid assets, the Fund and the Adviser believe that transactions do not
constitute senior securities under the 1940 Act and, accordingly, will not
treat them as being subject to a Fund’s borrowing restrictions.
A Fund will
not enter into any swap transactions unless the unsecured commercial paper,
senior debt or claims-paying ability of the other party is rated either A, or
A-1 or better by S&P, or Fitch Ratings (“Fitch”); or A or Prime-1 or better
by Moody’s, or has received a comparable rating from another organization that
is recognized as a nationally recognized statistical rating organization
(“NRSRO”) or, if unrated by such rating organization, is determined to be of
comparable quality by the Adviser. If there is a default by the other party to
such a transaction, a Fund will have contractual remedies pursuant to the
agreements related to the transaction. Such contractual remedies, however, may
be subject to bankruptcy and insolvency laws that may affect such Fund’s rights
as a creditor (
e.g.
, a Fund may
not receive the net amount of payments that it contractually is entitled to
receive). The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the swap market
has become relatively liquid in comparison with markets for other similar
instruments which are traded in the interbank market.
The use of
equity, total rate of return and currency swaps is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions.
FOREIGN CURRENCY TRANSACTIONS.
To
the extent consistent with its investment policies, each Fund may invest in
forward foreign currency exchange contracts and foreign currency futures
contracts. No Fund, however, expects to engage in currency transactions for
speculative purposes or for the purpose of hedging against declines in the
value of a Fund’s assets that are denominated in a foreign currency. A Fund may
enter into forward foreign currency exchange contracts and foreign currency
futures contracts to facilitate local settlements or to protect against
currency exposure in connection with its distributions to shareholders.
Foreign
currency exchange contracts involve an obligation to purchase or sell a
specified currency on a future date at a price set at the time of the contract.
Forward currency contracts do not eliminate fluctuations in the values of
portfolio securities but rather allow a Fund to establish a rate of exchange
for a future point in time. Foreign currency futures contracts involve an
obligation to deliver or acquire the specified amount of a specific currency,
at a specified price and at a specified future time. Such futures contracts may
be settled on a net cash payment basis
5
rather than by
the sale and delivery of the underlying currency. A Fund may incur costs in
connection with forward foreign currency exchange and futures contracts and
conversions of foreign currencies and U.S. dollars.
Liquid assets
equal to the amount of a Fund’s assets that could be required to consummate
forward contracts will be segregated except to the extent the contracts are
otherwise “covered.” The segregated assets will be valued at market or fair
value. If the market or fair value of such assets declines, additional liquid
assets will be segregated daily so that the value of the segregated assets will
equal the amount of such commitments by the Fund. A forward contract to sell a
foreign currency is “covered” if a Fund owns the currency (or securities
denominated in the currency) underlying the contract, or holds a forward
contract (or call option) permitting the Fund to buy the same currency at a
price that is (i) no higher than the Fund’s price to sell the currency or (ii)
greater than the Fund’s price to sell the currency provided the Fund segregates
liquid assets in the amount of the difference. A forward contract to buy a
foreign currency is “covered” if a Fund holds a forward contract (or call
option) permitting the Fund to sell the same currency at a price that is (i) as
high as or higher than the Fund’s price to buy the currency or (ii) lower than
the Fund’s price to buy the currency provided the Fund segregates liquid assets
in the amount of the difference.
FOREIGN INVESTMENTS - GENERAL.
Each
Fund invests predominately in foreign securities. Investment in foreign
securities involves special risks. These include market risk, interest rate
risk and the risks of investing in securities of foreign issuers and of companies
whose securities are principally traded outside the United States on foreign
exchanges or foreign over-the-counter markets and in investments denominated in
foreign currencies. Market risk involves the possibility that stock prices will
decline over short or even extended periods. The stock markets tend to be
cyclical, with periods of generally rising prices and periods of generally
declining prices. These cycles will affect the value of a Fund to the extent
that it invests in foreign stocks. In addition, the performance of investments
in securities denominated in a foreign currency will depend on the strength of
the foreign currency against the U.S. dollar and the interest rate environment
in the country issuing the currency. Absent other events which could otherwise
affect the value of a foreign security (such as a change in the political
climate or an issuer’s credit quality), appreciation in the value of the
foreign currency generally can be expected to increase the value of a foreign
currency-denominated security in terms of U.S. dollars. A rise in foreign
interest rates or decline in the value of the foreign currency relative to the
U.S. dollar generally can be expected to depress the value of a foreign
currency-denominated security.
There are
other risks and costs involved in investing in foreign securities, which are in
addition to the usual risks inherent in domestic investments. Investment in
foreign securities involves higher costs than investment in U.S. securities,
including higher transaction and custody costs as well as the imposition of
additional taxes by foreign governments. Foreign investments also involve risks
associated with the level of currency exchange rates, less complete financial
information about the issuers, less market liquidity, more market volatility
and political instability. Future political and economic developments, the
possible imposition of withholding taxes on dividend income, the possible
seizure or nationalization of foreign holdings, the possible establishment of exchange
controls, or the adoption of other governmental restrictions might adversely
affect an investment in foreign securities. Additionally, foreign banks and
foreign branches of domestic banks are subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements. Also, the legal remedies for investors may be more limited than
the remedies available in the U.S.
Although a
Fund may invest in securities denominated in foreign currencies, its portfolio
securities and other assets are valued in U.S. dollars. Currency exchange rates
may fluctuate significantly over short periods of time causing, together with
other factors, a Fund’s NAV to fluctuate as well. Currency exchange rates can
be affected unpredictably by the intervention or the failure to intervene by
U.S. or foreign governments or central banks, or by currency controls or
political developments in the U.S. or abroad. To the extent that a Fund’s total
assets, adjusted to reflect a Fund’s net position after giving effect to
currency transactions, are denominated in the currencies of foreign countries,
a Fund will be more susceptible to the risk of adverse economic and political
developments within those countries.
A Fund also is subject to the
possible imposition of exchange control regulations or freezes on the
convertibility of currency. In addition, through the use of forward currency
exchange contracts with other instruments, any net currency positions of the
Fund may expose its to risks independent of its securities positions.
6
A Fund will be
subject to foreign withholding taxes with respect to certain dividends or
interest received from sources in foreign countries. To the extent such taxes
are not offset by credits or deductions allowed to investors under U.S. federal
income tax law, they may reduce the net return to the shareholders.
The costs
attributable to investing abroad usually are higher than investments in
domestic securities for several reasons, such as the higher cost of investment
research, higher costs of custody of foreign securities, higher commissions
paid on comparable transactions on foreign markets and additional costs arising
from delays in settlements of transactions involving foreign securities.
FOREIGN INVESTMENTS – EMERGING MARKETS.
Countries with emerging markets are generally
located in the Asia and Pacific regions, the Middle East, Eastern Europe,
Central America, South America and Africa. To the extent permitted by their
investment policies, the Funds may invest their assets in countries with
emerging economies or securities markets.
The securities markets of
emerging countries are less liquid and subject to greater price volatility, and
have a smaller market capitalization, than the U.S. securities markets. In
certain countries, there may be fewer publicly traded securities and the market
may be dominated by a few issues or sectors. Issuers and securities markets in
such countries are not subject to as extensive and frequent accounting,
financial and other reporting requirements or as comprehensive government
regulations as are issuers and securities markets in the U.S. In particular,
the assets and profits appearing on the financial statements of emerging
country issuers may not reflect their financial position or results of
operations in the same manner as financial statements for U.S. issuers.
Substantially less information may be publicly available about emerging country
issuers than is available about issuers in the United States.
Emerging country securities
markets are typically marked by a high concentration of market capitalization
and trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such securities
by a limited number of investors. The markets for securities in certain
emerging countries are in the earliest stages of their development. Even the
markets for relatively widely traded securities in emerging countries may not
be able to absorb, without price disruptions, a significant increase in trading
volume or trades of a size customarily undertaken by institutional investors in
the securities markets of developed countries. The limited size of many of
these securities markets can cause prices to be erratic for reasons apart from
factors that affect the soundness and competitiveness of the securities
issuers. For example, prices may be unduly influenced by traders who control
large positions in these markets. Additionally, market making and arbitrage
activities are generally less extensive in such markets, which may contribute
to increased volatility and reduced liquidity of such markets. The limited
liquidity of emerging country securities may also affect a Fund’s ability to
accurately value its portfolio securities or to acquire or dispose of
securities at the price and time it wishes to do so or in order to meet
redemption requests.
Certain emerging market
countries may have antiquated legal systems, which may adversely impact the
Funds. For example, while the potential liability of a shareholder in a U.S.
corporation with respect to acts of the corporation is generally limited to the
amount of the shareholder’s investment, the notion of limited liability is less
clear in certain emerging market countries. Similarly, the rights of investors
in emerging market companies may be more limited than those of shareholders in
U.S. corporations.
Transaction costs, including
brokerage commissions or dealer mark-ups, in emerging countries may be higher
than in developed securities markets. In addition, existing laws and regulations
are often inconsistently applied. As legal systems in emerging countries
develop, foreign investors may be adversely affected by new or amended laws and
regulations. In circumstances where adequate laws exist, it may not be possible
to obtain swift and equitable enforcement of the law.
Certain emerging countries
may restrict or control foreign investments in their securities markets. These
restrictions may limit a Fund’s investment in certain emerging countries and
may increase the expenses of the Fund. Certain emerging countries require
governmental approval prior to investments by foreign persons or limit
investment by foreign persons to only a specified percentage of an issuer’s
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. In addition, the repatriation of both investment
income and capital from emerging countries may be subject to restrictions which
require governmental consents or prohibit repatriation entirely for a period of
time.
7
Even where there is no
outright restriction on repatriation of capital, the mechanics of repatriation
may affect certain aspects of the operation of the Fund. A Fund may be required
to establish special custodial or other arrangements before investing in
certain emerging countries.
Emerging countries may be
subject to a substantially greater degree of economic, political and social
instability and disruption than more developed countries. This instability may
result from, among other things, the following: (i) authoritarian governments
or military involvement in political and economic decision making, including
changes or attempted changes in governments through extra-constitutional means;
(ii) popular unrest associated with demands for improved political, economic or
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; (v) ethnic, religious and racial disaffection or
conflict; and (vi) the absence of developed legal structures governing foreign
private investments and private property. Such economic, political and social
instability could disrupt the principal financial markets in which a Fund may
invest and adversely affect the value of the Fund’s assets. A Fund’s
investments can also be adversely affected by any increase in taxes or by
political, economic or diplomatic developments.
The economies of emerging
countries may suffer from unfavorable growth of gross domestic product, rates
of inflation, capital reinvestment, resources, self-sufficiency and balance of
payments. Many emerging countries have experienced in the past, and continue to
experience, high rates of inflation. In certain countries inflation has at
times accelerated rapidly to hyperinflationary levels, creating a negative
interest rate environment and sharply eroding the value of outstanding
financial assets in those countries. Other emerging countries, on the other
hand, have recently experienced deflationary pressures and are in economic
recessions. The economies of many emerging countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners. In addition, the economies
of some emerging countries are vulnerable to weakness in world prices for their
commodity exports.
Foreign markets also have
different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such delays in settlement could result in temporary periods when a portion of
the assets of a Fund remain uninvested and no return is earned on such assets.
The inability of a Fund to make intended security purchases or sales due to
settlement problems could result either in losses to a Fund due to subsequent
declines in value of the portfolio securities or, if a Fund has entered into a
contract to sell the securities, could result in possible liability to the
purchaser.
FUTURES CONTRACTS AND RELATED OPTIONS.
To
the extent consistent with its investment policies, each Fund may invest up to
20% of its total assets in U.S. or foreign futures contracts and may purchase
and sell call and put options on futures contracts. These futures contracts and
options will be used to simulate full investment in the respective Underlying
Index, to facilitate trading or to reduce transaction costs. Each Fund will only
enter into futures contracts and options on futures contracts that are traded
on a U.S. or foreign exchange. No Fund will use futures or options for
speculative purposes.
The Trust, on
behalf of each Fund, has claimed an exclusion from the definition of the term
“commodity pool operator” under the Commodity Exchange Act, and, therefore, is
not subject to registration or regulation as a pool operator under that Act
with respect to the Funds. The Funds will engage in transactions in futures
contracts and related options only to the extent such transactions are
consistent with the requirement of the Internal Revenue Code of 1986, as
amended (“Code”) for maintaining its qualifications as regulated investment
companies for federal income tax purposes.
Participation
in foreign futures and foreign options transactions involves the execution and
clearing of trades on or subject to the rules of a foreign board of trade.
Neither the National Futures Association (“NFA”) nor any domestic exchange
regulates activities of any foreign boards of trade, including the execution,
delivery and clearing of transactions, or has the power to compel enforcement
of the rules of a foreign board of trade or any applicable foreign law. This is
true even if the exchange is formally linked to a domestic market so that a
position taken on the market may be liquidated by a transaction on another
market. Moreover, such laws or regulations will vary depending on the foreign
country in which the foreign futures or foreign options transaction occurs. For
these reasons, persons who trade foreign futures or foreign options contracts
may not be afforded certain of the protective measures provided by the
Commodity Exchange Act, the Commodity Futures Trading Commission’s (“CFTC”)
8
regulations
and the rules of the NFA and any domestic exchange, including the right to use
reparations proceedings before the CFTC and arbitration proceedings provided
them by the NFA or any domestic futures exchange. In particular, a Fund’s
investments in foreign futures or foreign options transactions may not be
provided the same protections in respect of transactions on United States
futures exchanges. In addition, the price of any foreign futures or foreign
options contract may be affected by any variance in the foreign exchange rate
between the time an order is placed and the time it is liquidated, offset or
exercised.
In connection
with a Fund’s position in a futures contract or related option, the Fund will
segregate liquid assets or will otherwise cover its position in accordance with
applicable SEC requirements.
For a further
description of futures contracts and related options, see Appendix B to this
Additional Statement.
ILLIQUID OR RESTRICTED SECURITIES.
To
the extent consistent with its investment policies, each Fund may invest up to
15% of its net assets in securities that are illiquid. The Fund may purchase
commercial paper issued pursuant to Section 4(2) of the Securities Act of 1933,
as amended (“1933 Act”) and securities that are not registered under the 1933
Act but can be sold to “qualified institutional buyers” in accordance with Rule
144A under the 1933 Act. These securities will not be considered illiquid so
long as the Adviser determines, under guidelines approved by the Trust’s Board
of Trustees that an adequate trading market exists. This practice could
increase the level of illiquidity during any period that qualified
institutional buyers become uninterested in purchasing these securities.
INVESTMENT COMPANIES.
To
the extent consistent with its investment policies, each Fund may invest in the
securities of other investment companies. Such investments will be limited so
that, as determined after a purchase is made, either: (a) not more than 3% of
the total outstanding stock of such investment company will be owned by a Fund,
the Trust as a whole and its affiliated persons (as defined in the 1940 Act);
or (b) (i) not more than 5% of the value of the total assets of a Fund will be
invested in the securities of any one investment company, (ii) not more than
10% of the value of its total assets will be invested in the aggregate
securities of investment companies as a group and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund. Investments by the Funds in other investment companies, including
exchange-traded funds (“ETFs”), will be subject to the limitations of the 1940
Act except as permitted by SEC orders. The Funds may rely on SEC orders that
permit them to invest in certain ETFs beyond the limits contained in the 1940
Act, subject to certain terms and conditions. Generally, these terms and
conditions require the Board to approve policies and procedures relating to
certain of the Funds’ investments in ETFs. These policies and procedures
require, among other things, that (i) the Adviser conduct the Funds’ investment
in ETFs without regard to any consideration received by the Funds or any of its
affiliated persons and (ii) the Adviser certify to the Board quarterly that it
has not received any consideration in connection with an investment by the
Funds in an ETF, or if it has, the amount and purpose of the consideration will
be reported to the Board and an equivalent amount of advisory fees shall be
waived by the Adviser.
Certain
investment companies whose securities are purchased by the Funds may not be
obligated to redeem such securities in an amount exceeding 1% of the investment
company’s total outstanding securities during any period of less than 30 days.
Therefore, such securities that exceed this amount may be illiquid.
If required by
the 1940 Act, each Fund expects to vote the shares of other investment
companies that are held by it in the same proportion as the vote of all other
holders of such securities.
OPTIONS.
To the
extent consistent with its investment policies, each Fund may invest up to 20%
of net assets in put options and buy call options and write covered call and
secured put options. Such options may relate to particular securities, foreign
and domestic stock indices, financial instruments, foreign currencies or the
yield differential between two securities (“yield curve options”) and may or
may not be listed on a domestic or foreign securities exchange or issued by the
Options Clearing Corporation. A call option for a particular security or
currency gives the purchaser of the option the right to buy, and a writer the
obligation to sell, the underlying security at the stated exercise price prior
to the expiration of the option, regardless of the market price of the security
or currency. The premium paid to the writer is in consideration for undertaking
the obligation under the option contract. A put option for a particular
security or currency gives the purchaser the right to sell the security or
currency at the stated exercise price to the expiration date of the option,
regardless of the market price of the security or currency. In contrast to an
option on a particular security, an option on an index provides the holder with
the right to make or receive a cash settlement upon exercise of the option. The
amount of this settlement will be equal to the difference
9
between the
closing price of the index at the time of exercise and the exercise price of
the option expressed in dollars, times a specified multiple.
Options
trading is a highly specialized activity, which entails greater than ordinary
investment risk. Options on particular securities may be more volatile than the
underlying instruments and, therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying instruments themselves.
The Funds will
write call options only if they are “covered.” In the case of a call option on
a security or currency, the option is “covered” if a Fund owns the security or
currency underlying the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or, if additional cash
consideration is required, liquid assets in such amount are segregated) upon
conversion or exchange of other securities held by it. For a call option on an
index, the option is covered if a Fund maintains with its custodian a portfolio
of securities substantially replicating the index, or liquid assets equal to
the contract value. A call option also is covered if a Fund holds a call on the
same security, currency or index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written, or (ii) greater than the exercise price of the call written provided
the Fund segregates liquid assets in the amount of the difference.
All put
options written by a Fund would be covered, which means that such Fund will
segregate cash or liquid assets with a value at least equal to the exercise
price of the put option or will use the other methods described in the next
sentence. A put option also is covered if a Fund holds a put option on the same
security or currency as the option written where the exercise price of the
option held is (i) equal to or higher than the exercise price of the option
written, or (ii) less than the exercise price of the option written provided
the Fund segregates liquid assets in the amount of the difference.
With respect
to yield curve options, a call (or put) option is covered if a Fund holds another
call (or put) option on the spread between the same two securities and
segregates liquid assets sufficient to cover the Fund’s net liability under the
two options. Therefore, the Fund’s liability for such a covered option
generally is limited to the difference between the amount of the Fund’s
liability under the option written by the Fund less the value of the option
held by the Fund. Yield curve options also may be covered in such other manner
as may be in accordance with the requirements of the counterparty with which
the option is traded and applicable laws and regulations.
A Fund’s
obligation to sell subject to a covered call option written by it, or to
purchase a security or currency subject to a secured put option written by it,
may be terminated prior to the expiration date of the option by the Fund’s
execution of a closing purchase transaction, which is effected by purchasing on
an exchange an option of the same series (
i.e
.,
same underlying security or currency, exercise price and expiration date) as
the option previously written. Such a purchase does not result in the ownership
of an option. A closing purchase transaction will ordinarily be effected to
realize a profit on an outstanding option, to prevent an underlying instrument
from being called, to permit the sale of the underlying security or currency or
to permit the writing of a new option containing different terms on such
underlying security. The cost of such a liquidation purchase plus transaction
costs may be greater than the premium received upon the original option, in
which event the Fund will have incurred a loss in the transaction. There is no
assurance that a liquid secondary market will exist for any particular option.
An option writer, unable to effect a closing purchase transaction, will not be
able to sell the underlying security or currency (in the case of a covered call
option) or liquidate the segregated assets (in the case of a secured put
option) until the option expires or the optioned security or currency is
delivered upon exercise with the result that the writer in such circumstances
will be subject to the risk of market decline or appreciation in the instrument
during such period.
When a Fund
purchases an option, the premium paid by it is recorded as an asset of the Fund.
When a Fund writes an option, an amount equal to the net premium (the premium
less the commission) received by the Fund is included in the liability section
of the Fund’s statement of assets and liabilities as a deferred credit. The
amount of this asset or deferred credit will be subsequently marked-to-market
to reflect the current value of the option purchased or written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the current bid price. If an option purchased by the Fund expires unexercised,
the Fund realizes a loss equal to the premium paid. If a Fund enters into a
closing sale transaction on an option purchased by it, the Fund will realize a
gain if the premium received by the Fund on the closing transaction is more
than the premium paid to purchase the option, or a loss if it is less. If an
option written by a Fund expires on the stipulated expiration date or if a Fund
enters into a closing
10
purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option written
by a Fund is exercised, the proceeds of the sale will be increased by the net
premium originally received and the Fund will realize a gain or loss.
There are
several risks associated with transactions in certain options. For example,
there are significant differences between the securities, currency and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. In addition, a
liquid secondary market for particular options, whether traded over-the-counter
or on an exchange, may be absent for reasons which include the following: there
may be insufficient trading interest in certain options; restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
trading halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities or currencies;
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; the facilities of an exchange or the Options Clearing Corporation may
not at all times be adequate to handle current trading value; or one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options that had been issued by the Options Clearing Corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms.
REPURCHASE AGREEMENTS.
To
the extent consistent with its investment policies, each Fund may agree to
purchase portfolio securities from financial institutions subject to the
seller’s agreement to repurchase them at a mutually agreed upon date and price
(“repurchase agreements”). Repurchase agreements are considered to be loans
under the 1940 Act. Although the securities subject to a repurchase agreement
may bear maturities exceeding one year, settlement for the repurchase agreement
will never be more than one year after the Fund’s acquisition of the securities
and normally will be within a shorter period of time. Securities subject to
repurchase agreements normally are held either by the Trust’s custodian or
sub-custodian (if any), or in the Federal Reserve/Treasury Book-Entry System.
The seller under a repurchase agreement will be required to maintain the value
of the securities subject to the agreement in an amount exceeding the
repurchase price (including accrued interest). Default by the seller would,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations. In
addition, in the event of a bankruptcy, a Fund could suffer additional losses
if a court determines that the Fund’s interest in the collateral is
unenforceable.
REVERSE REPURCHASE AGREEMENTS.
To
the extent consistent with its investment policies, each Fund may borrow funds
by selling portfolio securities to financial institutions such as banks and
broker/dealers and agreeing to repurchase them at a mutually specified date and
price (“reverse repurchase agreements”). The Funds may use the proceeds of
reverse repurchase agreements to purchase other securities either maturing, or
under an agreement to resell, on a date simultaneous with or prior to the
expiration of the reverse repurchase agreement. Reverse repurchase agreements
are considered to be borrowings under the 1940 Act. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the repurchase price. The Funds will pay interest on
amounts obtained pursuant to a reverse repurchase agreement. While reverse
repurchase agreements are outstanding, the Funds will segregate liquid assets
in an amount at least equal to the market value of the securities, plus accrued
interest, subject to the agreement.
SECURITIES LENDING.
Collateral
for loans of portfolio securities made by a Fund may consist of cash, cash
equivalents, securities issued or guaranteed by the U.S. government or its
agencies or irrevocable bank letters of credit (or any combination thereof).
The borrower of securities will be required to maintain the market value of the
collateral at not less than the market value of the loaned securities, and such
value will be monitored on a daily basis. When a Fund lends its securities, it
continues to receive payments equal to the dividends and interest paid on the
securities loaned and simultaneously may earn interest on the investment of the
cash collateral. Investing the collateral subjects it to market depreciation or
appreciation, and each Fund is responsible for any loss that may result from
its investment in borrowed collateral. A Fund will have the right to terminate
a loan at any time and recall the loaned securities within the normal and
customary settlement time for securities transactions. Although voting rights,
or rights to consent, attendant to securities on loan pass to the borrower, such
loans may be called so that the securities may be voted by the Fund if a
material event affecting the investment is to occur. As with other extensions
11
of credit
there are risks of delay in recovering, or even loss of rights in, the
collateral should the borrower of the securities fail financially.
TRACKING VARIANCE.
As
discussed in the Prospectus, the Funds are subject to the risk of tracking
variance. Tracking variance may result from share purchases and redemptions,
transaction costs, expenses and other factors. Share purchases and redemptions
may necessitate the purchase and sale of securities by a Fund and the resulting
transaction costs which may be substantial because of the number and the
characteristics of the securities held. In addition, transaction costs are
incurred because sales of securities received in connection with spin-offs and
other corporate reorganizations are made to conform a Fund’s holdings to its
investment objective. Tracking variance also may occur due to factors such as the
size of a Fund, the maintenance of a cash reserve pending investment or to meet
expected redemptions, changes made in the Fund’s designated index or the manner
in which the index is calculated or because the indexing and investment
approach of the Adviser does not produce the intended goal of the Fund.
Tracking variance is monitored by the Adviser at least quarterly. In the event
the performance of a Fund is not comparable to the performance of its
designated index, the Board of Trustees will evaluate the reasons for the
deviation and the availability of corrective measures.
WARRANTS.
To the
extent consistent with its investment policies, each Fund may purchase warrants
and similar rights, which are privileges issued by corporations enabling the
owners to subscribe to and purchase a specified number of shares of the
corporation at a specified price during a specified period of time. The prices
of warrants do not necessarily correlate with the prices of the underlying
shares. The purchase of warrants involves the risk that a Fund could lose the
purchase value of a warrant if the right to subscribe to additional shares is
not exercised prior to the warrant’s expiration. Also, the purchase of warrants
involves the risk that the effective price paid for the warrant added to the
subscription price of the related security may exceed the value of the
subscribed security’s market price such as when there is no movement in the
level of the underlying security.
GOVERNMENT
INTERVENTION IN FINANCIAL MARKETS.
Recent instability in the financial markets has led the U.S. Government
to take a number of unprecedented actions designed to support certain financial
institutions and segments of the financial markets that have experienced
extreme volatility, and in some cases a lack of liquidity. Federal, state, and
other governments, their regulatory agencies, or self regulatory organizations
may take actions that affect the regulation of the instruments in which the
Fund invests, or the issuers of such instruments, in ways that are
unforeseeable. Legislation or regulation may also change the way in which the
Fund itself is regulated. Such legislation or regulation could limit or
preclude the Fund’s ability to achieve its investment objective.
Governments or their
agencies may also acquire distressed assets from financial institutions and
acquire ownership interests in those institutions. The implications of
government ownership and disposition of these assets are unclear, and such a
program may have positive or negative effects on the liquidity, valuation and
performance of the Fund’s portfolio holdings. Furthermore, volatile financial
markets can expose the Fund to greater market and liquidity risk and potential
difficulty in valuing portfolio instruments held by the Fund. The Fund has
established procedures to assess the liquidity of portfolio holdings and to
value instruments for which market prices may not be readily available. The
Adviser will monitor developments and seek to manage the Fund in a manner
consistent with achieving the Fund’s investment objective, but there can be no
assurance that it will be successful in doing so.
NEW FUND RISKS.
The Funds are new funds, with no operating history, which may result in
additional risk. There can be no assurance that the Funds will grow to or
maintain an economically viable size, in which case the Board of Trustees may
determine to liquidate the Funds. While shareholder interests will be the
paramount consideration, the timing of any liquidation may not be favorable to
certain individual shareholders.
INFORMATION CONCERNING THE INDEXES AND THE
INDEX PROVIDER
FTSE Argentina 20 Index
The FTSE
Argentina 20 Index is designed to reflect the performance of the top 20 most
liquid Argentinean securities. Eligible constituents are all Argentinean
companies that have a listing on the Mercado de Valores de Buenos Aires
(MERVAL) Stock Exchange. The index is weighted by market capitalization and
employs a unique capping methodology to facilitate regulatory compliance in the
listing of financial products on US exchanges.
12
Stocks are
free-float adjusted to ensure that only the investable opportunity set is
included within the indices. The index is maintained by FTSE International
Limited.
FTSE Colombia 20 Index
The FTSE
Colombia 20 Index is designed to reflect the performance of the top 20 most
liquid Colombian securities, ranked by 6 months’ daily average traded value.
Eligible constituents are all Colombian companies that have a listing on Bolsa
de Valores de Colombia (BVC) Stock Exchange. The index is weighted by market
capitalization and employs a unique capping methodology to facilitate
regulatory compliance in the listing of financial products on US exchanges.
Stocks are free-float adjusted to ensure that only the investable opportunity
set is included within the indices. The index is maintained by FTSE
International Limited.
FTSE Egypt 30 Index
The FTSE Egypt 30 Index is
designed to reflect the performance of the top 30 most liquid Egyptian
securities. Eligible constituents are all Egyptian companies that have a
listing on the Cairo and Alexandria Stock Exchange (CASE). The index is
weighted by market capitalization and employs a unique capping methodology to
facilitate regulatory compliance in the listing of financial products on US
exchanges. Stocks are free-float
adjusted
to ensure that only the
investable opportunity set is included within the indices. The index is
maintained by FTSE International Limited.
FTSE Peru 20 Index
The FTSE Peru
20 Index is designed to reflect the performance of the top 20 most liquid
Peruvian securities. Eligible constituents are all Peruvian companies that have
a listing on the Bolsa de Valores de Lima (BVL) Stock Exchange. The index
employs a unique capping methodology to facilitate regulatory compliance in the
listing of financial products on US exchanges. Stocks are free-float adjusted
to ensure that only the investable opportunity set is included within the
indices. The index is maintained by FTSE International Limited.
FTSE Philippines 30 Index
The FTSE
Philippines 30 Index is designed to reflect the performance of the top 30 most
liquid Philippines securities. Eligible constituents are all Philippines
companies that have a listing on the Philippines Stock Exchange (PSE). The
index employs a unique capping methodology to facilitate regulatory compliance
in the listing of financial products on US exchanges. Stocks are free-float
weighted to ensure that only the investable opportunity set is included within
the indices. The index is maintained by FTSE International Limited.
FTSE
International Limited (FTSE) is a world-leader in the creation and management
of over 100,000 equity, bond and hedge fund indices. With offices in Beijing,
London, Frankfurt, Hong Kong, Boston, Shanghai, Madrid, Paris, New York, San
Francisco, Sydney and Tokyo, FTSE Group services clients in 77 countries
worldwide. FTSE is an independent company owned by The Financial Times and the
London Stock Exchange. FTSE does not give financial advice to clients, which
allows for the provision of truly objective market information. FTSE indices
are used extensively by investors world-wide such as consultants, asset owners,
asset managers, investment banks, stock exchanges and brokers. FTSE does not
sponsor, endorse or promote any of the Funds and is not in any way connected to
them and does not accept any liability in relation to their issue, operation
and trading.
INVESTMENT RESTRICTIONS
Each Fund is
subject to the investment policies enumerated in this section, which may be
changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund’s outstanding shares.
13
The Funds:
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1.
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May not
issue any senior security, except as permitted under the 1940 Act, and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time;
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2.
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May not
borrow money, except as permitted under the 1940 Act, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time;
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3.
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May not act
as an underwriter of securities within the meaning of the 1933 Act, except as
permitted under the 1933 Act, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time. Among other things, to the
extent that a Fund may be deemed to be an underwriter within the meaning of
the 1933 Act, this would permit a Fund to act as an underwriter of securities
in connection with the purchase and sale of its portfolio securities in the
ordinary course of pursuing its investment objective, investment policies and
investment program;
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4.
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May not
purchase or sell real estate or any interests therein, except as permitted
under the 1940 Act, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time. Notwithstanding this limitation, a
Fund may, among other things: (i) acquire or lease office space for its own
use; (ii) invest in securities of issuers that invest in real estate or
interests therein; (iii) invest in mortgage-related securities and other
securities that are secured by real estate or interests therein; or (iv) hold
and sell real estate acquired by a Fund as a result of the ownership of
securities;
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5.
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May not
purchase physical commodities or contracts relating to physical commodities,
except as permitted under the 1940 Act, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
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6.
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May not make
loans, except as permitted under the 1940 Act, and as interpreted or modified
by regulatory authority having jurisdiction, from time to time;
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7.
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May not
“concentrate” its investments in a particular industry or group of
industries: (I) except that a Fund will concentrate to approximately the same
extent that its Underlying Index concentrates in the securities of such
particular industry or group of industries; and (II) except as permitted
under the 1940 Act, and as interpreted or modified by regulatory authority
having jurisdiction from time to time, provided that, without limiting the
generality of the foregoing: (a) this limitation will not apply to a Fund’s
investments in: (i) securities of other investment companies; (ii) securities
issued or guaranteed as to principal and/or interest by the U.S. government,
its agencies or instrumentalities; (iii) repurchase agreements
(collateralized by the instruments described in clause (ii)) or (iv)
securities of state or municipal governments and their political subdivisions
are not considered to be issued by Members of any industry; (b) wholly-owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to the financing activities of the
parents; and (c) utilities will be divided according to their services, for
example, gas, gas transmission, electric and gas, electric and telephone will
each be considered a separate industry.
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Notwithstanding
these fundamental investment restrictions, each Fund may purchase securities of
other investment companies to the full extent permitted under Section 12 or any
other provision of the 1940 Act (or any successor provision thereto) or under
any regulation or order of the SEC.
If a
percentage limitation is satisfied at the time of investment, a later increase
or decrease in such percentage resulting from a change in the value of a Fund’s
investments will not constitute a violation of such limitation, except that any
borrowing by a Fund that exceeds the fundamental investment limitations stated
above must be reduced to meet such limitations within the period required by
the 1940 Act (currently three days). In addition, if a Fund’s holdings of
illiquid securities exceed 15% of net assets because of changes in the value of
the Fund’s investments, the Fund will take action to reduce its holdings of
illiquid securities within a time frame deemed to be in the best interest of
the Fund. Otherwise, a Fund may continue to hold a security even though it
causes the Fund to exceed a percentage limitation because of fluctuation in the
value of the Fund’s assets.
Any Investment
Restriction which involves a maximum percentage (other than the restriction set
forth above in Investment Restriction No. 2) will not be considered violated
unless an excess over the percentage occurs immediately after, and is caused
by, an acquisition or encumbrance of securities or assets of a Fund. The 1940
Act requires that if the asset coverage for borrowings at any time falls below
the limits described in Investment
14
Restriction
No. 2, a Fund will, within three days thereafter (not including Sundays and
holidays), reduce the amount of its borrowings to an extent that the net asset
coverage of such borrowings shall conform to such limits.
CONTINUOUS OFFERING
The method by
which Creation Unit Aggregations of shares are created and traded may raise
certain issues under applicable securities laws. Because new Creation Unit
Aggregations of shares are issued and sold by the Funds on an ongoing basis, at
any point a “distribution,” as such term is used in 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 requirement 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 Unit Aggregations 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-dealer firms should also note that dealers who are
not “underwriters” but are effecting transactions in shares, whether or not
participating in the distribution of shares, generally are required to deliver
a prospectus. 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. Firms that incur a prospectus delivery
obligation with respect to shares of the Funds are reminded that, pursuant to
Rule 153 under the Securities Act, a prospectus delivery obligation under
Section 5(b)(2) of the Securities Act owed to an exchange member in connection with
a sale on the Exchange is satisfied by the fact that the prospectus is
available at the Exchange upon request. The prospectus delivery mechanism
provided in Rule 153 is only available with respect to transactions on an
exchange.
PORTFOLIO HOLDINGS
Policy On Disclosure Of Portfolio Holdings
The Board of
Trustees of the Trust has adopted a policy on disclosure of portfolio holdings,
which it believes is in the best interest of the Funds’ shareholders. The
policy provides that neither the Funds nor the Adviser, Distributor or any
agent, or any employee thereof (“Fund Representative”) will disclose a Fund’s
portfolio holdings information to any person other than in accordance with the
policy. For purposes of the policy, “portfolio holdings information” means a
Fund’s actual portfolio holdings, as well as non-public information about its
trading strategies or pending transactions including the portfolio holdings,
trading strategies or pending transactions of any commingled fund portfolio
which contains identical holdings as the Fund. Under the policy, neither a Fund
nor any Fund Representative may solicit or accept any compensation or other
consideration in connection with the disclosure of portfolio holdings
information. A Fund Representative may provide portfolio holdings information
to third parties if such information has been included in the Fund’s public
filings with the SEC or is disclosed on the Fund’s publicly accessible Website.
Under the policy, each business day portfolio holdings information will be
provided to the Transfer Agent or other agent for dissemination through the
facilities of the National Securities Clearing Corporation (“NSCC”) and/or
other fee based subscription services to NSCC members and/or subscribers to
those other fee based subscription services, including Authorized Participants,
(defined below) and to entities that publish and/or analyze such information in
connection with the process of purchasing or redeeming Creation Units or
trading shares of Funds in the secondary market. Information with respect to
each Fund’s portfolio holdings is also disseminated daily on the Funds’
website. The Distributor may also make available portfolio holdings information
to other institutional market participants and entities that provide information
services. This information typically reflects each Fund’s anticipated holdings
on the following business day. “Authorized Participants” are generally large
institutional investors that have been authorized by the Distributor to
purchase and redeem large blocks of shares (known as Creation Units) pursuant
to legal requirements, including the exemptive order granted by the SEC, to
which the Funds offer and redeem shares (“Global X Order”). Other than
portfolio holdings information made available in connection with the
creation/redemption process, as discussed above, portfolio holdings information
that is not filed with the SEC or posted on the publicly available Website may
be provided to third parties only in limited circumstances. Third-party
recipients will be required to keep all portfolio holdings information
confidential and
15
prohibited
from trading on the information they receive. Disclosure to such third parties
must be approved in advance by the Trust’s Chief Compliance Officer (“CCO”).
Disclosure to providers of auditing, custody, proxy voting and other similar
services for the Funds, as well as rating and ranking organizations, will
generally be permitted; however, information may be disclosed to other third
parties (including, without limitation, individuals, institutional investors,
and Authorized Participants that sell shares of a Fund) only upon approval by
the CCO, who must first determine that the Fund has a legitimate business
purpose for doing so. In general, each recipient of non-public portfolio
holdings information must sign a confidentiality and non-trading agreement,
although this requirement will not apply when the recipient is otherwise
subject to a duty of confidentiality as determined by the CCO. In accordance
with the policy, the recipients who may receive non-public portfolio holdings
information are as follows: the Adviser and its affiliates, the Fund’s
independent registered public accounting firm, the Funds’ distributor,
administrator and custodian, the Funds’ legal counsel, the Funds’ financial
printer and the Funds’ proxy voting service. These entities are obligated to
keep such information confidential. Third-party providers of custodial or
accounting services to a Fund may release non-public portfolio holdings
information of the Fund only with the permission of Fund Representatives. From
time to time, portfolio holdings information may be provided to broker-dealers
solely in connection with a Fund seeking portfolio securities trading
suggestions. In providing this information reasonable precautions, including
limitations on the scope of the portfolio holdings information disclosed, are
taken in an effort to avoid any potential misuse of the disclosed information.
Portfolio holdings will be disclosed through required filings with the SEC.
Each Fund files its portfolio holdings with the SEC for each fiscal quarter on
Form N-CSR (with respect to each annual period and semiannual period) and Form
N-Q (with respect to the first and third quarters of the Fund’s fiscal year).
Shareholders may obtain a Fund’s Forms N-CSR and N-Q filings on the SEC’s
Website at sec.gov. In addition, the Funds’ Forms N-CSR and N-Q filings may be
reviewed and copied at the SEC’s public reference room in Washington, DC. You
may call the SEC at 1-800-SEC-0330 for information about the SEC’s Website or
the operation of the public reference room.
Under the
policy, the Board is to receive information, on a quarterly basis, regarding
any other disclosures of non-public portfolio holdings information that were
permitted during the preceding quarter.
MANAGEMENT OF
THE TRUST
BOARD OF TRUSTEES AND OFFICERS
As a Delaware
trust, the business and affairs of the Trust are managed by its officers under
the direction of its Board of Trustees. The Trustees set broad policies for the
Trust and may appoint officers. The Board of Trustees oversees the performance
of the Adviser and the Trust’s other service providers. Each Trustee serves
until his or her successor is duly elected or appointed and qualified.
One of the
Trustees of the Trust is an officer and employee of the Adviser. This Trustee
is an “Interested Person” (as defined under Section 2(a)(19) of the 1940 Act)
of the Trust (“Interested Trustee”). The Trust’s other Trustees are not
Interested Persons of the Trust (“Independent Trustees”).
The name, year
of birth, address, principal occupations during the past five years with
respect to each of the Trustees and officers of the Trust is set forth below,
along with any other public directorships held by the Trustees.
16
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Name,
Address
(Year of Birth)
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Position(s) Held
with Funds
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Principal Occupation(s) During
the Past 5 Years
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Other Directorships Held
by Trustees
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Independent
Trustees
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Sanjay Ram Bharwani
220 Fifth Avenue, 20
th
floor
New York, New York 10001
(1974)
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Director (since 2008)
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President of Risk Advisors
Inc. (since 2007); Chief Information Officer, M. Safra & Co (2004-2006);
President, Atze Consulting Inc. (2002-2004)
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None.
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Scott R. Chichester
1
220 Fifth Avenue, 20
th
floor
New York, New York 10001
(1970)
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Director (since 2008)
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Founder and President,
DirectPay USA LLC (since 2006); Chief Financial Officer, Ong Corporation
(2002-2008).
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None.
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Kartik Kiran Shah
220 Fifth Avenue, 20
th
floor
New York, New York 10001
(1977)
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Director (since 2008)
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Senior Product Manager,
Wireless Generation (since 2008); Manager, Amgen (2003-2006)
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None.
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Interested
Trustee / Officers
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Bruno del Ama
220 Fifth Avenue, 20
th
floor
New York, New York 10001
(1976)
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Director (since 2008),
President and Chief Executive Officer (since 2008)
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Chief Executive Officer,
Global X Management Company LLC (since 2008); Head of Global Structured
Products Operations at Radian Asset Assurance (2004-2008); Senior Manager at
Oliver Wyman (1998-2004).
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None.
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Jose C. Gonzalez
220 Fifth Avenue, 20
th
floor
New York, New York 10001
(1976)
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Chief Operating Officer,
Chief Compliance Officer and Chief Financial Officer (since 2008)
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Founder and President of
GWM Group, Inc. (since 2006); Financial Advisor, BroadStreet Securities, Inc.
(2004-2006); Financial Advisor, Lloyd, Scott, & Valenti, Ltd.
(2002-2004).
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None
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Joseph Gallo
220 Fifth Avenue, 20
th
floor
New York, New York 10001
(1973)
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Assistant Secretary (since
2008)
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Attorney at SEI
Investments (2007 – present); Officer of various investment companies
administered by Administrator (2007 – present); Associate Counsel at ICMA-RC
(2004-2007); Asst. Secretary of the VantageTrust Company (2007); Assistant
Secretary of the Vantagepoint Funds (2006-2007).
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None
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Stephen Panner
220 Fifth Avenue, 20
th
floor
New York, New York 10001
(1970)
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Assistant Treasurer (since
2008)
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Fund Accounting Director
of the Administrator, 2005-present. Controller and Chief Financial Officer
for various investment companies administered by Administrator 2005-present.
Fund Administration Manager, Old Mutual Fund Services, 2000-2005, Chief
Financial Officer, Controller and Treasurer, PBHG Funds and PBHG Insurance
Series Fund, 2004-2005. Assistant Treasurer, PBHG Funds and PBHG Insurance
Series Fund, 2000-2004. Assistant Treasurer, Old Mutual Fund Advisors Fund,
2004-2005.
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None
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1
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Mr. Chichester
is currently married to a sister of Mr. del Ama’s wife. While an “immediate
family member” as defined in Section 2(a)(19) of the 1940 Act of Mr. del Ama
would be considered an Interested Person, Mr. Chichester is not considered an
immediate family member for this purpose. Although this fact was taken into
consideration in determining whether Mr. Chichester should be considered to
be an independent trustee for purposes of the Section 2(a)(19) of the 1940
Act, it was determined that this relationship was not one that should
disqualify Mr. Chichester from serving as an independent trustee of the
Trust.
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17
STANDING BOARD COMMITTEES
The Board of
Trustees currently has two standing committees: an Audit Committee and
Corporate Governance, Nomination and Compensation Committee. Currently, each
Independent Trustee serves on each of those committees.
The purposes
of the Audit Committee are to assist the Board of Trustees in (1) its oversight
of the Trust’s accounting and financial reporting principles and policies and
related controls and procedures maintained by or on behalf of the Trust; (2)
its oversight of the Trust’s financial statements and the independent audit
thereof; (3) selecting, evaluating and, where deemed appropriate, replacing the
independent accountants (or nominating the independent accountants to be
proposed for shareholder approval in any proxy statement); and (4) evaluating
the independence of the independent accountants.
The purposes
of the Corporate Governance, Nomination and Compensation Committee are, among
other things, to assist the Board of Trustees in (1) its assessment of the
adequacy of the Board’s adherence to industry corporate governance best
practices; (2) periodic evaluation of the operation of the Trust and meetings
with management of the Trust concerning the Trust’s operations and the policies
and procedures application to the Fund; (3) review, consideration and
recommendation to the full Board regarding Independent Trustee compensation;
(4) its identification and evaluation of potential candidates to fill a vacancy
on the Board; and (5) selection from among potential candidates of a nominee to
be presented to the full Board for its consideration.
TRUSTEE OWNERSHIP OF FUND SHARES
As of the date
of this SAI, the Trustees and officers of the Trust own no Shares. The Adviser
currently does not sponsor and the Trustees oversee no other registered
investment companies.
TRUSTEE COMPENSATION
The Interested Trustee is not
compensated by the Trust. The Trust pays each Independent Trustee $1,000 per
Board of Trustee meeting attended. All Trustees are reimbursed for their travel
expenses and other reasonable out-of-pocket expenses incurred in connection
with attending Board meetings (these other expenses are subject to Board review
to ensure that they are not excessive). The Trust does not accrue pension or
retirement benefits as part of the Fund’s expenses, and Trustees are not
entitled to benefits upon retirement from the Board of Trustees. The Trust’s
officers receive no compensation directly from the Trust.
18
The estimated
compensation shown in this chart is for the period beginning on September 1,
2008, through December 31, 2009. This compensation is estimated only, based on
current compensation levels. There is no assurance that this estimate is
reliable and actual compensation may be higher or lower than that reflected
above.
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Name of
Independent
Trustee
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Aggregate
Compensation from
Trust
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Pension or
Retirement
Benefits Accrued as Part of
Trust Expenses
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Total
Compensation
from Trust
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Sanjay Ram
Bharwani
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$6,000
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0
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$6,000
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Scott R.
Chichester
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$6,000
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0
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$6,000
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Kartik Kiran
Shah
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$6,000
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0
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$6,000
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CODE OF ETHICS
The Trust, the
Adviser, and the Distributor each have adopted a code of ethics, as required by
applicable law, which is designed to prevent affiliated persons of the Trust,
the Adviser, and the Distributor from engaging in deceptive, manipulative or
fraudulent activities in connection with securities held or to be acquired by
the Funds (which may also be held by persons subject to a code of ethics).
There can be no assurance that the codes of ethics will be effective in
preventing such activities. The codes permit personnel subject to them to
invest in securities, including securities that may be held or purchased by the
Funds. The codes are on file with the SEC and are available to the public.
INVESTMENT ADVISER
The Adviser
oversees the performance of the Fund and arranges for transfer agency, custody
and all other services necessary for the Fund to operate, and exercises
day-to-day oversight over the Funds’ service providers. The Adviser is
responsible for overseeing the management of the investment portfolio of each
Fund. These services are provided under the terms of an Investment Advisory
Agreement between the Trust and the Adviser. The Adviser is a registered
investment adviser and is located at 220 Fifth Avenue, 20th Floor New York, NY
10001. The Adviser was organized in Delaware on March 28, 2008 as a limited
liability company. The Adviser has no prior experience managing an investment
company. The ability of the Adviser to successfully implement the Fund’s
investment strategies will influence the Fund’s performance significantly.
Each Fund pays
for the investment advisory and supervisory and administrative services it
requires under what is essentially an all-in fee structure. The Adviser
provides or procures supervisory and administrative services for the Funds and
also bears the costs of various third-party services required by the Funds,
including audit, custodial, portfolio accounting, legal, transfer agency and
printing costs. Each Fund does bear other expenses which are not covered under
the supervisory and administrative fee which may vary and affect the total
level of expenses paid by each Fund, such as custody fees, taxes and
governmental fees, brokerage fees, commissions and other transaction expenses,
costs of borrowing money, including interest expenses and extraordinary
expenses (such as litigation and indemnification expenses).
For its
investment advisory, supervisory and administrative services, each Fund will
pay monthly a fee to the Adviser at annual rates set forth in the table below
(stated as a percentage of each Fund’s respective average daily net assets).
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Fund
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Management
Fee
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Global X FTSE Argentina 20 ETF
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0.74%
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Global X/InterBolsa FTSE Colombia 20 ETF
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0.68%
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Global X
FTSE Egypt 30 ETF
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0.68%
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Global X
FTSE Peru 20 ETF
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0.68%
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Global X
FTSE Philippines 30 ETF
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0.68%
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19
The Adviser
and its affiliates deal, trade and invest for their own accounts in the types
of securities in which a Fund also may invest. The Adviser does not use inside
information in making investment decisions on behalf of the Funds.
The Investment
Advisory Agreement remains in effect for two (2) years from its effective date
and thereafter continues in effect for as long as its continuance is
specifically approved at least annually, by (1) the Board of Trustees of the
Trust, or by the vote of a majority (as defined in the 1940 Act) of the
outstanding shares of the Fund, and (ii) by the vote of a majority of the
Trustees of the Trust who are not parties to the Investment Advisory Agreement
or interested persons of the Adviser, cast in person at a meeting called for
the purpose of voting on such approval. The Investment Advisory Agreement
provides that it may be terminated at any time without the payment of any
penalty, by the Board of Trustees of the Trust or by vote of a majority of the
Funds’ shareholders, on 60 calendar days written notice to the Adviser, and by
the Adviser on the same notice to the Trust and that it shall be automatically
terminated if it is assigned.
The Investment
Advisory Agreement provides that the Adviser shall not be liable to the Funds
or its shareholders for anything other than willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations or duties. The
Investment Advisory Agreement also provides that the Adviser may engage in
other businesses, devote time and attention to any other business whether of a
similar or dissimilar nature, and render investment advisory services to
others. Each Fund is newly organized and as of the date of this SAI has not yet
incurred any management fees under the Investment Advisory Agreement.
PORTFOLIO MANAGERS
Bruno del Ama
and Jose Gonzalez, are primarily responsible for the day-to-day management of
the Fund’s investments.
Portfolio Manager’s
Compensation
The Adviser
believes that its compensation program is competitively positioned to attract
and retain high-caliber investment professionals. Portfolio managers receive a
salary and are eligible to receive an annual bonus. Bruno: is this correct? The
portfolio manager’s salary compensation is designed to be competitive with the
marketplace and reflect the portfolio manager’s relative experience and
contribution to the Funds. Base salary compensation is reviewed and adjusted
annually to reflect increases in the cost of living and market rates. The
annual incentive bonus opportunity provides cash bonuses based upon each Fund’s
performance and individual contributions.
Other Accounts
Managed by Portfolio Manager
It is
anticipated that the portfolio manager will be responsible for multiple
investment accounts, including other investment companies registered under the
1940 Act. As a general matter, certain conflicts of interest may arise in
connection with the portfolio manager’s management of a Fund’s investments, on
the one hand, and the investments of other accounts for which the portfolio
manager is responsible, on the other. For example, it is possible that the
various accounts managed could have different investment strategies that, at
times, might conflict with one another to the possible detriment of a Fund.
Alternatively, to the extent that the same investment opportunities might be
desirable for more than one account, possible conflicts could arise in
determining how to allocate them. Other potential conflicts might include
conflicts created by specific portfolio manager compensation arrangements and
conflicts relating to selection of brokers or dealers to execute a Fund’s
trades. The Adviser has structured the portfolio manager’s compensation in a
manner, and the Funds and the Adviser have adopted policies, procedures and a
code of ethics, reasonably designed to safeguard the Funds from being
negatively affected as a result of any such conflicts that may arise.
As of the date
of this Statement of Additional Information, Bruno del Ama and Jose Gonzalez,
were not responsible for the management of any other accounts, including
accounts subject to a performance fee.
20
Disclosure of
Securities Ownership
As of the date
of this Statement of Additional Information, no shares of the Funds were
outstanding and the Fund’s portfolio manager
s
did not beneficially own any shares of the Funds.
PROXY VOTING
The Funds have
delegated proxy voting responsibilities to the Adviser, subject to the Boards
of Trustees’ oversight. In delegating proxy responsibilities, the Board has
directed that proxies be voted consistent with the Funds’ and its shareholders’
best interests and in compliance with all applicable proxy voting rules and
regulations. The Adviser has adopted its own proxy voting policies and
guidelines for this purpose (“Proxy Voting Procedures”). The Proxy Voting
Procedures address, among other things, material conflicts of interest that may
arise between the interests of the Funds and the interests of the Adviser.
Information on
how the Funds voted proxies relating to portfolio securities during the most
recent twelve-month period ended June 30 is available (1) without charge, upon
request, by calling 1-888-843-7824 and (2) on the SEC’s website at www.sec.gov.
SUB-ADMINISTRATOR
SEI
Investments Global Trusts Services, located at Freedom Valley Drive Oaks, PA
19456, serves as Sub-Administrator to the Funds. As sub-administrator, SEI
Investments Global Trusts Services provides the Funds with all required general
administrative services, including, without limitation, office space,
equipment, and personnel; clerical and general back office services;
bookkeeping, internal accounting and secretarial services; the calculation of
NAV; and the preparation and filing of all reports, registration statements,
proxy statements and all other materials required to be filed or furnished by
the Funds under federal and state securities laws. As compensation for these
services, the sub-Administrator receives certain out-of-pocket costs,
transaction fees and asset-based fees which are accrued daily and paid monthly
by the Adviser from its fees.
DISTRIBUTOR
The Trust has
entered into a Distribution Agreement under which SEI Investments Distribution
Co. (“SEI”), with principal offices at Freedom Valley Drive Oaks, PA 19456, as
agent, receives orders to create and redeem shares in Creation Unit
Aggregations and transmits such orders to the Trust’s Custodian and Transfer
Agent. The Distributor has no obligation to sell any specific quantity of Fund
shares. SEI bears the following costs and expenses relating to the distribution
of shares: (i) the costs of processing and maintaining records of creations of
Creation Units; (ii) all costs of maintaining the records required of a
registered broker/dealer; (iii) the expenses of maintaining its registration or
qualification as a dealer or broker under federal or state laws; (iv) filing
fees; and (v) all other expenses incurred in connection with the distribution
services as contemplated in the Distribution Agreement. No compensation is
payable by the Trust to SEI for such distribution services. The Distribution
Agreement provides that the Trust will indemnify SEI against certain
liabilities relating to untrue statements or omissions of material fact except
those resulting from the reliance on information furnished to the Trust by SEI,
or those resulting from the willful misfeasance, bad faith or gross negligence
of SEI, or SEI’s reckless disregard of its duties and obligations under the
Distribution Agreement. The Distributor, its affiliates and officers have no
role in determining the investment policies or which securities are to be
purchased or sold by the Trust or the Funds. The Distributor is not affiliated
with the Trust, the Adviser or any stock exchange.
Additionally,
the Adviser or its affiliates may, from time to time, and from its own
resources, pay, defray or absorb costs relating to distribution, including
payments out of its own resources to the Distributor or to otherwise promote
the sale of shares.
CUSTODIAN AND
TRANSFER AGENT
Brown Brothers
Harriman & Co., located at 40 Water Street, Boston, MA 02109, serves as
Custodian of Funds’ assets. The custodian relationship is managed through SEI
Investments Global Trusts Services. As Custodian, Brown Brothers Harriman &
Co. has agreed to (1) make receipts and disbursements of money on behalf of
each Fund, (2) collect and receive all income and other payments and
distributions on account of each Fund’s portfolio
21
investments,
(3) respond to correspondence from shareholders, security brokers and others
relating to its duties; and (4) make periodic reports to the Funds concerning
the Fund’s operations. Brown Brothers Harriman & Co. does not exercise any
supervisory function over the purchase and sale of securities. As compensation
for these services, the Custodian receives certain out-of-pocket costs,
transaction fees and asset-based fees which are accrued daily and paid monthly
by the Adviser from its fees.
As Transfer
Agent, Brown Brothers Harriman & Co. has agreed to (1) issue and redeem
shares of the Fund, (2) make dividend and other distributions to shareholders
of each Fund, (3) respond to correspondence by Funds shareholders and others
relating to its duties; (4) maintain shareholder accounts, and (5) make
periodic reports to the Funds. As compensation for these services, the Transfer
Agent receives certain out-of-pocket costs, transaction fees and asset-based
fees which are accrued daily and paid monthly by the Adviser from its fees.
DESCRIPTION OF SHARES
The
Declaration of Trust of the Trust (“Declaration”) permits the Trust’s Board of
Trustees to issue an unlimited number of full and fractional shares of
beneficial interest of one or more separate series representing interests in
one or more investment portfolios. The Trustees or Trust may create additional
series and each series may be divided into classes.
Under the
terms of the Declaration, each share of the Fund has a par value of $0.0001,
which represents a proportionate interest in the particular Fund with each
other share of its class in the same Fund and is entitled to such dividends and
distributions out of the income belonging to the Fund as are authorized by the
Trustees and declared by the Trust. Upon any liquidation of a Fund,
shareholders of each class of a Fund are entitled to share pro rata in the net
assets belonging to that class available for distribution. Shares do not have
any preemptive or conversion rights. The right of redemption is described in
the Prospectus. In addition, pursuant to the terms of the 1940 Act, the right
of a shareholder to redeem shares and the date of payment by the Fund may be
suspended for more than seven days (i) for any period during which the New York
Stock Exchange is closed, other than the customary weekends or holidays, or
trading in the markets the Fund normally utilizes is closed or is restricted as
determined by the SEC, (ii) during any emergency, as determined by the SEC, as
a result of which it is not reasonably practicable for the Fund to dispose of
instruments owned by it or fairly to determine the value of its net assets, or (iii)
for such other period as the SEC may by order permit for the protection of the
shareholders of the Fund. The Trust also may suspend or postpone the recording
of the transfer of its shares upon the occurrence of any of the foregoing
conditions. In addition, shares of each Fund are redeemable at the unilateral
option of the Trust. The Declaration permits the Board to alter the number of
shares constituting a Creation Unit or to specify that shares of beneficial
interest of the Trust may be individually redeemable. Shares when issued as
described in the Prospectus are validly issued, fully paid and nonassessable.
In the interests of economy and convenience, certificates representing shares
of the Funds are not issued.
Following the
creation of the initial Creation Unit Aggregation(s) of a Fund and immediately
prior to the commencement of trading in such Fund’s shares, a holder of shares
may be a “control person” of the Fund, as defined in the 1940 Act. A Fund
cannot predict the length of time for which one or more shareholders may remain
a control person of the Fund.
The proceeds
received by each Fund for each issue or sale of its shares, and all net
investment income, realized and unrealized gain and proceeds thereof, subject
only to the rights of creditors of that Fund, will be specifically allocated to
and constitute the underlying assets of that Fund. The underlying assets of
each Fund will be segregated on the books of account, and will be charged with
the liabilities in respect to that Fund and with a share of the general
liabilities of the Trust. Expenses with respect to the Funds normally are
allocated in proportion to the NAV of the respective Fund except where
allocations of direct expenses can otherwise be fairly made.
Shareholders
are entitled to one vote for each full share held and proportionate fractional
votes for fractional shares held. Each Fund and other funds of the Trust
entitled to vote on a matter will vote in the aggregate and not by Fund, except
as required by law or when the matter to be voted on affects only the interests
of shareholders of a particular Fund or class.
22
Rule 18f-2
under the 1940 Act provides that any matter required by the provisions of the
1940 Act or applicable state law, or otherwise, to be submitted to the holders
of the outstanding voting securities of an investment company such as the Trust
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each investment portfolio
affected by such matter. Rule 18f-2 further provides that an investment
portfolio shall be deemed to be affected by a matter unless the interests of
each investment portfolio in the matter are substantially identical or the
matter does not affect any interest of the investment portfolio. Under the
Rule, the approval of an investment advisory agreement, a distribution plan
subject to Rule 12b-1 under the 1940 Act or any change in the fundamental
investment policy would be effectively acted upon with respect to an investment
portfolio only if approved by a majority of the outstanding shares of such
investment portfolio. However, the Rule also provides that the ratification of
the appointment of independent accountants, the approval of principal
underwriting contracts and the election of Trustees are exempt from the
separate voting requirements stated above.
The Trust is
not required to hold annual meetings of shareholders and does not intend to
hold such meetings. In the event that a meeting of shareholders is held, each share
of the Trust will be entitled, as determined by the Trustees without the vote
or consent of shareholders to one vote for each share represented by such
shares on all matters presented to shareholders, including the election of
Trustees (this method of voting being referred to as “dollar-based voting”).
However, to the extent required by the 1940 Act or otherwise determined by the
Trustees, series and classes of the Trust will vote separately from each other.
Shareholders of the Trust do not have cumulative voting rights in the election
of Trustees and, accordingly, the holders of more than 50% of the aggregate
voting power of the Trust may elect all of the Trustees, irrespective of the
vote of the other shareholders. Meetings of shareholders of the Trust, or any
series or class thereof, may be called by the Trustees, the President or
Secretary of the Trust or upon the written request of holders of at least a
majority of the shares entitled to vote at such meeting. The shareholders of
the Trust will have voting rights only with respect to the limited number of
matters specified in the Declaration and such other matters as the Trustees may
determine or may be required by law.
The
Declaration authorizes the Trustees, without shareholder approval (except as stated
in the next paragraph), to cause the Trust, or any series thereof, to merge or
consolidate with any corporation, association, trust or other organization or
sell or exchange all or substantially all of the property belonging to the
Trust, or any series thereof. In addition, the Trustees, without shareholder
approval, may adopt a “master-feeder” structure by investing substantially all
of the assets of a series of the Trust in the securities of another open-end
investment company or pooled portfolio.
The
Declaration also authorizes the Trustees, in connection with the termination or
other reorganization of the Trust or any series or class by way of merger,
consolidation, the sale of all or substantially all of the assets, or
otherwise, to classify the shareholders of any class into one or more separate
groups and to provide for the different treatment of shares held by the
different groups, provided that such termination or reorganization is approved
by a majority of the outstanding voting securities (as defined in the 1940 Act)
of each group of shareholders that are so classified.
The
Declaration permits the Trustees to amend the Declaration without a shareholder
vote. However, shareholders of the Trust have the right to vote on any
amendment: (i) that would adversely affect the voting rights of shareholders
specified in the Declaration; (ii) that is required by law to be approved by
shareholders; (iii) to the amendment section of the Declaration; or (iv) that
the Trustees determine to submit to shareholders.
The
Declaration permits the termination of the Trust or of any series or class of
the Trust: (i) by a majority of the affected shareholders at a meeting of
shareholders of the Trust, series or class; or (ii) by a majority of the
Trustees without shareholder approval if the Trustees determine that such
action is in the best interest of the Trust or its shareholders. The factors
and events that the Trustees may take into account in making such determination
include: (i) the inability of the Trust or any series or class to maintain its
assets at an appropriate size; (ii) changes in laws or regulations governing
the Trust, or any series or class thereof, or affecting assets of the type in
which it invests; or (iii) economic developments or trends having a significant
adverse impact on their business or operations.
In the event
of a termination of the Trust or a Fund, the Board, in its sole discretion,
could determine to permit the shares to be redeemable in aggregations smaller
than Creation Unit Aggregations or to be individually redeemable. In such
circumstance, the Trust may make redemptions in-kind, for cash, or for a
combination of cash or securities.
23
The
Declaration provides that the Trustees will not be liable to any person other
than the Trust or a shareholder and that a Trustee will not be liable for any
act as a Trustee. Additionally, subject to applicable federal law, no person
who is or who has been a Trustee or officer of the Trust shall be liable to the
Trust or to any shareholder for money damages except for liability resulting
from (a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final
judgment and which is material to the cause of action. However, nothing in the
Declaration protects a Trustee against any liability to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
or her office. The Declaration provides for indemnification of Trustees and
officers of the Trust unless the indemnitee is liable to the Trust or any
shareholder by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such person’s
office.
The
Declaration provides that each shareholder, by virtue of becoming such, will be
held to have expressly assented and agreed to the terms of the Declaration.
The
Declaration provides that a shareholder of the Trust may bring a derivative
action on behalf of the Trust only if the following conditions are met: (i) the
shareholder was a shareholder at the time of the action complained of; (ii) the
shareholder was a shareholder at the time demand is made; (iii) the shareholder
must make demand to the Trustees before commencing at derivative action on
behalf of the Trust; (iv) any shareholders that hold at least 10% of the
outstanding shares of the Trust (or 10% of the outstanding shares of the series
or class to which such action relates) must join in the request for the
Trustees to commence such action; and (v) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis of such claim. The Declaration also provides that no
person, other than the Trustees, who is not a shareholder of a particular
series or class shall be entitled to bring any derivative action, suit or other
proceeding on behalf of or with respect to such series or class. The Trustees
will be entitled to retain counsel or other advisers in considering the merits
of the request and will require an undertaking by the shareholders making such
request to reimburse the Trust for the expense of any such advisers in the
event that the Trustees determine not to bring such action.
The term
“majority of the outstanding shares” of either the Trust or a particular Fund
or investment portfolio means, with respect to the approval of an investment
advisory agreement, a distribution plan or a change in the Fundamental
investment policy, the vote of the lesser of (i) 67% or more of the shares of
the Trust or such Fund or portfolio present at a meeting, if the holders of
more than 50% of the outstanding shares of the Trust or such Fund or portfolio
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Trust or such Fund or portfolio.
BOOK-ENTRY ONLY SYSTEM
The following
information supplements and should be read in conjunction with the Shareholder
Information section in the Prospectus. The Depository Trust Company (“DTC”)
Acts as Securities Depository for the Shares of the Trust. Shares of each Fund
are represented by securities registered in the name of DTC or its nominee and
deposited with, or on behalf of, DTC.
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 a subsidiary of the
Depository Trust and Clearing Corporation (“DTCC”), which is owned by its
member firms including international broker/dealers, correspondent and clearing
banks, mutual fund companies and investment banks. 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
24
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. The
laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability of certain investors to acquire beneficial interests in
shares.
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, each Beneficial Owner must rely on the procedures of DTC, the DTC
Participant and any Indirect Participant through which such Beneficial Owner
holds its interests, to exercise any rights of a holder of shares. 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.
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 share holdings of each DTC
Participant. The Trust shall inquire of each such DTC Participant as to the
number of Beneficial Owners holding shares of the Funds, 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 of the Trust. 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 of the
Trust 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 Exchange on which shares are listed.
PURCHASE AND
REDEMPTION OF CREATION UNITS
CREATION UNIT AGGREGATIONS
The Trust
issues and sells shares of each Fund only in Creation Unit Aggregations. The
Board reserves the right to declare a split or a consolidation in the number of
shares outstanding of any Fund of the Trust, and to make a corresponding change
in the number of shares constituting a Creation Unit, in the event that the per
share price in the secondary market rises (or declines) to an amount that falls
outside the range deemed desirable by the Board.
25
PURCHASE AND ISSUANCE OF CREATION UNIT
AGGREGATIONS
General.
The Trust
issues and sells shares of each Fund only in Creation Units on a continuous
basis through the Distributor, without a sales load, at the Fund’s NAV next
determined after receipt, on any Business Day (as defined herein), of an order
in proper form.
A “Business
Day” with respect to each Fund is any day on which the NYSE, the Fund’s
Exchange and the Fund’s Custodian is open for business. As of the date of this
Additional Statement, the Exchange observes the following holidays: New Year’s
Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio Deposit.
The
consideration for purchase of a Creation Unit of shares of a Fund (except for
Global X FTSE Egypt 20 ETF, which will make creations in U.S. dollars, and
Global X FTSE Argentina 20 ETF, Global X/InterBolsa FTSE Colombia 20 ETF and
Global X FTSE Peru 20 ETF will make creations substantially (e.g.,
approximately over 50%) in U.S. dollars and the remainder in-kind) generally
consists of the in-kind deposit of a designated portfolio of equity securities
(the “Deposit Securities”) constituting an optimized representation of the
Fund’s Underlying Index and an amount of cash in U.S. dollars computed as
described below (the “Cash Component”). Together, the Deposit Securities and
the Cash Component constitute the “Portfolio Deposit,” which represents the
minimum initial and subsequent investment amount for a Creation Unit of the
Fund. The Cash Component is an amount equal to the Balancing Amount (as defined
below). The “Balancing Amount” is an amount equal to the difference between (x)
the net asset value (per Creation Unit) of the Fund and (y) the “Deposit
Amount” which is the market value (per Creation Unit) of the Deposit Securities.
The Balancing Amount serves the function of compensating for any differences
between the net asset value per Creation Unit and the Deposit Amount. If the
Balancing Amount is a positive number (
i.e.
,
the net asset value per Creation Unit is more than the Deposit Amount), the
Authorized Participant will deliver the Balancing Amount. If the Balancing
Amount is a negative number (
i.e.
,
the net asset value per Creation Unit is less than the Deposit Amount), the
Authorized Participant will receive the Balancing Amount. Payment of any stamp
duty or other similar fees and expenses payable upon transfer of beneficial
ownership of the Deposit Securities shall be the sole responsibility of the
Authorized Participant that purchased the Creation Unit. The Authorized
Participant must ensure that all Deposit Securities properly denote change in
beneficial ownership.
The Adviser
makes available through the National Securities Clearing Corporation (“NSCC”)
on each Business Day, prior to the opening of business on the Exchange
(currently 9:30 a.m., Eastern Time), the list of the names and the required
number of shares of each Deposit Security to be included in the current
Portfolio Deposit (based on information at the end of the previous Business
Day) for each Fund. Such Portfolio Securities are applicable, subject to any
adjustments as described below, to purchases of Creation Units of a given Fund
until such time as the next-announced Deposit Securities composition is made
available.
The identity
and number of shares of the Deposit Securities required for a Portfolio Deposit
for each Fund changes pursuant to changes in the composition of the Fund’s
Portfolio and 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 Underlying Index.
In addition,
the Trust reserves the right to permit or require the substitution of an amount
of cash (that is 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 that may not be eligible for transfer through the systems of
DTC or the Clearing Process (discussed below) or for other similar reasons. The
Trust also reserves the right to permit or require a “cash in lieu” amount
where the delivery of Deposit Securities by the Authorized Participant (as
described below) would be restricted under the securities laws or where
delivery of Deposit Securities to the Authorized Participant would result in
the disposition of Deposit Securities by the Authorized Participant becoming
restricted under the securities laws, and in certain other situations. 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 Portfolio
Deposit, in the composition of the Underlying Index, or resulting from stock
splits and other corporate actions.
26
In addition to
the list of names and numbers of securities constituting the current Deposit
Securities of a Portfolio Deposit, on each Business Day, the Cash Component
effective through and including the previous Business Day, per outstanding
Creation Unit of each Fund, will be made available.
Role of the Authorized Participant.
Creation
Units of shares may be purchased only by or through a DTC Participant that has
entered into an Authorized Participant Agreement with the Distributor (an
Authorized Participant). Such Authorized Participant will agree pursuant to the
terms of such Authorized Participant Agreement on behalf of itself or any
investor on whose behalf it will act, as the case may be, to certain
conditions, including that such Authorized Participant will make available in
advance of each purchase of Creation Units an amount of cash sufficient to pay
the Cash Component, once the net asset value of a Creation Unit is next determined
after receipt of the purchase order in proper form, together with the
transaction fee described below. The Authorized Participant may require the
investor to enter into an agreement with such Authorized Participant with
respect to certain matters, including payment of the Cash Component. Investors
who are not Authorized Participants must make appropriate arrangements with an
Authorized Participant. Investors should be aware that their particular broker
may not be a DTC Participant or may not have executed an Authorized Participant
Agreement, and that therefore orders to purchase Creation Units may have to be
placed by the investor’s broker through an Authorized Participant. As a result,
purchase orders placed through an Authorized Participant may result in
additional charges to such investor. The Trust does not expect to enter into an
Authorized Participant Agreement with more than a small number of DTC
Participants that have international capabilities. A list of the current
Authorized Participants may be obtained from the Distributor.
Purchase Order.
To
initiate an order for a Creation Unit of shares of a Fund, the Authorized
Participant must submit to the Distributor an irrevocable order to purchase
shares of the Funds. With respect to a Fund, the Distributor will notify the
Adviser and the Custodian of such order. The Custodian will then provide such
information to the appropriate local sub-custodian(s). The Custodian shall
cause the appropriate local sub-custodian(s) of the Fund to maintain an account
into which the Authorized Participant shall deliver, on behalf of itself or the
party on whose behalf it is acting, the securities included in the designated
Portfolio Deposit (or the cash value of all or a part of such securities, in
the case of a permitted or required cash purchase or “cash in lieu” amount),
with any appropriate adjustments as advised by the Trust. Deposit Securities
must be delivered to an account maintained at the applicable local
sub-custodian. Those placing orders to purchase Creation Units through an
Authorized Participant should allow sufficient time to permit proper submission
of the purchase order to the Distributor by the Cut-Off Time (as defined below)
on such Business Day.
The Authorized
Participant must also make available on or before the contractual settlement
date, by means satisfactory to the Trust, immediately available or same day
funds in U.S. dollars estimated by the Trust to be sufficient to pay the Cash
Component next determined after acceptance of the purchase order, together with
the applicable purchase transaction fee. Any excess funds will be returned
following settlement of the issue of the Creation Unit. Those placing orders
should ascertain the applicable deadline for cash transfers by contacting the
operations department of the broker or depositary institution effectuating the
transfer of the Cash Component. This deadline is likely to be significantly
earlier than the closing time of the regular trading session on the Exchange.
Investors
should be aware that an Authorized Participant may require orders for purchases
of shares placed with it to be in the particular form required by the
individual Authorized Participant.
Timing of Submission of Purchase Orders.
An Authorized Participant must submit an irrevocable purchase order no later
than the earlier of (i) 4:00 p.m., Eastern Time or (ii) the closing time of the
trading session on the relevant Fund’s Exchange, on any Business Day in order
to receive that Business Day’s NAV.
Acceptance of Purchase Order.
Subject
to the conditions that (i) an irrevocable purchase order has been submitted by
the Authorized Participant (either on its own or another investor’s behalf) and
(ii) arrangements satisfactory to the Trust are in place for payment of the
Cash Component and any other cash amounts which may be due, the Trust will
accept the order, subject to its right (and the right of the Distributor and
the Adviser) to reject any order until acceptance.
27
Once the Trust
has accepted an order, upon next determination of the NAV of the shares, the
Trust will confirm the issuance of a Creation Unit of the Fund, against receipt
of payment, at such NAV. The Distributor will then transmit a confirmation of
acceptance to the Authorized Participant that placed the order.
The Trust reserves
the absolute right to reject or revoke acceptance of a purchase order
transmitted to it by the Distributor in respect of any Fund if (a) the order is
not in proper form; (b) the investor(s), upon obtaining the shares ordered,
would own 80% or more of the currently outstanding shares of any Fund; (c) the
Deposit Securities delivered do not conform to the identify and number of
shares disseminated through the facilities of the NSCC for that date by the
Adviser, as described above; (d) acceptance of the Deposit Securities would
have certain adverse tax consequences to the Fund; (e) the acceptance of the
Portfolio Deposit would, in the opinion of counsel, be unlawful; (f) the
acceptance of the Portfolio 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 purchase orders. Examples of such circumstances include
acts of God; public service or utility problems resulting in telephone,
telecopy or computer failures; fires, floods or extreme weather conditions;
market conditions or activities causing trading halts; systems failures
involving computer or other informational systems affecting the Trust, the
Distributor, DTC, NSCC, the Adviser, the Funds’ Custodian, a sub-custodian or
any other participant in the creation process; and similar extraordinary
events. The Trust shall notify a prospective purchaser and/or the Authorized
Participant acting on behalf of such person of its rejection of the order of
such person. The Trust, the Fund’s Custodian, any sub-custodian and the
Distributor are under no duty, however, to give notification of any defects or
irregularities in the delivery of Portfolio Deposits nor shall either of them
incur any liability for the failure to give any such notification.
Issuance of a Creation Unit.
Except
as provided herein, a Creation Unit of shares of a Fund will not be issued
until the transfer of good title to the Trust of the Deposit Securities and the
payment of the Cash Component have been completed. When the applicable local
sub-custodian(s) have confirmed to the Custodian that the required securities
included in the Portfolio Deposit (or the cash value thereof) have been
delivered to the account of the applicable local sub-custodian or
sub-custodians, the Distributor and the Adviser shall be notified of such
delivery, and the Trust will issue, and cause the delivery of the Creation
Unit. Creation Units typically are issued on a “T+3 basis” (that is three
Business Days after trade date). However, as discussed in Appendix A, the Fund
reserves the right to settle Creation Unit transactions on a basis other than
T+3 in order to accommodate foreign market holiday schedules, to account for
different treatment among foreign and U.S. markets of dividend record dates and
ex-dividend dates (that is the last day the holder of a security can sell the
security and still receive dividends payable on the security), and in certain
other circumstances.
To the extent
contemplated by an Authorized Participant’s agreement with the Distributor, the
Trust will issue Creation Units to such Authorized Participant notwithstanding
the fact that the corresponding Portfolio Deposits have not been received in
part or in whole, in reliance on the undertaking of the Authorized Participant
to deliver the missing Deposit Securities as soon as possible, which
undertaking shall be secured by such Authorized Participant’s delivery and
maintenance of collateral having a value at least equal to 110%, which the
Adviser may change from time to time, of the value of the missing Deposit
Securities in accordance with the Trust’s then-effective procedures. Such
collateral must be delivered no later than 2:00 p.m., Eastern Time, on the
contractual settlement date. The only collateral that is acceptable to the
Trust is cash in U.S. Dollars or an irrevocable letter of credit in form, and
drawn on a bank, that is satisfactory to the Trust. The cash collateral posted
by the Authorized Participant may be invested at the risk of the Authorized
Participant, and income, if any, on invested cash collateral will be paid to
that Authorized Participant. Information concerning the Trust’s current
procedures for collateralization of missing Deposit Securities is available
from the Distributor. The Authorized Participant Agreement will permit the
Trust to buy the missing Deposit Securities at any time and will subject the
Authorized Participant to liability for any shortfall between the cost to the
Trust of purchasing such securities and the cash collateral or the amount that
may be drawn under any letter of credit.
In certain
cases, Authorized Participants will create and redeem Creation Units on the
same trade date. In these instances, the Trust reserves the right to settle
these transactions on a net basis. 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.
28
Cash Purchase Method.
When cash purchases of Creation Units are available or specified for the Fund,
they will be effected in essentially the same manner as in-kind purchases
thereof. It is anticipated that the Global X FTSE Egypt 20 ETF will make
creations and redemptions in U.S. dollars, rather than in-kind. The Global X FTSE
Argentina 20 ETF, Global X/InterBolsa FTSE Colombia 20 ETF and Global X FTSE
Peru 20 ETF will make creations and redemptions substantially (e.g.,
approximately over 50%) in U.S. dollars and the remainder in-kind. The Trust
may in the future permit or require creations and redemptions of Global X FTSE
Argentina 20 ETF, Global X FTSE Egypt 30 ETF, Global X FTSE Peru 20 ETF and the
Global X/InterBolsa FTSE Colombia 20 ETF in-kind. In addition, the Trust may in
its discretion make Creation Units of any of the other funds available for
purchase and redemption in U.S. dollars. In the case of a cash purchase, the
investor must pay the cash equivalent of the Deposit Securities it would
otherwise be required to provide through an in-kind purchase, plus the same Cash
Component required to be paid by an in-kind purchaser. In addition, to offset
the Trust’s brokerage and other transaction costs associated with using the
cash to purchase the requisite Deposit Securities, the investor will be
required to pay a fixed purchase transaction fee, plus an additional variable
charge for cash purchases, which is expressed as a percentage of the value of
the Deposit Securities. The transaction fees for in-kind and cash purchases of
Creation Units are described below.
Purchase Transaction Fee.
A
purchase transaction fee payable to the Trust is imposed to compensate the
Trust for the transfer and other transaction costs of the Fund associated with
the issuance of Creation Units. Purchasers of Creation Units for cash are required
to pay an additional variable charge to compensate the relevant Fund for
brokerage and market impact expenses relating to investing in portfolios
securities. Where the Trust permits an in-kind purchaser to substitute cash in
lieu of depositing a portion of the Deposit Securities, the purchaser will be
assessed the additional variable charge for cash purchases on the “cash in
lieu” portion of its investment. Purchasers of Creation Units are responsible
for the costs of transferring the securities constituting the Deposit
Securities to the account of the Trust. Investors who use the services of a
broker, or other such intermediary may be charged a fee for such services. The
purchase transaction fees for in-kind purchases and cash purchases (when
available) are listed in the table below. This table is subject to revision
from time to time.
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|
|
|
Fund
|
|
Fee for
In-Kind and
Cash Purchases
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|
Maximum
Additional
Variable Charge for
Cash Purchases*
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|
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|
Global X FTSE Argentina 20 ETF
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$1,300
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**
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Global X/InterBolsa FTSE Colombia 20 ETF
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$2,600
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**
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|
Global X FTSE Egypt 30 ETF
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|
$3,000
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**
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|
Global X
FTSE Peru 20 ETF
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|
$2,600
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|
**
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|
Global X
FTSE Philippines 30 ETF
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|
$2,500
|
|
3%
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|
|
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|
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*
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As a
percentage of the value of the amount invested
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**
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The maximum
additional variable charge for cash purchases will be a percentage of the
value of the Deposit Securities, which will not exceed 3.00%
|
REDEMPTION OF CREATION UNITS
Shares of the
Fund may be redeemed only in Creation Units at their NAV next determined after
receipt of a redemption request in proper form by the Distributor. 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.
With respect
to each Fund (except for Global X FTSE Egypt 20 ETF, which will make
redemptions in U.S. dollars) the Adviser makes available through the NSCC prior
to the opening of business on the Exchange (currently 9:30 a.m., Eastern Time)
on each Business Day, the identity and number of shares that will be applicable
(subject to possible amendment or correction) to redemption requests received
in proper form (as defined below) on that day (“Portfolio Securities”).
Portfolio Securities received on redemption may not be identical to Deposit
Securities that are applicable to creation of Creation Units. Unless cash
redemptions are available or specified for a Fund, the
29
redemption
proceeds for a Creation Unit generally consist of Portfolio Securities on the
Business Day of the request for redemption, plus cash in an amount equal to the
difference between the NAV of the shares being redeemed, as next determined
after a receipt of a request in proper form, and the value of the Portfolio
Securities, less the redemption transaction fee described below. The redemption
transaction fee described below is deducted from such redemption proceeds.
A redemption
transaction fee payable to the Trust is imposed to offset transfer and other
transaction costs that may be incurred by the relevant Fund, including market
impact expenses relating to disposing of portfolio securities. The redemption
transaction fee for redemptions in kind and for cash and the additional
variable charge for cash redemptions (when cash redemptions are available or
specified) are listed in the table below. Investors will also bear the costs of
transferring the Portfolio Deposit from the Trust to their account or on their
order. Investors who use the services of a broker or other such intermediary
may be charged a fee for such services.
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Fund
|
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Fee for
In-Kind and
Cash Redemptions
|
|
Maximum
Additional
Variable Charge for
Cash Redemptions*
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Global X FTSE Argentina 20 ETF
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$1,300
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**
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Global X/InterBolsa FTSE Colombia 20 ETF
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$2,600
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**
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Global X FTSE Egypt 30 ETF
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$3,000
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**
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Global X
FTSE Peru 20 ETF
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$2,600
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**
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Global X
FTSE Philippines 30 ETF
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$2,500
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2%
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*
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As a
percentage of the value of the amount invested
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**
|
The maximum
additional variable charge for cash redemptions will be a percentage of the
value of the Portfolio Securities, which will not exceed 2.00%
|
Redemption
requests in respect of Creation Units must be submitted to the Distributor by
or through an Authorized Participant. Investors other than Authorized
Participants are responsible for making arrangements for a redemption request
through an Authorized Participant. An Authorized Participant must submit an
irrevocable redemption request no later than the earlier of (i) 4:00 p.m.,
Eastern Time or (ii) the closing time of the trading session on the relevant
Fund’s Exchange, on any Business Day in order to receive that Business Day’s
NAV.
The
Distributor will provide a list of current Authorized Participants upon
request. The Authorized Participant must transmit the request for redemption,
in the form required by the Trust, to the Distributor in accordance with
procedures set forth in the Authorized Participant Agreement. Investors should
be aware that their particular broker may not have executed an Authorized
Participant Agreement, and that, therefore, requests to redeem Creation Units
may have to be placed by the investor’s broker through an Authorized
Participant who has executed an Authorized Participant Agreement. At any given
time there will be only a limited number of broker-dealers that have executed
an Authorized Participant Agreement. Investors making a redemption request
should be aware that such request must be in the form specified by such
Authorized Participant. Investors making a request to redeem Creation Units
should allow sufficient time to permit proper submission of the request by an
Authorized Participant and transfer of the shares to the Trust’s Transfer
Agent; such investors should allow for the additional time that may be required
to effect redemptions through their banks, brokers or other financial intermediaries
if such intermediaries are not Authorized Participants.
Orders to redeem Creation Unit
Aggregations of funds based on foreign indexes must be delivered through an
Authorized Participant that has executed an Authorized Participant Agreement.
Investors other than Authorized Participants are responsible for making
arrangements for a redemption request to be made through an Authorized
Participant. An order to redeem Creation Unit Aggregations of the Fund is
deemed received by the Trust on the Business Day if: (i) such order is received
by the Fund’s Distributor not later than the closing time of the applicable
Exchange on the applicable Business Day; (ii) such order is accompanied or
followed by the requisite number of shares of the Fund specified in such order,
which delivery must be made through DTC to the Fund’s Custodian no later than
10:00 a.m., Eastern Time, on the next Business Day following the day the order
was transmitted; and (iii) all other procedures set forth in the Authorized
Participant Agreement are properly followed. Deliveries of Fund securities to
redeeming investors generally will be made within three Business Days. Due to
the schedule of
30
holidays in certain countries, however, the delivery
of in-kind redemption proceeds for the Fund may take longer than three Business
Days after the day on which the redemption request is received in proper form.
In such cases, the local market settlement procedures will not commence until
the end of the local holiday periods as described in Appendix A.
A redemption request is considered to be in “proper
form” if (i) an Authorized Participant has transferred or caused to be
transferred to the Trust’s Transfer Agent the Creation Unit of shares being
redeemed through the book-entry system of DTC so as to be effective by the
Exchange closing time on any Business Day and (ii) a request in form
satisfactory to the Trust is received by the Distributor from the Authorized
Participant on behalf of itself or another redeeming investor within the time
periods specified above. If the Transfer Agent does not receive the investor’s
shares through DTC’s facilities by 10:00 a.m., Eastern Time, on the Business
Day next following the day that the redemption request is received, the
redemption request shall be rejected. Investors should be aware that the
deadline for such transfers of shares through the DTC system may be
significantly earlier than the close of business on the Exchange. Those making
redemption requests should ascertain the deadline applicable to transfers of
shares through the DTC system by contacting the operations department of the
broker or depositary institution effecting the transfer of the shares.
Upon receiving a redemption request, the Distributor
shall notify the Trust and the Trust’s Transfer Agent of such redemption
request. The tender of an investor’s shares for redemption and the distribution
of the cash redemption payment in respect of Creation Units redeemed will be
effected through DTC and the relevant Authorized Participant to the beneficial
owner thereof as recorded on the book-entry system of DTC or the DTC
Participant through which such investor holds, as the case may be, or by such
other means specified by the Authorized Participant submitting the redemption
request.
In connection with taking delivery of shares of
Portfolio Securities upon redemption of shares of a Fund, a redeeming
Beneficial Owner, or Authorized Participant acting on behalf of such Beneficial
Owner, must maintain appropriate security arrangements with a qualified
broker-dealer, bank or other custody providers in each jurisdiction in which
any of the Portfolio Securities are customarily traded, to which account such
Portfolio Securities will be delivered.
Deliveries of redemption proceeds by the Fund
generally will be made within three Business Days (that is “T+3”). However, as
discussed in Appendix A, the Fund reserves the right to settle redemption
transactions and deliver redemption proceeds on a basis other than T+3 to
accommodate foreign market holiday schedules, to account for different
treatment among foreign and U.S. markets of dividend record dates and dividend
ex-dates (that is the last date the holder of a security can sell the security
and still receive dividends payable on the security sold), and in certain other
circumstances. For each country relating to the Fund, Appendix A hereto
identifies the instances where more than seven days would be needed to deliver
redemption proceeds. Pursuant to an order of the SEC, in respect of the Fund,
the Trust will make delivery of in-kind redemption proceeds within the number
of days stated in Appendix A to be the maximum number of days necessary to
deliver redemption proceeds.
If neither the redeeming Beneficial Owner nor the
Authorized Participant acting on behalf of such redeeming Beneficial Owner has
appropriate arrangements to take delivery of the portfolio securities in the
applicable jurisdiction and it is not possible to make other such arrangements,
or if it is not possible to effect deliveries of the Portfolio Securities in
such jurisdiction, the Trust may in its discretion 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
that the Trust 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 NAV of shares of the relevant Fund next determined after the
redemption request is received in proper form (minus a redemption transaction
fee and additional variable charge for cash redemptions specified above, to
offset the Trust’s brokerage and other transaction costs associated with the
disposition of Portfolio Securities). The Trust may also, in its sole
discretion, upon request of a shareholder, provide such redeemer a portfolio of
securities that differ from the exact composition of the Portfolio Securities but
does not differ in NAV. Redemptions of shares for Deposit Securities will be
subject to compliance with applicable U.S. 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 Deposit Securities under such laws.
31
In the event that cash redemptions are permitted or
required by the Trust, proceeds will be paid to the Authorized Participant
redeeming shares on behalf of the redeeming investor as soon as practicable
after the date of redemption (within seven calendar days thereafter, except for
the instances listed in Appendix A hereto where more than seven calendar days
would be needed).
To the extent contemplated by an Authorized
Participant’s agreement with the Distributor, in the event the Authorized
Participant that has submitted a redemption request in proper form is unable to
transfer all or part of the Creation Units to be redeemed to the Trust, at or
prior to 10:00 a.m., Eastern Time, on the Business Day after the date of
submission of such redemption request, the Distributor will nonetheless accept
the redemption request in reliance on the undertaking by the Authorized
Participant to deliver the missing shares as soon as possible. Such undertaking
shall be secured by the Authorized Participant’s delivery and maintenance of
collateral consisting of cash having a value at least equal to 110%, which the
Adviser may change from time to time, of the value of the missing shares in
accordance with the Trust’s then-effective procedures. The only collateral that
is acceptable to the Trust is cash in U.S. dollars or an irrevocable letter of
credit in form, and drawn on a bank, that is satisfactory to the Trust. The
Trust’s current procedures for collateralization of missing shares require,
among other things, that any cash collateral shall be held by the Trust’s Custodian,
and that the fees of the Custodian and any sub-custodians in respect of the
delivery, maintenance and redelivery of the cash collateral shall be payable by
the Authorized Participant. The cash collateral posted by the Authorized
Participant may be invested at the risk of the Authorized Participant, and
income, if any, on invested cash collateral will be paid to that Authorized
Participant. The Authorized Participant Agreement permits the Trust to purchase
the missing shares or acquire the portfolio securities and the Cash Component
underlying such shares at any time and subjects the Authorized Participant to
liability for any shortfall between the cost to the Trust of purchasing such
shares, Portfolio Securities or Cash Component and the cash collateral or the
amount that may be drawn under any letter of credit.
Because the portfolio securities of a Fund may trade
on the relevant exchange(s) on days that the Exchange is closed or are
otherwise not Business Days for such Fund, shareholders may not be able to
redeem their shares of such Fund, or to purchase or sell shares of such Fund on
the Exchange, on days when the NAV of such Fund could be significantly affected
by events in the relevant foreign markets.
The right of redemption may be suspended or the date
of payment postponed with respect to any Fund (1) for any period during which
the New York Stock Exchange is closed (other than customary weekend and holiday
closings); (2) for any period during which trading on the New York Stock
Exchange is suspended or restricted; (3) for any period during which an
emergency exists as a result of which disposal of the shares of the Fund’s
portfolio securities or determination of its net asset value is not reasonably
practicable; or (4) in such other circumstance as is permitted by the SEC.
TAXES
The following summarizes certain additional tax
considerations generally affecting the Funds and their shareholders that are
not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their shareholders, and the
discussions here and in the Prospectus are not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisers
with specific reference to their own tax situations.
The discussions of the federal tax consequences in the
Prospectus and this Additional Statement are based on the Code and the
regulations, rulings and decision under it, as in effect on the date of this
Additional Statement. Future legislative or administrative changes or court
decisions may significantly change the statements included herein, and any such
changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
32
FEDERAL
- GENERAL INFORMATION
Each Fund intends to qualify as a regulated investment
company under Subchapter M of Subtitle A, Chapter 1, of the Code. As a
regulated investment company, each Fund generally will be exempt from federal
income tax on its net investment income and realized capital gains that it
distributes to shareholders, provided that it distributes an amount equal to at
least the sum of 90% of its tax-exempt income and 90% of its investment company
taxable income (net investment income and the excess of net short-term capital
gain over net long-term capital loss), if any, for the year (the “Distribution
Requirement”) and satisfies certain other requirements of the Code that are
described below. Each Fund intends to make sufficient distributions or deemed
distributions each year to avoid liability for corporate income tax. If a Fund
were to fail to make sufficient distributions, it could be liable for corporate
income tax and for excise tax in respect of the shortfall or, if the shortfall
is large enough, such Fund could be disqualified as a regulated investment
company.
In addition to satisfaction of the Distribution
Requirement, each Fund must derive with respect to a taxable year at least 90%
of its gross income from dividends, interest, certain payments with respect to
securities loans and gains from the sale or other disposition of stock or
securities or foreign currencies, or from other income derived with respect to
its business of investing in such stock, securities, or currencies or net
income derived from an interest in a qualified publicly traded partnership.
Also, at the close of each quarter of its taxable year, at least 50% of the
value of each Fund’s assets must consist of cash and cash items, U.S.
government securities, securities of other regulated investment companies and
securities of other issuers (as to which each Fund has not invested more than
5% of the value of its total assets in securities of such issuer and as to
which each Fund does not hold more than 10% of the outstanding voting
securities (including equity securities of a qualified publicly traded
partnership) of such issuer), and no more than 25% of the value of each Fund’s
total assets may be invested in the securities of (i) any one issuer (other
than U.S. government securities and securities of other regulated investment
companies), (ii) two or more issuers which such Fund controls and which are
engaged in the same or similar trades or businesses or (iii) one or more
qualified publicly traded partnerships. Each Fund intends to comply with these
requirements.
If for any taxable year any Fund does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders. In such event, the shareholders would recognize dividend income
on distributions to the extent of such Fund’s current and accumulated earnings
and profits.
The Code imposes a nondeductible 4% excise tax on
regulated investment companies that fail to currently distribute an amount
equal to specified percentages of their ordinary taxable income and capital
gain net income (excess of capital gains over capital losses). Each Fund
intends to make sufficient distributions or deemed distributions of its
ordinary taxable income and capital gain net income each calendar year to avoid
liability for this excise tax.
Each Fund intends to distribute annually to its
shareholders substantially all of its investment company taxable income, and
any net realized long-term capital gains in excess of net realized short-term
capital losses (including any capital loss carryovers). However, if a Fund
retains for investment an amount equal to all or a portion of its net long-term
capital gains in excess of its net short-term capital losses (including any
capital loss carryovers), it will be subject to a corporate tax (currently at a
maximum rate of 35%) on the amount retained. In that event, such Fund may
designate such retained amounts as undistributed capital gains in a notice to
its shareholders who (a) will be required to include in income for U.S. federal
income tax purposes, as long-term capital gains, their proportionate shares of
the undistributed amount, (b) will be entitled to credit their proportionate
shares of the tax paid by such Fund on the undistributed amount against their
U.S. federal income tax liabilities, if any, and to claim refunds to the extent
their credits exceed their liabilities, if any, and (c) will be entitled to
increase their tax basis, for U.S. federal income tax purposes, in their shares
by an amount equal to the difference between the amount of undistributed
capital gains included in the shareholder’s income and the tax deemed paid by
the shareholder. Organizations or persons not subject to U.S. federal income
tax on such capital gains will be entitled to a refund of their pro rata share
of such taxes paid by such Fund upon filing appropriate returns or claims for
refund with the Internal Revenue Service.
Distributions of net realized long-term capital gains,
if any, that a Fund designates as capital gains dividends are taxable as
long-term capital gains, whether paid in cash or in shares and regardless of
how long a shareholder has held shares of such Fund. All other dividends of a
Fund (including dividends from short-term capital gains) from its current and
accumulated earnings and profits (“regular dividends”) are generally subject to
tax as ordinary income except as described below for qualified dividends.
33
If an individual, trust or estate receives a regular
dividend or qualified dividends qualifying for the long-term capital gains
rates and such dividend constitutes an “extraordinary dividend,” and the
individual subsequently recognizes a loss on the sale or exchange of stock in
respect of which the extraordinary dividend was paid, then the loss will be
long-term capital loss to the extent of such extraordinary dividend. An
“extraordinary dividend” on common stock for this purpose is generally a
dividend (i) in an amount greater than or equal to 10% of the taxpayer’s tax
basis (or trading value) in a share of stock, aggregating dividends with
ex-dividend dates within an 85-day period or (ii) in an amount greater than 20%
of the taxpayer’s tax basis (or trading value) in a share of stock, aggregating
dividends with ex-dividend dates within a 365-day period.
Distributions in excess of a Fund’s current and
accumulated earnings and profits will, as to each shareholder, be treated as a
tax-free return of capital to the extent of a shareholder’s basis in his shares
of such Fund, and as a capital gain thereafter (if the shareholder holds his
shares of such Fund as capital assets). Shareholders receiving dividends or
distributions in the form of additional shares should be treated for U.S.
federal income tax purposes as receiving a distribution in an amount equal to
the amount of money that the shareholders receiving cash dividends or
distributions will receive, and should have a cost basis in the shares received
equal to such amount. Dividends paid by a Fund that are attributable to dividends
received by a Fund from domestic corporations may qualify for the federal
dividends-received deduction for corporations.
Investors considering buying shares just prior to a
dividend or capital gain distribution should be aware that, although the price
of shares just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to
them. If a Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends will be included
in such Fund’s gross income not as of the date received but as of the later of
(a) the date such stock became ex-dividend with respect to such dividends (that
is, the date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date such Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, a Fund
may be required to pay dividends based on anticipated earnings, and
shareholders may receive dividends in an earlier year than would otherwise be
the case.
BACK-UP
WITHHOLDING
In certain cases, a Fund will be required to withhold
at the applicable withholding rate, and remit to the U.S. Treasury such amounts
withheld from any distributions paid to a shareholder who: (1) has failed to
provide a correct taxpayer identification number; (2) is subject to backup
withholding by the Internal Revenue Service; (3) has failed to certify to a
Fund that such shareholder is not subject to backup withholding; or (4) has not
certified that such shareholder is a U.S. person (including a U.S. resident
alien).
SECTIONS
351 AND 362
The Trust on behalf of each Fund has the right to
reject an order for a purchase of shares of a Fund if the purchaser (or group
of purchasers) would, upon obtaining the shares so ordered, own 80% or more of
the outstanding shares of a given Fund and if, pursuant to Sections 351 and 362
of the Code, that Fund would have a basis in the securities different from the
market value of such securities on the date of deposit. If a Fund’s basis in
such securities on the date of deposit was less than market value on such date,
such Fund, upon disposition of the securities, would recognize more taxable
gain or less taxable loss than if its basis in the securities had been equal to
market value. It is not anticipated that the Trust will exercise the right of
rejection except in a case where the Trust determines that accepting the order
could result in material adverse tax consequences to a Fund or its
shareholders. The Trust also has the right to require information necessary to
determine beneficial share ownership for purposes of the 80% determination.
34
QUALIFIED
DIVIDEND INCOME
Distributions by each Fund of investment company
taxable income (excluding any short-term capital gains) whether received in
cash or shares will be taxable either as ordinary income or as qualified
dividend income, eligible for the reduced maximum rate to individuals of 15%
(5% for individuals in lower tax brackets) to the extent each Fund receives
qualified dividend income on the securities it holds and such Fund designates
the distribution as qualified dividend income. Qualified dividend income is, in
general, dividend income from taxable domestic corporations and certain foreign
corporations (
e.g.
, foreign
corporations incorporated in a possession of the United States or in certain
countries with a comprehensive tax treaty with the United States, or the stock
of which is readily tradable on an established securities market in the United
States). A dividend will not be treated as qualified dividend income to the
extent that (i) the shareholder has not held the shares on which the dividend
was paid for more than 60 days during the 121-day period that begins on the
date that is 60 days before the date on which the shares become ex dividend
with respect to such dividend (and each Fund also satisfies those holding
period requirements with respect to the securities it holds that paid the
dividends distributed to the shareholder), (ii) the shareholder is under an
obligation (whether pursuant to a short sale or otherwise) to make related
payments with respect to substantially similar or related property, or (iii)
the shareholder elects to treat such dividend as investment income under
section 163(d)(4)(B) of the Code. Absent further legislation, the maximum 15%
rate on qualified dividend income will not apply to dividends received in
taxable years beginning after December 31, 2010. Distributions by each Fund of
its net short-term capital gains will be taxable as ordinary income. Capital
gain distributions consisting of each Fund’s net capital gains will be taxable
as long-term capital gains.
CORPORATE
DIVIDENDS RECEIVED DEDUCTION
A Fund’s dividends that are paid to its corporate
shareholders and are attributable to qualifying dividends it received from U.S.
domestic corporations may be eligible, in the hands of such shareholders, for
the corporate dividends received deduction, subject to certain holding period
requirements and debt financing limitations.
NET
CAPITAL LOSS CARRYFORWARDS
Net capital loss carryforwards may be applied against
any net realized capital gains in each succeeding year, or until their
respective expiration dates, whichever occurs first.
EXCESS
INCLUSION INCOME
Certain types of income received by a Fund from real
estate investment Trusts (“REITs”), real estate mortgage investment conduits
(“REMICs”), taxable mortgage pools or other investments may cause a Fund to
designate some or all of its distributions as “excess inclusion income.” To
Fund shareholders such excess inclusion income may (1) constitute taxable
income, as “unrelated business taxable income” (“UBTI”) for those shareholders
who would otherwise be tax-exempt such as individual retirement accounts,
401(k) accounts, Keogh plans, pension plans and certain charitable entities;
(2) as UBTI cause a charitable remainder Trust to be subject to a 100% excise
tax on its UBTI; (3) not be offset against net operating losses for tax purposes;
(4) not be eligible for reduced U.S. withholding for non-U.S. shareholders even
from tax treaty countries; and (5) cause a Fund to be subject to tax if certain
“disqualified organizations” as defined by the Code are Fund shareholders.
TAXATION
OF INCOME FROM CERTAIN FINANCIAL INSTRUMENTS AND PFICS
The tax principles applicable to transactions in
financial instruments and futures contracts and options that may be engaged in
by a Fund including the effect of fluctuations in the value of foreign
currencies, and investments in passive foreign investment companies (“PFICs”),
are complex and, in some cases, uncertain. Such transactions and investments
may cause a Fund to recognize taxable income prior to the receipt of cash,
thereby requiring such Fund to liquidate other positions, or to borrow money,
so as to make sufficient distributions to shareholders to avoid corporate-level
tax. Moreover, some or all of the taxable income recognized may be ordinary
income or short-term capital gain, so that the distributions may be taxable to
shareholders as ordinary income.
In addition, in the case of any shares of a PFIC in
which a Fund invests, such Fund may be liable for corporate-level tax on any
ultimate gain or distributions on the shares if such Fund fails to make an
election to recognize income annually during the period of its ownership of the
shares.
35
SALES OF
SHARES
Upon the sale or exchange of his shares, a shareholder
will realize a taxable gain or loss equal to the difference between the amount
realized and his basis in his shares. A redemption of shares by a Fund will be
treated as a sale for this purpose. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder’s
hands, and will be long-term capital gain or loss if the shares are held for
more than one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains
distributions in a Fund, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of the shares. In such a case, the basis
of the shares acquired will be increased to reflect the disallowed loss. Any
loss realized by a shareholder on the sale of a Fund share held by the
shareholder for six months or less will be treated for U.S. federal income tax
purposes as a long-term capital loss to the extent of any distributions or
deemed distributions of long-term capital gains received by the shareholder
with respect to such share.
OTHER
TAXES
Dividends, distributions and redemption proceeds may
also be subject to additional state, local and foreign taxes depending on each
shareholder’s particular situation.
TAXATION
OF NON-U.S. SHAREHOLDERS
Dividends paid by a Fund to non-U.S. shareholders are
generally subject to withholding tax at a 30% rate or a reduced rate specified
by an applicable income tax treaty to the extent derived from investment income
and short-term capital gains. In order to obtain a reduced rate of withholding,
a non-U.S. shareholder will be required to provide an IRS Form W-8BEN
certifying its entitlement to benefits under a treaty. The withholding tax does
not apply to regular dividends paid to a non-U.S. shareholder who provides a
Form W-8ECI, certifying that the dividends are effectively connected with the
non-U.S. shareholder’s conduct of a trade or business within the United States.
Instead, the effectively connected dividends will be subject to regular U.S.
income tax as if the non-U.S. shareholder were a U.S. shareholder. A non-U.S.
corporation receiving effectively connected dividends may also be subject to
additional “branch profits tax” imposed at a rate of 30% (or lower treaty
rate). A non-U.S. shareholder who fails to provide an IRS Form W-8BEN or other
applicable form may be subject to backup withholding at the appropriate rate.
In general, United States federal withholding tax will
not apply to any gain or income realized by a non-U.S. shareholder in respect
of any distributions of net long-term capital gains over net short-term capital
losses, exempt-interest dividends, or upon the sale or other disposition of
shares of a Fund.
For foreign shareholders of a Fund a distribution
attributable to such Fund’s sale of a real estate investment trust or other
U.S. real property holding company will be treated as real property gain
subject to 35% withholding tax if 50% or more of the value of such Fund’s
assets are invested in real estate investment trusts and other U.S. real
property holding corporations and if the foreign shareholder has held more than
5% of a class of stock at any time during the one-year period ending on the
date of the distribution. A distribution from a Fund will be treated as
attributable to a U.S. real property interest only if such distribution is
attributable to a distribution received by such Fund from a real estate
investment trust. Restrictions apply regarding wash sales and substitute
payment transactions.
REPORTING
If a shareholder recognizes a loss with respect to a
Fund’s shares of $2 million or more for an individual shareholder or $10
million or more for a corporate shareholder, the shareholder may be required to
file with the Internal Revenue Service a disclosure statement on Form 8886.
Direct shareholders of portfolio securities are in many cases exempted from
this reporting requirement, but under current guidance, shareholders of a
regulated investment company are not exempted. 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 advisors to determine the applicability of these regulations
in light of their individual circumstances. Under recently enacted legislation,
36
certain tax-exempt entities and their managers may be
subject to excise tax if they are parties to certain reportable transactions.
The foregoing discussion is a summary only and is not
intended as a substitute for careful tax planning. Purchasers of shares should
consult their own tax advisers as to the tax consequences of investing in such
shares, including under state, local and foreign tax laws. Finally, the
foregoing discussion is based on applicable provisions of the Code,
regulations, judicial authority and administrative interpretations in effect on
the date of this Statement of Additional Information. Changes in applicable
authority could materially affect the conclusions discussed above, and such
changes often occur.
NET ASSET VALUE
The NAV for each Fund is calculated by deducting all
of a Fund’s liabilities (including accrued expenses) from the total value of
its assets (including the securities held by the Fund plus any cash or other
assets, including interest and dividends accrued but not yet received) and
dividing the result by the number of shares outstanding, and generally rounded
to the nearest cent, although each Fund reserves the right to calculate its NAV
to more than two decimal places. The NAV for each Fund will generally be
determined by SEI Investments Global Trusts Services once daily Monday through
Friday generally as of the regularly scheduled close of business of the NYSE
(normally 4:00 p.m. Eastern Time) on each day that the NYSE, the Fund’s
Exchange and the Fund’s Custodian are open for trading, based on prices at the
time of closing, provided that (a) any assets or liabilities denominated in
currencies other than the U.S. dollar shall be translated into U.S. dollars at
the prevailing market rates on the date of valuation as quoted by one or more
major banks or dealers that makes a two-way market in such currencies (or a
data service provider based on quotations received from such banks or dealers);
and (b) U.S. fixed-income assets may be valued as of the announced closing time
for trading in fixed-income instruments on any day that the Bond Market
Association announces an early closing time.
In calculating a Fund’s NAV, the Fund’s investments
are generally valued using market valuations. In the event that current market
valuations are not readily available or such valuations do not reflect current
market values, the affected investments will be valued using fair value pricing
pursuant to the pricing policy and procedures approved by the Board of
Trustees. A market valuation generally means a valuation (i) obtained from an
exchange, a pricing service, or a major market maker (or dealer), (ii) based on
a price quotation or other equivalent indication of value supplied by an
exchange, a pricing service, or a major market maker (or dealer) or (iii) based
on amortized cost. In the case of shares of funds that are not traded on an
exchange, a market valuation means such fund’s published net asset value per
share. SEI Investments Global Trusts Services may use various pricing services
or discontinue the use of any pricing service. A price obtained from a pricing
service based on such pricing service’s valuation matrix may be considered a
market valuation.
The value of assets denominated in foreign currencies
is converted into U.S. dollars using exchange rates deemed appropriate by the
Adviser as investment adviser. Any use of fair value prices, current market
valuations or exchange rates different from the prices and rates used by the
Index Providers may adversely affect a Fund’s ability to track its underlying
index.
DIVIDENDS AND DISTRIBUTIONS
GENERAL
POLICIES
Dividends from net investment income, including any
net foreign currency gains, are declared and paid at least annually and any net
realized securities gains are distributed at least annually. In order to
improve tracking error or comply with the distribution requirements of the
Internal Revenue Code of 1986, dividends may be declared and paid more
frequently than annually for certain Fund. Dividends and securities gains
distributions are distributed in U.S. dollars and cannot be automatically
reinvested in additional shares of the Funds. The Trust reserves the right to
declare special distributions if, in its reasonable discretion, such action is
necessary or advisable to preserve the status of each Fund as a registered
investment company (“RIC”) or to avoid imposition of income or excise taxes on
undistributed income.
37
Dividends and other distributions of shares are
distributed 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 Funds.
DIVIDEND
REINVESTMENT SERVICE
No dividend reinvestment service is provided by the
Trust. Broker-dealers may make available the DTC book-entry Dividend
Reinvestment Service for use by Beneficial Owners of Funds for reinvestment of
their dividend distributions. Beneficial Owners should contact their broker to
determine the availability and costs of the service and the details of
participation therein. Brokers may require Beneficial Owners to adhere to
specific procedures and timetables. If this service is available and used,
dividend distributions of both income and realized gains will be automatically
reinvested in additional whole shares of the same Fund purchased in the
secondary market.
OTHER INFORMATION
COUNSEL
Dechert LLP, with offices at 1775 I Street Washington,
DC 20006-2401, is counsel to the Trust.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Sanville & Company with offices at 1514 Old York
Road, Abington, PA 19001 serves as the independent registered public accounting
firm of the Trust, audits the Funds’ financial statements and may perform other
services.
ADDITIONAL
INFORMATION
The Prospectus and this Additional Statement do not
contain all the information included in the Registration Statement filed with
the SEC under the 1933 Act with respect to the securities offered by the
Trust’s Prospectus. Certain portions of the Registration Statement have been
omitted from the Prospectus and this Additional Statement pursuant to the rules
and regulations of the SEC. The Registration Statement, including the exhibits
filed therewith, may be examined at the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this
Additional Statement as to the contents of any contract or other documents
referred to are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectus and this Additional Statement
form a part, each such statement being qualified in all respects by such
reference.
38
APPENDIX A
Each Fund generally intends to effect deliveries of
Creation Units and portfolio securities on a basis of “T” plus three business
days. Each Fund may effect deliveries of Creation Units and portfolio
securities on a basis other than T plus three in order to accommodate local
holiday schedules, to account for different treatment among foreign and U.S.
markets of dividend record dates and ex-dividend dates, or under certain other
circumstances. The ability of the Trust to effect in-kind creations and
redemptions within three business days of receipt of an order in good form is
subject, among other things, to the condition that, within the time period from
the date of the order to the date of delivery of the securities, there are no
days that are holidays in the applicable foreign market. For every occurrence
of one or more intervening holidays in the applicable foreign market that are
not holidays observed in the U.S. equity market, the redemption settlement
cycle will be extended by the number of such intervening holidays. In addition
to holidays, other unforeseeable closings in a foreign market due to
emergencies may also prevent the Trust from delivering securities within the
normal settlement period.
The securities delivery cycles currently practicable
for transferring portfolio securities to redeeming investors, coupled with
foreign market holiday schedules, will require a delivery process longer than
seven calendar days in certain circumstances. The holidays applicable to each
Fund during such periods are listed below, as are instances where more than
seven days will be needed to deliver redemption proceeds. Although certain
holidays may occur on different dates in subsequent years, the number of days
required to deliver redemption proceeds in any given year is not expected to
exceed the maximum number of days listed below for each Fund. The proclamation
of new holidays, the treatment by market participants of certain days as
“informal holidays” (
e.g.
, days
on which no or limited securities transactions occur, as a result of
substantially shortened trading hours), the elimination of existing holidays,
or changes in local securities delivery practices, could affect the information
set forth herein at some time in the future.
Global X
FTSE Argentina 20 ETF
Argentina: Regular Holidays:
The dates of
the Regular Holidays in calendar year 2009 are:
|
|
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|
|
|
|
|
|
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Jan. 1
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|
May 1
|
|
Aug. 17
|
|
Dec. 24
|
|
|
Apr. 6
|
|
May 25
|
|
Oct. 12
|
|
Dec. 25
|
|
|
Apr. 9
|
|
Jun. 15
|
|
Nov. 6
|
|
Dec. 31
|
|
|
Apr. 10
|
|
Jul. 9
|
|
Dec. 8
|
|
|
|
Redemption:
The Trust is not aware of a
redemption request that would result in a settlement period exceeding 7
calendar days during the calendar year 2009.
Global
X/InterBolsa FTSE Colombia 20 ETF
Colombia: Regular Holidays:
The dates of
the Regular Holidays in calendar year 2009 are:
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Jan. 1
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Apr. 10
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|
Jun. 22
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|
Aug. 17
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|
Dec. 8
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|
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Jan. 12
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May 1
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|
Jun. 29
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|
Oct. 12
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|
Dec. 25
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|
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Mar. 23
|
|
May 25
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|
Jul. 20
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|
Nov. 2
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Dec. 31
|
|
|
Apr. 9
|
|
Jun. 15
|
|
Aug. 7
|
|
Nov. 16
|
|
|
|
Redemption:
The Trust is not aware of a
redemption request that would result in a settlement period exceeding 7
calendar days during the calendar year 2009.
Global X FTSE Egypt 30 ETF
Egypt: Regular Holidays:
The dates of the
Regular Holidays in calendar year 2009 are:
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|
|
|
|
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Jan. 1
|
|
Apr. 20
|
|
Sep. 21
|
|
Nov. 29
|
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Jan. 7
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Jul. 1
|
|
Sep. 22
|
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Mar. 9
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Jul. 23
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Oct. 6
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|
|
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Apr. 19
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|
Sep. 20
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|
Nov. 26
|
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|
|
Redemption:
A redemption request made on
one of the dates set forth below would result in a settlement period exceeding
7 calendar days (examples are based on the day certain holidays occur in
calendar year 2009):
A-1
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|
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Redemption
Request Date
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|
Redemption
Settlement Date
|
|
Settlement
Period
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09/15/2009
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09/23/2009
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8
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09/16/2009
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09/24/2009
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8
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09/17/2009
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09/27/2009
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10
|
Global X FTSE Peru 20 ETF
Peru: Regular Holidays:
The dates of the
Regular Holidays in calendar year 2009 are:
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|
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|
Jan. 1
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Jun. 29
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Dec. 8
|
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Apr. 9
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Jul. 28
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Dec. 24
|
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Apr. 10
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|
Jul. 29
|
|
Dec. 25
|
|
|
|
May 1
|
|
Oct. 8
|
|
Dec. 31
|
|
|
Redemption:
The Trust is not aware of a
redemption request that would result in a settlement period exceeding 7
calendar days during the calendar year 2009.
Global X FTSE Philippines 30 ETF
Philippines: Regular Holidays:
The dates of
the Regular Holidays in calendar year 2009 are:
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Jan. 1
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May 1
|
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Nov. 2
|
|
Dec. 30
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Feb. 25
|
|
Jun. 12
|
|
Nov. 30
|
|
Dec. 31
|
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Apr. 9
|
|
Aug. 21
|
|
Dec. 24
|
|
|
|
|
Apr. 10
|
|
Sep. 21
|
|
Dec. 25
|
|
|
|
Redemption:
A redemption request made on
one of the dates set forth below would result in a settlement period exceeding
7 calendar days (examples are based on the day certain holidays occur in
calendar year 2009):
|
|
|
|
|
|
|
Redemption
Request Date
|
|
Redemption
Settlement Date
|
|
Settlement
Period
|
|
|
|
|
|
|
04/03/2009
|
|
04/13/2009
|
|
10
|
A-2
APPENDIX B
As stated in the Prospectus, the Funds may enter into
certain futures transactions. Some of these transactions are described in this
Appendix. The Funds may also enter into other futures transactions or other
securities and instruments that are available in the markets from time to time.
I. Index
and Security Futures Contracts
A stock index assigns relative values to the stocks
included in the index, which fluctuates with changes in the market values of
the stocks included. Some stock index futures contracts are based on broad
market indices, such as the S&P 500 or the New York Stock Exchange
Composite Index. In contrast, certain futures contracts relate to narrower
market indices, such as the S&P 100
®
or indexes based on an
industry or market segment, such as oil and gas stocks. Since 2001, trading has
been permitted in futures based on a single stock and on narrow-based security
indices (as defined in the Commodity Futures Modernization Act of 2000)
(together “security futures”; broader-based index futures are referred to as
“index futures”). Some futures contracts are traded on organized exchanges
regulated by the CFTC. These exchanges may be either designated by the CFTC as
a contract market or registered with the CFTC as a Derivatives Transaction
Execution Facility (DTEF). Transactions on such exchanges are cleared through a
clearing corporation, which guarantees the performance of the parties to each
contract. Futures contracts also may be traded on electronic trading facilities
or over-the-counter. These various trading facilities are licensed and/or
regulated by varying degrees by the CFTC. A Fund may also engage in
transactions in foreign stock index futures.
II.
Futures Contracts on Foreign Currencies
A futures contract on foreign currency creates a
binding obligation on one party to deliver, and a corresponding obligation on
another party to accept delivery of, a stated quantity of foreign currency for
an amount fixed in U.S. dollars. Foreign currency futures may be used by a Fund
to help the Fund track the price and yield performance of its Underlying Index.
III.
Margin Payments
Unlike purchases or sales of portfolio securities, no
price is paid or received by a Fund upon the purchase or sale of a futures
contract. Initially, the Funds will be required to deposit with the broker or
in a segregated account with a custodian or sub-custodian an amount of liquid
assets, known as initial margin, based on the value of the contract. The nature
of initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract, which is returned to the Funds upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as “marking-to-market.” For example, when a Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where a Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less
valuable and the Fund would be required to make a variation margin payment to
the broker. Prior to expiration of the futures contract, the Adviser may elect
to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate a Fund’s
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
B-1
IV.
Risks of Transactions in Futures Contracts
There are several risks in connection with the use of
futures by the Funds, even for futures that are used for hedging
(non-speculative) purposes. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in the
price of the instruments which are the subject of the hedge. The price of the
future may move more than or less than the price of the instruments being
hedged. If the price of the futures moves less than the price of the
instruments which are the subject of the hedge, the hedge will not be fully
effective but, if the price of the instruments being hedged has moved in an
unfavorable direction, a Fund would be in a better position than if it had not
hedged at all. If the price of the instruments being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on the
futures. If the price of the futures moves more than the price of the hedged
instruments, the Fund involved will experience either a loss or gain on the
futures which will not be completely offset by movements in the price of the
instruments that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of instruments being hedged and movements
in the price of futures contracts, the Funds may buy or sell futures contracts
in a greater dollar amount than the dollar amount of instruments being hedged
if the volatility over a particular time period of the prices of such
instruments has been greater than the volatility over such time period of the
futures, or if otherwise deemed to be appropriate by the Adviser. Conversely, a
Fund may buy or sell fewer futures contracts if the volatility over a
particular time period of the prices of the instruments being hedged is less
than the volatility over such time period of the futures contract being used,
or if otherwise deemed to be appropriate by the Adviser.
In addition to the possibility that there may be an
imperfect correlation, or no correlation at all, between movements in the
futures and the instruments being hedged, the price of futures may not
correlate perfectly with movement in the cash market due to certain market
distortions. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through off-setting transactions which
could distort the normal relationship between the cash and futures markets.
Second, with respect to financial futures contracts, the liquidity of the
futures market depends on participants entering into off-setting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced thus
producing distortions. Third, from the point of view of speculators, the
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price distortions.
Due to the possibility of price distortion in the futures market, and because
of the imperfect correlation between the movements in the cash market and
movements in the price of futures, a correct forecast of general market trends
or interest rate movements by the Adviser may still not result in a successful
hedging transaction over a short time frame.
In general, positions in futures may be closed out
only on an exchange, board of trade or other trading facility, which provides a
secondary market for such futures. Although the Funds intend to purchase or
sell futures only on trading facilities where there appear to be active
secondary markets, there is no assurance that a liquid secondary market on any
trading facility will exist for any particular contract or at any particular
time. In such an event, it may not be possible to close a futures investment
position, and in the event of adverse price movements, the Funds would continue
to be required to make daily cash payments of variation margin. However, in the
event futures contracts have been used to hedge portfolio securities, such
securities will not be sold until the futures contract can be terminated. In
such circumstances, an increase in the price of the securities, if any, may
partially or completely offset losses on the futures contract. However, as
described above, there is no guarantee that the price of the securities will in
fact correlate with the price movements in the futures contract and thus
provide an offset on a futures contract.
Further, it should be noted that the liquidity of a
secondary market in a futures contract may be adversely affected by “daily
price fluctuation limits” established by commodity exchanges which limit the
amount of fluctuation in a futures contract price during a single trading day.
Once the daily limit has been reached in the contract, no trades may be entered
into at a price beyond the limit, thus preventing the liquidation of open
futures positions. The trading of futures contracts is also subject to the risk
of trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal
B-2
trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Successful use of futures by Funds is also subject to
the Adviser’s ability to predict correctly movements in the direction of the
market. In addition, in such situations, if a Fund has insufficient cash, it
may have to sell securities to meet daily variation margin requirements. Such
sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. The Fund may have to sell securities at a time
when it may be disadvantageous to do so.
Futures purchased or sold by a Fund (and related
options) may be traded on foreign exchanges. Participation in foreign futures
and foreign options transactions involves the execution and clearing of trades
on or subject to the rules of a foreign board of trade. Neither the National
Futures Association nor any domestic exchange regulates activities of any
foreign boards of trade, including the execution, delivery and clearing of
transactions, or has the power to compel enforcement of the rules of a foreign
board of trade or any applicable foreign law. This is true even if the exchange
is formally linked to a domestic market so that a position taken on the market
may be liquidated by a transaction on another market. Moreover, such laws or
regulations will vary depending on the foreign country in which the foreign
futures or foreign options transaction occurs. For these reasons, customers who
trade foreign futures or foreign options contracts may not be afforded certain
of the protective measures provided by the Commodity Exchange Act, the CFTC
regulations and the rules of the National Futures Association and any domestic
exchange or other trading facility (including the right to use reparations
proceedings before the CFTC and arbitration proceedings provided by the
National Futures Association or any domestic futures exchange), nor the
protective measures provided by the Securities and Exchange Commission’s rules
relating to security futures. In particular, the investments of the Funds in
foreign futures, or foreign options transactions may not be provided the same
protections in respect to transactions on United States futures trading
facilities. In addition, the price of any foreign futures or foreign options
contract may be affected by any variance in the foreign exchange rate between
the time an order is placed and the time it is liquidated, offset or exercised.
V.
Options on Futures Contracts
The Funds may purchase and write options on the
futures contracts described above. A futures option gives the holder, in return
for the premium paid, the right to buy (call) from or sell (put) to the writer
of the option of a futures contract at a specified price at any time during the
period of the option. Upon exercise, the writer of the option is obligated to
pay the difference between the cash value of the futures contract and the
exercise price. Like the buyer or seller of a futures contract, the holder, or
writer, of an option has the right to terminate its position prior to the
scheduled expiration of the option by selling, or purchasing an option of the
same series, at which time the person entering into the closing transaction
will realize a gain or loss. A Fund will be required to deposit initial margin
and variation margin with respect to put and call options on futures contracts
written by it pursuant to brokers’ requirements similar to those described
above. Net option premiums received will be included as initial margin
deposits.
Investments in futures options involve some of the
same considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). See “Risks
of Transactions in Futures Contracts” above. In addition, the purchase or sale
of an option also entails the risk that changes in the value of the underlying
futures contract will not correspond to changes in the value of the option
purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may
frequently involve less potential risk to the Fund because the maximum amount
at risk is the premium paid for the options (plus transaction costs). The
writing of an option on a futures contract involves risks similar to those risks
relating to the sale of futures contracts.
B-3
VI.
Other Matters
The Funds intend to comply with the regulations of the CFTC exempting
it from registration as a “Commodity Pool Operator.” The Funds are operated by
persons who have claimed an exclusion from the definition of the term
“Commodity Pool Operator” under the Commodity Exchange Act and, therefore, are
not subject to registration or regulations as a pool operator under such Act.
Accounting for futures contracts will be in accordance with generally accepted
accounting principles.
B-4
PART C
OTHER INFORMATION
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Item 23.
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Exhibits
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(a)
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(1)
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Certificate
of Trust dated as of March 6, 2008.
1
/
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(2)
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Declaration
of Trust.
2
/
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(3)
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Amended and
Restated Schedule A to the Declaration of Trust dated December 5, 2008 to be
filed herewith.
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(b)
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By-Laws of
the Registrant.
2
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(c)
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Not
Applicable.
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(d)
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(1)
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Form of
Investment Advisory Agreement.
2
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(2)
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Amended and
Restated Exhibit A to the Investment Advisory Agreement to be filed herewith.
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(e)
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Form of
Distribution Agreement.
2
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(f)
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Not
Applicable.
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(g)
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Form of
Custodian Agreement.
2
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(h)
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(1)
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Form of
Transfer Agent Services Agreement.
2
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(2)
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Form of
Administration Agreement.
2
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(3)
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Form of
Supervision and Administration Agreement.
3
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(4)
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Form of
Sub-License Agreement.
3
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(5)
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Amended and
Restated Schedule A dated December 5, 2008 to the Supervision and
Administration Agreement to be filed herewith.
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(i)
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(1)
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Opinion and
Consent of Dechert LLP.
3
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(2)
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Opinion and
Consent of Dechert LLP to be filed herewith.
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(j)
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(1)
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Consent of
Independent Registered Public Accounting Firm.
4
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(2)
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Consent of
Independent Registered Public Accounting Firm to be filed herewith.
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(k)
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Not
Applicable
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(l)
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Initial
Capital Agreement.
3
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(m)
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Form of
Distribution and Service Plan.
3
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(n)
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Not
applicable
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(o)
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Not
applicable
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(p)
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(1)
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Code of
Ethics of Global X Funds and Global X Management Company LLC to be filed
herewith.
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(2)
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Code of
Ethics of Distributor to be filed herewith.
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(q)
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Power of
Attorney.
3
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(r)
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Form of
Index Sub-License Agreement.
3
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(s)
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Form of
Authorized Participation Agreement.
3
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1
/ Incorporated by reference from the
Registrant’s initial Registration Statement, SEC File No. 333-151713,
filed June 17, 2008.
2
/ Incorporated by reference from the
Registrant’s Pre-effective Amendment #1, SEC File No. 333-151713, filed
August 15, 2008.
3/
Incorporated by reference from the
Registrant’s Pre-effective Amendment #1, SEC File No. 333-151713, filed
October 27, 2008.
4
/ Incorporated by reference from the
Registrant’s Pre-effective Amendment #1, SEC File No. 333-151713, filed
November 3, 2008.
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Item 24.
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Persons Controlled by or Under Common Control with the Fund
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None.
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Item 25.
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Indemnification
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Section 3 of
Article VII of the Registrant’s Declaration of Trust filed as Exhibit (a)(2) to
the Registrant’s Registration Statement provides that, subject to the
exceptions and limitations contained in the By-Laws, each Trustee or officer of
the Registrant (“Covered Person”) shall be indemnified by the Registrant to the
fullest extent permitted by law against liability and against all expenses
reasonably incurred or paid by him in connection with the defense of any
proceeding in which he or she becomes involved as a party or otherwise by
virtue of being or having been a Trustee or officer of the Trust and against
amounts paid or incurred by him or her in the settlement thereof; and that
expenses in connection with the defense of any proceeding of the character
described above shall be advanced by the Trust to the Covered Person from time
to time prior to final disposition of such proceeding to the fullest extent
permitted by law. No indemnification shall be provided hereunder to a Covered
Person who shall have been adjudicated by a court or body before which the
proceeding was brought (i) to be liable to the Registrant 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 (ii) not to
have acted in good faith in the reasonable belief that his action was in the
best interest of the Registrant.
The
Registrant’s financial obligations arising from the indemnification provided
herein or in the By-Laws may be insured by policies maintained by the
Registrant, shall be severable, shall not be exclusive of or affect any other
rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be a Covered Person as to acts or
omissions as a Covered Person and shall inure to the benefit of the heirs,
executors and administrators of such a person. Nothing contained herein shall
affect any rights to indemnification to which Registrant’s personnel, other
than Covered Persons, and other persons may be entitled by contract or
otherwise under law.
Expenses in
connection with the defense of any proceeding of the character described in
paragraph (a) of Section 3 may be advanced by the Registrant (or its series)
from time to time prior to final disposition of the proceeding upon receipt of
an undertaking by or on behalf of such Covered Person that such amount will be
paid over by him to the Registrant (or series) if it is ultimately determined
that he is not entitled to indemnification under Section 3; provided, however,
that either (i) such Covered Person shall have provided appropriate security
for such undertaking, (ii) the Registrant is insured against losses arising out
of any such advance payments, or (iii) either a majority of the Trustees who
are neither “interested persons” of the Registrant nor parties to the matter,
or independent legal counsel in a written opinion, shall have determined, based
upon a review of readily available facts (as opposed to a trial-type inquiry or
full investigation), that there is reason to believe that such Covered Person
will be found entitled to indemnification under Section 3.
Section 2 of
Article VII of the Registrant’s By-Laws filed as Exhibit (b) to the Registrant’s
Registration Statement further provides that, with respect to indemnification
of the Trustees and officers, the Registrant shall, subject to
certain
exceptions and limitations, indemnify its Trustees and officers to the fullest
extent consistent with state law and the 1940 Act. Without limitation of the
foregoing, the Registrant shall indemnify each person who was or is a party or
is threatened to be made a party to any proceedings, by reason of alleged acts
or omissions within the scope of his or her service as a Trustee or officer of
the Registrant, against judgments, fines, penalties, settlements and reasonable
expenses (including attorneys’ fees) actually incurred by him or her in
connection with such proceeding to the maximum extent consistent with state law
and the 1940 Act. The Registrant may, to the fullest extent consistent with
law, indemnify each person who is serving or has served at the request of the
Registrant as a director, officer, partner, trustee, employee, agent or
fiduciary of another domestic or foreign corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan (“Other Position”)
and who was or is a party or is threatened to be made a party to any proceeding
by reason of alleged acts or omissions while acting within the scope of his or
her service in such Other Position, against judgments, fines, settlements and
reasonable expenses (including attorneys’ fees) actually incurred by him or her
in connection with such proceeding to the maximum extent consistent with state
law and the 1940 Act. The indemnification and other rights provided by Article
VII shall continue as to a person who has ceased to be a Trustee or officer of
the Registrant. In no event will any revision, amendment or change to the By-Laws
affect in any manner the rights of any Trustee or officer of the Trust to
receive indemnification by the Trust against all liabilities and expenses
reasonably incurred or paid by the Trustee or officer in connection with any
proceeding in which the Trustee or officer becomes involved as a party or
otherwise by virtue of being or having been a Trustee or officer of the Trust
(including any amount paid or incurred by the Trustee or officer in the
settlement of such proceeding) with respect to any act or omission of such
Trustee or officer that occurred or is alleged to have occurred prior to the
time such revision, amendment or change to the By-Laws is made.
Insofar as
indemnification for liability arising under the Securities Act of 1933 may be
permitted to Trustees, officers and controlling persons of Registrant pursuant
to the foregoing provisions, or otherwise, Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the 1940 Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of
such issue.
Section 7 of
Article III of the Registrant’s Declaration of Trust, filed as Exhibit (a)(2)
to the Registrant’s Registration Statement, also provides for the
indemnification of shareholders of the Registrant. Section 7 states as follows:
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If any
Shareholder or former Shareholder of any Series shall be held to be
personally liable solely by reason of a claim or demand relating to such
Person being or having been a Shareholder, and not because of such Person’s
acts or omissions, the Shareholder or former Shareholder (or such Person’s
heirs, executors, administrators, or other legal representatives or in the
case of a corporation or other entity, its corporate or other general
successor) shall be entitled to be held harmless from and indemnified against
all loss and expense arising from such claim or demand, but only out of the
assets held with respect to the particular Series of Shares of which such
Person is or was a Shareholder and from or in relation to which such
liability arose. The Trust, on behalf of the applicable Series, may, at its
option, assume the defense of any such claim made against such Shareholder.
Neither the Trust nor the applicable Series shall be responsible for
satisfying any obligation arising from such a claim that has been settled by
the Shareholder without the prior written notice to, and consent of, the
Trust.
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Item 26.
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Business and Other Connections of the Investment Adviser
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Global X
Management Company LLC serves as investment adviser to the Funds and provides
investment supervisory services. Information as to the officers and directors
of Global X Management Company LLC is included in its Form ADV last filed with
the Securities and Exchange Commission (SEC File No. 801-69093) and is
incorporated herein by reference.
Set forth
below is a list of officers and directors of Global X Management Company LLC,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years.
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Name and
Position
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Principal
Business(es) During the Last Two Fiscal Years
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Bruno del
Ama, Chief Executive Officer
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Chief
Executive Officer, Global X Management Company LLC (since 2008); Head of
Global Structured Products Operations at Radian Asset Assurance (2004-2008)
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Jose C.
Gonzalez, Principal
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Founder and
President of GWM Group, Inc. (since 2006); Financial Advisor, BroadStreet
Securities, Inc. (2004-2006)
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Item 27.
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Principal Underwriters
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(a)
Registrant’s distributor, SEI Investments Distribution Co. serves as
underwriter for the following registered investment companies.
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SEI Daily
Income Trust
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July 15,
1982
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SEI Liquid
Asset Trust
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November 29,
1982
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SEI Tax
Exempt Trust
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December 3,
1982
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SEI
Institutional Managed Trust
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January 22,
1987
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SEI
Institutional International Trust
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August 30,
1988
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The
Advisors’ Inner Circle Fund
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November 14,
1991
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The
Advisors’ Inner Circle Fund II
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January 28,
1993
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Bishop
Street Funds
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January 27,
1995
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SEI Asset
Allocation Trust
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April 1,
1996
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SEI Institutional
Investments Trust
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June 14,
1996
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Oak
Associates Funds
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February 27,
1998
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CNI Charter
Funds
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April 1,
1999
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iShares,
Inc.
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January 28,
2000
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Optique
Funds, Inc.
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November 1,
2000
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Causeway
Capital Management Trust
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September
20, 2001
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Barclays
Global Investors Funds
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March 31,
2003
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SEI
Opportunity Fund, LP
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October 1,
2003
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The
Arbitrage Funds
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May 17, 2005
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The Turner
Funds
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January 1,
2006
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ProShares
Trust
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November 14,
2005
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Community
Reinvestment Act Qualified Investment Fund
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January 8,
2007
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SEI Alpha
Strategy Portfolios, LP
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June 29,
2007
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TD Asset
Management USA Funds
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July 25,
2007
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SEI
Structured Credit Fund, LP
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|
July 31,
2007
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Wilshire
Mutual Funds, Inc.
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July 12,
2008
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Wilshire
Variable Insurance Trust
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July 12,
2008
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Forward
Funds
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August 14,
2008
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(b) The
following officers of SEI Investments Distribution Co. hold the following
positions with the Registrant. Unless otherwise noted, the business address of
each officer is One Freedom Valley Drive, Oaks, PA 19456.
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Name
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Position
with Underwriter
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Position
with Registrant
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William M. Doran
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Director
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None
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Edward D. Loughlin
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Director
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None
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Wayne M. Withrow
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Director
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None
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Kevin Barr
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President & Chief Executive Officer
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None
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Maxine Chou
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Chief Financial Officer & Treasurer
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None
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John Munch
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General Counsel & Secretary
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None
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Karen LaTourette
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Chief Compliance Officer, Anti-Money
Laundering Officer & Assistant Secretary
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None
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Mark J. Held
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Senior Vice President
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None
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Lori L. White
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Vice President & Assistant Secretary
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None
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Robert Silvestri
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Vice President
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None
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John Coary
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Vice President & Assistant Secretary
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None
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Robert McCarthy
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Vice President
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None
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John Cronin
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Vice President
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None
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Item 28.
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Location of Accounts and Records
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All accounts,
books, and other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, as amended, and the rules promulgated
thereunder are maintained at the offices of the: (a) Registrant; (b) Investment
Adviser; (c) Principal Underwriter; (d) Administrator/Transfer Agent and (e) Custodian. The address of each is
as follows:
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(a)
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Registrant
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Global X
Funds
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220 Fifth
Avenue, 20th Floor
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New York, NY
10001
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(b)
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Investment Adviser
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Global X
Management Company LLC
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220 Fifth
Avenue, 20th Floor
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New York, NY
10001
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(c)
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Principal Underwriter
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SEI
Investments Distribution Co.
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Freedom
Valley Drive
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Oaks, PA
19456.
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(d)
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Sub-Administrator
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SEI
Investments Global Trusts Services
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Freedom
Valley Drive
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Oaks, PA
19456.
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(e)
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Custodian and Transfer Agent
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Brown
Brothers Harriman & Co.
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40 Water
Street
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Boston, MA
02109
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Item 29.
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Management Services
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Not
Applicable.
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Item 30.
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Undertakings
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Not
Applicable.
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SIGNATURES
Pursuant to
the requirements of the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, the Registrant certifies that this
Post-Effective Amendment No.2 to the Registration Statement meets all the
requirements for effectiveness of this registration statement pursuant to Rule
485(b) of the Securities Act of 1933, as amended, and the Registrant has duly
caused this Post-Effective Amendment No.5 to the 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 20
th
day of January, 2009.
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Global X
Funds
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By:
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/s/ Bruno
del Ama
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President
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Pursuant to
the requirements of the Securities Act of 1933, the Registration Statement has
been signed below by the following persons in the capacities and on the date
indicated.
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Name
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Title
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Date
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/s/ Bruno
del Ama
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President
(Principal Executive Officer) and Trustee
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January 20,
2009
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Bruno del
Ama
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/s/ Jose C.
Gonzalez
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Chief
Operating Officer, Treasurer (Principal Financial Officer) and Principal
Accounting Officer
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January 20,
2009
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Jose C.
Gonzalez
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*
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Sanjay Ram
Bharani
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Trustee
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January 20,
2009
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*
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Scott R.
Chichester
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Trustee
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January 20,
2009
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*
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Kartik Kiran
Shah
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Trustee
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January 20,
2009
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* /s/ Bruno
del Ama
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Attorney-In-Fact,
pursuant to power of attorney
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EXHIBIT LIST
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(a)
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(3)
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Amended and
Restated Schedule A to the Declaration of Trust dated December 5, 2008
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(d)
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(2)
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Amended and
Restated Exhibit A to the Investment Advisory Agreement dated December 5,
2008
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(h)
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(5)
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Amended and
Restated Schedule A dated December 5, 2008 to the Supervision and
Administration Agreement
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(i)
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(2)
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Opinion and
Consent of Dechert LLP
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(j)
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(2)
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Consent of
Independent Registered Public Accounting Firm
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(p)
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(1)
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Code of
Ethics of Global X Funds and Global X Management Company
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(p)
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(2)
|
Code of
Ethics of Distributor
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