THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE TRUST
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
Market Vectors--Hard Assets Producers ETF and Market Vectors--Solar Energy
ETF (the "Funds") are distributed by Van Eck Securities Corporation and seek to
track the Hard Assets Producers Index(SM) and the Ardour Solar Energy Index(SM),
respectively. The Hard Assets Producers Index(SM) is published by S-Network
Global Indexes LLC. The Ardour Solar Energy Index(SM) is published by Ardour
Global Indexes LLC. S-Network Global Indexes LLC and Ardour Global Indexes LLC
are referred to herein as the "Index Providers." The Index Providers do not
sponsor, endorse, or promote the Funds and bears no liability with respect to
any Fund or security. For more detailed information about the Funds, see the
Statement of Additional Information for each Fund ("SAI"), which is incorporated
by reference into this Prospectus. Additional information about the Funds'
investments will be available in each Fund's annual and semi-annual reports to
shareholders. In each Fund's annual report, when available, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
Call Van Eck at 1.888.MKT.VCTR to request, free of charge, the annual or
semi-annual reports, the SAI, or other information about the Funds or to make
shareholder inquiries. You may also obtain the SAI or the Funds' annual or
semi-annual reports, when available, by visiting the Van Eck website at
WWW.VANECK.COM/ETF. Information about the Funds (including the SAI) can also be
reviewed and copied at the Securities and Exchange Commission ("SEC") Public
Reference Room in Washington, D.C. Information about the operation of the Public
Reference Room may be obtained by calling 1.202.551.8090.
Reports and other information about the Funds are available on the EDGAR
Database on the SEC's internet site at http://www.sec.gov. In addition, copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at the following email address: publicinfo@sec.gov, or by
writing the SEC's Public Reference Section, Washington, DC 20549-0102.
The 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.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offer of each Fund's shares, and, if given or made, the information or
representations must not be relied upon as having been authorized by a Fund.
Neither the delivery of this Prospectus nor any sale of shares of the Funds
shall under any circumstance imply that the information contained herein is
correct as of any date after the date of this Prospectus.
Dealers effecting transactions in each Fund's shares, whether or not
participating in this distribution, may be generally required to deliver a
Prospectus. This is in addition to any obligation of dealers to deliver the
Prospectus when acting as underwriters.
This Prospectus offers shares of the Market Vectors ETF Trust (the
"Trust"). The Trust currently has twenty-one investment portfolios. This
Prospectus relates to shares of only two portfolios, Market Vectors--Hard Assets
Producers ETF and Market Vectors-- Solar Energy ETF.
The information contained herein regarding the Hard Assets Producers
Index(SM) and the Ardour Solar Energy Index(SM) (each, an "Index") was provided
by each respective Index Provider, while the information contained herein
regarding the securities markets and The Depository Trust Company ("DTC") was
obtained from publicly available sources.
This Prospectus, dated [ ], 2008, explains concisely the
information you ought to know before investing in a Fund. We suggest that you
keep it for future reference.
Market Vectors ETF Trust (the "Trust") is an open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), currently consisting of twenty-one investment
portfolios. This Prospectus relates to the following two portfolios of the
Trust: Market Vectors--Hard Assets Producers ETF and Market Vectors-- Solar
Energy ETF (each, a "Fund" and, together, the "Funds"). Van Eck Associates
Corporation (the "Adviser") is the investment adviser to each Fund.
The shares of the Market Vectors--Hard Assets Producers ETF and Market
Vectors--Solar Energy ETF are expected to be approved for listing, subject to
notice of issuance, on the [ ] (the "Exchange"), and will trade in the secondary
market at prices that may differ to some degree from the net asset value ("NAV")
of the shares. Unlike conventional mutual funds, the Trust issues and redeems
shares of each Fund (the "Shares") on a continuous basis at NAV only in large
specified blocks each called a Creation Unit. Creation Units are issued and
redeemed principally in-kind for securities generally included in each Fund's
respective index. Except when aggregated in Creation Units, Shares are not
redeemable securities of the Trust.
The Funds may be suitable for long term investment in the market or market
segment represented by each Fund's respective index. Shares of the Funds may
also be used as an asset allocation or speculative trading vehicle. Unlike many
conventional mutual funds which are only bought and sold at closing NAVs, the
Shares have been designed to be tradable in a secondary market on an intraday
basis and to be created and redeemed in-kind in Creation Units at each day's
market close. These arrangements are designed to protect ongoing shareholders
from adverse effects on a Fund's portfolio that could arise from frequent cash
purchase and redemption transactions that affect the NAV of the Fund. Moreover,
in contrast to conventional mutual funds where frequent redemptions can have an
adverse tax impact on taxable shareholders because of the need to sell portfolio
securities which, in turn, may generate taxable gain, the in-kind redemption
mechanism of the Funds generally is not expected to lead to a tax event for
shareholders.
SHAREHOLDER EXPENSES
(fees paid directly from your investment, but see "Shareholder
Information--Creation and Redemption of Creation Units" for a
discussion of Creation and Redemption Transaction Fees) ................. None
Standard Creation/Redemption Transaction Fee ............................ $[ ]
Maximum Creation/Redemption Transaction Fee(b) .......................... $[ ]
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee .......................................................... [ ]%
Other Operating Expenses(c) ............................................. [ ]%
Total Gross Annual Fund Operating Expenses(d) ........................... [ ]%
Fee Waivers and Expenses Assumption(e) .................................. [ ]%
Total Net Annual Fund Operating Expenses(e) ............................. [ ]%
-------------
|
(a) When buying or selling Shares through a broker, you will incur customary
brokerage commissions and charges.
(b) If a Creation Unit is purchased or redeemed outside the usual process
through the NSCC or for cash, a variable fee of up to four times the
standard creation or redemption transaction fee will be charged.
(c) Other operating expenses are based on estimated amounts for the current
fiscal year and calculated as a percentage of the Fund's net assets.
(d) The Adviser has contractually agreed to waive fees and/or pay Fund expenses
to the extent necessary to prevent the operating expenses of the Fund
(excluding interest expense, offering costs and other trading expenses,
taxes and extraordinary expenses) from exceeding [ ]% of average net assets
per year at least until [ ], 2009.
(e) The offering costs excluded from the [ ]% expense cap are: (a) legal fees
pertaining to the Fund's Shares offered for sale; (b) SEC and state
registration fees; and (c) initial fees paid to be listed on an exchange.
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other funds. This example does not take into
account brokerage commissions that you pay when purchasing or selling Shares of
the Fund.
The Fund sells and redeems Shares in Creation Units principally on an
in-kind basis for portfolio securities of the Solar Energy Index. Shares in less
than Creation Units are not redeemable. An investor purchasing a Creation Unit
on an in-kind basis would pay the following expenses on a $10,000 investment
(payment with a deposit of securities included in the Solar Energy Index),
assuming all Shares are redeemed at the end of the periods shown, a 5% annual
return and that the Fund's operating expenses remain the same. INVESTORS SHOULD
NOTE THAT THE PRESENTATION BELOW OF A $10,000 INVESTMENT IS FOR ILLUSTRATION
PURPOSES ONLY AS SHARES WILL BE ISSUED BY THE FUND ONLY IN CREATION UNITS.
FURTHER, THE RETURN OF 5% AND ESTIMATED EXPENSES ARE FOR ILLUSTRATION PURPOSES
ONLY, AND SHOULD NOT BE CONSIDERED INDICATORS OF EXPECTED FUND EXPENSES OR
PERFORMANCE, WHICH MAY BE GREATER OR LESS THAN THE ESTIMATES. BASED ON THESE
ASSUMPTIONS, YOUR COSTS WOULD BE:
YEAR EXPENSES
------------ ------------
1 $[ ]
3 $[ ]
|
CREATION TRANSACTION FEES AND REDEMPTION TRANSACTION FEES
The Trust issues and redeems Shares at NAV only in blocks of 50,000 Shares
or multiples thereof. As a practical matter, only authorized participants may
purchase or redeem these Creation Units. A standard creation transaction fee of
$[ ] is charged to each purchaser of Creation Units. The fee is the same
regardless of the number of Creation Units purchased by an authorized
participant on the same day.
- 10 -
The value of a Creation Unit as of the first creation was approximately $[ ]. An
authorized participant who holds Creation Units and wishes to redeem at NAV
would also pay a standard redemption transaction fee of $[ ] on the date of such
redemption(s), regardless of the number of Creation Units redeemed that day.
Authorized participants who hold Creation Units will also pay the annual Fund
operating expenses described in the table on the previous page. Assuming an
investment in a Creation Unit of $[ ] and a 5% return each year, and assuming
that the Fund's operating expenses remain the same, the total costs would be $[
] if the Creation Unit is redeemed after one year and $[ ] if the Creation Unit
is redeemed after three years. Investors should note that this presentation is
for illustration purposes only and actual costs may be higher. See "Shareholder
Information--Creation and Redemption of Creation Units."
- 11 -
THE HARD ASSETS PRODUCERS INDEX(SM)
The Hard Assets Producers Index(SM) (the "Hard Assets Producers Index") is
a rules based index intended to give investors a means of tracking the overall
performance of a global universe of listed companies engaged in the production
and distribution of commodities and commodity-related products and services. The
Hard Assets Producers Index is a modified capitalization weighted, float
adjusted index comprising publicly traded companies engaged in the production of
raw materials in the following sectors: agriculture; alternatives (water and
alternative energy); base and industrial metals; energy; forest products; and
precious metals. Index constituents include certain companies that produce
products and services directly related to the production of commodities, but not
the commodities themselves.
The six sectors listed above are weighted based on estimates of the global
consumption of various commodities included in each of the sectors. The Hard
Assets Producers Index includes companies worldwide that are principally engaged
(derive greater than 50% of revenues from applicable sources) in the production
of commodities and related products and services. The Hard Assets Producers
Index was determined to yield a benchmark value of approximately 888.66 at its
inception date, which was the close of trading on December 31, 1999.
The Hard Assets Producers Index strives to capture at least 95% of the
global market capitalization of its various sectors with the exception of the
agriculture sector, where the Hard Assets Producers Index strives to capture
100% of its global market capitalization. Constituent stocks must have a market
capitalization of greater than $500 million on a rebalancing date to be added to
the Hard Assets Producers Index. Stocks whose market capitalization falls below
$250 million as of any rebalancing date shall be deleted from the Hard Assets
Producers Index. Stocks must have a three-month trading volume equal to or
greater than U.S. $1 million per day to be included in the Hard Assets Producers
Index. Only shares that trade on a recognized domestic or international stock
exchange that provides a "last closing price" may qualify (e.g., National Stock
Market stocks must be "reported securities" under 11Aa3-1 of the Securities
Exchange Act of 1934, as amended. Similar criteria and standards apply to stocks
with foreign listings).
The Hard Assets Producers Index is calculated and maintained by Standard &
Poor's Custom Indices on behalf of S-Network Global Indexes LLC. Index values
are calculated daily, except Saturdays and Sundays, and are distributed over the
Consolidated Tape Association's Network B between the hours of approximately
9:30 a.m. and 4:15 p.m., New York time, under the symbol [ ]. Index values are
disseminated every 15 seconds.
The Hard Assets Producers 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 Hard Assets Producers Index is reconstituted quarterly, at the
close of business on the third Friday of each calendar quarter, and companies
are added and/or deleted based upon the Hard Assets Producers Index eligibility
criteria. Companies with recent stock exchange listings, i.e., recent initial
public offerings, may be added to the Hard Assets Producers Index on any
rebalancing date, provided the companies meet all eligibility criteria and have
been trading for more than 22 trading days. The share weights of the Hard Assets
Producers Index components are adjusted on each rebalancing date.
Rebalancing data, including constituent weights and related information,
is posted on the Hard Assets Producers Index's website ([ ]) 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 Hard
Assets Producers 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
- 12 -
corporate actions, including stock splits and reverse stock splits. Share
weights of the Hard Assets Producers Index are not adjusted between rebalancing
dates for shares issued or shares repurchased.
- 13 -
THE ARDOUR SOLAR ENERGY INDEX(SM)
The Ardour Solar Energy Index(SM) (the "Solar Energy Index") is a rules
based index intended to give investors a means of tracking the overall
performance of a global universe of listed companies engaged in the production
and distribution of solar power. The Solar Energy Index is a modified
capitalization weighted, float adjusted index comprising publicly traded
companies engaged in the production and distribution of solar power in the
following sectors: photovoltaic, concentrated solar power and solar thermal
power; solar integrators; and related technologies.
The Solar Energy Index includes companies worldwide that are principally
engaged (derive greater than 50% of revenues from applicable sources) in the
production of solar power and related products and services. The Solar Energy
Index was determined to yield a benchmark value of approximately 1000.00 at its
inception date, which was the close of trading on December 31, 2002.
The Solar Energy Index strives to capture all companies engaged in the
sector worldwide over a certain size and that meet certain minimum levels of
daily and monthly trading activity. Constituent stocks must have a market
capitalization of greater than $100 million on a rebalancing date to be added to
the Solar Energy Index. Stocks whose market capitalization falls below $100
million as of any rebalancing date shall be deleted from the Solar Energy Index.
Stocks must have a three-month trading volume equal to or greater than U.S. $1
million per day to be included in the Solar Energy Index. Only shares that trade
on a recognized domestic or international stock exchange that provides a "last
closing price" may qualify (e.g., National Stock Market stocks must be "reported
securities" under 11Aa3-1 of the Securities Exchange Act of 1934, as amended.
Similar criteria and standards apply to stocks with foreign listings).
The Solar Energy Index is calculated and maintained by Dow Jones Indexes
on behalf of Ardour Global Indexes LLC. Index values are calculated daily,
except Saturdays and Sundays, and are distributed over the Consolidated Tape
Association's Network B between the hours of approximately 9:30 a.m. and 4:15
p.m., New York time, under the symbol [ ]. Index values are disseminated every
15 seconds.
The Solar Energy 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 Solar Energy Index is reconstituted quarterly, at the close of
business on the third Friday of each calendar quarter, and companies are added
and/or deleted based upon the Solar Energy Index eligibility criteria. Companies
with recent stock exchange listings, i.e., recent initial public offerings, may
be added to the Solar Energy Index on any rebalancing date, provided the
companies meet all eligibility criteria and have been trading for more than 22
trading days. The share weights of the Solar Energy Index components are
adjusted on each rebalancing date.
Rebalancing data, including constituent weights and related information,
is posted on the Solar Energy Index's web site (www.ardourglobalindexes.com)
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 Solar Energy 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. Share weights of the Solar Energy Index
are not adjusted between rebalancing dates for shares issued or shares
repurchased.
- 14 -
PORTFOLIO HOLDINGS
A description of each Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Funds' SAI.
DETERMINATION OF NAV
The NAV per Share for each 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 each Fund is determined each business
day after the close of trading (ordinarily 4:00 p.m., New York time) of 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.
The value of each Fund's portfolio securities is based on the securities'
closing price on local markets when available. If a security's market price is
not readily available or does not otherwise accurately reflect the fair value of
the security, the security will be valued by another method that the Adviser
believes will better reflect fair value in accordance with the Trust's valuation
policies and procedures approved by the Board of Trustees. Each Fund may use
fair value pricing in a variety of circumstances, including but not limited to,
situations when the value of a security in a Fund's portfolio has been
materially affected by events occurring after the close of the market on which
the security is principally traded (such as a corporate action or other news
that may materially affect the price of a security) or trading in a security has
been suspended or halted. In addition, each Fund currently expects that it will
fair value foreign equity securities held by the Fund each day the Fund
calculates its NAV. Accordingly, a Fund's 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 a Fund's NAV and the
prices used by the Fund's respective Index. This may adversely affect a Fund's
ability to track its respective Index. With respect to securities that are
primarily listed on foreign exchanges, the value of a Fund's portfolio
securities may change on days when you will not be able to purchase or sell your
Shares.
BUYING AND SELLING EXCHANGE-TRADED SHARES
The Shares of the Market Vectors--Hard Assets Producers ETF and Market
Vectors--Solar Energy ETF are expected to be approved for listing on the [ ],
subject to notice of issuance. If you buy or sell Shares in the secondary
market, you will incur customary brokerage commissions and charges and may pay
some or all of the spread between the bid and the offered price in the secondary
market on each leg of a round trip (purchase and sale) transaction. It is
anticipated that the Shares of the Funds will trade in the secondary market at
prices that may differ to varying degrees from the closing NAVs of the Shares.
Given, however, that Shares can be created and redeemed daily in Creation Units,
the Adviser believes that large discounts and premiums to NAV should not be
sustained for very long.
DTC serves as securities depository for the Shares. (The Shares may be
held only in book-entry form; stock certificates will not be issued.) DTC, or
its nominee, is the record or registered owner of all outstanding Shares.
Beneficial ownership of Shares will be shown on the records of DTC or its
participants (described below). Beneficial owners of Shares are not entitled to
have Shares registered in their names, will not receive or be entitled to
receive physical delivery of certificates in definitive form and are not
considered the registered holder thereof. Accordingly, to exercise any rights of
a holder of Shares, each beneficial owner must rely on the procedures of: (i)
DTC; (ii) "DTC Participants," I.E., securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own DTC; and (iii) "Indirect Participants,"
- 18 -
I.E., brokers, dealers, banks and trust companies that clear through or maintain
a custodial relationship with a DTC Participant, either directly or indirectly,
through which such beneficial owner holds its interests. The Trust understands
that under existing industry practice, in the event the Trust requests any
action of holders of Shares, or a beneficial owner desires to take any action
that DTC, as the record owner of all outstanding Shares, is entitled to take,
DTC would authorize the DTC Participants to take such action and that the DTC
Participants would authorize the Indirect Participants and beneficial owners
acting through such DTC Participants to take such action and would otherwise act
upon the instructions of beneficial owners owning through them. As described
above, the Trust recognizes DTC or its nominee as the owner of all Shares for
all purposes. For more information, see the section entitled "Book Entry Only
System" in the Funds' SAI.
MARKET TIMING AND RELATED MATTERS. The Funds impose no restrictions on the
frequency of purchases and redemptions. In determining not to approve a written,
established policy limiting purchases and redemptions, the Board of Trustees
evaluated the nature of the Funds (I.E., a fund whose shares are expected to
trade intra-day). In particular, the Board of Trustees considered that, unlike
traditional mutual funds, the Funds generally issue and redeem their Shares at
the NAV per Share for a basket of securities intended to mirror each Fund's
portfolio, plus a small amount of cash, and Shares may be purchased and sold in
the secondary market at prevailing market prices.
Given this structure, the Board of Trustees determined that it is unlikely
that (a) market timing would be attempted by a Fund's shareholders or (b) any
attempts to market time the Funds by shareholders would result in negative
impact to the Fund or its shareholders. However, creations and redemptions of
Creation Units consisting of a significant amount of cash, although expected to
be rare, could create the potential for market timing with its negative impact
to the Funds and their shareholders.
CREATION AND REDEMPTION OF CREATION UNITS
The Trust issues and redeems Shares at NAV only in a large specified
number of Shares called a "Creation Unit." A Creation Unit consists of 50,000
Shares. The Funds generally issue and redeem Creation Units only in-kind in
exchange for a designated portfolio of equity securities included in each
respective benchmark Index and a relatively small cash payment. Except when
aggregated in Creation Units, the Shares are not redeemable securities of the
Funds. See "Shareholder Information--Buying and Selling Exchange-Traded Shares"
and "--Procedures for Creation of Creation Units."
FUND DEPOSITS. The consideration for creation of Creation Units of the
Funds generally consists of the in-kind deposit of a designated portfolio of
equity securities (the "Deposit Securities") constituting a replication of each
Fund's respective benchmark Index and an amount of cash computed as described
below (the "Cash Component") and together with the Deposit Securities, the "Fund
Deposit." The list of the names and numbers of shares of the Deposit Securities
is made available by the Administrator through the facilities of the NSCC
immediately prior to the opening of business each day of the Exchange on which
each Fund trades. The Cash Component represents the difference between the NAV
of a Creation Unit and the market value of the Deposit Securities and may
include a "Dividend Equivalent Payment" as described in the Funds' SAI.
PROCEDURES FOR CREATION OF CREATION UNITS. To be eligible to place orders
with the Distributor to create Creation Units of the Funds, 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; 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"). All Creation Units of the Funds, however created, will be entered
on the records of the Depository in the name of Cede & Co. for the account of a
DTC Participant.
- 19 -
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 Funds 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 date on which a creation (or redemption order,
as discussed below) is placed (the "Transmittal Date").
Orders for creation that are effected outside the Clearing Process are
likely to require transmittal by the DTC Participant earlier on the Transmittal
Date than orders effected using the Clearing Process. Those persons placing
orders outside the Clearing Process should ascertain the deadlines applicable to
DTC and the Federal Reserve Bank wire system by contacting the operations
department of the broker or depository institution effectuating such transfer of
Deposit Securities and Cash Component. Investors should refer to "Creation and
Redemption of Creation Units" in the Funds' SAI for details regarding the
logistics of placement of orders using and outside the Clearing Process.
ACCEPTANCE OF CREATION ORDER. The Trust reserves the absolute right to
reject a creation order transmitted to it by the Distributor if, for any reason:
(a) the order is not in proper form; (b) the creator or creators, upon obtaining
the Shares ordered, would own 80% or more of the currently outstanding Shares of
a 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 a Fund; (e) the acceptance of the
Fund Deposit would, in the opinion of counsel, be unlawful; (f) the acceptance
of the Fund Deposit would otherwise, in the discretion of the Trust or the
Adviser, have an adverse effect on the Trust or the rights of beneficial owners;
or (g) in the event that circumstances outside the control of the Trust, the
Distributor and the Adviser make it for all practical purposes impossible to
process creation orders. Examples of such circumstances include acts of God or
public service or utility problems such as fires, floods, extreme weather
conditions and power outages resulting in telephone, telecopy and computer
failures; market conditions or activities causing trading halts; systems
failures involving computer or other information systems affecting the Trust,
the Adviser, the Distributor, DTC, 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. The Trust
shall notify a prospective creator of its rejection of the order of such person.
All questions as to the number of Shares of each security in the Deposit
Securities and the validity, form, eligibility and acceptance for deposit of any
securities to be delivered shall be determined by the Trust, and the Trust's
determination shall be final and binding.
CREATION TRANSACTION FEE. A fixed creation transaction fee of $[ ], which
is paid to the Fund (the "Creation Transaction Fee"), is applicable to each
transaction regardless of the number of Creation Units purchased in the
transaction. In addition, a variable charge of up to four times the Creation
Transaction Fee may be imposed with respect to transactions effected outside of
the Clearing Process (through a DTC Participant) or to the extent that cash is
used in lieu of securities to purchase Creation Units. Where the Trust permits a
creator to substitute "cash in lieu" of depositing a portion of the Deposit
Securities, the creator will be assessed an additional variable charge for cash
creations on the "cash in lieu" portion of its investment. See "Creation and
Redemption of Creation Units" in the SAI. The price for each Creation Unit will
equal the daily NAV per Share times the number of Shares in a Creation Unit plus
the fees described above and, if applicable, any transfer taxes. Shares of the
Funds may be issued in advance of receipt of all Deposit Securities subject to
various conditions, including a requirement to maintain on deposit with the
Funds cash at least equal to 115% of the market value of the missing Deposit
Securities. See "Creation and Redemption of Creation Units" in the Funds' SAI.
- 20 -
REDEMPTION OF CREATION UNITS. Shares may be redeemed only in Creation
Units at their NAV next determined after receipt of a redemption request in
proper form by the Distributor, only on a day on which each Fund's respective
Exchange is open for trading and only through a Participating Party or DTC
Participant, who has executed a Participant Agreement. THE TRUST WILL NOT REDEEM
SHARES IN AMOUNTS LESS THAN CREATION UNITS. Beneficial owners also may sell
Shares in the secondary market, but must accumulate enough Shares to constitute
a Creation Unit in order to have such Shares redeemed by the Trust. There can be
no assurance, however, that there will be sufficient liquidity in the public
trading market at any time to permit assembly of a Creation Unit. Investors
should expect to incur brokerage and other costs in connection with assembling a
sufficient number of Shares to constitute a redeemable Creation Unit.
The Administrator, through NSCC, makes available immediately prior to the
opening of business on each Fund's respective Exchange (currently 9:30 a.m., New
York time) on each day that the Exchange is open for business, the securities
held by a Fund ("Fund Securities") that will be applicable (subject to possible
amendment or correction) to redemption requests received in proper form (as
defined below) on that day. Fund Securities received on redemption may not be
identical to Deposit Securities which are applicable to purchasers of Creation
Units. Unless cash redemptions are available or specified for the Funds, the
redemption proceeds for a Creation Unit generally consist of Fund Securities,
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
described below.
The redemption transaction fee of $[ ] is deducted from such redemption
proceeds. Should the Fund Securities have a value greater than the NAV of Shares
being redeemed, a compensating cash payment to the Trust equal to the
differential, plus the applicable redemption fee and, if applicable, any
transfer taxes will be required to be arranged for by or on behalf of the
redeeming shareholder. The basic redemption transaction fees are the same no
matter how many Creation Units are being redeemed pursuant to any one redemption
request. The Funds may adjust these fees from time to time based upon actual
experience. An additional charge up to four times the redemption transaction fee
may be charged with respect to redemptions outside of the Clearing Process. An
additional variable charge for cash redemptions or partial cash redemptions
(when cash redemptions are available) may also be imposed. Investors who use the
services of a broker or other such intermediary may be charged a fee for such
services. Investors should refer to "Creation and Redemption of Creation Units"
in the Funds' SAI for details regarding the logistics of redemption orders using
and outside the Clearing Process.
Redemptions of Shares for Fund Securities will be subject to compliance
with applicable U.S. federal and state securities laws, and the Funds (whether
or not they otherwise permit cash redemptions) reserve the right to redeem
Creation Units for cash to the extent that the Funds could not lawfully deliver
specific Deposit Securities upon redemptions or could not do so without first
registering the Fund Securities under such laws. Deliveries of Fund Securities
to redeeming investors generally will be made within three business days. Due to
the schedule of holidays in certain countries, however, the delivery of in-kind
redemption proceeds may take longer than three business days after the day on
which the redemption request is received in proper form. In such cases, the
local market settlement procedures will not commence until the end of the local
holiday periods. See the SAI for a list of the local holidays in the foreign
countries relevant to the Funds.
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 Funds or determination of their
NAV is not reasonably practicable; or (4) in such other circumstance as is
permitted by the SEC.
- 21 -
Investors interested in creating and/or redeeming Creation Units should
refer to the more detailed information "Creation and Redemption of Creation
Units" in the Funds' SAI.
DISTRIBUTIONS
NET INVESTMENT INCOME AND CAPITAL GAINS. As a Fund shareholder, you are
entitled to your share of the Fund's distributions of net investment income and
net realized capital gains on its investments. The Funds pay out substantially
all of their net earnings to their shareholders as "distributions."
The Funds typically earn income dividends from stocks and interest from
debt securities. These amounts, net of expenses, are typically passed along to
Fund shareholders as dividends from net investment income. The Funds realize
capital gains or losses whenever they sell securities. Net capital gains are
distributed to shareholders as "capital gain 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 Funds may determine
to distribute at least annually amounts representing the full dividend yield net
of expenses on the underlying investment securities, as if the Funds owned the
underlying investment securities for the entire dividend period, in which case
some portion of each distribution may result in a return of capital. You will be
notified regarding the portion of the distribution which represents a return of
capital.
Distributions in cash may be reinvested automatically in additional Shares
of your Fund only if the broker through which you purchased Shares makes such
option available.
TAX MATTERS
As with any investment, you should consider how your Fund investment will
be taxed. The tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in the Funds. 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) a
Fund makes distributions, (ii) you sell Shares in the secondary market or (iii)
you create or redeem Creation Units.
TAXES ON DISTRIBUTIONS. The Funds expect to distribute net investment
income at least annually, and any net realized long-term or short-term capital
gains annually. The Funds may also pay a special distribution at the end of the
calendar year to comply with U.S. federal tax requirements. In general, your
distributions are subject to U.S. federal income tax when they are paid, whether
you take them in cash or reinvest them in the Fund. Dividends paid out of a
Fund's income and net short-term gains, if any, are taxable as ordinary income.
The Funds may receive dividends, the distribution of which the Funds may
designate as qualified dividends. In the event that a 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.
Distributions of net long-term capital gains, if any, in excess of net
short-term capital losses are taxable as long-term capital gains, regardless of
how long you have held the Shares.
Distributions in excess of a Fund's current and accumulated earnings and
profits are treated as a tax-free return of your investment to the extent of
your basis in the Shares, and generally as capital gain thereafter. A
distribution will reduce a Fund's NAV per Share and may be taxable to you as
ordinary income or capital gain even though, from an economic standpoint, the
distribution may constitute a return of capital.
- 22 -
If you are not a citizen or resident alien of the United States, each
Fund's ordinary income dividends (which include distributions of net short-term
capital gains) will generally be subject to a 30% U.S. withholding tax, unless a
lower treaty rate applies or unless such income is effectively connected with a
U.S. trade or business. The Funds may, under certain circumstances, designate
all or a portion of a dividend as an "interest-related dividend" that if
received by a nonresident alien or foreign entity generally would be exempt from
the 30% U.S. withholding tax, provided that certain other requirements are met.
The Funds may also, under certain circumstances, designate all or a portion of a
dividend as a "short-term capital gain dividend" which if received by a
nonresident alien or foreign entity generally would be exempt from the 30% U.S.
withholding tax, unless the foreign person is a nonresident alien individual
present in the United States for a period or periods aggregating 183 days or
more during the foreign person's taxable year. However, the Funds do not expect
to pay significant amounts of "interest-related dividends" or "short-term
capital gains dividends." The provisions discussed above relating to dividends
to foreign persons apply to dividends with respect to taxable years beginning
before January 1, 2008. Distributions attributable to gains from "U.S. real
property interests," including gains from the disposition of certain U.S. real
property holding corporations, will generally be subject to U.S. federal
withholding tax and may give rise to an obligation on the part of the foreign
shareholder to file a U.S. federal income tax return. Also, such gain may be
subject to a 30% branch profits tax in the hands of a foreign shareholder that
is a corporation. A U.S. real property holding corporation is any corporation
the fair market value of whose U.S. real property interests equals or exceeds
50% of the sum of the fair market value of its overall real property interests
and any other of its assets which are used or held for use in a trade or
business.
Dividends and interest from non-U.S. investments received by the Funds 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.
The Funds 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 establish 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.
TAXES ON THE SALE 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.
TAXES ON CREATIONS AND REDEMPTIONS OF CREATION UNITS. A person who
exchanges equity securities for Creation Units generally will recognize a gain
or loss. The gain or loss will be equal to the difference between the market
value of the Creation Units at the time of exchange, and the exchanger's
aggregate basis in the securities surrendered, taking into consideration the
cash component paid. A person who exchanges Creation Units for equity securities
will generally recognize a gain or loss equal to the difference between the
exchangor's basis in the Creation Units and the aggregate market value of the
securities received. The Internal Revenue Service, however, may assert that a
loss realized upon an exchange of securities for Creation Units cannot be
deducted currently under the rules governing "wash sales," or on the basis that
there has been no significant change in economic position. Persons exchanging
securities should consult their own tax adviser with respect to whether wash
sale rules apply and when a loss might be deductible.
Under current U.S. federal income tax laws, any capital gain or loss
realized upon a redemption of Creation Units is generally treated as long-term
capital gain or loss if the Shares have been held for
- 23 -
more than one year and as a short-term capital gain or loss if the Shares have
been held for one year or less.
If you create or redeem Creation Units, you will be sent a confirmation
statement showing how many Shares you created or sold and at what price.
The foregoing discussion summarizes some of the consequences under current
U.S. federal income tax law of an investment in the Funds. 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.
- 24 -
LICENSE AGREEMENT
The Adviser has entered into a licensing agreement with S-Network Global
Indexes LLC to use the Hard Assets Producers Index and Ardour Global Indexes LLC
to use the Solar Energy Index. Each Fund is entitled to use its respective
benchmark Index pursuant to a sub-licensing arrangement with the Adviser.
[To come.]
- 25 -
STATEMENT OF ADDITIONAL INFORMATION
DATED [ ], 2008
This Statement of Additional Information ("SAI") is not a Prospectus. It
should be read in conjunction with the Prospectus dated [ ], 2008 (the
"Prospectus") for the Market Vectors ETF Trust (the "Trust"), relating to Market
Vectors--Hard Assets Producers ETF and Market Vectors--Solar Energy ETF (each, a
"Fund" and, together, the "Funds"), as it may be revised from time to time. A
copy of the Prospectus for the Trust, relating to the Funds, may be obtained
without charge by writing to the Trust or the Distributor. The Trust's address
is 99 Park Avenue, 8th Floor, New York, New York 10016. Capitalized terms used
herein that are not defined have the same meaning as in the Prospectus, unless
otherwise noted.
TABLE OF CONTENTS
PAGE
General Description of the Trust .......................................... 2
Investment Policies and Restrictions ...................................... 3
Special Considerations and Risks .......................................... 7
Exchange Listing and Trading .............................................. 11
Board of Trustees of the Trust ............................................ 13
Portfolio Holdings Disclosure ............................................. 19
Quarterly Portfolio Schedule .............................................. 19
Code of Ethics ............................................................ 19
Proxy Voting Policies and Procedures ...................................... 19
Management ................................................................ 20
Brokerage Transactions .................................................... 23
Book Entry Only System .................................................... 23
Creation and Redemption of Creation Units ................................. 25
Settlement Periods Greater Than Seven Days for Year 2008 .................. 31
Determination of Net Asset Value .......................................... 33
Dividends and Distributions ............................................... 34
Dividend Reinvestment Service ............................................. 34
Control Persons ........................................................... 34
Taxes ..................................................................... 34
Capital Stock and Shareholder Reports ..................................... 37
Counsel and Independent Registered Public Accounting Firm ................. 38
Van Eck Global Proxy Voting Policies ...................................... 39
|
i
The information contained herein regarding the Hard Assets Producers
Index(SM) and the Ardour Solar Energy Index(SM) (each, an "Index") was provided
by S-Network Global Indexes LLC and Ardour Global Indexes LLC, respectively,
while the information contained herein regarding the securities markets and The
Depository Trust Company ("DTC") was obtained from publicly available sources.
[DISCLAIMERS TO COME.]
GENERAL DESCRIPTION OF THE TRUST
The Trust is an open-end management investment company. The Trust
currently consists of twenty-one investment portfolios. This SAI relates to two
investment portfolios, Market Vectors--Hard Assets Producers ETF and Market
Vectors--Solar Energy ETF (each, a "Fund" and, together, the "Funds"). The Funds
invest in common stocks and depositary receipts consisting of some or all of the
component securities of each Fund's respective benchmark Index. The Trust was
organized as a Delaware statutory trust on March 15, 2001. The shares of each
Fund are referred to herein as "Shares."
The Funds offer and issue Shares at their net asset value ("NAV") only in
aggregations of a specified number of Shares (each, a "Creation Unit"), usually
in exchange for a basket of Deposit Securities (together with the deposit of a
specified cash payment). The shares of the Market Vectors--Hard Assets Producers
ETF and Market Vectors--Solar Energy ETF are expected to be approved for
listing, subject to notice of issuance, on the [ ] (the "Exchange"), and will
trade in the secondary market at market prices. Those prices may differ from the
Shares' NAV. Similarly, Shares are also redeemable by the Funds only in Creation
Units, and generally in exchange for specified securities held by each Fund and
a specified cash payment. A Creation Unit consists of 50,000 Shares of each
Fund.
The Trust reserves the right to offer a "cash" option for creations and
redemptions of Shares (subject to applicable legal requirements). In each
instance of such cash creations or redemptions, the Trust may impose transaction
fees based on transaction expenses in the particular exchange that will be
higher than the transaction fees associated with in-kind purchases or
redemptions. In all cases, such fees will be limited in accordance with the
requirements of the Securities and Exchange Commission (the "SEC") applicable to
management investment companies offering redeemable securities.
2
INVESTMENT POLICIES AND RESTRICTIONS
REPURCHASE AGREEMENTS
The Funds 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 a Fund acquires a money market instrument (generally a
security issued by the U.S. Government or an agency thereof, a banker's
acceptance or a certificate of deposit) from a seller, subject to resale to the
seller at an agreed upon price and date (normally, the next business day). A
repurchase agreement may be considered a loan collateralized by securities. The
resale price reflects an agreed upon interest rate effective for the period the
instrument is held by a Fund and is unrelated to the interest rate on the
underlying instrument.
In these repurchase agreement transactions, the securities acquired by a
Fund (including accrued interest earned thereon) must have a total value at
least equal to the value of the repurchase agreement and are held by the Trust's
custodian bank until repurchased. In addition, the Trust's Board of Trustees
("Board" or "Trustees") monitors each Fund's repurchase agreement transactions
generally and has established guidelines and standards for review of the
creditworthiness of any bank, broker or dealer counterparty to a repurchase
agreement with the Fund. No more than an aggregate of 15% of each Fund's net
assets will be invested in repurchase agreements having maturities longer than
seven days and securities subject to legal or contractual restrictions on
resale, or for which there are no readily available market quotations.
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Funds may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by a Fund not within the control of
the Fund and, therefore, the Fund may not be able to substantiate its interest
in the underlying security and may be deemed an unsecured creditor of the other
party to the agreement. While the Trust's management acknowledges these risks,
it is expected that they can be controlled through careful monitoring
procedures.
FUTURES CONTRACTS, OPTIONS, SWAP AGREEMENTS AND CURRENCY FORWARDS
The Funds may utilize futures contracts, options, swap agreements and
currency forwards. Futures contracts generally provide for the future sale by
one party and purchase by another party of a specified instrument, index or
commodity at a specified future time and at a specified price. Stock index
futures contracts are settled daily with a payment by one party to the other of
a cash amount based on the difference between the level of the stock index
specified in the contract from one day to the next. Futures contracts are
standardized as to maturity date and underlying instrument and are traded on
futures exchanges. The Funds may use futures contracts and options on futures
contracts based on other indexes or combinations of indexes that the Adviser
(defined herein) believes to be representative of each Fund's respective
benchmark Index.
Although futures contracts (other than cash settled futures contracts
including most stock index futures contracts) by their terms call for actual
delivery or acceptance of the underlying instrument or commodity, in most cases
the contracts are closed out before the maturity date without the making or
taking of delivery. Closing out an open futures position is done by taking an
opposite position ("buying" a contract which has previously been "sold" or
"selling" a contract previously "purchased") in an
3
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 Funds expect to earn interest income on their margin
deposits.
The Funds may use futures contracts and options thereon, together with
positions in cash and money market instruments, to simulate full investment in
each Fund's respective Index. [Liquid futures contracts are not currently
available for the benchmark Index of each Fund.] Under such circumstances, the
Adviser may seek to utilize other instruments that it believes to be correlated
to each Fund's respective Index components or a subset of the components.
RESTRICTIONS ON THE USE OF FUTURES AND OPTIONS
Except as otherwise specified in the Funds' Prospectus or this SAI, there
are no limitations on the extent to which the Funds may engage in transactions
involving futures and options thereon. The Funds will take steps to prevent
their futures positions from "leveraging" its securities holdings. When a 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 a Fund has a
short futures position as part of a complex stock replication strategy, the Fund
will maintain with their custodian bank assets substantially identical to those
underlying the contract or cash and liquid securities (or a combination of the
foregoing) having a value equal to the net obligation of the Fund under the
contract (less the value of any margin deposits in connection with the
position).
SWAP AGREEMENTS
Swap agreements are contracts between parties in which one party agrees to
make payments to the other party based on the change in market value or level of
a specified index or asset. In return, the other party agrees to make payments
to the first party based on the return of a different specified index or asset.
Although swap agreements entail the risk that a party will default on its
payment obligations thereunder, each 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 a Fund's obligations over its entitlements with
respect to each swap is accrued on a daily basis and an amount of cash or high
liquid securities having an aggregate value at least equal to the accrued excess
is maintained in an account at the Trust's custodian bank.
4
FUTURE DEVELOPMENTS
The Funds may take advantage of opportunities in the area of options,
futures contracts, options on futures contracts, options on the Funds, 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 a Fund by the Adviser.
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions as fundamental
policies with respect to each Fund. These restrictions cannot be changed without
the approval of the holders of a majority of each Fund's outstanding voting
securities. For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), a majority of the outstanding voting securities of a Fund means the
vote, at an annual or a special meeting of the security holders of the Trust, of
the lesser of (1) 67% or more of the voting securities of the Fund present at
such meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy, or (2) more than 50%
of the outstanding voting securities of the Fund. Under these restrictions:
1. Each Fund may not make loans, except that the Fund may (i) lend
portfolio securities, (ii) enter into repurchase agreements, (iii)
purchase all or a portion of an issue of debt securities, bank loan
or participation interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the
purchase is made upon the original issuance of the securities and
(iv) participate in an interfund lending program with other
registered investment companies;
2. Each Fund may not borrow money, except as permitted under the 1940
Act, and as interpreted or modified by regulation from time to time;
3. Each Fund may not issue senior securities, except as permitted under
the 1940 Act, and as interpreted or modified by regulation from time
to time;
4. Each Fund may not purchase a security (other than obligations of the
U.S. Government, its agencies or instrumentalities) if, as a result,
25% or more of its total assets would be invested in a single
issuer;
5. Each Fund may not purchase or sell real estate, except that the Fund
may (i) invest in securities of issuers that invest in real estate
or interests therein; (ii) invest in mortgage-related securities and
other securities that are secured by real estate or interests
therein; and (iii) hold and sell real estate acquired by the Fund as
a result of the ownership of securities;
6. Each 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;
7. Each 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
5
8. Each 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 a 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.
In addition to the investment restrictions adopted as fundamental policies
as set forth above, each Fund observes the following restrictions, which may be
changed by the Board without a shareholder vote. Each Fund will not:
1. Invest in securities which are "illiquid" securities, including
repurchase agreements maturing in more than seven days and options
traded over-the-counter, if the result is that more than 15% of a
Fund's net assets would be invested in such securities.
2. Mortgage, pledge or otherwise encumber its assets, except to secure
borrowing effected in accordance with the fundamental restriction on
borrowing set forth below.
3. Make short sales of securities.
4. Purchase any security on margin, except for such short-term loans as
are necessary for clearance of securities transactions. The deposit
or payment by a Fund or initial or variation margin in connection
with futures contracts or related options thereon is not considered
the purchase of a security on margin.
5. Participate in a joint or joint-and-several basis in any trading
account in securities, although transactions for the Funds and any
other account under common or affiliated management may be combined
or allocated between the Fund and such account.
6. 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,
each 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 each Fund with exposure to the securities in its
benchmark Index. These investments may be made to invest uncommitted cash
balances or, in limited circumstances, to assist in meeting shareholder
redemptions of Creation Units. Each Fund also will not invest in money market
instruments as part of a temporary defensive strategy to protect against
potential stock market declines.
6
SPECIAL CONSIDERATIONS AND RISKS
A discussion of the risks associated with an investment in each Fund is
contained in the Funds' Prospectus under the headings "Market Vectors--Hard
Assets Producers ETF--Principal Risks of Investing in the Fund," "Market
Vectors--Solar Energy ETF--Principal Risks of Investing in the Fund" and
"Additional Risks of Investing in the Funds." The discussion below supplements,
and should be read in conjunction with, such sections of the Prospectus.
GENERAL
Investment in each Fund should be made with an understanding that the
value of the Fund's portfolio securities may fluctuate in accordance with
changes in the financial condition of the issuers of the portfolio securities,
the value of common stocks generally and other factors.
An investment in each 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 a Fund's 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 a Fund's Shares will be adversely affected if trading markets
for the Fund's portfolio securities are limited or absent or if bid/ask spreads
are wide.
The Funds are 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 its respective Index.
An investment in each Fund should also be made with an understanding that
the Fund will not be able to replicate exactly the performance of its respective
Index because the total return generated by the securities will be reduced by
transaction costs incurred in adjusting the actual balance of the securities and
other Fund expenses, whereas such transaction costs and expenses are not
included in the calculation of its respective Index. It is also possible that
for short periods of time, a Fund may not fully replicate the
7
performance of its respective Index due to the temporary unavailability of
certain Index securities in the secondary market or due to other extraordinary
circumstances. Such events are unlikely to continue for an extended period of
time because a Fund is required to correct such imbalances by means of adjusting
the composition of the securities. It is also possible that the composition of a
Fund may not exactly replicate the composition of its respective Index if the
Fund has to adjust its portfolio holdings in order to continue to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code").
Shares are subject to the risk of an investment in a portfolio of equity
securities in an economic sector in which the Index is highly concentrated. In
addition, because it is the policy of each Fund to generally invest in the
securities that comprise its respective Index, the portfolio of securities held
by such Fund ("Fund Securities") also will be concentrated in that industry.
FUTURES AND OPTIONS TRANSACTIONS
Positions in futures contracts and options may be closed out only on an
exchange which provides a secondary market therefor. However, there can be no
assurance that a liquid secondary market will exist for any particular futures
contract or option at any specific time. Thus, it may not be possible to close a
futures or options position. In the event of adverse price movements, the Funds
would continue to be required to make daily cash payments to maintain its
required margin. In such situations, if a 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 Funds may be required
to make delivery of the instruments underlying futures contracts they have sold.
The Funds will seek to minimize the risk that they 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 Funds do not plan to use futures and options
contracts in this way. The risk of a futures position may still be large as
traditionally measured due to the low margin deposits required. In many cases, a
relatively small price movement in a futures contract may result in immediate
and substantial loss or gain to the investor relative to the size of a required
margin deposit. The Funds, however, intend to utilize futures and options
contracts in a manner designed to limit their risk exposure to that which is
comparable to what it would have incurred through direct investment in stocks.
Utilization of futures transactions by the Funds involves the risk of
imperfect or even negative correlation to each Fund's respective benchmark Index
if the index underlying the futures contracts differs from the benchmark Index.
There is also the risk of loss by the Funds of margin deposits in the event of
bankruptcy of a broker with whom a Fund has an open position in the futures
contract or option.
Certain financial futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of future positions and
subjecting some futures traders to substantial losses.
8
SWAPS
The use of swap agreements involves certain risks. For example, if the
counterparty, under a swap agreement, defaults on its obligation to make
payments due from it as a result of its bankruptcy or otherwise, the Funds may
lose such payments altogether or collect only a portion thereof, which
collection could involve costs or delay.
U.S. FEDERAL TAX TREATMENT OF FUTURES CONTRACTS
The Funds may be required for federal income tax purposes to
mark-to-market and recognize as income for each taxable year their net
unrealized gains and losses on certain futures contracts as of the end of the
year as well as those actually realized during the year. The Funds may be
required to defer the recognition of losses on futures contracts to the extent
of any unrecognized gains on related positions held by the Funds.
In order for each Fund to continue to qualify for U.S. federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income, I.E., dividends,
interest, income derived from loans of securities, gains from the sale of
securities or of foreign currencies or other income derived with respect to a
Fund's business of investing in securities. It is anticipated that any net gain
realized from the closing out of futures contracts will be considered gain from
the sale of securities and therefore will be qualifying income for purposes of
the 90% requirement.
The Funds distribute to shareholders annually any net capital gains which
have been recognized for U.S. federal income tax purposes (including unrealized
gains at the end of a Fund's fiscal year) on futures transactions. Such
distributions are combined with distributions of capital gains realized on each
Fund's other investments and shareholders are advised on the nature of the
distributions.
CONTINUOUS OFFERING
The method by which Creation Units are created and traded may raise
certain issues under applicable securities laws. Because new Creation Units are
issued and sold by the Trust on an ongoing basis, 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
9
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 relevant Exchange upon request.
The prospectus delivery mechanism provided in Rule 153 is only available with
respect to transactions on an exchange.
10
EXCHANGE LISTING AND TRADING
A discussion of exchange listing and trading matters associated with an
investment in the Funds is contained in the Funds' Prospectus under the headings
"Market Vectors--Hard Assets Producers ETF--Principal Risks of Investing in the
Fund," "Market Vectors--Solar Energy ETF--Principal Risks of Investing in the
Fund," "Shareholder Information--Determination of NAV" and "Shareholder
Information--Buying and Selling Exchange-Traded Shares." The discussion below
supplements, and should be read in conjunction with, such sections of the Funds'
Prospectus.
The Shares of Market Vectors--Hard Assets Producers ETF and Market
Vectors--Solar Energy ETF will be traded, subject to notice of issuance, 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 Funds will continue to be met.
The Exchange may but is not required to remove the Shares of the Funds
from listing if: (1) following the initial twelve-month period beginning upon
the commencement of trading of the Funds, there are fewer than 50 beneficial
holders of the Shares for 30 or more consecutive trading days, (2) the value of
a Fund's respective underlying Index or portfolio of securities on which the
Funds 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 Exchanges, 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 Funds on a per Share basis, an updated
Indicative Per Share Portfolio Value is disseminated intra-day through the
facilities of the Consolidated Tape Association's 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
Funds are not involved in or responsible for the calculation or dissemination of
the Indicative Per Share Portfolio Value and make 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 each 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 a Fund on a given day. While the equity securities value component estimates
the current market value of a Fund's portfolio securities, it does not
necessarily reflect the precise composition or market value of the current
portfolio of securities held by the Trust for the Fund at a particular point in
time. Therefore, the Indicative Per Share Portfolio Value disseminated during
Exchange trading hours should be viewed only as an estimate of a Fund's 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., New York time) on each
day Business Day.
11
In addition to the equity securities value component described in the
preceding paragraph, the Indicative Per Share Portfolio Value for each 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.
12
BOARD OF TRUSTEES OF THE TRUST
TRUSTEES AND OFFICERS OF THE TRUST
The Board has responsibility for the overall management and operations of
the Trust, including general supervision of the duties performed by the Adviser
and other service providers. The Board currently consists of four Trustees.
INDEPENDENT TRUSTEES
--------------------------------------------------------------------------------------------------------------------
TERM OF NUMBER OF
OFFICE(2) PORTFOLIOS
POSITION(S) AND LENGTH IN FUND OTHER
NAME, ADDRESS(1) HELD WITH OF TIME PRINCIPAL OCCUPATION(S) COMPLEX(3) DIRECTORSHIPS
AND AGE FUNDS SERVED DURING PAST FIVE YEARS OVERSEEN HELD BY TRUSTEE
--------------------------------------------------------------------------------------------------------------------
David H. Chow 50* Trustee Since 2006 Chief Investment Officer, 21 None.
Torch Hill Investment
Partners (private equity
firm), September 2007 to
present; Managing
Partner, Lithos Capital
Partners LLC (private
equity firm), January
2006 to September 2007;
Managing Director,
DanCourt Management LLC
(strategy consulting
firm), March 1999 to
present; Managing
Director, AIG Horizon
Partners, LLC (venture
capital firm), May 2000
to July 2002.
--------------------------------------------------------------------------------------------------------------------
R. Alastair Short 54* Trustee Since 2006 Vice Chairman, W.P. 30 None.
Stewart & Co., Ltd.
(asset management firm),
September 2007 to
present; Managing
Director, The GlenRock
Group, LLC (private
equity investment firm),
May 2004 to September
2007; President, Apex
Capital Corporation
(personal investment
vehicle), Jan. 1988 to
present; President,
Matrix Global
Investments, Inc. and
predecessor company
(private investment
company), September 1995
to January 1999.
--------------------------------------------------------------------------------------------------------------------
Richard D. Stamberger 48* Trustee Since 2006 Director, President and 28 None.
CEO, SmartBrief, Inc.
--------------------------------------------------------------------------------------------------------------------
|
(1) The address for each Trustee and officer is 99 Park Avenue, 8th Floor,
New York, New York 10016.
13
(2) Each Trustee serves until resignation, death, retirement or removal.
Officers are elected yearly by the Trustees.
(3) The Fund Complex consists of the Van Eck Funds, Van Eck Funds, Inc., Van
Eck Worldwide Insurance Trust and the Trust.
* Member of the Audit Committee.
INTERESTED TRUSTEES
-----------------------------------------------------------------------------------------------------------------------
TERM OF NUMBER OF OTHER
OFFICE(2) PORTFOLIOS DIRECTORSHIPS
POSITION(S) AND LENGTH IN FUND HELD OUTSIDE
NAME, ADDRESS(1) HELD WITH OF TIME PRINCIPAL OCCUPATION(S) COMPLEX(3) THE FUND
AND AGE FUNDS SERVED DURING PAST FIVE YEARS OVERSEEN COMPLEX:
-----------------------------------------------------------------------------------------------------------------------
Jan F. van Eck(4) 44 Trustee Since 2006 Director and Executive 21 Director,
Vice President, Van Eck Greylock
Associates Corporation; Capital
Director, Executive Vice Associates LLC.
President and Chief
Compliance Officer, Van
Eck Securities
Corporation; Director and
President, Van Eck
Absolute Return Advisers
Corp.
-----------------------------------------------------------------------------------------------------------------------
|
(1) The address for each Trustee and officer is 99 Park Avenue, 8th Floor,
New York, New York 10016.
(2) Each Trustee serves until resignation, death, retirement or removal.
Officers are elected yearly by the Trustees.
(3) The Fund Complex consists of the Van Eck Funds, Van Eck Funds, Inc., Van
Eck Worldwide Insurance Trust and the Trust.
(4) "Interested person" of the Funds within the meaning of the 1940 Act.
Mr. van Eck is an officer of the Adviser.
OFFICER INFORMATION
The Officers of the Trust, their addresses, positions with the Funds, ages
and principal occupations during the past five years are set forth below.
----------------------------------------------------------------------------------------------------------------------
TERM OF
OFFICE(2) AND
NAME, ADDRESS(1) POSITION(S) HELD LENGTH OF
AND AGE WITH FUND TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
----------------------------------------------------------------------------------------------------------------------
Charles T. Cameron 47 Vice President Since 2006 Director of Trading, Van Eck Associates
Corporation; Co-Portfolio Manager, Worldwide
Bond Fund Series; Officer of three other
investment companies advised by the Adviser.
----------------------------------------------------------------------------------------------------------------------
|
14
----------------------------------------------------------------------------------------------------------------------
TERM OF
OFFICE(2) AND
NAME, ADDRESS(1) POSITION(S) HELD LENGTH OF
AND AGE WITH FUND TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
----------------------------------------------------------------------------------------------------------------------
Keith Carlson 51 Chief Executive Since 2006 President, Van Eck Associates Corporation and
Officer and President, Van Eck Securities Corporation since
President February 2004; Private Investor, June 2003 -
January 2004; Independent Consultant, Waddell &
Reed, Inc., April 2003 - May 2003; Senior Vice
President, Waddell & Reed, Inc., December 2002 -
March 2003; President/Chief Executive
Officer/Director/Executive Vice President/Senior
Vice President, Mackenzie Investment Management
Inc., April 1985 - December 2002;
President/Chief Executive Officer/Director, Ivy
Mackenzie Distributors, Inc., June 1993 -
December 2002; Chairman/Director/President, Ivy
Mackenzie Services Corporation, June 1993 -
December 2002; Chairman/Director/Senior Vice
President, Ivy Management Inc., January 1992 -
December 2002; Officer of three other investment
companies advised by the Adviser.
----------------------------------------------------------------------------------------------------------------------
Susan C. Lashley 52 Vice President Since 2006 Vice President, Van Eck Associates Corporation;
Vice President, Mutual Fund Operations, Van Eck
Securities Corporation; Officer of three other
investment companies advised by the Adviser.
----------------------------------------------------------------------------------------------------------------------
Thomas K. Lynch 51 Chief Compliance Since 2006 Chief Compliance Officer, Van Eck Associates
Officer Corporation and Van Eck Absolute Return Advisers
Corp., since December 2006; Vice President, Van
Eck Associates Corporation and Van Eck Absolute
Return Advisers Corp., since April 2005; Second
Vice President, Investment Reporting, TIAA-CREF,
January 1996 - April 2005; Senior Manager,
Audits, Grant Thornton, December 1993 - January
1996; Senior Manager, Audits, McGladrey &
Pullen, December 1986 - December 1993; Officer
of three other investment companies advised by
the Adviser.
----------------------------------------------------------------------------------------------------------------------
Joseph J. McBrien 59 Senior Vice Since 2006 Senior Vice President, General Counsel and
President and Secretary, Van Eck Associates Corporation, Van
Secretary Eck Securities Corporation and Van Eck Absolute
Return Advisers Corp., since December 2005;
Managing Director, Chatsworth Securities LLC,
March 2001 - November 2005; Private
Investor/Consultant, September 2000 - February
2001; Executive Vice President and General
Counsel, Mainstay Management LLC, September 1999
- August 2000; Officer of three other investment
companies advised by the Adviser.
----------------------------------------------------------------------------------------------------------------------
|
15
----------------------------------------------------------------------------------------------------------------------
TERM OF
OFFICE(2) AND
NAME, ADDRESS(1) POSITION(S) HELD LENGTH OF
AND AGE WITH FUND TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
----------------------------------------------------------------------------------------------------------------------
Alfred J. Ratcliffe 60 Vice President and Since 2006 Vice President, Van Eck Associates Corporation
Treasurer since November 2006; Vice President and Director
of Mutual Fund Accounting and Administration,
PFPC, March 2000 to November 2006; First Vice
President and Treasurer, Zweig Mutual Funds,
March 1995 to December 1999; Vice President and
Director of Mutual Fund Accounting and
Administration, The Bank of New York, December
1987 to March 1995; Officer of three other
investment companies advised by the Adviser.
----------------------------------------------------------------------------------------------------------------------
Jonathan R. Simon 33 Vice President and Since 2006 Vice President, Associate General Counsel, Van
Assistant Secretary Eck Associates Corporation, Van Eck Securities
Corporation and Van Eck Absolute Return Advisers
Corp. since August 2006, Associate, Schulte
Roth & Zabel LLP, 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 52 Senior Vice Since 2006 Senior Vice President and Chief Financial
President and Chief Officer, Van Eck Associates Corporation; Senior
Financial Officer Vice President, Chief Financial Officer,
Treasurer and Controller, Van Eck Securities
Corporation and Van Eck Absolute Return Advisers
Corp.; Officer of three other investment
companies advised by the Adviser.
----------------------------------------------------------------------------------------------------------------------
Derek S. van Eck(3) 43 Executive Vice Since 2006 President of Worldwide Hard Assets Fund series
President and the Worldwide Real Estate Fund series of Van
Eck Worldwide Insurance Trust and the Global
Hard Assets Fund series of Van Eck Funds;
Director of Van Eck Associates Corporation;
Director and Executive Vice President, Van Eck
Securities Corporation; Director and Executive
Vice President, Van Eck Absolute Return Advisers
Corp.; Director, Greylock Capital Associates LLC.
----------------------------------------------------------------------------------------------------------------------
Jan F. van Eck(3) 44 Executive Vice Since 2006 Director and Executive Vice President, Van Eck
President Associates Corporation; Director, Executive Vice
President and Chief Compliance Officer, Van Eck
Securities Corporation; Director and President,
Van Eck Absolute Return Advisers Corporation;
Director, Greylock Capital Associates LLC.
----------------------------------------------------------------------------------------------------------------------
|
(1) The address for each Officer is 99 Park Avenue, 8th Floor, New York, New
York 10016.
16
(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 six times during the fiscal year ended December
31, 2007.
The Board has an Audit Committee, consisting of three Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust (an "Independent
Trustee"). 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
Audit Committee. The Audit Committee has the responsibility, among other things,
to: (i) oversee the accounting and financial reporting processes of the Trust
and its internal control over financial reporting and, as the Audit Committee
deems appropriate, to inquire into the internal control over financial reporting
of certain third-party service providers; (ii) oversee the quality and integrity
of the Trust's financial statements and the independent audit thereof; (iii)
oversee or, as appropriate, assist the Board's oversight of the Trust's
compliance with legal and regulatory requirements that relate to the Trust's
accounting and financial reporting, internal control over financial reporting
and independent audit; (iv) approve prior to appointment the engagement of the
Trust's independent registered public accounting firm and, in connection
therewith, to review and evaluate the qualifications, independence and
performance of the Trust's independent registered public accounting firm; and
(v) act as a liaison between the Trust's independent registered public
accounting firm and the full Board. The Audit Committee met two times during the
fiscal year ended December 31, 2007.
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.
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) develop corporate governance
guidelines for the Trust and the Board, (v) 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 (vi) review and assess, from time to time, the performance of
the committees and subcommittees of the Board and report results to the Board.
The Nominating and Corporate Governance Committee met two times during the
fiscal year ended December 31, 2007.
The officers and Trustees of the Trust, in the aggregate, own less than 1%
of the Shares of each Fund.
For each Trustee, the dollar range of equity securities beneficially owned
by the Trustee in the Trust and in all registered investment companies overseen
by the Trustee is shown below.
-------------------------------------------------------------------------------------------------------
AGGREGATE DOLLAR RANGE OF EQUITY
DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT
SECURITIES IN MARKET COMPANIES OVERSEEN BY TRUSTEE IN
VECTORS ETF TRUST FAMILY OF INVESTMENT COMPANIES
NAME OF TRUSTEE (AS OF DECEMBER 31, 2007) (AS OF DECEMBER 31, 2007)
David H. Chow $50,001 - $100,000 $50,001 - $100,000
R. Alastair Short None $10,001 - $50,000
Richard D. Stamberger $10,001 - $50,000 Over $100,000
Jan F. van Eck $10,001 - $50,000 Over $100,000
-------------------------------------------------------------------------------------------------------
|
17
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 Funds, 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 Funds.
REMUNERATION OF TRUSTEES
The Trust pays each Independent Trustee an annual retainer of $10,000, a
per meeting fee of $5,000 for scheduled quarterly meetings of the Board and each
special meeting of the Board and a per meeting fee of $2,500 for telephonic
meetings. The Trust pays the Chairman of the Board an annual retainer of $10,000
and each Trustee who acts as chairman of a committee an annual retainer of
$5,000. 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,
2008. Annual Trustee fees may be reviewed periodically and changed by the
Trust's Board.
------------------------------------------------------------------------------------------------------------------------------
TOTAL
ESTIMATED COMPENSATION
PENSION OR RETIREMENT ANNUAL FROM THE TRUST
AGGREGATE DEFERRED BENEFITS ACCRUED AS BENEFITS AND THE FUND
COMPENSATION COMPENSATION PART OF THE TRUST'S UPON COMPLEX(1) PAID
NAME OF TRUSTEE FROM THE TRUST FROM THE TRUST EXPENSES(2) RETIREMENT TO TRUSTEE(2)
--------------- -------------- -------------- --------------------- ---------- ---------------
David H. Chow $ 0 $ 40,000 N/A N/A $ 40,000
R. Alastair Short $ 40,000 $ 0 N/A N/A $ 90,500
Richard D. Stamberger $ 26,250 $ 8,750 N/A N/A $ 92,500
Jan F. van Eck(3) $ 0 $ 0 N/A N/A $ 0
------------------------------------------------------------------------------------------------------------------------------
|
(1) The "Fund Complex" consists of Van Eck Funds, Van Eck Funds, Inc., Van Eck
Worldwide Insurance Trust and theTrust.
(2) Because the funds of the Trust have different fiscal year ends, the
amounts shown are presented on a calendar year basis.
(3) "Interested person" under the 1940 Act.
18
PORTFOLIO HOLDINGS DISCLOSURE
Each Fund's portfolio holdings are publicly disseminated each day the Fund
is open for business through financial reporting and news services, including
publicly accessible Internet web sites. In addition, a basket composition file,
which includes the security names and share quantities to deliver in exchange
for Shares, 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 SEC. The basket represents one Creation Unit of each Fund.
The Trust, Adviser, Custodian and Distributor will not disseminate non-public
information concerning the Trust.
QUARTERLY PORTFOLIO SCHEDULE
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 Funds will be available on the SEC's website at
HTTP://WWW.SEC.GOV. The Funds' Form N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. and information on the operation
of the Public Reference Room may be obtained by calling 202.551.8090. The Funds'
Form N-Q will be available through the Funds' website, at WWW.VANECK.COM or by
writing to 99 Park Avenue, 8th Floor, New York, New York 10016.
CODE OF ETHICS
The Funds, 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 Funds 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 a Fund within seven
days, or otherwise if it is determined that the personal trading activity will
not have a negative or appreciable impact on the price or market of the
security, or is of such a nature that it does not present the dangers or
potential for abuses that are likely to result in harm or detriment to the
Funds. 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.
PROXY VOTING POLICIES AND PROCEDURES
The Funds' proxy voting record will be available upon request and on the
SEC's website at HTTP://WWW.SEC.GOV. Proxies for each Fund's portfolio
securities are voted in accordance with the Adviser's proxy voting policies and
procedures, which are set forth in Appendix A to this SAI.
The Trust is required to disclose annually each Fund's complete proxy
voting record on Form N-PX covering the period July 1 through June 30 and file
it with the SEC no later than August 31. Form N-PX for the Funds will be
available through the Funds' website, at www.vaneck.com, or by writing to 99
Park Avenue, 8th Floor, New York, New York 10016. The Funds' Form N-PX will also
be available on the SEC's website at WWW.SEC.GOV.
19
MANAGEMENT
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Management."
THE INVESTMENT MANAGER
Van Eck Associates Corporation (the "Adviser") acts as investment manager
to the Trust and, subject to the supervision of the Board, is responsible for
the day-to-day investment management of the Funds. The Adviser is a private
company with headquarters in New York and manages other mutual funds and
separate accounts.
The Adviser serves as investment manager to the Funds 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 each 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 Funds.
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
each Fund's average daily net assets at the annual rate of [ ]%. From time to
time, the Adviser may waive all or a portion of its fees. Until at least [ ],
2009, the Adviser has contractually agreed to waive fees and/or pay Fund
expenses to the extent necessary to prevent the operating expenses of each Fund
(excluding interest expense, brokerage commissions, offering costs and other
trading expenses, fees, taxes and extraordinary expenses) from exceeding [ ]% of
average daily net assets per year. The offering costs excluded from the expense
caps are: (a) legal fees pertaining to a Fund's Shares offered for sale; (b) SEC
and state registration fees; and (c) initial fees paid to be listed on an
exchange.
TERM. The Investment Management Agreement continues in effect until [ ],
200[ ]. 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 each 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 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 a Fund's outstanding voting securities. The Investment
Management Agreement is also terminable upon 60 days notice by the Adviser and
will terminate automatically in the event of its assignment (as defined in the
1940 Act).
LEGAL INVESTIGATIONS AND PROCEEDINGS. In July 2004, Van Eck Associates
Corporation ("VEAC") received a "Wells Notice" from the SEC in connection with
the SEC's investigation of market-timing activities. This Wells Notice informed
VEAC that the SEC staff was considering recommending that the SEC bring a civil
or administrative action alleging violations of U.S. securities laws against
VEAC and two of its senior officers. Under SEC procedures, VEAC has an
opportunity to respond to the SEC staff before the staff makes a formal
recommendation. The time period for VEAC's response has been extended until
further notice from the SEC and, to the best knowledge of VEAC, no formal
recommendation has been made to the SEC to date. There cannot be any assurance
that, if the SEC were to assess sanctions against VEAC, such sanctions would not
materially and adversely affect VEAC. If it is determined that VEAC or its
affiliates engaged in improper or wrongful activity that caused a loss to the
Van Eck Funds or the Van Eck Worldwide Insurance Trust (together, the "Funds"
and each a "Fund"), the Board of Trustees of the Funds will determine the amount
of restitution that should be made to a Fund or its shareholders. At the present
time, the amount of such restitution, if any, has not been determined. The Board
and VEAC are currently working to resolve outstanding issues relating to these
matters.
20
THE ADMINISTRATOR
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 Funds. The Adviser will generally
assist in all aspects of the Trust's 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.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York Mellon Corporation serves as custodian for the Funds
pursuant to a Custodian Agreement. As Custodian, The Bank of New York Mellon
Corporation holds the Funds' assets. The Bank of New York Mellon Corporation
serves as each Fund's transfer agent pursuant to a Transfer Agency Agreement.
The Bank of New York Mellon Corporation may be reimbursed by each Fund for its
out-of-pocket expenses. In addition, The Bank of New York Mellon Corporation
provides various accounting services to each of the Funds pursuant to a fund
accounting agreement.
THE DISTRIBUTOR
Van Eck Securities Corporation (the "Distributor") is the principal
underwriter and distributor of Shares. Its principal address is 99 Park Avenue,
New York, New York 10016 and investor information can be obtained by calling
1-888-MKT-VCTR. The Distributor has entered into an agreement with the Trust
which will continue from its effective date unless terminated by either party
upon 60 days' prior written notice to the other party by the Trust and the
Adviser, or by the Distributor, or until termination of the Trust or each 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
Units--Procedures 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
21
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 Funds, on at least 60 days written notice
to the Distributor. The Distribution Agreement is also terminable upon 60 days
notice by the Distributor and will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
THE PORTFOLIO MANAGERS
The portfolio managers who currently share joint responsibility for the
day-to-day management of each Fund's portfolio are Hao-Hung (Peter) Liao and
Edward M. Kuczma, Jr. Mr. Liao has been employed by the Adviser since the summer
of 2004. Mr. Liao attended New York University from 2000 to 2004 where he
received a Bachelor of Arts majoring in mathematics and economics. Prior to Mr.
Liao's current role of portfolio manager to certain funds of the Trust, Mr. Liao
served as investment analyst for the Worldwide Absolute Return Fund where his
role included manager review, performance attribution, changes in manager
mandates and risk management. Mr. Liao continues to serve in this capacity. Mr.
Kuczma has been employed by the Adviser since January of 2004. Prior to Mr.
Kuczma's current role of investment analyst, he worked from January 2004 to June
2004 in Portfolio Administration for the Adviser. After serving as a fund
administrator for international portfolios, Mr. Kuczma became an analyst for
emerging market companies. He also serves on a committee that reviews managers
and changing mandates for a multi-manager absolute return strategy. Mr. Kuczma
attended Georgetown University from 1999 to 2003. Messrs. Liao and Kuczma serve
as portfolio managers of eleven portfolios of the Trust, including the Funds.
Other than the eleven portfolios of the Trust, Messrs. Liao and Kuczma do not
manage any other registered investment companies, pooled investment vehicles or
other accounts. Because each Fund is new, Messrs. Liao and Kuczma will be
serving as the portfolio managers of each Fund since its inception.
Although the funds in the Trust that are managed by Messrs. Liao and
Kuczma 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 eleven funds
of the Trust presents a material conflict of interest for Messrs. Liao and
Kuczma or the Adviser.
PORTFOLIO 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, 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 affiliates manage accounts with incentive fees.
22
PORTFOLIO MANAGER SHARE OWNERSHIP
As of the date of this SAI, Messrs. Kuczma and Liao did not beneficially
own any Shares of the Funds.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio securities, the Adviser looks for prompt execution of the order at a
favorable price. Generally, the Adviser works with recognized dealers in these
securities, except when a better price and execution of the order can be
obtained elsewhere. The Funds 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 each Fund is investment
performance that corresponds to that of an Index, the Adviser does not intend to
select brokers and dealers for the purpose of receiving research services in
addition to a favorable price and prompt execution either from that broker or an
unaffiliated third party.
The Adviser assumes general supervision over placing orders on behalf of
the Trust for the purchase or sale of portfolio securities. If purchases or
sales of portfolio securities of the Trust and one or more other investment
companies or clients supervised by the Adviser are considered at or about the
same time, transactions in such securities are allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Adviser. In some cases, this procedure could have a detrimental effect on the
price or volume of the security so far as the Trust is concerned. However, in
other cases, it is possible that the ability to participate in volume
transactions and to negotiate lower brokerage commissions will be beneficial to
the Trust. The primary consideration is best execution.
Portfolio turnover may vary from year to year, as well as within a year.
High turnover rates are likely to result in comparatively greater brokerage
expenses. The portfolio turnover rate for the Fund is expected to be under 30%.
See "Market Vectors--Hard Assets Producers ETF--Principal Investment Objective
and Strategies" and "Market Vectors--Solar Energy ETF--Principal Investment
Objective and Strategies" in the Funds' Prospectus. The overall reasonableness
of brokerage commissions is evaluated by the Adviser based upon its knowledge of
available information as to the general level of commissions paid by other
institutional investors for comparable services.
BOOK ENTRY ONLY SYSTEM
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Shareholder Information--Buying and
Selling Exchange-Traded Shares."
DTC acts as securities depositary for the Shares. Shares of the Funds 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, the Exchange and the FINRA.
Access to the DTC system is also available to others such as banks, brokers,
dealers and trust companies
23
that clear through or maintain a custodial relationship with a DTC Participant,
either directly or indirectly (the "Indirect Participants").
Beneficial ownership of Shares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect
Participants. Ownership of beneficial interests in Shares (owners of such
beneficial interests are referred to herein as "Beneficial Owners") is shown on,
and the transfer of ownership is effected only through, records maintained by
DTC (with respect to DTC Participants) and on the records of DTC Participants
(with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC
Participant a written confirmation relating to their purchase of Shares.
Conveyance of all notices, statements and other communications to
Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement
between the Trust and DTC, DTC is required to make available to the Trust upon
request and for a fee to be charged to the Trust a listing of the Shares
holdings of each DTC Participant. The Trust shall inquire of each such DTC
Participant as to the number of Beneficial Owners holding Shares, directly or
indirectly, through such DTC Participant. The Trust shall provide each such DTC
Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Trust shall pay to each such DTC Participant a fair and
reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as
the registered holder of all Shares. DTC or its nominee, upon receipt of any
such distributions, shall credit immediately DTC Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
Shares as shown on the records of DTC or its nominee. Payments by DTC
Participants to Indirect Participants and Beneficial Owners of Shares held
through such DTC Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in a "street name," and will be the
responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspects of the
records relating to or notices to Beneficial Owners, or payments made on account
of beneficial ownership interests in such Shares, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between DTC and the DTC
Participants or the relationship between such DTC Participants and the Indirect
Participants and Beneficial Owners owning through such DTC Participants.
DTC may determine to discontinue providing its service with respect to 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.
24
CREATION AND REDEMPTION OF CREATION UNITS
GENERAL
The Trust issues and sells Shares only in Creation Units on a continuous
basis through the Distributor, without an initial sales load, at their NAV next
determined after receipt, on any Business Day (as defined herein), of an order
in proper form.
A "Business Day" with respect to the Funds is any day on which the
Exchanges are open for business. As of the date of the Prospectus, the Exchanges
observe the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day (Washington's Birthday), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
FUND DEPOSIT
The consideration for a purchase of Creation Units generally consists of
the in-kind deposit of a designated portfolio of equity securities (the "Deposit
Securities") constituting a replication of each Fund's benchmark Index and an
amount of cash computed as described below (the "Cash Component"). Together, the
Deposit Securities and the Cash Component constitute the "Fund Deposit," which
represents the minimum initial and subsequent investment amount for Shares. The
Cash Component represents the difference between the NAV of a Creation Unit and
the market value of Deposit Securities and may include a Dividend Equivalent
Payment. The "Dividend Equivalent Payment" enables each Fund to make a complete
distribution of dividends on the next dividend payment date, and is an amount
equal, on a per Creation Unit basis, to the dividends on all the securities held
by the Fund ("Fund Securities") with ex-dividend dates within the accumulation
period for such distribution (the "Accumulation Period"), net of expenses and
liabilities for such period, as if all of the Fund Securities had been held by
the Trust for the entire Accumulation Period. The Accumulation Period begins on
the ex-dividend date for each Fund and ends on the next ex-dividend date.
The Administrator, through the NSCC (discussed below), makes available on
each Business Day, immediately prior to the opening of business on the Exchange
(currently 9:30 a.m., New York time), the list of the names and the required
number of shares of each Deposit Security to be included in the current Fund
Deposit (based on information at the end of the previous Business Day) as well
as the Cash Component for each Fund. Such Fund Deposit is applicable, subject to
any adjustments as described below, in order to effect creations of Creation
Units of each Fund until such time as the next-announced Fund Deposit
composition is made available.
The identity and number of shares of the Deposit Securities required for a
Fund Deposit for each 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 each Fund's respective benchmark Index. In addition, the
Trust reserves the right to permit or require the substitution of an amount of
cash (I.E., a "cash in lieu" amount) to be added to the Cash Component to
replace any Deposit Security which may, 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 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
25
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 Adviser's discretion, may be capped), applicable registration
fees and taxes. Brokerage commissions incurred in connection with the Trust's
acquisition of Deposit Securities will be at the expense of each 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 (discussed below), also makes available (i) on each Business Day, the
Dividend Equivalent Payment, if any, effective through and including the
previous Business Day, per outstanding Shares of the Fund, and (ii) on a
continuous basis throughout the day, the Indicative Per Share Portfolio Value.
PROCEDURES FOR CREATION OF CREATION UNITS
To be eligible to place orders with the Distributor to create Creation
Units of the Funds, 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 Funds,
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 the relevant Exchange ("Closing Time") (ordinarily 4:00 p.m., New York time)
(3:00 p.m., New York time, for "Custom Orders" (as defined below)) in each case
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
Participant Agreement for any Participating Party intending to follow such
procedures will contain terms and conditions permitting the Trust to use such
collateral to buy the
26
missing portion(s) of the Fund Deposit at any time and will subject such
Participating Party to liability for any shortfall between the cost to the Trust
of purchasing such securities and the value of such collateral. The Trust will
have no liability for any such shortfall. The Trust will return any unused
portion of the collateral to the Participating Party once the entire Fund
Deposit has been properly received by the Distributor and deposited into the
Trust.
Orders to create Creation Units of the Funds 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 Funds may have to be placed by
the investor's broker through a Participating Party or a DTC Participant who has
executed a Participant Agreement. At any given time there may be only a limited
number of broker-dealers that have executed a Participant Agreement. Those
placing orders to create Creation Units of the Funds 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 Process--Domestic Funds" and
"--Placement of Creation Orders Outside Clearing Process--Foreign Funds"). In
the event that a Fund includes both domestic and foreign securities, the time
for submitting orders is as stated in the "Placement of Creation Orders Outside
Clearing Process--Foreign Funds" and "Placement of Redemption Orders Outside
Clearing Process--Foreign Funds" sections below shall operate.
PLACEMENT OF CREATION ORDERS USING CLEARING PROCESS
Fund Deposits created through the Clearing Process must be delivered
through a Participating Party that has executed a Participant Agreement with the
Distributor and with the Trust (as the same may be from time to time amended in
accordance with its terms).
The Participant Agreement authorizes the Distributor to transmit to NSCC
on behalf of the Participating Party such trade instructions as are necessary to
effect the Participating Party's creation order. Pursuant to such trade
instructions from the Distributor to NSCC, the Participating Party agrees to
transfer the requisite Deposit Securities (or contracts to purchase such Deposit
Securities that are expected to be delivered in a "regular way" manner by the
third (3rd) 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 Funds 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.
27
PLACEMENT OF CREATION ORDERS OUTSIDE CLEARING PROCESS--DOMESTIC 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 Funds 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., New York
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., New York time, on the next Business Day immediately following the
Transmittal Date. An order to create Creation Units of the Funds 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 applicable 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.
PLACEMENT OF CREATION ORDERS OUTSIDE CLEARING PROCESS--FOREIGN FUNDS
A standard order must be placed by 4:00 p.m., New York time for purchases
of Shares. In the case of custom orders, the order must be received by the
Distributor no later than 10:00 a.m., New York time. The Distributor will inform
the Transfer Agent, the Adviser and the Custodian upon receipt of a Creation
Order. The Custodian will then provide such information to the appropriate
custodian. For each Fund, the Custodian will cause the subcustodian of such Fund
to maintain an account into which the Deposit Securities will be delivered.
Deposit Securities must be delivered to an account maintained at the applicable
local custodian. The Trust must also receive, on or before the contractual
settlement date, immediately available or same day funds estimated by the
Custodian to be sufficient to pay the Cash Component next determined after
receipt in proper form of the purchase order, together with the creation
transaction fee described below.
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 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.
28
ACCEPTANCE OF CREATION ORDER
The Trust reserves the absolute right to reject a creation order
transmitted to it by the Distributor if, for any reason, (a) the order is not in
proper form; (b) the creator or creators, upon obtaining the Shares ordered,
would own 80% or more of the currently outstanding Shares of the Funds; (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 Funds; (e) the acceptance of the Fund Deposit
would, in the opinion of counsel, be unlawful; (f) the acceptance of the Fund
Deposit would otherwise, in the discretion of the Trust or the Adviser, have an
adverse effect on the Trust or the rights of beneficial owners; or (g) in the
event that circumstances outside the control of the Trust, the Distributor and
the Adviser make it for all practical purposes impossible to process creation
orders. Examples of such circumstances include acts of God or public service or
utility problems such as fires, floods, extreme weather conditions and power
outages resulting in telephone, telecopy and computer failures; market
conditions or activities causing trading halts; systems failures involving
computer or other information systems affecting the Trust, the Adviser, the
Distributor, DTC, 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 Trust's
determination shall be final and binding.
CREATION TRANSACTION FEE
A fixed creation transaction fee of $[ ] payable to the Custodian is
imposed on each creation transaction. In addition, a variable charge for cash
creations or for creations outside the Clearing Process currently of up to four
times the basic creation fee will be imposed. Where the Trust permits a creator
to substitute cash in lieu of depositing a portion of the Deposit Securities,
the creator will be assessed an additional variable charge for cash creations on
the "cash in lieu" portion of its investment. Creators of Creation Units are
responsible for the costs of transferring the securities constituting the
Deposit Securities to the account of the Trust.
REDEMPTION OF CREATION UNITS
Shares may be redeemed only in Creation Units at their NAV next determined
after receipt of a redemption request in proper form by the Distributor, only on
a Business Day and only through a Participating Party or DTC Participant who has
executed a Participant Agreement. THE TRUST WILL NOT REDEEM SHARES IN AMOUNTS
LESS THAN CREATION UNITS. Beneficial Owners also may sell Shares in the
secondary market, but must accumulate enough Shares to constitute a Creation
Unit in order to have such Shares redeemed by the Trust. There can be no
assurance, however, that there will be sufficient liquidity in the public
trading market at any time to permit assembly of a Creation Unit. Investors
should expect to incur brokerage and other costs in connection with assembling a
sufficient number of Shares to constitute a redeemable Creation Unit. See
"Market Vectors--Hard Assets Producers ETF--Principal Risks of Investing in the
Fund" and "Market Vectors--Solar Energy ETF--Principal Risks of Investing in the
Fund" in the Prospectus.
The Administrator, through NSCC, makes available immediately prior to the
opening of business on the Exchange (currently 9:30 a.m., New York 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
29
redemption requests received in proper form (as defined below) on that day.
Unless cash redemptions are available or specified for the Funds, 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 described
below. The redemption transaction fee of $[ ] 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 fee will be required to be arranged
for by or on behalf of the redeeming shareholder.
The basic redemption transaction fees are the same no matter how many
Creation Units are being redeemed pursuant to any one redemption request. The
Funds may adjust these fees from time to time based upon actual experience. An
additional charge up to four times the redemption transaction fee may be charged
with respect to redemptions outside of the Clearing Process. An additional
variable charge for cash redemptions or partial cash redemptions (when cash
redemptions are available) may also be imposed. Investors who use the services
of a broker or other such intermediary may be charged a fee for such services.
PLACEMENT OF REDEMPTION ORDERS USING CLEARING PROCESS
Orders to redeem Creation Units of the Funds through the Clearing Process
must be delivered through a Participating Party that has executed the
Participant Agreement with the Distributor and with the Trust (as the case may
be from time to time amended in accordance with its terms). An order to redeem
Creation Units of the Funds 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., New York time (3:00 p.m., New York time, for Custom Orders for
Domestic Funds and 10:00 a.m., New York time, for Foreign Funds) 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 applicable Fund as next determined. An order to redeem Creation Units of the
Funds using the Clearing Process made in proper form but received by the Fund
after 4:00 p.m., New York 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.
PLACEMENT OF REDEMPTION ORDERS OUTSIDE CLEARING PROCESS--DOMESTIC FUNDS
Orders to redeem Creation Units of the Funds 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 Funds 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 Funds will instead be effected through
transfer of Creation Units of the Funds directly through DTC. An order to redeem
Creation Units of the Funds 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., New York time (3:00 p.m., New York time,
for Custom Orders) on such Transmittal Date; (ii) such order is preceded or
accompanied by the requisite number of Shares of Creation Units specified in
such order, which delivery must be made through DTC to the Administrator no
later than 11:00 a.m., New York time, on such Transmittal Date (the "DTC
Cut-Off-Time"); and (iii) all other procedures set forth in the Participant
Agreement are properly followed.
30
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.
PLACEMENT OF REDEMPTION ORDERS OUTSIDE CLEARING PROCESS--FOREIGN FUNDS
A standard order for redemption must be received by 4:00 p.m., New York
time for redemptions of Shares. In the case of custom redemptions, the order
must be received by the Distributor no later than 10:00 a.m., New York time.
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 Funds (whether or
not they otherwise permit cash redemptions) reserve the right to redeem Creation
Units for cash to the extent that the Funds could not lawfully deliver specific
Fund Securities upon redemptions or could not do so without first registering
the Deposit Securities under such laws.
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.
Deliveries of redemption proceeds generally will be made within three
business days. Due to the schedule of holidays in certain countries, however,
the delivery of in-kind redemption proceeds may take longer than three business
days after the day on which the redemption request is received in proper form.
In such cases, the local market settlement procedures will not commence until
the end of the local holiday periods. The dates in calendar year 2008 in which
the regular holidays affecting the relevant securities markets of the below
listed countries are as follows:
SETTLEMENT PERIODS GREATER THAN SEVEN DAYS FOR YEAR 2008
NUMBER OF
BEGINNING OF END OF DAYS IN
SETTLEMENT PERIOD SETTLEMENT PERIOD SETTLEMENT PERIOD
Argentina 03/17/08 03/25/08 8
03/18/08 03/26/08 8
03/19/08 03/27/08 8
China 02/04/08 02/14/08 10
02/05/08 02/15/08 10
02/06/08 02/18/08 12
04/28/08 05/08/08 10
04/29/08 05/09/08 10
04/30/08 05/12/08 12
|
31
NUMBER OF
BEGINNING OF END OF DAYS IN
SETTLEMENT PERIOD SETTLEMENT PERIOD SETTLEMENT PERIOD
09/26/08 10/08/08 12
09/29/08 10/09/08 10
09/30/08 10/10/08 10
Croatia 12/19/08 12/29/08 10
12/22/08 12/30/08 8
12/23/08 01/02/09 10
Czech Republic 12/19/08 12/29/08 10
12/22/08 12/30/08 8
12/23/08 12/31/08 8
Denmark 03/17/08 03/25/08 8
03/18/08 03/26/08 8
03/19/08 03/27/08 8
Finland 03/17/08 03/25/08 8
03/18/08 03/26/08 8
03/19/08 03/27/08 8
Indonesia 09/26/08 10/06/08 10
09/29/08 10/07/08 8
09/30/08 10/08/07 8
Japan 12/26/08 01/05/09 10
12/29/08 01/06/09 8
12/30/08 01/07/09 8
Mexico 03/14/08 03/24/08 10
Norway 03/17/08 03/25/08 8
03/18/08 03/26/08 8
03/19/08 03/27/08 8
Philippines 12/24/08 01/02/09 9
Russia* 12/26/07 01/08/08 13
12/27/07 01/09/08 13
12/28/07 01/10/08 13
Sweden 03/17/08 03/25/08 8
03/18/08 03/26/08 8
03/19/08 03/27/08 8
Turkey 12/04/08 12/12/08 8
12/05/08 12/15/08 10
|
32
NUMBER OF
BEGINNING OF END OF DAYS IN
SETTLEMENT PERIOD SETTLEMENT PERIOD SETTLEMENT PERIOD
Venezuela 03/14/08 03/24/08 10
03/17/08 03/25/08 8
03/18/08 03/26/08 8
|
* Settlement cycle in Russia is negotiated on a deal by deal basis. Above data
reflects a hypothetical T+3 Cycle Covers market closings that have been
confirmed as of 11/1/07. Holidays are subject to change without notice.
The right of redemption may be suspended or the date of payment postponed
(1) for any period during which the Exchange is closed (other than customary
weekend and holiday closings); (2) for any period during which trading on the
Exchange is suspended or restricted; (3) for any period during which an
emergency exists as a result of which disposal of the Shares of a Fund or
determination of its NAV is not reasonably practicable; or (4) in such other
circumstance as is permitted by the SEC.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "Shareholder
Information--Determination of NAV."
The NAV per share for each 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 each Fund is
determined as of the close of the regular trading session on the NYSE
(ordinarily 4:00 p.m., New York time) on each day that such exchange 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 value of each Fund's portfolio securities is based on the securities'
closing price on local markets when available. If a security's market price is
not readily available or does not otherwise accurately reflect the fair value of
the security, the security will be valued by another method that the Adviser
believes will better reflect fair value in accordance with the Trust's valuation
policies and procedures approved by the Board of Trustees. Each Fund may use
fair value pricing in a variety of circumstances, including but not limited to,
situations when the value of a security in the Fund's portfolio has been
materially affected by events occurring after the close of the market on which
the security is principally traded (such as a corporate action or other news
that may materially affect the price of a security) or trading in a security has
been suspended or halted. In addition, each Fund currently expects that it will
fair value foreign equity securities held by the Fund each day the Fund
calculates its NAV. Accordingly, a Fund's 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 a Fund's NAV and the
prices used by the Fund's benchmark Index. This may adversely affect a Fund's
ability to track its benchmark Index. With respect to securities that are
primarily listed on foreign exchanges, the value of each Fund's portfolio
securities may change on days when you will not be able to purchase or sell your
Shares.
In computing each Fund's NAV, the Fund's securities holdings are valued
based on market quotations. When market quotations are not readily available for
a portfolio security a Fund must use the
33
security's fair value as determined in good faith in accordance with the Fund's
Fair Value Pricing Procedures which are approved by the Board of Trustees.
DIVIDENDS AND DISTRIBUTIONS
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Shareholder
Information--Distributions."
GENERAL POLICIES
Dividends from net investment income are declared and paid at least
annually by each 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 each Fund to improve its Index
tracking or to comply with the distribution requirements of the Internal Revenue
Code, in all events in a manner consistent with the provisions of the 1940 Act.
In addition, the Trust may distribute at least annually amounts representing the
full dividend yield on the underlying portfolio securities of the Funds, net of
expenses of the Funds, as if each 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 each Fund as a regulated investment company
("RIC") or to avoid imposition of income or excise taxes on undistributed
income.
DIVIDEND 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 Funds 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 Funds. 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.
CONTROL PERSONS
[As of the date of this SAI, the Adviser beneficially owned all of the
voting securities of each Fund.]
TAXES
The following information also supplements and should be read in
conjunction with the section in the Prospectus entitled "Shareholder
Information--Tax Matters."
34
Each Fund intends to qualify for and to elect treatment as a RIC under
Subchapter M of the Internal Revenue Code. 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.
Each 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. Each 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 Funds, 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 a Fund and if, pursuant to Section 351
of the Internal Revenue Code, the Funds 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 Units--Procedures for Creation of Creation
Units."
Dividends and interest received by a Fund from a non-U.S. investment may
give rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
Each Fund will report to shareholders annually the amounts of dividends
received from ordinary income, the amount of distributions received from capital
gains and the portion of dividends which may qualify for the dividends received
deduction. Certain ordinary dividends paid to non-corporate shareholders may
qualify for taxation at a lower tax rate applicable to long-term capital gains.
In general, a sale of Shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the Shares were held. A redemption of a shareholder's Fund Shares is
normally treated as a sale for tax purposes. Fund Shares held for a period of
one year or less at the time of such sale or redemption will, for tax purposes,
generally result in short-term capital gains or losses, and those held for more
than one year will generally result in long-term capital gains or losses. Under
current law, the maximum tax rate on long-term capital gains available to
non-corporate shareholders generally is 15%. Without future congressional
action, the maximum tax rate on long-term capital gains will return to 20% for
taxable years beginning on or after January 1, 2011.
Special tax rules may change the normal treatment of gains and losses
recognized by a Fund if the Fund invests in forward foreign currency exchange
contracts, 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 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.
35
A loss realized on a sale or exchange of Shares of a Fund may be
disallowed if other Fund Shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a sixty-one (61) day period
beginning thirty (30) days before and ending thirty (30) days after the date
that the Shares are disposed of. In such a case, the basis of the Shares
acquired will be adjusted to reflect the disallowed loss. Any loss upon the sale
or exchange of Shares held for six (6) months or less will be treated as
long-term capital loss to the extent of any capital gain dividends received by
the shareholders. Distribution of ordinary income and capital gains may also be
subject to foreign, state and local taxes.
Each 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, a 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
a 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. If more than 50% of a
Fund's assets are invested in foreign securities at the end of any fiscal year,
the Fund may elect to permit shareholders to take a credit or deduction on their
federal income tax return for foreign taxes paid by the Fund.
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. Nonresident shareholders are urged to consult their own
tax advisors concerning the applicability of the U.S. withholding tax. A RIC
may, under certain circumstances, designate all or a portion of a dividend as an
"interest-related dividend" that if received by a nonresident alien or foreign
entity generally would be exempt from the 30% U.S. withholding tax, PROVIDED
that certain other requirements are met. A RIC may also, under certain
circumstances, designate all or a portion of a dividend as a "short-term capital
gain dividend" which if received by a nonresident alien or foreign entity
generally would be exempt from the 30% U.S. withholding tax, unless the foreign
person is a nonresident alien individual present in the United States for a
period or periods aggregating 183 days or more during the taxable year. The
provisions discussed above relating to dividends to foreign persons apply to
dividends with respect to taxable years beginning before January 1, 2008.
Prospective investors are urged to consult their tax advisors regarding the
specific tax consequences relating to the rules discussed above. Distributions
attributable to gains from "U.S. real property interests," including gains from
the disposition of certain U.S. real property holding corporations, will
generally be subject to federal withholding tax and may give rise to an
obligation on the part of the foreign shareholder to file a U.S. tax return.
Also, such gain may be subject to a 30% branch profits tax in the hands of a
foreign shareholder that is a corporation. A U.S. real property holding
corporation is any corporation the fair market value of whose U.S. real property
interests equals or exceeds 50% of the sum of the fair market value of its
overall real property interests and any other of its assets which are used or
held for use in a trade or business.
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 a
Fund or who, to the Fund's knowledge, have furnished an incorrect number. When
establishing an account, an investor must certify under penalty of perjury that
such number is correct and that such investor is not otherwise subject to backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
will be
36
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.
REPORTABLE TRANSACTIONS
Under promulgated Treasury regulations, if a shareholder recognizes a loss
on disposition of a Fund's Shares of $2 million or more for an individual
shareholder or $10 million or more for a corporate shareholder, the shareholder
must file with the IRS a disclosure statement on Form 8886. Direct shareholders
of portfolio securities are in many cases excepted from this reporting
requirement, but under current guidance, shareholders of a RIC that engaged in a
reportable transaction are not excepted. Future guidance may extend the current
exception from this reporting requirement to shareholders of most or all RICs.
In addition, pursuant to recently enacted legislation, significant penalties may
be imposed for the failure to comply with the reporting requirements. The fact
that a loss is reportable under these regulations does not affect the legal
determination of whether the taxpayer's treatment of the loss is proper.
Shareholders should consult their tax advisors to determine the applicability of
these regulations in light of their individual circumstances.
CAPITAL STOCK AND SHAREHOLDER REPORTS
The Trust currently is comprised of twenty-one investment funds. The Trust
issues Shares of beneficial interest with no par value. The Board may designate
additional funds of the Trust.
Each Share issued by the Trust has a pro rata interest in the assets of
the corresponding Fund. Shares have no pre-emptive, exchange, subscription or
conversion rights and are freely transferable. Each Share is entitled to
participate equally in dividends and distributions declared by the Board with
respect to the relevant Fund, and in the net distributable assets of such Fund
on liquidation.
Each Share has one vote with respect to matters upon which a shareholder
vote is required consistent with the requirements of the 1940 Act and the rules
promulgated thereunder. Shares of all funds vote together as a single class
except that if the matter being voted on affects only a particular fund it will
be voted on only by that fund, and if a matter affects a particular fund
differently from other funds, that fund will vote separately on such matter.
Under Delaware law, the Trust is not required to hold an annual meeting of
shareholders unless required to do so under the 1940 Act. The policy of the
Trust is not to hold an annual meeting of shareholders unless required to do so
under the 1940 Act. All Shares of the Trust have noncumulative voting rights for
the election of Trustees. Under Delaware law, Trustees of the Trust may be
removed by vote of the shareholders.
Under Delaware law, shareholders of a statutory trust may have similar
limitation liabilities as shareholders of a corporation.
The Trust will issue through DTC Participants to its shareholders
semi-annual reports containing unaudited financial statements and annual reports
containing financial statements audited by independent auditor approved by the
Trust's Trustees and by the shareholders when meetings are held and such other
37
information as may be required by applicable laws, rules and regulations.
Beneficial Owners also receive annually notification as to the tax status of the
Trust's distributions.
Shareholder inquiries may be made by writing to the Trust, c/o Van Eck
Associates Corporation, 99 Park Avenue, 8th Floor, New York, New York 10016.
COUNSEL AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Clifford Chance US LLP is counsel to the Trust and have passed upon the
validity of each Fund's Shares.
[ ] serves as the Trust's independent registered public
accounting firm.
38
APPENDIX A
VAN ECK GLOBAL PROXY VOTING POLICIES
ADOPTED JULY 30, 2003
AMENDED APRIL 20, 2004
AMENDED APRIL 14, 2005
INTRODUCTION
Effective March 10, 2003, the Securities and Exchange Commission (the
"Commission") adopted Rule 206(4)-6 under the Investment Advisers Act of 1940
("Advisers Act"), requiring each investment adviser registered with the
Commission to adopt and implement written policies and procedures for voting
client proxies, to disclose information about the procedures to its clients, and
to inform clients how to obtain information about how their proxies were voted.
The Commission also amended Rule 204-2 under the Advisers Act to require
advisers to maintain certain proxy voting records. Both rules apply to all
investment advisers registered with the Commission that have proxy voting
authority over their clients' securities. An adviser that exercises voting
authority without complying with Rule 206(4)-6 will be deemed to have engaged in
a "fraudulent, deceptive, or manipulative" act, practice or course of business
within the meaning of Section 206(4) of the Advisers Act.
When an adviser has been granted proxy voting authority by a client, the adviser
owes its clients the duties of care and loyalty in performing this service on
their behalf. The duty of care requires the adviser to monitor corporate actions
and vote client proxies. The duty of loyalty requires the adviser to cast the
proxy votes in a manner that is consistent with the best interests of the
client.
PROXY VOTING POLICIES AND PROCEDURES
RESOLVING MATERIAL CONFLICTS OF INTEREST
o A "material conflict" means the existence of a business relationship
between a portfolio company or an affiliate and Van Eck Associates
Corporation, any affiliate or subsidiary (individually and together, as
the context may require, "Adviser"), or an "affiliated person" of a Van
Eck mutual fund in excess of $60,000. Examples of when a material conflict
exists include the situation where the adviser provides significant
investment advisory, brokerage or other services to a company whose
management is soliciting proxies; an officer of the Adviser serves on the
board of a charitable organization that receives charitable contributions
from the portfolio company and the charitable organization is a client of
the Adviser; a portfolio company that is a significant selling agent of
Van Eck's products and services solicits proxies; a broker-dealer or
insurance company that controls 5% or more of the Adviser's assets
solicits proxies; the Adviser serves as an investment adviser to the
pension or other investment account of the portfolio company; the Adviser
and the portfolio company have a lending relationship. In each of these
situations voting against management may cause the Adviser a loss of
revenue or other benefit.
o Conflict Resolution. When a material conflict exists proxies will be voted
in the following manner:
Where the written guidelines set out a pre-determined voting policy,
proxies will be voted in accordance with that policy, with no deviations
(if a deviation is advisable, one of the other methods may be used);
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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 recommendations of that party; or
The potential conflict will be disclosed to the client (a) with a request
that the client vote the proxy, (b) with a recommendation that the client
engage another party to determine how the proxy should be voted or (c) if
the foregoing are not acceptable to the client disclosure of how VEAC
intends to vote and a written consent to that vote by the client.
Any deviations from the foregoing voting mechanisms must be approved by
the Compliance Officer with a written explanation of the reason for the
deviation.
REASONABLE RESEARCH EFFORTS
When determining whether a vote is in the best interest of the client, the
Adviser will use reasonable research efforts. Investment personnel may
rely on public documents about the company and other readily available
information, which is easily accessible to the investment personnel at the
time the vote is cast. Information on proxies by foreign companies may not
be readily available.
VOTING CLIENT PROXIES
o The Adviser generally will vote proxies on behalf of clients, unless
clients instruct otherwise. There may be times when refraining from
voting a proxy is in a client's best interest, such as when the
Adviser determines that the cost of voting the proxy exceeds the
expected benefit to the client. (For example, casting a vote on a
foreign security may involve additional costs such as hiring a
translator or traveling to a foreign country to vote the security in
person).
o The portfolio manager or analyst covering the security is
responsible for making voting decisions.
o Portfolio Administration, in conjunction with the portfolio manager
and the custodian, is responsible for monitoring corporate actions
and ensuring that corporate actions are timely voted.
CLIENT INQUIRIES
All inquiries by clients as to how Van Eck has voted proxies must
immediately be forwarded to Portfolio Administration.
DISCLOSURE TO CLIENTS
o Notification of Availability of Information Client Brochure.
The Client Brochure or Part II of Form ADV will inform clients that they
can obtain information from VEAC on how their proxies were voted. The Client
Brochure or Part II of Form ADV will be mailed to each client annually.
The Legal Department will be responsible for coordinating the mailing with
Sales/Marketing Departments.
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o Availability of Proxy Voting Information at the client's request or
if the information is not available on VEAC's website, a hard copy
of the account's proxy votes will be mailed to each client.
RECORDKEEPING REQUIREMENTS
o VEAC will retain the following documentation and information for
each matter relating to a portfolio security with respect to which a
client was entitled to vote:
- proxy statements received;
- identifying number for the portfolio security;
- shareholder meeting date;
- brief identification of the matter voted on;
- whether the vote was cast on the matter and how the vote
was cast;
- how the vote was cast (E.G., for or against proposal, or
abstain; for or withhold regarding election of directors);
- records of written client requests for information on how
VEAC voted proxies on behalf of the client;
- a copy of written responses from VEAC to any written or
oral client request for information on how VEAC voted
proxies on behalf of the client; and
- any documents prepared by VEAC that were material to the
decision on how to vote or that memorialized the basis for
the decision, if such documents were prepared.
o Copies of proxy statements filed on EDGAR, and proxy statements and
records of proxy votes maintained with a third party (i.e., proxy
voting service) need not be maintained. The third party must agree
in writing to provide a copy of the documents promptly upon request.
o If applicable, any document memorializing that the costs of voting a
proxy exceed the benefit to the client or any other decision to
refrain from voting, and that such abstention was in the client's
best interest.
o Proxy voting records will be maintained in an easily accessible
place for five years, the first two at the office of VEAC. Proxy
statements on file with EDGAR or maintained by a third party and
proxy votes maintained by a third party are not subject to these
particular retention requirements.
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PROXY VOTING GUIDELINES
I. GENERAL INFORMATION
Generally, the Adviser will vote in accordance with the following guidelines.
Where the proxy vote decision maker determines, however, that voting in such a
manner would not be in the best interest of the client, the investment personnel
will vote differently.
If there is a conflict of interest on any management or shareholder proposals
that are voted on a case by case basis, we will follow the recommendations of an
independent proxy service provider.
II. OFFICERS AND DIRECTORS
A. THE BOARD OF DIRECTORS
Director Nominees in Uncontested Elections
Vote on a case-by-case basis for director nominees, examining factors such as:
o long-term corporate performance record relative to a market index;
o composition of board and key board committees;
o nominee's investment in the company;
o whether a retired CEO sits on the board; and
o whether the chairman is also serving as CEO.
In cases of significant votes and when information is readily available, we also
review:
o corporate governance provisions and takeover activity;
o board decisions regarding executive pay;
o director compensation;
o number of other board seats held by nominee; and
o interlocking directorships.
B. CHAIRMAN AND CEO ARE THE SAME PERSON
Vote on a case-by-case basis on shareholder proposals that would require the
positions of chairman and CEO to be held by different persons.
C. MAJORITY OF INDEPENDENT DIRECTORS
Vote on a case-by-case basis shareholder proposals that request that the board
be comprised of a majority of independent directors.
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Vote for shareholder proposals that request that the board audit, compensation
and/or nominating committees include independent directors exclusively.
D. STOCK OWNERSHIP REQUIREMENTS
Vote on a case-by-case basis shareholder proposals requiring directors to own a
minimum amount of company stock in order to qualify as a director, or to remain
on the board.
E. TERM OF OFFICE
Vote on a case-by-case basis shareholder proposals to limit the tenure of
outside directors.
F. DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION
Vote on a case-by-case basis proposals concerning director and officer
indemnification and liability protection.
Generally, vote against proposals to eliminate entirely director and officer
liability for monetary damages for violating the duty of care.
Vote for only those proposals that provide such expanded coverage in cases when
a director's or officer's legal defense was unsuccessful if: (1) the director
was found to have acted in good faith and in a manner that he reasonably
believed was in the best interests of the company, AND (2) only if the
director's legal expenses would be covered.
G. DIRECTOR NOMINEES IN CONTESTED ELECTIONS
Vote on a case-by-case basis when the election of directors is contested,
examining the following factors:
o long-term financial performance of the target company relative to
its industry;
o management's track record;
o background to the proxy contest;
o qualifications of director nominees (both slates);
o evaluation of what each side is offering shareholders, as well as
the likelihood that the proposed objectives and goals can be met;
and
o stock ownership positions.
H. BOARD STRUCTURE: STAGGERED VS. ANNUAL ELECTIONS
Generally, vote against proposals to stagger board elections.
Generally, vote for proposals to repeal classified boards and to elect all
directors annually.
I. SHAREHOLDER ABILITY TO REMOVE DIRECTORS
Vote against proposals that provide that directors may be removed only for
cause.
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Vote for proposals to restore shareholder ability to remove directors with or
without cause.
Vote against proposals that provide that only continuing directors may elect
replacements to fill board vacancies.
Vote for proposals that permit shareholders to elect directors to fill board
vacancies.
J. SHAREHOLDER ABILITY TO ALTER THE SIZE OF THE BOARD
Vote for proposals that seek to fix the size of the board.
Vote against proposals that give management the ability to alter the size of the
board without shareholder approval.
III. PROXY CONTESTS
A. REIMBURSE PROXY SOLICITATION EXPENSES
Vote on a case-by-case basis proposals to provide full reimbursement for
dissidents waging a proxy contest.
IV. AUDITORS
B. RATIFYING AUDITORS
Vote for proposals to ratify auditors, unless information that is readily
available to the vote decision-maker demonstrates that an auditor has a
financial interest in or association with the company, and is therefore clearly
not independent; or such readily available information creates a reasonable
basis to believe that the independent auditor has rendered an opinion which is
neither accurate nor indicative of the company's financial position.
Vote for shareholder proposals asking for audit firm rotation unless the
rotation period is so short (less than five years) that it would be unduly
burdensome to the company.
V. SHAREHOLDER VOTING AND CONTROL ISSUES
A. CUMULATIVE VOTING
Generally, vote against proposals to eliminate cumulative voting.
Generally, vote for proposals to permit cumulative voting.
B. SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS
Generally, vote against proposals to restrict or prohibit shareholder ability to
call special meetings.
Generally, vote for proposals that remove restrictions on the right of
shareholders to act independently of management.
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C. SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT
Generally, vote against proposals to restrict or prohibit shareholder ability to
take action by written consent.
Generally, vote for proposals to allow or make easier shareholder action by
written consent.
D. POISON PILLS
Vote for shareholder proposals that ask a company to submit its poison pill for
shareholder ratification. Vote on a case-by-case basis shareholder proposals to
redeem a company's poison pill.
Vote on a case-by-case basis management proposals to ratify a poison pill.
E. FAIR PRICE PROVISION
Vote on a case-by-case basis when examining fair price proposals, (where market
quotations are not readily available) taking into consideration whether the
shareholder vote requirement embedded in the provision is no more than a
majority of disinterested Shares.
Generally, vote for shareholder proposals to lower the shareholder vote
requirement in existing fair price provisions.
F. GREENMAIL
Generally, vote for proposals to adopt anti-greenmail charter or bylaw
amendments or otherwise restrict a company's ability to make greenmail payments.
Generally, vote on a case-by-case basis anti-greenmail proposals when they are
bundled with other charter or bylaw amendments.
G. UNEQUAL VOTING RIGHTS
Vote against dual class exchange offers.
Vote against dual class recapitalizations.
H. SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO AMEND THE CHARTER OR
BYLAWS
Vote against management proposals to require a supermajority shareholder vote to
approve charter and bylaw amendments.
Vote for shareholder proposals to lower supermajority shareholder vote
requirements for charter and bylaw amendments.
I. SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO APPROVE MERGERS
Vote against management proposals to require a supermajority shareholder vote to
approve mergers and other significant business combinations.
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J. WHITE KNIGHT PLACEMENTS
Vote for shareholder proposals to require approval of blank check preferred
stock issues for other than general corporate purposes or similar corporate
actions.
K. CONFIDENTIAL VOTING
Generally, vote for shareholder proposals that request corporations to adopt
confidential voting, use independent tabulators and use independent inspectors
of election as long as the proposals include clauses for proxy contests as
follows: In the case of a contested election, management is permitted to request
that the dissident group honor its confidential voting policy. If the dissidents
agree, the policy remains in place. If the dissidents do not agree, the
confidential voting policy is waived.
Generally, vote for management proposals to adopt confidential voting.
L. EQUAL ACCESS
Generally, vote for shareholders proposals that would allow significant company
shareholders equal access to management's proxy material in order to evaluate
and propose voting recommendations on proxy proposals and director nominees, and
in order to nominate their own candidates to the board.
M. BUNDLED PROPOSALS
Generally, vote on a case-by-case basis bundled or "conditioned" proxy
proposals. In the case of items that are conditioned upon each other, we examine
the benefits and costs of the packaged items. In instances when the joint effect
of the conditioned items is not in shareholders' best interests, we vote against
the proposals. If the combined effect is positive, we support such proposals.
N. SHAREHOLDER ADVISORY COMMITTEES
Vote on a case-by-case basis proposals to establish a shareholder advisory
committee.
VI. CAPITAL STRUCTURE
A. COMMON STOCK AUTHORIZATION
Vote on a case-by-case basis proposals to increase the number of Shares of
common stock authorized for issue.
Generally, vote against proposed common stock authorizations that increase the
existing authorization by more than 100% unless a clear need for the excess
Shares is presented by the company.
B. STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS
Generally, vote for management proposals to increase common share authorization
for a stock split, provided that the split does not result in an increase of
authorized but unissued Shares of more than 100% after giving effect to the
Shares needed for the split.
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C. REVERSE STOCK SPLITS
Generally, vote for management proposals to implement a reverse stock split,
provided that the reverse split does not result in an increase of authorized but
unissued Shares of more than 100% after giving effect to the Shares needed for
the reverse split.
D. BLANK CHECK PREFERRED AUTHORIZATION
Generally, vote for proposals to create blank check preferred stock in cases
when the company expressly states that the stock will not be used as a takeover
defense or carry superior voting rights.
Vote on a case-by-case basis proposals that would authorize the creation of new
classes of preferred stock with unspecified voting, conversion, dividend and
distribution, and other rights.
Vote on a case-by-case basis proposals to increase the number of authorized
blank check preferred Shares.
E. SHAREHOLDER PROPOSALS REGARDING BLANK CHECK PREFERRED STOCK
Generally, vote for shareholder proposals to have blank check preferred stock
placements, other than those Shares issued for the purpose of raising capital or
making acquisitions in the normal course of business, submitted for shareholder
ratification.
F. ADJUST PAR VALUE OF COMMON STOCK
Vote on a case-by-case basis management proposals to reduce the par value of
common stock.
G. PREEMPTIVE RIGHTS
Vote on a case-by-case basis proposals to create or abolish preemptive rights.
In evaluating proposals on preemptive rights, we look at the size of a company
and the characteristics of its shareholder base.
H. DEBT RESTRUCTURINGS
Vote on a case-by-case basis proposals to increase common and/or preferred
Shares and to issue Shares as part of a debt restructuring plan. We consider the
following issues:
o Dilution - How much will ownership interest of existing shareholders
be reduced, and how extreme will dilution to any future earnings be?
o Change In Control - Will the transaction result in a change in
control of the company?
o Bankruptcy - Is the threat of bankruptcy, which would result in
severe losses in shareholder value, the main factor driving the debt
restructuring?
Generally, we approve proposals that facilitate debt restructurings unless
there are clear signs of self-dealing or other abuses.
I. SHARE REPURCHASE PROGRAMS
Vote for management proposals to institute open-market share repurchase plans in
which all shareholders may participate on equal terms.
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VII. EXECUTIVE COMPENSATION
In general, we vote on a case-by-case basis on executive compensation plans,
with the view that viable compensation programs reward the creation of
stockholder wealth by having a high payout sensitivity to increases in
shareholder value.
VIII. COMPENSATION PROPOSALS
A. AMENDMENTS THAT PLACE A CAP ON ANNUAL GRANTS
Vote for plans that place a cap on the annual grants any one participant may
receive.
B. AMEND ADMINISTRATIVE FEATURES
Vote for plans that simply amend shareholder-approved plans to include
administrative features.
C. AMENDMENTS TO ADDED PERFORMANCE-BASED GOALS
Generally, vote for amendments to add performance goals to existing compensation
plans.
D. AMENDMENTS TO INCREASE SHARES AND RETAIN TAX DEDUCTIONS
Vote on amendments to existing plans to increase Shares reserved and to qualify
the plan for favorable tax treatment should be evaluated on a case-by-case
basis.
E. APPROVAL OF CASH OR CASH-AND-STOCK BONUS PLANS
Vote for cash or cash-and-stock bonus plans to exempt the compensation from
taxes.
F. SHAREHOLDER PROPOSALS TO LIMIT EXECUTIVE PAY
Vote on a case-by-case basis all shareholder proposals that seek additional
disclosure of executive pay information.
Vote on a case-by-case basis all other shareholder proposals that seek to limit
executive pay.
Vote for shareholder proposals to expense options, unless the company has
already publicly committed to expensing options by a specific date.
G. GOLDEN AND TIN PARACHUTES
Vote for shareholder proposals to have golden and tin parachutes submitted for
shareholder ratification.
Vote on a case-by-case basis all proposals to ratify or cancel golden or tin
parachutes.
H. EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS)
Vote on a case-by-case basis proposals that request shareholder approval in
order to implement an ESOP or to increase authorized Shares for existing ESOPs,
except in cases when the number of Shares allocated to the ESOP is "excessive"
(i.e., generally greater than 5% of outstanding Shares).
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I. 401(K) EMPLOYEE BENEFIT PLANS
Generally, vote for proposals to implement a 401(k) savings plan for employees.
IX. STATE OF INCORPORATION
A. VOTING ON STATE TAKEOVER STATUTES
Vote on a case-by-case basis proposals to opt in or out of state takeover
statutes (including control share acquisition statutes, control share cash-out
statutes, freezeout provisions, fair price provisions, stakeholder laws, poison
pill endorsements, severance pay and labor contract provisions, anti-greenmail
provisions, and disgorgement provisions).
B. VOTING ON REINCORPORATION PROPOSALS
Vote on a case-by-case basis proposals to change a company's state of
incorporation.
X. MERGERS AND CORPORATE RESTRUCTURINGS
A. MERGERS AND ACQUISITIONS
Vote on a case-by-case basis proposals related to mergers and acquisitions,
taking into account at least the following:
o anticipated financial and operating benefits;
o offer price (cost vs. premium);
o prospects of the combined companies;
o how the deal was negotiated; and
o changes in corporate governance and their impact on shareholder
rights.
B. CORPORATE RESTRUCTURING
Vote on a case-by-case basis proposals related to a corporate restructuring,
including minority squeezeouts, leveraged buyouts, spin-offs, liquidations and
asset sales.
C. SPIN-OFFS
Vote on a case-by-case basis proposals related to spin-offs depending on the tax
and regulatory advantages, planned use of sale proceeds, market focus and
managerial incentives.
D. ASSET SALES
Vote on a case-by-case basis proposals related to asset sales after considering
the impact on the balance sheet/working capital, value received for the asset,
and potential elimination of diseconomies.
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E. LIQUIDATIONS
Vote on a case-by-case basis proposals related to liquidations after reviewing
management's efforts to pursue other alternatives, appraisal value of assets,
and the compensation plan for executives managing the liquidation.
F. APPRAISAL RIGHTS
Vote for proposals to restore, or provide shareholders with, rights of
appraisal.
G. CHANGING CORPORATE NAME
Vote on a case-by-case basis proposal to change the corporate name.
XI. MUTUAL FUND PROXIES
A. ELECTION OF TRUSTEES
Vote on trustee nominees on a case-by-case basis.
B. INVESTMENT ADVISORY AGREEMENT
Vote on investment advisory agreements on a case-by-case basis.
C. FUNDAMENTAL INVESTMENT RESTRICTIONS
Vote on amendments to a fund's fundamental investment restrictions on a
case-by-case basis.
D. DISTRIBUTION AGREEMENTS
Vote on distribution agreements on a case-by-case basis.
XII. SOCIAL AND ENVIRONMENTAL ISSUES
In general we vote on a case-by-case basis on shareholder social and
environmental proposals, on the basis that their impact on share value can
rarely be anticipated with any high degree of confidence.
In most cases, however, we vote for disclosure reports that seek additional
information, particularly when it appears companies have not adequately
addressed shareholders' social and environmental concerns.
In determining our vote on shareholder social and environmental proposals, we
analyze factors such as:
o whether adoption of the proposal would have either a positive or
negative impact on the company's short-term or long-term share
value;
o the percentage of sales, assets and earnings affected;
o the degree to which the company's stated position on the issues
could affect its reputation or sales, or leave it vulnerable to
boycott or selective purchasing; whether the issues presented should
be dealt with through government or company--specific action;
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o whether the company has already responded in some appropriate manner
to the request embodied in a proposal;
o whether the company's analysis and voting recommendation to
shareholders is persuasive;
o what other companies have done in response to the issue;
o whether the proposal itself is well framed and reasonable; whether
implementation of the proposal would achieve the objectives sought
in the proposal; and
o whether the subject of the proposal is best left to the discretion
of the board.
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