As filed with the Securities and Exchange Commission on April 5, 2010
Securities Act File No. 333-123257
Investment Company Act File No. 811-10325
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United States Securities and Exchange Commission |
Washington, D.C. 20549 |
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FORM N-1A |
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Registration Statement Under the Securities Act of 1933 |
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Pre-Effective Amendment No. |
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Post Effective Amendment No. 129 |
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and/or |
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Registration Statement Under the Investment Company Act of 1940 |
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Amendment No. 133 |
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MARKET VECTORS ETF TRUST |
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(Exact Name of Registrant as Specified in its Charter) |
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335 Madison Avenue, 19
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Floor
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Copy to:
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Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of
this
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IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX) |
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Immediately upon filing pursuant to paragraph (b) |
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On April 5, 2010 pursuant to paragraph (b) |
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60 days after filing pursuant to paragraph (a)(1) |
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On [date] pursuant to paragraph (a)(1) |
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75 days after filing pursuant to paragraph (a)(2) |
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On [date] pursuant to paragraph (a)(2) of rule 485 |
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[LOGO] |
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[ ], 2010 |
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India Small-Cap Index ETF (NYSE Arca, Inc.: SCIF) |
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The U.S. Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense. Shares of the Fund (Shares) are not guaranteed or insured by the Federal Deposit Insurance Corporation or any other agency of the U.S. Government, nor are Shares deposits or obligations of any bank. Such Shares in the Fund involve investment risks, including the loss of principal. |
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[LOGO] |
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Table of Contents
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Additional Information About the Funds Investment Strategies and Risks |
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Investment Objective
Fund Fees and Expenses
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Annual
Fund Operating Expenses
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Management Fee |
0.50% |
Other Expenses (a) |
0.53% |
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Total Annual Fund Operating Expenses (b) |
1.03% |
Fee Waivers and Expense Reimbursement (b) |
0.13% |
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Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement (b) |
0.90% |
Expense Example
This example is intended to
help you compare the cost of investing in the Fund with the cost of investing
in other mutual funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% annual return and that the Funds operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
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1 YEAR |
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3 YEARS |
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$92 |
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$315 |
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(a) |
Other Expenses are based on estimated amounts for the current fiscal year and calculated as a percentage of the Funds net assets. The cost reflects the expenses at both the Fund and the Funds wholly-owned subsidiary (the Subsidiary) levels. |
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(b) |
Van Eck Associates Corporation (the Adviser) has agreed to waive fees and/or pay Fund and Subsidiary expenses to the extent necessary to prevent the operating expenses of the Fund (excluding interest expense, offering costs, trading expenses, taxes and extraordinary expenses of the Fund and the Subsidiary) from exceeding 0.90% of the Funds average daily net assets per year until May 1, 2011. During such time, the expense limitation is expected to continue until the Funds Board of Trustees acts to discontinue all or a portion of such expense limitation. |
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1
Portfolio Turnover
The Fund will pay
transaction costs, such as commissions, when it purchases and sells securities
(or turns over its portfolio). A higher portfolio turnover will cause the
Fund to incur additional transaction costs and may result in higher taxes when
Fund Shares are held in a taxable account. These costs, which are not reflected
in annual fund operating expenses or in the example, may affect the Funds
performance.
Principal Investment Strategies
The Fund currently intends
to achieve its investment objective by investing substantially all of its
assets in the Subsidiary, a wholly-owned subsidiary located in the Republic of
Mauritius (Mauritius). The Subsidiary in turn will normally invest at least
80% of its total assets in securities that comprise the Funds benchmark index
and depository receipts based on the securities in the Funds benchmark index.
The Funds benchmark index is currently comprised of small-capitalization
companies selected by 4asset-management GmbH (the Index Provider) on the
basis of their relative market capitalizations in India. As a result of the
Funds investment in the Subsidiary, the Fund will normally invest at least 80%
of its total assets in securities of small-capitalization Indian companies. The
Funds 80% investment policy is non-fundamental and requires 60 days prior written
notice to shareholders before it can be changed. The Adviser serves as
investment adviser to both the Fund and the Subsidiary and, through this
investment structure, the Fund expects to benefit from favorable tax treatment
by the Indian Government pursuant to a tax treaty between India and Mauritius.
Except where otherwise indicated, the term Fund, as used throughout this
Prospectus, refers to the Fund and/or the Subsidiary, as applicable.
The Fund, using a passive or indexing investment approach, will attempt to approximate the investment performance of the India Small-Cap Index by investing in a portfolio of securities that generally replicates the India Small-Cap Index. The Adviser expects that, over time, the correlation between the Funds performance and that of the India Small-Cap Index before fees and expenses will be 95% or better. A figure of 100% would indicate perfect correlation.
The Fund may also utilize convertible securities and derivative instruments, such as swaps, options, warrants, futures contracts, currency forwards, structured notes and participation notes to seek performance that corresponds to the India Small-Cap Index. Investments that have economic characteristics that are substantially identical to the economic characteristics of the component securities of the India Small-Cap Index will count towards the 80% investment policy discussed above.
The Fund will concentrate
its investments in a particular industry or group of industries to the extent
that the India Small-Cap Index concentrates in such industry or group of
industries.
Principal Risks of Investing in the Fund
Investors in the Fund should be willing to accept a high degree of volatility in the price of the Funds Shares and the possibility of significant losses. An investment in the Fund involves a substantial degree of risk. Therefore, you should consider carefully the following risks before investing in the Fund.
Special Risk Considerations of Investing in Indian Issuers.
Investment in securities of Indian issuers
involve special considerations not typically associated with investments in
securities of issuers in more developed countries that may negatively affect
the value of your investment in the Fund. Such heightened risks include, among others,
greater government control over the
2
economy, including the risk
that the Indian government may decide not to continue to support economic
reform programs, political and legal uncertainty, currency fluctuations or
blockage of foreign currency exchanges and the risk of nationalization or
expropriation of assets. Issuers in India are subject to less stringent
requirements regarding accounting, auditing, financial reporting and record
keeping than are issuers in more developed markets, and therefore, all material
information may not be available or reliable. In addition, religious and border
disputes persist in India. Moreover, India has experienced civil unrest and
hostilities with neighboring countries, including Pakistan, and the Indian government
has confronted separatist movements in several Indian states.
The securities market of India is considered an emerging market characterized by a small number of listed companies with significantly smaller market capitalization, greater price volatility and substantially less liquidity than developed markets, such as the United States. These factors, coupled with restrictions on foreign investment and other factors, limit the supply of securities available for investment by the Fund This will affect the rate at which the Fund is able to invest in India, the purchase and sale prices for such securities and the timing of purchases and sales. Emerging markets can experience high rates of inflation, deflation and currency devaluation. Certain restrictions on foreign investment may decrease the liquidity of the Funds portfolio or inhibit the Funds ability to track the India Small-Cap Index. In addition, the Reserve Bank of India (RBI), the Indian counterpart of the Federal Reserve Bank in the United States, imposes certain limits on the foreign ownership of Indian securities. These restrictions and/or controls may at times limit or prevent foreign investment in securities of issuers located or operating in India and may inhibit the Funds ability to track the India Small-Cap Index.
The value of the Indian rupee may be subject to a high degree of fluctuation. The Funds assets will be invested primarily in equity securities of Indian issuers and the income received by the Fund will be principally in Indian rupees. The Funds exposure to the Indian rupee and changes in value of the Indian rupee versus the U.S. dollar may result in reduced returns for the Fund. Moreover, the Fund may incur costs in connection with conversions between U.S. dollars and the Indian rupee.
Market Risk. The prices of the securities in the Fund are subject to the risks associated with investing in the stock market, including general economic conditions and sudden and unpredictable drops in value. An investment in the Fund may lose money.
Index Tracking Risk.
The Funds return may not match the return
of the India Small-Cap Index for a number of reasons. For example, the Fund
incurs a number of operating expenses not applicable to the India Small-Cap
Index and incurs costs associated with buying and selling securities,
especially when rebalancing the Funds securities holdings to reflect changes
in the composition of the India Small-Cap Index and raising cash to meet
redemptions or deploying cash in connection with newly created Creation Units
(defined herein). In addition, the Fund may not be able to invest in certain
securities included in the India Small-Cap Index or invest in them in the exact
proportions they represent of the India Small-Cap Index due to legal and
regulatory rules and limitations imposed by India. The Fund is expected to
value some or all of its investments based on fair value prices. To the extent
the Fund calculates its net asset value (NAV) based on fair value prices and
the value of the India Small-Cap Index is based on the securities closing
price on local foreign markets (i.e., the value of the India Small-Cap Index is
not based on fair value prices), the Funds ability to track the India
Small-Cap Index may be adversely affected.
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Risk of Cash Transactions. Unlike most exchange-traded funds (ETFs), the Fund expects to effect creations and redemptions for cash, rather than in-kind securities. As such, investments in Shares may be less tax-efficient than an investment in a conventional ETF.
Replication Management Risk.
An investment in the Fund involves risks
similar to those of investing in any fund of equity securities traded on an
exchange, such as market fluctuations caused by such factors as economic and
political developments, changes in interest rates and perceived trends in
security prices. However, because the Fund is not actively managed, unless a
specific security is removed from the India Small-Cap Index, the Fund generally
would not sell a security because the securitys issuer was in financial
trouble. Therefore, the Funds performance could be lower than other types of
mutual funds that may actively shift their portfolio assets to take advantage
of market opportunities or to lessen the impact of a market decline.
Risk of Investing in Small-Capitalization Companies . Small-capitalization companies may be more volatile and more likely than large- and medium-capitalization companies to have narrower product lines, fewer financial resources, less management depth and experience and less competitive strength. Returns on investments in stocks of small-capitalization companies could trail the returns on investments in stocks of larger companies.
Non-Diversified Risk . The Fund is classified as a non-diversified investment company under the Investment Company Act of 1940, as amended (the 1940 Act). Therefore, the Fund may invest a relatively high percentage of its assets in a smaller number of issuers or may invest a larger proportion of its assets in a single company. As a result, the gains and losses on a single security may have a greater impact on the Funds NAV and may make the Fund more volatile than diversified funds.
Concentration Risk
. Subject to any tracking error that may arise, the Funds assets will
generally be concentrated in a particular sector or sectors or industry or
group of industries to the extent the India Small-Cap Index concentrates. In
addition, the Funds assets will be concentrated in India. To the extent that
the Funds investments are concentrated in a particular sector, industry or
country, the Fund will be susceptible to loss due to adverse occurrences
affecting that sector, industry or country.
Performance
The Fund has not yet commenced operations and therefore does not have a performance history. Once available, the Funds performance information will be accessible on the Funds website at www.vaneck.com/etf.
Portfolio Management
Investment Adviser
. Van Eck Associates Corporation.
Portfolio Managers. The following individuals are jointly and primarily responsible for the day-to-day management of the Funds portfolio:
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Title with Adviser |
Date Began Managing the Fund |
Hao-Hung (Peter) Liao |
Portfolio Manager |
Since inception |
George Cao |
Portfolio Manager |
Since inception |
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Purchase and Sale of Fund Shares
The Fund will issue and
redeem Shares at NAV only in a large specified number of Shares each called a
Creation Unit, or multiples thereof. A Creation Unit consists of 50,000
Shares.
Individual Shares of the
Fund may only be purchased and sold in secondary market transactions through
brokers. Shares of the Fund are expected to be approved for listing, subject to
notice of issuance, on NYSE Arca, Inc. (NYSE Arca) and because Shares will
trade at market prices rather than NAV, Shares of the Fund may trade at a price
greater than or less than NAV.
Tax Information
The Funds distributions are taxable and will generally be taxed as ordinary income or capital gains.
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Additional Investment Strategies
The Fund may invest its remaining assets in money market instruments, including repurchase agreements or other funds which invest exclusively in money market instruments, convertible securities, structured notes (notes on which the amount of principal repayment and interest payments are based on the movement of one or more specified factors, such as the movement of a particular stock or stock index), other investment companies, and in swaps, options, futures contracts and currency forwards. Swaps, options, futures contracts and currency forwards (and convertible securities and structured notes) may be used by the Fund in seeking performance that corresponds to the India Small-Cap Index, and in managing cash flows. The Fund will not invest in money market instruments as part of a temporary defensive strategy to protect against potential stock market declines.
Borrowing Money
The Fund may borrow money from a bank up to a limit of one-third of the market value of its assets for temporary or emergency purposes. To the extent that the Fund borrows money, it will be leveraged; at such times, the Fund will appreciate or depreciate in value more rapidly than its benchmark, the India Small-Cap Index.
Fundamental and Non-Fundamental Policies
The Funds investment objective and each of the other investment policies are non-fundamental policies that may be changed by the Board of Trustees without shareholder approval, except as noted in the Statement of Additional Information (SAI) under the section entitled Investment Policies and RestrictionsInvestment Restrictions.
Lending Portfolio Securities
The Fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the Fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being loaned. This collateral is marked-to-market on a daily basis. Although the Fund will receive collateral in connection with all loans of its securities holdings, the Fund would be exposed to a risk of loss should a borrower default on its obligation to return the borrowed
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securities (e.g., the loaned securities may have appreciated beyond the value of the collateral held by the Fund). In addition, the Fund will bear the risk of loss of any cash collateral that it invests.
Risks of Investing in the Fund
The
following section provides additional information regarding certain of the
principal risks identified under Principal Risks of Investing in the Fund in
the Funds Summary Information section along with additional risk
information.
Investors in the Fund should be willing to accept a high degree of volatility in the price of the Funds Shares and the possibility of significant losses. An investment in the Fund involves a substantial degree of risk. Therefore, you should consider carefully the following risks before investing in the Fund.
Risk of
Investing in Foreign Securities
. Investments in the securities of
non-U.S. issuers involve risks beyond those associated with investments in U.S.
securities. These additional risks include greater market volatility, the
availability of less reliable financial information, higher transactional and
custody costs, taxation by foreign governments, decreased market liquidity and
political instability. Foreign issuers are often subject to less stringent
requirements regarding accounting, auditing, financial reporting and record
keeping than are U.S. issuers, and therefore, not all material information may
be available or reliable. Securities exchanges or foreign governments may adopt
rules or regulations that may negatively impact the Funds ability to invest in
foreign securities or may prevent the Fund from repatriating its investments.
In addition, the Fund may not receive shareholder communications or be
permitted to vote the securities that it holds, as the issuers may be under no
legal obligation to distribute shareholder communications.
Because the Fund may invest in securities denominated in foreign currencies and some of the income received by the Fund will be in foreign currencies, changes in currency exchange rates may negatively impact the Funds returns. The values of the currencies of the countries in which the Fund may invest may be subject to a high degree of fluctuation due to changes in interest rates, the effects of monetary policies issued by the United States, foreign governments, central banks or supranational entities, the imposition of currency controls or other national or global political or economic developments. Therefore, the Funds exposure to foreign currencies may result in reduced returns to the Fund. The Fund does not expect to hedge its currency risk. Moreover, the Fund may incur costs in connection with conversions between U.S. dollars and foreign currencies. The Fund may, but is not obligated to, invest in derivative instruments to lock in certain currency exchange rates from time to time.
In
addition, the Fund may invest in depositary receipts which involve similar
risks to those associated with investments in foreign securities. The issuers
of certain depositary receipts are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities.
Special
Risk Considerations of Investing in Indian Issuers
.
Investment in securities of Indian issuers involves risks not typically
associated with investments in securities of issuers in more developed
countries that may negatively affect the value of your investment in the Fund.
Such heightened risks include, among others, greater government control over
the economy, including the risk that the Indian government may decide not to
continue to support economic reform programs, political and legal uncertainty,
currency fluctuations or blockage of foreign currency exchanges and the risk of
nationalization or expropriation of assets. Issuers in India are subject to
less stringent requirements regarding accounting, auditing, financial reporting
and record
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keeping than are issuers in more developed markets, and
therefore, all material information may not be available or reliable. In
addition, religious and border disputes persist in India. Moreover, India has
experienced civil unrest and hostilities with neighboring countries, including
Pakistan, and the Indian government has confronted separatist movements in
several Indian states. Additionally, each of the factors described below could
have a negative impact on the Funds performance and increase the volatility of
the Fund.
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Indian Securities Markets . The securities market of India is considered an emerging market characterized by a small number of listed companies with significantly smaller market capitalization, greater price volatility and substantially less liquidity than developed markets, such as the United States. These factors, coupled with restrictions on foreign investment and other factors, limit the supply of securities available for investment by the Fund. This will affect the rate at which the Fund is able to invest in India, the purchase and sale prices for such securities and the timing of purchases and sales. Emerging markets can experience high rates of inflation, deflation and currency devaluation. Certain restrictions on foreign investment may decrease the liquidity of the Funds portfolio or inhibit the Funds ability to track the India Small-Cap Index. Market volatility may also be heightened by the actions of a small number of investors. Brokerage firms in India may be fewer in number and less established than brokerage firms in more developed markets. Since the Fund may need to effect securities transactions through these brokerage firms, the Fund is subject to the risk that these brokerage firms will not be able to fulfill their obligations to the Fund. This risk is magnified to the extent the Fund effects securities transactions through a single brokerage firm or a small number of brokerage firms. In addition, the infrastructure for the safe custody of securities and for purchasing and selling securities, settling trades, collecting dividends, initiating corporate actions, and following corporate activity is not as well developed in Indian markets as is the case in certain more developed markets. |
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Economic Risk . The Indian government has exercised and continues to exercise significant influence over many aspects of the economy, and the number of public sector enterprises in India is substantial. Accordingly, Indian government actions in the future could have a significant effect on the Indian economy. In recent years the Indian government has implemented several economic structural reforms which seek to achieve, among others, reduction in Indias fiscal deficit, a decrease in, and control of, the rate of inflation, the liberalization of Indias exchange and trade policies along with promoting a sound monetary policy, a reformation of the financial sector as well placing a greater reliance on market mechanism to direct economic activity. Despite recent downturns, the Indian economy has experienced generally sustained growth during the last several years. However, there are no guarantees this level of growth will continue. Additionally, the Indian economy is heavily dependent upon agriculture and thus the Funds investments may be susceptible to adverse weather changes include the threat of monsoons and other natural disasters. |
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Investment and Repatriation Restrictions . The RBI, the counterpart of the Federal Reserve Bank in the United States, imposes certain limits on the foreign ownership of Indian securities. In general, ownership by a foreign institutional investor (FII) is limited to 24% of the outstanding voting securities of an Indian issuer which limit can be further extended to the applicable foreign investment limit in a specific sector if the shareholders of a company pass a special resolution to that effect. No single FII or its sub-accounts (provided such sub-account is broad based) can hold more than 10% of the total paid-up equity capital of an Indian company. Further, in the case of foreign |
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corporates or individuals, each of such sub-account cannot invest more than 5% of the total paid-up equity capital of an Indian company. The SEBI, the counterpart of the SEC in the United States, monitors foreign holdings and periodically announces current foreign ownership limitations and changes to such limits. These restrictions and/or controls may at times limit or prevent foreign investment in securities of issuers located or operating in India and may inhibit the Funds ability to track the India Small-Cap Index. In addition, the Fund may not be able to buy or sell securities or receive full value for such securities. Moreover, governmental approval or special licenses prior to investments by foreign investors may be required and may limit the amount of investments by foreign investors in a particular industry and/or issuer and may limit such foreign investment to a certain class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domiciliaries of India and/or impose additional taxes on foreign investors. A delay in obtaining a required government approval or a license would delay investments in India, and, as a result, the Fund may not be able to invest in certain securities while approval is pending. The government of India may also withdraw or decline to renew a license that enables the Fund to invest in such country. These factors make investing in issuers located or operating in India significantly riskier than investing in issuers located or operating in more developed countries, and any one of them could cause a decline in the value of the Funds Shares. Additionally, investment in India may be subject to a greater degree of risk associated with governmental approval in connection with the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. Moreover, there is the risk that if Indias balance of payments declines, the government may impose temporary restrictions on foreign capital remittances. Consequently, the Fund could be adversely affected by delays in, or a refusal to grant, required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investments. Furthermore, investments in India may require the Fund to adopt special procedures, seek local government approvals or take other actions, each of which may involve additional costs to the Fund. |
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Available Disclosure About Indian Issuers . Issuers located or operating in India are not subject to the same rules and regulations as issuers located or operating in more developed countries. Therefore, there may be less financial and other information publicly available with regard to issuers located or operating in India and such issuers are not subject to the uniform accounting, auditing and financial reporting standards applicable to issuers located or operating in more developed countries. |
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Foreign Currency Considerations . The Funds assets will be invested primarily in the equity securities of issuers in India, which will generally be denominated in Indian rupees, and the income received by the Fund will be principally in Indian rupees. The value of the Indian rupee may be subject to a high degree of fluctuation. This fluctuation may be due to changes in interest rates, the effects of monetary policies issued by the United States, foreign governments, central banks or supranational entities, the imposition of currency controls or other national or global political or economic developments. The Indian economy is generally considered an emerging market and can be significantly affected by currency devaluations. The Funds exposure to the Indian rupee and changes in value of the Indian rupee versus the U.S. dollar may reduce the Funds investment performance and the value of your investment in the Fund. Meanwhile, the Fund will compute and expects to distribute its income in U.S. dollars, and the computation of income will be made on the date that the income is earned by the Fund at the foreign exchange rate in effect on that date. Therefore, if the value of the |
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Indian rupee falls relative to the U.S. dollar between the earning of the income and the time at which the Fund converts the Indian rupee to U.S. dollars, the Fund may be required to liquidate certain positions in order to make distributions if the Fund has insufficient cash in U.S. dollars to meet distribution requirements under the U.S. Internal Revenue Code of 1986, as amended (the Internal Revenue Code). The liquidation of investments, if required, could be at disadvantageous prices or otherwise have an adverse impact on the Funds performance. |
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Furthermore, the Fund may incur costs in connection with conversions between U.S. dollars and Indian rupee. Foreign exchange dealers realize a profit based on the difference between the prices at which they are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward, futures or options contracts to purchase or sell foreign currencies. The Fund does not expect to hedge its currency risk. |
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Operational and Settlement Risk . In addition to having less developed securities markets, India has less developed custody and settlement practices than certain developed countries. Rules adopted under the 1940 Act permit the Fund to maintain its foreign securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Banks in India that are eligible foreign sub custodians may be recently organized or otherwise lack extensive operating experience. In addition, in India there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub custodian in the event of the bankruptcy of the sub custodian. |
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Settlement of securities transactions in India are subject to risk of loss, may be subject to significant delay and are generally less efficient than settlement of securities transactions in more developed markets. Additionally, the settlement of securities transactions in India may be disrupted due to work stoppages and trading improprieties in Indian securities markets have, at times, caused such markets to close. If such securities markets are closed for extended periods of time, the ability of the Fund to redeem Shares may be impaired and may result in a negative impact on the liquidity and value of the Funds investments. In addition, the Fund may not be able to convert Indian rupee to U.S. dollars in time for the settlement of redemption requests. In the event of a redemption request from an authorized participant, the Fund will be required to deliver U.S. dollars to the authorized participant on the settlement date. In the event that the Fund is not able to convert the Indian rupee to U.S. dollars in time for settlement, which may occur as a result of the delays described above, the Fund may be required to liquidate certain investments and/or borrow money in order to fund such redemption. The liquidation of investments, if required, could be at disadvantageous prices or otherwise have an adverse impact on the Funds performance (e.g., by causing the Fund to overweight Indian rupee-denominated holdings and underweight other holdings which were sold to fund redemptions). In addition, the Fund will incur interest expense on any borrowings and the borrowings will cause the Fund to be leveraged, which will magnify gains and losses on its investments. |
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Indian Corporate and Securities Laws . Securities laws in India are relatively new and unsettled and, consequently, there is a risk of rapid and unpredictable change in laws regarding foreign investment and securities regulation. Further, Indian corporate laws |
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governing inter alia, shareholder rights, may subsequently undergo changes. Accordingly, foreign investors may be adversely affected by new or amended laws and regulations. In circumstances where adequate laws and shareholder rights exist, it may not be possible to obtain swift and equitable enforcement of the law due to provisions of Indian law which regulate the enforcement of foreign judgments. Such laws may also contain broad exceptions. |
Index Tracking Risk . The Funds return may not match the return of the India Small-Cap Index for a number of reasons. For example, the Fund incurs a number of operating expenses not applicable to the India Small-Cap Index and incurs costs associated with buying and selling securities, especially when rebalancing the Funds securities holdings to reflect changes in the composition of the India Small-Cap Index and raising cash to meet redemptions or deploying cash in connection with newly created Creation Units. The Funds return may also deviate significantly from the return of the India Small-Cap Index because the Fund bears the costs and risks associated with buying and selling securities while such costs and risks are not factored into the return of the India Small-Cap Index. The Fund may not be fully invested at times either as a result of cash flows into the Fund or reserves of cash held by the Fund to meet redemptions and pay expenses. In addition, the Fund may not be able to invest in certain securities included in the India Small-Cap Index, or invest in them in the exact proportions they represent of the India Small-Cap Index, due to restrictions or limitations imposed by the Indian Government or a lack of liquidity on stock exchanges in which such securities trade. Moreover, the Fund may be delayed in purchasing or selling securities included in the India Small-Cap Index. Any issues the Fund encounters with regard to currency convertibility (including the cost of borrowing funds, if any,) and repatriation may also increase the index tracking risk.
Pursuant to the methodology of the Index Provider used to calculate and maintain the India Small-Cap Index, when a security in the India Small-Cap Index reaches its limitation on foreign ownership, it may not be removed from the India Small-Cap Index that day. The Fund, however, may be forced to sell securities at inopportune times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from the India Small-Cap Index, due to market conditions or otherwise. Due to these factors, the variation between the Funds annual return and the return of its India Small-Cap Index may increase.
The Fund is
expected to fair value some or all of the foreign securities it holds. See
Shareholder InformationDetermination of NAV. To the extent the Fund
calculates its NAV based on fair value prices and the value of the India
Small-Cap Index is based on the securities closing price on local foreign
markets (i.e., the value of the India Small-Cap Index is not based on fair
value prices), the Funds ability to track the India Small-Cap Index may be
adversely affected. The need to comply with the diversification and other
requirements of the 1940 Act and the Internal Revenue Code, may also impact the
Funds ability to replicate the performance of the India Small-Cap Index. In
addition, if the Fund utilizes depositary receipts and other derivative
instruments, its return may not correlate as well with the India Small-Cap
Index as would be the case if the Fund purchased all the securities in the
India Small-Cap Index directly.
Regulatory Risk . The Adviser is a qualified foreign institutional investor (FII) with the Securities and Exchange Board of India (SEBI), and the Subsidiary is registered as a sub-account with the SEBI in order to obtain certain benefits relating to the Funds ability to make and dispose of investments. There can be no assurances that the Indian regulatory authorities will continue to grant such qualifications, and the loss of such qualifications could adversely impact the ability of the Fund to make investments in India.
11
The
Subsidiarys investments will be made in accordance with investment
restrictions prescribed under the FII regulation. If new policy announcements
or regulations in India are made, including, potentially policies with
retroactive effect, which require changes in the structure or operations of the
Fund, these may adversely impact the performance of the Fund.
Tax Risk . The Subsidiary is a wholly-owned subsidiary of the Trust in Mauritius and obtains benefits from favorable tax treatment by the Indian government pursuant to a taxation treaty between India and Mauritius. The Supreme Court of India has upheld the validity of this tax treaty in response to a challenge in a lower court contesting the treatys applicability to entities such as the Fund; however, there can be no assurance that any future challenge will result in a favorable outcome. In recent years, there has been discussion in the Indian press that the treaty may be re-negotiated. There can be no assurance that the terms of the treaty will not be subject to re-negotiation in the future or subject to a different interpretation or that the Subsidiary will continue to be deemed a tax resident by Mauritius, allowing it favorable tax treatment. Any change in the provisions of this treaty or in its applicability to the Subsidiary could result in the imposition of withholding and other taxes on the Subsidiary by India, which would reduce the return to the Fund on its investments. The Fund intends to elect to pass-through to the Funds shareholders as a deduction or credit the amount of foreign taxes paid by the Fund. The taxes passed through to shareholders are included in each shareholders income. Certain shareholders, including some non-U.S. shareholders, are not entitled to the benefit of a deduction or credit with respect to foreign taxes paid by the Fund. Other foreign taxes, such as transfer taxes, may be imposed on the Fund, but would not give rise to a credit, or be eligible to be passed through to shareholders.
Further, an investment in the Subsidiary involves certain tax risks. The Government of India has recently issued a Direct Tax Code Bill for discussion purposes, which if enacted will replace the existing Income Tax Act, 1961 effective from April 1, 2011. The provisions of the new Direct Tax Code, if enacted, could change the manner in which the Subsidiary or the portfolio companies are currently taxed in India, and could adversely impact the returns to the Fund and its shareholders. Hence, no assurance can be given that the interpretations described in this discussion will remain in effect. Any changes could also be applied retroactively, including to transactions entered into before the effective date of the change. Prospective investors are urged to consult their own tax advisors with respect to their own tax situations and the tax consequences of an investment in the Fund.
Risk of
Cash Transactions
. Unlike most other ETFs, the Fund
expects to effect creations and redemptions for cash, rather than in-kind
securities. As a result, an investment in the Fund may be less tax-efficient
than an investment in a more conventional ETF. Other ETFs generally are able to
make in-kind redemptions and avoid being taxed on gain on the distributed
portfolio securities at the Fund level. Because the Fund currently intends to
effect redemptions for cash, rather than in-kind distributions, it may be
required to sell portfolio securities in order to obtain the cash needed to
distribute redemption proceeds, which involved transaction costs. If the Fund
recognizes gain on these sales, this generally will cause the Fund to recognize
gain it might not otherwise have recognized if it were to distribute portfolio
securities in-kind, or to recognize such gain sooner than would otherwise be
required. The Fund generally intends to distribute these gains to shareholders
to avoid being taxed on this gain at the Fund level and otherwise comply with
the special tax rules that apply to it. This strategy may cause shareholders to
be subject to tax on gains they would not otherwise be subject to, or at an
earlier date than, if they had made an investment in a different ETF. Moreover,
cash transactions may have to be carried out over several days if the
securities market is relatively illiquid and may involve considerable brokerage
fees and taxes. These brokerage fees and taxes, which will be higher than if
the Fund sold and
12
redeemed its shares principally in-kind, will be passed on to
purchasers and redeemers of Creation Units in the form of creation and
redemption transaction fees. See Creation and Redemption of Creation Units in
the Funds SAI. India may also impose higher local tax rates on transactions
involving certain companies. In addition, these factors may result in wider
spreads between the bid and the offered prices of the Funds Shares than for
more conventional ETFs.
Replication Management Risk . Unlike many investment companies, the Fund is not actively managed. Therefore, unless a specific security is removed from the India Small-Cap Index, the Fund generally would not sell a security because the securitys issuer is in financial trouble. If a specific security is removed from the India Small-Cap Index, the Fund may be forced to sell such security at an inopportune time or for prices other than at current market values. An investment in the Fund involves risks similar to those of investing in any fund of equity securities traded on an exchange, such as market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in security prices. The India Small-Cap Index may not contain the appropriate or a diversified mix of securities for any particular economic cycle. The timing of changes in the Fund from one type of security to another in seeking to replicate the India Small-Cap Index could have a negative effect on the Fund. Unlike with an actively managed fund, the Adviser does not use techniques or defensive strategies designed to lessen the effects of market volatility or to reduce the impact of periods of market decline. This means that, based on market and economic conditions, the Funds performance could be lower than other types of mutual funds that may actively shift their portfolio assets to take advantage of market opportunities or to lessen the impact of a market decline.
Non-Diversified Risk . The Fund is a separate investment portfolio of Market Vectors ETF Trust (the Trust), which is an open-end investment company registered under the 1940 Act. The Fund is classified as a non-diversified investment company under the 1940 Act. As a result, the Fund is subject to the risk that it will be more volatile than a diversified fund because the Fund may invest its assets in a smaller number of issuers or may invest a larger proportion of its assets in a single issuer. As a result, the gains and losses on a single security may have a greater impact on the Funds NAV and may make the Fund more volatile than diversified funds.
Concentration
Risk
. Subject to any tracking error that may arise,
the Funds assets will generally be concentrated in a particular sector or
sectors or industry or group of industries to the extent that the India
Small-Cap Index concentrates in a particular sector or sectors or industry or
group of industries. The securities of many or all of the companies in the same
sector or industry may decline in value due to developments adversely affecting
such sector or industry. By concentrating its assets in a particular sector or
sectors or industry or group of industries, the Fund is subject to the risk
that economic, political or other conditions that have a negative effect on
that sector or industry will negatively impact the Fund to a greater extent
than if the Funds assets were invested in a wider variety of sectors or
industries. In addition, the Funds assets will be concentrated in India.
Consequently, events affecting India will have a greater impact on the Funds
NAV and may make the Fund more volatile than if the Fund were invested in a
more geographically diverse portfolio of investments.
Risk of Investing in the Basic Materials Sector . To the extent the India Small-Cap Index includes securities of issuers in the basic materials sector, the Fund will invest in companies in such sector. Companies engaged in the production and distribution of basic materials may be adversely affected by changes in world events, political and economic conditions, energy conservation, environmental policies, commodity price volatility, changes in exchange rates, imposition of import controls, increased competition, depletion of resources and labor relations.
13
Risks of Concentrating in the Financial Services Sector . To the extent the India Small-Cap Index includes securities of issuers in the financial services sector, the Fund will invest in companies in such sector. As such, the Fund will be sensitive to changes in, and its performance will depend to a greater extent on, the overall condition of the financial services sector. Companies in the financial services sector may be subject to extensive government regulation that affects the scope of their activities, the prices they can charge and the amount of capital they must maintain. The profitability of companies in the financial services sector may be adversely affected by increases in interest rates. The profitability of companies in the financial services sector may be adversely affected by loan losses, which usually increase in economic downturns. In addition, the financial services sector is undergoing numerous changes, including continuing consolidations, development of new products and structures and changes to its regulatory framework. Furthermore, increased government involvement in the financial services sector, including measures such as taking ownership positions in such institutions, could result in a dilution in the value of the shares held by shareholders in such institutions. Recent developments in the credit markets have caused companies operating in the financial services sector to incur large losses, experience declines in valuation of their assets and even cease operations.
Risk of
Investing in the Industrials Sector.
To the extent the India
Small-Cap Index includes securities of issuers in the industrials sector, the
Fund will invest in companies in such sector. The industrials sector is
characterized by increasing competition and regulation and companies are
affected by supply and demand both for their specific product or service and
for industrial sector products in general. Technological innovations may make
the products and services of manufacturing companies obsolete and government
regulation, world events and economic conditions may negatively affect the
performance of companies in the industrials sector. The industrials sector may
also be adversely affected by changes or trends in commodity prices and
exchange rates, which may be influenced or characterized by unpredictable
factors. In addition, companies in the industrials sector may be adversely
affected by environmental damages and product liability claims.
Risk of Investing in Small-Capitalization Companies . The Fund may invest in small-capitalization companies and, therefore, will be subject to certain risks associated with small-capitalization companies. These companies are often subject to less analyst coverage and may be in early and less predictable periods of their corporate existences, with little or no record of profitability. In addition, these companies often have greater price volatility, lower trading volume and less liquidity than larger more established companies. These companies tend to have smaller revenues, narrower product lines, less management depth and experience, smaller shares of their product or service markets, fewer financial resources and less competitive strength than larger companies.
Risk of
Investing in Micro-Capitalization Companies
. The Fund
may invest in micro-capitalization companies. These companies are subject to substantially greater risks of loss
and price fluctuations because their earnings and revenues tend to be less predictable
(and some companies may be experiencing significant losses), and their share
prices tend to be more volatile and their markets less liquid than companies
with larger market capitalizations. Micro-capitalization companies may be newly
formed or in the early stages of development, with limited product lines,
markets or financial resources and may lack management depth. In addition,
there may be less public information available about these companies. The
shares of micro-capitalization companies tend to trade less frequently than
those of larger, more established companies, which can adversely affect the
pricing of these securities and the future ability to sell
14
these securities. Also, it may take a long time before the Fund
realizes a gain, if any, on an investment in a micro-capitalization company.
Risk of Investing in Derivatives . Derivatives are financial instruments, such as swaps, options, warrants, futures contracts, currency forwards and participation notes, whose values are based on the value of one or more indicators, such as a security, asset, currency, interest rate, or index. The Funds use of derivatives involves risks different from, and possibly greater than, the risks associated with investing directly in securities and other more traditional investments. Moreover, although the value of a derivative is based on an underlying indicator, a derivative does not carry the same rights as would be the case if the Fund invested directly in the underlying securities.
Derivatives
are subject to a number of risks, such as potential changes in value in
response to market developments or as a result of the counterpartys credit
quality and the risk that a derivative transaction may not have the effect the
Adviser anticipated. Derivatives also involve the risk of mispricing or
improper valuation and the risk that changes in the value of a derivative may
not correlate perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly volatile, and the Fund could lose
more than the amount it invests. The use of derivatives may increase the amount
and affect the timing and character of taxes payable by shareholders of the
Fund.
Many derivative transactions are entered into over-the-counter (not on an exchange or contract market); as a result, the value of such a derivative transaction will depend on the ability and the willingness of the Funds counterparty to perform its obligations under the transaction. If a counterparty were to default on its obligations, the Funds contractual remedies against such counterparty may be subject to bankruptcy and insolvency laws, which could affect the Funds rights as a creditor (e.g., the Fund may not receive the net amount of payments that it is contractually entitled to receive). A liquid secondary market may not always exist for the Funds derivative positions at any time.
Leverage Risk
.
To the extent that the Fund borrows money or utilizes certain derivatives, it
will be leveraged. Leveraging generally exaggerates the effect on NAV of any
increase or decrease in the market value of the Funds portfolio securities.
Absence of Prior Active Market . The Fund is a newly organized series of an investment company and thus has no operating history. While the Funds Shares are expected to be listed on NYSE Arca, there can be no assurance that active trading markets for the Shares will develop or be maintained. Van Eck Securities Corporation, the distributor of the Shares (the Distributor), does not maintain a secondary market in the Shares.
Trading Issues . Trading in Shares on NYSE Arca may be halted due to market conditions or for reasons that, in the view of NYSE Arca, make trading in Shares inadvisable. In addition, trading in Shares on NYSE Arca is subject to trading halts caused by extraordinary market volatility pursuant to NYSE Arcas circuit breaker rules. There can be no assurance that the requirements of NYSE Arca necessary to maintain the listing of the Fund will continue to be met or will remain unchanged.
Fluctuation of NAV . The NAV of the Shares will fluctuate with changes in the market value of the Funds securities holdings. The market prices of Shares will fluctuate in accordance with changes in NAV and supply and demand on NYSE Arca. The Adviser cannot predict whether Shares will trade below, at or above their NAV. Price differences may be due, in large part, to the fact that supply and demand forces at work in the secondary trading market for Shares will be closely related to, but not identical to, the same forces influencing the prices of the securities of
15
the India Small-Cap Index trading individually or in the
aggregate at any point in time. However, given that Shares can be created and
redeemed daily in Creation Units at NAV (unlike shares of closed-end funds,
which frequently trade at appreciable discounts from, and sometimes at premiums
to, their NAV), the Adviser believes that large discounts or premiums to the
NAV of the Shares are not likely to be sustained over the long-term. In
addition, disruptions to creations and redemptions or the existence of extreme
market volatility may result in trading prices that differ significantly from
NAV. If a shareholder purchases Shares at a time when the market price is at a
premium to the NAV or sells Shares at a time when the market price is at a
discount to the NAV, the shareholder may sustain losses.
A description of the Funds policies and procedures with respect to the disclosure of the Funds portfolio securities is available in the Funds SAI.
Board of
Trustees
. The Board of Trustees of the Trust has responsibility for
the general oversight of the management of the Fund, including general
supervision of the Adviser and other service providers, but is not involved in
the day-to-day management of the Trust. A list of the Trustees and the Trust
officers, and their present positions and principal occupations, is provided in
the Funds SAI. The general management of the Subsidiary is the responsibility
of its Board of Directors.
Investment Adviser . Under the terms of an Investment Management Agreement between the Trust and Van Eck Associates Corporation with respect to the Fund (the Investment Management Agreement), Van Eck Associates Corporation serves as the adviser to the Fund and, subject to the supervision of the Board of Trustees, will be responsible for the day-to-day investment management of the Fund. As of February 28, 2010, the Adviser managed approximately $19.5 billion in assets. The Adviser has been an investment adviser since 1955 and also acts as adviser or sub-adviser to other ETFs, mutual funds, hedge funds, pension plans and other investment accounts. The Advisers principal business address is 335 Madison Avenue, 19th Floor, New York, New York 10017.
A discussion regarding the Board of Trustees approval of the Investment Management Agreement is available in the Trusts annual report for the fiscal year ending December 31, 2009.
For the
services provided to the Fund under the Investment Management Agreement, the
Fund will pay the Adviser monthly fees based on a percentage of the Funds
average daily net assets at the annual rate of 0.50%. From time to time, the
Adviser may waive all or a portion of its fee. Until at least May 1, 2011, the
Adviser has agreed to waive fees and/or pay Fund and Subsidiary expenses to the
extent necessary to prevent the operating expenses of the Fund (excluding
interest expense, offering costs, trading expenses, taxes and extraordinary
expenses of the Fund and the Subsidiary) from exceeding 0.90% of average daily
net assets per year. Offering costs excluded from the expense cap are: (a)
legal fees pertaining to the Funds Shares offered for sale; (b) SEC and state
registration fees; and (c) initial fees paid for Shares of the Fund to be
listed on an exchange.
The Fund is responsible for all of its expenses, including the investment advisory fees, costs of transfer agency, custody, legal, audit and other services, interest, taxes, any distribution fees or expenses, offering fees or expenses and extraordinary expenses.
16
Distributor . Van Eck Securities Corporation is the distributor of the Shares. The Distributor will not distribute Shares in less than Creation Units, and does not maintain a secondary market in the Shares. As noted in the section entitled Shareholder InformationBuying and Selling Exchange-Traded Shares, the Shares are traded in the secondary market.
The portfolio managers who currently share joint responsibility for the day-to-day management of the Funds portfolio are Hao-Hung (Peter) Liao and George Cao. Mr. Liao has been employed by the Adviser since the summer of 2004. Mr. Liao also serves as a portfolio manager for certain other investment companies advised by the Adviser. Mr. Cao has been employed by the Adviser since December 2007. Prior to joining the Adviser, he served as a Senior Finance Associate followed by Controller of Operations Administrations Division and Corporate Safety for United Airlines. He also served as a Management Consultant to PricewaterhouseCoopers LLP as well as a Financial Analyst for SAM Distribution Co. Ltd. Because the Fund is new, Messrs. Liao and Cao will be serving as the portfolio managers of the Fund since its inception. See the Funds SAI for additional information about the portfolio managers compensation, other accounts managed by the portfolio managers and their respective ownership of Shares.
Determination of NAV
The NAV per Share for the Fund is computed by dividing the value of the net assets of the Fund (i.e., the value of its total assets less total liabilities) by the total number of Shares outstanding. Expenses and fees, including the management fee, are accrued daily and taken into account for purposes of determining NAV. The NAV of the Fund is determined each business day as of the close of trading (ordinarily 4:00 p.m. Eastern time) on the New York Stock Exchange (NYSE). Any assets or liabilities denominated in currencies other than the U.S. dollar are converted into U.S. dollars at the current market rates on the date of valuation as quoted by one or more sources.
17
Buying and Selling Exchange-Traded Shares
18
Distributions
Net Investment Income and Capital Gains . As a shareholder of the Fund, you are entitled to your share of the Funds distributions of net investment income and net realized capital gains on its investments. The Fund pays out substantially all of its net earnings to its shareholders as distributions.
Net investment income and net capital gains are typically distributed to shareholders at least annually. Dividends may be declared and paid more frequently to improve index tracking or to comply with the distribution requirements of the Internal Revenue Code. In addition, the Fund may determine to distribute at least annually amounts representing the full dividend yield net of expenses on the underlying investment securities, as if the Fund owned the underlying investment securities for the entire dividend period, in which case some portion of each distribution may result in a return of capital, which, for tax purposes, is treated as a return on your investment in Shares. You will be notified regarding the portion of the distribution which represents a return of capital.
Distributions in cash may be reinvested automatically in additional Shares of the Fund only if the broker through which you purchased Shares makes such option available.
As with any investment, you should consider how your Fund investment will be taxed. The tax information in this Prospectus is provided as general information. You should consult your own tax professional about the tax consequences of an investment in the Fund, including the possible application of foreign, state and local taxes. Unless your investment in the Fund is through a tax-exempt entity or tax-deferred retirement account, such as a 401(k) plan, you need to be aware of the possible tax consequences when: (i) the Fund makes distributions, (ii) you sell Shares in the secondary market or (iii) you create or redeem Creation Units.
Taxes on Distributions . As noted above, the Fund expects to distribute net investment income at least annually, and any net realized long-term or short-term capital gains annually. The Fund may also pay a special distribution at any time to comply with U.S. federal tax requirements.
In general, your distributions are subject to U.S. federal income tax when they are paid, whether you take them in cash or reinvest them in the Fund. Distributions of net investment income are generally taxable as ordinary income. Taxes on distributions of capital gains are determined by how long the Fund owned the investments that generated them, rather than how long you have owned your Shares. Distributions of net short-term capital gains in excess of net longterm capital losses, if any, are generally taxable as ordinary income. Distributions of net long-term capital gains in excess of net short-term capital losses, if any, that are properly designated as capital gain dividends are generally taxable as long-term capital gains. Long-term capital gains of non-corporate shareholders are taxable at a maximum rate of 15%. Absent further legislation, the maximum tax rate on long-term capital gains of non-corporate shareholders will return to 20% for taxable years beginning after December 31, 2010.
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For taxable years beginning before January 1, 2011, the Fund may receive dividends, the distribution of which the Fund may designate as qualified dividends. In the event that the Fund receives such a dividend and designates the distribution of such dividend as a qualified dividend, the dividend may be taxed at the maximum capital gains rate, provided holding period and other requirements are met at both the shareholder and the Fund level.
Distributions in excess of the Funds current and accumulated earnings and profits are treated as a tax-free return of your investment to the extent of your basis in the Shares, and generally as capital gain thereafter. A return of capital, which for tax purposes is treated as a return of your investment, reduces your basis in Shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of Shares. A distribution will reduce the Funds NAV per Share and may be taxable to you as ordinary income or capital gain even though, from an economic standpoint, the distribution may constitute a return of capital.
Dividends, interest and gains from non-U.S. investments of the Fund may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may, in some cases, reduce or eliminate such taxes.
If more than 50% of the Funds total assets at the end of its taxable year consist of foreign securities, the Fund may elect to pass through to its investors certain foreign income taxes paid by the Fund, with the result that each investor will (i) include in gross income, as an additional dividend, even though not actually received, the investors pro rata share of the Funds foreign income taxes, and (ii) either deduct (in calculating U.S. taxable income) or credit (in calculating U.S. federal income), subject to certain limitations, the investors pro rata share of the Funds foreign income taxes. It is expected that more than 50% of the Funds assets will consist of foreign securities.
The Fund may be required to withhold a percentage of your distributions and proceeds if you have not provided a taxpayer identification number or social security number or otherwise established a basis for exemption from backup withholding. The backup withholding rate for individuals is currently 28%. This is not an additional tax and may be refunded, or credited against your U.S. federal income tax liability, provided certain required information is furnished to the Internal Revenue Service.
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Taxes on the Sale and Cash Redemption of Exchange Listed Shares . Currently, any capital gain or loss realized upon a sale of Shares is generally treated as long term capital gain or loss if the Shares have been held for more than one year and as a short term capital gain or loss if held for one year or less. However, any capital loss on a sale of Shares held for six months or less is treated as long -term capital loss to the extent that capital gain dividends were paid with respect to such Shares. The ability to deduct capital losses may be limited. A redemption of a shareholders Fund Shares for cash is normally treated as a sale for tax purposes.
Taxes on In-Kind Creations and In-Kind Redemptions of Creation Units . To the extent a person exchanges securities or securities and cash for Creation Units, such person generally will recognize a gain or loss. The gain or loss will be equal to the difference between the market value of the Creation Units at the time of exchange and the sum of the exchangers aggregate basis in the securities surrendered and the amount of any cash paid for such Creation Units. A person who exchanges Creation Units for securities or securities and cash will generally recognize a gain or loss equal to the difference between the exchangers basis in the Creation Units and the sum of the aggregate market value of the securities received and the amount of any cash received for such Creation Units. The Internal Revenue Service, however, may assert that a loss realized upon an exchange of primarily securities for Creation Units cannot be deducted currently under the rules governing wash sales, or on the basis that there has been no significant change in economic position. Persons exchanging primarily securities for Creation Units or redeeming Creation Units should consult their own tax adviser with respect to whether wash sale rules apply and when a loss might be deductible and the tax treatment of any creation or redemption transaction.
Under current U.S. federal income tax laws, any capital gain or loss realized upon a redemption (or creation) of Creation Units is generally treated as long-term capital gain or loss if the Shares (or securities surrendered) have been held for more than one year and as a short-term capital gain or loss if the Shares (or securities surrendered) have been held for one year or less.
If you create or redeem Creation Units, you will be sent a confirmation statement showing how many Shares you created or sold and at what price.
The foregoing discussion summarizes some of the consequences under current U.S. federal income tax law of an investment in the Fund. It is not a substitute for personal tax advice. Consult your own tax advisor about the potential tax consequences of an investment in the Fund under all applicable tax laws.
21
Provided that the Subsidiary does not have a permanent establishment in India, the tax treatment in India of income derived by the Subsidiary is as follows:
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capital gains are not subject to tax in India by virtue of the tax treaty between India and Mauritius; |
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ii. |
dividends from Indian companies on which dividend distribution tax has been paid are distributed to the Subsidiary free of Indian tax; |
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iii. |
any interest income earned on Indian securities is subject to withholding tax in India at the rate of 40%. This rate is reduced to 20% in the case of interest earned on loans provided in non-rupee currency. However if such interest arises out of Foreign Currency Convertible Bonds (FCCBs) held by the Subsidiary then such interest shall be taxed at the rate of 10%. All rates are exclusive of applicable surcharge and education cess. |
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capital gains from the sale of listed Indian securities held for twelve months or less will be taxed as short-term capital gains at the rate of 15%, provided the STT (as discussed below) has been paid; |
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capital gains from the sale of listed Indian securities held for more than twelve months will be exempt from tax in India provided the STT has been paid; |
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iii. |
capital gains from the sale of listed Indian securities not executed on the stock exchange or unlisted securities held for twelve months or less will be taxed at the rate of 30% and those held for more than twelve months shall be taxed at the rate of 10%; |
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capital gains arising from the transfer of FCCBs, GDRs or ADRs outside India between non-resident investors, will not be subject to tax in India; |
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gains from the disposal of shares acquired on redemption of GDRs or ADRs are treated as short-term if such shares are held for less than or equal to12 months prior to disposal and long-term if such shares are held for more than 12 months prior to disposal. Short-term gains will be taxed at the rate of 15% provided STT (as discussed below) has been paid. Long-term gains will be exempt from tax if STT has been paid. |
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M ARKET VECTORS INDIA SMALL-CAP INDEX
The India Small-Cap Index is calculated and maintained by Structured Solutions AG on behalf of the Index Provider. The Index Provider is not affiliated with the Fund. India Small-Cap Index values are calculated daily and are disseminated every 60 seconds between the hours of approximately 9:30 a.m. and 4:15 p.m. (Eastern time). The India Small-Cap Index is calculated using a capitalization weighting methodology, adjusted for float, which is modified so as to ensure compliance with the diversification requirements of Subchapter M of the Internal Revenue Code. The India Small-Cap Index is reconstituted quarterly, at the close of business on the third Friday in a quarter-end month (i.e., March, June, September and December) and companies are added and/or deleted based upon the India Small-Cap Index eligibility criteria. Companies with recent stock exchange listings, i.e., recent initial public offerings, may be added to the India Small-Cap Index on a quarterly basis, provided the companies meet all eligibility criteria and have been trading for more than 30 trading days. The share weights of the India Small-Cap Index components are adjusted also on a quarterly basis (every third Friday in a quarter-end month).
Rebalancing data, including constituent weights and related information, is posted on the Index Providers web site prior to the start of trading on the first business day following the third Friday of the calendar quarter. A press announcement identifying additions and deletions to the India Small-Cap Index is issued on the Wednesday prior to a rebalancing date. Share weights of the constituents remain constant between quarters except in the event of certain types of corporate actions, including stock splits and reverse stock splits.
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the Subsidiary nor investors in the Fund are protected by any statutory compensation arrangements in Mauritius in the event of the Subsidiarys or the Funds failure.
The Mauritius Financial Services Commission does not vouch for the financial soundness of the Subsidiary or the Fund or for the correctness of any statements made or opinions expressed with regard to it in any offering document or other similar document of the Subsidiary or the Fund.
The Fund had not yet commenced operations as of the date of this Prospectus and therefore does not have a financial history.
The Fund has not yet commenced operations and, therefore, does not have information about the differences between the Funds daily market price on NYSE Arca and its NAV. Information regarding how often the Shares of the Fund traded on NYSE Arca at a price above (i.e., at a premium) or below (i.e., at a discount) the NAV of the Fund during the past calendar year, when available, can be found at www.vaneck.com/etf.
The Trust was organized as a Delaware statutory trust on March 15, 2001. Its Declaration of Trust currently permits the Trust to issue an unlimited number of Shares of beneficial interest. If shareholders are required to vote on any matters, each Share outstanding would be entitled to one vote. Annual meetings of shareholders will not be held except as required by the 1940 Act and other applicable law. See the Funds SAI for more information concerning the Trusts form of organization. Section 12(d)(1) of the 1940 Act restricts investments by investment companies in the securities of other investment companies, including Shares of the Fund. Registered investment companies are permitted to invest in the Fund beyond the limits set forth in Section 12(d)(1) subject to certain terms and conditions set forth in an SEC exemptive order issued to the Trust, including that such investment companies enter into an agreement with the Fund.
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Additional Information
Shareholder inquiries may be directed to the Fund in writing to 335 Madison Avenue, 19th Floor, New York, New York 10017 or by calling 1.888.MKT.VCTR (658-8287).
(Investment Company Act file no. 811-10325)
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Market Vectors India Small-Cap Index ETF |
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NYSE Arca, Inc. |
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A copy of the Prospectus may be obtained without charge by writing to the Trust or the Distributor. The Trusts address is 335 Madison Avenue, 19th Floor, New York, New York 10017. Capitalized terms used herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted.
TABLE OF CONTENTS
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Placement of Creation Orders Outside Clearing ProcessDomestic Funds |
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Placement of Creation Orders Outside Clearing ProcessForeign Funds |
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Placement of Redemption Orders Outside Clearing ProcessDomestic Funds |
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Placement of Redemption Orders Outside Clearing ProcessForeign Funds |
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iii
G ENERAL DESCRIPTION OF THE TRUST
The Fund will offer and issue Shares at their net asset value (NAV) only in aggregations of a specified number of Shares (each, a Creation Unit). Similarly, Shares are also redeemable by the Fund only in Creation Units, and generally in exchange for cash. The Shares of the Fund are expected to be approved for listing, subject to notice of issuance, on NYSE Arca, Inc. (NYSE Arca or the Exchange), and will trade in the secondary market at market prices. Those prices may differ from the Shares NAV. A Creation Unit consists of 50,000 Shares of the Fund.
I NVESTMENT POLICIES AND RESTRICTIONS
The Fund may invest in repurchase agreements with commercial banks, brokers or dealers to generate income from its excess cash balances and to invest securities lending cash collateral. A repurchase agreement is an agreement under which the Fund acquires a money market instrument (generally a security issued by the U.S. Government or an agency thereof, a bankers acceptance or a certificate of deposit) from a seller, subject to resale to the seller at an agreed upon price and date (normally, the next business day). A repurchase agreement may be considered a loan collateralized by securities. The resale price reflects an agreed upon interest rate effective for the period the instrument is held by the Fund and is unrelated to the interest rate on the underlying instrument.
F utures Contracts and Options
2
An option is a contract that provides the holder the right to buy or sell shares at a fixed price, within a specified period of time. A call option gives the option holder the right to buy the underlying security from the option writer at the option exercise price at any time prior to the expiration of the option. A put option gives the option holder the right to sell the underlying security to the option writer at the option exercise price at any time prior to the expiration of the option.
Although futures contracts (other than cash settled futures contracts including most stock index futures contracts) by their terms call for actual delivery or acceptance of the underlying instrument or commodity, in most cases the contracts are closed out before the maturity date without the making or taking of delivery. Closing out an open futures position is done by taking an opposite position (buying a contract which has previously been sold or selling a contract previously purchased) in an identical contract to terminate the position. Brokerage commissions are incurred when a futures contract position is opened or closed.
Futures traders are required to make a good faith margin deposit in cash or government securities with a broker or custodian to initiate and maintain open positions in futures contracts. A margin deposit is intended to assure completion of the contract (delivery or acceptance of the underlying instrument or commodity or payment of the cash settlement amount) if it is not terminated prior to the specified delivery date. Brokers may establish deposit requirements which are higher than the exchange minimums. Futures contracts are customarily purchased and sold on margin deposits which may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is marked-to-market daily. If the futures contract price changes to the extent that the margin on deposit does not satisfy margin requirements, payment of additional variation margin will be required.
Conversely, a change in the contract value may reduce the required margin, resulting in a repayment of excess margin to the contract holder. Variation margin payments are made to and from the futures broker for as long as the contract remains open. The Fund expects to earn interest income on its margin deposits.
The Fund may use futures contracts and options thereon, together with positions in cash and money market instruments, to simulate full investment in the Index. Under such circumstances, the Adviser may seek to utilize other instruments that it believes to be correlated to the Index components or a subset of the components. Liquid futures contracts are not currently available for the Index.
Positions in futures contracts and options may be closed out only on an exchange that provides a secondary market therefor. However, there can be no assurance that a liquid secondary market will exist for any particular futures contract or option at any specific time. Thus, it may not be possible to close a futures or options position. In the event of adverse price movements, the Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, the Fund may be required to make delivery of the instruments underlying futures contracts they have sold.
The Fund will seek to minimize the risk that it will be unable to close out a futures or options contract by only entering into futures and options for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts or uncovered call options in some strategies ( e.g. , selling uncovered stock index futures contracts) is potentially unlimited. The Fund does not plan to use futures and options contracts in this way. The risk of a futures position may still be large as traditionally
3
measured due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to the size of a required margin deposit. The Fund, however, intends to utilize futures and options contracts in a manner designed to limit its risk exposure to that which is comparable to what it would have incurred through direct investment in stocks.
Utilization of futures transactions by the Fund involves the risk of imperfect or even negative correlation to the Funds Index if the index underlying the futures contracts differs from the Index. There is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with whom the Fund has an open position in the futures contract or option.
Certain financial futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous days settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of future positions and subjecting some futures traders to substantial losses.
Except as otherwise specified in the Funds Prospectus or this SAI, there are no limitations on the extent to which the Fund may engage in transactions involving futures and options thereon. The Fund will take steps to prevent its futures positions from leveraging its securities holdings. When the Fund has a long futures position, it will maintain with its custodian bank, cash or liquid securities having a value equal to the notional value of the contract (less any margin deposited in connection with the position). When the Fund has a short futures position as part of a complex stock replication strategy, the Fund will maintain with its custodian bank assets substantially identical to those underlying the contract or cash and liquid securities (or a combination of the foregoing) having a value equal to the net obligation of the Fund under the contract (less the value of any margin deposits in connection with the position).
Swap agreements are contracts between parties in which one party agrees to make payments to the other party based on the change in market value or level of a specified index or asset. In return, the other party agrees to make payments to the first party based on the return of a different specified index or asset. Although swap agreements entail the risk that a party will default on its payment obligations thereunder, the Fund seeks to reduce this risk by entering into agreements that involve payments no less frequently than quarterly. The net amount of the excess, if any, of the Funds obligations over its entitlements with respect to each swap is accrued on a daily basis and an amount of cash or high liquid securities having an aggregate value at least equal to the accrued excess is maintained in an account at the Trusts custodian bank.
The use of swap agreements involves certain risks. For example, if the counterparty, under a swap agreement, defaults on its obligation to make payments due from it as a result of its bankruptcy or otherwise, the Fund may lose such payments altogether or collect only a portion thereof, which collection could involve costs or delay. The Fund intends to utilize swap agreements in a manner designed to limit its risk exposure to levels comparable to direct investments in stocks.
4
A currency forward transaction is a contract to buy or sell a specified quantity of currency at a specified date in the future at a specified price which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. Currency forward contracts may be used to increase or reduce exposure to currency price movements.
A convertible security is a bond, debenture, note, preferred stock, right, warrant or other security that may be converted into or exchanged for a prescribed amount of common stock or other security of the same or a different issuer or into cash within a particular period of time at a specified price or formula. A convertible security generally entitles the holder to receive interest paid or accrued on debt securities or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities generally have characteristics similar to both debt and equity securities. The value of convertible securities tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying securities. Convertible securities ordinarily provide a stream of income with generally higher yields than those of common stock of the same or similar issuers. Convertible securities generally rank senior to common stock in a corporations capital structure but are usually subordinated to comparable nonconvertible securities. Convertible securities generally do not participate directly in any dividend increases or decreases of the underlying securities although the market prices of convertible securities may be affected by any dividend changes or other changes in the underlying securities.
5
Participation notes (P-Notes) are issued by banks or broker-dealers and are designed to offer a return linked to the performance of a particular underlying equity security or market. P-Notes can have the characteristics or take the form of various instruments, including, but not limited to, certificates or warrants. The holder of a P-Note that is linked to a particular underlying security is entitled to receive any dividends paid in connection with the underlying security. However, the holder of a P-Note generally does not receive voting rights as it would if it directly owned the underlying security. P-Notes constitute direct, general and unsecured contractual obligations of the banks or broker-dealers that issue them, which therefore subject the Fund to counterparty risk, as discussed below. Investments in P-Notes involve certain risks in addition to those associated with a direct investment in the underlying foreign companies or foreign securities markets whose return they seek to replicate. For instance, there can be no assurance that the trading price of a P-Note will equal the underlying value of the foreign company or foreign securities market that it seeks to replicate. As the purchaser of a P-Note, the Fund is relying on the creditworthiness of the counterparty issuing the P-Note and has no rights under a P-Note against the issuer of the underlying security. Therefore, if such counterparty were to become insolvent, the Fund would lose its investment. The risk that the Fund may lose its investments due to the insolvency of a single counterparty may be amplified to the extent the Fund purchases P-Notes issued by one issuer or a small number of issuers. P-Notes also include transaction costs in addition to those applicable to a direct investment in securities. In addition, the Funds use of P-Notes may cause the Funds performance to deviate from the performance of the portion of the Index to which the Fund is gaining exposure through the use of P-Notes.
Due to liquidity and transfer restrictions, the secondary markets on which P-Notes are traded may be less liquid than the markets for other securities, which may lead to the absence of readily available market quotations for securities in the Funds portfolio. The ability of the Fund to value its securities becomes more difficult and the judgment in the application of fair value procedures (through fair value procedures adopted by the Trustees) may play a greater role in the valuation of the Funds securities due to reduced availability of reliable objective pricing data. Consequently, while such determinations will be made in good faith, it may nevertheless be more difficult for the Fund to accurately assign a daily value to such securities.
6
The provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (Takeover Code) may apply to the Fund. Under the provisions of the Takeover Code, any acquirer who acquires more than 5%, 10%, 14%, 54% or 74% of the shares or voting rights of an Indian listed company is required to notify the company and the stock exchanges on which the shares of such company are listed about its holding. Furthermore, the acquirer is required to inform the company and the stock exchange about any change in its holding beyond 2% of the paid-up capital of such company.
The Fund may take advantage of opportunities in the area of options, futures contracts, options on futures contracts, options on the Fund, warrants, swaps and any other investments which are not presently contemplated for use or which are not currently available, but which may be developed, to the extent such investments are considered suitable for the Fund by the Adviser.
The Board of the Trust and the Board of Directors of the Subsidiary have adopted the following investment restrictions as fundamental policies with respect to the Fund. These restrictions cannot be changed without the approval of the holders of a majority of the Funds outstanding voting securities. For purposes of the Investment Company Act of 1940, as amended (the 1940 Act), a majority of the outstanding voting securities of the Fund means the vote, at an annual or a special meeting of the security holders of the Trust, of the lesser of (1) 67% or more of the voting securities of the Fund present at such meeting, if the holders of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy, or (2) more than 50% of the outstanding voting securities of the Fund. Similar voting requirements apply with respect to a change in the fundamental investment policies of the Subsidiary. If the Fund, as an investor in the Subsidiary, is requested to vote on a change in the fundamental investment policies of the Subsidiary, the Fund will either call a meeting of its shareholders and will vote its shares in the Subsidiary in accordance with instructions it receives from its shareholders or otherwise vote as required under the 1940 Act. Under these restrictions:
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The Fund may not make loans, except that the Fund may (i) lend portfolio securities, (ii) enter into repurchase agreements, (iii) purchase all or a portion of an issue of debt securities, bank loan or participation interests, bank certificates of deposit, bankers acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities and (iv) participate in an interfund lending program with other registered investment companies; |
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The Fund may not borrow money, except as permitted under the 1940 Act, and as interpreted or modified by regulation from time to time; |
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The Fund may not issue senior securities, except as permitted under the 1940 Act, and as interpreted or modified by regulation from time to time; |
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The Fund may not purchase or sell real estate, except that the Fund may (i) invest in securities of issuers that invest in real estate or interests therein; (ii) invest in mortgage-related securities and other securities that are secured by real estate or interests therein; and (iii) hold and sell real estate acquired by the Fund as a result of the ownership of securities; |
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The Fund may not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be considered an underwriter within the meaning of the Securities Act of 1933, as amended (the Securities Act), in the disposition of restricted securities or in connection with its investments in other investment companies; |
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The Fund may not purchase or sell commodities, unless acquired as a result of owning securities or other instruments, but it may purchase, sell or enter into financial options and futures, forward and spot currency contracts, swap transactions and other financial contracts or derivative instruments and may invest in securities or other instruments backed by commodities; or |
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The Fund may not purchase any security if, as a result of that purchase, 25% or more of its total assets would be invested in securities of issuers having their principal business activities in the same industry, except that the Fund may invest 25% or more of the value of its total assets in securities of issuers in any one industry or group of industries if the Index that the Fund replicates concentrates in an industry or group of industries. This limit does not apply to securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. |
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In addition to the investment restrictions adopted as fundamental policies as set forth above, the Fund observes the following restrictions, which may be changed by the Board without a shareholder vote. The Fund will not:
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Invest in securities which are illiquid securities, including repurchase agreements maturing in more than seven days and options traded over-the-counter, if the result is that more than 15% of the Funds net assets would be invested in such securities. |
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Make short sales of securities. |
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Purchase any security on margin, except for such short-term loans as are necessary for clearance of securities transactions. The deposit or payment by the Fund or initial or variation margin in connection with futures contracts or related options thereon is not considered the purchase of a security on margin. |
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Participate in a joint or joint-and-several basis in any trading account in securities, although transactions for the Fund and any other account under common or affiliated management may be combined or allocated between the Fund and such account. |
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Purchase securities of open-end or closed-end investment companies except in compliance with the 1940 Act, although the Fund may not acquire any securities of registered open-end investment companies or registered unit investment trusts in reliance on Sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act. |
If a percentage limitation is adhered to at the time of investment or contract, a later increase or decrease in percentage resulting from any change in value or total or net assets will not result in a violation of such restriction, except that the percentage limitations with respect to the borrowing of money and illiquid securities will be continuously complied with.
As long as the aforementioned investment restrictions are complied with, the Fund may invest its remaining assets in money market instruments or funds which reinvest exclusively in money market instruments, in stocks that are in the relevant market but not the Index, and/or in combinations of certain stock index futures contracts, options on such futures contracts, stock options, stock index options, options on the Shares, and stock index swaps and swaptions, each with a view towards providing the Fund with exposure to the securities in the Index. These investments may be made to invest uncommitted cash balances or, in limited circumstances, to assist in meeting shareholder redemptions of Creation Units. The Fund will not invest in money market instruments as part of a temporary defensive strategy to protect against potential stock market declines.
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securities in the primary and secondary markets including shares, debentures and warrants of companies unlisted, listed or to be listed on a recognized stock exchange in India; |
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units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed on a recognized stock exchange in India or not or units of a scheme floated by a Collective Investment Scheme; |
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dated government securities; |
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derivatives traded on a recognized stock exchange; |
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commercial paper; and |
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security receipts of asset reconstruction companies. |
Further, FIIs are allowed to engage in delivery based trading and short selling including execution of trades involving derivatives on a recognized stock exchange. FIIs are allowed to tender their shares in case of an open offer following the takeover bid by an acquirer. FIIs are also permitted to take forward cover on their equity and debt exposure to mitigate against currency fluctuations.
FIIs which have issued derivative instruments based on underlying Indian securities such as P-Notes and any other equivalent instrument are required to make a monthly disclosure to the SEBI as regards the details of the instrument as well as the ultimate investor in such instruments.
9
10
S PECIAL CONSIDERATIONS AND RISKS
Investment in the Fund should be made with an understanding that the value of the Funds portfolio securities may fluctuate in accordance with changes in the financial condition of the issuers of the portfolio securities, the value of common stocks generally and other factors.
An investment in the Fund should also be made with an understanding of the risks inherent in an investment in equity securities, including the risk that the financial condition of issuers may become impaired or that the general condition of the stock market may deteriorate (either of which may cause a decrease in the value of the portfolio securities and thus in the value of Shares). Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change. These investor perceptions are based on various and unpredictable factors, including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic and banking crises.
Holders of common stocks incur more risk than holders of preferred stocks and debt obligations because common stockholders, as owners of the issuer, have generally inferior rights to receive payments from the issuer in comparison with the rights of creditors of, or holders of debt obligations or preferred stocks issued by, the issuer. Further, unlike debt securities which typically have a stated principal amount payable at maturity (whose value, however, will be subject to market fluctuations prior thereto), or preferred stocks which typically have a liquidation preference and which may have stated optional or mandatory redemption provisions, common stocks have neither a fixed principal amount nor a maturity. Common stock values are subject to market fluctuations as long as the common stock remains outstanding.
Although most of the securities in the Index are listed on a national securities exchange, the principal trading market for some may be in the over-the-counter market. The existence of a liquid trading market for certain securities may depend on whether dealers will make a market in such securities. There can be no assurance that a market will be made or maintained or that any such market will be or remain liquid. The price at which securities may be sold and the value of the Funds Shares will be adversely affected if trading markets for the Funds portfolio securities are limited or absent or if bid/ask spreads are wide.
The Fund is not actively managed by traditional methods, and therefore the adverse financial condition of any one issuer will not result in the elimination of its securities from the securities held by the Fund unless the securities of such issuer are removed from the Index.
Shares are subject to the risk of an investment in a portfolio of equity securities in an economic sector or industry in which the Index is highly concentrated. In addition, because it is the policy of the Fund to generally invest in the securities that comprise its Index, the portfolio of securities held by the Fund (Fund Securities) also will be concentrated in that economic sector or industry.
11
The method by which Creation Units are created and traded may raise certain issues under applicable securities laws. Because new Creation Units will be issued and sold by the Trust 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 and liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent Shares, and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter.
Broker-dealers who are not underwriters but are participating in a distribution (as contrasted to ordinary secondary trading transactions), and thus dealing with Shares that are part of an unsold allotment within the meaning of Section 4(3)(C) of the Securities Act, would be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not underwriters but are participating in a distribution (as contrasted with ordinary secondary market transactions) and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(3)(A) of the Securities Act would be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act. Firms that incur a prospectus delivery obligation with respect to Shares are reminded that, under Rule 153 of the Securities Act, a prospectus delivery obligation under Section 5(b)(2) of the Securities Act owed to an exchange member in connection with a sale on the Exchange is satisfied by the fact that the prospectus is available at the Exchange upon request. The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions on an exchange.
12
The Shares of the Fund are expected to be approved for listing on NYSE Arca, subject to notice of issuance, and will trade in the secondary market at prices that may differ to some degree from their NAV. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of Shares of the Fund will continue to be met.
The Exchange may but is not required to remove the Shares of the Fund from listing if: (1) following the initial twelve-month period beginning upon the commencement of trading of the Fund, there are fewer than 50 beneficial holders of the Shares for 30 or more consecutive trading days, (2) the value of the Index or portfolio of securities on which the Fund is based is no longer calculated or available or (3) such other event shall occur or condition exists that, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable. In addition, the Exchange will remove the Shares from listing and trading upon termination of the Trust.
As in the case of other securities traded on the Exchange, brokers commissions on transactions will be based on negotiated commission rates at customary levels.
In order to provide investors with a basis to gauge whether the market price of the Shares on the Exchange are approximately consistent with the current value of the assets of the Fund on a per Share basis, an updated Indicative Per Share Portfolio Value is disseminated intra-day through the facilities of the Consolidated Tape Associations Network B. Indicative Per Share Portfolio Values are disseminated every 15 seconds during regular Exchange trading hours based on the most recently reported prices of Fund Securities. As the respective international local markets close, the Indicative Per Share Portfolio Value will continue to be updated for foreign exchange rates for the remainder of the U.S. trading day at the prescribed 15 second interval. The Fund is not involved in or responsible for the calculation or dissemination of the Indicative Per Share Portfolio Value and makes no warranty as to the accuracy of the Indicative Per Share Portfolio Value.
The Indicative Per Share Portfolio Value has an equity securities value component and a net other assets value component, each of which are summed and divided by the total estimated Fund Shares outstanding, including Shares expected to be issued by the Fund on that day, to arrive at an Indicative Per Share Portfolio Value.
The equity securities value component of the Indicative Per Share Portfolio Value represents the estimated value of the portfolio securities held by the Fund on a given day. While the equity securities value component estimates the current market value of the Funds portfolio securities, it does not necessarily reflect the precise composition or market value of the current portfolio of securities held by the Trust for the Fund at a particular point in time. Therefore, the Indicative Per Share Portfolio Value disseminated during Exchange trading hours should be viewed only as an estimate of the Funds NAV per share, which is calculated at the close of the regular trading session on the New York Stock Exchange (NYSE) (ordinarily 4:00 p.m. Eastern time) on each Business Day.
13
In addition to the equity securities value component described in the preceding paragraph, the Indicative Per Share Portfolio Value for the Fund includes a net other assets value component consisting of estimates of all other assets and liabilities of the Fund including, among others, current day estimates of dividend income and expense accruals.
T rustees and Officers of the Trust
The Board believes that each Trustees experience, qualifications, attributes or skills on an individual basis and in combination with those of the other Trustees lead to the conclusion that the Board possesses the requisite skills and attributes to carry out its oversight responsibilities with respect to the Trust. The Board believes that the Trustees ability to review, critically evaluate, question and discuss information provided to them, to interact effectively with the Adviser, other service providers, counsel and independent auditors, and to exercise effective business judgment in the performance of their duties, support this conclusion. The Board also has considered the following experience, qualifications, attributes and/or skills, among others, of its members in reaching its conclusion: such persons character and integrity; length of service as a board member of the Trust; such persons willingness to serve and willingness and ability to commit the time necessary to perform the duties of a Trustee; and as to each Trustee other than Mr. van Eck, his status as not being an interested person (as defined in the 1940 Act) of the Trust. In addition, the following specific experience, qualifications, attributes and/or skills apply as to each Trustee: Mr. Chow, significant business and financial experience, particularly in the investment management industry, experience with trading and markets through his involvement with the Pacific Stock Exchange, and service as a chief executive officer, board member, partner or executive officer of various businesses and non-profit organizations; Mr. Short, business and financial experience, particularly in the investment management industry, and service as a president, board member or executive officer of various businesses; Mr. Stamberger, business and financial experience and service as the president, chief executive officer and board member of SmartBrief Inc., a media company; and Mr. van Eck, business and financial experience, particularly in the investment management industry, and service as a president, executive officer and/or board member of various businesses, including the Adviser, Van Eck Securities Corporation, and Van Eck Absolute Return Advisers Corporation. References to the experience, qualifications, attributes and skills of Trustees are pursuant to requirements of the Securities and Exchange Commission, do not constitute holding out of the Board or any Trustee as having any special expertise or experience, and shall not impose any greater responsibility or liability on any such person or on the Board by reason thereof.
14
|
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|
|||||||||||
|
Name,
Address
1
|
|
Position(s)
|
|
Term of
|
|
Principal
|
|
Number of
|
|
Other
|
|
David H. Chow, 52 * |
|
Chairman Trustee |
|
Since 2008
|
|
Director and CEO, DanCourt Management LLC (strategy consulting firm), March 1999 to present. |
|
35 |
|
Director, Forward Management, LLC; Director, ReFlow Management Co., LLC. |
|
R. Alastair Short, 56 * |
|
Trustee |
|
Since 2006 |
|
President, Apex Capital Corporation (personal investment vehicle), January 1988 to present; Vice Chairman, W.P. Stewart & Co., Ltd. (asset management firm), September 2007 to September 2008; and Managing Director, The GlenRock Group, LLC (private equity investment firm), May 2004 to September 2007. |
|
44 |
|
Director, Kenyon Review; Director, The Medici Archive Project. |
|
Richard D. Stamberger, 50 * |
|
Trustee |
|
Since 2006 |
|
Director, President and CEO, SmartBrief, Inc. (media company). |
|
44 |
|
None. |
|
|
|
|
|
||
1 |
The address for each Trustee and officer is 335 Madison Avenue, 19th Floor, New York, New York 10017. |
|
2 |
Each Trustee serves until resignation, death, retirement or removal. Officers are elected yearly by the Trustees. |
|
3 |
The Fund Complex consists of the Van Eck Funds, Van Eck Worldwide Insurance Trust and the Trust. |
|
* |
Member of the Audit Committee. |
|
|
Member of the Nominating and Corporate Governance Committee. |
15
|
|
|
|
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|
Name,
Address
1
|
|
Position(s)
|
|
Term of
|
|
Principal
|
|
Number of
|
|
Other
|
|
Jan F. van Eck, 4 46 |
|
Trustee, President and Chief Executive Officer |
|
Trustee (Since 2006); President and Chief Executive Officer (Since 2009) |
|
Director and Executive Director, Executive Vice President and Principal of the Adviser, Van Eck Associates Corporation; Director and Executive Vice President, Van Eck Securities Corporation (VESC); Director and President, Van Eck Absolute Return Advisers Corp. (VEARA). |
|
35 |
|
Former Director, Greylock Capital Associates LLC. |
|
|
|
|
||
1 |
The address for each Trustee and officer is 335 Madison Avenue, 19th Floor, New York, New York 10017. |
|
2 |
Each Trustee serves until resignation, death, retirement or removal. Officers are elected yearly by the Trustees. |
|
3 |
The Fund Complex consists of the Van Eck Funds, Van Eck Worldwide Insurance Trust and the Trust. |
|
4 |
Interested person of the Trust within the meaning of the 1940 Act. Mr. van Eck is an officer of the Adviser. |
|
|
|
|
|
|
|
|
|
Officers
Name,
|
|
Position(s)
Held
|
|
Term of
|
|
Principal
Occupation(s) During The Past Five
|
|
Russell G. Brennan, 45 |
|
Assistant Vice President and Assistant Treasurer |
|
Since 2008 |
|
Assistant Vice President and Assistant Treasurer of the Adviser (Since 2008); Manager (Portfolio Administration) of the Adviser (September 2005-October 2008); Vice President, Robeco Investment Management (July 1990-September 2005). |
|
Charles T. Cameron, 50 |
|
Vice President |
|
Since 2006 |
|
Director of Trading and Portfolio Manager for the Adviser; Officer of three other investment companies advised by the Adviser. |
|
John J. Crimmins, 52 |
|
Treasurer |
|
Since 2009 |
|
Vice President of Portfolio Administration of the Adviser (Since 2009); Chief Financial, Operating and Compliance Officer, Kern Capital Management LLC (September 1997-February 2009). |
|
Susan C. Lashley, 55 |
|
Vice President |
|
Since 2006 |
|
Vice President of the Adviser and VESC; Officer of three other investment companies advised by the Adviser. |
16
|
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|
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|
|||||||
|
Officers
Name,
|
|
Position(s)
Held
|
|
Term of
|
|
Principal
Occupation(s) During The Past Five
|
|
Thomas K. Lynch, 53 |
|
Chief
|
|
Since 2007 |
|
Chief Compliance Officer of the Adviser and VEARA (Since December 2006) and of VESC (Since August 2008); Vice President of the Adviser and VEARA; Treasurer (April 2005 December 2006); Second Vice President of Investment Reporting, TIAA-CREF (January 1996-April 2005). Officer of other investment companies advised by the Adviser |
|
Laura I. Martínez, 30 |
|
Assistant Vice
|
|
Since 2008 |
|
Assistant Vice President and Associate General Counsel of the Adviser (Since 2008); Associate, Davis Polk & Wardwell (October 2005-June 2008); Stanford Law School (September 2002-June 2005). |
|
Joseph J. McBrien, 61 |
|
Senior Vice
|
|
Since 2006 |
|
Senior Vice President, General Counsel and Secretary of the Adviser, VESC and VEARA (Since December 2005); Managing Director, Chatsworth Securities LLC (March 2001-November 2005); Officer of three other investment companies advised by the Adviser. |
|
Jonathan R. Simon, 35 |
|
Vice President
|
|
Since 2006 |
|
Vice President and Associate General Counsel of the Adviser (Since 2006); Vice President and Assistant Secretary of VEARA and VESC (Since2006); Associate, Schulte Roth & Zabel (July 2004-July 2006); Associate, Carter Ledyard & Milburn LLP (September 2001-July 2004); Officer of three other investment companies advised by the Adviser. |
|
Bruce J. Smith, 55 |
|
Senior Vice
|
|
Since 2006 |
|
Senior Vice President and Chief Financial Officer of the Adviser; Senior Vice President, Chief Financial Officer, Treasurer and Controller of VESC and VEARA; Officer of three other investment companies advised by the Adviser. |
|
Derek S. van Eck, 3 45 |
|
Executive Vice President |
|
Since 2006 |
|
Director, Executive Vice President, Chief Investment Officer and Principal of the Adviser; Director and Executive Vice President VESC and VEARA; Former Director of Greylock Capital Associates LLC; President and Chief Executive Officer of the Van Eck Funds and Van Eck Worldwide Insurance Trust; Officer of other investment companies advised by the Adviser. |
|
|
|
|
|
||
1 |
The address for each Officer is 335 Madison Avenue, 19th Floor, New York, New York 10017. |
|
2 |
Officers are elected yearly by the Trustees. |
|
3 |
Messrs. Jan F. van Eck and Derek S. van Eck are brothers. |
The
Board of the Trust met five times during the fiscal year ended December 31, 2009.
The
Board has an Audit Committee consisting of three Trustees who are Independent
Trustees. Messrs. Chow, Short and Stamberger currently serve as members of the
Audit Committee and each has been designated as an audit committee financial
expert as defined under Item 407 of Regulation S-K of the Securities Exchange
Act of 1934, as amended (the Exchange Act). Mr. Short is the Chairman of the
17
Audit Committee. The Audit Committee has the responsibility,
among other things, to: (i) oversee the accounting and financial reporting
processes of the Trust and its internal control over financial reporting; (ii)
oversee the quality and integrity of the Trusts financial statements and the
independent audit thereof; (iii) oversee or, as appropriate, assist the Boards
oversight of the Trusts compliance with legal and regulatory requirements that
relate to the Trusts accounting and financial reporting, internal control over
financial reporting and independent audit; (iv) approve prior to appointment
the engagement of the Trusts independent registered public accounting firm
and, in connection therewith, to review and evaluate the qualifications, independence
and performance of the Trusts independent registered public accounting firm;
and (v) act as a liaison between the Trusts independent registered public
accounting firm and the full Board. The Audit Committee met four times during
the fiscal year ended December 31, 2009.
The Board also has a Nominating and Corporate Governance Committee consisting of three Independent Trustees. Messrs. Chow, Short and Stamberger currently serve as members of the Nominating and Corporate Governance Committee. Mr. Stamberger is the Chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee has the responsibility, among other things, to: (i) evaluate, as necessary, the composition of the Board, its committees and sub-committees and make such recommendations to the Board as deemed appropriate by the Committee; (ii) review and define Independent Trustee qualifications; (iii) review the qualifications of individuals serving as Trustees on the Board and its committees; (iv) evaluate, recommend and nominate qualified individuals for election or appointment as members of the Board and recommend the appointment of members and chairs of each Board committee and subcommittee; and (v) review and assess, from time to time, the performance of the committees and subcommittees of the Board and report the results to the Board. The Nominating and Corporate Governance Committee met one time during the fiscal year ended December 31, 2009.
The Board has determined that its leadership structure is appropriate given the business and nature of the Trust. In connection with its determination, the Board considered that the Chairman of the Board is an Independent Trustee. The Chairman of the Board can play an important role in setting the agenda of the Board and also serves as a key point person for dealings between management and the other Independent Trustees. The Independent Trustees believe that the Chairmans independence facilitates meaningful dialogue between the Adviser and the Independent Trustees. The Board also considered that the Chairman of each Board committee is an Independent Trustee, which yields similar benefits with respect to the functions and activities of the various Board committees. The Independent Trustees also regularly meet outside the presence of management and are advised by independent legal counsel. The Board has determined that its committees help ensure that the Trust has effective and independent governance and oversight. The Board also believes that its leadership structure facilitates the orderly and efficient flow of information to the Independent Trustees from management of the Trust, including the Adviser. The Board reviews its structure on an annual basis.
As an
integral part of its responsibility for oversight of the Trust in the interests
of shareholders, the Board, as a general matter, oversees risk management of
the Trusts investment programs and business affairs. The function of the Board
with respect to risk management is one of oversight and not active involvement
in, or coordination of, day-to-day risk management activities for the Trust.
The Board recognizes that not all risks that may affect the Trust can be
identified, that it may not be practical or cost-effective to eliminate or
mitigate certain risks, that it may be necessary to bear certain risks (such as
investment-related risks) to achieve the Trusts goals, and that the processes,
procedures and controls employed to address certain risks may be limited in
their effectiveness. Moreover, reports received by the Trustees that may relate
to risk management matters are typically summaries of the relevant information.
18
The Board exercises
oversight of the risk management process primarily through the Audit Committee,
and through oversight by the Board itself. The Trust faces a number of risks,
such as investment-related and compliance risks. The Advisers personnel seek
to identify and address risks, i.e., events or circumstances that could have material
adverse effects on the business, operations, shareholder services, investment
performance or reputation of the Trust. Under the overall supervision of the
Board or the applicable Committee of the Board, the Trust, the Adviser, and the
affiliates of the Adviser employ a variety of processes, procedures and
controls to identify such possible events or circumstances, to lessen the
probability of their occurrence and/or to mitigate the effects of such events
or circumstances if they do occur. Different processes, procedures and controls
are employed with respect to different types of risks. Various personnel,
including the Trusts Chief Compliance Officer, as well as various personnel of
the Adviser and other service providers such as the Trusts independent
accountants, may report to the Audit Committee and/or to the Board with respect
to various aspects of risk management, as well as events and circumstances that
have arisen and responses thereto.
The officers and Trustees of the Trust, in the aggregate, own less than 1% of the Shares of the Fund.
The general
management of the Subsidiary is the responsibility of its Board of Directors, a
majority of which are also Trustees of the Trust.
For each Trustee, the dollar range of equity securities beneficially owned by the Trustee in the Trust and in all registered investment companies advised by the Adviser (Family of Investment Companies) that are overseen by the Trustee is shown below.
|
|
|
|
|
|
|
|
Name of Trustee |
|
Dollar
Range of Equity Securities in Market
|
|
Aggregate Dollar Range of Equity Securities
|
|
|
David H. Chow |
|
None |
|
$50,001 $100,000 |
|
|
R. Alastair Short |
|
None |
|
$10,001 $50,000 |
|
|
Richard D. Stamberger |
|
None |
|
Over $100,000 |
|
|
Jan F. van Eck |
|
None |
|
Over $100,000 |
|
As to each Independent Trustee and his immediate family members, no person owned beneficially or of record securities in an investment manager or principal underwriter of the Fund, or a person (other than a registered investment company) directly or indirectly controlling, controlled by or under common control with the investment manager or principal underwriter of the Fund.
The Trust pays each
Independent Trustee an annual retainer of $40,000, a per meeting fee of $15,000
for scheduled quarterly meetings of the Board and each special meeting of the
Board and a per meeting fee of $7,500 for telephonic meetings. The Trust pays
the Chairman of the Board an annual retainer of $42,875, the Chairman of the
Audit Committee an annual retainer of $18,375 and the Chairman of the Governance
Committee an annual retainer of $12,250. The Trust also reimburses each Trustee
for travel and other out-of-pocket expenses incurred in attending such
meetings. No pension or retirement benefits are accrued as part of Trustee
compensation.
The table
below shows the estimated compensation that is contemplated to be paid to the
Trustees by the Trust for the fiscal year ended December 31, 2010. Annual
Trustee fees may be reviewed periodically and changed by the Trusts Board.
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Trustee |
|
Aggregate
|
|
Deferred
|
|
Pension
or
|
|
Estimated
|
|
Total
|
|
||||||||
|
David H. Chow |
|
$ |
0 |
|
|
$ |
165,375 |
|
|
N/A |
|
|
N/A |
|
|
$ |
165,375 |
|
|
|
R. Alastair Short |
|
$ |
140,875 |
|
|
$ |
0 |
|
|
N/A |
|
|
N/A |
|
|
$ |
140,875 |
|
|
|
Richard D. Stamberger |
|
$ |
67,375 |
|
|
$ |
67,375 |
|
|
N/A |
|
|
N/A |
|
|
$ |
134,750 |
|
|
|
Jan F. van Eck (3) |
|
$ |
0 |
|
|
$ |
0 |
|
|
N/A |
|
|
N/A |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
(1) |
The Fund Complex consists of Van Eck Funds, Van Eck Worldwide Insurance Trust and the Trust. |
(2) |
Because the funds of the Fund Complex have different fiscal year ends, the amounts shown are presented on a calendar year basis. |
(3) |
Interested person under the 1940 Act. |
P ORTFOLIO HOLDINGS DISCLOSURE
The Funds
portfolio holdings are publicly disseminated each day the Fund is open for
business through financial reporting and news services, including publicly
accessible Internet web sites. In addition, a basket composition file, which
includes the security names and share quantities to deliver in exchange for
Creation Units, together with estimates and actual cash components is publicly
disseminated daily prior to the opening of the Exchange via the National
Securities Clearing Corporation (the NSCC), a clearing agency that is
registered with the Securities and Exchange Commission (the SEC). The basket
represents one Creation Unit of the Fund. The Trust, Adviser, Custodian and
Distributor will not disseminate non-public information concerning the Trust.
The
Trust is required to disclose, after its first and third fiscal quarters, the
complete schedule of the Funds portfolio holdings with the SEC on
Form N-Q. Form N-Q for the Fund will be available on the SECs
website at
http://www.sec.gov
. The Funds Form N-Q may also be
reviewed and copied at the SECs Public Reference Room in Washington, D.C. and
information on the operation of the Public Reference Room may be obtained by
calling 202.551.8090. The Funds Form N-Q will be available through the
Funds website, at
www.vaneck.com
or by writing to 335 Madison Avenue,
19th Floor, New York, New York 10017.
The Fund, the Adviser and the Distributor have each adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act, designed to monitor personal securities transactions by their personnel (the Personnel). The Code of Ethics requires that all trading in securities that are being purchased or sold, or are being considered for purchase or sale, by the Fund must be approved in advance by the Head of Trading, the Director of Research and the Chief Compliance Officer of the Adviser. Approval will be granted if the security has not been purchased or sold or recommended for purchase or sale for the Fund on the day that the Personnel of the Adviser requests pre-clearance, or otherwise if it is determined that the personal trading activity will not have a negative or appreciable impact on the price or market of the security, or is of such a nature that it does not present the dangers or potential for abuses that are likely to result in harm or detriment to the Fund. At the end of each calendar quarter, all Personnel must file a report of all transactions entered into during the quarter. These reports are reviewed by a senior officer of the Adviser.
Generally, all Personnel must obtain approval prior to conducting any transaction in securities. Independent Trustees, however, are not required to obtain prior approval of personal securities transactions. Personnel may purchase securities in an initial public offering or private placement, provided that he or she obtains preclearance of the purchase and makes certain representations.
20
P ROXY VOTING POLICIES AND PROCEDURES
The Funds proxy voting record will be available upon request and on the SECs website at http://www.sec.gov . Proxies for the Funds portfolio securities are voted in accordance with the Advisers proxy voting policies and procedures, which are set forth in Appendix A to this SAI.
The Trust is required to disclose annually the Funds complete proxy voting record on Form N-PX covering the period July 1 through June 30 and file it with the SEC no later than August 31. Form N-PX for the Fund will be available through the Funds website, at www.vaneck.com, or by writing to 335 Madison Avenue, 19th Floor, New York, New York 10017. The Funds Form N-PX will also be available on the SECs website at www.sec.gov .
The
following information supplements and should be read in conjunction with the
section in the Prospectus entitled Management of the Fund.
Van Eck Associates Corporation acts as investment adviser to the Trust and, subject to the supervision of the Board, is responsible for the day-to-day investment management of the Fund. The Adviser is a private company with headquarters in New York and manages other mutual funds and separate accounts.
The Adviser
serves as investment adviser to the Fund pursuant to the Investment Management
Agreement between the Trust and the Adviser. Under the Investment Management
Agreement, the Adviser, subject to the supervision of the Board and in
conformity with the stated investment policies of the Fund, manages the
investment of the Funds assets. The Adviser is responsible for placing
purchase and sale orders and providing continuous supervision of the investment
portfolio of the Fund. All investment decisions relating to the Fund will be
made outside of India.
Pursuant to the Investment Management Agreement, the Trust has agreed to indemnify the Adviser for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss or liability results from willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its obligations and duties.
Compensation
.
As compensation for its services under the Investment Management Agreement, the
Adviser is paid a monthly fee based on a percentage of the Funds average daily
net assets at the annual rate of 0.50%. From time to time, the Adviser may
waive all or a portion of its fees. Until at least May 1, 2011, the Adviser has
agreed to waive fees and/or pay Fund and Subsidiary expenses to the extent
necessary to prevent the operating expenses of the Fund (excluding interest
expense, offering costs, trading expenses, taxes and extraordinary expenses of
the Fund and the Subsidiary) from exceeding 0.90% of average daily net assets
per year. Offering costs excluded from the expense cap are: (a) legal fees
pertaining to the Funds Shares offered for sale; (b) SEC and state
registration fees; and (c) initial fees paid for Shares of the Fund to be
listed on an exchange.
Term . The Investment Management Agreement continues in effect until June 30, 2010. Thereafter, the Investment Management Agreement is subject to annual approval by (1) the Board or (2) a vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund, provided that in either event such continuance also is approved by a majority of the Board who are not interested persons (as defined in the 1940 Act) of the Trust by a vote cast in person at a meeting called for the
21
purpose of voting on such approval. The Investment Management Agreement is terminable without penalty, on 60 days notice, by the Board or by a vote of the holders of a majority (as defined in the 1940 Act) of the Funds outstanding voting securities. The Investment Management Agreement is also terminable upon 60 days notice by the Adviser and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
Subsidiary
Investment Management Agreement
.
The Adviser
provides an investment program for the Subsidiary and manages the investment of
the Subsidiarys assets. Pursuant to a management agreement between the Adviser
and the Subsidiary (the Subsidiary Investment Management Agreement), the
Adviser does not receive any fees from the Subsidiary. The Subsidiary
Investment Management Agreement continues in effect until June 30, 2010, and
thereafter only if approved annually by the Board of Directors of the
Subsidiary.
The Subsidiary Investment Management Agreement terminates automatically upon assignment and is terminable at any time without penalty as to the Subsidiary by the Board of Directors of the Subsidiary, the Trusts Independent Trustees or by vote of the holders of a majority of the Subsidiarys outstanding voting securities on 60 days written notice to the Adviser, or by the Adviser on 60 days written notice to the Subsidiary. Pursuant to the Subsidiary Investment Management Agreement, the Adviser will not be liable for any error of judgment or mistake of law or for any loss suffered by the Subsidiary in connection with the performance of the Subsidiary Investment Agreement, except a loss resulting from willful misfeasance, bad faith, fraud or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard of its duties and obligations thereunder.
Van Eck Associates Corporation also serves as administrator for the Trust pursuant to the Investment Management Agreement. Under the Investment Management Agreement, the Adviser is obligated on a continuous basis to provide such administrative services as the Board of the Trust reasonably deems necessary for the proper administration of the Trust and the Fund. The Adviser will generally assist in all aspects of the Trusts and the Funds operations; supply and maintain office facilities, statistical and research data, data processing services, clerical, bookkeeping and record keeping services (including without limitation the maintenance of such books and records as are required under the 1940 Act and the rules thereunder, except as maintained by other agents), internal auditing, executive and administrative services, and stationery and office supplies; prepare reports to shareholders or investors; prepare and file tax returns; supply financial information and supporting data for reports to and filings with the SEC and various state Blue Sky authorities; supply supporting documentation for meetings of the Board; provide monitoring reports and assistance regarding compliance with the Declaration of Trust, by-laws, investment objectives and policies and with federal and state securities laws; arrange for appropriate insurance coverage; calculate NAVs, net income and realized capital gains or losses; and negotiate arrangements with, and supervise and coordinate the activities of, agents and others to supply services.
Multiconsult
Limited, located at Rogers House, 5 President John Kennedy St., Port-Louis,
Mauritius, serves as the Subsidiarys Mauritius administrator. The Subsidiary
pays Multiconsult Limited a fee for its services and for preparing management
accounts; acting as registrar in relation to the shares of the Subsidiary;
organizing board and shareholder meetings and keeping minutes and the statutory
books and records of the Subsidiary in order to comply with requirements of the
Mauritian Company Law and the Financial Services Commission of Mauritius;
preparing and filing certain regulatory filings; and
22
providing taxation and regulatory advisory services. The
Subsidiary also reimburses Multiconsult Limited for all reasonable
out-of-pocket expenses reasonably incurred by it in the performance of its duties.
The Bank of
New York Mellon (The Bank of New York), located at 101 Barclay Street, New
York, NY 10286, serves as custodian for the Fund and the Subsidiary pursuant to
a Custodian Agreement. As Custodian, The Bank of New York holds the Funds and
the Subsidiarys assets. The Bank of New York serves as the Funds transfer
agent pursuant to a Transfer Agency Agreement. The Bank of New York may be
reimbursed by the Fund for its out-of-pocket expenses. In addition, The Bank of
New York provides various accounting services to the Fund pursuant to a fund
accounting agreement.
Van Eck Securities Corporation (the Distributor) is the principal underwriter and distributor of Shares. Its principal address is 335 Madison Avenue, New York, New York 10017 and investor information can be obtained by calling 1-888-MKT-VCTR. The Distributor has entered into an agreement with the Trust which will continue from its effective date unless terminated by either party upon 60 days prior written notice to the other party by the Trust and the Adviser, or by the Distributor, or until termination of the Trust or the Fund offering its Shares, and which is renewable annually thereafter (the Distribution Agreement), pursuant to which it distributes Shares. Shares will be continuously offered for sale by the Trust through the Distributor only in Creation Units, as described below under Creation and Redemption of Creation UnitsProcedures for Creation of Creation Units. Shares in less than Creation Units are not distributed by the Distributor. The Distributor will deliver a prospectus to persons purchasing Shares in Creation Units and will maintain records of both orders placed with it and confirmations of acceptance furnished by it. The Distributor is a broker-dealer registered under the Exchange Act and a member of the Financial Industry Regulatory Authority (FINRA). The Distributor has no role in determining the investment policies of the Trust or which securities are to be purchased or sold by the Trust.
The Distributor may also enter into sales and investor services agreements with broker-dealers or other persons that are Participating Parties and DTC Participants (as defined below) to provide distribution assistance, including broker-dealer and shareholder support and educational and promotional services but must pay such broker-dealers or other persons, out of its own assets.
The Distribution Agreement provides that it may be terminated at any time, without the payment of any penalty: (i) by vote of a majority of the Independent Trustees or (ii) by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, on at least 60 days written notice to the Distributor. The Distribution Agreement is also terminable upon 60 days notice by the Distributor and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
O ther Accounts Managed by the Portfolio Managers
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Name of
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Other Accounts Managed
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Accounts with respect to which the advisory fee is
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Category of
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Number of
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Total Assets in
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Number of Accounts in
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Total Assets in Accounts
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Hao-Hung
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Registered
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21 |
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$ 12,127,920,901.75 |
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0 |
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$ 0 |
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23
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Name of
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Other Accounts Managed
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Accounts with respect to which the
advisory fee is
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Category of
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Number of
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Total Assets in
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Number of Accounts in
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Total Assets in Accounts
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Other pooled
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0 |
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$ 0 |
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0 |
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$ 0 |
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Other accounts |
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0 |
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$ 0 |
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0 |
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$ 0 |
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George Cao |
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Registered
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18 |
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$12,110,533,746.16 |
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0 |
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$ 0 |
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Other pooled
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0 |
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$ 0 |
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0 |
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$ 0 |
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Other accounts |
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0 |
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$ 0 |
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0 |
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$ 0 |
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Although the funds in the Trust that are managed by Messrs. Liao and Cao may have different investment strategies, each has an investment objective of seeking to replicate, before fees and expenses, its respective underlying index. The Adviser does not believe that management of the various accounts presents a material conflict of interest for Messrs. Liao and Cao or the Adviser.
P ortfolio Manager Compensation
The portfolio managers are paid a fixed base salary and a bonus. The bonus is based upon the quality of investment analysis and the management of the funds. The quality of management of the funds includes issues of replication, rebalancing, portfolio monitoring and efficient operation, among other factors. Portfolio managers who oversee accounts with significantly different fee structures are generally compensated by discretionary bonus rather than a set formula to help reduce potential conflicts of interest. At times, the Adviser and its affiliates manage accounts with incentive fees.
P ortfolio Manager Share Ownership
As of the date of this SAI, Messrs. Liao and Cao do not beneficially own any Shares of the Fund.
When selecting brokers and dealers to handle the purchase and sale of portfolio securities, the Adviser looks for prompt execution of the order at a favorable price. Generally, the Adviser works with recognized dealers in these securities, except when a better price and execution of the order can be obtained elsewhere. The Fund will not deal with affiliates in principal transactions unless permitted by exemptive order or applicable rule or regulation. The Adviser owes a duty to its clients to provide best execution on trades effected. Since the investment objective of the Fund is investment performance that corresponds to that of the Index, the Adviser does not intend to select brokers and dealers for the purpose of receiving research services in addition to a favorable price and prompt execution either from that broker or an unaffiliated third party.
The Adviser assumes general supervision over placing orders on behalf of the Trust for the purchase or sale of portfolio securities. If purchases or sales of portfolio securities of the Trust and one or more other investment companies or clients supervised by the Adviser are considered at or about the same time, transactions in such securities are allocated among the several investment companies and clients in a
24
manner deemed equitable to all by the Adviser. In some cases, this procedure could have a detrimental effect on the price or volume of the security so far as the Trust is concerned. However, in other cases, it is possible that the ability to participate in volume transactions and to negotiate lower brokerage commissions will be beneficial to the Trust. The primary consideration is best execution.
The following information supplements and should be read in conjunction with the section in the Funds Prospectus entitled Shareholder InformationBuying and Selling Exchange-Traded Shares.
The Depository Trust Company (DTC) acts as securities depositary for the Shares. Shares of the Fund are represented by securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC. Certificates will not be issued for Shares.
DTC, a limited-purpose trust company, was created to hold securities of its participants (the DTC Participants) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the NYSE and FINRA. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (the Indirect Participants).
Beneficial ownership of Shares is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners of such beneficial interests are referred to herein as Beneficial Owners) is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of Shares.
Conveyance of all notices, statements and other communications to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the Trust and DTC, DTC is required to make available to the Trust upon request and for a fee to be charged to the Trust a listing of the Shares holdings of each DTC Participant. The Trust shall inquire of each such DTC Participant as to the number of Beneficial Owners holding Shares, directly or indirectly, through such DTC Participant. The Trust shall provide each such DTC Participant with copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trust shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.
25
Share distributions shall be made to DTC or its nominee, Cede & Co., as the registered holder of all Shares. DTC or its nominee, upon receipt of any such distributions, shall credit immediately DTC Participants accounts with payments in amounts proportionate to their respective beneficial interests in Shares as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a street name, and will be the responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspects of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such Shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants.
DTC may determine to discontinue providing its service with respect to the Shares at any time by giving reasonable notice to the Trust and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to find a replacement for DTC to perform its functions at a comparable cost or, if such a replacement is unavailable, to issue and deliver printed certificates representing ownership of Shares, unless the Trust makes other arrangements with respect thereto satisfactory to the Exchange.
26
C REATION AND REDEMPTION OF CREATION UNITS
A Business Day with respect to the Fund is any day on which the NYSE is open for business. As of the date of the Prospectus, the NYSE observes the following holidays: New Years Day, Martin Luther King, Jr. Day, Presidents Day (Washingtons Birthday), Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Administrator, through the NSCC, makes available on each Business Day, immediately 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 Fund Deposit (based on information at the end of the previous Business Day) as well as the Cash Component for the Fund. Such Fund Deposit is applicable, subject to any adjustments as described below, in order to effect creations of Creation Units of the Fund until such time as the next-announced Fund Deposit composition is made available.
The identity and number of shares of the Deposit Securities required for the Fund Deposit for the Fund changes as rebalancing adjustments and corporate action events are reflected from time to time by the Adviser with a view to the investment objective of the Fund. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the securities constituting the Index. In addition, the Trust reserves the right to accept a basket of securities or cash that differs from Deposit Securities or to permit or require the substitution of an amount of cash ( i.e. , a cash in lieu amount) to be added to the Cash Component to replace any Deposit Security which may, among other reasons, not be available in sufficient quantity for delivery, not be permitted to be re-registered in the name of the Trust as a result of an in-kind creation order pursuant to local law or market convention or which may not be eligible for transfer through the Clearing Process (described below), or which may not be eligible for trading by a Participating Party (defined below). In light of the foregoing, in order to seek to replicate the in-kind creation order process, the Trust expects to purchase the Deposit Securities represented by the cash in lieu amount in the secondary market (Market Purchases). In such cases
27
where the Trust makes Market Purchases because a Deposit Security may not be permitted to be re-registered in the name of the Trust as a result of an in-kind creation order pursuant to local law or market convention, or for other reasons, the Authorized Participant will reimburse the Trust for, among other things, any difference between the market value at which the securities were purchased by the Trust and the cash in lieu amount (which amount, at the Advisers discretion, may be capped), applicable registration fees and taxes. Brokerage commissions incurred in connection with the Trusts acquisition of Deposit Securities will be at the expense of the Fund and will affect the value of all Shares of the Fund but the Adviser may adjust the transaction fee to the extent the composition of the Deposit Securities changes or cash in lieu is added to the Cash Component to protect ongoing shareholders. The adjustments described above will reflect changes, known to the Adviser on the date of announcement to be in effect by the time of delivery of the Fund Deposit, in the composition of the Index or resulting from stock splits and other corporate actions.
In addition to the list of names and numbers of securities constituting the current Deposit Securities of a Fund Deposit, the Administrator, through the NSCC, also makes available (i) on each Business Day, the Dividend Equivalent Payment, if any, and the estimated Cash Component effective through and including the previous Business Day, per outstanding Shares of the Fund, and (ii) on a continuous basis throughout the day, the Indicative Per Share Portfolio Value.
P rocedures for Creation of Creation Units
To be eligible to place orders with the Distributor to create Creation Units of the Fund, an entity or person either must be (1) a Participating Party, i.e. , a broker-dealer or other participant in the Clearing Process through the Continuous Net Settlement System of the NSCC; or (2) a DTC Participant (see Book Entry Only System); and, in either case, must have executed an agreement with the Trust and with the Distributor with respect to creations and redemptions of Creation Units outside the Clearing Process (Participant Agreement) (discussed below). All Creation Units of the Fund, however created, will be entered on the records of the Depository in the name of Cede & Co. for the account of a DTC Participant.
All orders to create Creation Units must be placed in multiples of 50,000 Shares ( i.e. , a Creation Unit). All orders to create Creation Units, whether through the Clearing Process or outside the Clearing Process, must be received by the Distributor no later than the closing time of the regular trading session on NYSE Arca (Closing Time) (ordinarily 4:00 p.m. Eastern time) on the date such order is placed in order for creation of Creation Units to be effected based on the NAV of the Fund as determined on such date. A Custom Order may be placed by an Authorized Participant in the event that the Trust permits or requires the substitution of an amount of cash to be added to the Cash Component to replace any Deposit Security which may not be available in sufficient quantity for delivery or which may not be eligible for trading by such Authorized Participant or the investor for which it is acting, or other relevant reason. The date on which a creation order (or order to redeem as discussed below) is placed is herein referred to as the Transmittal Date. Orders must be transmitted by telephone or other transmission method acceptable to the Distributor pursuant to procedures set forth in the Participant Agreement, as described below (see Placement of Creation Orders Using Clearing Process). Severe economic or market disruptions or changes, or telephone or other communication failure, may impede the ability to reach the Distributor, a Participating Party or a DTC Participant.
Creation Units may be created in advance of the receipt by the Trust of all or a portion of the Fund Deposit. In such cases, the Participating Party will remain liable for the full deposit of the missing portion(s) of the Fund Deposit and will be required to post collateral with the Trust consisting of cash at least equal to a percentage of the marked-to-market value of such missing portion(s) that is specified in the Participant Agreement. The Trust may use such collateral to buy the missing portion(s) of the Fund
28
Deposit at any time and will subject such Participating Party to liability for any shortfall between the cost to the Trust of purchasing such securities and the value of such collateral. The Trust will have no liability for any such shortfall. The Trust will return any unused portion of the collateral to the Participating Party once the entire Fund Deposit has been properly received by the Distributor and deposited into the Trust.
Orders to create Creation Units of the Fund shall be placed with a Participating Party or DTC Participant, as applicable, in the form required by such Participating Party or DTC Participant. Investors should be aware that their particular broker may not have executed a Participant Agreement, and that, therefore, orders to create Creation Units of the Fund may have to be placed by the investors broker through a Participating Party or a DTC Participant who has executed a Participant Agreement. At any given time there may be only a limited number of broker-dealers that have executed a Participant Agreement. Those placing orders to create Creation Units of the Fund through the Clearing Process should afford sufficient time to permit proper submission of the order to the Distributor prior to the Closing Time on the Transmittal Date.
Orders for creation that are effected outside the Clearing Process are likely to require transmittal by the DTC Participant earlier on the Transmittal Date than orders effected using the Clearing Process. Those persons placing orders outside the Clearing Process should ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire system by contacting the operations department of the broker or depository institution effectuating such transfer of Deposit Securities and Cash Component.
Orders to create Creation Units of the Fund may be placed through the Clearing Process utilizing procedures applicable to domestic funds for domestic securities (Domestic Funds) (see Placement of Creation Orders Using Clearing Process) or outside the Clearing Process utilizing the procedures applicable to either Domestic Funds or foreign funds for foreign securities (see Placement of Creation Orders Outside Clearing ProcessDomestic Funds and Placement of Creation Orders Outside Clearing ProcessForeign Funds). In the event that the Fund includes both domestic and foreign securities, the time for submitting orders is as stated in the Placement of Creation Orders Outside Clearing ProcessForeign Funds and Placement of Redemption Orders Outside Clearing ProcessForeign Funds sections below shall operate.
P lacement of Creation Orders Using Clearing Process
Fund Deposits created through the Clearing Process, if available, must be delivered through a Participating Party that has executed a Participant Agreement with the Distributor and with the Trust (as the same may be from time to time amended in accordance with its terms).
The Participant Agreement authorizes the Distributor to transmit to NSCC on behalf of the Participating Party such trade instructions as are necessary to effect the Participating Partys creation order. Pursuant to such trade instructions from the Distributor to NSCC, the Participating Party agrees to transfer the requisite Deposit Securities (or contracts to purchase such Deposit Securities that are expected to be delivered in a regular way manner by the third (3rd) Business Day) and the Cash Component to the Trust, together with such additional information as may be required by the Distributor. An order to create Creation Units of the Fund through the Clearing Process is deemed received by the Distributor on the Transmittal Date if (i) such order is received by the Distributor not later than the Closing Time on such Transmittal Date and (ii) all other procedures set forth in the Participant Agreement are properly followed.
29
P lacement of Creation Orders Outside Clearing ProcessDomestic Funds
Fund Deposits created outside the Clearing Process must be delivered through a DTC Participant that has executed a Participant Agreement with the Distributor and with the Trust. A DTC Participant who wishes to place an order creating Creation Units of the Fund to be effected outside the Clearing Process need not be a Participating Party, but such orders must state that the DTC Participant is not using the Clearing Process and that the creation of Creation Units will instead be effected through a transfer of securities and cash. The Fund Deposit transfer must be ordered by the DTC Participant in a timely fashion so as to ensure the delivery of the requisite number of Deposit Securities through DTC to the account of the Trust by no later than 11:00 a.m. Eastern time, of the next Business Day immediately following the Transmittal Date. All questions as to the number of Deposit Securities to be delivered, and the validity, form and eligibility (including time of receipt) for the deposit of any tendered securities, will be determined by the Trust, whose determination shall be final and binding. The cash equal to the Cash Component must be transferred directly to the Distributor through the Federal Reserve wire system in a timely manner so as to be received by the Distributor no later than 2:00 p.m. Eastern time, on the next Business Day immediately following the Transmittal Date. An order to create Creation Units of the Fund outside the Clearing Process is deemed received by the Distributor on the Transmittal Date if (i) such order is received by the Distributor not later than the Closing Time on such Transmittal Date; and (ii) all other procedures set forth in the Participant Agreement are properly followed. However, if the Distributor does not receive both the requisite Deposit Securities and the Cash Component in a timely fashion on the next Business Day immediately following the Transmittal Date, such order will be cancelled. Upon written notice to the Distributor, such cancelled order may be resubmitted the following Business Day using a Fund Deposit as newly constituted to reflect the current NAV of the Fund. The delivery of Creation Units so created will occur no later than the third (3rd) Business Day following the day on which the creation order is deemed received by the Distributor.
Additional transaction fees may be imposed with respect to transactions effected outside the Clearing Process (through a DTC participant) and in circumstances in which any cash can be used in lieu of Deposit Securities to create Creation Units. (See Creation Transaction Fee section below.)
P lacement of Creation Orders Outside Clearing ProcessForeign Funds
Once the Trust has accepted a creation order, the Trust will confirm the issuance of a Creation Unit of the Fund against receipt of payment, at such NAV as will have been calculated after receipt in proper form of such order. The Distributor will then transmit a confirmation of acceptance of such order.
Creation Units 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 subcustodian has confirmed to the Custodian that the required Deposit Securities (or the cash value thereof) have been
30
delivered to the account of the relevant subcustodian, the Distributor and the Adviser will be notified of such delivery and the Trust will issue and cause the delivery of the Creation Units.
The Trust reserves the absolute right to reject a creation order transmitted to it by the Distributor if, for any reason, (a) the order is not in proper form; (b) the creator or creators, upon obtaining the Shares, would own 80% or more of the currently outstanding Shares of the Fund; (c) the Deposit Securities delivered are not as specified by the Administrator, as described above; (d) acceptance of the Deposit Securities would have certain adverse tax consequences to the Fund; (e) the acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (f) the acceptance of the Fund Deposit would otherwise, in the discretion of the Trust or the Adviser, have an adverse effect on the Trust or the rights of beneficial owners; or (g) in the event that circumstances outside the control of the Trust, the Distributor and the Adviser make it for all practical purposes impossible to process creation orders. Examples of such circumstances include, without limitation, acts of God or public service or utility problems such as earthquakes, fires, floods, extreme weather conditions and power outages resulting in telephone, telecopy and computer failures; wars; civil or military disturbances, including acts of civil or military authority or governmental actions; terrorism; sabotage; epidemics; riots; labor disputes; market conditions or activities causing trading halts; systems failures involving computer or other information systems affecting the Trust, the Adviser, the Distributor, DTC, the NSCC or any other participant in the creation process, and similar extraordinary events. The Trust shall notify a prospective creator of its rejection of the order of such person. The Trust and the Distributor are under no duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall either of them incur any liability for the failure to give any such notification.
All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trusts determination shall be final and binding.
31
Redemptions are effected principally for cash. To the extent redemptions are effected in-kind, the Administrator, through NSCC, makes available immediately prior to the opening of business on the Exchange (currently 9:30 a.m. Eastern time) on each day that the Exchange is open for business, the Fund Securities that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that day. The redemption proceeds for a Creation Unit generally consist of Fund Securities as announced by the Administrator on the Business Day of the request for redemption, plus cash in an amount equal to the difference between the NAV of the Shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Securities, less the redemption transaction fee and variable fees described below. The redemption transaction fee of $1,000 is deducted from such redemption proceeds. Should the Fund Securities have a value greater than the NAV of the Shares being redeemed, a compensating cash payment to the Trust equal to the differential plus the applicable redemption transaction fee will be required to be arranged for by or on behalf of the redeeming shareholder. The Fund reserves the right to honor a redemption request by delivering a basket of securities or cash that differs from the Fund Securities.
32
P lacement of Redemption Orders Using Clearing Process
Orders to redeem Creation Units of the Fund through the Clearing Process, if available, must be delivered through a Participating Party that has executed the Participant Agreement with the Distributor and with the Trust (as the case may be from time to time amended in accordance with its terms). An order to redeem Creation Units of the Fund using the Clearing Process is deemed received on the Transmittal Date if (i) such order is received by the Distributor not later than 4:00 p.m. Eastern time on such Transmittal Date; and (ii) all other procedures set forth in the Participant Agreement are properly followed; such order will be effected based on the NAV of the Fund as next determined. An order to redeem Creation Units of the Fund using the Clearing Process made in proper form but received by the Fund after 4:00 p.m. Eastern time, will be deemed received on the next Business Day immediately following the Transmittal Date. The requisite Fund Securities (or contracts to purchase such Fund Securities which are expected to be delivered in a regular way manner) will be transferred by the third (3rd) NSCC Business Day following the date on which such request for redemption is deemed received, and the applicable cash payment.
P lacement of Redemption Orders Outside Clearing ProcessDomestic Funds
Orders to redeem Creation Units of the Fund outside the Clearing Process must be delivered through a DTC Participant that has executed the Participant Agreement with the Distributor and with the Trust. A DTC Participant who wishes to place an order for redemption of Creation Units of the Fund to be effected outside the Clearing Process need not be a Participating Party, but such orders must state that the DTC Participant is not using the Clearing Process and that redemption of Creation Units of the Fund will instead be effected through transfer of Creation Units of the Fund directly through DTC. An order to redeem Creation Units of the Fund outside the Clearing Process is deemed received by the Administrator on the Transmittal Date if (i) such order is received by the Administrator not later than 4:00 p.m. Eastern time on such Transmittal Date; (ii) such order is preceded or accompanied by the requisite number of Shares of Creation Units specified in such order, which delivery must be made through DTC to the Administrator no later than 11:00 a.m. Eastern time, on such Transmittal Date (the DTC Cut-Off-Time); and (iii) all other procedures set forth in the Participant Agreement are properly followed.
After the Administrator has deemed an order for redemption outside the Clearing Process received, the Administrator will initiate procedures to transfer the requisite Fund Securities (or contracts to purchase such Fund Securities) which are expected to be delivered within three Business Days and the cash redemption payment to the redeeming Beneficial Owner by the third Business Day following the Transmittal Date on which such redemption order is deemed received by the Administrator. An additional variable redemption transaction fee of up to four times the basic transaction fee is applicable to redemptions outside the Clearing Process.
P lacement of Redemption Orders Outside Clearing ProcessForeign Funds
An order for redemption must be received by 4:00 p.m. Eastern time for redemptions of Shares. Arrangements satisfactory to the Trust must be in place for the Participating Party to transfer the Creation Units through DTC on or before the settlement date. Redemptions of Shares for Fund Securities will be subject to compliance with applicable U.S. federal and state securities laws and the Fund (whether or not it otherwise permits or requires cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Fund could not lawfully deliver specific Fund Securities upon redemptions or could not do so without first registering the Deposit Securities under such laws.
33
In connection with taking delivery of Shares of Fund Securities upon redemption of Creation Units, a redeeming shareholder or entity acting on behalf of a redeeming shareholder must maintain appropriate custody arrangements with a qualified broker-dealer, bank or other custody providers in each jurisdiction in which any of the Fund Securities are customarily traded, to which account such Fund Securities will be delivered. If neither the redeeming shareholder nor the entity acting on behalf of a redeeming shareholder has appropriate arrangements to take delivery of the Fund Securities in the applicable foreign jurisdiction and it is not possible to make other such arrangements, or if it is not possible to effect deliveries of the Fund Securities in such jurisdictions, the Trust may, in its discretion, exercise its option to redeem such Shares in cash, and the redeeming shareholder will be required to receive its redemption proceeds in cash.
The Fund generally
intends to effect creation transactions of Creation Units on the Business Day
after the trade date (T+1) and settle redemption transactions of cash on the
fourth Business Day following the trade date (T+4). The Fund may effect
deliveries of Creation Units and redemption cash on a basis other than T+1 or
T+4, as the case may be, 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. If in-kind
creations are permitted or required by the Fund, the ability of the Trust to
effect in-kind creations and redemptions within T+1 and T+4, respectively, of
receipt of an order in good form is subject to, among other things, 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 normal settlement period.
The holidays applicable to the Fund are listed below. 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. The dates in calendar year 2010 in which the regular holidays affecting the relevant securities markets are as follows (the following holiday schedule is subject to potential changes in the securities market):
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Hong Kong |
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Jan 1 |
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|
|
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Feb 15 |
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|
Feb 16 |
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Apr 2 |
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|
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|
India |
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|
|
|
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Jan 1 |
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Apr 3 |
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Sep 28 |
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Dec 25 |
Jan 26 |
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Apr 7 |
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Oct 2 |
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Dec 28 |
Feb 20 |
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Apr 10 |
|
Oct 17 |
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Feb 23 |
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Apr 14 |
|
Oct 19 |
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Mar 10 |
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Apr 15 |
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Nov 2 |
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Mar 11 |
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Sep 21 |
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Nov 28 |
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|
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|
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|
Indonesia |
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|
|
|
|
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Jan 1 |
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May 13 |
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Sep 10 |
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Dec 24 |
Feb 26 |
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May 28 |
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Sep 13 |
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34
|
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Mar 16 |
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Aug 17 |
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Nov 17 |
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Apr 2 |
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Sep 9 |
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Dec 7 |
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Japan |
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Jan 1 |
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Apr 1 |
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Nov 5 |
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Feb 15 |
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Apr 2 |
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Nov 10 |
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Feb 16 |
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Nov 3 |
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Dec 8 |
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Feb 17 |
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Nov 4 |
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Mauritius |
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Jan 1 |
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Mar 16 |
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Feb 1 |
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Sep 10 |
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Feb 12 |
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Nov 2 |
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Mar 12 |
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Nov 5 |
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Norway |
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Jan 1 |
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May 13 |
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Apr 1 |
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May 17 |
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Apr 2 |
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May 24 |
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Apr 5 |
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Dec 24 |
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South Africa |
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Jan 1 |
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Apr 27 |
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Dec 16 |
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Mar 22 |
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Jun 16 |
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Dec 27 |
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Apr 2 |
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Aug 9 |
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Apr 5 |
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Sep 24 |
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|
The longest redemption cycle for the Fund is a function of the longest redemption cycle among the countries whose securities comprise the Fund. In the calendar year 2010, the dates of regular holidays affecting the relevant securities markets present the worst-case redemption cycle* for the Fund as follows:
SETTLEMENT PERIODS GREATER THAN SEVEN DAYS FOR YEAR 2010
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Beginning of
|
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End of
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Number of Days
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|||
Hong Kong |
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3/30/2010 |
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4/7/2010 |
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8 |
|
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3/31/2010 |
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4/8/2010 |
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8 |
|
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4/1/2010 |
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4/9/2010 |
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8 |
|
|
|
|
|
|
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Indonesia |
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9/3/2010 |
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9/15/2010 |
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12 |
|
|
9/6/2010 |
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9/16/2010 |
|
10 |
|
|
9/7/2010 |
|
9/17/2010 |
|
10 |
|
|
|
|
|
|
|
Japan |
|
4/27/2010 |
|
5/6/2010 |
|
9 |
|
|
4/28/2010 |
|
5/7/2010 |
|
9 |
|
|
4/30/2010 |
|
5/10/2010 |
|
10 |
|
|
|
|
|
|
|
Norway |
|
3/29/2010 |
|
4/6/2010 |
|
8 |
|
|
3/30/2010 |
|
4/7/2010 |
|
8 |
|
|
3/31/2010 |
|
4/8/2010 |
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Africa |
|
12/24/2009 |
|
1/4/2010 |
|
11 |
|
|
12/28/2009 |
|
1/5/2010 |
|
8 |
|
|
12/29/2009 |
|
1/6/2010 |
|
8 |
|
|
12/30/2009 |
|
1/7/2010 |
|
8 |
|
|
12/31/2009 |
|
1/8/2010 |
|
8 |
|
|
|
|
|
|
|
35
|
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|
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|
|
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|
SETTLEMENT PERIODS GREATER THAN SEVEN DAYS FOR YEAR 2010 |
||||||
|
||||||
|
|
Beginning of
|
|
End of
|
|
Number of Days
|
|
|
|
|
|||
|
|
3/15/2010 |
|
3/23/2010 |
|
8 |
|
|
3/16/2010 |
|
3/24/2010 |
|
8 |
|
|
3/17/2010 |
|
3/25/2010 |
|
8 |
|
|
3/18/2010 |
|
3/26/2010 |
|
8 |
|
|
3/19/2010 |
|
3/29/2010 |
|
10 |
|
|
3/26/2010 |
|
4/6/2010 |
|
11 |
|
|
3/29/2010 |
|
4/7/2010 |
|
9 |
|
|
3/30/2010 |
|
4/8/2010 |
|
9 |
|
|
3/31/2010 |
|
4/9/2010 |
|
9 |
|
|
4/1/2010 |
|
4/12/2010 |
|
11 |
|
|
4/20/2010 |
|
4/28/2010 |
|
8 |
|
|
4/21/2010 |
|
4/29/2010 |
|
8 |
|
|
4/22/2010 |
|
4/30/2010 |
|
8 |
|
|
4/23/2010 |
|
5/3/2010 |
|
10 |
|
|
4/26/2010 |
|
5/4/2010 |
|
8 |
|
|
6/9/2010 |
|
6/17/2010 |
|
8 |
|
|
6/10/2010 |
|
6/18/2010 |
|
8 |
|
|
6/11/2010 |
|
6/21/2010 |
|
10 |
|
|
6/14/2010 |
|
6/22/2010 |
|
8 |
|
|
6/15/2010 |
|
6/23/2010 |
|
8 |
|
|
8/2/2010 |
|
8/10/2010 |
|
8 |
|
|
8/3/2010 |
|
8/11/2010 |
|
8 |
|
|
8/4/2010 |
|
8/12/2010 |
|
8 |
|
|
8/5/2010 |
|
8/13/2010 |
|
8 |
|
|
8/6/2010 |
|
8/14/2010 |
|
8 |
|
|
9/17/2010 |
|
9/27/2010 |
|
10 |
|
|
9/20/2010 |
|
9/28/2010 |
|
8 |
|
|
9/21/2010 |
|
9/29/2010 |
|
8 |
|
|
9/22/2010 |
|
9/30/2010 |
|
8 |
|
|
9/23/2010 |
|
10/1/2010 |
|
8 |
|
|
12/9/2010 |
|
12/17/2010 |
|
8 |
|
|
12/10/2010 |
|
12/20/2010 |
|
10 |
|
|
12/13/2010 |
|
12/21/2010 |
|
8 |
|
|
12/14/2010 |
|
12/22/2010 |
|
8 |
|
|
12/15/2010 |
|
12/23/2010 |
|
8 |
|
|
12/20/2010 |
|
12/28/2010 |
|
8 |
|
|
12/21/2010 |
|
12/29/2010 |
|
8 |
|
|
12/22/2010 |
|
12/30/2010 |
|
8 |
|
|
12/23/2010 |
|
12/31/2010 |
|
8 |
|
|
12/24/2010 |
|
1/3/2011 |
|
10 |
|
|
* |
These worst-case redemption cycles are based on information regarding regular holidays, which may be out of date. Based on changes in holidays, longer (worse) redemption cycles are possible . |
|
The right of redemption may be suspended or the date of payment postponed (1) for any period during which the NYSE is closed (other than customary weekend and holiday closings); (2) for any period during which trading on the NYSE is suspended or restricted; (3) for any period during which an emergency exists as a result of which disposal of the Shares of the Fund or determination of its NAV is not reasonably practicable; or (4) in such other circumstance as is permitted by the SEC.
D ETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction with the section in the Funds Prospectus entitled Shareholder InformationDetermination of NAV.
The NAV per share for the Fund is computed by dividing the value of the net assets of the Fund ( i.e. , the value of its total assets less total liabilities) by the total number of Shares outstanding, rounded to the nearest cent. Expenses and fees, including the management fee, are accrued daily and taken into account for purposes of determining NAV. The NAV of the Fund is determined as of the close of the regular trading session on the NYSE (ordinarily 4:00 p.m. Eastern time) on each day that such exchange
36
is open. Any assets or liabilities denominated in currencies other than the U.S. dollar are converted into U.S. dollars at the current market rates on the date of valuation as quoted by one or more sources.
The
values of the Funds portfolio securities are based on securities closing
prices on local markets when available. Securities included in the Index trade
on the Bombay Stock Exchange or the National Stock Exchange. Due to the time
difference between the United States and India, securities on these exchanges
will not trade at times when Shares of the Fund will trade. If a securitys
market price is not readily available or does not otherwise accurately reflect
the market value of the security at the time a Fund calculates its NAV, the
security will be valued by another method that the Adviser believes will better
reflect the securitys market value in accordance with the Trusts valuation
policies and procedures approved by the Board of Trustees. The Fund may use
fair value pricing in a variety of circumstances, including but not limited to,
situations where the value of a security in the Funds portfolio has been
materially affected by events occurring after the close of the market on which
the security is principally traded (such as a corporate action or other news
that may materially affect the price of a security) or trading in a security
has been suspended or halted. In addition, the Fund currently expects that it
will fair value some or all of the foreign equity securities held by the Fund
each day the Fund calculates its NAV. Accordingly, the Funds NAV is expected
to reflect certain portfolio securities fair values rather than their market
prices. Fair value pricing involves subjective judgments and it is possible
that a fair value determination for a security is materially different than the
value that could be realized upon the sale of the security. In addition, fair
value pricing could result in a difference between the prices used to calculate
the Funds NAV and the prices used by the Index. This may adversely affect the
Funds ability to track the Index. With respect to securities that are
primarily listed on foreign exchanges, the value of the Funds portfolio
securities may change on days when you will not be able to purchase or sell
your Shares.
The following information supplements and should be read in conjunction with the section in the Funds Prospectus entitled Shareholder InformationDistributions.
Dividends from net investment income are declared and paid at least annually by the Fund. Distributions of net realized capital gains, if any, generally are declared and paid once a year, but the Trust may make distributions on a more frequent basis for the Fund to improve its Index tracking or to comply with the distribution requirements of the U.S. Internal Revenue Code of 1986, as amended (the Internal Revenue Code), in all events in a manner consistent with the provisions of the 1940 Act. In addition, the Trust may distribute at least annually amounts representing the full dividend yield on the underlying portfolio securities of the Fund, net of expenses of the Fund, as if the Fund owned such underlying portfolio securities for the entire dividend period in which case some portion of each distribution may result in a return of capital for tax purposes for certain shareholders.
Dividends and other distributions on Shares are distributed, as described below, on a pro rata basis to Beneficial Owners of such Shares. Dividend payments are made through DTC Participants and Indirect Participants to Beneficial Owners then of record with proceeds received from the Trust. The Trust makes additional distributions to the minimum extent necessary (i) to distribute the entire annual taxable income of the Trust, plus any net capital gains and (ii) to avoid imposition of the excise tax imposed by Section 4982 of the Internal Revenue Code. Management of the Trust reserves the right to declare special dividends if, in its reasonable discretion, such action is necessary or advisable to preserve the status of the Fund as a regulated investment company (RIC) or to avoid imposition of income or excise taxes on undistributed income.
37
D IVIDEND REINVESTMENT SERVICE
No 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 through DTC Participants for reinvestment of their dividend distributions. If this service is used, dividend distributions of both income and realized gains will be automatically reinvested in additional whole Shares of the Fund. 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.
As of the date of this SAI, no entity beneficially owned any voting securities of the Fund.
38
The
following information also supplements and should be read in conjunction with
the section in the Prospectus entitled Shareholder InformationTax
Information. The following summary of certain relevant tax provisions is
subject to change, and does not constitute legal or tax advice. The Fund and
the Subsidiary, as the case may be, and the Adviser accept no responsibility
for any loss suffered by a holder of Shares as a result of current, or changes
in, taxation law and practice.
The Fund intends to qualify for and to elect treatment as a RIC under Subchapter M of the Internal Revenue Code. As a RIC, the Fund will not be subject to U.S. federal income tax on the portion of its taxable investment income and capital gains that it distributes to its shareholders. To qualify for treatment as a RIC, a company must annually distribute at least 90% of its net investment company taxable income (which includes dividends, interest and net short-term capital gains) and meet several other requirements relating to the nature of its income and the diversification of its assets, among others. If the Fund fails to qualify for any taxable year as a RIC, all of its taxable income will be subject to tax at regular corporate income tax rates without any deduction for distributions to shareholders, and such distributions generally will be taxable to shareholders as ordinary dividends to the extent of the Funds current and accumulated earnings and profits. The Fund has made an election to cause the Subsidiary to be treated as a disregarded entity or otherwise as a pass-through entity for U.S. federal tax purposes.
The Fund will be subject to a 4% excise tax on certain undistributed income if it does not distribute to its shareholders in each calendar year at least 98% of its ordinary income for the calendar year plus 98% of its capital gain net income for the twelve months ended October 31 of such years. The Fund intends to declare and distribute dividends and distributions in the amounts and at the times necessary to avoid the application of this 4% excise tax.
As a result of U.S. federal income tax requirements, the Trust on behalf of the Fund, has the right to reject an order for a creation of Shares if the creator (or group of creators) would, upon obtaining the Shares so ordered, own 80% or more of the outstanding Shares of the Fund and if, pursuant to Section 351 of the Internal Revenue Code, the Fund would have a basis in the Deposit Securities different from the market value of such securities on the date of deposit. The Trust also has the right to require information necessary to determine beneficial share ownership for purposes of the 80% determination. See Creation and Redemption of Creation UnitsProcedures for Creation of Creation Units.
Dividends
and interest received by the Fund from a non-U.S. investment may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. If more than 50% of the Funds total assets at the end of its taxable
year consist of foreign stock or securities, the Fund may elect to pass
through to its investors certain foreign income taxes paid by the Fund, with
the result that each investor will (i) include in gross income, as an
additional dividend, even though not actually received, the investors pro rata
share of the Funds foreign income taxes, and (ii) either deduct (in calculating
U.S. taxable income) or credit (in calculating U.S. federal income), subject to
certain limitations, the investors pro rata share of the Funds foreign income
taxes. It is expected that more than 50% of the Funds assets will consist of
foreign securities.
The
Fund will report to shareholders annually the amounts of dividends received
from ordinary income, the amount of distributions received from capital gains
and the portion of dividends, if any, which may qualify for the dividends
received deduction. For taxable years beginning before January 1, 2011, certain
ordinary dividends paid to non-corporate shareholders may qualify for taxation
at a lower tax rate applicable to long-term capital gains provided holding
period and other requirements are met at both the shareholder and Fund level.
39
In general, a sale of Shares results in capital gain or loss, and for individual shareholders, is taxable at a federal rate dependent upon the length of time the Shares were held. A redemption of a shareholders Fund Shares is normally treated as a sale for tax purposes. Fund Shares held for a period of one year or less at the time of such sale or redemption will, for tax purposes, generally result in short-term capital gains or losses, and those held for more than one year will generally result in long-term capital gains or losses. Under current law, the maximum tax rate on long-term capital gains available to non-corporate shareholders generally is 15%. Without future congressional action, the maximum tax rate on long-term capital gains will return to 20% for taxable years beginning on or after January 1, 2011.
Special tax rules may change the normal treatment of gains and losses recognized by the Fund if the Fund makes certain investments such as investments in structured notes, swaps, options, futures transactions, and non-U.S. corporations classified as passive foreign investment companies. Those special tax rules can, among other things, affect the treatment of capital gain or loss as long-term or short-term and may result in ordinary income or loss rather than capital gain or loss and may accelerate when the Fund has to take these items into account for tax purposes.
Gain or loss on the sale or redemption of Fund Shares is measured by the difference between the amount of cash received (or the fair market value of any property received) and the adjusted tax basis of the Shares. Shareholders should keep records of investments made (including Shares acquired through reinvestment of dividends and distributions) so they can compute the tax basis of their Shares.
A loss realized on a sale or exchange of Shares of the Fund may be disallowed if other Fund Shares or substantially identical shares are acquired (whether through the automatic reinvestment of dividends or otherwise) within a sixty-one (61) day period beginning thirty (30) days before and ending thirty (30) days after the date that the Shares are disposed of. In such a case, the basis of the Shares acquired will be adjusted to reflect the disallowed loss. Any loss upon the sale or exchange of Shares held for six (6) months or less will be treated as long-term capital loss to the extent of any capital gain dividends received by the shareholders. Distribution of ordinary income and capital gains may also be subject to foreign, state and local taxes.
The Fund may make investments in which it recognizes income or gain prior to receiving cash with respect to such investment. For example, under certain tax rules, the Fund may be required to accrue a portion of any discount at which certain securities are purchased as income each year even though the Fund receives no payments in cash on the security during the year. To the extent that the Fund makes such investments, it generally would be required to pay out such income or gain as a distribution in each year to avoid taxation at the Fund level.
Distributions reinvested in additional Fund Shares through the means of the service (see Dividend Reinvestment Service) will nevertheless be taxable dividends to Beneficial Owners acquiring such additional Shares to the same extent as if such dividends had been received in cash.
Distributions
of ordinary income paid to shareholders who are nonresident aliens or foreign
entities will be subject to a 30% U.S. withholding tax unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty law.
Furthermore, for taxable years beginning before January 1, 2010 (or a later
date if extended by the U.S. Congress), the Fund may, under certain
circumstances, designate all or a portion of a dividend as an interest related
dividend or a short-term capital gain dividend. An interest-related dividend
that is received by a nonresident alien or foreign entity generally would be
exempt from the 30% U.S. withholding tax, provided certain other requirements
are met. A short term capital gain dividend that is received by a nonresident
alien or foreign entity generally would be exempt from the 30% U.S. withholding
tax, unless the foreign person is a nonresident alien individual present in the
United States for a period or periods aggregating 183 days or more during
40
the taxable year. The Fund does not expect to pay significant
amounts of interest related dividends. The Fund may also determine to not make
designations of any interest related dividends or short-term capital gain
dividends, which would result in withholding on such distributions. Prospective
investors are urged to consult their tax advisors regarding the specific tax
consequences discussed above.
Some shareholders may be subject to a withholding tax on distributions of ordinary income, capital gains and any cash received on redemption of Creation Units (backup withholding). The backup withholding rate for individuals is currently 28%. Generally, shareholders subject to backup withholding will be those for whom no certified taxpayer identification number is on file with the Fund or who, to the Funds knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such investor is not otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld will be allowed as a credit against shareholders U.S. federal income tax liabilities, and may entitle them to a refund, provided that the required information is timely furnished to the Internal Revenue Service.
The foregoing discussion is a summary only and is not intended as a substitute for careful tax planning. Purchasers of Shares of the Trust should consult their own tax advisers as to the tax consequences of investing in such Shares, including under state, local and other tax laws. Finally, the foregoing discussion is based on applicable provisions of the Internal Revenue Code, regulations, judicial authority and administrative interpretations in effect on the date hereof. Changes in applicable authority could materially affect the conclusions discussed above, and such changes often occur.
Under promulgated Treasury regulations, if a shareholder recognizes a loss on disposition of the Funds Shares of $2 million or more in any one taxable year (or $4 million or more over a period of six taxable years) for an individual shareholder or $10 million or more in any taxable year (or $20 million or more over a period of six taxable years) for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a RIC that engaged in a reportable transaction are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all RICs. In addition, significant penalties may be imposed for the failure to comply with the reporting requirements. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers 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.
Please note that the tax implications in this section are based on the current provisions of the Indian tax laws, and the regulations thereunder, and the judicial and administrative interpretations thereof, which are subject to change or modification by subsequent legislative, regulatory, administrative or judicial decisions. Any such changes could have different tax implications.
The
basis of charge of Indian income tax depends upon the residential status of the
taxpayer during a tax year, as well as the nature of the income earned. The
Indian tax year runs from April 1 until March 31. A person who is an Indian tax
resident is subject to taxation in India on worldwide income and subject to
certain tax exemptions, which are afforded under the provisions of the India
Income Tax Act, 1961 (ITA). A person who is treated as a non-resident for
Indian income tax purposes is generally
41
subject to tax in India only on such persons Indian-sourced
income. A company will be subject to taxation in India only if it is a resident
of India or being a non-resident, has an Indian source of income or has income
received (whether accrued or otherwise) in India.
The taxation of the Subsidiary in India is governed by the provisions of the ITA, read with the provisions of the Treaty. As per Section 90(2) of the ITA, the provisions of the ITA would apply to the extent they are more beneficial than the provisions of the Treaty. In order to claim the beneficial provisions of the Treaty, the Subsidiary must be a tax resident of Mauritius. In light of Circular No. 789 dated April 13, 2000, issued by the Central Board of Direct Taxes, the Subsidiary would be eligible for the benefits under the Treaty if it is incorporated in Mauritius and has been issued a Tax Residency Certificate by the Mauritius Income Tax Authorities. Thus, the Subsidiary will seek a Mauritius tax residency certificate. The Supreme Court of India has upheld the validity of Circular 789 and accordingly, the Subsidiary should be eligible for the benefits under the Treaty.
The Subsidiary is expected to have income in the form of gains on sale of capital assets, income from dividends and income from interest. The tax consequences for the Subsidiary on account of the application of the Treaty, read with the provisions of the ITA, and provided the Subsidiary does not have a permanent establishment in India would be as follows:
(i) Capital gains resulting from the sale of Indian securities (including Foreign Currency Convertible Bonds (FCCBs)) or Global Depositary Receipts (GDRs) or American Depositary Receipts (ADRs) issued by Indian companies will not be subject to tax in India;
(ii) Dividends on shares received from an Indian company on which dividend distribution tax has been paid is exempt from tax in the hands of the shareholders. However, the Indian company distributing dividends is subject to a distribution tax at the rate of 15 %;
(iii) Interest income from loans made in Indian Rupees will be taxed at a rate of 42.23% on a net basis. Interest income from loans made or debt securities held in India will be taxed at the rate of 20%. However if such interest arises out of FCCBs held by the Subsidiary then such interest shall be taxed at the rate of 10 %;
In light of some recent judicial precedents in India, the gains arising on disposal of shares or securities could be characterized by the tax authorities as business income and not as capital gains. As per the provisions of the Treaty, if the gains arising on sale of shares or securities are characterized as business income, the same would be taxable in India only if the Fund has a permanent establishment in India.
In the event that the benefits of the Treaty are not available to the Subsidiary, or the Subsidiary is held to have a permanent establishment in India, taxation of interest and dividend income of the Subsidiary would be the same as described above. The taxation of capital gains would be as follows:
(i) Capital gains from the sale of listed Indian securities held for twelve months or less will be taxed as short-term capital gains at the rate of 15%, provided the Securities Transaction Tax (STT) (as discussed below) has been paid;
(ii) Capital
gains from the sale of listed Indian securities held for more than twelve
months will be exempt from tax in India provided the STT has been paid;
42
(iii) Capital
gains from the sale of listed Indian securities not executed on the stock
exchange or unlisted securities held for twelve months or less will be taxed at
the rate of 30% and those held for more than twelve months shall be taxed at
the rate of 10%;
(iv) Capital gains arising from the transfer of FCCBs, GDRs or ADRs outside India between nonresident investors, will not be subject to tax in India;
(v) Gains from the disposal of shares acquired on redemption of GDRs or ADRs are treated as short-term if such shares are held for less than or equal to12 months prior to disposal and long term if such shares are held for more than 12 months prior to disposal. Short term gains will be taxed at the rate of 15% provided STT (as discussed below) has been paid. Long term gains will be exempt from tax if STT has been paid.
In the event the benefits of the Treaty are not available to the Subsidiary and the Subsidiary is held to have a permanent establishment in India, then the Subsidiary may be subject to minimum alternative tax (MAT). As per the ITA, if the tax payable by a company (including a foreign fund) is less than 15% of its book profits, it will be required to pay MAT which will be deemed to be 15% of such book profits. Long-term capital gains on the sale of listed securities are included in the definition of book profits for the purposes of calculating MAT.
The exemption for long term capital gains and the reduction of the rate on short term capital gains are applicable only if the sale or transfer of the equity shares takes place on a recognized stock exchange in India and the Securities Transaction Tax (STT) is collected by the respective stock exchanges at the applicable rates on the transaction value.
The Subsidiary will also be liable to pay STT in respect of dealings in Indian securities purchased or sold on the Indian stock exchanges. The applicable rates of STT are as follows:
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0.125% on the purchase of equity shares in a company or units of equity oriented funds in a recognized stock exchange in India. |
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0.125% on the sale of equity shares in a company or units of equity oriented funds in a recognized stock exchange in India. |
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0.025% on the sale of equity shares in a company or units of equity oriented funds in a recognized stock exchange in India where the contract for sale is settled otherwise then by the actual delivery or transfer of shares or units. |
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0.017% on the sale of derivatives in a recognized stock exchange in India. |
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0.25% on the sale of units of an equity oriented fund to the Fund. |
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C APITAL STOCK AND SHAREHOLDER REPORTS
The Trust
currently is comprised of 35 investment funds. The Trust issues Shares of
beneficial interest with no par value. The Board may designate additional funds
of the Trust.
43
Each Share issued by the Trust has a pro rata interest in the assets of the Fund. Shares have no pre-emptive, exchange, subscription or conversion rights and are freely transferable. Each Share is entitled to participate equally in dividends and distributions declared by the Board with respect to the Fund, and in the net distributable assets of the Fund on liquidation.
Each Share has one vote with respect to matters upon which a shareholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated thereunder and each fractional Share has a proportional fractional vote. Shares of all funds vote together as a single class except that if the matter being voted on affects only a particular fund it will be voted on only by that fund, and if a matter affects a particular fund differently from other funds, that fund will vote separately on such matter. Under Delaware law, the Trust is not required to hold an annual meeting of shareholders unless required to do so under the 1940 Act. The policy of the Trust is not to hold an annual meeting of shareholders unless required to do so under the 1940 Act. All Shares of the Trust have noncumulative voting rights for the election of Trustees. Under Delaware law, Trustees of the Trust may be removed by vote of the shareholders.
Under Delaware law,
shareholders of a statutory trust may have similar limitations on liability as
shareholders of a corporation.
The Trust will issue through DTC Participants to its shareholders semi-annual reports containing unaudited financial statements and annual reports containing financial statements audited by an independent auditor approved by the Trusts Trustees and by the shareholders when meetings are held and such other information as may be required by applicable laws, rules and regulations. Beneficial Owners also receive annually notification as to the tax status of the Trusts distributions.
Shareholder inquiries may be made by writing to the Trust, c/o Van Eck Associates Corporation, 335 Madison Avenue, 19th Floor, New York, New York 10017.
44
C OUNSEL AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Dechert LLP, 1095 Avenue of the Americas, New York, New York 10036, is counsel to the Trust and has passed upon the validity of the Funds Shares.
Ernst & Young LLP, 5 Times Square, New York, New York 10036, is the Trusts independent registered public accounting firm and audits the Funds financial statements and performs other related audit services.
45
The information contained herein regarding the Market Vectors India Small-Cap Index (the India Small-Cap Index) was provided by 4asset-management GmbH (Licensor), while the information contained herein regarding the securities markets and DTC was obtained from publicly available sources.
The Shares of the Fund are not sponsored, endorsed, sold or promoted by Licensor. Licensor makes no representation or warranty, express or implied, to the owners of the Shares of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Shares of the Fund particularly or the ability of the India Small-Cap Index to track the performance of the Indian securities markets. Licensors only relationship to the Adviser is the licensing of certain service marks and trade names and of the India Small-Cap Index that is determined, composed and calculated by Licensor without regard to the Adviser or the Shares of the Fund. Licensor has no obligation to take the needs of the Adviser or the owners of the Shares of the Fund into consideration in determining, composing or calculating the India Small-Cap Index. Licensor is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the Shares of the Fund to be issued or in the determination or calculation of the equation by which the Shares of the Fund are to be converted into cash. Licensor has no obligation or liability in connection with the administration, marketing or trading of the Shares of the Fund.
LICENSOR DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDIA SMALL-CAP INDEX OR ANY DATA INCLUDED THEREIN AND LICENSOR SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. LICENSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF THE SHARES OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDIA SMALL-CAP INDEX OR ANY DATA INCLUDED THEREIN. LICENSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDIA SMALL-CAP INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL LICENSOR HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The Fund is not sponsored, promoted, sold or supported in any other manner by Structured Solutions AG nor does Structured Solutions AG offer any express or implicit guarantee or assurance either with regard to the results of using the India Small-Cap Index and/or its trade mark or its price at any time or in any other respect. The India Small-Cap Index is calculated and maintained by Structured Solutions AG. Structured Solutions AG uses its best efforts to ensure that the India Small-Cap Index is calculated correctly. Irrespective of its obligations towards the Adviser, Structured Solutions AG has no obligation to point out errors in the India Small-Cap Index to third parties including but not limited to investors and/or financial intermediaries of the Fund. Neither publication of the India Small-Cap Index by Structured Solutions AG nor the licensing of the India Small-Cap Index or its trade mark for the purpose of use in connection with the Fund constitutes a recommendation by Structured Solutions AG to invest capital in the Fund nor does it in any way represent an assurance or opinion of Structured Solutions AG with regard to any investment in the Fund. Structured Solutions AG is not responsible for fulfilling the legal requirements concerning the accuracy and completeness of the Funds Prospectus.
46
Financial Services Commission which has issued a Category 1
Global Business License to the Subsidiary to conduct the business of
investment holding. Neither investors in the Subsidiary nor investors in the
Fund are protected by any statutory compensation arrangements in Mauritius in
the event of the Subsidiarys or the Funds failure.
The Mauritius Financial Services Commission does not vouch for the financial soundness of the Subsidiary or the Fund or for the correctness of any statements made or opinions expressed with regard to it in any offering document or other similar document of the Subsidiary or the Fund.
47
VAN ECK GLOBAL PROXY VOTING POLICIES
INTRODUCTION
Effective March 10, 2003, the Securities and Exchange Commission (the Commission) adopted Rule 206(4)-6 under the Investment Advisers Act of 1940 (Advisers Act), requiring each investment adviser registered with the Commission to adopt and implement written policies and procedures for voting client proxies, to disclose information about the procedures to its clients, and to inform clients how to obtain information about how their proxies were voted. The Commission also amended Rule 204-2 under the Advisers Act to require advisers to maintain certain proxy voting records. Both rules apply to all investment advisers registered with the Commission that have proxy voting authority over their clients securities. An adviser that exercises voting authority without complying with Rule 206(4)-6 will be deemed to have engaged in a fraudulent, deceptive, or manipulative act, practice or course of business within the meaning of Section 206(4) of the Advisers Act.
When an adviser has been granted proxy voting authority by a client, the adviser owes its clients the duties of care and loyalty in performing this service on their behalf. The duty of care requires the adviser to monitor corporate actions and vote client proxies. The duty of loyalty requires the adviser to cast the proxy votes in a manner that is consistent with the best interests of the client.
PROXY VOTING POLICIES AND PROCEDURES
Resolving Material Conflicts Of Interest
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A material conflict means the existence of a business relationship between a portfolio company or an affiliate and Van Eck Associates Corporation, any affiliate or subsidiary (individually and together, as the context may require, Adviser), or an affiliated person of a Van Eck mutual fund in excess of $60,000. Examples of when a material conflict exists include the situation where the adviser provides significant investment advisory, brokerage or other services to a company whose management is soliciting proxies; an officer of the Adviser serves on the board of a charitable organization that receives charitable contributions from the portfolio company and the charitable organization is a client of the Adviser; a portfolio company that is a significant selling agent of Van Ecks products and services solicits proxies; a broker-dealer or insurance company that controls 5% or more of the Advisers assets solicits proxies; the Adviser serves as an investment adviser to the pension or other investment account of the portfolio company; the Adviser and the portfolio company have a lending relationship. In each of these situations voting against management may cause the Adviser a loss of revenue or other benefit. |
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Conflict Resolution. When a material conflict exists proxies will be voted in the following manner: |
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Where the written guidelines set out a pre-determined voting policy, proxies will be voted in accordance with that policy, with no deviations (if a deviation is advisable, one of the other methods may be used); |
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Where the guidelines permit discretion and an independent third party has been retained to vote proxies, proxies will be voted in accordance with the predetermined policy based on the |
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recommendations of that party; or The potential conflict will be disclosed to the client (a) with a request that the client vote the proxy, (b) with a recommendation that the client engage another party to determine how the proxy should be voted or (c) if the foregoing are not acceptable to the client disclosure of how VEAC intends to vote and a written consent to that vote by the client. |
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Any deviations from the foregoing voting mechanisms must be approved by the Compliance Officer with a written explanation of the reason for the deviation. |
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Reasonable Research Efforts |
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When determining whether a vote is in the best interest of the client, the Adviser will use reasonable research efforts. Investment personnel may rely on public documents about the company and other readily available information, which is easily accessible to the investment personnel at the time the vote is cast. Information on proxies by foreign companies may not be readily available. |
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Voting Client Proxies |
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The Adviser generally will vote proxies on behalf of clients, unless clients instruct otherwise. There may be times when refraining from voting a proxy is in a clients best interest, such as when the Adviser determines that the cost of voting the proxy exceeds the expected benefit to the client. (For example, casting a vote on a foreign security may involve additional costs such as hiring a translator or traveling to a foreign country to vote the security in person). |
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The portfolio manager or analyst covering the security is responsible for making voting decisions. |
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Portfolio Administration, in conjunction with the portfolio manager and the custodian, is responsible for monitoring corporate actions and ensuring that corporate actions are timely voted. |
Client Inquiries
All inquiries by clients as to how Van Eck has voted proxies must immediately be forwarded to Portfolio Administration.
DISCLOSURE TO CLIENTS
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Notification of Availability of Information Client Brochure. |
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The Client Brochure or Part II of Form ADV will inform clients that they can obtain information from VEAC on how their proxies were voted. The Client Brochure or Part II of Form ADV will be mailed to each client annually. |
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The Legal Department will be responsible for coordinating the mailing with Sales/Marketing Departments. |
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Availability of Proxy Voting Information at the clients request or if the information is not available on VEACs website, a hard copy of the accounts proxy votes will be mailed to each client. |
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Recordkeeping Requirements
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VEAC will retain the following documentation and information for each matter relating to a portfolio security with respect to which a client was entitled to vote: |
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proxy statements received; |
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identifying number for the portfolio security; |
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shareholder meeting date; |
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brief identification of the matter voted on; |
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whether the vote was cast on the matter and how the vote was cast; |
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how the vote was cast ( e.g. , for or against proposal, or abstain; for or withhold regarding election of directors); |
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records of written client requests for information on how VEAC voted proxies on behalf of the client; |
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a copy of written responses from VEAC to any written or oral client request for information on how VEAC voted proxies on behalf of the client; and |
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any documents prepared by VEAC that were material to the decision on how to vote or that memorialized the basis for the decision, if such documents were prepared. |
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Copies of proxy statements filed on EDGAR, and proxy statements and records of proxy votes maintained with a third party ( i.e. , proxy voting service) need not be maintained. The third party must agree in writing to provide a copy of the documents promptly upon request. |
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If applicable, any document memorializing that the costs of voting a proxy exceed the benefit to the client or any other decision to refrain from voting, and that such abstention was in the clients best interest. |
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Proxy voting records will be maintained in an easily accessible place for five years, the first two at the office of VEAC. Proxy statements on file with EDGAR or maintained by a third party and proxy votes maintained by a third party are not subject to these particular retention requirements. |
Proxy Voting Guidelines
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1. |
General Information |
Generally, the Adviser will vote in accordance with the following guidelines. Where the proxy vote decision maker determines, however, that voting in such a manner would not be in the best interest of the client, the investment personnel will vote differently.
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If there is a conflict of interest on any management or shareholder proposals that are voted on a case by case basis, we will follow the recommendations of an independent proxy service provider.
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2. |
Officers and Directors |
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1. |
The Board of Directors |
Director Nominees in Uncontested Elections
Vote on a case-by-case basis for director nominees, examining factors such as:
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long-term corporate performance record relative to a market index; |
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composition of board and key board committees; |
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nominees investment in the company; |
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whether a retired CEO sits on the board; and |
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whether the chairman is also serving as CEO. |
In cases of significant votes and when information is readily available, we also review:
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corporate governance provisions and takeover activity; |
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board decisions regarding executive pay; |
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director compensation; |
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number of other board seats held by nominee; and |
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interlocking directorships. |
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2. |
Chairman and CEO are the Same Person |
Vote on a case-by-case basis on shareholder proposals that would require the positions of chairman and CEO to be held by different persons.
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3. |
Majority of Independent Directors |
Vote on a case-by-case basis shareholder proposals that request that the board be comprised of a majority of independent directors.
Vote for shareholder proposals that request that the board audit, compensation and/or nominating committees include independent directors exclusively.
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4. |
Stock Ownership Requirements |
Vote on a case-by-case basis shareholder proposals requiring directors to own a minimum amount of company stock in order to qualify as a director, or to remain on the board.
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5. |
Term of Office |
Vote on a case-by-case basis shareholder proposals to limit the tenure of outside directors.
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6. |
Director and Officer Indemnification and Liability Protection |
Vote on a case-by-case basis proposals concerning director and officer indemnification and liability protection.
Generally, vote against proposals to eliminate entirely director and officer liability for monetary damages for violating the duty of care.
Vote for only those proposals that provide such expanded coverage in cases when a directors or officers legal defense was unsuccessful if: (1) the director was found to have acted in good faith and in a manner that he reasonably believed was in the best interests of the company, AND (2) only if the directors legal expenses would be covered.
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7. |
Director Nominees in Contested Elections |
Vote on a case-by-case basis when the election of directors is contested, examining the following factors:
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long-term financial performance of the target company relative to its industry; |
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managements track record; |
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background to the proxy contest; |
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qualifications of director nominees (both slates); |
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evaluation of what each side is offering shareholders, as well as the likelihood that the proposed objectives and goals can be met; and |
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stock ownership positions. |
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8. |
Board Structure: Staggered vs. Annual Elections |
Generally, vote against proposals to stagger board elections.
Generally, vote for proposals to repeal classified boards and to elect all directors annually.
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9. |
Shareholder Ability to Remove Directors |
Vote against proposals that provide that directors may be removed only for cause.
Vote for proposals to restore shareholder ability to remove directors with or without cause.
Vote against proposals that provide that only continuing directors may elect replacements to fill board vacancies.
Vote for proposals that permit shareholders to elect directors to fill board vacancies.
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10. |
Shareholder Ability to Alter the Size of the Board |
Vote for proposals that seek to fix the size of the board.
Vote against proposals that give management the ability to alter the size of the board without shareholder approval.
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3. |
Proxy Contests |
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Reimburse Proxy Solicitation Expenses |
Vote on a case-by-case basis proposals to provide full reimbursement for dissidents waging a proxy contest.
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4. |
Auditors |
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Ratifying Auditors |
Vote for proposals to ratify auditors, unless information that is readily available to the vote decision-maker demonstrates that an auditor has a financial interest in or association with the company, and is therefore clearly not independent; or such readily available information creates a reasonable basis to believe that the independent auditor has rendered an opinion which is neither accurate nor indicative of the companys financial position.
Vote for shareholder proposals asking for audit firm rotation unless the rotation period is so short (less than five years) that it would be unduly burdensome to the company.
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5. |
Shareholder Voting and Control Issues |
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Cumulative Voting |
Generally, vote against proposals to eliminate cumulative voting.
Generally, vote for proposals to permit cumulative voting.
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2. |
Shareholder Ability to Call Special Meetings |
Generally, vote against proposals to restrict or prohibit shareholder ability to call special meetings.
Generally, vote for proposals that remove restrictions on the right of shareholders to act independently of management.
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3. |
Shareholder Ability to Act by Written Consent |
Generally, vote against proposals to restrict or prohibit shareholder ability to take action by written consent.
Generally, vote for proposals to allow or make easier shareholder action by written consent.
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4. |
Poison Pills |
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Vote for shareholder proposals that ask a company to submit its poison pill for shareholder ratification. Vote on a case-by-case basis shareholder proposals to redeem a companys poison pill. |
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Vote on a case-by-case basis management proposals to ratify a poison pill. |
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5. |
Fair Price Provision |
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Vote on a case-by-case basis when examining fair price proposals, (where market quotations are not readily available) taking into consideration whether the shareholder vote requirement embedded in the provision is no more than a majority of disinterested Shares. |
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Generally, vote for shareholder proposals to lower the shareholder vote requirement in existing fair price provisions. |
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6. |
Greenmail |
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Generally, vote for proposals to adopt anti-greenmail charter or bylaw amendments or otherwise restrict a companys ability to make greenmail payments. |
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Generally, vote on a case-by-case basis anti-greenmail proposals when they are bundled with other charter or bylaw amendments. |
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7. |
Unequal Voting Rights |
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Vote against dual class exchange offers. |
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Vote against dual class recapitalizations. |
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8. |
Supermajority Shareholder Vote Requirement to Amend the Charter or Bylaws |
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Vote against management proposals to require a supermajority shareholder vote to approve charter and bylaw amendments. |
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Vote for shareholder proposals to lower supermajority shareholder vote requirements for charter and bylaw amendments. |
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9. |
Supermajority Shareholder Vote Requirement to Approve Mergers |
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Vote against management proposals to require a supermajority shareholder vote to approve mergers and other significant business combinations. |
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10. |
White Knight Placements |
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Vote for shareholder proposals to require approval of blank check preferred stock issues for other than general corporate purposes or similar corporate actions. |
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11. |
Confidential Voting |
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Generally, vote for shareholder proposals that request corporations to adopt confidential voting, use independent tabulators and use independent inspectors of election as long as the proposals include clauses |
54
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for proxy contests as follows: In the case of a contested election, management is permitted to request that the dissident group honor its confidential voting policy. If the dissidents agree, the policy remains in place. If the dissidents do not agree, the confidential voting policy is waived. |
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Generally, vote for management proposals to adopt confidential voting. |
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12. |
Equal Access |
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Generally, vote for shareholders proposals that would allow significant company shareholders equal access to managements proxy material in order to evaluate and propose voting recommendations on proxy proposals and director nominees, and in order to nominate their own candidates to the board. |
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13. |
Bundled Proposals |
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Generally, vote on a case-by-case basis bundled or conditioned proxy proposals. In the case of items that are conditioned upon each other, we examine the benefits and costs of the packaged items. In instances when the joint effect of the conditioned items is not in shareholders best interests, we vote against the proposals. If the combined effect is positive, we support such proposals. |
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14. |
Shareholder Advisory Committees |
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|
Vote on a case-by-case basis proposals to establish a shareholder advisory committee. |
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6. |
Capital Structure |
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1. |
Common Stock Authorization |
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|
Vote on a case-by-case basis proposals to increase the number of Shares of common stock authorized for issue. |
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Generally, vote against proposed common stock authorizations that increase the existing authorization by more than 100% unless a clear need for the excess Shares is presented by the company. |
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2. |
Stock Distributions: Splits and Dividends |
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|
Generally, vote for management proposals to increase common share authorization for a stock split, provided that the split does not result in an increase of authorized but unissued Shares of more than 100% after giving effect to the Shares needed for the split. |
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3. |
Reverse Stock Splits |
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|
Generally, vote for management proposals to implement a reverse stock split, provided that the reverse split does not result in an increase of authorized but unissued Shares of more than 100% after giving effect to the Shares needed for the reverse split. |
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4. |
Blank Check Preferred Authorization |
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|
Generally, vote for proposals to create blank check preferred stock in cases when the company expressly states that the stock will not be used as a takeover defense or carry superior voting rights. |
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Vote on a case-by-case basis proposals that would authorize the creation of new classes of preferred stock with unspecified voting, conversion, dividend and distribution, and other rights. |
55
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Vote on a case-by-case basis proposals to increase the number of authorized blank check preferred Shares. |
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4. |
Shareholder Proposals Regarding Blank Check Preferred Stock |
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Generally, vote for shareholder proposals to have blank check preferred stock placements, other than those Shares issued for the purpose of raising capital or making acquisitions in the normal course of business, submitted for shareholder ratification. |
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5. |
Adjust Par Value of Common Stock |
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|
Vote on a case-by-case basis management proposals to reduce the par value of common stock. |
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6. |
Preemptive Rights |
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|
Vote on a case-by-case basis proposals to create or abolish preemptive rights. In evaluating proposals on preemptive rights, we look at the size of a company and the characteristics of its shareholder base. |
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7. |
Debt Restructurings |
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|
Vote on a case-by-case basis proposals to increase common and/or preferred Shares and to issue Shares as part of a debt restructuring plan. We consider the following issues: |
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Dilution How much will ownership interest of existing shareholders be reduced, and how extreme will dilution to any future earnings be? |
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Change In Control Will the transaction result in a change in control of the company? |
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Bankruptcy Is the threat of bankruptcy, which would result in severe losses in shareholder value, the main factor driving the debt restructuring? |
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Generally, we approve proposals that facilitate debt restructurings unless there are clear signs of self-dealing or other abuses. |
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8. |
Share Repurchase Programs |
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Vote for management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms. |
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7. |
Executive Compensation |
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In general, we vote on a case-by-case basis on executive compensation plans, with the view that viable compensation programs reward the creation of stockholder wealth by having a high payout sensitivity to increases in shareholder value. |
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8. |
Compensation Proposals |
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1. |
Amendments That Place a Cap on Annual Grants |
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Vote for plans that place a cap on the annual grants any one participant may receive. |
56
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2. |
Amend Administrative Features |
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|
Vote for plans that simply amend shareholder-approved plans to include administrative features. |
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3. |
Amendments to Added Performance-Based Goals |
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|
Generally, vote for amendments to add performance goals to existing compensation plans. |
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4. |
Amendments to Increase Shares and Retain Tax Deductions |
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|
Vote on amendments to existing plans to increase Shares reserved and to qualify the plan for favorable tax treatment should be evaluated on a case-by-case basis. |
|
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5. |
Approval of Cash or Cash-and-Stock Bonus Plans |
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|
Vote for cash or cash-and-stock bonus plans to exempt the compensation from taxes. |
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6. |
Shareholder Proposals to Limit Executive Pay |
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|
Vote on a case-by-case basis all shareholder proposals that seek additional disclosure of executive pay information. |
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|
Vote on a case-by-case basis all other shareholder proposals that seek to limit executive pay. |
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Vote for shareholder proposals to expense options, unless the company has already publicly committed to expensing options by a specific date. |
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7. |
Golden and Tin Parachutes |
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|
Vote for shareholder proposals to have golden and tin parachutes submitted for shareholder ratification. |
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Vote on a case-by-case basis all proposals to ratify or cancel golden or tin parachutes. |
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8. |
Employee Stock Ownership Plans (ESOPS) |
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Vote on a case-by-case basis proposals that request shareholder approval in order to implement an ESOP or to increase authorized Shares for existing ESOPs, except in cases when the number of Shares allocated to the ESOP is excessive ( i.e. , generally greater than 5% of outstanding Shares). |
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9. |
401(k) Employee Benefit Plans |
|
|
Generally, vote for proposals to implement a 401(k) savings plan for employees. |
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9. |
State Of Incorporation |
|
|
1. |
Voting on State Takeover Statutes |
|
|
Vote on a case-by-case basis proposals to opt in or out of state takeover statutes (including control share acquisition statutes, control share cash-out statutes, freezeout provisions, fair price provisions, stakeholder laws, poison pill endorsements, severance pay and labor contract provisions, anti-greenmail provisions, and disgorgement provisions). |
57
58
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11. |
Mutual Fund Proxies |
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1. |
Election of Trustees |
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Vote on trustee nominees on a case-by-case basis. |
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2. |
Investment Advisory Agreement |
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Vote on investment advisory agreements on a case-by-case basis. |
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3. |
Fundamental Investment Restrictions |
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Vote on amendments to the funds fundamental investment restrictions on a case-by-case basis. |
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4. |
Distribution Agreements |
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Vote on distribution agreements on a case-by-case basis. |
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12. |
Social and Environmental Issues |
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In general we vote on a case-by-case basis on shareholder social and environmental proposals, on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. |
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In most cases, however, we vote for disclosure reports that seek additional information, particularly when it appears companies have not adequately addressed shareholders social and environmental concerns. |
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In determining our vote on shareholder social and environmental proposals, we analyze factors such as: |
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whether adoption of the proposal would have either a positive or negative impact on the companys short-term or long-term share value; |
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the percentage of sales, assets and earnings affected; |
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the degree to which the companys stated position on the issues could affect its reputation or sales, or leave it vulnerable to boycott or selective purchasing; whether the issues presented should be dealt with through government or companyspecific action; |
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whether the company has already responded in some appropriate manner to the request embodied in a proposal; |
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whether the companys analysis and voting recommendation to shareholders is persuasive; |
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what other companies have done in response to the issue; |
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whether the proposal itself is well framed and reasonable; whether implementation of the proposal would achieve the objectives sought in the proposal; and |
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whether the subject of the proposal is best left to the discretion of the board. |
59
PART C: OTHER INFORMATION
|
|
Item 23. |
Exhibits : |
|
|
(a) |
Amended and Restated Declaration of Trust. |
|
|
(b) |
Bylaws of the Trust. |
|
|
(c) |
Not applicable. |
|
|
(d)(1) |
Form of Investment Management Agreement between the Trust and Van Eck Associates Corporation (with respect to Market VectorsGold Miners ETF).* |
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(d)(2) |
Form of Investment Management Agreement between the Trust and Van Eck Associates Corporation (with respect to all portfolios except for Market VectorsGold Miners ETF).*** |
|
|
(e)(1) |
Form of Distribution Agreement between the Trust and Van Eck Securities Corporation.** |
|
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(e)(2) |
Form of Participant Agreement.* |
|
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(f) |
Not applicable. |
|
|
(g) |
Form of Custodian Agreement between the Trust and The Bank of New York.* |
|
|
(h)(1) |
Form of Fund Accounting Agreement between the Trust and The Bank of New York.* |
|
|
(h)(2) |
Form of Transfer Agency Services Agreement between the Trust and The Bank of New York.* |
|
|
(h)(3) |
Form of Sub-License Agreement between the Trust and the Van Eck Associates Corp.* |
|
|
(i)(1) |
Opinion and consent of Clifford Chance US LLP (with respect to Market VectorsEnvironmental Services ETF, Market VectorsGold Miners ETF and Market VectorsSteel ETF).*** |
|
|
(i)(2) |
Opinion of Clifford Chance US LLP (with respect to Market VectorsGlobal Alternative Energy ETF and Market VectorsRussia ETF).**** |
|
|
(i)(3) |
Opinion of Clifford Chance US LLP (with respect to Market VectorsGlobal Agribusiness ETF and Market VectorsGlobal Nuclear Energy ETF).***** |
|
|
(i)(4) |
Opinion of Clifford Chance US LLP (with respect to Market VectorsLehman Brothers Intermediate Municipal ETF, Market VectorsLehman Brothers Long Municipal ETF, Market VectorsLehman Brothers 1-5 Year Municipal ETF, Market VectorsLehman Brothers Non-Investment Grade Municipal ETF, Market VectorsLehman Brothers California Municipal ETF and Market VectorsLehman Brothers New York Municipal ETF).****** |
|
|
(i)(5) |
Opinion of Clifford Chance US LLP (with respect to Market VectorsCoal ETF and Market VectorsGaming ETF). |
|
|
(i)(6) |
Opinion of Clifford Chance US LLP (with respect to Market VectorsLehman Brothers AMT-Free Massachusetts Municipal Index ETF, Market VectorsLehman Brothers AMT-Free New Jersey Municipal Index ETF, Market VectorsLehman Brothers AMT-Free Ohio Municipal Index ETF and Market VectorsLehman Brothers AMT-Free Pennsylvania Municipal Index ETF). |
|
|
(i)(7) |
Opinion of Clifford Chance US LLP (with respect to Market VectorsHard Assets ETF and Market VectorsSolar Energy ETF). |
|
|
(i)(8) |
Opinion and consent of Clifford Chance US LLP with respect to Market VectorsAfrica Index ETF, Market VectorsEmerging Eurasia Index ETF, Market VectorsGlobal Frontier Index ETF and Market VectorsGulf States Index ETF). |
|
|
(i)(9) |
Consent of Clifford Chance US LLP (with respect to Market VectorsLehman Brothers High-Yield Municipal Index ETF). |
|
|
(i)(10) |
Consent of Clifford Chance US LLP (with respect to Market Vectors California Long Municipal Index ETF, Market Vectors High-Yield Municipal Index ETF, Market Vectors Intermediate Municipal Index ETF, Market Vectors Long Municipal Index ETF, Market Vectors Massachusetts Municipal Index ETF, Market Vector New Jersey Municipal Index ETF, Market Vectors New York Long Municipal Index ETF, Market Vectors Ohio Municipal Index ETF, Market Vectors Pennsylvania Municipal Index ETF, Market Vectors Pre-Refunded Municipal Index ETF and Market Vectors Short Municipal Index ETF). ^ |
|
|
(i)(11) |
Opinion and consent of Clifford Chance US LLP (with respect to Market Vectors Indonesia Index ETF). |
|
|
(i)(12) |
Opinion and consent of Clifford Chance US LLP (with respect to Market Vectors Vietnam ETF). |
|
|
(i)(13) |
Opinion and consent of Clifford Chance US LLP (with respect to Market Vectors Pre-Refunded Municipal Index ETF). |
|
|
(i)(14) |
Opinion and consent of Dechert LLP (with respect to Market Vectors Egypt Index ETF).^^^^^ |
|
|
(i)(15) |
Opinion and consent of Dechert LLP (with respect to Market Vectors Kuwait Index ETF).^^^^^ |
|
|
(i)(16) |
Opinion and consent of Dechert LLP (with respect to Market Vectors Fixed Income I ETF and Market Vectors Fixed Income II ETF).### |
|
|
(i)(17) |
Opinion and consent of Dechert LLP (with respect to Market Vectors Latin America Small-Cap Index ETF).# |
|
|
(i)(18) |
Opinion and consent of Dechert LLP (with respect to Market Vectors China ETF).^^ |
|
|
(i)(19) |
Consent of Dechert LLP (with respect to Market Vectors Africa Index ETF, Market Vectors Agribusiness ETF, Market Vectors Brazil Small-Cap ETF, Market Vectors Coal ETF, Market Vectors Environmental Services ETF, Market Vectors Gaming ETF, Market Vectors Global Alternative Energy ETF, Market Vectors Gold Miners ETF, Market Vectors Gulf States Index ETF, Market Vectors Indonesia Index ETF, Market Vectors Junior Gold Miners ETF, Market Vectors Nuclear Energy ETF, Market Vectors Poland ETF, Market Vectors Russia ETF, Market |
|
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|
Vectors RVE Hard Assets Producers ETF, Market Vectors Solar Energy ETF, Market Vectors Steel ETF and Market Vectors Vietnam ETF).### |
|
|
(i)(20) |
Opinion and consent of Clifford Chance US LLP (with respect to Market Vectors Brazil Small-Cap ETF). |
|
|
(i)(21) |
Opinion and consent of Dechert LLP (with respect to Market Vectors Junior Gold Miners ETF).^^^ |
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(i)(22) |
Opinion and consent of Dechert LLP (with respect to Market Vectors Poland ETF).^^^^ |
|
|
(i)(23) |
Opinion and consent of Dechert LLP (with respect to Market Vectors India Small-Cap Index ETF).## |
|
|
(i)(24) |
Opinion and consent of Dechert LLP (with respect to Market Vectors Emerging Markets Local Currency Debt ETF and Market Vectors Investment Grade Floating Rate ETF).### |
|
|
(j)(1) |
Consent of Ernst & Young, independent registered public accounting firm (with respect to Market Vectors High-Yield Municipal Index ETF, Market Vectors Intermediate Municipal Index ETF, Market Vectors Long Municipal Index ETF, Market Vectors Pre-Refunded Municipal Index ETF and Market Vectors Short Municipal Index ETF). ^^ |
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|
(j)(2) |
Consent of Ernst & Young, independent registered public accounting firm (with respect to Market Vectors Africa Index ETF, Market Vectors Agribusiness ETF, Market Vectors Brazil Small-Cap ETF, Market Vectors Coal ETF, Market Vectors Environmental Services ETF, Market Vectors Gaming ETF, Market Vectors Global Alternative Energy ETF, Market Vectors Gold Miners ETF, Market Vectors Gulf States Index ETF, Market Vectors Indonesia Index ETF, Market Vectors Junior Gold Miners ETF, Market Vectors Nuclear Energy ETF, Market Vectors Poland ETF, Market Vectors Russia ETF, Market Vectors RVE Hard Assets Producers ETF, Market Vectors Solar Energy ETF, Market Vectors Steel ETF and Market Vectors Vietnam ETF).### |
|
|
(k) |
Not applicable. |
|
|
(l) |
Not applicable. |
|
|
(m) |
Not applicable. |
|
|
(n) |
Not applicable. |
|
|
(o) |
Not applicable. |
|
|
(p)(1) |
Code of Ethics. |
|
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|
* |
Incorporated by the reference to the Registrants Registration Statement filed on April 28, 2006. |
** |
Incorporated by reference to the Registrants Registration Statement filed on May 11, 2006. |
*** |
Incorporated by reference to the Registrants Registration Statement filed on October 6, 2006. |
**** |
Incorporated by reference to the Registrants Registration Statement filed on April 9, 2007. |
***** |
Incorporated by reference to the Registrants Registration Statement filed on July 30, 2007. |
****** |
Incorporated by reference to the Registrants Registration Statement filed on November 2, 2007. |
|
Incorporated by reference to the Registrants Registration Statement filed on December 31, 2007. |
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Incorporated by reference to the Registrants Registration Statement filed on February 15, 2008. |
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Incorporated by reference to the Registrants Registration Statement filed on April 21, 2008. |
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Incorporated by reference to the Registrants Registration Statement filed on July 8, 2008. |
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Incorporated by reference to the Registrants Registration Statement filed on August 8, 2008. |
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Incorporated by reference to the Registrants Registration Statement filed on November 25, 2008. |
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Incorporated by reference to the Registrants Registration Statement filed on December 23, 2008. |
|
Incorporated by reference to the Registrants Registration Statement filed on January 28, 2009. |
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Incorporated by reference to the Registrants Registration Statement filed on February 6, 2009. |
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Incorporated by reference to the Registrants Registration Statement filed on April 21, 2009. |
|
Incorporated by reference to the Registrants Registration Statement filed on May 8, 2009. |
^ |
Incorporated by reference to the Registrants Registration Statement filed on August 14, 2009. |
^^ |
Incorporated by reference to the Registrants Registration Statement filed on September 4, 2009. |
^^^ |
Incorporated by reference to the Registrants Registration Statement filed on November 9, 2009. |
^^^^ |
Incorporated by reference to the Registrants Registration Statement filed on November 20, 2009. |
^^^^^ |
Incorporated by reference to the Registrants Registration Statement filed on February 16, 2010. |
# |
Incorporated by reference to the Registrants Registration Statement filed on March 29, 2010. |
## |
Filed herewith. |
### |
To be filed by amendment. |
|
|
Item 24. |
Persons Controlled by or Under Common Control with Registrant |
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|
None. |
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|
Item 25. |
Indemnification |
Pursuant to Section 10.2 of the Amended and Restated Declaration of Trust, all persons that are or have been a Trustee or officer of the Trust (collectively, the Covered Persons) shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit, or proceeding in which he or she becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer and against amounts paid or incurred by him in the settlement thereof. No indemnification will be provided to a Covered Person who shall have been adjudicated by a court or body before which the proceeding was brought to be liable to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office or not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust; or in the event of a settlement, unless there has been a determination that such Trustee or officer did not engage in willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office.
Article XII of the Trusts Bylaws, to the maximum extent permitted by Delaware law in effect from time to time, the Trust shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former trustee or officer of the Trust and who is made a party to the proceeding by reason of his or her service in that capacity or (b) any individual who, while a director of the Trust and at the request of the Trust, serves or has served as a trustee, officer, partner or trustee of another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made a party to the proceeding by reason of his or her service in that capacity. The Trust may, with the approval of its Board of Trustees, provide such indemnification and advance for expenses to a person who served a predecessor of the Trust in any of the capacities described in (a) or (b) above and to any employee or agent of the Trust or a predecessor of the Trust; provided that no provision of Article XII shall be effective to protect or purport to protect any trustee or officer of the Trust against liability to the Trust or its stockholders to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
The Trust has agreed to indemnify and hold harmless the Trustees against any and all expenses actually and reasonably incurred by the Trustee in any proceeding arising out of or in connection with the Trustees service to the Trust, to the fullest extent permitted by the Amended and Restated Agreement and Declaration of Trust and Bylaws of the Fund and Title 12, Part V, Chapter 38 of the Delaware Code, and applicable law.
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|
Item 26. |
Business and Other Connections of Investment Manager |
See Management in the Statement of Additional Information. Information as to the directors and officers of the Adviser is included in its Form ADV filed with the SEC and is incorporated herein by reference thereto.
|
|
Item 27. |
Principal Underwriters |
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|
|
(a) |
Van Eck Securities Corporation is the Trusts principal underwriter. Van Eck Securities Corporation also acts as a principal underwriter, depositor, or investment manager for the following other investment companies: Van Eck Funds (which is comprised of four series: Emerging Markets Fund, Global Hard Assets Fund Multi-Manager Alternatives Fund and International Investors Gold Fund) and Worldwide Insurance Trust (which is comprised of five series: Worldwide Multi-Manager Alternatives Fund, Worldwide Bond Fund, Worldwide Emerging Markets Fund, Worldwide Hard Assets Fund and Worldwide Real Estate Fund). |
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|
(b) |
The following is a list of the executive officers, directors and partners of Van Eck Securities Corporation: |
|
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Name and Principal
|
|
Positions
and Offices
|
|
Positions
and Offices with
|
Thomas K. Lynch |
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Chief Compliance Officer |
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Chief Compliance Officer |
335 Madison Avenue |
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New York, NY 10017 |
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Joseph McBrien |
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Senior Vice
President, General Counsel and
|
|
Senior Vice President, Secretary and Chief Legal Officer |
335 Madison Avenue |
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|||
New York, NY 10017 |
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Bruce J. Smith |
|
Senior Vice
President, Chief Financial Officer,
|
|
Senior Vice President and Chief Financial Officer |
335 Madison Avenue |
|
|||
New York, NY 10017 |
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Jan F. van Eck |
|
Director and Executive Vice President |
|
President, Chief Executive Officer and Trustee |
335 Madison Avenue |
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|
New York, NY 10017 |
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Derek S. van Eck |
|
Director and Executive Vice President |
|
Executive Vice President |
335 Madison Avenue |
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New York, NY 10017 |
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|
|
Item 28. |
Location of Accounts and Records |
All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the Rules thereunder will be maintained at the offices of The Bank of New York Mellon, 101 Barclay Street, New York, New York 10286.
|
|
Item 29. |
Management Services |
Not applicable.
|
|
Item 30. |
Undertakings |
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this registration statement under Rule 485(b) under the Securities Act of 1933 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York on the 5th day of April 2010.
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|
|
MARKET VECTORS ETF TRUST |
||
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||
|
|
By: |
/s/ Jan F. van Eck * |
|
|
|
Name: Jan F.
van Eck
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following person in the capacities and on the date indicated.
|
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|
|
/s/ David H. Chow * |
|
Trustee |
|
April 5, 2010 |
David H. Chow |
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|
|
/s/ R. Alastair Short * |
|
Trustee |
|
April 5, 2010 |
R. Alastair Short |
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|
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/s/ Richard D. Stamberger * |
|
Trustee |
|
April 5, 2010 |
Richard D. Stamberger |
|
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|
|
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|
|
|
|
/s/ Jan F. van Eck * |
|
President,
Chief
|
|
April 5, 2010 |
Jan F. van Eck |
|
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|
|
/s/ Bruce J. Smith * |
|
Chief Financial Officer |
|
April 5, 2010 |
Bruce J. Smith |
|
|
|
|
|
|
|
* By: |
/s/ Jonathan R. Simon |
|
Jonathan R. Simon |
|
|
Attorney-in-Fact |
|
EXHIBIT INDEX
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(i)(23) |
Opinion and consent of Dechert LLP (with respect to Market Vectors India Small-Cap Index ETF). |
Exhibit 99(i)(23)
[LETTERHEAD OF DECHERT LLP]
April 5, 2010
Market Vectors ETF Trust
335 Madison Avenue, 19
th
Floor
New York, New York 10017
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Re: |
Opinion of Counsel regarding Post-Effective Amendment
No. 129 to the Registration Statement filed on Form N-1A under the Securities
Act of 1933
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Dear Ladies and Gentlemen:
We have acted as counsel to Market Vectors ETF Trust (the Fund), in connection with the above-referenced Registration Statement (as amended, the Registration Statement), which relates to the shares of beneficial interest of the Market Vectors India Small-Cap Index ETF, no par value (collectively, the Shares). This opinion is being delivered to you in connection with the Funds filing of Post-Effective Amendment No. 129 to the Registration Statement (the Amendment) to be filed with the Securities and Exchange Commission pursuant to Rule 485(b) of the Securities Act of 1933, as amended (the 1933 Act), and Amendment No. 133 pursuant to the Investment Company Act of 1940, as amended, in connection with the effectiveness of the Market Vectors India Small-Cap Index ETF. With your permission, all assumptions and statements of reliance herein have been made without any independent investigation or verification on our part except to the extent otherwise expressly stated, and we express no opinion with respect to the subject matter or accuracy of such assumptions or items relied upon. We have reviewed the Funds Declaration of Trust, as amended, and such other documents and matters as we have deemed necessary to enable us to render this opinion.
Based upon, and subject to, the foregoing, we are of the opinion that the Shares proposed to be sold pursuant to the Amendment, when effective, will have been duly authorized and, when sold in accordance with the terms of the Amendment and the requirements of applicable federal and state law and delivered by the Fund against receipt of the net asset value of the Shares, will have been legally issued, fully paid and non-assessable by the Fund (except for the potential liability of shareholders described in the Funds current Statement of Additional Information under the caption Capital Stock and Shareholder Reports).
We are attorneys licensed to practice only in the State of New York. The foregoing opinion is limited to the Federal laws of the United States and the Delaware Statutory Trust Act, and we are expressing no opinion as to the effect of the laws of any other jurisdiction.
We have consented to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the headings General Information in the Prospectus and Counsel and Independent Registered Public Accounting Firm in the Statement of Additional Information, each forming a part of the Registration Statement. In giving this consent, we do not concede that we are in the category of persons whose consent is required under Section 7 of the 1933 Act.
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Very truly yours, |
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/s/ Dechert LLP |