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MARKET
VECTORS ETF TRUST
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A
PPROVAL OF INVESTMENT MANAGEMENT AGREEMENTS
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(unaudited)
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At a meeting held on February 27,
2012 (the February Meeting), the Board, including all of the Independent
Trustees, approved an investment management agreement between the Trust and the
Adviser (the February Investment Management Agreement) with respect to the
Market Vectors Morningstar Wide Moat Research ETF (the Morningstar Wide Moat
Research ETF). In addition, at a meeting held on June 7, 2012 (the June Meeting),
the Board, including all of the Independent Trustees, approved an investment
management agreement between the Trust and the Adviser (the June Investment
Management Agreement) with respect to the Market Vectors Global Chemicals ETF
(and, collectively with the Morningstar Wide Moat Research ETF, the Funds).
The February Investment Management Agreement and June Investment Management
Agreement are collectively referred to as the Investment Management
Agreements.
The Boards approval of each
Investment Management Agreement was based on a comprehensive consideration of
all of the information available to the Trustees and was not the result of any
single factor. Some of the factors that figured particularly in the Trustees
deliberations and how the Trustees considered those factors are described
below, although individual Trustees may have evaluated the information
presented differently, giving different weights to various factors.
In advance of each of the
February Meeting and the June Meeting, the Trustees received materials from the
Adviser, including expense information for other funds. The Adviser provided
the Trustees with information regarding, among other things, the various
aspects of each Funds proposed investment program, fee arrangements and
service provider arrangements. The Independent Trustees consideration of each
Investment Management Agreement was based, in part, on information obtained
through discussions with management of the Funds and the Adviser at the
February Meeting and the June Meeting (as applicable), information obtained at
other meetings of the Trustees and/or based on their review of the materials
provided by the Adviser, including the background and experience of the
portfolio managers and others involved or proposed to be involved in the
management and administration of the Funds. The Trustees also considered the
terms of, and scope of services that the Adviser would provide under, each
Investment Management Agreement, including the Advisers commitment to waive
certain fees and/or pay expenses of each of the Funds to the extent necessary
to prevent the operating expenses of each of the Funds from exceeding agreed
upon limits for a period of at least one year following the effective date of
each Funds respective registration statement. The Trustees also considered
information with respect to the financial condition of the Adviser, the current
status, as they understood it, of the Advisers compliance environment and the
Advisers views of the proposed service providers.
In addition, the Trustees were
given data on the exchange-traded fund market and expense ratios of other
funds. The Trustees considered the benefits, other than the fees under the
Investment Management Agreements, that the Adviser would receive from serving as
adviser to each Fund, including any it may receive from providing
administrative services to each of the Funds and from an affiliate of the
Adviser serving as distributor to each Fund. The Trustees did not consider
historical information about the cost of the services provided by the Adviser
or the profitability of each of the Funds to the Adviser because the Funds had
not yet commenced operations. However, the Adviser agreed to provide the
Trustees with profitability information in connection with future proposed
continuances of each Investment Management Agreement, which will permit the
Trustees to consider in the future the extent to which economies of scale may
exist and whether the fees paid to the Adviser reflect these economies of scale
for the benefit of shareholders. In addition, because the Funds had not yet
commenced operations, the Trustees could not consider the historical
performance or the quality of services previously provided to each of the
Funds, although they concluded that the nature, quality, and extent of the
services to be provided by the Adviser were appropriate based on the Trustees
knowledge of the Adviser and its personnel and the operations of the other
series of the Trust.
The Independent Trustees were
advised by and met in executive session with their independent counsel at each
of the February Meeting and the June Meeting as part of their consideration of
the Investment Management Agreements.
In voting to approve the
Investment Management Agreements, the Trustees, including the Independent
Trustees, concluded that the terms of the Investment Management Agreements are
reasonable and fair in light of the services to be performed, the fees paid by
certain other funds, expenses to be incurred and such other matters as the
Trustees considered relevant in the exercise of their reasonable judgment. The
Trustees further concluded that each Investment Management Agreement is in the
interest of the relevant Fund and such Funds shareholders.
***
At a meeting held on June 7, 2012
(the Renewal Meeting), the Board, including all of the Independent Trustees,
approved the continuation of an investment management agreement between the
Trust and the Adviser (the Investment
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Management Agreements) with
respect to the Market Vectors Environmental Services ETF and Gaming ETF
(collectively, the Existing ETFs) and the Market Vectors Bank and Brokerage
ETF, Biotech ETF, Pharmaceutical ETF, Retail ETF and Semiconductor ETF
(collectively, the Former HOLDRS). The Existing ETFs and the Former HOLDRS
are collectively referred to as the Funds).
The Boards approval of the
Investment Management Agreements was based on a comprehensive consideration of
all of the information available to the Trustees and was not the result of any
single factor. Some of the factors that figured particularly in the Trustees
deliberations and how the Trustees considered those factors are described
below, although individual Trustees may have evaluated the information
presented differently, giving different weights to various factors.
In preparation for the Renewal
Meeting, the Trustees held a meeting on May 8, 2012. At that meeting, the
Trustees discussed the information the Adviser and Lipper Inc. (Lipper), an
independent third party data provider, had provided to them in advance. The
information provided to the Trustees included, among other things, information
about the performance and expenses of the Funds and the Funds peer funds,
information about the advisory services provided to the Funds and the personnel
providing those services, and the profitability and other benefits enjoyed by
the Adviser and its affiliates as a result of the Advisers relationship with
the Funds. In reviewing performance and expense information for certain of the
Funds against their peer groups, the Trustees considered that some of the Funds
generally invest in a different group of issuers than some or all of the other
funds in a Funds designated peer group. They also considered the fact that the
Former HOLDRS had only recently commenced operations and therefore had no
meaningful operational history that could be used for comparative purposes,
since the expense information prepared by Lipper was based on estimated amounts
and the performance comparisons provided by Lipper covered approximately a
three-month period (December 21, 2011 (the date operations commenced) through
March 31, 2012). For these and other reasons, the Trustees noted that the peer
group information did not necessarily provide meaningful direct comparisons to
the Funds.
The Independent Trustees
consideration of the Investment Management Agreements was also based on their
review of information obtained through discussions with management of the Funds
and the Adviser at the Renewal Meeting and the May 8, 2012 meeting and
information obtained at other meetings of the Trustees and/or based on their
review of the materials provided by the Adviser, including the background and
experience of the portfolio managers and others involved in the management and
administration of the Funds. The Trustees also considered the terms of, and
scope of services that the Adviser provides under, the Investment Management
Agreements, including, where applicable, the Advisers commitment to waive
certain fees and/or pay expenses of each of the Funds to the extent necessary
to prevent the operating expenses of each of the Funds from exceeding agreed
upon limits for a period of time.
The Trustees concluded that the
Adviser and its personnel have the requisite expertise and skill to manage the
Funds portfolios, especially in light of the performance of the Funds. In
evaluating each Funds performance, the Trustees assessed the Funds
performance based on how well the performance of a Fund tracked the performance
of its benchmark index, using a variety of measurements in this regard, and
concluded that the investment performance of the Funds was satisfactory.
The Trustees also considered
information relating to the financial condition of the Adviser, the current
status, as they understood it, of the Advisers compliance environment and the
Advisers analysis of the Trusts other service providers.
As noted above, the Trustees were
also provided various data from Lipper comparing the Funds expenses and
performance to that of other exchange-traded funds (ETFs). In reviewing the
information, the Trustees considered the Advisers analysis of any tracking
error between each Fund and its relevant benchmark index and concluded that
each Funds tracking error was within an acceptable range. The Trustees noted
that the information provided showed that the Market Vectors Gaming ETF had a
total expense ratio (after the effect of any applicable expense limitation)
greater than the average of its peer group of funds. The Trustees concluded,
however, in light of this information and the other information available to
them, that the fees paid by the Funds were reasonable in light of the
performance of the Fund and the quality of services received. The Trustees
noted that this comparative data, while generally helpful, was limited in its
usefulness due to the lack of a large number of directly comparable ETFs and,
as noted above, the very limited operating history of the Former HOLDRS.
The Trustees also considered any
other benefits received by the Adviser from serving as adviser to the Funds and
from providing administrative services to the Funds, and from an affiliate of
the Adviser serving as distributor for the Funds.
The Trustees also considered
information provided by the Adviser about the overall profitability of the
Adviser and its profitability or loss in respect of each Fund. The Trustees
reviewed each Funds asset size, expense ratio and expense cap
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MARKET
VECTORS ETF TRUST
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APPROVAL OF
INVESTMENT MANAGEMENT AGREEMENTS
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(continued)
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and noted that the Investment
Management Agreements do not include breakpoints in the advisory fee rates as
asset levels in a Fund increase. The Trustees noted that the Funds were still
relatively new products, which therefore made it difficult to quantify the
potential variability in net assets and thus determine the sustainability of
any potential economies of scale which may exist. Based on the foregoing and
the other information available to them, the Trustees determined that the
advisory fee rate for each Fund is reasonable and appropriate in relation to
the current asset size of each Fund and the other factors discussed above and
currently reflects an appropriate sharing of any economies of scale which may
exist with shareholders. The Trustees also determined that the profits earned
by the Adviser in respect of the Funds that were profitable to the Adviser were
reasonable in light of the nature and quality of the services received by such
Funds.
The Independent Trustees were
advised by and met in executive session with their independent counsel at the
Renewal Meeting and at their May 8, 2012 meeting, as part of their
consideration of the Investment Management Agreements.
In voting to approve the
continuation of the Investment Management Agreements, the Trustees, including
the Independent Trustees, concluded that the terms of each Investment
Management Agreement are reasonable and fair in light of the services to be
performed, the fees paid by certain other funds, expenses to be incurred and
such other matters as the Trustees considered relevant in the exercise of their
reasonable judgment. The Trustees further concluded that each Investment
Management Agreement is in the interest of the Funds and each Funds
shareholders.
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This report is intended for the
Funds shareholders. It may not be distributed to prospective investors
unless it is preceded or accompanied by a Market Vectors ETF Trust (the
Trust) Prospectus and Summary Prospectus, which includes more complete
information. An investor should consider the investment objective, risks, and
charges and expenses of the Funds carefully before investing. The prospectus
and summary prospectus contains this and other information about the
investment company. Please read the prospectus and summary prospectus
carefully before investing.
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Additional information about the
Trusts Board of Trustees/Officers and a description of the policies and
procedures the Trust uses to determine how to vote proxies relating to portfolio
securities are provided in the Statement of Additional Information. The
Statement of Additional Information and information regarding how the Trust
voted proxies relating to portfolio securities during the most recent twelve
month period ending June 30 is available, without charge, by calling
1.888.MKT.VCTR, or by visiting marketvectorsetfs.com, or on the Securities and Exchange
Commissions website at http://www.sec.gov.
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The Trust files its complete
schedule of portfolio holdings with the Securities and Exchange Commission
for the first and third quarters of each fiscal year on Form N-Q. The Trusts
Form N-Qs are available on the Commissions website at http://www.sec.gov and
may be reviewed and copied at the Commissions Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling 1.202.942.8090. The Funds complete schedules of
portfolio holdings are also available by calling 1.888.MKT.VCTR or by
visiting vaneck.com.
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Investment Adviser:
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Van Eck Associates Corporation
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Distributor:
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Van Eck Securities Corporation
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335 Madison Avenue
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New York, NY 10017
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vaneck.com
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Account
Assistance:
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1.888.MKT.VCTR
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MVINDUSAR