China Energy Index (the “Energy Index”). No trading symbol or fund operating expenses were included in the filing.
The Energy Index is a rules based, modified capitalization weighted, float adjusted index designed to track the overall performance of publicly traded companies in the energy sector that are domiciled and primarily listed on an exchange in China or that generate at least 50% of their revenues in China. In exceptional cases, companies with less than 50% of their revenues derived from China may be eligible for inclusion in the Energy Index.
Constituent stocks of the Energy Index must have a market capitalization of greater than $150 million on a rebalancing date to be eligible for the Energy Index. Stocks whose market capitalizations fall below $75 million as of any rebalancing date will no longer be eligible for the Energy Index. Stocks must have a three-month average daily trading volume of at least $1 million to be eligible for the Energy Index and issuers of such stocks must have traded at least 250,000 shares each month over the last six months. Only shares that trade on a recognized domestic or international stock exchange may qualify (e.g., National Stock Market stocks must be “reported securities” under Rule 11Aa3-1 of the Exchange Act. Similar criteria and standards apply to stocks with foreign listings).
The Energy Index is calculated and maintained by [ ] on behalf of the Index Provider. The Index Provider is not affiliated with the Fund. Energy Index values are calculated daily and are disseminated every 60 seconds between the hours of approximately 9:30 a.m. and 4:15 p.m. (Eastern time). The 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 Energy Index is reconstituted quarterly, at the close of business on the third Friday in a quarter-end month (i.e., March, June, September and December) and companies are added and/or deleted based upon the Energy Index eligibility criteria. Companies with recent stock exchange listings, i.e., recent initial public offerings, may be added to the Energy Index on a quarterly basis, provided the companies meet all eligibility criteria and have been trading for more than 30 trading days. The share weights of the Energy Index components are adjusted also on a quarterly basis (every third Friday in a quarter-end month).
Rebalancing data, including constituent weights and related information, is posted on the Index Provider’s web site prior to the start of trading on the first business day following the third Friday of the calendar quarter. A press announcement identifying additions and deletions to the 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.
Principal Investment Strategies
The Fund will normally invest at least 80% of its total assets in securities of companies that comprise the Energy Index and in investments that have economic characteristics that are substantially identical to the economic characteristics of the securities that comprise the Energy Index. The Energy Index measures the performance of securities of issuers in the energy sector. The Fund’s 80% investment policy is non-fundamental and requires 60 days’ prior written notice to shareholders before it can be changed.
The Fund, using a “passive” or indexing investment approach will attempt to approximate the investment performance of the Energy Index by investing in a portfolio of securities that generally replicates the Energy Index. The Adviser expects that, over time, the correlation between the Fund’s performance and that of the Energy Index before fees and expenses will be 95% or better. A figure of 100% would indicate perfect correlation.
The Energy Index is comprised of China A-shares (“A-shares”), China B-shares (“B-shares”), China H-shares (“H-shares”) and shares of companies with controlling Chinese shareholders that are incorporated outside mainland China and listed on the Hong Kong Stock Exchange (“Red Chip Companies”). The Energy Index is a rules based, modified capitalization weighted, float adjusted index designed to track the overall performance of publicly traded companies in the energy sector that are domiciled and primarily listed on an exchange in China or that generate at least 50% of their revenues in China. In exceptional cases, companies with less than 50% of their revenues derived from China may be eligible for inclusion in the Energy Index. Only companies with market capitalizations greater than $150 million on a rebalancing date that have a three-month average daily trading volume of at least $1 million and that have traded at least 250,000 shares each month over the last six months are eligible for inclusion in Energy Index. As of [ ], 2010, the Energy Index included [ ] securities with a total market capitalization in excess of $[ ] billion.
A-shares are issued by companies incorporated in mainland China. A-shares are traded in RMB on the Shenzhen and Shanghai Stock Exchanges. The A-share market in the People’s Republic of China (“China” or the “PRC”) is made available to domestic PRC investors and certain foreign investors who have been approved as a Qualified Foreign Institutional Investor (“QFII”) and obtained a QFII license. A QFII license may be obtained by application to the China Securities Regulatory Commission (“CSRC”) and China’s State Administration of Foreign Exchange (“SAFE”). Approval of such application includes a specific aggregate dollar amount investment quota (the “A-share Quota”) in which the QFII can invest in A-shares. Investment companies are not currently within the types of entities that are eligible for a QFII license. Therefore, in order for the Fund to invest directly in A-shares, the Adviser would need to apply for and obtain an A-share Quota.
The Adviser has submitted an application for a QFII license in order to allow the Fund to invest directly in A-shares. There is no assurance that the Adviser will be able to obtain a QFII license and, if so, when such license would be granted. Furthermore, there are significant legal and operational obstacles that will need to be resolved before the Fund can invest directly in the A-share market, including repatriation restrictions and A-share Quota limitations. Until the Adviser obtains a QFII license, and the significant legal and operational obstacles are resolved, the Fund will not invest directly in A-shares. See “Risks of Investing in the Funds—Risk of Investing in China—Investments in A-shares” and “—Investment and Repatriation Restrictions.”
Assets not invested in swaps and other derivatives will be invested primarily in money market instruments. Investments that have economic characteristics that are substantially identical to the economic characteristics of the component securities of the Energy Index will count towards the 80% investment policy discussed above.
B-shares are issued by companies incorporated in mainland China. B-shares are traded in foreign currency on the Shenzhen and Shanghai Stock Exchanges. B-shares were intended to be available only to foreign investors or foreign institutions. However, since February 2001, B-shares have been available to domestic individual investors who trade through legal foreign currency accounts.
H-shares are shares issued by companies incorporated in mainland China. H-shares are traded in Hong Kong dollars on the Hong Kong Stock Exchange. Companies must meet Hong Kong’s listing and disclosure requirements in order to be listed on the Hong Kong Stock Exchange. H-shares may be traded by foreigners and domestic residents alike and are often the vehicle for extending a Chinese privatization to foreign investors.
Shares of Red Chip Companies are traded in Hong Kong dollars on the Hong Kong Stock Exchange. Red Chip Companies are incorporated in Hong Kong, but often have a majority of their business interest in mainland China. Shares of Red Chip Companies also may be traded by foreigners and domestic residents alike.
The Fund may concentrate its investments in a particular industry or group of industries to the extent that the Energy Index concentrates in an industry or group of industries.
For the full filing click: HERE
Related ETFs: Global X China Energy ETF (NYSE:CHIE)