Principal Investment Strategies
The
Fund uses a “passive” or indexing approach to try to
achieve its investment objective. Unlike many investment companies,
the Fund does not try to “beat” the Index and does not
seek temporary defensive positions when markets decline or appear
overvalued.
The
Fund uses a replication strategy. A replication strategy is an
indexing strategy that involves investing in the securities of the
Index in approximately the same proportions as in the Index.
However, the Fund may utilize a representative sampling strategy
with respect to the Index when a replication strategy might be
detrimental to shareholders, such as when there are practical
difficulties or substantial costs involved in compiling a portfolio
of equity securities to follow the Index, in instances in which a
security in the Index becomes temporarily illiquid, unavailable or
less liquid, or as a result of legal restrictions or limitations
(such as tax diversification requirements) that apply to the Fund
but not the Index.
The
Index tracks the performance of the exchange-listed common stock
(or corresponding American Depositary Receipts (“ADRs”)
or Global Depositary Receipts (“GDRs”)) of companies
across the globe, including U.S. companies, that (i) are engaged in
the legal cultivation of cannabis, including industrial hemp, or
the legal production, marketing or distribution of cannabis,
including industrial hemp, products for medical or non-medical
purposes (“Cannabis Companies”); (ii) engage in the
lawful creation, marketing or distribution of prescription drugs
that utilize cannabinoids as an active ingredient
(“Pharmaceutical Companies”); (iii) trade tobacco or
produce tobacco products, such as cigarettes, cigars or electronic
cigarettes; (iv) produce cigarette and cigar components, such as
cigarette paper and filters; or (v) engage in the creation,
production and distribution of fertilizers, plant foods, pesticides
or growing equipment to be used in the cultivation of cannabis or
tobacco. The Index only includes companies that are engaged
exclusively in legal activities under applicable national and local
laws, including U.S. federal and state laws. Companies whose
business activities are legal under state cannabis law, but not
legal under federal cannabis law, are automatically ineligible for
inclusion in the Index. Because the Index only includes companies
that are currently engaged exclusively in legal activities under
applicable national and local laws, the Index will not include any
company that engages in the cultivation, production or distribution
of marijuana or products derived from marijuana for medical or
non-medical purposes in a particular country, including the United
States, unless and until such time as the cultivation, production
or distribution of medical or non-medical marijuana, as applicable,
becomes legal under all local and national laws governing the
company in such country.
“Applicable national and
local laws” refers to (i) controlled substance laws and
regulations or (ii) food, drug, and cosmetics, or equivalent laws
and regulations under whose jurisdiction the company is subject
that govern the cultivation, production or distribution, for
medical or non-medical purposes, of marijuana in a particular
country. “Hemp” refers to cannabis plants with a
tetrahydrocannabinol (“THC”) concentration of not more
than 0.3% on a dry weight basis, as well as derivatives thereof,
whereas “marijuana” refers to all other cannabis plants
and derivatives thereof.
A
Cannabis Company is considered to be primarily engaged in a line of
business if it derives more than 50% of its revenue from such
activity. The Cannabis Companies would possess all necessary
permits and licenses to legally grow marijuana. As of the date of
this prospectus, the Cannabis Companies do not include companies
that grow or distribute marijuana inside of the United States.
Cannabis Companies may, however, include companies that have a
business interest in the hemp and hemp-based products markets
within the United States. Additionally, the Cannabis Companies only
supply products for activities that are legal under applicable
national and local laws, including U.S. federal and state
laws.
The
Pharmaceutical Companies produce, market or distribute drug
products that use cannabinoids to create government approved drugs.
Cannabinoids are extracts from the cannabis plant and include
tetrahydrocannabinol, cannabidiol (“CBD”), dronabinol
and nabilone. All Pharmaceutical Companies would have the necessary
permits and licenses to engage in lawful medical research using
cannabinoids to produce government approved drugs, or to otherwise
produce, market or distribute such drugs. This activity is distinct
from the “medical marijuana” business, which refers to
the use of the cannabis leaf, as opposed to specific extracts in
pharmaceutical form, to alleviate the symptoms of injury or
illness.
The
initial universe of companies engaged in the above activities is
determined based on proprietary research and analysis conducted by
the Index Provider. The Index Provider uses a variety of publicly
available resources for such analysis, including shareholder
reports of issuers or the Bloomberg Terminal, to determine whether
a company is engaged in one of the businesses described in
categories (i)-(v), above. The Index universe is then screened to
eliminate the stocks that have a market capitalization of less than
$200 million or a three-month average daily trading volume of less
than $500,000. Additionally, component securities of the Index must
not be listed on an exchange in a country which employs
restrictions on foreign capital investment such that those
restrictions render the component effectively non-investable for a
U.S.-based fund.
The
Index is developed and owned by Prime Indexes (the “Index
Provider”), and the Index is calculated and maintained by
Solactive AG. The Index Provider is independent of Solactive AG,
the Fund, the Fund’s investment adviser, and the Fund’s
distributor.
As of
January 23, 2020, the Index had 36 constituents, 21 of which were
foreign companies, and the three largest stocks and their
weightings in the Index were Canopy Growth Corp. (10.13%), Cronos
Group Inc, (8.51%), and Tilray Inc. (7.83%).
The
Index is reconstituted and rebalanced quarterly.
The
Fund will invest at least 80% of its total assets, exclusive of
collateral held from securities lending, in the component
securities of the Index and in ADRs and GDRs based on the component
securities in the Index (the “80% Policy”). The Fund
may invest up to 20% of its total assets in securities that are not
in the Index to the extent that the Fund’s investment adviser
believes that such investments should help the Fund’s overall
portfolio track the Index.
The
Fund may lend its portfolio securities to brokers, dealers, and
other financial organizations. These loans, if and when made, may
not exceed 33 1/3% of the total asset value of the Fund (including
the loan collateral). By lending its securities, the Fund may
increase its income by receiving payments from the
borrower.
Correlation: Correlation is the extent to which the values
of different types of investments move in tandem with one another
in response to changing economic and market conditions. An index is
a theoretical financial calculation, while the Fund is an actual
investment portfolio. The performance of the Fund and the Index may
vary somewhat due to transaction costs, asset valuations, foreign
currency valuations, market impact, corporate actions (such as
mergers and spin-offs), legal restrictions or limitations, illiquid
or unavailable securities, and timing variances.
The
Fund’s investment adviser expects that, over time, the
correlation between the Fund’s performance and that of the
Index, before fees and expenses, will exceed 95%. A correlation
percentage of 100% would indicate perfect correlation. If the Fund
uses a replication strategy, it can be expected to have greater
correlation to the Index than if it uses a representative sampling
strategy.
Industry Concentration Policy: The Fund will concentrate its
investments (i.e., hold
more than 25% of its net assets) in a particular industry or group
of related industries to approximately the same extent that the
Index is concentrated. As of January 17, 2020, the Index was
concentrated in the Pharmaceuticals, Biotechnology and Life
Sciences group of industries.
Principal Risks
As with
all funds, a shareholder is subject to the risk that his or her
investment could lose money. The principal risks affecting
shareholders’ investments in the Fund are set forth below. An
investment in the Fund is not a bank deposit and is not insured or
guaranteed by the FDIC or any government agency.
United States Regulatory Risks of the Marijuana Industry:
The possession and use of marijuana, even for medical purposes, is
illegal under federal and certain states’ laws, which may
negatively impact the value of the Fund’s investments. Use of
marijuana is regulated by both the federal government and state
governments, and state and federal laws regarding marijuana often
conflict. Even in those states in which the use of marijuana has
been legalized, its possession and use remains a violation of
federal law. Federal law criminalizing the use of marijuana
pre-empts state laws that legalizes its use for medicinal and
recreational purposes. Pronouncements from the current
Administration suggest the Department of Justice
(“DOJ”) may push back against states where marijuana
use and possession is legal, step up the enforcement of federal
marijuana laws and the prosecution of nonviolent federal drug
crimes and, in the event the Rohrabacher-Blumenauer amendment is
not renewed by Congress, begin using federal funds to prevent
states from implementing laws that authorize medical marijuana use,
possession, distribution, and cultivation. Such actions by the DOJ
could produce a chilling effect on the industry’s growth and
discourage banks from expanding their services to cannabis-related
companies where such services are currently limited. This conflict
between the regulation of marijuana under federal and state law
creates volatility and risk for all cannabis-related companies. In
particular, the stepped up enforcement of marijuana laws by the
federal government would adversely affect the value of the
Fund’s U.S. investments. Certain Cannabis Companies or
Pharmaceutical Companies may never be able to legally produce and
sell products in the United States or other national or local
jurisdictions.
Marijuana
is a Schedule I controlled substance under the Controlled
Substances Act (“CSA”) (21 U.S.C. § 811), meaning
that it has a high potential for abuse, has no currently
“accepted medical use” in the United States, lacks
accepted safety for use under medical supervision, and may not be
prescribed, marketed or sold in the United States. Few drug
products containing natural cannabis or naturally-derived cannabis
extracts have been approved by the Food and Drug Administration
(“FDA”) for use in the United States or obtained
registrations from the United States Drug Enforcement
Administration (“DEA”) for commercial production.
Although the cultivation of industrial hemp is legal in the United
States, the FDA issued a statement saying that despite the new
status of hemp, CBD is still considered an illicit drug ingredient
and remains illegal to add to food or health products without the
agency’s approval.
Cannabis-related
companies in the U.S. that engage in medical or pharmaceutical
research or the production and distribution of controlled
substances such as marijuana must be registered with the DEA to
perform such activities and have the security, control,
recordkeeping, reporting and inventory mechanisms required by the
DEA to prevent drug loss and diversion. Failure to obtain the
necessary registrations or comply with necessary regulatory
requirements may significantly impair the ability of certain
companies in which the Fund invests to pursue medical marijuana
research or to otherwise cultivate, possess or distribute
marijuana.
Non-U.S. Regulatory Risks of the Marijuana Industry: The
companies in which the Fund invests are subject to various laws,
regulations and guidelines relating to the manufacture, management,
transportation, storage and disposal of marijuana, as well as being
subject to laws and regulations relating to health and safety, the
conduct of operations and the protection of the environment. Even
if a company’s operations are permitted under current law,
they may not be permitted in the future, in which case such company
may not be in a position to carry on its operations in its current
locations. Additionally, controlled substance legislation differs
between countries and legislation in certain countries may restrict
or limit the ability of certain companies in which the Fund invests
to sell their products.
Operational Risks of the Marijuana Industry: Companies
involved in the marijuana industry face intense competition, may
have limited access to the services of banks, may have substantial
burdens on company resources due to litigation, complaints or
enforcement actions, and are heavily dependent on receiving
necessary permits and authorizations to engage in medical marijuana
research or to otherwise cultivate, possess or distribute
marijuana. Since the use of marijuana is illegal under United
States federal law, federally regulated banking institutions may be
unwilling to make financial services available to growers and
sellers of marijuana.
The remaining principal risks are presented in alphabetical order.
Each risk summarized below is considered a “principal
risk” of investing in the Fund, regardless of the order in
which it appears.
Concentration Risk: The Fund’s investments will be
concentrated in an industry or group of industries to the extent
that the Index is so concentrated. In such event, the value of the
Fund’s shares may rise and fall more than the value of shares
of a fund that invests in securities of companies in a broader
range of industries.
Consumer Staples Sector Risk: The consumer staples sector
may be affected by the permissibility of using various product
components and production methods, marketing campaigns and other
factors affecting consumer demand. Tobacco companies, in
particular, may be adversely affected by new laws, regulations and
litigation. The consumer staples sector may also be adversely
affected by changes or trends in commodity prices, which may be
influenced or characterized by unpredictable factors.
Equity Market Risk: The equity securities held in the
Fund’s portfolio may experience sudden, unpredictable drops
in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or
factors affecting specific issuers, industries, or sectors in which
the Fund invests such as political, market and economic
developments, as well as events that impact specific
issuers.
ETF Risks:
Absence of an Active
Market: Although the Fund’s shares are approved
for listing on the Exchange, there can be no assurance that an
active trading market will develop and be maintained for Fund
shares. There can be no assurance that the Fund will grow to or
maintain an economically viable size, in which case the Fund may
experience greater tracking error to its Index than it otherwise
would at higher asset levels or the Fund may ultimately
liquidate.
Authorized Participants (“APs”),
Market Makers, and Liquidity Providers Concentration
Risk: The Fund has a limited number of financial
institutions that may act as APs. In addition, there may be a
limited number of market makers and/or liquidity providers in the
marketplace. To the extent either of the following events occur,
Shares may trade at a material discount to net asset value
(“NAV”) and possibly face delisting: (i) APs exit
the business or otherwise become unable to process creation and/or
redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers
exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions. The
risks associated with limited APs may be heightened in scenarios
where APs have limited or diminished access to the capital required
to post collateral.
Costs of Buying or Selling
Shares: Investors buying or selling Fund shares in the
secondary market will pay brokerage commissions or other charges
imposed by brokers as determined by that broker. Brokerage
commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively
small amounts of shares.
Fluctuation of NAV: The NAV of
Fund shares will generally fluctuate with changes in the market
value of the Fund’s securities holdings. The market prices of
shares will generally fluctuate in accordance with changes in the
Fund’s NAV and supply and demand of shares on the Exchange.
It cannot be predicted whether Fund shares will trade below, at or
above their NAV. During periods of unusual volatility or market
disruptions, market prices of Fund shares may deviate significantly
from the market value of the Fund’s securities holdings or
the NAV of Fund shares. As a result, investors in the Fund may pay
significantly more or receive significantly less for Fund shares
than the value of the Fund’s underlying securities or the NAV
of Fund shares.
Limitations of Indicative Optimized Portfolio
Value (“IOPV”) Risk: The Exchange (or market
data vendors or other information providers) will disseminate,
every fifteen seconds during the regular trading day, an intraday
value of the Fund’s shares, also known as the IOPV. The IOPV
calculations are estimates of the value of the Fund’s NAV per
share and are based on the Fund’s portfolio holdings and
cash, less accrued expenses, divided by the number of shares of the
Fund outstanding as of the time of the prior day’s NAV
calculation. Premiums and discounts between the IOPV and the market
price of the Fund’s shares may occur. The IOPV does not
necessarily reflect the precise composition of the current
portfolio of securities held by the Fund at a particular point in
time or the best possible valuation of the current portfolio.
Therefore, it should not be viewed as a “real-time”
update of the NAV per share of the Fund, which is calculated only
once a day. The quotations of certain Fund holdings may not be
updated during U.S. trading hours if such holdings do not trade in
the United States. Additionally, the calculation of the NAV may
reflect the fair values of certain Fund holdings, which may result
in different prices than those used in the calculations of the
IOPV. This may result in market prices for Fund shares deviating
from the value of the Fund’s underlying securities. Neither
the Fund nor the Adviser, nor any of their affiliates are involved
in, or responsible for, the calculation or dissemination of the
IOPV and make no warranty as to its accuracy.
Market Trading Risk: An investment in
the Fund faces numerous market trading risks, including the
potential lack of an active market for Fund shares, losses from
trading in secondary markets, periods of high volatility and
disruption in the creation/redemption process of the Fund. Any of
these factors, among others, may lead to the Fund’s shares
trading at a premium or discount to NAV.
Trading Issues: Although Fund
shares are listed for trading on the NYSE Arca, Inc. (the
“Exchange”), there can be no assurance that an active
trading market for such shares will develop or be maintained.
Trading in Fund shares may be halted due to market conditions or
for reasons that, in the view of the Exchange, make trading in
shares inadvisable. There can be no assurance that the requirements
of the Exchange necessary to maintain the listing of any Fund will
continue to be met or will remain unchanged or that the shares will
trade with any volume, or at all. Further, secondary markets may be
subject to erratic trading activity,wide bid/ask spreads and
extended trade settlement periods in times of market stress because
market makers and Authorized Participants may step away from making
a market in Fund shares and in executing creation and redemption
orders, which could cause a material deviation in the Fund’s
market price from its NAV.
Foreign Investment Risk: Returns on investments in foreign
stocks could be more volatile than, or trail the returns on,
investments in U.S. stocks.
Currency Risk: Indirect and direct
exposure to foreign currencies subjects the Fund to the risk that
currencies will decline in value relative to the U.S. dollar.
Currency rates in foreign countries may fluctuate significantly
over short periods of time for a number of reasons, including
changes in interest rates and the imposition of currency controls
or other political developments in the U.S. or abroad.
Depositary Receipts
Risk: The Fund may invest in
depositary receipts. Investment in ADRs and GDRs may be less liquid
than the underlying shares in their primary trading market and
GDRs, many of which are issued by companies in emerging markets,
may be more volatile and less liquid than depositary receipts
issued by companies in more developed markets.
Foreign Market and Trading
Risk: The trading markets for many foreign securities
are not as active as U.S. markets and may have less governmental
regulation and oversight. Foreign markets also may have clearance
and settlement procedures that make it difficult for the Fund to
buy and sell securities. These factors could result in a loss to
the Fund by causing the Fund to be unable to dispose of an
investment or to miss an attractive investment opportunity, or by
causing Fund assets to be uninvested for some period of
time.
Foreign Securities Risk: The Fund
invests a significant portion of its assets directly in securities
of issuers based outside of the U.S., or in depositary receipts
that represent such securities. Investments in securities of
non-U.S. issuers involve certain risks that may not be present with
investments in securities of U.S. issuers, such as risk of loss due
to foreign currency fluctuations or to political or economic
instability, as well as varying regulatory requirements applicable
to investments in non-U.S. issuers. There may be less information
publicly available about a non-U.S. issuer than a U.S. issuer.
Non-U.S. issuers may also be subject to different regulatory,
accounting, auditing, financial reporting and investor protection
standards than U.S. issuers.
Political and Economic Risk: The
Fund is subject to foreign political and economic risk not
associated with U.S. investments, meaning that political events,
social and economic events and natural disasters occurring in a
country where the Fund invests could cause the Fund’s
investments in that country to experience gains or losses. The Fund
also could be unable to enforce its ownership rights or pursue
legal remedies in countries where it invests.
Health Care Companies Risk: Health care companies are
subject to extensive government regulation and their profitability
can be significantly affected by restrictions on government
reimbursement for medical expenses, rising costs of medical
products and services, pricing pressure (including price
discounting), limited product lines, and an increased emphasis on
the delivery of healthcare through outpatient services. Health care
companies are heavily dependent on obtaining and defending patents,
which may be time consuming and costly, and the expiration of
patents may also adversely affect the profitability of the
companies. Health care companies are also subject to extensive
litigation based on product liability and similar claims. In
addition, their products can become obsolete due to industry
innovation, changes in technologies, or other market developments.
Many new products in the health care field require significant
research and development and may be subject to regulatory
approvals, all of which may be time consuming and costly with no
guarantee that any product will come to market.
Biotechnology Company
Risk: A biotechnology company’s valuation
can often be based largely on the potential or actual performance
of a limited number of products and can accordingly be greatly
affected if one of its products proves, among other things, unsafe,
ineffective or unprofitable. Biotechnology companies are subject to
regulation by, and the restrictions of, the FDA, the U.S.
Environmental Protection Agency, state and local governments, and
foreign regulatory authorities.
Pharmaceutical Company
Risk: Companies in the pharmaceutical industry
can be significantly affected by, among other things, government
approval of products and services, government regulation and
reimbursement rates, product liability claims, patent expirations
and protection and intense competition.
Non-Diversification Risk: Because the Fund is
“non-diversified,” it may invest a greater percentage
of its assets in the securities of a single issuer or a small
number of issuers than if it was a diversified fund. As a result, a
decline in the value of an investment in a single issuer or a small
number of issuers could cause the Fund’s overall value to
decline to a greater degree than if the Fund held a more
diversified portfolio. This may increase the Fund’s
volatility and have a greater impact on the Fund’s
performance.
Non-Cannabis Related Business Risk: Many of the companies in
the Index are engaged in other lines of business unrelated to the
activities identified in the principal investment strategies,
above, and these lines of business could adversely affect their
operating results. The operating results of these companies may
fluctuate as a result of events in the other lines of business. In
addition, a company’s ability to engage in new activities may
expose it to business risks with which it has less experience than
it has with the business risks associated with its traditional
businesses. There can be no assurance that the other lines of
business in which these companies are engaged will not have an
adverse effect on a company’s business or financial
condition.
Passive Investment Risk: The Fund is not actively managed
and therefore would not sell an equity security due to current or
projected underperformance of a security, industry or sector,
unless that security is removed from the Index.
Risks Related to Investing in Canada: Because the
investments of the Fund are geographically concentrated in Canadian
companies or companies that have a significant presence in Canada,
investment results could be dependent on the financial condition of
the Canadian economy. The Canadian economy is reliant on the sale
of natural resources and commodities, which can pose risks such as
the fluctuation of prices and the variability of demand for
exportation of such products. Changes in spending on Canadian
products by the economies of other countries or changes in any of
these economies may cause a significant impact on the Canadian
economy. In particular, the Canadian economy is heavily dependent
on relationships with certain key trading partners, including the
United States and China.
Risks Related to Investing in Europe: The economies and
markets of European countries are often closely connected and
interdependent, and events in one country in Europe can have an
adverse impact on other European countries. The Fund makes
investments in securities of issuers that are domiciled in, or have
significant operations in, member countries of the European Union
(the “EU”) that are subject to economic and monetary
controls that can adversely affect the Fund’s investments.
The European financial markets have experienced volatility and
adverse trends in recent years and these events have adversely
affected the exchange rate of the euro and may continue to
significantly affect other European countries. Decreasing imports
or exports, changes in governmental or EU regulations on trade,
changes in the exchange rate of the euro, the default or threat of
default by an EU member country on its sovereign debt, and/or an
economic recession in an EU member country may have a significant
adverse effect on the economies of EU member countries and their
trading partners, including some or all of the European countries
in which the Fund invests.
In a
referendum held in June 2016 (known as “Brexit”),
the United Kingdom (“UK”) voted to leave the
EU. As a result of the political divisions within the UK and
between the UK and the EU that the referendum vote has highlighted
and the uncertain consequences of a Brexit, the UK and
European economies and the broader global economy could be
significantly impacted, which may result in increased
volatility and illiquidity, and potentially lower economic growth
on markets in the UK, Europe and globally that could
potentially have an adverse effect on the value of the Fund’s
investments.
Sector Risk: To the extent the Fund invests more heavily in
particular sectors of the economy, its performance will be
especially sensitive to developments that significantly affect
those sectors.
Securities Lending Risk: The Fund may engage in
securities lending. The Fund may lose money if the borrower of the
loaned securities delays returning in a timely manner or fails to
return the loaned securities. Securities lending involves the risk
that the Fund could lose money in the event of a decline in the
value of collateral provided for loaned securities. In
addition, the Fund bears the risk of loss in connection with its
investment of the cash collateral it receives from a borrower. To
the extent that the value or return of the Fund’s investment
of the cash collateral declines below the amount owed to the
borrower, the Fund may incur losses that exceed the amount it
earned on lending the security.
Smaller Companies Risk: The Fund’s Index may be
composed primarily of, or have significant exposure to, securities
of smaller companies. If it does so, it may be subject to certain
risks associated with smaller companies. Smaller companies may be
more vulnerable to adverse business or economic events than larger,
more established companies, and may underperform other segments of
the market or the equity market as a whole. The securities of
smaller companies also tend to be bought and sold less frequently
and at significantly lower trading volumes than the securities of
larger companies. As a result, it may be more difficult for the
Fund to buy or sell a significant amount of the securities of a
smaller company without an adverse impact on the price of the
company’s securities, or the Fund may have to sell such
securities in smaller quantities over a longer period of time,
which may increase the Fund’s tracking error.
Tax Risk: To qualify for the favorable tax treatment
generally available to regulated investment companies, the Fund
must satisfy certain diversification requirements under the
Internal Revenue Code of 1986, as amended (the “Code”).
In particular, the Fund generally may not acquire a security if, as
a result of the acquisition, more than 50% of the value of the
Fund’s assets would be invested in (a) issuers in which the
Fund has, in each case, invested more than 5% of the Fund’s
assets and (b) issuers more than 10% of whose outstanding voting
securities are owned by the Fund. When the Index is concentrated in
a relatively small number of securities, it may not be possible for
the Fund to fully implement a replication strategy or a
representative sampling strategy while satisfying these
diversification requirements. The Fund’s efforts to satisfy
the diversification requirements may cause the Fund’s return
to deviate from that of the Index, and the Fund’s efforts to
replicate the Index may cause it inadvertently to fail to satisfy
the diversification requirements. If the Fund were to fail to
qualify as a regulated investment company, it would be taxed in the
same manner as an ordinary corporation, and distributions to its
shareholders would not be deductible by the Fund in computing its
taxable income.
Tracking Error Risk: The Fund’s return may not match
or achieve a high degree of correlation with the return of the
Index. To the extent the Fund utilizes a sampling approach, it may
experience tracking error to a greater extent than if the Fund
sought to replicate the Index. In addition, in order to minimize
the market impact of an Index rebalance, the Fund may begin trading
to effect the rebalance in advance of the effective date of the
rebalance and continue trading after the effective date of the
rebalance, which may contribute to tracking error.
Valuation Risk: The sales price that the Fund could
receive for a security may differ from the Fund’s valuation
of the security and may differ from the value used by the Index,
particularly for securities that trade in low volume or volatile
markets or that are valued using a fair value methodology. In
addition, the value of the securities in the Fund’s portfolio
may change on days when shareholders will not be able to purchase
or sell the Fund’s shares.