UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-04297 VANECK FUNDS (Exact name of registrant as specified in charter) 666 Third Avenue, New York, NY 10017 (Address of principal executive offices) (Zip code) Van Eck Associates Corporation 666 Third Avenue, New York, NY 10017 (Name and address of agent for service) Registrant's telephone number, including area code: (212) 293-2000 Date of fiscal year end: DECEMBER 31 Date of reporting period: JUNE 30, 2019
Item 1. Report to Shareholders
SEMI-ANNUAL REPORT June 30, 2019 (unaudited) |
VanEck Funds
CM Commodity Index Fund
800.826.2333 | vaneck.com |
Certain information contained in this shareholder letter represents the opinion of the investment adviser which may change at any time. This information is not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Also, unless otherwise specifically noted, any discussion of the Fund’s holdings, the Fund’s performance, and the views of the investment adviser are as of June 30, 2019.
CM COMMODITY INDEX FUND
June 30, 2019 (unaudited)
We are pleased to present this semi-annual report.
Investment Outlook
In brief, the two engines of the global economy, the U.S. and China, are moving forward, albeit at a moderate pace. In this environment, with stocks having had a very solid year so far, our main message is that investors should not be too conservative with their fixed income portfolios. See our blogIs There Enough Risk in Your Fixed Income Portfolio?
Getting to this current environment was, however, a result of a lot of turbulence.
At the beginning of December last year, we were worried about the impact the European Central Bank’s (ECB) and the U.S. Federal Reserve’s (Fed) continued tightening would have on the financial markets. Typically, central bank tightening is unfavorable for financial assets, and markets decelerated going into December. Then, suddenly the Fed signaled it would stop raising rates and reverse on quantitative tightening. This led to a rally in U.S. equities and other asset classes.
The ECB is also now delaying any tightening steps. At its March 7 policy meeting, the ECB pushed back its timing for increasing interest rates and is expected to stay on hold through the end of 2019. It also announced a program to stimulate bank lending, with another round of targeted longer-term refinancing operations (TLTRO) launching in September. TLTRO loans from the ECB provides banks in the euro zone with cheap rates.
Last but not least, China’s non-manufacturing Purchasing Managers’ Index (PMI) shows a strong rate of expansion, which one would expect with the emergence of the “new China” economy-one that is increasingly driven by consumption. However, the manufacturing PMI shows several recent dips below the important 50 mark into contraction territory, corresponding to the “recession” in late 2018, followed by a recovery after Q1 2019. It saw another fall into contraction territory in Q2 2019, though this was slightly smaller than the Q4 2018 drop, indicating that China’s stimulus measures may have softened the impact of external factors, such as tariffs and trade tensions. If so, we believe more stimulus may be expected to support domestic demand in the months ahead.
Doubtless there are risks to the global economy and financial markets. Concerns around the strength of global economic growth, the strength of
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CM COMMODITY INDEX FUND
(unaudited) (continued)
the U.S. dollar, the trajectory of U.S. interest rates, certain country-specific factors, e.g., Iran and Venezuela, and the, as yet, unresolved trade dispute between the U.S. and China continue to hang over the market.
We encourage you to stay in touch with us through the videos, email subscriptions, and research blogs available on our website, www.vaneck.com.I have started my own email subscription where I share interesting research—you can sign up on vaneck.com.Should you have any questions regarding fund performance, please contact us at 800.826.2333 or visit our website.
We sincerely thank you for investing in VanEck’s investment strategies. On the following pages, you will find the Fund’s financial statements for the six month period ended June 30, 2019. As always, we value your continued confidence in us and look forward to helping you meet your investment goals in the future.
Jan F. van Eck
CEO and President
VanEck Funds
July 16, 2019
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
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CM COMMODITY INDEX FUND
June 30, 2019 (unaudited)
The CM (Constant Maturity) Commodity Index Fund (the “Fund”) gained 6.53% (Class A shares, excluding sales charge) for the six months ended June 30, 2019. The Fund’s benchmark, the UBS Bloomberg Constant Maturity Commodity Total Return Index (“CMCI”),1gained 7.10%.
The energy sector provided the majority of the positive performance for commodity indices in the first six months of 2019. CMCI outperformed the Bloomberg Commodity Index (“BCOM”),2up 5.06%, mostly because of the difference in natural gas exposure and better roll yield^from its constant maturity approach. The S&P®GSCI Index (“SPGSCI”)3posted a gain of 13.34%, outperforming both the CMCI and BCOM because of its heavy energy weighting.
Market Review
Right from the start of 2019, commodity markets started to recover from the sharp selloff in fourth quarter 2018. The sharp reversal by the U.S. Federal Reserve (Fed) in early January, from a tightening bias to easing, set the stage for oil to lead commodity markets higher. WTI (West Texas Intermediate) crude oil rallied 50% from the December 2018 lows to the highs of mid-April. OPEC and Russia maintained their production discipline and the U.S. tightened Iranian oil sanctions. Additionally the low oil prices from the fourth quarter of 2018 caused U.S. shale oil producers to slow expected 2019 production growth.
The U.S./China trade talks continued to influence investor sentiment during the first half of 2019, supporting positive price trends through April, then causing a sharp selloff in May when the negotiations broke down. Finally, markets recovered in June on continued expectations of a Fed easing to finish the first half on a positive note. Importantly, as the quarter ended, gold managed to breakout to the upside of a five year trading range. The rally was sparked by U.S./Iran war fears.
Fund Review
The Fund continued to utilize commodity index-linked swaps as an effective means of gaining exposure to the CMCI, and Fund performance for the 6 month period was derived primarily from investments in swap contracts. While there are costs associated with the use of swaps, we continue to believe it is the most effective way of replicating the CMCI’s commodity exposures and weights. Contracts outstanding as of June 30, 2019 are presented in the Fund’s Consolidated Schedule of Investments.
3 |
CM COMMODITY INDEX FUND
(unaudited) (continued)
Within the CMCI, the industrial metals sector (considered the most economically sensitive sector) rose almost 3% in the first half of the year, led by a nearly 19% rise in nickel. The precious metals sector rose almost 8%, due entirely to the rise in the price of gold. While the agriculture sector remained under pressure from continuing trade tensions, it did show a small positive return of just under 1%. WTI and Brent crude oil both rallied strongly during the first six months of the year, with the former rising over 21% and the latter nearly 18%. Over the same period, RBOB gasoline rose nearly 27%. Supply concerns, for example, declining Venezuelan production and the U.S. administration’s aggressive sanctions against Iran’s oil production all added to the bullish investor sentiment. The livestock sector detracted from performance with lean hogs and cattle each declining approximately 7%.
As we look to the second half of 2019, the outlook for commodity markets remains uncertain. U.S./Iranian geopolitical tensions have added to the uncertain outlook. Global growth is slowing, but global central banks are starting a new easing cycle and we believe any U.S. dollar weakness or U.S./China trade progress could drive commodity prices higher in the second half of 2019.
For more information or to access investment and market insights from the investment team, visit our web site, vaneck.com or subscribe to our commentaries.
As always, we value your continued confidence in us and look forward to helping you meet your investment goals in the future.
Roland Morris, Jr. Portfolio Manager | Gregory Krenzer Deputy Portfolio Manager |
Represents the opinions of the investment adviser. Past performance is no guarantee of future results. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.
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All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
1 | UBS Bloomberg Constant Maturity Commodity Total Return Index (CMCI) is a rules-based, composite benchmark index. CMCI is comprised of diversified commodities futures contracts with maturities ranging from around three months to over three years for each commodity, depending on liquidity. |
2 | The Bloomberg Commodity Index (BCOM) is composed of futures contracts on physical commodities covering multiple sectors, specifically energy, precious metals, industrial metals, livestock and agriculture. |
3 | The S&P®GSCI Index (SPGSCI) is composed of futures contracts on physical commodities, with high energy concentration and limited diversification. SPGSCI buys and sells short-term futures contracts. |
^ | Roll yield is the amount of return generated during periods of backwardation, while negative roll yield refers to the amount of return lost during periods of contango. Roll yield is calculated as equal to [(1+Excess Return)/(1+Spot Return)]-1. “Backwardation” is the opposite of contango, and refers to a downward sloping term structure. Backwardation tends to occur in contracts and during periods when traders are concerned about scarcity of supplies. Thus, traders would rather have commodities in-hand now (spot) than in the future, and will pay for the privilege. “Contango” refers to an upward sloping term structure, in which indices that hold front-month contracts will incur a cost each time contracts expire and must be rolled to more expensive, longer-dated contracts. As contracts move closer to expiration, their value converges with spot prices. So, “contango cost” usually is measured by the difference between spot prices and front-month futures. |
Commodities are assets that have tangible properties, such as oil, metals, and agriculture. Commodities and commodity-linked derivatives may be affected by overall market movements and other factors that affect the value of a particular industry or commodity such as weather, disease, embargoes or political or regulatory developments. The value of a commodity-linked derivative is generally based on price movements of a commodity, a commodity futures contract, a commodity index or other economic variables based on the commodity markets. Derivatives use leverage, which may exaggerate a loss. The Fund is subject to the risks associated with its investments in commodity-linked derivatives, risks of investing in wholly owned subsidiary, risk of tracking error, risks of aggressive investment techniques, leverage risk, derivatives risks, counterparty risks, non-diversification risk, credit risk, concentration risk and market risk. The use of commodity-linked derivatives such as swaps, commodity-linked structured notes and futures entails substantial risks, including risk of loss of a significant portion of their principal value, lack of a secondary market, increased volatility, correlation risk, liquidity risk, interest-rate risk, market risk, credit risk, valuation risk and tax risk. Gains and losses from speculative positions in derivatives may be much greater than the derivative’s cost. At any time, the risk of loss of any individual security held by the Fund could be significantly higher than 50% of the security’s value. Investment in commodity markets may not be suitable for all investors. The Fund’s investment in commodity-linked
5 |
CM COMMODITY INDEX FUND
(unaudited) (continued)
derivative instruments may subject the fund to greater volatility than investment in traditional securities. Please see the prospectus and summary prospectus for information on these and other risk considerations.
All investments involve the risk of loss.
6 |
CM COMMODITY INDEX FUND
June 30, 2019 (unaudited)
Average Annual Total Returns (%)* | Class A Before Sales Charge | Class A After Maximum Sales Charge | Class I** | |||||||||
Six Months | 6.53 | 0.44 | 6.38 | |||||||||
One Year | (6.79 | ) | (12.13 | ) | (6.59 | ) | ||||||
Five Year | (7.97 | ) | (9.06 | ) | (7.73 | ) | ||||||
Life^ | (5.94 | ) | (6.59 | ) | (5.67 | ) |
Average Annual Total Returns (%)* | Class Y** | CMCITR | ||||||||||
Six Months | 6.64 | 7.10 | ||||||||||
One Year | (6.66 | ) | (5.68 | ) | ||||||||
Five Year | (7.73 | ) | (6.69 | ) | ||||||||
Life^ | (5.70 | ) | (4.63 | ) |
* | Returns less than one year are not annualized |
** | Classes are not subject to a sales charge |
^ | Since December 31, 2010 (inception date of all share classes). |
The performance quoted represents past performance. Past performance does not guarantee future results; current performance may be lower or higher than the performance data quoted.
Investment return and value of shares of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance information reflects temporary waivers of expenses and/or fees. Had the Fund incurred all expenses, investment returns would have been reduced. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at net asset value (NAV). These returns do not reflect the deduction of taxes that a shareholder would pay on Fund dividends and distributions or the redemption of Fund shares. Performance information current to the most recent month end is available by calling 800.826.2333 or by visiting www.vaneck.com.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
UBS Bloomberg Constant Maturity Commodity Total Return Index (CMCITR) is a rules-based, composite benchmark index diversified across 29 commodity components from within five sectors, specifically energy, precious metals, industrial metals, agriculture and livestock (reflects no deduction for fees, expenses or taxes).
7 |
CM COMMODITY INDEX FUND
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges on purchase payments; and (2) ongoing costs, including management fees and other Fund expenses. This disclosure is intended to help you understand the ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The disclosure is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, January 1, 2019 to June 30, 2019.
Actual Expenses
The first line in the table below provides information about account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period.”
Hypothetical Example for Comparison Purposes
The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as fees on purchase payments. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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Beginning Account Value January 1, 2019 | Ending Account Value June 30, 2019 | Annualized Expense Ratio During Period | Expenses Paid During the Period* January 1, 2019 – June 30, 2019 | |||||||
CM Commodity Index Fund | ||||||||||
Class A | Actual | $1,000.00 | $1,065.30 | 0.95% | $4.86 | |||||
Hypothetical** | $1,000.00 | $1,020.08 | 0.95% | $4.76 | ||||||
Class I | Actual | $1,000.00 | $1,063.80 | 0.65% | $3.33 | |||||
Hypothetical** | $1,000.00 | $1,021.57 | 0.65% | $3.26 | ||||||
Class Y | Actual | $1,000.00 | $1,066.40 | 0.70% | $3.59 | |||||
Hypothetical** | $1,000.00 | $1,021.32 | 0.70% | $3.51 |
* | Expenses are equal to the Fund’s annualized expense ratio (for the six months ended June 30, 2019), multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year divided by the number of the days in the fiscal year (to reflect the one-half year period). |
** | Assumes annual return of 5% before expenses |
9 |
CM COMMODITY INDEX FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
June 30, 2019 (unaudited)
Principal Amount | Value | |||||||
SHORT-TERM INVESTMENTS: 96.4% | ||||||||
United States Treasury Obligations: 88.8% | ||||||||
United States Treasury Bills | ||||||||
$ | 60,000,000 | 0.01%, 08/15/19 | $ | 59,823,750 | ||||
40,000,000 | 2.10%, 10/24/19 | 39,746,521 | ||||||
30,000,000 | 2.12%, 11/07/19 | 29,778,819 | ||||||
40,000,000 | 2.18%, 10/03/19 | 39,781,972 | ||||||
40,000,000 | 2.25%, 09/12/19 (a) | 39,833,114 | ||||||
9,000,000 | 2.29%, 09/26/19 (a) | 8,954,978 | ||||||
55,000,000 | 2.30%, 09/05/19 (a) | 54,789,510 | ||||||
55,000,000 | 2.33%, 08/22/19 (a) | 54,814,894 | ||||||
30,000,000 | 2.35%, 08/01/19 (a) | 29,939,292 | ||||||
50,000,000 | 2.37%, 08/08/19 (a) | 49,874,916 | ||||||
20,000,000 | 2.38%, 07/11/19 | 19,986,806 | ||||||
45,000,000 | 2.38%, 07/25/19 | 44,928,510 | ||||||
$ | 472,253,082 |
Number of Shares | Value | |||||||
Money Market Fund: 7.6% | ||||||||
40,275,733 | AIM Treasury Portfolio – Institutional Class | $ | 40,275,733 | |||||
Total Short-Term Investments (Cost: $512,456,558) | 512,528,815 | |||||||
Other assets less liabilities: 3.6% | 19,220,550 | |||||||
NET ASSETS: 100.0% | $ | 531,749,365 |
Total Return Swap Contracts—As of June 30, 2019.
Long Exposure
Counter- party | Referenced Obligation | Notional Amount | Rate paid by the Fund (b) | Termination Date | % of Net Assets | Unrealized Appreciation | |||||||||||||||
UBS | UBS Bloomberg Constant Maturity Commodity Index Total Return | $511,649,000 | 2.49% | 07/17/19 | 3.0% | $ | 16,113,809 |
Footnotes:
(a) | All or a portion of these securities are segregated for swap collateral. Total value of securities segregated is $77,722,355. |
(b) | The rate shown reflects the rate in effect at the reporting period: 3 Month T-Bill rate + 0.40%. |
See Notes to Consolidated Financial Statements
10 |
Summary of Investments | % of | ||||||
by Sector | Investments | Value | |||||
Government | 92.1 | % | $ | 472,253,082 | |||
Money Market Fund | 7.9 | 40,275,733 | |||||
100.0 | % | $ | 512,528,815 |
The summary of inputs used to value the Fund’s investments as of June 30, 2019 is as follows:
Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Value | |||||||||||||
United States Treasury Obligations | $ | — | $ | 472,253,082 | $ | — | $ | 472,253,082 | ||||||||
Money Market Fund | 40,275,733 | — | — | 40,275,733 | ||||||||||||
Total | $ | 40,275,733 | $ | 472,253,082 | $ | — | $ | 512,528,815 | ||||||||
Other Financial Instruments: | ||||||||||||||||
Swap Contract | $ | — | $ | 16,113,809 | $ | — | $ | 16,113,809 |
See Notes to Consolidated Financial Statements
11 |
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
June 30, 2019 (unaudited)
Assets: | ||||
Investments, at value (Cost: $512,456,558) | $ | 512,528,815 | ||
Total return swap contracts, at value | 16,113,809 | |||
Receivables: | ||||
Shares of beneficial interest sold | 3,586,961 | |||
Dividends and interest | 56,087 | |||
Prepaid expenses | 67,989 | |||
Total assets | 532,353,661 | |||
Liabilities: | ||||
Payables: | ||||
Shares of beneficial interest redeemed | 158,735 | |||
Due to Adviser | 168,995 | |||
Due to Distributor | 3,151 | |||
Deferred Trustee fees | 273,415 | |||
Total liabilities | 604,296 | |||
NET ASSETS | $ | 531,749,365 | ||
Class A Shares: | ||||
Net Assets | $ | 32,476,243 | ||
Shares of beneficial interest outstanding | 7,114,113 | |||
Net asset value and redemption price per share | $ | 4.57 | ||
Maximum offering price per share (Net asset value per share ÷ 94.25%) | $ | 4.85 | ||
Class I Shares: | ||||
Net Assets | $ | 267,281,323 | ||
Shares of beneficial interest outstanding | 57,203,038 | |||
Net asset value, offering and redemption price per share | $ | 4.67 | ||
Class Y Shares: | ||||
Net Assets | $ | 231,991,799 | ||
Shares of beneficial interest outstanding | 49,799,513 | |||
Net asset value, offering and redemption price per share | $ | 4.66 | ||
Net Assets consist of: | ||||
Aggregate paid in capital | $ | 560,336,086 | ||
Total distributable earnings (loss) | (28,586,721 | ) | ||
$ | 531,749,365 |
See Notes to Consolidated Financial Statements
12 |
CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2019 (unaudited)
Income: | ||||
Dividends | $ | 328,228 | ||
Interest | 5,718,221 | |||
Foreign taxes withheld | (9,955 | ) | ||
Total income | 6,036,494 | |||
Expenses: | ||||
Management fees | 1,890,549 | |||
Distribution fees – Class A | 39,434 | |||
Transfer agent fees – Class A | 30,096 | |||
Transfer agent fees – Class I | 83,576 | |||
Transfer agent fees – Class Y | 221,681 | |||
Custodian fees | 15,040 | |||
Professional fees | 48,158 | |||
Registration fees – Class A | 13,875 | |||
Registration fees – Class I | 12,677 | |||
Registration fees – Class Y | 18,824 | |||
Reports to shareholders | 29,015 | |||
Insurance | 9,616 | |||
Trustees’ fees and expenses | 39,510 | |||
Other | 4,416 | |||
Total expenses | 2,456,467 | |||
Waiver of management fees | (712,780 | ) | ||
Net expenses | 1,743,687 | |||
Net investment income | 4,292,807 | |||
Net realized gain (loss) on: | ||||
Investments | (124 | ) | ||
Swap contracts | (3,558,956 | ) | ||
Net realized loss | (3,559,080 | ) | ||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 65,002 | |||
Swap contracts | 29,057,285 | |||
Net change in unrealized appreciation (depreciation) | 29,122,287 | |||
Net Increase in Net Assets Resulting from Operations | $ | 29,856,014 |
See Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | |||||||||
(unaudited) | ||||||||||
Operations: | ||||||||||
Net investment income | $ | 4,292,807 | $ | 5,088,993 | ||||||
Net realized loss | (3,559,080 | ) | (38,959,661 | ) | ||||||
Net change in unrealized appreciation (depreciation) | 29,122,287 | (23,181,525 | ) | |||||||
Net increase (decrease) in net assets resulting from operations | 29,856,014 | (57,052,193 | ) | |||||||
Distributions to shareholders: | ||||||||||
Class A Shares | — | (155,947 | ) | |||||||
Class I Shares | — | (1,874,989 | ) | |||||||
Class Y Shares | — | (1,671,466 | ) | |||||||
Total distributions | — | (3,702,402 | ) | |||||||
Share transactions: | ||||||||||
Proceeds from sale of shares | ||||||||||
Class A Shares | 5,468,341 | 20,394,798 | ||||||||
Class I Shares | 70,259,761 | 134,714,965 | ||||||||
Class Y Shares | 36,071,136 | 130,900,874 | ||||||||
111,799,238 | 286,010,637 | |||||||||
Reinvestment of distributions | ||||||||||
Class A Shares | — | 119,745 | ||||||||
Class I Shares | — | 1,057,340 | ||||||||
Class Y Shares | — | 1,641,482 | ||||||||
— | 2,818,567 | |||||||||
Cost of shares redeemed | ||||||||||
Class A Shares | (4,568,051 | ) | (9,623,579 | ) | ||||||
Class I Shares | (31,077,865 | ) | (69,932,816 | ) | ||||||
Class Y Shares | (37,754,289 | ) | (67,557,151 | ) | ||||||
(73,400,205 | ) | (147,113,546 | ) | |||||||
Net increase in net assets resulting from share transactions | 38,399,033 | 141,715,658 | ||||||||
Total increase in net assets | 68,255,047 | 80,961,063 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 463,494,318 | 382,533,255 | ||||||||
End of period | $ | 531,749,365 | $ | 463,494,318 |
See Notes to Consolidated Financial Statements
14 |
CONSOLIDATED FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class A | |||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | ||||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 4.29 | $ | 4.87 | $ | 4.76 | $ | 4.55 | $ | 6.09 | $ | 7.59 | |||||||||||||||||||
Income from investment operations: | |||||||||||||||||||||||||||||||
Net investment income (loss) | 0.03 | (b) | 0.04 | (b) | (0.01 | )(b) | (0.03) | (b) | (0.05) | (b) | (0.13 | ) | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.25 | (0.60 | ) | 0.32 | 0.71 | (1.49 | ) | (1.37 | ) | ||||||||||||||||||||||
Total from investment operations | 0.28 | (0.56 | ) | 0.31 | 0.68 | (1.54 | ) | (1.50 | ) | ||||||||||||||||||||||
Less distributions from: | |||||||||||||||||||||||||||||||
Net investment income | — | (0.02 | ) | (0.20 | ) | (0.47 | ) | — | — | ||||||||||||||||||||||
Net asset value, end of period | $ | 4.57 | $ | 4.29 | $ | 4.87 | $ | 4.76 | $ | 4.55 | $ | 6.09 | |||||||||||||||||||
Total return (a) | 6.53 | %(c) | (11.42 | )% | 6.58 | % | 15.01 | % | (25.29 | )% | (19.76 | )% | |||||||||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $32,476 | $29,682 | $22,189 | $26,835 | $28,678 | $32,484 | |||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 1.34 | %(d) | 1.39 | % | 1.41 | % | 1.31 | % | 1.25 | % | 1.28 | % | |||||||||||||||||||
Ratio of net expenses to average net assets | 0.95 | %(d) | 0.95 | % | 0.95 | % | 0.95 | % | 0.95 | % | 0.95 | % | |||||||||||||||||||
Ratio of net expenses to average net assets excluding interest expense | 0.95 | %(d) | 0.95 | % | 0.95 | % | 0.95 | % | 0.95 | % | 0.95 | % | |||||||||||||||||||
Ratio of net investment income (loss) to average net assets | 1.44 | %(d) | 0.88 | % | (0.12 | )% | (0.70 | )% | (0.92 | )% | (0.89 | )% | |||||||||||||||||||
Portfolio turnover rate | 0 | %(c) | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized |
(d) | Annualized |
See Notes to Consolidated Financial Statements
15 |
CM COMMODITY INDEX FUND
CONSOLIDATED FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class I | |||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | ||||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 4.39 | $ | 4.98 | $ | 4.86 | $ | 4.63 | $ | 6.16 | $ | 7.67 | |||||||||||||||||||
Income from investment operations: | |||||||||||||||||||||||||||||||
Net investment income (loss) | 0.04 | (b) | 0.06 | (b) | 0.01 | (b) | (0.02) | (b) | (0.03) | (b) | (0.02 | ) | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.24 | (0.61 | ) | 0.32 | 0.72 | (1.50 | ) | (1.49 | ) | ||||||||||||||||||||||
Total from investment operations | 0.28 | (0.55 | ) | 0.33 | 0.70 | (1.53 | ) | (1.51 | ) | ||||||||||||||||||||||
Less distributions from: | |||||||||||||||||||||||||||||||
Net investment income | — | (0.04 | ) | (0.21 | ) | (0.47 | ) | — | — | ||||||||||||||||||||||
Net asset value, end of period | $ | 4.67 | $ | 4.39 | $ | 4.98 | $ | 4.86 | $ | 4.63 | $ | 6.16 | |||||||||||||||||||
Total return (a) | 6.38 | %(c) | (11.13 | )% | 6.95 | % | 15.18 | % | (24.84 | )% | (19.69 | )% | |||||||||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $267,281 | $214,324 | $177,578 | $136,710 | $107,459 | $173,829 | |||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 0.89 | %(d) | 0.90 | % | 0.92 | % | 0.91 | % | 0.90 | % | 0.85 | % | |||||||||||||||||||
Ratio of net expenses to average net assets | 0.65 | %(d) | 0.65 | % | 0.65 | % | 0.65 | % | 0.65 | % | 0.65 | % | |||||||||||||||||||
Ratio of net expenses to average net assets excluding interest expense | 0.65 | %(d) | 0.65 | % | 0.65 | % | 0.65 | % | 0.65 | % | 0.65 | % | |||||||||||||||||||
Ratio of net investment income (loss) to average net assets | 1.74 | %(d) | 1.19 | % | 0.20 | % | (0.39 | )% | (0.62 | )% | (0.60 | )% | |||||||||||||||||||
Portfolio turnover rate | 0 | %(c) | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized |
(d) | Annualized |
See Notes to Consolidated Financial Statements
16 |
CM COMMODITY INDEX FUND
CONSOLIDATED FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class Y | |||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | ||||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 4.37 | $ | 4.96 | $ | 4.85 | $ | 4.62 | $ | 6.15 | $ | 7.66 | |||||||||||||||||||
Income from investment operations: | |||||||||||||||||||||||||||||||
Net investment income (loss) | 0.04 | (b) | 0.06 | (b) | 0.01 | (b) | (0.02) | (b) | (0.04) | (b) | (0.06 | ) | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.25 | (0.62 | ) | 0.31 | 0.72 | (1.49 | ) | (1.45 | ) | ||||||||||||||||||||||
Total from investment operations | 0.29 | (0.56 | ) | 0.32 | 0.70 | (1.53 | ) | (1.51 | ) | ||||||||||||||||||||||
Less distributions from: | |||||||||||||||||||||||||||||||
Net investment income | — | (0.03 | ) | (0.21 | ) | (0.47 | ) | — | — | ||||||||||||||||||||||
Net asset value, end of period | $ | 4.66 | $ | 4.37 | $ | 4.96 | $ | 4.85 | $ | 4.62 | $ | 6.15 | |||||||||||||||||||
Total return (a) | 6.64 | %(c) | (11.23 | )% | 6.71 | % | 15.24 | % | (24.88 | )% | (19.71 | )% | |||||||||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $231,992 | $219,489 | $182,766 | $135,589 | $83,425 | $46,129 | |||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 1.02 | %(d) | 1.12 | % | 0.97 | % | 0.99 | % | 1.00 | % | 1.00 | % | |||||||||||||||||||
Ratio of net expenses to average net assets | 0.70 | %(d) | 0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | |||||||||||||||||||
Ratio of net expenses to average net assets excluding interest expense | 0.70 | %(d) | 0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | |||||||||||||||||||
Ratio of net investment income (loss) to average net assets | 1.69 | %(d) | 1.14 | % | 0.15 | % | (0.43 | )% | (0.67 | )% | (0.65 | )% | |||||||||||||||||||
Portfolio turnover rate | 0 | %(c) | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized |
(d) | Annualized |
See Notes to Consolidated Financial Statements
17 |
CM COMMODITY INDEX FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019 (unaudited)
Note 1—Fund Organization—VanEck Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Trust was organized as a Massachusetts business trust on April 3, 1985. The CM Commodity Index Fund (the “Fund”) is a diversified series of the Trust and seeks to track, before fees and expenses, the performance of the UBS Bloomberg Constant Maturity Commodity Total Return Index. The Fund may effect certain investments through the Commodities Series Fund I Subsidiary (the “Subsidiary”), a wholly-owned subsidiary. The Fund offers three classes of shares: Class A, I and Y Shares. Each share class represents an interest in the same portfolio of investments of the Fund and is substantially the same in all respects, except that the classes are subject to different distribution fees and sales charges. Class I and Y Shares are sold without a sales charge; Class A Shares are sold subject to a front-end sales charge. The Van Eck Absolute Return Advisers Corporation (the “Adviser”) is the investment adviser to the Fund and its Subsidiary.
Note 2—Significant Accounting Policies—The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The Fund is an investment company and follows accounting and reporting requirements of Accounting Standards Codification (“ASC”) 946Financial Services — Investment Companies.
The following is a summary of significant accounting policies followed by the Fund.
A. | Security Valuation—The Fund values its investments in securities and other assets and liabilities at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Debt securities are valued on the basis of evaluated prices furnished by an independent pricing service approved by the Fund’s Board of Trustees or provided by securities dealers. The pricing services may use valuation models or matrix pricing, which consider: (i) yield or price with respect to bonds that are considered comparable in characteristics such as rating, interest rate and maturity date and/or (ii) quotations from bond dealers to determine current value and are categorized as Level 2 in the fair value hierarchy. Short-term debt securities with sixty days or less to maturity are valued at amortized cost, which with accrued interest approximates fair value. Open-end mutual fund investments (including money market funds) |
18 |
are valued at their closing net asset value each business day and are categorized as Level 1 in the fair value hierarchy. Swap contracts are marked to market daily using either pricing vendor quotations, counterparty prices or model prices and the net change in value, if any, is regarded as an unrealized gain or loss and is categorized as Level 2 in the fair value hierarchy. The Pricing Committee of the Adviser provides oversight of the Fund’s valuation policies and procedures, which are approved by the Fund’s Board of Trustees. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and other market sources to determine fair value. The Pricing Committee convenes regularly to review the fair value of financial instruments or other assets. If market quotations for a security or other asset are not readily available, or if the Adviser believes it does not otherwise reflect the fair value of a security or asset, the security or asset will be fair valued by the Pricing Committee in accordance with the Fund’s valuation policies and procedures. The Pricing Committee employs various methods for calibrating the valuation approaches utilized to determine fair value, including a regular review of key inputs and assumptions, periodic comparisons to valuations provided by other independent pricing services, transactional back-testing and disposition analysis. | |
Certain factors such as economic conditions, political events, market trends, the nature of and duration of any restrictions on disposition, trading in similar securities of the issuer or comparable issuers and security specific information are used to determine the fair value of these securities. Depending on the relative significance of valuation inputs, these securities may be classified either as Level 2 or Level 3 in the fair value hierarchy. The price which the Fund may realize upon sale of an investment may differ materially from the value presented in the Consolidated Schedule of Investments. | |
The Fund utilizes various methods to measure the fair value of its investments on a recurring basis which includes a hierarchy that prioritizes inputs to valuation methods used to measure fair value. The fair value hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels of the fair value hierarchy are described below: |
Level 1 – | Quoted prices in active markets for identical securities. |
19 |
CM COMMODITY INDEX FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Level 2 – | Significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). |
Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
A summary of the inputs and the levels used to value the Fund’s investments are located in the Consolidated Schedule of Investments. Additionally, tables that reconcile the valuation of the Fund’s Level 3 investments and that present additional information about the valuation methodologies and unobservable inputs, if applicable, are located in the Consolidated Schedule of Investments. | |
B. | Basis for Consolidation—The Commodities Series Fund I Subsidiary, a Cayman Islands exempted company, was incorporated on June 26, 2009. Consolidated financial statements of the Fund present the financial position and results of operations for the Fund and its wholly-owned Subsidiary. All interfund account balances and transactions between parent and subsidiary have been eliminated in consolidation. As of June 30, 2019, the Fund held $112,378,065 in its Subsidiary, representing 21% of the Fund’s net assets. |
C. | Federal Income Taxes—It is the Fund’s policy to comply with the provisions of the Internal Revenue Code (the “Code”) applicable to regulated investment companies and to distribute all of its net investment income and net realized capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. |
The wholly owned Subsidiary of the Fund is classified as a controlled foreign corporation (“CFC”) under the Code. For U.S. tax purposes, a CFC is not subject to U.S. income tax. However, as a wholly owned CFC, its net income and capital gains, to the extent of its earnings and profits, will be included each year in the Fund investment company taxable income. Net losses of the CFC cannot be deducted by the Fund in the current year, nor carried forward to offset taxable income in future years. | |
D. | Dividends and Distributions to Shareholders—Dividends to shareholders from net investment income and distributions from net realized capital gains, if any, are declared and paid annually. Income dividends and capital gain distributions are determined in accordance with U.S. income tax regulations, which may differ from such amounts determined in accordance with GAAP. |
E. | Use of Derivative Instruments—The Fund may make investments in derivative instruments, including, but not limited to, options, futures, swaps and other derivatives relating to foreign currency transactions. A |
20 |
derivative is an instrument whose value is derived from underlying assets, indices, reference rates or a combination of these factors. Derivative instruments may be privately negotiated contracts (often referred to as over-the-counter (“OTC”) derivatives) or they may be listed and traded on an exchange. Derivative contracts may involve future commitments to purchase or sell financial instruments or commodities at specified terms on a specified date, or to exchange interest payment streams or currencies based on a notional or contractual amount. Derivative instruments may involve a high degree of financial risk. The use of derivative instruments also involves the risk of loss if the investment adviser is incorrect in its expectation of the timing or level of fluctuations in securities prices, interest rates or currency prices. Investments in derivative instruments also include the risk of default by the counterparty, the risk that the investment may not be liquid and the risk that a small movement in the price of the underlying security or benchmark may result in a disproportionately large movement, unfavorable or favorable, in the price of the derivative instrument. Details of this disclosure are found below as well as in the Consolidated Schedule of Investments. | |
Total Return Swaps—The Fund may enter into total return swaps in order take a “long” position with respect to an underlying referenced asset. The Fund is subject to market price volatility of the underlying referenced asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Fund will receive a payment from or make a payment to the counterparty. Documentation governing the Fund’s swap transactions may contain provisions for early termination of a swap in the event the net assets of the Fund decline below specific levels set forth in the documentation (“net asset contingent features”). If these levels are triggered, the Fund’s counterparty has the right to terminate the swap and require the Fund to pay or receive a settlement amount in connection with the terminated swap transaction. The total return swap position held by the Fund at June 30, 2019 is reflected in the Fund’s Consolidated Schedule of Investments. The average monthly notional amount was $506,491,714 during the period ended June 30, 2019. |
21 |
CM COMMODITY INDEX FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
At June 30, 2019, the Fund held the following derivatives (not designated as hedging instruments under GAAP): |
Asset Derivatives | ||
Commodities Futures Risk | ||
Swap contracts1 | $16,113,809 |
1 | Consolidated Statement of Assets and Liabilities location: Total return swap contracts, at value |
The impact of transactions in derivative instruments during the period ended June 30, 2019, was as follows: |
Commodities | ||
Futures Risk | ||
Realized gain (loss): | ||
Swap contracts1 | $(3,558,956) | |
Net change in unrealized appreciation (depreciation): | ||
Swap contracts2 | 29,057,285 |
1 | Consolidated Statement of Operations location: Net realized gain (loss) on swap contracts |
2 | Consolidated Statement of Operations location: Net change in unrealized appreciation (depreciation) on swap contracts |
F. | Offsetting Assets and Liabilities—In the ordinary course of business, the Fund enters into transactions subject to enforceable master netting agreements or other similar agreements. Generally, the right of setoff in those agreements allows the Fund to set off any exposure to a specific counterparty with any collateral received from or delivered to that counterparty based on the terms of the agreements. The Fund may pledge or receive cash and/or securities as collateral for derivative instruments. Collateral held, if any, at June 30, 2019 is presented in the Consolidated Schedule of Investments. |
The table below presents both gross and net information about the derivative instruments eligible for offset in the Consolidated Statement of Assets and Liabilities subject to master netting agreement or similar agreements, as well as financial collateral received or pledged (including cash collateral) as of June 30, 2019. The total amount of collateral reported, if any, is limited to the net amounts of financial assets and liabilities presented in the Consolidated Statement of Assets and Liabilities for the respective financial instruments. In general, collateral received or pledged exceeds the net amount of the unrealized gain/loss or market value of financial instruments. |
22 |
Gross Amount of Recognized Assets | Gross Amount Offset in the Consolidated Statement of Assets and Liabilities | Net Amount of Assets Presented in the Consolidated Statements of Assets and Liabilities | Financial Instruments and Cash Collateral Pledged | Net Amount | |||||||
Total return swap contracts | $16,113,809 | $ — | $16,113,809 | $(16,113,809) | $ — |
G. | Other—Security transactions are accounted for on trade date. Realized gains and losses are determined based on the specific identification method. Dividend income is recorded on the ex-dividend date. Income, non-class specific expenses, gains and losses on investments are allocated based on the relative net assets of each class. Expenses directly attributable to a specific class are charged to that class. |
In the normal course of business, the Fund enters into contracts that contain a variety of general indemnifications. The Fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the investment adviser believes the risk of loss under these arrangements to be remote. |
Note 3—Investment Management and Other Agreements—The Adviser receives a management fee, calculated daily and payable monthly based on an annual rate of 0.75% of the Fund’s average daily net assets.
The Adviser has agreed, until at least May 1, 2020, to waive management fees and assume expenses to prevent the Fund’s total annual operating expenses (excluding acquired fund fees and expenses, interest expense, trading expenses, dividend interest payments on securities sold short, taxes, and extraordinary expenses) from exceeding the expense limitations listed in the table below.
The current expense limitations and the amounts waived by the Adviser for the period ended June 30, 2019, are as follows:
Expense Limitation | Waiver of Management Fees | |||||||
CM Commodity Index Fund | ||||||||
Class A | 0.95 | % | $ | 60,871 | ||||
Class I | 0.65 | 289,315 | ||||||
Class Y | 0.70 | 362,594 |
23 |
CM COMMODITY INDEX FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
For the period ended June 30, 2019, Van Eck Securities Corporation (the “Distributor”), and affiliate of the Adviser, received a total of $12,546 in sales loads relating to the sale of shares of the Fund, of which $11,134 was reallowed to broker/dealers and the remaining $1,412 was retained by the Distributor.
Certain officers of the Trust are officers, directors or stockholders of the Adviser and the Distributor.
Note 4—Investments—During the period ended June 30, 2019, the Fund had no purchases and sales of investments, other than U.S. government securities and short-term obligations.
Note 5—Income Taxes—As of June 30, 2019, for Federal income tax purposes, the identified tax cost of investments owned, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) of investments were as follows:
Tax Cost of Investments | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||
$552,888,150 | $72,257 | $(40,431,592) | $(40,359,335) |
The tax character of dividends and distributions paid to shareholders during the year ended December 31, 2018 was as follows:
Ordinary income | $3,702,402 |
The tax character of current year dividends and distributions will be determined at the end of the current fiscal year.
At December 31, 2018, the Fund had capital loss carryforwards of available to offset future capital gains, as follows:
Short-Term Capital Losses With No Expiration | ||
$(1,229) |
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more-likely-than-not” to be sustained assuming examination by applicable tax authorities. Management has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on return filings for all open tax years. The Fund does not have exposure for additional years that might still be open in certain foreign jurisdictions. Therefore, no provision for income tax is required in the Fund’s Consolidated financial statements. However, the Fund may be subject to foreign taxes on the appreciation in value of certain investments. The Fund provides for such taxes, if any, on both realized and unrealized appreciation.
24 |
The Fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense on the Consolidated Statement of Operations. During the period ended June 30, 2019, the Fund did not incur any interest or penalties.
Note 6—Principal Risks—The Fund may invest in commodity-linked derivative instruments, including commodity index-linked notes, swap agreements, commodity futures contracts and options on futures contracts that provide economic exposure to the investment returns of the commodities markets. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. The use of derivative instruments can lead to losses because of adverse movements in the price or value of the underlying security, commodity, asset, index or reference rate. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have lost had it invested in the underlying security. The value of commodity-linked derivative instruments may be affected by overall market movements and other factors affecting the value of a particular industry or commodity, such as weather, disease, embargoes, or political and economic events and regulatory developments. Exposure to the commodities markets, such as precious metals, industrial metals, gas and other energy products and natural resources, may subject the Fund to greater volatility than investments in traditional securities.
Swap agreements entered into by the Fund may be considered less liquid than other securities and may be with a limited number of issuers which could result in greater counterparty risk. Changes in laws or government regulations by the United States and/or the Cayman Islands could adversely affect the operations of the Fund.
A more complete description of risks is included in the Fund’s Prospectus and Statement of Additional Information.
Note 7—12b-1 Plan of Distribution—Pursuant to a Rule 12b-1 Plan of Distribution (the “Plan”), the Fund is authorized to incur distribution expenses which will principally be payments to securities dealers who have sold shares and serviced shareholder accounts, and payments to the Distributor for reimbursement of other actual promotion and distribution expenses incurred by the Distributor on behalf of the Fund. The amount paid under the Plan in any one year is limited to 0.25% of average daily net assets for Class A Shares and is recorded as Distribution fees in the Consolidated Statement of Operations.
25 |
CM COMMODITY INDEX FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Note 8—Shareholder Transactions—Shares of beneficial interest issued, reinvested and redeemed (unlimited number of $0.001 par value shares authorized):
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | |||||||||
(unaudited) | ||||||||||
Class A | ||||||||||
Shares sold | 1,190,190 | 4,381,056 | ||||||||
Shares reinvested | — | 27,719 | ||||||||
Shares redeemed | (993,780 | ) | (2,045,237 | ) | ||||||
Net increase | 196,410 | 2,363,538 | ||||||||
Class I | ||||||||||
Shares sold | 14,966,023 | 27,967,057 | ||||||||
Shares reinvested | — | 239,217 | ||||||||
Shares redeemed | (6,637,681 | ) | (15,007,475 | ) | ||||||
Net increase | 8,328,342 | 13,198,799 | ||||||||
Class Y | ||||||||||
Shares sold | 7,723,025 | 27,277,400 | ||||||||
Shares reinvested | — | 373,064 | ||||||||
Shares redeemed | (8,114,911 | ) | (14,282,920 | ) | ||||||
Net increase (decrease) | (391,886 | ) | 13,367,544 |
Note 9—Bank Line of Credit—The Trust participates with VanEck VIP Trust (collectively the “VE/VIP Funds”) in a $30 million committed credit facility (the “Facility”) to be utilized for temporary financing until the settlement of sales or purchases of portfolio securities, the repurchase or redemption of shares of the participating Fund and other temporary or emergency purposes. The participating VE/VIP Funds have agreed to pay commitment fees, pro rata, based on the unused but available balance. Interest is charged to the participating VE/VIP Funds at rates based on prevailing market rates in effect at the time of borrowings. During the period ended June 30, 2019, the Fund had no outstanding borrowings under the Facility.
Note 10—Trustee Deferred Compensation Plan—The Trust has a Deferred Compensation Plan (the “Deferred Plan”), for Trustees under which the Trustees can elect to defer receipt of their trustee fees until retirement, disability or termination from the Board of Trustees. The fees otherwise payable to the participating Trustees are deemed invested in eligible shares of the VE/VIP Funds as directed by the Trustees.
The expense for the Deferred Plan is included in “Trustees’ fees and expenses” in the Consolidated Statement of Operations. The liability for the Deferred Plan is shown as “Deferred Trustee fees” in the Consolidated Statement of Assets and Liabilities.
26 |
Note 11—Recent Accounting Pronouncements—The Fund early adopted certain provisions of Accounting Standards Update No. 2018-13 Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement(“ASU 2018-13”) that eliminate and modify certain disclosure requirements for fair value measurements. The adoption of certain provisions of the ASU 2018-13 had no material effect on financial statements and related disclosures. Management is currently evaluating the potential impact of additional requirements, not yet adopted, to financial statements. The ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.
Note 12—Subsequent Event Review—The Fund has evaluated subsequent events and transactions for potential recognition or disclosure through the date the financial statements were issued.
27 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited)
CM COMMODITY INDEX FUND
(the “Fund”)
The Investment Company Act of 1940, as amended (the “1940 Act”), provides, in substance, that an investment advisory agreement between a fund and its investment adviser may be entered into only if it is approved, and may continue in effect from year to year after an initial two-year period only if its continuance is approved, at least annually by the fund’s board of trustees, including by a vote of a majority of the trustees who are not “interested persons” of the fund as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of considering such approval. On June 21, 2019, the Board of Trustees (the “Board”) of VanEck Funds (the “Trust”), which is comprised exclusively of Independent Trustees, voted to approve the continuation of the existing advisory agreement (the “Advisory Agreement”) between the Fund and its investment adviser, Van Eck Absolute Return Advisers Corporation (together with its affiliated companies, the “Adviser”). Information regarding the material factors considered and related conclusions reached by the Board in approving the continuation of the Fund’s Advisory Agreement is set forth below.
In considering the continuation of the Advisory Agreement, the Board reviewed and considered information that had been provided by the Adviser throughout the year at meetings of the Board and its committees, including information requested by the Board and furnished by the Adviser for meetings of the Board held on June 5, 2019 and June 21, 2019 specifically for the purpose of considering the continuation of the Advisory Agreement. The written and oral reports provided to the Board included, among other things, the following:
■ | Information about the overall organization of the Adviser and the Adviser’s short-term and long-term business plans with respect to its mutual fund operations and other lines of business; |
■ | The consolidated financial statements of the Adviser for the past two fiscal years; |
■ | A copy of the Advisory Agreement and descriptions of the services provided by the Adviser thereunder; |
■ | Information regarding the qualifications, education and experience of the investment professionals responsible for portfolio |
28 |
management, investment research and trading activities for the Fund, the structure of their compensation and the resources available to support these activities; | |
■ | A report prepared by an independent consultant comparing the Fund’s investment performance gross of expenses for a representative class of shares (including, where relevant, total returns, standard deviations, Sharpe ratios, information ratios, beta and alpha) for the one-, three-, five- and ten-year periods (as applicable) ended March 31, 2019 with the investment performance of (i) a universe of mutual funds selected by the independent consultant with similar investment characteristics, utilizing for these purposes the oldest share class of each fund gross of expenses (the “Performance Category”), (ii) a sub-group of funds selected from the Performance Category by the independent consultant further limited to approximate more closely the Fund’s investment style without regard to asset size (the “Performance Peer Group”) and (iii) an appropriate benchmark index; |
■ | A report prepared by an independent consultant comparing the advisory fees and other expenses of a representative class of shares of the Fund during its fiscal year ended December 31, 2018 with a similar share class of (i) funds in the Performance Category that have the same share class (the “Expense Category”) and (ii) a sub-set of the funds that comprise the Performance Peer Group that have the same share class (the “Expense Peer Group”); |
■ | An analysis of the profitability of the Adviser with respect to its services for the Fund and the VanEck complex of mutual funds as a whole (the “VanEck Complex”); |
■ | Information concerning the Adviser’s compliance program, the resources devoted to compliance efforts undertaken by the Adviser on behalf of the Fund, and reports regarding a variety of compliance-related issues; |
■ | Information with respect to the Adviser’s brokerage practices, including the Adviser’s processes for monitoring best execution of portfolio transactions and the benefits received by the Adviser from research acquired with soft dollars; |
■ | Information regarding the procedures used by the Adviser in monitoring the valuation of portfolio securities, including the |
29 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited) (continued)
methodologies used in making fair value determinations, and the Adviser’s due diligence process for recommending the selection of pricing vendors and monitoring the quality of the inputs provided by such vendors; | |
■ | Information regarding how the Adviser safeguards the confidentiality and integrity of its data and files (both physical and electronic), as well as of any communications with third parties containing Fund and shareholder information, including reports regarding the Adviser’s cybersecurity framework and its implementation, the identification and monitoring of cybersecurity risks (including the risks that arise out of arrangements with third party service providers), the Adviser’s cybersecurity response policy and other initiatives of the Adviser to mitigate cybersecurity risks; |
■ | Information regarding the Adviser’s policies and practices with respect to personal investing by the Adviser and its employees, including reports regarding the administration of the Adviser’s code of ethics and the Adviser’s policy with respect to investments in the Fund by the Adviser’s investment personnel; |
■ | Information regarding the Adviser’s investment process for the Fund, including how the Adviser integrates non-accounting-based information (including, but not limited to “environmental, social and governance” factors) and the non-security-selection, non-portfolio–construction activities of the investment teams, such as engagement with portfolio companies and industry group participation; |
■ | Information regarding the Adviser’s role as the administrator of the Trust’s liquidity risk management program; |
■ | Descriptions of sub-transfer agency, omnibus account and other shareholder servicing arrangements for the Fund with intermediaries (collectively, “Servicing Arrangements”), including a description of the services provided by the intermediaries pursuant to such Servicing Arrangements and the payment terms of the Servicing Arrangements, as well as reports regarding the amounts paid pursuant to the Servicing Arrangements and the amounts paid to intermediaries with respect to the Fund by the Adviser pursuant to any revenue sharing arrangements and Servicing Arrangements (to the extent not paid by the Fund); |
30 |
■ | Descriptions of other administrative and other non-investment management services provided by the Adviser for the Fund, including the Adviser’s activities in managing relationships with the Fund’s custodian, transfer agent and other service providers; and |
■ | Other information provided by the Adviser in its response to a comprehensive questionnaire prepared by independent legal counsel on behalf of the Independent Trustees. |
In determining whether to approve the continuation of the Advisory Agreement, the Board considered, among other things, the following: (1) the nature, quality, extent and cost of the investment management, administrative and other non-investment management services provided by the Adviser; (2) the nature, quality and extent of the services performed by the Adviser in interfacing with, and monitoring the services performed by, third parties, such as the Fund’s custodian, transfer agent, sub-transfer agents and independent auditor, and the Adviser’s commitment and efforts to review the quality and pricing of third party service providers to the Fund with a view to reducing non-management expenses of the Fund; (3) the terms of the Advisory Agreement and the services performed thereunder; (4) the willingness of the Adviser to reduce the overall expenses of the Fund from time to time, if necessary or appropriate, by means of waiving a portion of its fees or paying expenses of the Fund; (5) the quality of the services, procedures and processes used to determine the value of the Fund’s assets and the actions taken to monitor and test the effectiveness of such services, procedures and processes; (6) the ongoing efforts of, and resources devoted by, the Adviser with respect to the development and implementation of a comprehensive compliance program; (7) the responsiveness of the Adviser to inquiries from, and examinations by, regulatory authorities, including the Securities and Exchange Commission; (8) the resources committed by the Adviser in recent periods to information technology and cybersecurity; and (9) the ability of the Adviser to attract and retain quality professional personnel to perform investment advisory and administrative services for the Fund.
The Board considered the fact that the Adviser is managing other investment products, including exchange-traded funds, private funds, separate accounts and UCITs, one or more of which may invest in the same financial markets and may be managed by the same investment professionals according to a similar investment objective and/or strategy as the Fund. The Board concluded that the management of
31 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited) (continued)
these products contributes to the Adviser’s financial stability and is helpful to the Adviser in attracting and retaining quality portfolio management personnel for the Fund. In addition, the Board concluded that the Adviser has established appropriate procedures to monitor conflicts of interest involving the management of the Fund and the other products and for resolving any such conflicts of interest in a fair and equitable manner.
The performance data and the advisory fee and expense ratio data described below for the Fund is based on data for a representative class of shares of the Fund. The performance data is gross of expenses for periods on an annualized basis ended March 31, 2019, and the advisory fee and expense ratio data is as of the Fund’s fiscal year end of December 31, 2018.
Performance.The Board noted that the Fund seeks to track, before fees and expenses, the performance of the UBS Bloomberg Constant Maturity Commodity Total Return Index (the “UBS Index”) and that the Fund had underperformed the UBS Index for the one-, three-, and five-year periods. The Board also noted that the Fund outperformed its Performance Peer Group and Performance Category medians for the one-, three- and five-year periods. On the basis of the foregoing and other relevant information provided in response to inquiries by the Board, the Board concluded that the performance of the Fund was satisfactory.
Fees and Expenses.The Board noted that the fee rate payable for advisory services and the total expense ratio, net of waivers or reimbursements, were lower than the median advisory fee rates and total expense ratios of the Fund’s Expense Category and Expense Peer Group. The Board also noted that the Adviser has agreed to waive fees or pay expenses of the Fund through May 1, 2020 to the extent necessary to prevent the expense ratio of the Fund from exceeding a specified maximum amount (subject to certain exclusions).
On the basis of the foregoing, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the advisory fee rate charged to the Fund is reasonable.
Profitability and Economies of Scale.The Board considered the profits, if any, realized by the Adviser from managing the Fund and other mutual funds in the VanEck Complex and the methodology used to determine such profits. The Board noted that the levels of
32 |
profitability reported on a fund-by-fund basis varied widely depending on such factors as the size, type of fund and operating history. The Board further noted that, in evaluating the reasonableness of the Adviser’s profits from managing any particular Fund, it would be appropriate to consider the size of the Adviser relative to other firms in the investment management industry and the impact on the Adviser’s profits of the volatility of the markets in which the Fund invests and the volatility of cash flow into and out of the Fund through various market cycles. Based on its review of the foregoing information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the profits realized by the Adviser, if any, are deemed not to be excessive. In this regard, the Board also considered the extent to which the Adviser may realize economies of scale, if any, as the Fund grows and whether the Fund’s fee schedule reflects any economies of scale for the benefit of shareholders. The Board concluded that, with respect to the Fund, any economies of scale being realized are currently being shared by the Adviser and the Fund, and that adding or modifying existing (if any) breakpoints would not be warranted at this time for the Fund.
Conclusion.In determining the material factors to be considered in evaluating the Advisory Agreement for the Fund and the weight to be given to such factors, the members of the Board relied upon the advice of independent legal counsel and their own business judgment. The Board did not consider any single factor as controlling in determining whether to approve the continuation of the Advisory Agreement and each member of the Board may have placed varying emphasis on particular factors considered in reaching a conclusion. Moreover, this summary description does not necessarily identify all of the factors considered or conclusions reached by the Board. Based on its consideration of the foregoing factors and conclusions, and such other factors and conclusions as it deemed relevant, the Board (comprised exclusively of Independent Trustees) concluded that the continuation of the Advisory Agreement is in the interests of shareholders and, accordingly, the Board approved the continuation of the Advisory Agreement for the Fund for an additional one-year period.
33 |
This report is intended for the Fund’s shareholders. It may not be distributed to prospective investors unless it is preceded or accompanied by the Fund’s prospectus and summary prospectus, which includes more complete information. Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
Additional information about the VanEck Fund’s (the “Trust”) 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 800.826.2333, or by visiting vaneck.com, or on the Securities and Exchange Commission’s website at https://www.sec.gov.
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-PORT. The Trust’s Form N-PORTs are available on the Commission’s website at https://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 202.942.8090. The Fund’s complete schedule of portfolio holdings is also available by calling 800.826.2333 or by visiting vaneck.com.
Investment Adviser: | Van Eck Associates Corporation | |
Distributor: | Van Eck Securities Corporation 666 Third Avenue, New York, NY 10017 vaneck.com | |
Account Assistance: | 800.544.4653 | CMCISAR |
SEMI-ANNUAL REPORT June 30, 2019 (unaudited) |
VanEck Funds
Emerging Markets Fund
800.826.2333 | vaneck.com |
Certain information contained in this shareholder letter represents the opinion of the investment adviser which may change at any time. This information is not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Also, unless otherwise specifically noted, any discussion of the Fund’s holdings, the Fund’s performance, and the views of the investment adviser are as of June 30, 2019.
EMERGING MARKETS FUND
June 30, 2019 (unaudited)
We are pleased to present this semi-annual report.
Investment Outlook
In brief, the two engines of the global economy, the U.S. and China, are moving forward, albeit at a moderate pace. In this environment, with stocks having had a very solid year so far, our main message is that investors should not be too conservative with their fixed income portfolios. See our blogIs There Enough Risk in Your Fixed Income Portfolio?
Getting to this current environment was, however, a result of a lot of turbulence.
At the beginning of December last year, we were worried about the impact the European Central Bank’s (ECB) and the U.S. Federal Reserve’s (Fed) continued tightening would have on the financial markets. Typically, central bank tightening is unfavorable for financial assets, and markets decelerated going into December. Then, suddenly the Fed signaled it would stop raising rates and reverse on quantitative tightening. This led to a rally in U.S. equities and other asset classes.
The ECB is also now delaying any tightening steps. At its March 7 policy meeting, the ECB pushed back its timing for increasing interest rates and is expected to stay on hold through the end of 2019. It also announced a program to stimulate bank lending, with another round of targeted longer-term refinancing operations (TLTRO) launching in September. TLTRO loans from the ECB provides banks in the euro zone with cheap rates.
Last but not least, China’s non-manufacturing Purchasing Managers’ Index (PMI) shows a strong rate of expansion, which one would expect with the emergence of the “new China” economy—one that is increasingly driven by consumption. However, the manufacturing PMI shows several recent dips below the important 50 mark into contraction territory, corresponding to the “recession” in late 2018, followed by a recovery after Q1 2019. It saw another fall into contraction territory in Q2 2019, though this was slightly smaller than the Q4 2018 drop, indicating that China’s stimulus measures may have softened the impact of external factors, such as tariffs and trade tensions. If so, we believe more stimulus may be expected to support domestic demand in the months ahead.
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EMERGING MARKETS FUND
(unaudited) (continued)
Doubtless there are risks to the global economy and financial markets. Concerns around the strength of global economic growth, the strength of the U.S. dollar, the trajectory of U.S. interest rates, certain country-specific factors, e.g., Iran and Venezuela, and the, as yet, unresolved trade dispute between the U.S. and China continue to hang over the market.
We encourage you to stay in touch with us through the videos, email subscriptions, and research blogs available on our website, www.vaneck.com.I have started my own email subscription where I share interesting research—you can sign up on vaneck.com.Should you have any questions regarding fund performance, please contact us at 800.826.2333 or visit our website.
We sincerely thank you for investing in VanEck’s investment strategies. On the following pages, you will find the Fund’s financial statements for the six month period ended June 30, 2019. As always, we value your continued confidence in us and look forward to helping you meet your investment goals in the future.
Jan F. van Eck
CEO and President
VanEck Funds
July 16, 2019
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
2 |
EMERGING MARKETS FUND
(unaudited)
The Emerging Markets Fund (the “Fund”) gained 21.50% (Class A shares, excluding sales charge) for the six months ended June 30, 2019, outperforming the MSCI Emerging Markets Investment Market Index (MSCI EM IMI)1which gained 10.15%. During the period under review, the most significant impact on emerging markets and the Fund came from the tug-of-war between, on the one side, the potential ratcheting up of tariffs and the separate, and more intractable, question of technology wars, and, on the other side, the rapid shift to easing, not only by the U.S. Federal Reserve (Fed), but also by the likes of the European Central Bank, the Bank of Japan and a slew of emerging markets central banks.
While people may have been revising growth down, the reaction function from central banks has been pretty aggressive, and the about-turn by the Fed remarkable. This has been reflected in markets that have led the Fed in terms of the move down in rates. Specifically for China, it has been the impact of a range of not just monetary, but also fiscal and regulatory, stimuli.
Market Review
2018 was a bad year for emerging markets, but, during the first half of 2019, growth was not as bad as some people were expecting. It also needs to be remembered that global monetary easing includes emerging markets, and that is clearly a positive.
Despite small-cap stocks continuing to underperform and growth stocks performing better, much of the Fund’s outperformance came from stock selection and was not factor driven.
As of June 30, 2019, the top three country exposures in the Fund were China, India, and Brazil. In China, the industrial and manufacturing sector continues to struggle to generate momentum. But the consuming part of the economy continues to be reasonably robust. This is driving growth in the country and what the stimulus was aimed at more than anything else.
Following the recent elections in India, we wait to see what the government will do about getting a business cycle going. For a number of years, its record on this front has been disappointing. It also faces a fiscal situation which continues to be somewhat challenging. Although the previous administration did have some successes, for example, the introduction of the GST (goods and services tax), there are still issues that need to be resolved. In particular, some non-bank financial companies
3 |
EMERGING MARKETS FUND
(unaudited) (continued)
that depend on wholesale funding (as they don’t have deposits) are finding liquidity pretty tough. This certainly needs addressing.
All eyes remain on the progress of pension reform in Brazil. It appears to be working its way through the system, albeit with a certain amount of horse trading and the usual political compromises. While the original proposal will, of course, be watered down, we remain reasonably optimistic that progress will be made. On a micro level, we are still seeing both healthy free cash flow and healthy balance sheets. Valuations generally in emerging markets ended the period slightly cheap. Companies are better now. They are more private, entrepreneurial and less state owned, less cyclical with better balance sheets. We believe they ought to have higher values than they have been in the past. While capital expenditure may be low, companies continue to find it hard to return capital to shareholders. We do, however, believe the time will come when they do, not least because cash piles depress equity.
Fund Review
Stock selection was the main contributor to the outperformance of the Fund relative to its benchmark. On a sector level, financials and consumer discretionary added value most, while information technology and lack of allocation to energy detracted. On a country level, China and India helped most, while Turkey and UAE detracted.
The Fund’s top three contributing individual positions were all Chinese companies. Ping An Insurance (Group) Company of China (5.7% of Fund net assets*), which contributed 1.77% to the Fund’s return during the six month period, benefited from better than expected writing of new business and solid income generation. There has also been a gradual appreciation that the company is a quality company in the insurance space. We continue to view the valuation of this company as too low, given the many levers of growth and the structurally increasing return on equity. Alibaba Group Holding (5.8% of Fund net assets*) contributed 1.38% to the Fund’s performance. The core business of the company remained strong and benefited in June, in particular, with concerns about China decreasing somewhat. Despite a slight slowdown of growth from macro and geopolitical headwinds, we still see good growth prospects for the next couple of years, with the share price currently trading at the lower end of its historic valuation range. Ecommerce solutions company Baozun (2.7% of Fund net assets*), having been oversold at the end of 2018, benefited from meeting expectations in terms of its operating profitability despite having many international clients. Baozun contributed
4 |
1.21% to the Fund’s performance. The business model is becoming more robust, with working capital coming down and a better balance of foreign and domestic Chinese brand customers.
The Fund’s bottom three contributing companies were: NMC Health (1.1% of Fund net assets*), a UAE hospitals group, which detracted 0.21% from the Fund’s performance and came under pressure both from considerable short selling and concerns about the trajectory of its growth going forward and its ability both to generate higher margins and conclude profitably joint venture negotiations in Saudi Arabia. Turkish discount grocer Sok Marketler Ticaret (0.8% of Fund net assets*) detracted 0.19% from the Fund’s performance. The company remained a victim of the country’s precarious economy and unpredictable government policies ahead of local elections in the first half of 2019. However we believe that the negative impact is temporary in nature and continue to have conviction in the long-term resilience of Sok’s business model and the structural growth potential of the company. Finally, automobile dealership operator China Zhengtong Auto Services Holdings (sold during the period) detracted 0.13% from the Fund’s performance. The company suffered from sluggish automobile sales during the six month period and was unable to grow in line with our original thesis, partly for domestic macro reasons and partly because of headwinds related to global trade events.
For more information or to access investment and market insights from the investment team, visit our web site or subscribe to our commentaries. To review timely updates related to the VanEck Emerging Markets Fund, please visithttps://www.vaneck.com/blogs/emerging-markets-equity. To subscribe to VanEck’s emerging markets equity updates, please contact us at 800.826.2333 or visit www.vaneck.com/subscribe to register.
The Fund is subject to the risks associated with its investments in emerging markets securities, which tend to be more volatile and less liquid than securities traded in developed countries. The Fund’s investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, including the takeover of property without adequate compensation or imposition of prohibitive taxation. The Fund is subject to risks associated with investments in derivatives, illiquid securities, and small- or mid-cap companies. The Fund is also subject to inflation risk, market risk, non-diversification risk, and leverage risk. Further, the Fund is
5 |
EMERGING MARKETS FUND
(unaudited) (continued)
subject to the risks associated with its investments in Chinese issuers, direct investments, emerging market securities which tends to be more volatile and less liquid than securities traded in developed countries, foreign currency transactions, foreign securities, other investment companies, Stock Connect, management, market, operational, sectors and small- and medium-capitalization companies risks. The Fund’s investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. Please see the prospectus and summary prospectus for information on these and other risk considerations.
As always, we value your continued confidence in us and look forward to helping you meet your investment goals in the future.
David Semple Portfolio Manager | Angus Shillington Deputy Portfolio Manager |
Represents the opinions of the investment adviser. Past performance is no guarantee of future results. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.
* | All Fund assets referenced are Total Net Assets as of June 30, 2019. |
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes.
An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
1 | The MSCI Emerging Markets Investable Market Index (MSCI EM IMI) is a free float-adjusted market capitalization index that is designed to capture large-, mid- and small-cap representation across 26 emerging markets countries. Emerging Markets countries include: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. |
6 |
2 | S&P 500®Index consists of 500 widely held common stocks covering in the leading industries of the U.S. economy. |
All investments involve the risk of loss.
7 |
EMERGING MARKETS FUND
June 30, 2019 (unaudited)
Average Annual Total Return (%)* | Class A Before Sales Charge | Class A After Maximum Sales Charge | Class C Before Sales Charge | Class C After Maximum Sales Charge | ||||||||||||
Six Months | 21.50 | 14.53 | 21.03 | 20.03 | ||||||||||||
One Year | 1.45 | (4.37 | ) | 0.66 | (0.34 | ) | ||||||||||
Five Year | 2.77 | 1.55 | 1.95 | 1.95 | ||||||||||||
Ten Year | 8.45 | 7.81 | 7.59 | 7.59 |
Average Annual Total Return (%)* | Class I** | Class Y** | MSCI EM IMI | |||||||||||||
Six Months | 21.81 | 21.77 | 10.15 | |||||||||||||
One Year | 2.01 | 1.89 | 0.47 | |||||||||||||
Five Year | 3.28 | 3.17 | 2.25 | |||||||||||||
Ten Year | 8.99 | N/A | 5.83 | |||||||||||||
Life^ | N/A | 5.22 | 2.74 |
* | Returns less than one year are not annualized. |
** | Classes are not subject to a sales charge |
^ | Since April 30, 2010 (Class Y) |
The performance quoted represents past performance. Past performance does not guarantee future results; current performance may be lower or higher than the performance data quoted.
Investment return and value of shares of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance information reflects temporary waivers of expenses and/or fees, if any. Had the Fund incurred all expenses, investment returns would have been reduced. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund dividends and distributions or the redemption of Fund shares. Performance information current to the most recent month end is available by calling 800.826.2333 or by visiting vaneck.com.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
MSCI Emerging Markets Investable Markets Index (MSCI EM IMI) is an all-market capitalization index that is designed to measure equity market performance of 24 emerging markets countries (reflects no deduction for fees, expenses or taxes except withholding taxes). Emerging markets countries include: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Russia, Qatar, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates.
8 |
EMERGING MARKETS FUND
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges on purchase payments; and (2) ongoing costs, including management fees and other Fund expenses. This disclosure is intended to help you understand the ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The disclosure is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, January 1, 2019 to June 30, 2019.
Actual Expenses
The first line in the table below provides information about account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period.”
Hypothetical Example for Comparison Purposes
The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as fees on purchase payments. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
9 |
EMERGING MARKETS FUND
EXPLANATION OF EXPENSES
(unaudited) (continued)
Beginning Account Value January 1, 2019 | Ending Account Value June 30, 2019 | Annualized Expense Ratio During Period | Expenses Paid During the Period* January 1, 2019 – June 30, 2019 | |||||||||
Emerging Markets Fund | ||||||||||||
Class A | Actual | $1,000.00 | $1,215.00 | 1.54% | $ | 8.46 | ||||||
Hypothetical** | $1,000.00 | $1,017.16 | 1.54% | $ | 7.70 | |||||||
Class C | Actual | $1,000.00 | $1,210.30 | 2.33% | $ | 12.77 | ||||||
Hypothetical** | $1,000.00 | $1,013.24 | 2.33% | $ | 11.63 | |||||||
Class I | Actual | $1,000.00 | $1,218.10 | 1.00% | $ | 5.50 | ||||||
Hypothetical** | $1,000.00 | $1,019.84 | 1.00% | $ | 5.01 | |||||||
Class Y | Actual | $1,000.00 | $1,217.70 | 1.10% | $ | 6.05 | ||||||
Hypothetical** | $1,000.00 | $1,019.34 | 1.10% | $ | 5.51 |
* | Expenses are equal to the Fund’s annualized expense ratio (for the six months ended June 30, 2019), multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year divided by the number of the days in the fiscal year (to reflect the one-half year period). |
** | Assumes annual return of 5% before expenses |
10 |
EMERGING MARKETS FUND
June 30, 2019 (unaudited)
Number of Shares | Value | |||||||
COMMON STOCKS: 95.4% | ||||||||
Argentina: 0.2% | ||||||||
504,600 | Grupo Supervielle SA (ADR) | $ | 3,976,248 | |||||
Brazil: 5.6% | ||||||||
4,611,300 | Fleury SA | 25,638,681 | ||||||
7,320,400 | International Meal Co. Alimentacao SA | 15,060,394 | ||||||
477,000 | IRB Brasil Resseguros S/A | 12,235,706 | ||||||
11,320,700 | Movida Participacoes SA | 43,927,246 | ||||||
3,482,000 | Rumo SA * | 18,797,604 | ||||||
89,700 | Smiles Fidelidade SA | 981,107 | ||||||
116,640,738 | ||||||||
China / Hong Kong: 33.6% | ||||||||
722,400 | Alibaba Group Holding Ltd. (ADR) * | 122,410,680 | ||||||
23,450,000 | A-Living Services Co. Ltd. Reg S 144A ‡ # | 39,626,126 | ||||||
3,444,000 | Anta Sports Products Ltd. # | 23,753,939 | ||||||
1,157,000 | Baozun, Inc. (ADR) * | 57,688,020 | ||||||
49,427,000 | Beijing Enterprises Water Group Ltd. # | 29,376,976 | ||||||
8,365,994 | China Animal Healthcare Ltd. * # ∞ | 228,007 | ||||||
9,424,000 | China Education Group Holdings Ltd. Reg S # | 14,750,876 | ||||||
3,098,000 | China Maple Leaf Educational Systems Ltd. # | 1,227,920 | ||||||
38,475,000 | Fu Shou Yuan International Group Ltd. # | 33,766,266 |
Number of Shares | Value | |||||||
China / Hong Kong: (continued) | ||||||||
5,507,000 | Galaxy Entertainment Group Ltd. # | $ | 37,045,571 | |||||
597,000 | Huazhu Group Ltd. (ADR) | 21,641,250 | ||||||
671,000 | HUYA, Inc. (ADR) * | 16,580,410 | ||||||
261,796 | Kweichow Moutai Co. Ltd. # | 37,600,054 | ||||||
9,995,000 | Ping An Insurance Group Co. of China Ltd. # | 120,188,600 | ||||||
1,067,000 | Shenzhou International Group Holdings Ltd. # | 14,718,952 | ||||||
2,507,500 | Tencent Holdings Ltd. # | 113,437,764 | ||||||
300,000 | Tencent Music Entertainment Group (ADR) * | 4,497,000 | ||||||
3,273,000 | Yihai International Holding Ltd. # | 16,979,912 | ||||||
705,518,323 | ||||||||
Egypt: 1.7% | ||||||||
5,885,312 | Commercial International Bank Egypt SAE | 25,733,919 | ||||||
14,870,278 | Juhayna Food Industries # | 9,193,290 | ||||||
2,358,187 | Sarwa Capital SAE * | 762,756 | ||||||
35,689,965 | ||||||||
Georgia: 1.4% | ||||||||
975,197 | Bank of Georgia Group Plc (GBP) # | 18,593,993 | ||||||
815,197 | Georgia Capital Plc (GBP) * | 11,284,322 | ||||||
29,878,315 | ||||||||
Germany: 1.1% | ||||||||
513,000 | Delivery Hero SE Reg S 144A * # | 23,286,255 |
See Notes to Financial Statements
11 |
EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
(unaudited) (continued)
Number of Shares | Value | |||||||
Hungary: 0.7% | ||||||||
384,000 | OTP Bank Nyrt # | $ | 15,291,414 | |||||
India: 10.7% | ||||||||
5,885,000 | Cholamandalam Investment and Finance Co. Ltd. # | 24,294,742 | ||||||
5,392,267 | GRUH Finance Ltd. * # | 21,742,868 | ||||||
1,442,000 | HDFC Bank Ltd. # | 51,019,912 | ||||||
408,000 | HDFC Bank Ltd. (ADR) | 53,056,320 | ||||||
643,778 | Lemon Tree Hotels Ltd. Reg S 144A * # | 625,209 | ||||||
807,000 | Oberoi Realty Ltd. # | 7,062,567 | ||||||
1,973,200 | Phoenix Mills Ltd. # | 18,157,207 | ||||||
970,000 | Quess Corp. Ltd. Reg S 144A * # | 8,107,180 | ||||||
800,000 | Reliance Industries Ltd. # | 14,528,106 | ||||||
1,404,000 | Titan Co. Ltd. # | 27,089,413 | ||||||
225,683,524 | ||||||||
Indonesia: 3.1% | ||||||||
120,675,000 | Bank Rakyat Indonesia Tbk PT # | 37,255,393 | ||||||
117,200,000 | Bank Tabungan Pensiunan Nasional Syariah Tbk PT * # | 28,620,403 | ||||||
65,875,796 | ||||||||
Kenya: 0.8% | ||||||||
62,420,000 | Safaricom Plc | 17,043,003 | ||||||
Kuwait: 0.7% | ||||||||
1,481,090 | Human Soft Holding Co. KSC | 15,425,784 | ||||||
Malaysia: 1.4% | ||||||||
14,177,000 | Malaysia Airports Holdings Bhd # | 29,294,101 |
Number of Shares | Value | |||||||
Mexico: 2.9% | ||||||||
7,032,247 | Qualitas Controladora SAB de CV | $ | 19,733,342 | |||||
4,472,000 | Regional SAB de CV | 23,035,970 | ||||||
8,049,000 | Unifin Financiera SAB de CV | 17,893,889 | ||||||
60,663,201 | ||||||||
Peru: 0.2% | ||||||||
21,000 | Credicorp Ltd. (USD) | 4,807,110 | ||||||
Philippines: 5.8% | ||||||||
52,122,700 | Ayala Land, Inc. # | 51,710,396 | ||||||
156,200,000 | Bloomberry Resorts Corp. # | 34,424,852 | ||||||
12,263,740 | International Container Terminal Services, Inc. | 35,042,677 | ||||||
121,177,925 | ||||||||
Poland: 0.6% | ||||||||
249,542 | Kruk SA * # | 12,234,732 | ||||||
Russia: 3.3% | ||||||||
2,411,000 | Sberbank of Russia PJSC (ADR) # | 37,143,994 | ||||||
822,000 | Yandex NV (USD) * | 31,236,000 | ||||||
68,379,994 | ||||||||
Saudi Arabia: 0.0% | ||||||||
16,927 | Leejam Sports Co. JSC # | 337,498 | ||||||
South Africa: 6.7% | ||||||||
9,026,708 | Advtech Ltd. | 8,844,059 | ||||||
427,727 | Naspers Ltd. # | 103,531,347 | ||||||
20,399,810 | Transaction Capital Ltd. | 28,923,266 | ||||||
141,298,672 |
See Notes to Financial Statements
12 |
Number of Shares | Value | |||||||
South Korea: 2.3% | ||||||||
101,000 | Koh Young Technology, Inc. # | $ | 7,281,277 | |||||
16,900 | Samsung Biologics Co. Ltd. Reg S 144A * # | 4,690,537 | ||||||
172,185 | Samsung SDI Co. Ltd. # | 35,326,195 | ||||||
47,298,009 | ||||||||
Spain: 2.0% | ||||||||
1,463,367 | CIE Automotive SA # | 42,352,090 | ||||||
Switzerland: 0.6% | ||||||||
290,000 | Wizz Air Holdings Plc Reg S 144A (GBP) * # | 12,559,566 | ||||||
Taiwan: 2.7% | ||||||||
4,159,000 | Chroma ATE, Inc. # | 18,552,872 | ||||||
2,053,132 | Poya International Co. Ltd. # | 27,788,382 | ||||||
1,927,000 | TaiMed Biologics, Inc. * # | 9,869,861 | ||||||
56,211,115 | ||||||||
Thailand: 2.6% | ||||||||
8,958,000 | CP ALL PCL # | 25,143,254 | ||||||
16,046,176 | Srisawad Corp. PCL (NVDR) # | 29,462,745 | ||||||
348,334 | Srisawad Corp. PCL - Foreign * # | 639,584 | ||||||
55,245,583 | ||||||||
Turkey: 2.7% | ||||||||
3,102,147 | AvivaSA Emeklilik ve Hayat AS # | 4,807,708 | ||||||
9,375,392 | MLP Saglik Hizmetleri AS Reg S 144A * # | 18,731,586 | ||||||
10,372,497 | Sok Marketler Ticaret AS * # | 17,103,414 | ||||||
4,794,000 | Tofas Turk Otomobil Fabrikasi AS # | 15,957,608 | ||||||
56,600,316 |
Number of Shares | Value | |||||||
United Arab Emirates: 1.1% | ||||||||
770,000 | NMC Health Plc (GBP) # | $ | 23,558,694 | |||||
United Kingdom: 0.0% | ||||||||
812,346 | Hirco Plc * #∞ | 0 | ||||||
United States: 0.7% | ||||||||
924,000 | Laureate Education, Inc. * | 14,516,040 | ||||||
Uruguay: 0.2% | ||||||||
2,480,797 | Biotoscana Investments SA (BDR) * | 4,890,593 | ||||||
Total Common Stocks (Cost: $1,622,735,964) | 2,005,734,604 | |||||||
PREFERRED STOCKS: 2.6% | ||||||||
Brazil: 1.5% | ||||||||
3,311,890 | Itau Unibanco Holding SA, 3.97% | 31,273,619 | ||||||
South Korea: 1.1% | ||||||||
672,800 | Samsung Electronics Co. Ltd., 2.78% # | 22,312,978 | ||||||
Total Preferred Stocks (Cost: $35,784,661) | 53,586,597 | |||||||
MONEY MARKET FUND: 1.7% (Cost: $36,170,154) | ||||||||
36,170,154 | AIM Treasury Portfolio – Institutional Class | 36,170,154 | ||||||
Total Investments: 99.7% (Cost: $1,694,690,779) | 2,095,491,355 | |||||||
Other assets less liabilities: 0.3% | 6,779,706 | |||||||
NET ASSETS: 100.0% | $ | 2,102,271,061 |
See Notes to Financial Statements
13 |
EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
(unaudited) (continued)
Definitions:
ADR | American Depositary Receipt |
BDR | Brazilian Depositary Receipt |
GBP | British Pound |
NVDR | Non-Voting Depositary Receipt |
USD | United States Dollar |
Footnotes:
‡ | Affiliated issuer – as defined under the Investment Company Act of 1940. |
* | Non-income producing |
# | Security has been valued in good faith pursuant to guidelines established by the Board of Trustees. The aggregate value of fair valued securities is $1,372,384,186 which represents 69.4% of net assets. |
∞ | Security is valued using significant unobservable inputs and is classified as Level 3 in the fair value hierarchy. |
Reg S | Security was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. |
144A | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended, or otherwise restricted. These securities may be resold in transactions exempt from registration, unless otherwise noted, and the value amounted to $107,626,459, or 5.4% of net assets. |
Summary of Investments by Sector | % of Investments | Value | |||||||
Communication Services | 8.8 | % | $ | 183,775,284 | |||||
Consumer Discretionary | 31.3 | 656,242,405 | |||||||
Consumer Staples | 5.1 | 106,019,924 | |||||||
Energy | 0.7 | 14,528,106 | |||||||
Financials | 30.2 | 634,012,555 | |||||||
Health Care | 4.2 | 87,607,959 | |||||||
Industrials | 8.9 | 187,354,500 | |||||||
Information Technology | 4.0 | 83,473,322 | |||||||
Real Estate | 3.7 | 76,930,170 | |||||||
Utilities | 1.4 | 29,376,976 | |||||||
Money Market Fund | 1.7 | 36,170,154 | |||||||
100.0 | % | $ | 2,095,491,355 |
See Notes to Financial Statements
14 |
A summary of the Fund’s transactions in securities of affiliates for the period ended June 30, 2019 is set forth below:
Affiliates | Value 12/31/18 | Purchases | Sales Proceeds | Realized Gain (Loss) | Dividend Income | Net Change in Unrealized Appreciation (Depreciation) | Value 06/30/19 | |||||||||||||||||||||||
A-Living Services Co. Ltd. | $ | —(a) | $5,713,037 | $ | — | $ | — | $458,984 | $7,235,270 | $39,626,126 |
(a) | Security held by the Fund, however not classified as an affiliate at the beginning of the reporting period |
The summary of inputs used to value the Fund’s investments as of June 30, 2019 is as follows:
Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Value | |||||||||||||
Common Stocks | ||||||||||||||||
Argentina | $ | 3,976,248 | $ | — | $ | — | $ | 3,976,248 | ||||||||
Brazil | 116,640,738 | — | — | 116,640,738 | ||||||||||||
China / Hong Kong | 222,817,360 | 482,472,956 | 228,007 | 705,518,323 | ||||||||||||
Egypt | 26,496,675 | 9,193,290 | — | 35,689,965 | ||||||||||||
Georgia | 11,284,322 | 18,593,993 | — | 29,878,315 | ||||||||||||
Germany | — | 23,286,255 | — | 23,286,255 | ||||||||||||
Hungary | — | 15,291,414 | — | 15,291,414 | ||||||||||||
India | 53,056,320 | 172,627,204 | — | 225,683,524 | ||||||||||||
Indonesia | — | 65,875,796 | — | 65,875,796 | ||||||||||||
Kenya | 17,043,003 | — | — | 17,043,003 | ||||||||||||
Kuwait | 15,425,784 | — | — | 15,425,784 | ||||||||||||
Malaysia | — | 29,294,101 | — | 29,294,101 | ||||||||||||
Mexico | 60,663,201 | — | — | 60,663,201 | ||||||||||||
Peru | 4,807,110 | — | — | 4,807,110 | ||||||||||||
Philippines | 35,042,677 | 86,135,248 | — | 121,177,925 | ||||||||||||
Poland | — | 12,234,732 | — | 12,234,732 | ||||||||||||
Russia | 31,236,000 | 37,143,994 | — | 68,379,994 | ||||||||||||
Saudi Arabia | — | 337,498 | — | 337,498 | ||||||||||||
South Africa | 37,767,325 | 103,531,347 | — | 141,298,672 | ||||||||||||
South Korea | — | 47,298,009 | — | 47,298,009 | ||||||||||||
Spain | — | 42,352,090 | — | 42,352,090 | ||||||||||||
Switzerland | — | 12,559,566 | — | 12,559,566 | ||||||||||||
Taiwan | — | 56,211,115 | — | 56,211,115 | ||||||||||||
Thailand | — | 55,245,583 | — | 55,245,583 | ||||||||||||
Turkey | — | 56,600,316 | — | 56,600,316 | ||||||||||||
United Arab Emirates | — | 23,558,694 | — | 23,558,694 | ||||||||||||
United Kingdom | — | — | 0 | 0 | ||||||||||||
United States | 14,516,040 | — | — | 14,516,040 | ||||||||||||
Uruguay | 4,890,593 | — | — | 4,890,593 |
See Notes to Financial Statements
15 |
EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
(unaudited) (continued)
Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Value | |||||||||||||
Preferred Stocks | ||||||||||||||||
Brazil | $ | 31,273,619 | $ | — | $ | — | $ | 31,273,619 | ||||||||
South Korea | — | 22,312,978 | — | 22,312,978 | ||||||||||||
Money Market Fund | 36,170,154 | — | — | 36,170,154 | ||||||||||||
Total | $ | 723,107,169 | $ | 1,372,156,179 | $ | 228,007 | $ | 2,095,491,355 |
See Notes to Financial Statements
16 |
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2019 (unaudited)
Assets: | ||||
Investments, at value | ||||
Unaffiliated issuers (Cost $1,659,475,307) | $ | 2,055,865,229 | ||
Affiliated issuers (Cost $35,215,472) | 39,626,126 | |||
Cash denominated in foreign currency, at value (Cost $4,152,403) | 4,152,403 | |||
Receivables: | ||||
Investments sold | 15,854,172 | |||
Shares of beneficial interest sold | 3,517,130 | |||
Dividends | 4,988,774 | |||
Prepaid expenses | 49,237 | |||
Other assets | 11,893 | |||
Total assets | 2,124,064,964 | |||
Liabilities: | ||||
Payables: | ||||
Investments purchased | 15,766,491 | |||
Shares of beneficial interest redeemed | 3,685,363 | |||
Due to Adviser | 1,084,494 | |||
Due to Distributor | 42,272 | |||
Deferred Trustee fees | 961,572 | |||
Accrued expenses | 253,711 | |||
Total liabilities | 21,793,903 | |||
NET ASSETS | $ | 2,102,271,061 | ||
Class A Shares: | ||||
Net Assets | $ | 135,539,746 | ||
Shares of beneficial interest outstanding | 7,887,599 | |||
Net asset value and redemption price per share | $ | 17.18 | ||
Maximum offering price per share (Net asset value per share ÷ 94.25%) | $ | 18.23 | ||
Class C Shares: | ||||
Net Assets | $ | 36,038,878 | ||
Shares of beneficial interest outstanding | 2,363,067 | |||
Net asset value, offering and redemption price per share (Redemption may be subject to a contingent deferred sales charge within the first year of ownership) | $ | 15.25 | ||
Class I Shares: | ||||
Net Assets | $ | 763,354,139 | ||
Shares of beneficial interest outstanding | 42,063,300 | |||
Net asset value, offering and redemption price per share | $ | 18.15 | ||
Class Y Shares: | ||||
Net Assets | $ | 1,167,338,298 | ||
Shares of beneficial interest outstanding | 66,877,110 | |||
Net asset value, offering and redemption price per share | $ | 17.45 | ||
Net Assets consist of: | ||||
Aggregate paid in capital | $ | 1,803,220,457 | ||
Total distributable earnings (loss) | 299,050,604 | |||
$ | 2,102,271,061 |
See Notes to Financial Statements
17 |
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2019 (unaudited)
Income: | ||||||||
Dividends – unaffiliated issuers | $ | 25,912,176 | ||||||
Dividends – affiliated issuers | 458,984 | |||||||
Foreign taxes withheld | (2,566,470 | ) | ||||||
Total income | 23,804,690 | |||||||
Expenses: | ||||||||
Management fees | $ | 7,208,014 | ||||||
Distribution fees – Class A Shares | 160,110 | |||||||
Distribution fees – Class C Shares | 167,097 | |||||||
Transfer agent fees – Class A Shares | 113,266 | |||||||
Transfer agent fees – Class C Shares | 27,284 | |||||||
Transfer agent fees – Class I Shares | 197,760 | |||||||
Transfer agent fees – Class Y Shares | 390,504 | |||||||
Administration fees | 2,402,671 | |||||||
Custodian fees | 308,474 | |||||||
Professional fees | 62,253 | |||||||
Registration fees – Class A Shares | 24,748 | |||||||
Registration fees – Class C Shares | 15,330 | |||||||
Registration fees – Class I Shares | 37,410 | |||||||
Registration fees – Class Y Shares | 33,893 | |||||||
Reports to shareholders | 42,154 | |||||||
Insurance | 49,599 | |||||||
Trustees’ fees and expenses | 167,541 | |||||||
Interest | 17,862 | |||||||
Other | 38,228 | |||||||
Total expenses | 11,464,198 | |||||||
Waiver of management fees | (733,085 | ) | ||||||
Net expenses | 10,731,113 | |||||||
Net investment income | 13,073,577 | |||||||
Net realized gain (loss) on: | ||||||||
Investments sold – unaffiliated issuers | (9,451,892 | ) | ||||||
Forward foreign currency contracts | (877 | ) | ||||||
Foreign currency transactions and foreign denominated assets and liabilities | (511,627 | ) | ||||||
Net realized loss | (9,964,396 | ) | ||||||
Net change in unrealized appreciation (depreciation) on: | ||||||||
Investments – unaffiliated issuers | 359,528,202 | |||||||
Investments – affiliated issuers | 7,235,270 | |||||||
Foreign currency transactions and foreign denominated assets and liabilities | 36,296 | |||||||
Net change in unrealized appreciation (depreciation) | 366,799,768 | |||||||
Net Increase in Net Assets Resulting from Operations | $ | 369,908,949 |
See Notes to Financial Statements
18 |
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | |||||||||
(unaudited) | ||||||||||
Operations: | ||||||||||
Net investment income | $ | 13,073,577 | $ | 11,599,079 | ||||||
Net realized loss | (9,964,396 | ) | (48,628,664 | ) | ||||||
Net change in unrealized appreciation (depreciation) | 366,799,768 | (511,753,827 | ) | |||||||
Net increase (decrease) in net assets resulting from operations | 369,908,949 | (548,783,412 | ) | |||||||
Distributions to shareholders: | ||||||||||
Class A Shares | — | (33,289 | ) | |||||||
Class I Shares | — | (3,993,173 | ) | |||||||
Class Y Shares | — | (5,501,738 | ) | |||||||
Total distributions | — | (9,528,200 | ) | |||||||
Share transactions: | ||||||||||
Proceeds from sale of shares | ||||||||||
Class A Shares | 20,594,903 | 93,172,766 | ||||||||
Class C Shares | 3,866,972 | 15,584,890 | ||||||||
Class I Shares | 157,606,610 | 325,816,438 | ||||||||
Class Y Shares | 222,320,910 | 766,819,492 | ||||||||
404,389,395 | 1,201,393,586 | |||||||||
Reinvestment of distributions | ||||||||||
Class A Shares | — | 22,145 | ||||||||
Class I Shares | — | 2,350,099 | ||||||||
Class Y Shares | — | 4,103,389 | ||||||||
— | 6,475,633 | |||||||||
Cost of shares redeemed | ||||||||||
Class A Shares | (27,780,328 | ) | (129,623,007 | ) | ||||||
Class C Shares | (4,018,404 | ) | (13,704,735 | ) | ||||||
Class I Shares | (103,390,178 | ) | (335,799,455 | ) | ||||||
Class Y Shares | (167,181,284 | ) | (555,130,222 | ) | ||||||
(302,370,194 | ) | (1,034,257,419 | ) | |||||||
Net increase in net assets resulting from share transactions | 102,019,201 | 173,611,800 | ||||||||
Total increase (decrease) in net assets | 471,928,150 | (384,699,812 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 1,630,342,911 | 2,015,042,723 | ||||||||
End of period | $ | 2,102,271,061 | $ | 1,630,342,911 |
See Notes to Financial Statements
19 |
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class A | ||||||||||||||||||||||||||||||
For the Six Months Ended | ||||||||||||||||||||||||||||||
June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 14.14 | $ | 18.44 | $ | 12.33 | $ | 12.40 | $ | 14.24 | $ | 14.34 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||
Net investment income (loss) | 0.07 | (b) | 0.03 | (b) | — | (b)(e) | 0.04 | 0.02 | 0.03 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.97 | (4.33 | ) | 6.13 | (0.09 | ) | (1.86 | ) | (0.13 | ) | ||||||||||||||||||||
Total from investment operations | 3.04 | (4.30 | ) | 6.13 | (0.05 | ) | (1.84 | ) | (0.10 | ) | ||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||||||||
Net investment income | — | — | (e) | (0.02 | ) | (0.02 | ) | — | (e) | — | ||||||||||||||||||||
Net asset value, end of period | $ | 17.18 | $ | 14.14 | $ | 18.44 | $ | 12.33 | $ | 12.40 | $ | 14.24 | ||||||||||||||||||
Total return (a) | 21.50 | %(c) | (23.30 | )% | 49.70 | % | (0.43 | )% | (12.91 | )% | (0.70 | )% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $135,540 | $117,928 | $195,080 | $116,083 | $141,901 | $108,775 | ||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 1.54 | %(d) | 1.50 | % | 1.47 | % | 1.53 | % | 1.46 | % | 1.54 | % | ||||||||||||||||||
Ratio of net expenses to average net assets | 1.54 | %(d) | 1.50 | % | 1.47 | % | 1.53 | % | 1.46 | % | 1.54 | % | ||||||||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 1.53 | %(d) | 1.50 | % | 1.47 | % | 1.53 | % | 1.46 | % | 1.54 | % | ||||||||||||||||||
Ratio of net investment income (loss) to average net assets | 0.92 | %(d) | 0.17 | % | (0.01 | )% | 0.25 | % | 0.20 | % | 0.27 | % | ||||||||||||||||||
Portfolio turnover rate | 8 | %(c) | 39 | % | 36 | % | 51 | % | 38 | % | 75 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized. |
(d) | Annualized. |
(e) | Amount represents less than $0.005 per share |
See Notes to Financial Statements
20 |
EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class C | ||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 12.60 | $ | 16.55 | $ | 11.14 | $ | 11.30 | $ | 13.08 | $ | 13.29 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||
Net investment income (loss) | 0.01 | (b) | (0.09 | )(b) | (0.12 | )(b) | (0.06 | ) | (0.07 | ) | (0.08 | ) | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.64 | (3.86 | ) | 5.53 | (0.08 | ) | (1.71 | ) | (0.13 | ) | ||||||||||||||||||||
Total from investment operations | 2.65 | (3.95 | ) | 5.41 | (0.14 | ) | (1.78 | ) | (0.21 | ) | ||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||||||||
Net investment income | — | — | — | (0.02 | ) | — | (e) | — | ||||||||||||||||||||||
Net asset value, end of period | $ | 15.25 | $ | 12.60 | $ | 16.55 | $ | 11.14 | $ | 11.30 | $ | 13.08 | ||||||||||||||||||
Total return (a) | 21.03 | %(c) | (23.87 | )% | 48.56 | % | (1.27 | )% | (13.60 | )% | (1.58 | )% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $36,039 | $29,916 | $38,736 | $22,238 | $27,438 | $27,199 | ||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 2.33 | %(d) | 2.27 | % | 2.28 | % | 2.32 | % | 2.26 | % | 2.46 | % | ||||||||||||||||||
Ratio of net expenses to average net assets | 2.33 | %(d) | 2.27 | % | 2.28 | % | 2.32 | % | 2.26 | % | 2.46 | % | ||||||||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 2.32 | %(d) | 2.27 | % | 2.28 | % | 2.32 | % | 2.26 | % | 2.46 | % | ||||||||||||||||||
Ratio of net investment income (loss) to average net assets | 0.14 | %(d) | (0.57 | )% | (0.85 | )% | (0.52 | )% | (0.59 | )% | (0.69 | )% | ||||||||||||||||||
Portfolio turnover rate | 8 | %(c) | 39 | % | 36 | % | 51 | % | 38 | % | 75 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized. |
(d) | Annualized. |
(e) | Amount represents less than $0.005 per share |
See Notes to Financial Statements
21 |
EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class I | ||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 14.90 | $ | 19.46 | $ | 13.00 | $ | 13.01 | $ | 14.86 | $ | 14.88 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||
Net investment income | 0.12 | (b) | 0.12 | (b) | 0.07 | (b) | 0.07 | 0.06 | 0.08 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.13 | (4.58 | ) | 6.48 | (0.06 | ) | (1.91 | ) | (0.10 | ) | ||||||||||||||||||||
Total from investment operations | 3.25 | (4.46 | ) | 6.55 | 0.01 | (1.85 | ) | (0.02 | ) | |||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||||||||
Net investment income | — | (0.10 | ) | (0.09 | ) | (0.02 | ) | — | (e) | — | ||||||||||||||||||||
Net asset value, end of period | $ | 18.15 | $ | 14.90 | $ | 19.46 | $ | 13.00 | $ | 13.01 | $ | 14.86 | ||||||||||||||||||
Total return (a) | 21.81 | %(c) | (22.88 | )% | 50.40 | % | 0.05 | % | (12.44 | )% | (0.13 | )% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $763,354 | $575,466 | $773,952 | $488,066 | $274,309 | $101,118 | ||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 1.14 | %(d) | 1.14 | % | 1.15 | % | 1.16 | % | 1.14 | % | 1.21 | % | ||||||||||||||||||
Ratio of net expenses to average net assets | 1.00 | %(d) | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | ||||||||||||||||||
Ratio of net expenses to average net assets excluding interest expense | 1.00 | %(d) | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | ||||||||||||||||||
Ratio of net investment income to average net assets | 1.48 | %(d) | 0.68 | % | 0.45 | % | 0.76 | % | 0.64 | % | 0.35 | % | ||||||||||||||||||
Portfolio turnover rate | 8 | %(c) | 39 | % | 36 | % | 51 | % | 38 | % | 75 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized. |
(d) | Annualized. |
(e) | Amount represents less than $0.005 per share |
See Notes to Financial Statements
22 |
EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class Y | ||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 14.33 | $ | 18.73 | $ | 12.51 | $ | 12.53 | $ | 14.33 | $ | 14.38 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||
Net investment income | 0.11 | (b) | 0.10 | (b) | 0.05 | (b) | 0.06 | 0.06 | 0.09 | |||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.01 | (4.41 | ) | 6.24 | (0.06 | ) | (1.86 | ) | (0.14 | ) | ||||||||||||||||||||
Total from investment operations | 3.12 | (4.31 | ) | 6.29 | (0.00 | ) | (1.80 | ) | (0.05 | ) | ||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||||||||
Net investment income | — | (0.09 | ) | (0.07 | ) | (0.02 | ) | — | (e) | — | ||||||||||||||||||||
Net asset value, end of period | $ | 17.45 | $ | 14.33 | $ | 18.73 | $ | 12.51 | $ | 12.53 | $ | 14.33 | ||||||||||||||||||
Total return (a) | 21.77 | %(c) | (23.03 | )% | 50.32 | % | (0.03 | )% | (12.55 | )% | (0.35 | )% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $1,167,338 | $907,032 | $1,007,275 | $463,494 | $259,517 | $80,008 | ||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 1.15 | %(d) | 1.16 | % | 1.15 | % | 1.21 | % | 1.23 | % | 1.33 | % | ||||||||||||||||||
Ratio of net expenses to average net assets | 1.10 | %(d) | 1.10 | % | 1.10 | % | 1.10 | % | 1.10 | % | 1.16 | % | ||||||||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 1.10 | %(d) | 1.10 | % | 1.10 | % | 1.10 | % | 1.10 | % | 1.16 | % | ||||||||||||||||||
Ratio of net investment income to average net assets | 1.37 | %(d) | 0.59 | % | 0.32 | % | 0.65 | % | 0.58 | % | 0.52 | % | ||||||||||||||||||
Portfolio turnover rate | 8 | %(c) | 39 | % | 36 | % | 51 | % | 38 | % | 75 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized. |
(d) | Annualized. |
(e) | Amount represents less than $0.005 per share |
See Notes to Financial Statements
23 |
EMERGING MARKETS FUND
June 30, 2019 (unaudited)
Note 1—Fund Organization—VanEck Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Trust was organized as a Massachusetts business trust on April 3, 1985. The Emerging Markets Fund (the “Fund) is a diversified series of the Trust and seeks long-term capital appreciation by investing primarily in equity securities in emerging markets around the world. The Fund currently offers four classes of shares: Class A, C, I and Y Shares. Each share class represents an interest in the same portfolio of investments of the Fund and is substantially the same in all respects, except that the classes are subject to different distribution fees and sales charges. Class I and Y Shares are sold without a sales charge; Class A Shares are sold subject to a front-end sales charge; and Class C Shares are sold with a contingent deferred sales charge.
Note 2—Significant Accounting Policies—The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The Fund is an investment company and follows accounting and reporting requirements of Accounting Standards Codification (“ASC”) 946Financial Services — Investment Companies.
The following is a summary of significant accounting policies followed by the Fund.
A. | Security Valuation—The Fund values its investments in securities and other assets and liabilities at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Securities traded on national exchanges are valued at the last sales price as reported at the close of each business day. Securities traded on the NASDAQ Stock Market LLC (“NASDAQ”) are valued at the NASDAQ official closing price. Over-the-counter securities not included on NASDAQ and listed securities for which no sale was reported are valued at the mean of the bid and ask prices. To the extent these securities are actively traded, they are categorized as Level 1 in the fair value hierarchy (as described below). Certain foreign securities, whose values may be affected by market direction or events occurring before the Fund’s pricing time (4:00 p.m. Eastern Time) but after the last close of the securities’ primary market, are fair valued using a pricing service and are categorized as Level 2 in the fair value hierarchy. The pricing service, using methods approved by the Fund’s |
24 |
Board of Trustees, considers the correlation of the trading patterns of the foreign security to intraday trading in the U.S. markets, based on indices of domestic securities and other appropriate indicators such as prices of relevant ADR’s and futures contracts. The Fund may also fair value securities in other situations, such as when a particular foreign market is closed but the Fund is open. Short-term debt securities with sixty days or less to maturity are valued at amortized cost, which with accrued interest approximates fair value. Money market fund investments are valued at net asset value and are categorized as Level 1 in the fair value hierarchy. The Pricing Committee of Van Eck Associates Corporation (the “Adviser”) provides oversight of the Fund’s valuation policies and procedures, which are approved by the Fund’s Board of Trustees. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and other market sources to determine fair value. The Pricing Committee convenes regularly to review the fair value of financial instruments or other assets. If market quotations for a security or other asset are not readily available, or if the Adviser believes it does not otherwise reflect the fair value of a security or asset, the security or asset will be fair valued by the Pricing Committee in accordance with the Fund’s valuation policies and procedures. The Pricing Committee employs various methods for calibrating the valuation approaches utilized to determine fair value, including a regular review of key inputs and assumptions, periodic comparisons to valuations provided by other independent pricing services, transactional back-testing and disposition analysis. | |
Certain factors such as economic conditions, political events, market trends, the nature of and duration of any restrictions on disposition, trading in similar securities of the issuer or comparable issuers and security specific information are used to determine the fair value of these securities. Depending on the relative significance of valuation inputs, these securities may be classified either as Level 2 or Level 3 in the fair value hierarchy. The price which the Fund may realize upon sale of an investment may differ materially from the value presented in the Schedule of Investments. | |
The Fund utilizes various methods to measure the fair value of its investments on a recurring basis, which includes a hierarchy that prioritizes inputs to valuation methods used to measure fair value. The fair value hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The inputs or methodologies used for valuing securities are not necessarily an indication |
25 |
EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
of the risk associated with investing in those securities. The three levels of the fair value hierarchy are described below: |
Level 1 – | Quoted prices in active markets for identical securities. | |
Level 2 – | Significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). | |
Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
A summary of the inputs and the levels used to value the Fund’s investments are located in the Schedule of Investments. Additionally, tables that reconcile the valuation of the Fund’s Level 3 investments, and that present additional information about the valuation methodologies and unobservable inputs, if applicable, are located in the Schedule of Investments. | |
B. | Federal Income Taxes—It is the Fund’s policy to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net investment income and net realized capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. |
C. | Currency Translation—Assets and liabilities denominated in foreign currencies and commitments under foreign currency contracts are translated into U.S. dollars at the closing prices of such currencies each business day as quoted by one or more sources. Purchases and sales of investments are translated at the exchange rates prevailing when such investments are acquired or sold. Income and expenses are translated at the exchange rates prevailing when accrued. The portion of realized and unrealized gains and losses on investments that result from fluctuations in foreign currency exchange rates is not separately disclosed. Such amounts are included with the net realized and unrealized gains and losses on investment securities in the Statement of Operations. Recognized gains or losses attributable to foreign currency fluctuations on foreign currency denominated assets, other than investments and forward foreign currency contracts, and liabilities are recorded as net realized gain (loss) and net change in unrealized appreciation (depreciation) on foreign currency transactions and foreign denominated assets and liabilities in the Statement of Operations. |
D. | Dividends and Distributions to Shareholders—Dividends to shareholders from net investment income and distributions from net realized capital gains, if any, are declared and paid annually. Income dividends and |
26 |
capital gain distributions are determined in accordance with U.S. income tax regulations, which may differ from such amounts determined in accordance with GAAP. | ||
E. | Warrants—The Fund may invest in warrants whose values are linked to indices or underlying instruments. The Fund may use these warrants to gain exposure to markets that might be difficult to invest in through conventional securities. Warrants may be more volatile than their linked indices or underlying instruments. Potential losses are limited to the amount of the original investment. At June 30, 2019, the Fund held no warrants. | |
F. | Use of Derivative Instruments—The Funds may make investments in derivative instruments, including, but not limited to, options, futures, swaps and other derivatives relating to foreign currency transactions. A derivative is an instrument whose value is derived from underlying assets, indices, reference rates or a combination of these factors. Derivative instruments may be privately negotiated contracts (often referred to as over-the-counter (“OTC”) derivatives) or they may be listed and traded on an exchange. Derivative contracts may involve future commitments to purchase or sell financial instruments or commodities at specified terms on a specified date, or to exchange interest payment streams or currencies based on a notional or contractual amount. Derivative instruments may involve a high degree of financial risk. The use of derivative instruments also involves the risk of loss if the investment adviser is incorrect in its expectation of the timing or level of fluctuations in securities prices, interest rates or currency prices. Investments in derivative instruments also include the risk of default by the counterparty, the risk that the investment may not be liquid and the risk that a small movement in the price of the underlying security or benchmark may result in a disproportionately large movement, unfavorable or favorable, in the price of the derivative instrument. At June 30, 2019, the Fund held no derivative instruments. | |
Forward Foreign Currency Contracts—The Fund is subject to foreign currency risk in the normal course of pursuing its investment objectives. The Fund may buy and sell forward foreign currency contracts to settle purchases and sales of foreign denominated securities, gain currency exposure or to hedge foreign denominated assets. Realized gains and losses from forward foreign currency contracts, if any, are included in net realized gain (loss) on forward foreign currency contracts in the Statement of Operations. | ||
During the period ended June 30, 2019, the Fund held forward foreign currency contracts for two of the six months. The average amounts |
27 |
EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
purchased and sold (in U.S. dollars) were $1,106,735 and $1,106,833, respectively. At June 30, 2019, the Fund held no forward foreign currency contracts. | ||
The impact of transactions in derivative instruments during the period ended June 30, 2019, was as follows: |
Foreign Currency Risk | ||||
Realized gain (loss): | ||||
Forward foreign currency contacts1 | $877 |
1 | Statement of Operations location: Net realized gain (loss) on forward foreign currency contracts |
G. | Other—Security transactions are accounted for on trade date. Realized gains and losses are determined based on the specific identification method. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized upon notification of the ex-dividend date. Income, non-class specific expenses, gains and losses on investments are allocated based on the relative net assets of each class. Expenses directly attributable to a specific class are charged to that class. |
In the normal course of business, the Fund enters into contracts that contain a variety of general indemnifications. The Fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the investment adviser believes the risk of loss under these arrangements to be remote. |
Note 3—Investment Management and Other Agreements—The Adviser is the investment adviser to the Fund. The Adviser receives a management fee, calculated daily and payable monthly based on annual rate of 0.75% of the Fund’s average daily net assets. The Adviser has agreed, until at least May 1, 2020, to waive management fees and assume expenses to prevent the Fund’s total annual operating expenses (excluding acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses) from exceeding the expense limitations listed in the table below.
The current expense limitations and the amounts waived/assumed by the Adviser for the period ended June 30, 2019, are as follows:
28 |
Expense Limitation | Waiver of Management Fees | |||||||
Emerging Markets Fund | ||||||||
Class A | 1.60 | % | $ | — | ||||
Class C | 2.50 | — | ||||||
Class I | 1.00 | 474,163 | ||||||
Class Y | 1.10 | 258,922 |
The Adviser also performs accounting and administrative services for the Fund. The Adviser is paid a monthly fee at a rate of 0.25% of the average daily net assets. Administrative fees are included in expenses in the Statement of Operations.
For the period ended June 30, 2019, Van Eck Securities Corporation (the “Distributor”), an affiliate and wholly-owned subsidiary of the Adviser, received a total of $83,939 in sales loads relating to the sale of shares of the Fund, of which $72,318 was reallowed to broker/dealers and the remaining $11,621 was retained by the Distributor.
Certain officers of the Trust are officers, directors or stockholders of the Adviser and the Distributor.
Note 4—Investments—For the period ended June 30, 2019, the cost of purchases and proceeds from sales of investments, excluding U.S. Government securities and short-term obligations, aggregated $249,268,745 and $152,197,954, respectively.
Note 5—Income Taxes—As of June 30, 2019, for Federal income tax purposes, the identified tax cost of investments owned, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) of investments were as follows:
Tax Cost of Investments | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||
$1,694,690,779 | $510,514,309 | $(109,713,733) | $400,800,576 |
The tax character of dividends and distributions paid to shareholders during the year ended December 31, 2018 was as follows:
Year Ended December 31, 2018 | ||
Ordinary income | $9,528,200 |
At December 31, 2018, the Fund had capital loss carryforwards available to offset future capital gains as follows:
29 |
EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
Short-Term Capital Losses With No Expiration | Long-Term Capital Losses With No Expiration | Total | ||
$(96,557,494) | $— | $(96,557,494) |
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more-likely-than-not” to be sustained assuming examination by applicable tax authorities. Management has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on return filings for all open tax years. The Fund does not have exposure for additional years that might still be open in certain foreign jurisdictions. Therefore, no provision for income tax is required in the Fund’s financial statements. However, the Fund may be subject to foreign taxes on the appreciation in value of certain investments. The Fund provides for such taxes, if any, on both realized and unrealized appreciation.
The Fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended June 30, 2019, the Fund did not incur any interest or penalties.
The Fund currently invests in India. The Finance Bill (2018) provided that long-term capital gains from listed equity shares sold after April 1, 2018 which were previously exempt from capital gains tax are subject to a tax of 10% (plus applicable surcharge and education cess). Taxpayers received a cost step-up to the fair market value of shares held on January 31, 2018 provided the shares had unrealized gains as of that date. As of June 30, 2019 there are no capital gains taxes accrued on the Fund.
Note 6—Principal Risks—The Fund may purchase securities on foreign exchanges. Securities of foreign issuers involve special risks and considerations not typically associated with investing in U.S. issuers. These risks include devaluation of currencies, less reliable information about issuers, different securities transaction clearance and settlement practices, and future adverse political and economic developments. These risks are heightened for investments in emerging market countries. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than those of comparable U.S. issuers.
The Fund may invest directly in the Russian local market. As a result of events involving Ukraine and the Russian Federation, the United States and the EU have imposed sanctions on certain Russian individuals and companies. These sanctions do not currently impact the Fund. Additional economic sanctions may be imposed or other actions may be taken that may adversely affect the value and liquidity of the Russian-related issuers held by the Fund.
30 |
A more complete description of risks is included in the Fund’s Prospectus and Statement of Additional Information.
Note 7—12b-1 Plan of Distribution—Pursuant to a Rule 12b-1 Plan of Distribution (the “Plan”), the Fund is authorized to incur distribution expenses which will principally be payments to securities dealers who have sold shares and serviced shareholder accounts and payments to the Distributor, for reimbursement of other actual promotion and distribution expenses incurred by the Distributor on behalf of the Fund. The amount paid under the Plan in any one year is limited to 0.25% of average daily net assets for Class A Shares and 1.00% of average daily net assets for Class C Shares and is recorded as Distribution fees in the Statement of Operations.
Note 8—Shareholder Transactions—Shares of beneficial interest issued, reinvested and redeemed (unlimited number of $0.001 par value shares authorized):
Emerging Markets Fund | ||||||||
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | |||||||
(unaudited) | ||||||||
Class A | ||||||||
Shares sold | 1,288,524 | 5,413,363 | ||||||
Shares reinvested | — | 1,606 | ||||||
Shares redeemed | (1,742,478 | ) | (7,650,448 | ) | ||||
Net decrease | (453,954 | ) | (2,235,479 | ) | ||||
Class C | ||||||||
Shares sold | 273,198 | 991,780 | ||||||
Shares redeemed | (285,231 | ) | (957,025 | ) | ||||
Net increase (decrease) | (12,033 | ) | 34,755 | |||||
Class I | ||||||||
Shares sold | 9,527,215 | 18,395,865 | ||||||
Shares reinvested | — | 161,853 | ||||||
Shares redeemed | (6,097,898 | ) | (19,690,592 | ) | ||||
Net increase (decrease) | 3,429,317 | (1,132,874 | ) | |||||
Class Y | ||||||||
Shares sold | 13,881,996 | 44,253,297 | ||||||
Shares reinvested | — | 293,518 | ||||||
Shares redeemed | (10,283,728 | ) | (35,055,475 | ) | ||||
Net increase | 3,598,268 | 9,491,340 |
Note 9—Bank Line of Credit—The Trust may participate with VanEck VIP Funds (collectively the “VE/VIP Funds”) in a $30 million committed credit facility (the “Facility”) to be utilized for temporary financing until the settlement of sales or purchases of portfolio securities, the repurchase or redemption of shares of
31 |
EMERGING MARKETS FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
the Fund and other temporary or emergency purposes. The participating VE/VIP Funds have agreed to pay commitment fees, pro rata, based on the unused but available balance. Interest is charged to the VE/VIP Funds at rates based on prevailing market rates in effect at the time of borrowings. During the period ended June 30, 2019, the average daily loan balance during the one day period of which a loan was outstanding amounted to $6,067,918 and the average interest rate was 3.75%. At June 30, 2019, the Fund had no outstanding borrowings under the Facility.
Note 10—Trustee Deferred Compensation Plan—The Trust has a Deferred Compensation Plan (the “Deferred Plan”), for Trustees under which the Trustees can elect to defer receipt of their trustee fees until retirement, disability or termination from the Board of Trustees. The fees otherwise payable to the participating Trustees are deemed invested in eligible shares of the VE/VIP Funds as directed by the Trustees.
The expense for the Deferred Plan is included in “Trustees’ fees and expenses” in the Statement of Operations. The liability for the Deferred Plan is shown as “Deferred Trustee fees” in the Statement of Assets and Liabilities.
Note 11—Recent Accounting Pronouncements and Regulatory Requirements—The Funds early adopted certain provisions of Accounting Standards Update No. 2018-13Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement(“ASU 2018-13”) that eliminate and modify certain disclosure requirements for fair value measurements. The adoption of certain provisions of the ASU 2018-13 had no material effect on financial statements and related disclosures. Management is currently evaluating the potential impact of additional requirements, not yet adopted, to financial statements. The ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.
Note 12—Subsequent Event Review—The Fund has evaluated subsequent events and transactions for potential recognition or disclosure through the date the financial statements were issued.
On August 1, 2019 the President of India signed into law changes to the 2019 Indian Budget. These changes will apply an increase in the surcharge that results in an increase to the effective tax rates for capital gains earned by foreign portfolio investors organized as non-corporate entities for all sales of investments after April 1, 2019. We have evaluated these changes and they did not have a material impact on these financial statements.
32 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited)
EMERGING MARKETS FUND
(the “Fund”)
The Investment Company Act of 1940, as amended (the “1940 Act”), provides, in substance, that an investment advisory agreement between a fund and its investment adviser may be entered into only if it is approved, and may continue in effect from year to year after an initial two-year period only if its continuance is approved, at least annually by the fund’s board of trustees, including by a vote of a majority of the trustees who are not “interested persons” of the fund as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of considering such approval. On June 21, 2019, the Board of Trustees (the “Board”) of VanEck Funds (the “Trust”), which is comprised exclusively of Independent Trustees, voted to approve the continuation of the existing advisory agreement (the “Advisory Agreement”) between the Fund and its investment adviser, Van Eck Associates Corporation (together with its affiliated companies, the “Adviser”). Information regarding the material factors considered and related conclusions reached by the Board in approving the continuation of the Fund’s Advisory Agreement is set forth below.
In considering the continuation of the Advisory Agreement, the Board reviewed and considered information that had been provided by the Adviser throughout the year at meetings of the Board and its committees, including information requested by the Board and furnished by the Adviser for meetings of the Board held on June 5, 2019 and June 21, 2019 specifically for the purpose of considering the continuation of the Advisory Agreement. The written and oral reports provided to the Board included, among other things, the following:
■ | Information about the overall organization of the Adviser and the Adviser’s short-term and long-term business plans with respect to its mutual fund operations and other lines of business; |
■ | The consolidated financial statements of the Adviser for the past two fiscal years; |
■ | A copy of the Advisory Agreement and descriptions of the services provided by the Adviser thereunder; |
■ | Information regarding the qualifications, education and experience of the investment professionals responsible for portfolio management, investment research and trading activities for the |
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VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited) (continued)
Fund, the structure of their compensation and the resources available to support these activities; | |
■ | A report prepared by an independent consultant comparing the Fund’s investment performance gross of expenses for a representative class of shares (including, where relevant, total returns, standard deviations, Sharpe ratios, information ratios, beta and alpha) for the one-, three-, five- and ten-year periods (as applicable) ended March 31, 2019 with the investment performance of (i) a universe of mutual funds selected by the independent consultant with similar investment characteristics, utilizing for these purposes the oldest share class of each fund gross of expenses (the “Performance Category”), (ii) a sub-group of funds selected from the Performance Category by the independent consultant further limited to approximate more closely the Fund’s investment style without regard to asset size (the “Performance Peer Group”) and (iii) an appropriate benchmark index; |
■ | A report prepared by an independent consultant comparing the advisory fees and other expenses of a representative class of shares of the Fund during its fiscal year ended December 31, 2018 with a similar share class of (i) funds in the Performance Category that have the same share class (the “Expense Category”) and (ii) a sub-set of the funds that comprise the Performance Peer Group that have the same share class (the “Expense Peer Group”); |
■ | A supplemental report prepared by an independent consultant comparing total management fee rates, which include both advisory and administrative fee rates on a combined basis (the “Management Fee Rates”), and, separately, the administrative fee rates and advisory fee rates with respect to a representative class of shares of the Fund during its fiscal year ended December 31, 2018 with those of the Fund’s (i) Expense Category and (ii) Expense Peer Group; |
■ | An analysis of the profitability of the Adviser with respect to its services for the Fund and the VanEck complex of mutual funds as a whole (the “VanEck Complex”); |
■ | Information regarding other investment products and services offered by the Adviser involving investment objectives and strategies similar to the Fund (“Comparable Products”), including the fees charged by the Adviser for managing the Comparable Products, a description of material differences and similarities in |
34 |
the services provided by the Adviser for the Fund and the Comparable Products, the sizes of the Comparable Products and the identity of the individuals responsible for managing the Comparable Products; | |
■ | Information concerning the Adviser’s compliance program, the resources devoted to compliance efforts undertaken by the Adviser on behalf of the Fund, and reports regarding a variety of compliance-related issues; |
■ | Information with respect to the Adviser’s brokerage practices, including the Adviser’s processes for monitoring best execution of portfolio transactions and the benefits received by the Adviser from research acquired with soft dollars; |
■ | Information regarding the procedures used by the Adviser in monitoring the valuation of portfolio securities, including the methodologies used in making fair value determinations, and the Adviser’s due diligence process for recommending the selection of pricing vendors and monitoring the quality of the inputs provided by such vendors; |
■ | Information regarding how the Adviser safeguards the confidentiality and integrity of its data and files (both physical and electronic), as well as of any communications with third parties containing Fund and shareholder information, including reports regarding the Adviser’s cybersecurity framework and its implementation, the identification and monitoring of cybersecurity risks (including the risks that arise out of arrangements with third party service providers), the Adviser’s cybersecurity response policy and other initiatives of the Adviser to mitigate cybersecurity risks; |
■ | Information regarding the Adviser’s policies and practices with respect to personal investing by the Adviser and its employees, including reports regarding the administration of the Adviser’s code of ethics and the Adviser’s policy with respect to investments in the Fund by the Adviser’s investment personnel; |
■ | Information regarding the Adviser’s investment process for the Fund, including how the Adviser integrates non-accounting-based information (including, but not limited to “environmental, social and governance” factors) and the non-security-selection, non-portfolio-construction activities of the investment teams, such as engagement with portfolio companies and industry group participation; |
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VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited) (continued)
■ | Information regarding the Adviser’s role as the administrator of the Trust’s liquidity risk management program; |
■ | Descriptions of sub-transfer agency, omnibus account and other shareholder servicing arrangements for the Fund with intermediaries (collectively, “Servicing Arrangements”), including a description of the services provided by the intermediaries pursuant to such Servicing Arrangements and the payment terms of the Servicing Arrangements, as well as reports regarding the amounts paid pursuant to the Servicing Arrangements and the amounts paid to intermediaries with respect to the Fund by the Adviser pursuant to any revenue sharing arrangements and Servicing Arrangements (to the extent not paid by the Fund); |
■ | Descriptions of other administrative and other non-investment management services provided by the Adviser for the Fund, including the Adviser’s activities in managing relationships with the Fund’s custodian, transfer agent and other service providers; and |
■ | Other information provided by the Adviser in its response to a comprehensive questionnaire prepared by independent legal counsel on behalf of the Independent Trustees. |
In determining whether to approve the continuation of the Advisory Agreement, the Board considered, among other things, the following: (1) the nature, quality, extent and cost of the investment management, administrative and other non-investment management services provided by the Adviser; (2) the nature, quality and extent of the services performed by the Adviser in interfacing with, and monitoring the services performed by, third parties, such as the Fund’s custodian, transfer agent, sub-transfer agents and independent auditor, and the Adviser’s commitment and efforts to review the quality and pricing of third party service providers to the Fund with a view to reducing non-management expenses of the Fund; (3) the terms of the Advisory Agreement and the services performed thereunder; (4) the willingness of the Adviser to reduce the overall expenses of the Fund from time to time, if necessary or appropriate, by means of waiving a portion of its fees or paying expenses of the Fund; (5) the quality of the services, procedures and processes used to determine the value of the Fund’s assets and the actions taken to monitor and test the effectiveness of such services, procedures and processes; (6) the ongoing efforts of, and resources devoted by, the Adviser with respect to the development and implementation of a
36 |
comprehensive compliance program; (7) the responsiveness of the Adviser to inquiries from, and examinations by, regulatory authorities, including the Securities and Exchange Commission; (8) the resources committed by the Adviser in recent periods to information technology and cybersecurity; and (9) the ability of the Adviser to attract and retain quality professional personnel to perform investment advisory and administrative services for the Fund.
The Board considered the fact that the Adviser is managing other investment products, including exchange-traded funds, private funds, separate accounts and UCITs, one or more of which may invest in the same financial markets and may be managed by the same investment professionals according to a similar investment objective and/or strategy as the Fund. The Board concluded that the management of these products contributes to the Adviser’s financial stability and is helpful to the Adviser in attracting and retaining quality portfolio management personnel for the Fund. In addition, the Board concluded that the Adviser has established appropriate procedures to monitor conflicts of interest involving the management of the Fund and the other products and for resolving any such conflicts of interest in a fair and equitable manner.
The performance data and the advisory fee and expense ratio data described below for the Fund is based on data for a representative class of shares of the Fund. The performance data is gross of expenses for periods on an annualized basis ended March 31, 2019, and the advisory fee and expense ratio data is as of the Fund’s fiscal year end of December 31, 2018.
Performance.The Board noted, based on a review of comparative annualized total returns, that the Fund had underperformed its Performance Peer Group median for the one-, three- and five-year periods, and the Fund had outperformed its Performance Peer Group median for the ten-year period. The Board also noted that the Fund had underperformed its Performance Category median for the one-year period, and the Fund had outperformed its Performance Category median for the three-, five- and ten-year periods. The Board also noted that the Fund had outperformed its benchmark index for the three, five-and ten-year periods, and the Fund had underperformed its benchmark for the one-year period. On the basis of the foregoing and other relevant information provided in response to inquiries by the Board, the Board concluded that the performance of the Fund was satisfactory.
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VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited) (continued)
Fees and Expenses.The Board noted that the Fund pays an advisory fee, as well as a separate administrative fee. The Board further noted that the fee rate payable for advisory services was lower than the median advisory fee rates of its Expense Category and Expense Peer Group. The Board noted that the Fund’s Management Fee Rate (which includes both advisory and administrative fee rates) was lower than the median Management Fee Rates of its Expense Category and Expense Peer Group. The Board also noted that the Fund’s total expense ratio, net of waivers or reimbursements, was lower than the median expense ratio of its Expense Peer Group and equal to the median expense ratio of its Expense Category. The Board further noted that the Adviser has agreed to waive fees or pay expenses of the Fund through May 1, 2020 to the extent necessary to prevent the expense ratio of the Fund from exceeding a specified maximum amount (subject to certain exclusions).
On the basis of the foregoing, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the advisory fee rate charged to the Fund is reasonable.
Profitability and Economies of Scale.The Board considered the profits, if any, realized by the Adviser from managing the Fund and other mutual funds in the VanEck Complex and the methodology used to determine such profits. The Board noted that the levels of profitability reported on a fund-by-fund basis varied widely depending on such factors as the size, type of fund and operating history. The Board further noted that, in evaluating the reasonableness of the Adviser’s profits from managing any particular Fund, it would be appropriate to consider the size of the Adviser relative to other firms in the investment management industry and the impact on the Adviser’s profits of the volatility of the markets in which the Fund invests and the volatility of cash flow into and out of the Fund through various market cycles. Based on its review of the foregoing information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the profits realized by the Adviser, if any, are deemed not to be excessive. In this regard, the Board also considered the extent to which the Adviser may realize economies of scale, if any, as the Fund grows and whether the Fund’s fee schedule reflects any economies of scale for the benefit of shareholders. The Board concluded that, with respect to the Fund, any economies of scale being realized are currently being shared by the Adviser and the Fund, and that adding or
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modifying existing (if any) breakpoints would not be warranted at this time for the Fund.
Conclusion.In determining the material factors to be considered in evaluating the Advisory Agreement for the Fund and the weight to be given to such factors, the members of the Board relied upon the advice of independent legal counsel and their own business judgment. The Board did not consider any single factor as controlling in determining whether to approve the continuation of the Advisory Agreement and each member of the Board may have placed varying emphasis on particular factors considered in reaching a conclusion. Moreover, this summary description does not necessarily identify all of the factors considered or conclusions reached by the Board. Based on its consideration of the foregoing factors and conclusions, and such other factors and conclusions as it deemed relevant, the Board (comprised exclusively of Independent Trustees) concluded that the continuation of the Advisory Agreement is in the interests of shareholders and, accordingly, the Board approved the continuation of the Advisory Agreement for the Fund for an additional one-year period.
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VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited) (continued)
VANECK EMERGING MARKETS EX-CHINA FUND
(the “New Fund”)
The Investment Company Act of 1940, as amended (the “1940 Act”), provides, in substance, that an investment advisory agreement between a fund and its investment adviser may be entered into only if it is approved, and may continue in effect from year to year after an initial two-year period only if its continuance is approved, at least annually by the fund’s board of trustees, including by a vote of a majority of the trustees who are not “interested persons” of the fund as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of considering such approval. On June 20, 2019, the Board of Trustees (the “Board”) of VanEck Funds (the “Trust”), which is comprised exclusively of Independent Trustees, voted to enter into a new advisory agreement (the “New Advisory Agreement”) between the New Fund and its investment adviser, Van Eck Associates Corporation (together with its affiliated companies, the “Adviser”). Information regarding the material factors considered and related conclusions reached by the Board in approving the New Advisory Agreement is set forth below.
In considering the approval of the New Advisory Agreement, the Board reviewed and considered information that had been provided by the Adviser throughout the year at meetings of the Board and its committees, including information furnished by the Adviser for the meeting of the Board held on June 20, 2019 specifically for the purpose of considering the approval of the New Advisory Agreement. The written and oral reports provided to the Board included, among other things, the following:
■ | Information about the overall organization of the Adviser and the Adviser’s short-term and long-term business plans with respect to its mutual fund operations and other lines of business; |
■ | The consolidated financial statements of the Adviser for the past two fiscal years; |
■ | A description of the New Advisory Agreement and descriptions of the services to be provided by the Adviser thereunder; |
■ | Information regarding the qualifications, education and experience of the investment professionals responsible for portfolio management, investment research and trading activities for the |
40 |
New Fund, the structure of their compensation and the resources available to support these activities; | |
■ | A report comparing the proposed management fees and non-investment management expenses of the New Fund with those of other funds with similar investment strategies managed by other investment advisers; |
■ | Information regarding other investment products and services offered by the Adviser involving investment objectives and strategies similar to the Fund (“Comparable Products”), including the fees charged by the Adviser for managing the Comparable Products, a description of material differences and similarities in the services provided by the Adviser for the Fund and the Comparable Products, the sizes of the Comparable Products and the identity of the individuals responsible for managing the Comparable Products; |
■ | Information concerning the Adviser’s compliance program, the resources expected to be devoted to compliance efforts undertaken by the Adviser on behalf of the New Fund, and reports regarding a variety of compliance-related issues; |
■ | Information with respect to the Adviser’s brokerage practices, including the Adviser’s processes for monitoring best execution of portfolio transactions and the benefits received by the Adviser from research acquired with soft dollars; |
■ | Information regarding the procedures to be used by the Adviser in monitoring the valuation of portfolio securities, including the methodologies used in making fair value determinations and the Adviser’s due diligence process for recommending the selection of pricing vendors and monitoring the quality of the inputs provided by such vendors; |
■ | Information regarding how the Adviser safeguards the confidentiality and integrity of its data and files (both physical and electronic), as well as of any communications with third parties containing fund and shareholder information, including reports regarding the Adviser’s cybersecurity framework and its implementation, the identification and monitoring of cybersecurity risks (including the risks that arise out of arrangements with third party service providers), the Adviser’s cybersecurity response policy and other initiatives of the Adviser to mitigate cybersecurity risks; |
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VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited) (continued)
■ | Information regarding the Adviser’s policies and practices with respect to personal investing by the Adviser and its employees, including reports regarding the administration of the Adviser’s code of ethics and the Adviser’s policy with respect to investments in the New Fund by the Adviser’s investment personnel; |
■ | A liquidity risk assessment conducted in accordance with the Trust’s Liquidity Risk Management Program; |
■ | Descriptions of sub-transfer agency, omnibus account and other shareholder servicing arrangements for the funds with intermediaries (collectively, “Servicing Arrangements”), including a description of the services provided by the intermediaries pursuant to such Servicing Arrangements and the payment terms of the Servicing Arrangements, as well as reports regarding the amounts paid pursuant to the Servicing Arrangements and the amounts paid to intermediaries with respect to each fund by the Adviser pursuant to any revenue sharing arrangements and Servicing Arrangements (to the extent not paid by the funds); |
■ | Descriptions of other administrative and other non-investment management services provided by the Adviser for the New Fund, including the Adviser’s activities in managing relationships with the New Fund’s custodian, transfer agent and other service providers; and |
■ | Other information provided by the Adviser in its response to a comprehensive questionnaire prepared by independent legal counsel on behalf of the Independent Trustees. |
In determining whether to approve the New Advisory Agreement, the Board considered, among other things, the following: (1) the nature, quality, extent and cost of the investment management, administrative and other non-investment management services to be provided by the Adviser; (2) the nature, quality and extent of the services to be performed by the Adviser in interfacing with, and monitoring the services performed by, third parties, such as the New Fund’s custodian, transfer agent, sub-transfer agents and independent auditor, and the Adviser’s commitment and efforts to review the quality and pricing of third party service providers to the New Fund with a view to reducing non-management expenses of the New Fund; (3) the terms of the New Advisory Agreement and the services to be performed thereunder; (4) the willingness of the Adviser to reduce the overall expenses of the New Fund from time to time, if
42 |
necessary or appropriate, by means of waiving a portion of its fees or paying expenses of the New Fund; (5) the quality of the services, procedures and processes that would be used to determine the value of the New Fund’s assets and the actions that would be taken to monitor and test the effectiveness of such services, procedures and processes; (6) the ongoing efforts of, and resources devoted by, the Adviser with respect to the development and implementation of a comprehensive compliance program; (7) the responsiveness of the Adviser to inquiries from, and examinations by, regulatory authorities, including the Securities and Exchange Commission; (8) the resources committed by the Adviser in recent periods to information technology and cybersecurity; and (9) the ability of the Adviser to attract and retain quality professional personnel to perform investment advisory and administrative services for the New Fund.
The Board considered the fact that the Adviser is managing other investment products, including exchange-traded funds, private funds, separate accounts and UCITs, one or more of which may invest in the same financial markets and may be managed by the same investment professionals according to a similar investment objective and/or strategy as the Fund. The Board concluded that the management of these products contributes to the Adviser’s financial stability and is helpful to the Adviser in attracting and retaining quality portfolio management personnel for the New Fund. In addition, the Board concluded that the Adviser has established appropriate procedures to monitor conflicts of interest involving the management of the New Fund and the other products and for resolving any such conflicts of interest in a fair and equitable manner.
Performance.The Board did not consider performance results for the New Fund because the New Fund has not yet commenced operations. The Board considered the performance of a sub-section of a Fund managed by the Adviser that pursues a similar investment strategy to the New Fund.
Fees and Expenses.When considering the investment advisory fees to be paid by the New Fund to the Adviser, the Board noted that there were currently no actively managed emerging markets strategies, which exclude China, available to the public. The Board considered the reasonableness of the fees and considered the fees in comparison to other funds with similar investment emerging markets strategies
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VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited) (continued)
managed by other investment advisers. The Board concluded that the advisory fees to be charged to the New Fund are reasonable.
Profitability and Economies of Scale.The Board did not specifically consider the profitability of the Adviser with respect to the management of the New Fund, as the New Fund had not yet commenced operations. At least annually, the Board considers profitability information about the Adviser with respect to its services for all mutual funds within the Van Eck complex of funds and, in connection therewith, the Board will consider the profitability of the New Fund following commencement of operations of the New Fund. The Board also did not specifically consider the extent to which benefits from economies of scale will be realized by the Adviser and shared with the New Fund as the assets under management grow, although such matters are expected to be considered in the future.
Conclusion.In determining the material factors to be considered in evaluating the New Advisory Agreement and the weight to be given to such factors, the members of the Board relied upon the advice of independent legal counsel and their own business judgment. The Board did not consider any single factor as controlling in determining whether to approve the continuation of the New Advisory Agreement and each member of the Board may have placed varying emphasis on particular factors considered in reaching a conclusion. Moreover, this summary description does not necessarily identify all of the factors considered or conclusions reached by the Board. Based on its consideration of the foregoing factors and conclusions, and such other factors and conclusions as it deemed relevant, the Board (comprised exclusively of Independent Trustees) concluded that entering into the New Advisory Agreement is in the interests of shareholders and, accordingly, the Board approved entering into the New Advisory Agreement for an initial two-year period.
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VANECK CHINA FUND
(the “New Fund”)
The Investment Company Act of 1940, as amended (the “1940 Act”), provides, in substance, that an investment advisory agreement between a fund and its investment adviser may be entered into only if it is approved, and may continue in effect from year to year after an initial two-year period only if its continuance is approved, at least annually by the fund’s board of trustees, including by a vote of a majority of the trustees who are not “interested persons” of the fund as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of considering such approval. On June 20, 2019, the Board of Trustees (the “Board”) of VanEck Funds (the “Trust”), which is comprised exclusively of Independent Trustees, voted to enter into a new advisory agreement (the “New Advisory Agreement”) between the New Fund and its investment adviser, Van Eck Associates Corporation (together with its affiliated companies, the “Adviser”). Information regarding the material factors considered and related conclusions reached by the Board in approving the New Advisory Agreement is set forth below.
In considering the approval of the New Advisory Agreement, the Board reviewed and considered information that had been provided by the Adviser throughout the year at regular and special meetings of the Board and its committees, including information furnished by the Adviser for the meeting of the Board held on June 20, 2019 specifically for the purpose of considering the approval of the New Advisory Agreement. The written and oral reports provided to the Board included, among other things, the following:
■ | Information about the overall organization of the Adviser and the Adviser’s short-term and long-term business plans with respect to its mutual fund operations and other lines of business; |
■ | The consolidated financial statements of the Adviser for the past two fiscal years; |
■ | A description of the New Advisory Agreement and descriptions of the services to be provided by the Adviser thereunder; |
■ | Information regarding the qualifications, education and experience of the investment professionals responsible for portfolio management, investment research and trading activities for the |
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VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited) (continued)
New Fund, the structure of their compensation and the resources available to support these activities; | |
■ | A report comparing the proposed management fees and non-investment management expenses of the New Fund with those of other funds with similar investment strategies managed by other investment advisers; |
■ | Information regarding other investment products and services offered by the Adviser involving investment objectives and strategies similar to the Fund (“Comparable Products”), including the fees charged by the Adviser for managing the Comparable Products, a description of material differences and similarities in the services provided by the Adviser for the Fund and the Comparable Products, the sizes of the Comparable Products and the identity of the individuals responsible for managing the Comparable Products; |
■ | Information concerning the Adviser’s compliance program, the resources expected to be devoted to compliance efforts undertaken by the Adviser on behalf of the New Fund, and reports regarding a variety of compliance-related issues; |
■ | Information with respect to the Adviser’s brokerage practices, including the Adviser’s processes for monitoring best execution of portfolio transactions and the benefits received by the Adviser from research acquired with soft dollars; |
■ | Information regarding the procedures to be used by the Adviser in monitoring the valuation of portfolio securities, including the methodologies used in making fair value determinations and the Adviser’s due diligence process for recommending the selection of pricing vendors and monitoring the quality of the inputs provided by such vendors; |
■ | Information regarding how the Adviser safeguards the confidentiality and integrity of its data and files (both physical and electronic), as well as of any communications with third parties containing fund and shareholder information, including reports regarding the Adviser’s cybersecurity framework and its implementation, the identification and monitoring of cybersecurity risks (including the risks that arise out of arrangements with third party service providers), the Adviser’s cybersecurity response policy and other initiatives of the Adviser to mitigate cybersecurity risks; |
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■ | Information regarding the Adviser’s policies and practices with respect to personal investing by the Adviser and its employees, including reports regarding the administration of the Adviser’s code of ethics and the Adviser’s policy with respect to investments in the New Fund by the Adviser’s investment personnel; |
■ | A liquidity risk assessment conducted in accordance with the Trust’s Liquidity Risk Management Program; |
■ | Descriptions of sub-transfer agency, omnibus account and other shareholder servicing arrangements for the funds with intermediaries (collectively, “Servicing Arrangements”), including a description of the services provided by the intermediaries pursuant to such Servicing Arrangements and the payment terms of the Servicing Arrangements, as well as reports regarding the amounts paid pursuant to the Servicing Arrangements and the amounts paid to intermediaries with respect to each fund by the Adviser pursuant to any revenue sharing arrangements and Servicing Arrangements (to the extent not paid by the funds); |
■ | Descriptions of other administrative and other non-investment management services provided by the Adviser for the New Fund, including the Adviser’s activities in managing relationships with the New Fund’s custodian, transfer agent and other service providers; and |
■ | Other information provided by the Adviser in its response to a comprehensive questionnaire prepared by independent legal counsel on behalf of the Independent Trustees. |
In determining whether to approve the New Advisory Agreement, the Board considered, among other things, the following: (1) the nature, quality, extent and cost of the investment management, administrative and other non-investment management services to be provided by the Adviser; (2) the nature, quality and extent of the services to be performed by the Adviser in interfacing with, and monitoring the services performed by, third parties, such as the New Fund’s custodian, transfer agent, sub-transfer agents and independent auditor, and the Adviser’s commitment and efforts to review the quality and pricing of third party service providers to the New Fund with a view to reducing non-management expenses of the New Fund; (3) the terms of the New Advisory Agreement and the services to be performed thereunder; (4) the willingness of the Adviser to reduce the overall expenses of the New Fund from time to time, if
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VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited) (continued)
necessary or appropriate, by means of waiving a portion of its fees or paying expenses of the New Fund; (5) the quality of the services, procedures and processes that would be used to determine the value of the New Fund’s assets and the actions that would be taken to monitor and test the effectiveness of such services, procedures and processes; (6) the ongoing efforts of, and resources devoted by, the Adviser with respect to the development and implementation of a comprehensive compliance program; (7) the responsiveness of the Adviser to inquiries from, and examinations by, regulatory authorities, including the Securities and Exchange Commission; (8) the resources committed by the Adviser in recent periods to information technology and cybersecurity; and (9) the ability of the Adviser to attract and retain quality professional personnel to perform investment advisory and administrative services for the New Fund.
The Board considered the fact that the Adviser is managing other investment products, including exchange-traded funds, private funds, separate accounts and UCITs, one or more of which may invest in the same financial markets and may be managed by the same investment professionals according to a similar investment objective and/or strategy as the Fund. The Board concluded that the management of these products contributes to the Adviser’s financial stability and is helpful to the Adviser in attracting and retaining quality portfolio management personnel for the New Fund. In addition, the Board concluded that the Adviser has established appropriate procedures to monitor conflicts of interest involving the management of the New Fund and the other products and for resolving any such conflicts of interest in a fair and equitable manner.
Performance.The Board did not consider performance results for the New Fund because the New Fund has not yet commenced operations. The Board considered the performance of a sub-section of a Fund managed by the Adviser that pursues a similar investment strategy to the New Fund.
Fees and Expenses.When considering the investment advisory fees to be paid by the New Fund to the Adviser, the Board considered the reasonableness of the fees and considered the fees in comparison to other funds with similar investment strategies managed by other investment advisers. The Board concluded that the advisory fees to be charged to the New Fund are reasonable.
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Profitability and Economies of Scale.The Board did not specifically consider the profitability of the Adviser with respect to the management of the New Fund, as the New Fund had not yet commenced operations. At least annually, the Board considers profitability information about the Adviser with respect to its services for all mutual funds within the Van Eck complex of funds and, in connection therewith, the Board will consider the profitability of the New Fund following commencement of operations of the New Fund. The Board also did not specifically consider the extent to which benefits from economies of scale will be realized by the Adviser and shared with the New Fund as the assets under management grow, although such matters are expected to be considered in the future.
Conclusion.In determining the material factors to be considered in evaluating the New Advisory Agreement and the weight to be given to such factors, the members of the Board relied upon the advice of independent legal counsel and their own business judgment. The Board did not consider any single factor as controlling in determining whether to approve the continuation of the New Advisory Agreement and each member of the Board may have placed varying emphasis on particular factors considered in reaching a conclusion. Moreover, this summary description does not necessarily identify all of the factors considered or conclusions reached by the Board. Based on its consideration of the foregoing factors and conclusions, and such other factors and conclusions as it deemed relevant, the Board (comprised exclusively of Independent Trustees) concluded that entering into the New Advisory Agreement is in the interests of shareholders and, accordingly, the Board approved entering into the New Advisory Agreement for an initial two-year period.
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This report is intended for the Fund’s shareholders. It may not be distributed to prospective investors unless it is preceded or accompanied by the Fund’s prospectus and summary prospectus, which includes more complete information. Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
Additional information about the VanEck Fund’s (the “Trust”) 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 800.826.2333, or by visiting vaneck.com, or on the Securities and Exchange Commission’s website at https://www.sec.gov.
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-PORT. The Trust’s Form N-PORTs are available on the Commission’s website at https://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 202.942.8090. The Fund’s complete schedule of portfolio holdings is also available by calling 800.826.2333 or by visiting vaneck.com.
Investment Adviser: | Van Eck Associates Corporation | |
Distributor: | Van Eck Securities Corporation | |
666 Third Avenue, New York, NY 10017 | ||
vaneck.com | ||
Account Assistance: | 800.544.4653 | EMESAR |
SEMI-ANNUAL REPORT June 30, 2019 (unaudited) |
VanEck Funds
Global Hard Assets Fund
International Investors Gold Fund
800.826.2333 | vaneck.com |
Certain information contained in this shareholder letter represents the opinion of the investment adviser and may change at any time. This information is not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Also, unless otherwise specifically noted, any discussion of the Funds’ holdings, the Funds’ performance, and the views of the investment adviser are as of June 30, 2019.
VANECK FUNDS
June 30, 2019 (unaudited)
We are pleased to present this semi-annual report.
Investment Outlook
In brief, the two engines of the global economy, the U.S. and China, are moving forward, albeit at a moderate pace. In this environment, with stocks having had a very solid year so far, our main message is that investors should not be too conservative with their fixed income portfolios. See our blogIs There Enough Risk in Your Fixed Income Portfolio?
Getting to this current environment was, however, a result of a lot of turbulence.
At the beginning of December last year, we were worried about the impact the European Central Bank’s (ECB) and the U.S. Federal Reserve’s (Fed) continued tightening would have on the financial markets. Typically, central bank tightening is unfavorable for financial assets, and markets decelerated going into December. Then, suddenly the Fed signaled it would stop raising rates and reverse on quantitative tightening. This led to a rally in U.S. equities and other asset classes.
The ECB is also now delaying any tightening steps. At its March 7 policy meeting, the ECB pushed back its timing for increasing interest rates and is expected to stay on hold through the end of 2019. It also announced a program to stimulate bank lending, with another round of targeted longer-term refinancing operations (TLTRO) launching in September. TLTRO loans from the ECB provides banks in the euro zone with cheap rates.
Last but not least, China’s non-manufacturing Purchasing Managers’ Index (PMI) shows a strong rate of expansion, which one would expect with the emergence of the “new China” economy—one that is increasingly driven by consumption. However, the manufacturing PMI shows several recent dips below the important 50 mark into contraction territory, corresponding to the “recession” in late 2018, followed by a recovery after Q1 2019. It saw another fall into contraction territory in Q2 2019, though this was slightly smaller than the Q4 2018 drop, indicating that China’s stimulus measures may have softened the impact of external factors, such as tariffs and trade tensions. If so, we believe more stimulus may be expected to support domestic demand in the months ahead.
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VANECK FUNDS
(unaudited) (continued)
Doubtless there are risks to the global economy and financial markets. Concerns around the strength of global economic growth, the strength of the U.S. dollar, the trajectory of U.S. interest rates, certain country-specific factors, e.g., Iran and Venezuela, and the, as yet, unresolved trade dispute between the U.S. and China continue to hang over the market.
We encourage you to stay in touch with us through the videos, email subscriptions, and research blogs available on our website, www.vaneck.com.I have started my own email subscription where I share interesting research—you can sign up on vaneck.com.Should you have any questions regarding fund performance, please contact us at 800.826.2333 or visit our website.
We sincerely thank you for investing in VanEck’s investment strategies. On the following pages, you will find financial statements for each of the funds for the six month period ended June 30, 2019. As always, we value your continued confidence in us and look forward to helping you meet your investment goals in the future.
Jan F. van Eck
CEO and President
VanEck Funds
July 16, 2019
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Funds carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
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June 30, 2019 (unaudited)
The Global Hard Assets Fund (the “Fund”) gained 12.55% (Class A shares, excluding sales charge) for the six months ending June 30, 2019. Over the same period, the S&P®Global Natural Resources Net Total Return Index (SPGNRUN)1gained 13.44%, while the Fund’s benchmark, the S&P®North American Natural Resources Sector Index (SPGINRTR)2, gained 14.58%. In the first half of the year, uncertainties around global trade and tariffs weighed on the outlook for growth and demand and had the most significant impact on natural resource equity markets. Despite starting out the year rebounding from their deep declines of the fourth quarter of 2018, these demand concerns have continued to add to a choppy and skittish market. Nevertheless, a potential reversal of global central banks’ tightening coupled with irrefutable fiscal stimulus, particularly in China, have dissipated some of the trade headwinds.
Market Review
A clear, finite resolution to the problems surrounding tariffs and trade remained elusive. As concerns around slowing growth and undershot inflation targets increased, central banks around the world re-engaged, reversed their policies and started easing.
Crude oil and energy stocks had a strong start to the year as a confluence of “OPEC+” quota cuts and compounding political concerns in both Venezuela and Iran helped fuel higher prices. However, despite crude oil price support, U.S. oil production continued to surge and energy stocks traded down.
Base and industrial metals prices were mixed in the first half of the year (reflective of the unpredictable nature of global trade during the period). This was amply illustrated by the disparity in performance of several of the underlying metals by the end of June with, for example, nickel up approximately 19% and aluminum down over 2%.
Gold, of all the metals, experienced the most fundamental support, predominately from geopolitical risks and central bank buying. In June, a shift in central banks’ policies towards greater accommodation led to a technical breakout in gold as it moved above $1,400 per ounce.
Grains had a satisfactory first half to the year. Corn was up approximately 12%, driven by a roughly 18% move in the second quarter of the year as considerable rain in the U.S. Midwest injected uncertainty into the market about the outlook for yields and output for this year’s crop.
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GLOBAL HARD ASSETS FUND
(unaudited) (continued)
Fund Review
On an absolute basis, the largest sub-industry contributors during the period were positions in oil & gas exploration & production and gold while the largest detractors were positions in oil & gas storage & transportation and steel. The main factors contributing to relative underperformance versus the benchmark during the period, excluding overweight positioning in cash, included underweight positioning and security selection in oil & gas storage & transportation and overweight positioning in steel. Meanwhile, underweight positioning and security selection in oil & gas equipment & services and integrated oil & gas were the largest relative contributors.
The Fund’s top three performing individual positions were: oil & gas equipment & services company ProPetro Holding (2.4% of Fund net assets*) which benefited from both the addition of contracted capacity and continued exemplary customer service; oil & gas exploration & production company Anadarko Petroleum (no longer held by the Fund at period end) which benefited from becoming an acquisition target during the period under review; and diversified metals and mining company Rio Tinto (3.9% of Fund net assets*) which benefited from the notable rise in the price of iron ore in the first half of the year.
The Fund’s three weakest performing companies were oil & gas exploration & production companies CNX Resources (0.9% of Fund net assets*) and Encana (2.2% of Fund net assets*) and oil & gas storage & transportation company Golar LNG (1.8% of Fund net assets*). CNX was the victim of a double-digit drop in the price of natural gas during the period, while Encana, surprisingly, continued to suffer an overhang from its acquisition of Newfield Exploration, completed in mid-February. The long lead time associated with Golar’s contracts led to its underperformance.
For more information or to access investment and market insights from the investment team, visit our web site or subscribe to our commentaries. To review timely updates related to the VanEck Global Hard Assets Fund, please visit www.vaneck.com/blogs/natural-resources. To subscribe to VanEck’s natural resources and commodities updates, please contact us at 800.826.2333 or visit www.vaneck.com/subscribe to register.
The Fund is subject to risks associated with concentrating its investments in hard assets and the hard assets sector, including real estate, precious metals, and natural resources, and can be significantly affected by events relating to these industries, including international political and economic developments, inflation, and other factors. The Fund’s portfolio securities
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may experience substantial price fluctuations as a result of these factors, and may move independently of the trends of industrialized companies. The Fund’s investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, including the takeover of property without adequate compensation or imposition of prohibitive taxation. The Fund is subject to risks associated with investments in derivative, commodity-linked instruments, and illiquid securities. The Fund is also subject to inflation risk, market risk, non-diversification risk, and leverage risk. Please see the prospectus and summary prospectus for information on these and other risk considerations.
As always, we value your continued confidence in us and look forward to helping you meet your investment goals in the future.
Shawn Reynolds Portfolio Manager | Charles T. Cameron Deputy Portfolio Manager |
Represents the opinions of the investment adviser. Past performance is no guarantee of future results. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.
* | All Fund assets referenced are Total Net Assets as of June 30, 2019. |
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
1 | S&P®Global Natural Resources Net Total Return Index (SPGNRUN) includes the largest publicly traded companies in natural resources and commodities businesses that meet specific investability requirements, offering investors diversified and investable equity exposure across three primary commodity-related sectors: agribusiness, energy, and metals and mining. |
2 | S&P®North American Natural Resources Sector Index (SPGINRTR) includes mining, energy, paper and forest products, and plantation-owning companies, but excludes the chemicals industry and steel sub-industry. |
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INTERNATIONAL INVESTORS GOLD FUND
June 30, 2019 (unaudited)
Management Discussion
The International Investors Gold Fund (the “Fund”) gained 21.96% (Class A shares, excluding sales charge) during the six months ended June 30, 2019, performing in line with the NYSE Arca Gold Miners Index (GDMNTR)1which posted returns of 21.81% during the same period. The small-cap gold mining stocks, as represented by the MVIS Global Junior Gold Miners Index (MVGDXJTR)2gained 16.70%.
Market Review
During the six months ended June 30, 2019, the gold market was positively impacted, on the one hand, by fears around global growth and the continuing trade dispute between the U.S. and China and, on the other hand, by the policy shifts of central banks around the world, in particular the U.S. Federal Reserve (Fed), toward a more accommodative stance.
The watershed came in June, when the gold price experienced a significant, and possibly historic breakout, blowing through two formidable technical barriers to reach its six-year intra-day high of $1,439 on June 25. The fundamental drivers that enabled it to break out included not only continuing trade tensions between the U.S. and China, but also comments from Fed officials voicing concerns over the economy, leading to market expectations of rate cuts in the second half. In addition, the European Central Bank (ECB) indicated rate cuts were likely in the absence of any improvement in the economy. Gold closed at $1,409 on June 28, for a gain of $104 per ounce (8%) during the first half of 2019.
Going towards 2020, we see one of two scenarios playing out across the markets: 1) Soft landing–manufacturing has been weak and on the verge of recession in China, Europe and now the U.S. A soft landing would occur if the global stimulus widely expected from central banks is able to keep a manufacturing recession from morphing into a broader recession across the entire economy. Averting a recession would be bullish for the stock market, interest rates would find a bottom, and the U.S. dollar would likely stabilize or move higher. This might limit the upside for gold and in this scenario we might see gold establish a new price range supported by geopolitical risks and central bank demand. 2) Hard landing–a hard landing occurs if the current manufacturing recession transitions into a broader economic recession, causing central banks to suffer a loss of confidence. U.S. rates would likely trend to zero or less, the stock market might enter a correction, while financial risks escalate.
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Central banks may restart quantitative easing (QE) or initiate other more radical policies. In this scenario, gold would probably form a positive price trend as a safe haven investment.
Fund Review
At the end of June 2019, the Fund was almost fully invested in equities, with cash holdings representing 0.93% of net assets. The Fund held no gold bullion at the end of the period under review.
There were no material changes to the portfolio or its allocations during the first half of the year.
The Fund’s top holding, Kirkland Lake Gold Ltd. (10.1% of Fund net assets†) outperformed significantly, gaining 64.8% during the first half of the year. The continued outperformance of Kirkland Lake Gold’s shares was driven by solid operating results; a 60% increase in reserves at its Fosterville mine in Australia; high-grade drilling results at its Macassa mine in Canada; as well as increased dividends.
Continental Gold Inc. (2.9% of Fund net assets†) also outperformed significantly, up 75.3% during the period. The company has been successfully advancing the development and construction of its Buritica mine in Colombia, which is on schedule to pour first gold in the first half of 2020. During the first half of 2019, the company secured required project funding, with continuing support from major shareholder Newmont Mining Corporation (5.7% of Fund net assets†), and it announced high grade drilling results and increased mineral resources at Buritica.
B2Gold Corp. (6.7% of Fund net assets†) underperformed (+3.8%). This came despite the company reporting production above budget and costs below budget for the first quarter of 2019, as well as the details of a study and the subsequent decision to proceed with an expansion of its Fekola Mine in Mali. We view these as very positive news for the company. The market may be applying a geopolitical risk discount to B2Gold shares, even though the company has consistently demonstrated its ability to operate in Africa, the Philippines and Nicaragua. Likely in response to this applied risk discount, the company announced on July 2, an agreement for the sale of its two mines in Nicaragua.
OceanaGold Corporation (1.8% of Fund net assets†) underperformed, down 24.9% during the first six months of 2019. This was driven primarily by provincial government opposition to its operations at the Didipio mine in the Philippines, which has negatively impacted trucking activities. The mine continues to operate with the approval of the national government,
7 |
INTERNATIONAL INVESTORS GOLD FUND
(unaudited) (continued)
and the company feels confident that the situation will be resolved, but the ongoing lack of support from the provincial government represents a risk to one of the company’s key operations.
For more information or to access investment and market insights from the investment team, visit our web site or subscribe to our commentaries. To review timely updates related to the VanEck International Investors Gold Fund, please visit www.vaneck.com/blogs/gold-and-preciousmetals. To subscribe to VanEck’s gold updates, please contact us at 800.826.2333 or visit www.vaneck.com/subscribe to register.
The Fund is subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. The Fund’s overall portfolio may decline in value due to developments specific to the gold industry. The Fund’s investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, including the takeover of property without adequate compensation or imposition of prohibitive taxation. The Fund is subject to risks associated with investments in derivatives, commodity linked instruments, illiquid securities, and small- or mid-cap companies. The Fund is also subject to inflation risk, market risk, non-diversification risk, leverage risk, and risks of investments in a wholly owned subsidiary. Please see the prospectus and summary prospectus for information on these and other risk considerations.
As always, we value your continued confidence in us and look forward to helping you meet your investment goals in the future.
Joseph M. Foster Portfolio Manager | Imaru Casanova Deputy Portfolio Manager |
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Represents the opinions of the investment adviser. Past performance is no guarantee of future results. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.
* | All Fund assets referenced are Total Net Assets as of June 30, 2019. |
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
1 | NYSE Arca Gold Miners (GDMNTR) Index is a market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold. |
2 | MVIS®Global Junior Gold Miners Index (MVGDXJTR) is a rules-based, modified market capitalization-weighted, float-adjusted index comprised of a global universe of publicly traded small- and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining, hold real property that has the potential to produce at least 50% of the company’s revenue from gold or silver mining when developed, or primarily invest in gold or silver. |
9 |
June 30, 2019 (unaudited)
Average Annual Total Return (%)* | Class A Before Sales Charge | Class A After Maximum Sales Charge | Class C Before Sales Charge | Class C After Maximum Sales Charge | ||||||||||||
Six Months | 12.55 | 6.06 | 12.04 | 11.04 | ||||||||||||
One Year | (19.62 | ) | (24.24 | ) | (20.28 | ) | (21.08 | ) | ||||||||
Five Year | (11.89 | ) | (12.92 | ) | (12.59 | ) | (12.59 | ) | ||||||||
Ten Year | (0.99 | ) | (1.58 | ) | (1.78 | ) | (1.78 | ) |
Average Annual Total Return (%)* | Class I** | Class Y** | SPGINRTR | MSCI ACWI | ||||||||||||
Six Months | 12.77 | 12.68 | 14.58 | 16.60 | ||||||||||||
One Year | (19.28 | ) | (19.41 | ) | (14.10 | ) | 6.32 | |||||||||
Five Year | (11.53 | ) | (11.67 | ) | (6.80 | ) | 6.74 | |||||||||
Ten Year | (0.60 | ) | N/A | 3.42 | 10.73 | |||||||||||
Life^ | N/A | (3.81 | ) | 0.60 | 8.81 |
* | Returns less than one year are not annualized. | |
** | Classes are not subject to a sales charge | |
^ | Since April 30, 2010 (Class Y). |
The performance quoted represents past performance. Past performance does not guarantee future results; current performance may be lower or higher than the performance data quoted.
Investment return and value of shares of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance information reflects temporary waivers of expenses and/or fees. Had the Fund incurred all expenses, investment returns would have been reduced. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. These returns do not reflect the deduction of taxes that a shareholder would pay on Fund dividends and distributions or the redemption of Fund shares. Performance information current to the most recent month end is available by calling 800.826.2333 or by visiting vaneck.com.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made. Results reflect past performance and do not guarantee future results.
S&P®North American Natural Resources Sector Index (SPGINRTR) represents U.S. traded securities that are classified under the GICS®energy and materials sector excluding the chemicals industry and steel sub-industry (reflects no deduction for fees, expenses or taxes).
MSCI All Country World Index (MSCI ACWI) represents large- and mid-cap companies across 23 developed and 24 emerging market countries (reflects no deduction for fees, expenses or taxes).
10 |
INTERNATIONAL INVESTORS GOLD FUND
PERFORMANCE COMPARISON
June 30, 2019 (unaudited)
Average Annual Total Return (%)* | Class A Before Sales Charge | Class A After Maximum Sales Charge | Class C Before Sales Charge | Class C After Maximum Sales Charge | ||||||||||||
Six Months | 21.96 | 14.90 | 21.54 | 20.54 | ||||||||||||
One Year | 8.59 | 2.35 | 7.73 | 6.73 | ||||||||||||
Five Year | (1.60 | ) | (2.76 | ) | (2.35 | ) | (2.35 | ) | ||||||||
Ten Year | (0.69 | ) | (1.28 | ) | (1.45 | ) | (1.45 | ) |
Average Annual Total Return (%)* | Class I** | Class Y** | GDMNTR | MSCI ACWI | ||||||||||||
Six Months | 22.16 | 22.12 | 21.81 | 16.60 | ||||||||||||
One Year | 9.06 | 8.98 | 16.02 | 6.32 | ||||||||||||
Five Year | (1.19 | ) | (1.29 | ) | 0.35 | 6.74 | ||||||||||
Ten Year | (0.30 | ) | N/A | (2.78 | ) | 10.73 | ||||||||||
Life^ (annualized) | N/A | (5.13 | ) | (6.13 | ) | 8.81 |
* | Returns less than one year are not annualized. | |
** | Classes are not subject to a sales charge | |
^ | Since April 30, 2010 (Class Y). |
The performance quoted represents past performance. Past performance does not guarantee future results; current performance may be lower or higher than the performance data quoted.
Investment return and value of shares of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance information reflects temporary waivers of expenses and/or fees. Had the Fund incurred all expenses, investment returns would have been reduced. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at net asset value (NAV). These returns do not reflect the deduction of taxes that a shareholder would pay on Fund dividends and distributions or the redemption of Fund shares. Performance information current to the most recent month end is available by calling 800.826.2333 or by visiting www.vaneck.com.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
NYSE Arca Gold Miners (GDMNTR) Index is a market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold (reflects no deduction for fees, expenses or taxes except withholding taxes).
MSCI All Country World Index (MSCI ACWI) represents large- and mid-cap companies across 23 developed and 24 emerging market countries (reflects no deduction for fees, expenses or taxes except withholding taxes).
11 |
VANECK FUNDS
(unaudited)
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges on purchase payments; and (2) ongoing costs, including management fees and other fund expenses. This disclosure is intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The disclosure is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, January 1, 2019 to June 30, 2019.
Actual Expenses
The first line in the table below provides information about account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period.”
Hypothetical Example for Comparison Purposes
The second line in the table below provides information about hypothetical account values and hypothetical expenses based on your Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as fees on purchase payments. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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Beginning Account Value January 1, 2019 | Ending Account Value June 30, 2019 | Annualized Expense Ratio During Period | Expenses Paid During the Period* January 1, 2019 – June 30, 2019 | |||||||||
Global Hard Assets Fund | ||||||||||||
Class A | Actual | $1,000.00 | $1,125.50 | 1.38% | $ | 7.27 | ||||||
Hypothetical** | $1,000.00 | $1,017.95 | 1.38% | $ | 6.90 | |||||||
Class C | Actual | $1,000.00 | $1,120.40 | 2.20% | $ | 11.57 | ||||||
Hypothetical** | $1,000.00 | $1,013.88 | 2.20% | $ | 10.99 | |||||||
Class I | Actual | $1,000.00 | $1,127.70 | 0.95% | $ | 5.01 | ||||||
Hypothetical** | $1,000.00 | $1,020.08 | 0.95% | $ | 4.76 | |||||||
Class Y | Actual | $1,000.00 | $1,126.80 | 1.13% | $ | 5.96 | ||||||
Hypothetical** | $1,000.00 | $1,019.19 | 1.13% | $ | 5.66 | |||||||
International Investors Gold Fund | ||||||||||||
Class A | Actual | $1,000.00 | $1,219.60 | 1.46% | $ | 8.03 | ||||||
Hypothetical** | $1,000.00 | $1,017.55 | 1.46% | $ | 7.30 | |||||||
Class C | Actual | $1,000.00 | $1,215.40 | 2.21% | $ | 12.14 | ||||||
Hypothetical** | $1,000.00 | $1,013.84 | 2.21% | $ | 11.04 | |||||||
Class I | Actual | $1,000.00 | $1,221.60 | 1.01% | $ | 5.56 | ||||||
Hypothetical** | $1,000.00 | $1,019.79 | 1.01% | $ | 5.06 | |||||||
Class Y | Actual | $1,000.00 | $1,221.20 | 1.10% | $ | 6.06 | ||||||
Hypothetical** | $1,000.00 | $1,019.34 | 1.10% | $ | 5.51 |
* | Expenses are equal to the Fund’s annualized expense ratio (for the six months ended June 30, 2019), multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year divided by the number of the days in the fiscal year (to reflect the one-half year period). |
** | Assumes annual return of 5% before expenses |
13 |
June 30, 2019 (unaudited)
Number of Shares | Value | |||||||
COMMON STOCKS: 97.3% | ||||||||
Bermuda: 1.8% | ||||||||
1,031,000 | Golar LNG Ltd. (USD) | $ | 19,052,880 | |||||
Canada: 22.8% | ||||||||
720,206 | Agnico-Eagle Mines Ltd. (USD) | 36,903,355 | ||||||
3,364,745 | Barrick Gold Corp. (USD) | 53,062,029 | ||||||
4,494,288 | Encana Corp. (USD) | 23,055,697 | ||||||
4,161,700 | First Quantum Minerals Ltd. | 39,533,846 | ||||||
3,475,800 | Kinross Gold Corp. (USD) * | 13,486,104 | ||||||
775,571 | Nutrien Ltd. (USD) | 41,462,026 | ||||||
1,597,785 | Teck Resources Ltd. (USD) | 36,844,922 | ||||||
244,347,979 | ||||||||
Israel: 2.3% | ||||||||
391,600 | SolarEdge Technologies, Inc. (USD) * | 24,459,336 | ||||||
Netherlands: 1.5% | ||||||||
241,200 | Royal Dutch Shell Plc (ADR) | 15,856,488 | ||||||
Switzerland: 2.5% | ||||||||
7,834,823 | Glencore Plc (GBP) # | 27,115,709 | ||||||
United Kingdom: 6.8% | ||||||||
1,077,500 | Anglo American Plc # | 30,782,454 | ||||||
669,300 | Rio Tinto Plc (ADR) | 41,724,162 | ||||||
72,506,616 | ||||||||
United States: 59.6% | ||||||||
118,400 | Brigham Minerals, Inc. * | 2,540,864 | ||||||
183,600 | Bunge Ltd. | 10,228,356 |
Number of Shares | Value | |||||||
United States: (continued) | ||||||||
410,400 | Cabot Oil & Gas Corp. | $ | 9,422,784 | |||||
889,400 | CF Industries Holdings, Inc. | 41,543,874 | ||||||
178,134 | Chart Industries, Inc. * | 13,694,942 | ||||||
264,400 | Chevron Corp. | 32,901,936 | ||||||
360,600 | Cimarex Energy Co. | 21,394,398 | ||||||
1,282,100 | CNX Resources Corp. * | 9,372,151 | ||||||
411,282 | Concho Resources, Inc. | 42,436,077 | ||||||
68,566 | Corteva, Inc. * | 2,027,497 | ||||||
466,468 | Diamondback Energy, Inc. | 50,831,018 | ||||||
68,566 | Dow, Inc. | 3,380,989 | ||||||
68,566 | DuPont de Nemours, Inc. | 5,147,250 | ||||||
290,900 | EOG Resources, Inc. | 27,100,244 | ||||||
187,000 | Halliburton Co. | 4,252,380 | ||||||
730,391 | Hannon Armstrong Sustainable Infrastructure Capital, Inc. | 20,582,418 | ||||||
254,400 | Kirby Corp. * | 20,097,600 | ||||||
465,700 | Louisiana-Pacific Corp. | 12,210,654 | ||||||
861,800 | Nabors Industries Ltd. | 2,499,220 | ||||||
1,049,555 | Newmont Mining Corp. | 40,376,381 | ||||||
153,800 | Ormat Technologies, Inc. | 9,749,382 | ||||||
2,139,500 | Parsley Energy, Inc. * | 40,671,895 | ||||||
385,000 | Patterson-UTI Energy, Inc. | 4,431,350 | ||||||
520,397 | PBF Energy, Inc. | 16,288,426 | ||||||
573,000 | PDC Energy, Inc. * | 20,662,380 | ||||||
286,500 | Pioneer Natural Resources Co. | 44,080,890 |
See Notes to Financial Statements
14 |
Number of Shares | Value | |||||||
United States: (continued) | ||||||||
1,216,900 | ProPetro Holding Corp. * | $ | 25,189,830 | |||||
126,100 | Schlumberger Ltd. | 5,011,214 | ||||||
156,000 | Solaris Oilfield Infrastructure, Inc. | 2,336,880 | ||||||
396,000 | Steel Dynamics, Inc. | 11,959,200 | ||||||
1,108,400 | Sunrun, Inc. * | 20,793,584 | ||||||
1,057,600 | Transocean Ltd. * | 6,779,216 |
Number of Shares | Value | |||||||
United States: (continued) | ||||||||
295,400 | Tyson Foods, Inc. | $ | 23,850,596 | |||||
496,700 | Viper Energy Partners LP | 15,308,294 | ||||||
1,523,300 | WPX Energy, Inc. * | 17,533,183 | ||||||
636,687,353 | ||||||||
Total Common Stocks: 97.3% (Cost: $815,794,021) | 1,040,026,361 | |||||||
Other assets less liabilities: 2.7% | 28,510,017 | |||||||
NET ASSETS: 100.0% | $ | 1,068,536,378 |
Definitions: | |
ADR | American Depositary Receipt |
GBP | British Pound |
USD | United States Dollar |
Footnotes: | |
* | Non-income producing |
# | Security has been valued in good faith pursuant to guidelines established by the Board of Trustees. The aggregate value of fair valued securities is $57,898,163 which represents 5.4% of net assets. |
Summary of Investments by Sector | % of Investments | Value | |||||||
Consumer Staples | 3.3 | % | $ | 34,078,952 | |||||
Energy | 44.1 | 459,009,695 | |||||||
Industrials | 5.2 | 54,586,126 | |||||||
Information Technology | 2.4 | 24,459,336 | |||||||
Materials | 42.1 | 437,560,452 | |||||||
Real Estate | 2.0 | 20,582,418 | |||||||
Utilities | 0.9 | 9,749,382 | |||||||
100.0 | % | $ | 1,040,026,361 |
See Notes to Financial Statements
15 |
GLOBAL HARD ASSETS FUND
SCHEDULE OF INVESTMENTS
(unaudited) (continued)
The summary of inputs used to value the Fund’s investments as of June 30, 2019 is as follows:
Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Value | |||||||||||||
Common Stocks | ||||||||||||||||
Bermuda | $ | 19,052,880 | $ | — | $ | — | $ | 19,052,880 | ||||||||
Canada | 244,347,979 | — | — | 244,347,979 | ||||||||||||
Israel | 24,459,336 | — | — | 24,459,336 | ||||||||||||
Netherlands | 15,856,488 | — | — | 15,856,488 | ||||||||||||
Switzerland | — | 27,115,709 | — | 27,115,709 | ||||||||||||
United Kingdom | 41,724,162 | 30,782,454 | — | 72,506,616 | ||||||||||||
United States | 636,687,353 | — | — | 636,687,353 | ||||||||||||
Total | $ | 982,128,198 | $ | 57,898,163 | $ | — | $ | 1,040,026,361 |
See Notes to Financial Statements
16 |
INTERNATIONAL INVESTORS GOLD FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
June 30, 2019 (unaudited)
Number of Shares | Value | |||||||
COMMON STOCKS: 98.7% | ||||||||
Australia: 22.8% | ||||||||
13,565,343 | Bellevue Gold Ltd. * # | $ | 6,666,103 | |||||
19,376,020 | Cardinal Resources Ltd. ‡ * | 4,624,998 | ||||||
13,546,587 | Evolution Mining Ltd. # | 41,517,626 | ||||||
27,575,005 | Gold Road Resources Ltd. * # | 19,205,805 | ||||||
797,725 | Newcrest Mining Ltd. # | 17,921,854 | ||||||
3,131,000 | Northern Star Resources Ltd. # | 25,686,184 | ||||||
4,307,057 | OceanaGold Corp. (CAD) | 11,774,475 | ||||||
5,316,000 | Saracen Mineral Holdings Ltd. * # | 13,762,136 | ||||||
4,293,000 | SolGold Plc (GBP) * | 1,744,606 | ||||||
40,818,400 | West African Resources Ltd. * # | 9,342,439 | ||||||
152,246,226 | ||||||||
Canada: 64.6% | ||||||||
640,900 | Agnico-Eagle Mines Ltd. (USD) | 32,839,716 | ||||||
2,390,714 | Alamos Gold, Inc. (USD) | 14,463,820 | ||||||
911,500 | Allegiant Gold Ltd. * | 90,485 | ||||||
1,503,000 | Allegiant Gold Ltd. * # ø | 149,204 | ||||||
1,188,100 | Auryn Resources, Inc. * | 2,023,186 | ||||||
14,803,836 | B2Gold Corp. (USD) * | 44,855,623 | ||||||
2,971,200 | Barrick Gold Corp. (USD) | 46,855,824 | ||||||
948,000 | Bear Creek Mining Corp. ø | 1,213,440 | ||||||
1,739,000 | Bear Creek Mining Corp. * | 2,204,376 |
Number of Shares | Value | |||||||
Canada: (continued) | ||||||||
667,000 | Bear Creek Mining Corp. (USD) * | $ | 853,760 | |||||
2,951,430 | Bonterra Resources, Inc. * | 4,575,162 | ||||||
5,393,000 | Columbus Gold Corp. * | 720,686 | ||||||
6,683,640 | Continental Gold, Inc. * | 19,343,282 | ||||||
6,609,859 | Corvus Gold, Inc. ‡ * | 11,053,867 | ||||||
462,000 | Detour Gold Corp. * | 5,828,139 | ||||||
1,839,000 | Eastmain Resources, Inc. # ø | 210,565 | ||||||
3,262,000 | Eastmain Resources, Inc. * | 386,094 | ||||||
481,000 | Eastmain Resources, Inc. (USD) * # | 55,075 | ||||||
2,930,627 | First Mining Gold Corp. * | 503,525 | ||||||
2,363,444 | Gold Standard Ventures Corp. (USD) * | 2,505,251 | ||||||
961,000 | Golden Star Resources Ltd. (USD) * | 3,872,830 | ||||||
4,682,000 | Kinross Gold Corp. (USD) * | 18,166,160 | ||||||
1,577,684 | Kirkland Lake Gold Ltd. (USD) | 67,714,197 | ||||||
4,086,629 | Leagold Mining Corp. * | 6,210,066 | ||||||
17,978,782 | Liberty Gold Corp. ‡ * | 6,864,489 | ||||||
718,000 | Lundin Gold, Inc. * | 3,596,716 | ||||||
2,526,000 | Midas Gold Corp. * | 1,215,211 | ||||||
3,079,000 | Nighthawk Gold Corp. * | 1,175,595 | ||||||
3,375,000 | Orezone Gold Corp. * # | 1,649,422 | ||||||
8,653,375 | Orezone Gold Corp. * | 4,229,056 |
See Notes to Financial Statements
17 |
INTERNATIONAL INVESTORS GOLD FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
(unaudited) (continued)
Number of Shares | Value | |||||||
Canada: (continued) | ||||||||
396,000 | Osisko Gold Royalties Ltd. (USD) | $ | 4,134,240 | |||||
4,927,400 | Osisko Mining, Inc. * | 12,416,800 | ||||||
3,601,100 | Otis Gold Corp. * | 247,489 | ||||||
2,109,500 | Premier Gold Mines Ltd. * | 3,286,152 | ||||||
929,000 | Pretium Resources, Inc. (USD) * | 9,299,290 | ||||||
3,523,500 | Probe Metals, Inc. * | 3,470,898 | ||||||
8,935,000 | Pure Gold Mining, Inc. * | 4,025,543 | ||||||
8,665,756 | Rio2 Ltd. ‡ * | 2,713,115 | ||||||
8,417,000 | Sabina Gold and Silver Corp. * | 8,548,440 | ||||||
4,778,907 | Semafo, Inc. * | 18,830,255 | ||||||
903,000 | SSR Mining, Inc. (USD) * | 12,344,010 | ||||||
1,153,000 | TMAC Resources, Inc. Reg S * | 5,458,822 | ||||||
1,196,986 | Wheaton Precious Metals Corp. (USD) | 28,943,121 | ||||||
4,592,109 | Yamana Gold, Inc. (USD) | 11,572,115 | ||||||
430,715,112 | ||||||||
Mexico: 1.6% | ||||||||
975,551 | Fresnillo Plc (GBP) # | 10,797,200 | ||||||
Monaco: 0.5% | ||||||||
213,079 | Endeavour Mining Corp. (CAD) * | 3,473,893 | ||||||
South Africa: 1.4% | ||||||||
93,900 | AngloGold Ashanti Ltd. (ADR) | 1,672,359 | ||||||
1,409,000 | Gold Fields Ltd. (ADR) | 7,622,690 | ||||||
9,295,049 | ||||||||
United States: 7.8% | ||||||||
2,160,000 | Argonaut Gold, Inc. ø | 2,935,970 | ||||||
1,565,875 | Argonaut Gold, Inc. (CAD) * | 2,128,409 |
Number of Shares | Value | |||||||
United States: (continued) | ||||||||
982,976 | Newmont Mining Corp. | $ | 37,815,087 | |||||
87,100 | Royal Gold, Inc. | 8,926,879 | ||||||
51,806,345 | ||||||||
Total Common Stocks (Cost: $395,082,652) | 658,333,825 | |||||||
WARRANTS: 0.2% | ||||||||
Canada: 0.2% | ||||||||
994,560 | Alio Gold, Inc. Warrants (CAD 3.44, expiring 01/22/20) * # | 0 | ||||||
1,503,000 | Allegiant Gold Ltd. Warrants (CAD 1.20, expiring 01/30/20) * # ø | 0 | ||||||
287,200 | Bonterra Resources, Inc. Warrants (CAD 5.60, expiring 12/28/19) * # | 0 | ||||||
938,434 | Leagold Mining Corp. 05/24/20 Warrants (CAD 3.70, expiring 05/24/20) * # | 37,622 | ||||||
10,822,000 | Liberty Gold Corp. Warrants (CAD 0.60, expiring 10/02/21) ‡ * # | 867,710 | ||||||
1,975,000 | Probe Metals, Inc. Warrants (CAD 1.45, expiring 06/19/20) * # | 282,778 | ||||||
5,058,500 | Pure Gold Mining, Inc. Warrants (CAD 0.85, expiring 05/24/20) * # | 144,854 | ||||||
Total Warrants (Cost: $1,324,450) | 1,332,964 |
See Notes to Financial Statements
18 |
Number of Shares | Value | |||||||
MONEY MARKET FUND: 0.9% (Cost: $6,146,843) | ||||||||
6,146,843 | AIM Treasury Portfolio – Institutional Class | $ | 6,146,843 |
Number of Shares | Value | ||||
Total Investments: 99.8% (Cost: $402,553,945) | $ | 665,813,632 | |||
Other assets less liabilities: 0.2% | 1,630,921 | ||||
NET ASSETS: 100.0% | $ | 667,444,553 | |||
Definitions: | |
ADR | American Depositary Receipt |
CAD | Canadian Dollar |
GBP | British Pound |
USD | United States Dollar |
Footnotes: | |
‡ | Affiliated issuer — as defined under the Investment Company Act of 1940. |
* | Non-income producing |
# | Security has been valued in good faith pursuant to guidelines established by the Board of Trustees. The aggregate value of fair valued securities is $148,296,577 which represents 22.2% of net assets. |
ø | Restricted Security — the aggregate value of restricted securities is $4,509,179, or 0.7% of net assets. |
Reg S | Security was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. |
Restricted securities held by the Fund as of June 30, 2019 are as follows:
Security | Acquisition Date | Number of Shares | Acquisition Cost | Value | % of Net Assets | |||||||||||||
Allegiant Gold Ltd. | 11/20/2017 | 1,503,000 | $ | 711,395 | $ | 149,204 | 0.0 | % | ||||||||||
Allegiant Gold Ltd. Warrants | 11/20/2017 | 1,503,000 | — | 0 | 0.0 | |||||||||||||
Argonaut Gold, Inc. | 11/13/2009 | 2,160,000 | 10,383,442 | 2,935,970 | 0.5 | |||||||||||||
Bear Creek Mining Corp. | 08/15/2005 | 948,000 | 2,865,287 | 1,213,440 | 0.2 | |||||||||||||
Eastmain Resources, Inc. | 06/13/2008 | 1,839,000 | 2,503,501 | 210,565 | 0.0 | |||||||||||||
$ | 16,463,625 | $ | 4,509,179 | 0.7 | % |
See Notes to Financial Statements
19 |
INTERNATIONAL INVESTORS GOLD FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS
(unaudited) (continued)
Summary of Investments by Sector | % of Investments | Value | |||||||
Diversified Metals & Mining | 1.7 | % | $ | 11,223,360 | |||||
Gold | 88.9 | 592,014,732 | |||||||
Precious Metals & Minerals | 4.1 | 27,485,576 | |||||||
Silver | 4.4 | 28,943,121 | |||||||
Money Market Fund | 0.9 | 6,146,843 | |||||||
100.0 | % | $ | 665,813,632 |
A summary of the Fund’s transactions in securities of affiliates for the period ended June 30, 2019 is set forth below:
Affiliates | Value 12/31/18 | Purchases | Sales Proceeds | Realized Gain (Loss) | Dividend Income | Net Change in Unrealized Appreciation (Depreciation) | Value 06/30/19 | |||||||||||||||||||||
Bonterra Resources, Inc. | $ | 4,717,720 | $ | — | $ | 1,451,040 | $ | (660,553 | ) | $ | — | $ | (933,045 | ) | $ | — | (a) | |||||||||||
Cardinal Resources Ltd. | 6,016,746 | — | (133,883 | ) | (86,269 | ) | — | (1,171,596 | ) | 4,624,998 | ||||||||||||||||||
Corvus Gold, Inc. | 13,494,316 | 131,329 | (827,695 | ) | 109,115 | — | (1,853,198 | ) | 11,053,867 | |||||||||||||||||||
Liberty Gold Corp. Warrant | 297,264 | — | — | — | — | 570,446 | 867,710 | |||||||||||||||||||||
Liberty Gold Corp. | 4,661,299 | — | (726,883 | ) | (559,776 | ) | — | 3,489,849 | 6,864,489 | |||||||||||||||||||
Rio2 Ltd. | 3,335,689 | — | (305,614 | ) | (652,020 | ) | — | 335,061 | 2,713,115 | |||||||||||||||||||
$ | 32,523,034 | $ | 131,329 | $ | (543,035 | ) | $ | (1,849,503 | ) | $ | — | $ | 437,517 | $ | 26,124,179 |
(a) Security held by the Fund, however not classified as an affiliate at the end of the reporting period.
The summary of inputs used to value the Fund’s investments as of June 30, 2019 is as follows:
Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Value | |||||||||||||
Common Stocks | ||||||||||||||||
Australia | $ | 18,144,079 | $ | 134,102,147 | $ | — | $ | 152,246,226 | ||||||||
Canada | 428,650,846 | 2,064,266 | — | 430,715,112 | ||||||||||||
Mexico | — | 10,797,200 | — | 10,797,200 | ||||||||||||
Monaco | 3,473,893 | — | — | 3,473,893 | ||||||||||||
South Africa | 9,295,049 | — | — | 9,295,049 | ||||||||||||
United States | 51,806,345 | — | — | 51,806,345 | ||||||||||||
Warrants | ||||||||||||||||
Canada | — | 1,332,964 | — | 1,332,964 | ||||||||||||
Money Market Fund | 6,146,843 | — | — | 6,146,843 | ||||||||||||
Total | $ | 517,517,055 | $ | 148,296,577 | $ | — | $ | 665,813,632 |
See Notes to Financial Statements
20 |
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2019 (unaudited)
Assets: | ||||
Investments, at value (1) | $ | 1,040,026,361 | ||
Cash | 149,078 | |||
Receivables: | ||||
Investments sold | 112,366,397 | |||
Shares of beneficial interest sold | 431,013 | |||
Dividends | 766,597 | |||
Prepaid expenses | 12,229 | |||
Other assets | 20,122 | |||
Total assets | 1,153,771,797 | |||
Liabilities: | ||||
Payables: | ||||
Investments purchased | 18,802,368 | |||
Line of credit | 21,957,027 | |||
Shares of beneficial interest redeemed | 41,951,742 | |||
Due to Adviser | 806,986 | |||
Due to Distributor | 41,982 | |||
Deferred Trustee fees | 783,172 | |||
Accrued expenses | 892,142 | |||
Total liabilities | 85,235,419 | |||
NET ASSETS | $ | 1,068,536,378 | ||
Net Assets consist of: | ||||
Aggregate paid in capital | $ | 1,973,969,096 | ||
Total distributable earnings (loss) | (905,432,718 | ) | ||
$ | 1,068,536,378 | |||
$ | 815,794,021 |
(1) | Cost of Investments |
See Notes to Financial Statements
21 |
GLOBAL HARD ASSETS FUND
STATEMENT OF ASSETS AND LIABILITIES
(unaudited) (continued)
Class A Shares: | ||||
Net Assets | $ | 201,404,467 | ||
Shares of beneficial interest outstanding | 6,973,674 | |||
Net asset value and redemption price per share | $ | 28.88 | ||
Maximum offering price per share (Net asset value per share ÷ 94.25%) | $ | 30.64 | ||
Class C Shares: | ||||
Net Assets | $ | 19,952,239 | ||
Shares of beneficial interest outstanding | 812,059 | |||
Net asset value, offering and redemption price per share (Redemption may be subject to a contingent deferred sales charge within the first year of ownership) | $ | 24.57 | ||
Class I Shares: | ||||
Net Assets | $ | 683,644,021 | ||
Shares of beneficial interest outstanding | 22,504,035 | |||
Net asset value, offering and redemption price per share | $ | 30.38 | ||
Class Y Shares: | ||||
Net Assets | $ | 163,535,651 | ||
Shares of beneficial interest outstanding | 5,542,364 | |||
Net asset value, offering and redemption price per share | $ | 29.51 |
See Notes to Financial Statements
22 |
INTERNATIONAL INVESTORS GOLD FUND
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
June 30, 2019 (unaudited)
Assets: | ||||
Investments, at value | ||||
Unaffiliated issuers (1) | $ | 639,689,453 | ||
Affiliated issuers (2) | 26,124,179 | |||
Cash denominated in foreign currency, at value (3) | 20,427 | |||
Receivables: | ||||
Shares of beneficial interest sold | 3,094,520 | |||
Dividends | 93,184 | |||
Prepaid expenses | 25,279 | |||
Other assets | 12,602 | |||
Total assets | 669,059,644 | |||
Liabilities: | ||||
Payables: | ||||
Shares of beneficial interest redeemed | 624,195 | |||
Due to Adviser | 314,541 | |||
Due to Distributor | 67,149 | |||
Deferred Trustee fees | 339,551 | |||
Accrued expenses | 269,655 | |||
Total liabilities | 1,615,091 | |||
NET ASSETS | $ | 667,444,553 | ||
Net Assets consist of: | ||||
Aggregate paid in capital | $ | 876,431,274 | ||
Total distributable earnings (loss) | (208,986,721 | ) | ||
$ | 667,444,553 | |||
(1) Cost of Investments – unaffiliated issuers | $ | 378,321,904 | ||
(2) Cost of Investments – affiliated issuers | $ | 24,232,041 | ||
(3) Cost of cash denominated in foreign currency | $ | 20,399 |
See Notes to Financial Statements
23 |
INTERNATIONAL INVESTORS GOLD FUND
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
(unaudited) (continued)
Class A Shares: | ||||
Net Assets | $ | 239,329,988 | ||
Shares of beneficial interest outstanding | 25,657,837 | |||
Net asset value and redemption price per share | $ | 9.33 | ||
Maximum offering price per share (Net asset value per share ÷ 94.25%) | $ | 9.90 | ||
Class C Shares: | ||||
Net Assets | $ | 35,944,003 | ||
Shares of beneficial interest outstanding | 4,452,864 | |||
Net asset value, offering and redemption price per share (Redemption may be subject to a contingent deferred sales charge within the first year of ownership) | $ | 8.07 | ||
Class I Shares: | ||||
Net Assets | $ | 255,145,456 | ||
Shares of beneficial interest outstanding | 21,026,861 | |||
Net asset value, offering and redemption price per share | $ | 12.13 | ||
Class Y Shares: | ||||
Net Assets | $ | 137,025,106 | ||
Shares of beneficial interest outstanding | 14,343,411 | |||
Net asset value, offering and redemption price per share | $ | 9.55 |
See Notes to Financial Statements
24 |
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2019 (unaudited)
Income: | ||||
Dividends | $ | 13,398,012 | ||
Foreign taxes withheld | (235,984 | ) | ||
Total income | 13,162,028 | |||
Expenses: | ||||
Management fees | 6,610,318 | |||
Distribution fees – Class A | 257,522 | |||
Distribution fees – Class C | 114,140 | |||
Transfer agent fees – Class A | 373,036 | |||
Transfer agent fees – Class C | 38,213 | |||
Transfer agent fees – Class I | 133,382 | |||
Transfer agent fees – Class Y | 166,245 | |||
Custodian fees | 32,756 | |||
Professional fees | 44,655 | |||
Registration fees – Class A | 25,206 | |||
Registration fees – Class C | 11,362 | |||
Registration fees – Class I | 11,603 | |||
Registration fees – Class Y | 27,488 | |||
Reports to shareholders | 39,727 | |||
Insurance | 49,258 | |||
Trustees’ fees and expenses | 65,893 | |||
Other | 17,484 | |||
Total expenses | 8,018,288 | |||
Waiver of management fees | (1,025,906 | ) | ||
Net expenses | 6,992,382 | |||
Net investment income | 6,169,646 | |||
Net realized gain (loss) on: | ||||
Investments sold | (78,050,474 | ) | ||
Foreign currency transactions and foreign denominated assets and liabilities | (40,592 | ) | ||
Net realized loss | (78,091,066 | ) | ||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 235,324,466 | |||
Foreign currency transactions and foreign denominated assets and liabilities | 14,728 | |||
Net change in unrealized appreciation | 235,339,194 | |||
Net Increase in Net Assets Resulting from Operations | $ | 163,417,774 |
See Notes to Financial Statements
25 |
INTERNATIONAL INVESTORS GOLD FUND
CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2019 (unaudited)
Income: | ||||
Dividends – unaffiliated issuers | $ | 3,247,246 | ||
Foreign taxes withheld | (121,232 | ) | ||
Total income | 3,126,014 | |||
Expenses: | ||||
Management fees | 2,097,756 | |||
Distribution fees – Class A | 257,012 | |||
Distribution fees – Class C | 158,207 | |||
Transfer agent fees – Class A | 192,274 | |||
Transfer agent fees – Class C | 32,901 | |||
Transfer agent fees – Class I | 24,278 | |||
Transfer agent fees – Class Y | 55,992 | |||
Administration fees | 711,466 | |||
Custodian fees | 35,123 | |||
Professional fees | 61,303 | |||
Registration fees – Class A | 18,720 | |||
Registration fees – Class C | 18,889 | |||
Registration fees – Class I | 16,699 | |||
Registration fees – Class Y | 20,387 | |||
Reports to shareholders | 20,092 | |||
Insurance | 15,656 | |||
Trustees’ fees and expenses | 59,076 | |||
Interest | 14,985 | |||
Other | 417 | |||
Total expenses | 3,811,233 | |||
Waiver of management fees | (245,015 | ) | ||
Net expenses | 3,566,218 | |||
Net investment loss | (440,204 | ) | ||
Net realized gain (loss) on: | ||||
Investments sold – unaffiliated issuers | 15,402,750 | |||
Investments sold – affiliated issuers | (1,849,503 | ) | ||
Foreign currency transactions and foreign denominated assets and liabilities | (26,119 | ) | ||
Net realized gain | 13,527,128 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments – unaffiliated issuers | 109,095,059 | |||
Investments – affiliated issuers | 437,517 | |||
Foreign currency transactions and foreign denominated assets and liabilities | 411 | |||
Net change in unrealized appreciation | 109,532,987 | |||
Net Increase in Net Assets Resulting from Operations | $ | 122,619,911 |
See Notes to Financial Statements
26 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | |||||||||
(unaudited) | ||||||||||
Operations: | ||||||||||
Net investment income | $ | 6,169,646 | $ | 3,450,931 | ||||||
Net realized loss | (78,091,066 | ) | (116,918,728 | ) | ||||||
Net change in unrealized appreciation (depreciation) | 235,339,194 | (487,219,330 | ) | |||||||
Net increase (decrease) in net assets resulting from operations | 163,417,774 | (600,687,127 | ) | |||||||
Distributions to shareholders: | ||||||||||
Dividends and distributions | ||||||||||
Class I Shares | — | (2,984,993 | ) | |||||||
Class Y Shares | — | (125,862 | ) | |||||||
— | (3,110,855 | ) | ||||||||
Return of capital | ||||||||||
Class I Shares | — | (392,132 | ) | |||||||
Class Y Shares | — | (16,534 | ) | |||||||
— | (408,666 | ) | ||||||||
Total distributions | — | (3,519,521 | ) | |||||||
Share transactions: | ||||||||||
Proceeds from sale of shares | ||||||||||
Class A Shares | 21,382,137 | 65,747,511 | ||||||||
Class C Shares | 559,441 | 4,288,439 | ||||||||
Class I Shares | 54,207,842 | 242,566,267 | ||||||||
Class Y Shares | 21,905,514 | 107,474,906 | ||||||||
98,054,934 | 420,077,123 | |||||||||
Reinvestment of distributions | ||||||||||
Class I Shares | — | 2,477,008 | ||||||||
Class Y Shares | — | 109,108 | ||||||||
— | 2,586,116 | |||||||||
Cost of shares redeemed | ||||||||||
Class A Shares | (38,364,166 | ) | (134,970,892 | ) | ||||||
Class C Shares | (7,901,919 | ) | (21,981,838 | ) | ||||||
Class I Shares | (430,863,671 | ) | (438,210,014 | ) | ||||||
Class Y Shares | (46,247,155 | ) | (130,152,964 | ) | ||||||
(523,376,911 | ) | (725,315,708 | ) | |||||||
Net decrease in net assets resulting from share transactions | (425,321,977 | ) | (302,652,469 | ) | ||||||
Total decrease in net assets | (261,904,203 | ) | (906,859,117 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 1,330,440,581 | 2,237,299,698 | ||||||||
End of period | $ | 1,068,536,378 | $ | 1,330,440,581 |
See Notes to Financial Statements
27 |
INTERNATIONAL INVESTORS GOLD FUND
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | |||||||||
(unaudited) | ||||||||||
Operations: | ||||||||||
Net investment loss | $ | (440,204 | ) | $ | (2,028,356 | ) | ||||
Net realized gain (loss) | 13,527,128 | (49,162,504 | ) | |||||||
Net change in unrealized appreciation (depreciation) | 109,532,987 | (66,365,319 | ) | |||||||
Net increase (decrease) in net assets resulting from operations | 122,619,911 | (117,556,179 | ) | |||||||
Distributions to shareholders: | ||||||||||
Class A Shares | — | (5,633,199 | ) | |||||||
Class C Shares | — | (1,028,314 | ) | |||||||
Class I Shares | — | (5,239,779 | ) | |||||||
Class Y Shares | — | (2,902,125 | ) | |||||||
Total distributions | — | (14,803,417 | ) | |||||||
Share transactions: | ||||||||||
Proceeds from sale of shares | ||||||||||
Class A Shares | 16,239,859 | 43,277,880 | ||||||||
Class C Shares | 2,079,751 | 6,696,781 | ||||||||
Class I Shares | 35,962,648 | 59,060,559 | ||||||||
Class Y Shares | 25,923,038 | 88,491,475 | ||||||||
80,205,296 | 197,526,695 | |||||||||
Reinvestment of distributions | ||||||||||
Class A Shares | — | 4,962,007 | ||||||||
Class C Shares | — | 912,185 | ||||||||
Class I Shares | — | 4,748,584 | ||||||||
Class Y Shares | — | 2,428,683 | ||||||||
— | 13,051,459 | |||||||||
Cost of shares redeemed | ||||||||||
Class A Shares | (20,288,361 | ) | (82,920,081 | ) | ||||||
Class C Shares | (4,425,583 | ) | (14,920,603 | ) | ||||||
Class I Shares | (73,981,373 | ) | (54,266,025 | ) | ||||||
Class Y Shares | (18,940,856 | ) | (57,998,785 | ) | ||||||
(117,636,173 | ) | (210,105,494 | ) | |||||||
Net increase (decrease) in net assets resulting from share transactions | (37,430,877 | ) | 472,660 | |||||||
Total increase (decrease) in net assets | 85,189,034 | (131,886,936 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 582,255,519 | 714,142,455 | ||||||||
End of period | $ | 667,444,553 | $ | 582,255,519 |
See Notes to Financial Statements
28 |
For a share outstanding throughout each period:
Class A | ||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 25.66 | $ | 36.32 | $ | 36.87 | $ | 25.76 | $ | 38.89 | $ | 48.31 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||
Net investment income (loss) | 0.09 | (b)(e) | (0.05 | )(b) | (0.17 | )(b) | (0.20 | ) | 0.05 | (b) | (0.07 | ) | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.13 | (10.61 | ) | (0.38 | ) | 11.32 | (13.05 | ) | (9.31 | ) | ||||||||||||||||||||
Total from investment operations | 3.22 | (10.66 | ) | (0.55 | ) | 11.12 | (13.00 | ) | (9.38 | ) | ||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||||||||
Net investment income | — | — | — | (0.01 | ) | (0.13 | ) | (0.04 | ) | |||||||||||||||||||||
Net asset value, end of period | $ | 28.88 | $ | 25.66 | $ | 36.32 | $ | 36.87 | $ | 25.76 | $ | 38.89 | ||||||||||||||||||
Total return (a) | 12.55 | %(c) | (29.35 | )% | (1.49 | )% | 43.17 | % | (33.42 | )% | (19.41 | )% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $201,404 | $194,180 | $349,066 | $418,616 | $321,875 | $609,885 | ||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 1.68 | %(d) | 1.59 | % | 1.53 | % | 1.50 | % | 1.36 | % | 1.43 | % | ||||||||||||||||||
Ratio of net expenses to average net assets | 1.38 | %(d) | 1.38 | % | 1.38 | % | 1.38 | % | 1.36 | % | 1.38 | % | ||||||||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 1.38 | %(d) | 1.38 | % | 1.38 | % | 1.38 | % | 1.36 | % | 1.38 | % | ||||||||||||||||||
Ratio of net investment income (loss) to average net assets | 0.78 | %(d)(e) | (0.15 | )% | (0.50 | )% | (0.56 | )% | 0.14 | % | (0.12 | )% | ||||||||||||||||||
Portfolio turnover rate | 21 | %(c) | 16 | % | 17 | % | 36 | % | 26 | % | 36 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized. |
(d) | Annualized. |
(e) | Net Investment income per share reflects non-recurring dividends which amounted to $0.06 per average share outstanding. Excluding these non-recurring dividends, the ratio of net investment income (loss) to average net assets would have been 0.16%. |
See Notes to Financial Statements
29 |
GLOBAL HARD ASSETS FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class C | ||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 21.93 | $ | 31.28 | $ | 32.00 | $ | 22.53 | $ | 34.32 | $ | 42.99 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||
Net investment loss | (0.02 | )(b)(e) | (0.29 | )(b) | (0.39 | )(b) | (0.42 | ) | (0.21 | )(b) | (0.48 | ) | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.66 | (9.06 | ) | (0.33 | ) | 9.90 | (11.45 | ) | (8.15 | ) | ||||||||||||||||||||
Total from investment operations | 2.64 | (9.35 | ) | (0.72 | ) | 9.48 | (11.66 | ) | (8.63 | ) | ||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||||||||
Net investment income | — | — | — | (0.01 | ) | (0.13 | ) | (0.04 | ) | |||||||||||||||||||||
Net asset value, end of period | $ | 24.57 | $ | 21.93 | $ | 31.28 | $ | 32.00 | $ | 22.53 | $ | 34.32 | ||||||||||||||||||
Total return (a) | 12.04 | %(c) | (29.89 | )% | (2.25 | )% | 42.08 | % | (33.96 | )% | (20.07 | )% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $19,952 | $24,454 | $53,893 | $94,488 | $88,945 | $202,213 | ||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 2.48 | %(d) | 2.32 | % | 2.19 | % | 2.15 | % | 2.16 | % | 2.19 | % | ||||||||||||||||||
Ratio of net expenses to average net assets | 2.20 | %(d) | 2.20 | % | 2.19 | % | 2.15 | % | 2.16 | % | 2.19 | % | ||||||||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 2.20 | %(d) | 2.20 | % | 2.19 | % | 2.15 | % | 2.16 | % | 2.19 | % | ||||||||||||||||||
Ratio of net investment loss to average net assets | (0.04 | )%(d)(e) | (0.98 | )% | (1.33 | )% | (1.30 | )% | (0.67 | )% | (0.93 | )% | ||||||||||||||||||
Portfolio turnover rate | 21 | %(c) | 16 | % | 17 | % | 36 | % | 26 | % | 36 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized. |
(d) | Annualized. |
(e) | Net Investment income per share reflects non-recurring dividends which amounted to $0.05 per average share outstanding. Excluding these non-recurring dividends, the ratio of net investment income (loss) to average net assets would have been (0.66)%. |
See Notes to Financial Statements
30 |
GLOBAL HARD ASSETS FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class I | ||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 26.94 | $ | 38.10 | $ | 38.51 | $ | 26.80 | $ | 40.31 | $ | 49.89 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||
Net investment income (loss) | 0.15 | (b)(e) | 0.10 | (b) | (0.03 | )(b) | (0.06 | ) | 0.18 | (b) | 0.13 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.29 | (11.17 | ) | (0.38 | ) | 11.78 | (13.56 | ) | (9.67 | ) | ||||||||||||||||||||
Total from investment operations | 3.44 | (11.07 | ) | (0.41 | ) | 11.72 | (13.38 | ) | (9.54 | ) | ||||||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||||||||
Net investment income | — | (0.08 | ) | — | (0.01 | ) | (0.13 | ) | (0.04 | ) | ||||||||||||||||||||
Return of capital | — | (0.01 | ) | — | — | — | — | |||||||||||||||||||||||
Total dividends and distributions | — | (0.09 | ) | — | (0.01 | ) | (0.13 | ) | (0.04 | ) | ||||||||||||||||||||
Net asset value, end of period | $ | 30.38 | $ | 26.94 | $ | 38.10 | $ | 38.51 | $ | 26.80 | $ | 40.31 | ||||||||||||||||||
Total return (a) | 12.77 | %(c) | (29.04 | )% | (1.06 | )% | 43.73 | % | (33.18 | )% | (19.12 | )% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $683,644 | $944,775 | $1,563,581 | $1,629,778 | $1,307,353 | $2,142,879 | ||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 1.07 | %(d) | 1.06 | % | 1.06 | % | 1.05 | % | 1.04 | % | 1.02 | % | ||||||||||||||||||
Ratio of net expenses to average net assets | 0.95 | %(d) | 0.95 | % | 0.97 | % | 1.00 | % | 1.00 | % | 1.00 | % | ||||||||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 0.95 | %(d) | 0.95 | % | 0.97 | % | 1.00 | % | 1.00 | % | 1.00 | % | ||||||||||||||||||
Ratio of net investment income (loss) to average net assets | 1.21 | %(d)(e) | 0.29 | % | (0.08 | )% | (0.17 | )% | 0.50 | % | 0.27 | % | ||||||||||||||||||
Portfolio turnover rate | 21 | %(c) | 16 | % | 17 | % | 36 | % | 26 | % | 36 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized. |
(d) | Annualized. |
(e) | Net Investment income per share reflects non-recurring dividends which amounted to $0.07 per average share outstanding. Excluding these non-recurring dividends, the ratio of net investment income (loss) to average net assets would have been 0.59%. |
See Notes to Financial Statements
31 |
GLOBAL HARD ASSETS FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class Y | ||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 26.19 | $ | 37.01 | $ | 37.47 | $ | 26.11 | $ | 39.33 | $ | 48.74 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||
Net investment income (loss) | 0.13 | (b)(f) | 0.04 | (b) | (0.08 | )(b) | (0.10 | ) | 0.13 | (b) | 0.06 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.19 | (10.84 | ) | (0.38 | ) | 11.47 | (13.22 | ) | (9.43 | ) | ||||||||||||||||||||
Total from investment operations | 3.32 | (10.80 | ) | (0.46 | ) | 11.37 | (13.09 | ) | (9.37 | ) | ||||||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||||||||
Net investment income | — | (0.02 | ) | — | (0.01 | ) | (0.13 | ) | (0.04 | ) | ||||||||||||||||||||
Return of capital | — | — | (c) | — | — | — | — | |||||||||||||||||||||||
Total dividends and distributions | — | (0.02 | ) | — | (0.01 | ) | (0.13 | ) | (0.04 | ) | ||||||||||||||||||||
Net asset value, end of period | $ | 29.51 | $ | 26.19 | $ | 37.01 | $ | 37.47 | $ | 26.11 | $ | 39.33 | ||||||||||||||||||
Total return (a) | 12.68 | %(d) | (29.17 | )% | (1.23 | )% | 43.55 | % | (33.27 | )% | (19.22 | )% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $163,536 | $167,032 | $270,760 | $312,113 | $228,335 | $358,429 | ||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 1.26 | %(e) | 1.20 | % | 1.16 | % | 1.19 | % | 1.15 | % | 1.16 | % | ||||||||||||||||||
Ratio of net expenses to average net assets | 1.13 | %(e) | 1.13 | % | 1.13 | % | 1.13 | % | 1.13 | % | 1.13 | % | ||||||||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 1.13 | %(e) | 1.13 | % | 1.13 | % | 1.13 | % | 1.13 | % | 1.13 | % | ||||||||||||||||||
Ratio of net investment income (loss) to average net assets | 1.04 | %(e)(f) | 0.11 | % | (0.25 | )% | (0.30 | )% | 0.37 | % | 0.13 | % | ||||||||||||||||||
Portfolio turnover rate | 21 | %(d) | 16 | % | 17 | % | 36 | % | 26 | % | 36 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Amount represents less than $0.005 per share. |
(d) | Not annualized. |
(e) | Annualized. |
(f) | Net Investment income per share reflects non-recurring dividends which amounted to $0.07 per average share outstanding. Excluding these non-recurring dividends, the ratio of net investment income (loss) to average net assets would have been 0.42%. |
See Notes to Financial Statements
32 |
INTERNATIONAL INVESTORS GOLD FUND
CONSOLIDATED FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class A | ||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 7.65 | $ | 9.38 | $ | 8.62 | $ | 6.03 | $ | 8.00 | $ | 8.52 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||
Net investment loss (a) | (0.01 | ) | (0.04 | ) | (0.09 | ) | (0.09 | ) | (0.04 | ) | (0.09 | ) | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.69 | (1.47 | ) | 1.20 | 3.23 | (1.93 | ) | (0.43 | ) | |||||||||||||||||||||
Total from investment operations | 1.68 | (1.51 | ) | 1.11 | 3.14 | (1.97 | ) | (0.52 | ) | |||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||||||||
Net investment income | — | (0.22 | ) | (0.35 | ) | (0.55 | ) | — | — | |||||||||||||||||||||
Net asset value, end of period | $ | 9.33 | $ | 7.65 | $ | 9.38 | $ | 8.62 | $ | 6.03 | $ | 8.00 | ||||||||||||||||||
Total return (b) | 21.96 | %(c) | (15.99 | )% | 13.03 | % | 53.12 | % | (24.63 | )% | (6.10 | )% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $239,330 | $200,402 | $285,679 | $285,208 | $204,987 | $281,580 | ||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 1.52 | %(d) | 1.47 | % | 1.43 | % | 1.35 | % | 1.43 | % | 1.47 | % | ||||||||||||||||||
Ratio of net expenses to average net assets | 1.46 | %(d) | 1.45 | % | 1.43 | % | 1.35 | % | 1.43 | % | 1.45 | % | ||||||||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 1.45 | %(d) | 1.45 | % | 1.43 | % | 1.35 | % | 1.43 | % | 1.45 | % | ||||||||||||||||||
Ratio of net investment loss to average net assets | (0.37 | )%(d) | (0.51 | )% | (0.93 | )% | (0.89 | )% | (0.54 | )% | (0.88 | )% | ||||||||||||||||||
Portfolio turnover rate | 10 | %(c) | 35 | % | 32 | % | 28 | % | 45 | % | 43 | % |
(a) | Calculated based upon average shares outstanding. |
(b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(c) | Not annualized. |
(d) | Annualized. |
See Notes to Financial Statements
33 |
INTERNATIONAL INVESTORS GOLD FUND
CONSOLIDATED FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class C | ||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 6.64 | $ | 8.25 | $ | 7.61 | $ | 5.41 | $ | 7.24 | $ | 7.76 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||
Net investment loss (a) | (0.04 | ) | (0.09 | ) | (0.14 | ) | (0.15 | ) | (0.09 | ) | (0.15 | ) | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.47 | (1.30 | ) | 1.06 | 2.90 | (1.74 | ) | (0.37 | ) | |||||||||||||||||||||
Total from investment operations | 1.43 | (1.39 | ) | 0.92 | 2.75 | (1.83 | ) | (0.52 | ) | |||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||||||||
Net investment income | — | (0.22 | ) | (0.28 | ) | (0.55 | ) | — | — | |||||||||||||||||||||
Net asset value, end of period | $ | 8.07 | $ | 6.64 | $ | 8.25 | $ | 7.61 | $ | 5.41 | $ | 7.24 | ||||||||||||||||||
Total return (b) | 21.54 | %(c) | (16.73 | )% | 12.24 | % | 52.00 | % | (25.28 | )% | (6.70 | )% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $35,944 | $31,889 | $47,452 | $50,632 | $32,556 | $52,916 | ||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 2.39 | %(d) | 2.27 | % | 2.21 | % | 2.10 | % | 2.22 | % | 2.34 | % | ||||||||||||||||||
Ratio of net expenses to average net assets | 2.21 | %(d) | 2.20 | % | 2.20 | % | 2.10 | % | 2.20 | % | 2.20 | % | ||||||||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 2.20 | %(d) | 2.20 | % | 2.20 | % | 2.10 | % | 2.20 | % | 2.20 | % | ||||||||||||||||||
Ratio of net investment loss to average net assets | (1.11 | )%(d) | (1.25 | )% | (1.70 | )% | (1.65 | )% | (1.31 | )% | (1.63 | )% | ||||||||||||||||||
Portfolio turnover rate | 10 | %(c) | 35 | % | 32 | % | 28 | % | 45 | % | 43 | % |
(a) | Calculated based upon average shares outstanding. |
(b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(c) | Not annualized. |
(d) | Annualized. |
See Notes to Financial Statements
34 |
INTERNATIONAL INVESTORS GOLD FUND
CONSOLIDATED FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class I | ||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.93 | $ | 12.05 | $ | 10.97 | $ | 7.54 | $ | 9.95 | $ | 10.54 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||
Net investment income (loss) (a) | 0.01 | (0.01 | ) | (0.06 | ) | (0.06 | ) | (0.01 | ) | (0.05 | ) | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.19 | (1.89 | ) | 1.54 | 4.04 | (2.40 | ) | (0.54 | ) | |||||||||||||||||||||
Total from investment operations | 2.20 | (1.90 | ) | 1.48 | 3.98 | (2.41 | ) | (0.59 | ) | |||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||||||||
Net investment income | — | (0.22 | ) | (0.40 | ) | (0.55 | ) | — | — | |||||||||||||||||||||
Net asset value, end of period | $ | 12.13 | $ | 9.93 | $ | 12.05 | $ | 10.97 | $ | 7.54 | $ | 9.95 | ||||||||||||||||||
Total return (b) | 22.16 | %(c) | (15.69 | )% | 13.56 | % | 53.63 | % | (24.22 | )% | (5.60 | )% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $255,145 | $243,901 | $284,621 | $183,511 | $191,444 | $166,371 | ||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 1.10 | %(d) | 1.06 | % | 1.04 | % | 1.01 | % | 1.07 | % | 1.07 | % | ||||||||||||||||||
Ratio of net expenses to average net assets | 1.01 | %(d) | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | ||||||||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 1.00 | %(d) | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | ||||||||||||||||||
Ratio of net investment income (loss) to average net assets | 0.11 | %(d) | (0.06 | )% | (0.51 | )% | (0.52 | )% | (0.13 | )% | (0.43 | )% | ||||||||||||||||||
Portfolio turnover rate | 10 | %(c) | 35 | % | 32 | % | 28 | % | 45 | % | 43 | % |
(a) | Calculated based upon average shares outstanding. |
(b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(c) | Not annualized. |
(d) | Annualized. |
See Notes to Financial Statements
35 |
INTERNATIONAL INVESTORS GOLD FUND
CONSOLIDATED FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class Y | ||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 7.82 | $ | 9.55 | $ | 8.78 | $ | 6.12 | $ | 8.08 | $ | 8.58 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||
Net investment loss (a) | — | (c) | (0.01 | ) | (0.06 | ) | (0.07 | ) | (0.02 | ) | (0.06 | ) | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.73 | (1.50 | ) | 1.22 | 3.28 | (1.94 | ) | (0.44 | ) | |||||||||||||||||||||
Total from investment operations | 1.73 | (1.51 | ) | 1.16 | 3.21 | (1.96 | ) | (0.50 | ) | |||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||||||||
Net investment income | — | (0.22 | ) | (0.39 | ) | (0.55 | ) | — | — | |||||||||||||||||||||
Net asset value, end of period | $ | 9.55 | $ | 7.82 | $ | 9.55 | $ | 8.78 | $ | 6.12 | $ | 8.08 | ||||||||||||||||||
Total return (b) | 22.12 | %(d) | (15.71 | )% | 13.29 | % | 53.49 | % | (24.26 | )% | (5.83 | )% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||||
Net assets, end of period (000’s) | $137,025 | $106,064 | $96,390 | $75,361 | $28,084 | $46,183 | ||||||||||||||||||||||||
Ratio of gross expenses to average net assets | 1.20 | %(e) | 1.18 | % | 1.16 | % | 1.11 | % | 1.21 | % | 1.31 | % | ||||||||||||||||||
Ratio of net expenses to average net assets | 1.10 | %(e) | 1.10 | % | 1.10 | % | 1.10 | % | 1.10 | % | 1.13 | % | ||||||||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 1.10 | %(e) | 1.10 | % | 1.10 | % | 1.10 | % | 1.10 | % | 1.13 | % | ||||||||||||||||||
Ratio of net investment loss to average net assets | (0.02 | )%(e) | (0.17 | )% | (0.60 | )% | (0.66 | )% | (0.21 | )% | (0.55 | )% | ||||||||||||||||||
Portfolio turnover rate | 10 | %(d) | 35 | % | 32 | % | 28 | % | 45 | % | 43 | % |
(a) | Calculated based upon average shares outstanding. |
(b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(c) | Amount represents less than $0.005 per share. |
(d) | Not annualized. |
(e) | Annualized. |
See Notes to Financial Statements
36 |
VANECK FUNDS
June 30, 2019 (unaudited)
Note 1—Fund Organization—VanEck Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Trust was organized as a Massachusetts business trust on April 3, 1985. These financial statements relate only to the following investment portfolios: Global Hard Assets Fund and International Investors Gold Fund (collectively the “Funds” and each a “Fund”). The International Investors Gold Fund is classified as a non-diversified fund and may effect certain investments through the Gold Series Fund I Subsidiary, (a wholly-owned “Subsidiary”). The Global Hard Assets Fund is classified as a diversified fund and seeks long-term capital appreciation by investing primarily in hard asset securities. The International Investors Gold Fund seeks long-term capital appreciation by investing in common stocks of gold-mining companies or directly in gold bullion and other metals. Each of the Funds is authorized to issue various classes of shares. Each share class represents an interest in the same portfolio of investments of the respective Fund and is substantially the same in all respects, except that the classes are subject to different distribution fees and sales charges. Class I and Y Shares are sold without a sales charge; Class A Shares are sold subject to a front-end sales charge; and Class C Shares are sold with a contingent deferred sales charge.
Note 2—Significant Accounting Policies—The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The Funds are investment companies and follow accounting and reporting requirements of Accounting Standards Codification (“ASC”) 946 Financial Services—Investment Companies.
The following is a summary of significant accounting policies followed by the Funds.
A. | Security Valuation—The Funds value their investments in securities and other assets and liabilities at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Securities traded on national exchanges are valued at the last sales price as reported at the close of each business day. Securities traded on the NASDAQ Stock Market LLC (“NASDAQ”) are valued at the NASDAQ official closing price. Over-the-counter securities not included on NASDAQ and |
37 |
VANECK FUNDS
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
listed securities for which no sale was reported are valued at the mean of the bid and ask prices. To the extent these securities are actively traded they are categorized as Level 1 in the fair value hierarchy (as described below). Certain foreign securities, whose values may be affected by market direction or events occurring before the Funds’ pricing time (4:00 p.m. Eastern Time) but after the last close of the securities’ primary market, are fair valued using a pricing service and are categorized as Level 2 in the fair value hierarchy. The pricing service, using methods approved by the Board of Trustees, considers the correlation of the trading patterns of the foreign security to intraday trading in the U.S. markets, based on indices of domestic securities and other appropriate indicators such as prices of relevant ADR’s and futures contracts. The Funds may also fair value securities in other situations, such as, when a particular foreign market is closed but the Fund is open. Short-term debt securities with sixty days or less to maturity are valued at amortized cost, which with accrued interest approximates fair value. Open-end mutual fund investments (including money market funds) are valued at their closing net asset value each business day and are categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are valued at the spot currency rate plus an amount (“points”), which reflects the differences in interest rates between the U.S. and foreign markets and is categorized as Level 2 in the fair value hierarchy. The Pricing Committee of Van Eck Associates Corporation (“the Adviser”) provides oversight of the Funds’ valuation policies and procedures, which are approved by the Funds’ Board of Trustees. Among other things, these procedures allow the Funds to utilize independent pricing services, quotations from securities dealers, and other market sources to determine fair value. The Pricing Committee convenes regularly to review the fair value of financial instruments or other assets. If market quotations for a security or other asset are not readily available, or if the Adviser believes it does not otherwise reflect the fair value of a security or asset, the security or asset will be fair valued by the Pricing Committee in accordance with the Funds’ valuation policies and procedures. The Pricing Committee employs various methods for calibrating the valuation approaches utilized to determine fair value, including a regular review of key inputs and assumptions, periodic comparisons to valuations provided by other independent pricing services, transactional back-testing and disposition analysis. | |
Certain factors such as economic conditions, political events, market trends, the nature of and duration of any restrictions on disposition, trading in similar securities of the issuer or comparable issuers and security specific |
38 |
information are used to determine the fair value of these securities. Depending on the relative significance of valuation inputs, these securities may be classified either as Level 2 or Level 3 in the fair value hierarchy. The price which the Funds may realize upon sale of an investment may differ materially from the value presented in the Schedules of Investments. | ||
The Funds utilize various methods to measure the fair value of its investments on a recurring basis which includes a hierarchy that prioritizes inputs to valuation methods used to measure fair value. The fair value hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The transfers between levels of the fair value hierarchy assume the financial instruments were transferred at the beginning of the reporting period. The three levels of the fair value hierarchy are described below: | ||
Level 1 – | Quoted prices in active markets for identical securities. |
Level 2 – | Significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). |
Level 3 – | Significant unobservable inputs (including each Fund’s own assumptions in determining the fair value of investments). |
A summary of the inputs and the levels used to value each Fund’s investments are located in the Schedules of Investments. Additionally, tables that reconcile the valuation of each Fund’s Level 3 investments, and that present additional information about the valuation methodologies and unobservable inputs into those Level 3 investments, if applicable, are located in the Schedules of Investments. | ||
B. | Basis for Consolidation—The Gold Series Fund I Subsidiary, a Cayman Islands exempted company, was incorporated on November 7, 2011. Consolidated financial statements of the International Investors Gold Fund, present the financial position and results of operation for the Fund and its wholly-owned Subsidiary. All interfund account balances and transactions between parent and subsidiary have been eliminated in consolidation. As of June 30, 2019, the International Investors Gold Fund held $26,236 in its Subsidiary, representing 0.01% of the Fund’s net assets. | |
C. | Federal Income Taxes—It is each Fund’s policy to comply with the provisions of the U.S. Internal Revenue Code (the “Code”) applicable to regulated investment companies and to distribute all of its net investment |
39 |
VANECK FUNDS
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
income and net realized capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. | |
The wholly-owned subsidiary of the International Investors Gold Fund is classified as a controlled foreign corporation (“CFC”) under the Code. For U.S. tax purposes, a CFC is not subject to U.S. income tax. However, as a wholly-owned CFC, its net income and capital gain, to the extent of its earnings and profits, will be included each year in the International Investors Gold Fund investment company taxable income. Net losses of the CFC cannot be deducted by the International Investors Gold Fund in the current year nor carried forward to offset taxable income in future years. | |
D. | Currency Translation—Assets and liabilities denominated in foreign currencies and commitments under foreign currency contracts are translated into U.S. dollars at the closing prices of such currencies each business day as quoted by one or more sources. Purchases and sales of investments are translated at the exchange rates prevailing when such investments are acquired or sold. Income and expenses are translated at the exchange rates prevailing when accrued. The portion of realized and unrealized gains and losses on investments that result from fluctuations in foreign currency exchange rates is not separately disclosed. Such amounts are included with the net realized and unrealized gains and losses on investment securities in the Statement of Operations. Recognized gains or losses attributable to foreign currency fluctuations on foreign currency denominated assets, other than investments and forward foreign currency contracts, and liabilities are recorded as net realized gain (loss) and net change in unrealized appreciation (depreciation) on foreign currency transactions and foreign denominated assets and liabilities in the Statement of Operations. |
E. | Dividends and Distributions to Shareholders—Dividends to shareholders from net investment income and distributions from net realized capital gains, if any, are declared and paid annually. Income dividends and capital gain distributions are determined in accordance with U.S. income tax regulations, which may differ from such amounts determined in accordance with GAAP. |
F. | Other—Security transactions are accounted for on trade date. Realized gains and losses are determined based on the specific identification method. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized upon notification of the ex-dividend date. Income, non-class specific expenses, gains and losses on investments are allocated based on the relative net assets of |
40 |
each class. Expenses directly attributable to a specific class are charged to that class. | |
In the normal course of business, the Funds enter into contracts that contain a variety of general indemnifications. The Funds’ maximum exposure under these agreements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Adviser believes the risk of loss under these arrangements to be remote. | |
G. | Restricted Securities—The Funds may invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. Information regarding restricted securities is included at the end of each Fund’s Schedule of Investments. |
H. | Use of Derivative Instruments—The Funds may make investments in derivative instruments, including, but not limited to, options, futures, swaps and other derivatives relating to foreign currency transactions. A derivative is an instrument whose value is derived from underlying assets, indices, reference rates or a combination of these factors. Derivative instruments may be privately negotiated contracts (often referred to as over-the-counter (“OTC”) derivatives) or they may be listed and traded on an exchange.Derivative contracts may involve future commitments to purchase or sell financial instruments or commodities at specified terms on a specified date, or to exchange interest payment streams or currencies based on a notional or contractual amount. Derivative instruments may involve a high degree of financial risk. The use of derivative instruments also involves the risk of loss if the investment adviser is incorrect in its expectation of the timing or level of fluctuations in securities prices, interest rates or currency prices. Investments in derivative instruments also include the risk of default by the counterparty, the risk that the investment may not be liquid and the risk that a small movement in the price of the underlying security or benchmark may result in a disproportionately large movement, unfavorable or favorable, in the price of the derivative instrument. The Funds held no derivative instruments during the period ended June 30, 2019. |
I. | Offsetting Assets and Liabilities—In the ordinary course of business, the Funds enter into transactions subject to enforceable master netting agreements or other similar agreements. Generally, the right of setoff in those agreements allows the Funds to set off any exposure to a specific counterparty with any collateral received from or delivered to that |
41 |
VANECK FUNDS
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
counterparty based on the terms of the agreements. The Funds may pledge or receive cash and/or securities as collateral for derivative instruments. At June 30, 2019, the Funds held no financial instruments that would require additional disclosure. |
Note 3—Investment Management and Other Agreements—The Van Eck Associates Corporation (“VEAC”) is the investment adviser (the “Adviser”) to the Global Hard Assets Fund and International Investors Gold Fund.
The Adviser receives a management fee, calculated daily and payable monthly based on the Funds’ average daily net assets:
Fund | Annual Rate | |
Global Hard Assets Fund | 1.00% of the first $2.5 billion and 0.90% thereafter | |
International Investors Gold Fund | 0.75% of the first $500 million, 0.65% on the next $250 million and 0.50% thereafter |
The Adviser has agreed, until at least May 1, 2020, to waive management fees and assume expenses to prevent the Funds’ total annual operating expenses (excluding acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses) from exceeding the expense limitations listed in the table below.
The current expense limitations and the amounts waived by the Adviser for the period ended June 30, 2019, are as follows:
Expense Limitations | Waiver of Management Fees | ||||||||
Global Hard Assets Fund | |||||||||
Class A | 1.38 | % | $ | 307,771 | |||||
Class C | 2.20 | 31,953 | |||||||
Class I | 0.95 | 568,659 | |||||||
Class Y | 1.13 | 117,523 | |||||||
International Investors Gold Fund | |||||||||
Class A | 1.45 | % | $ | 62,764 | |||||
Class C | 2.20 | 29,075 | |||||||
Class I | 1.00 | 101,778 | |||||||
Class Y | 1.10 | 51,398 |
The Adviser also performs accounting and administrative services for the International Investors Gold Fund. The Adviser is paid a monthly fee at a rate of 0.25% per year on the first $750 million of the average daily net assets of the Fund and 0.20% per year of the average daily net assets in excess of $750 million. Administrative fees are included in expenses in the Statement of Operations.
42 |
For the period ended June 30, 2019, Van Eck Securities Corporation (the “Distributor”), an affiliate of the Adviser, received a total of $188,710 in sales loads relating to the sale of shares of the Funds, of which $166,642 was reallowed to broker/dealers and the remaining $22,068 was retained by the Distributor.
Certain officers of the Trust are officers, directors or stockholders of the Adviser and the Distributor.
Note 4—Investments—The cost of purchases and proceeds from sales of investments, excluding short-term investments, for the period ended June 30, 2019 were as follows:
Fund | Cost of Investments Purchased | Proceeds from Investments Sold | ||||||
Global Hard Assets Fund | $258,848,546 | $648,352,097 | ||||||
International Investors Gold Fund | 56,002,884 | 98,360,452 |
Note 5—Income Taxes—As of June 30, 2019, for Federal income tax purposes, the identified cost, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) of investments were as follows:
Fund | Tax Cost of Investments | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||||||||||
Global Hard Assets Fund | $855,764,027 | $305,167,487 | $(120,905,153) | $184,262,334 | ||||||||||||
International Investors Gold Fund | 444,584,544 | 291,069,299 | (69,840,211) | 221,229,088 |
The tax character of dividends paid to shareholders during the year ended December 31, 2018 were as follows:
Fund | Ordinary Income | Return of Capital | ||||||||
Global Hard Assets Fund | $ | 3,110,855 | $ | 408,666 | ||||||
International Investors Gold Fund | 14,804,273 | — |
The tax character of current year distributions will be determined at the end of the current fiscal year.
At December 31, 2018, the Funds had capital loss carryforwards available to offset future capital gains, as follows:
Fund | Short-Term Capital Losses with No Expiration | Long-Term Capital Losses with No Expiration | Total | |||||||||
Global Hard Assets Fund | $ (98,836,968 | ) | $(918,205,411 | ) | $ | (1,017,042,379 | ) | |||||
International Investors Gold Fund | (136,306,899 | ) | (304,852,772 | ) | (441,159,671 | ) |
43 |
VANECK FUNDS
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
The Funds recognize the tax benefits of uncertain tax positions only where the position is “more-likely-than-not” to be sustained assuming examination by applicable tax authorities. Management has analyzed the Funds’ tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on return filings for all open tax years. The Funds do not have exposure for additional years that might still be open in certain foreign jurisdictions. Therefore, no provision for income tax is required in the Funds’ financial statements. However, the Funds may be subject to foreign taxes on the appreciation in value of certain investments. The Funds provide for such taxes, if any, on both realized and unrealized appreciation.
The Funds recognize interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statements of Operations. During the period ended June 30, 2019, the Funds did not incur any interest or penalties.
Note 6—Principal Risks—The Funds may purchase securities on foreign exchanges. Securities of foreign issuers involve special risks and considerations not typically associated with investing in U.S. issuers. These risks include devaluation of currencies, less reliable information about issuers, different securities transaction clearance and settlement practices, and future adverse political and economic developments. These risks are heightened for investments in emerging market countries. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than those of comparable U.S. issuers. Changes in laws or government regulation by the United States and/or the Cayman Islands could adversely affect the operations of the Funds. The Global Hard Assets Fund and the International Investors Gold Fund may concentrate their investments in companies which are significantly engaged in the exploration, development, production and distribution of gold and other natural resources such as strategic and other metals, minerals, forest products, oil, natural gas and coal. In addition, the International Investors Gold Fund may invest up to 25% of its net assets in gold and silver coins, gold, silver, platinum and palladium bullion and exchange traded funds that invest in such coins and bullion and derivatives on the foregoing. Since the Funds may so concentrate, they may be subject to greater risks and market fluctuations than other more diversified portfolios. The production and marketing of gold and other natural resources may be affected by actions and changes in governments. In addition, gold and natural resources may be cyclical in nature.
A more complete description of risks is included in the Funds’ Prospectus and Statement of Additional Information.
44 |
Note 7—12b-1 Plans of Distribution—Pursuant to Rule 12b-1 Plans of Distribution (the “Plan”), the Funds are authorized to incur distribution expenses which will principally be payments to securities dealers who have sold shares and serviced shareholder accounts and payments to the Distributor, for reimbursement of other actual promotion and distribution expenses incurred by the Distributor on behalf of the Funds. The amount paid under the Plan in any one year is limited to 0.25% of average daily net assets for Class A Shares and 1.00% of average daily net assets for Class C Shares, and is recorded as Distribution fees in the Statement of Operations.
Note 8—Shareholder Transactions—Shares of beneficial interest issued, reinvested and redeemed (unlimited number of $0.001 par value shares authorized):
Global Hard Assets Fund | International Investors Gold Fund | |||||||||||||||
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Class A | ||||||||||||||||
Shares sold | 761,244 | 1,994,668 | 1,971,939 | 5,155,820 | ||||||||||||
Shares reinvested | — | — | — | 680,663 | ||||||||||||
Shares redeemed | (1,353,643 | ) | (4,038,493 | ) | (2,513,078 | ) | (10,085,024 | ) | ||||||||
Net decrease | (592,399 | ) | (2,043,825 | ) | (541,139 | ) | (4,248,541 | ) | ||||||||
Class C | ||||||||||||||||
Shares sold | 23,343 | 148,481 | 292,306 | 942,608 | ||||||||||||
Shares reinvested | — | — | — | 143,878 | ||||||||||||
Shares redeemed | (326,530 | ) | (755,974 | ) | (638,474 | ) | (2,040,789 | ) | ||||||||
Net decrease | (303,187 | ) | (607,493 | ) | (346,168 | ) | (954,303 | ) | ||||||||
Global Hard Assets Fund | International Investors Gold Fund | |||||||||||||||
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Class I | ||||||||||||||||
Shares sold | 1,847,989 | 6,886,782 | 3,481,674 | 5,997,035 | ||||||||||||
Shares reinvested | — | 95,233 | — | 501,435 | ||||||||||||
Shares redeemed | (14,408,302 | ) | (12,952,129 | ) | (7,014,768 | ) | (5,567,948 | ) | ||||||||
Net increase (decrease) | (12,560,313 | ) | (5,970,114 | ) | (3,533,094 | ) | 930,522 | |||||||||
Class Y | ||||||||||||||||
Shares sold | 765,672 | 3,050,944 | 3,089,438 | 10,301,007 | ||||||||||||
Shares reinvested | — | 4,314 | — | 325,561 | ||||||||||||
Shares redeemed | (1,600,218 | ) | (3,994,017 | ) | (2,306,310 | ) | (7,154,659 | ) | ||||||||
Net increase (decrease) | (834,546 | ) | (938,759 | ) | 783,128 | 3,471,909 |
45 |
VANECK FUNDS
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
Note 9—Bank Line of Credit—The Trust participates with VanEck VIP Trust (another registered investment company managed by Adviser) (the “VE/VIP Funds”) in a $30 million committed credit facility (the “Facility”) to be utilized for temporary financing until the settlement of sales or purchases of portfolio securities, the repurchase or redemption of shares of the participating Funds and other temporary or emergency purposes. The participating VE/VIP Funds have agreed to pay commitment fees, pro rata, based on the unused but available balance. Interest is charged to the participating VE/VIP Funds at rates based on prevailing market rates in effect at the time of borrowings. During the period ended June 30, 2019, the Funds borrowed under this Facility as follows:
Fund | Days Outstanding | Average Daily Loan Balance | Average Interest Rate | Outstanding Loan Balance as of June 30, 2019 | ||||||||||||
Global Hard Assets Fund | 4 | $ | 22,851,873 | 3.67 | % | $ | 21,957,027 | |||||||||
International Investors Gold Fund | 6 | 11,453,971 | 3.73 | — |
Note 10—Trustee Deferred Compensation Plan—The Trust has a Deferred Compensation Plan (the “Deferred Plan”), for Trustees under which the Trustees can elect to defer receipt of their trustee fees until retirement, disability or termination from the Board of Trustees. The fees otherwise payable to the participating Trustees are deemed invested in eligible shares of the VE/VIP Funds as directed by the Trustees.
The expense for the Deferred Plan is included in “Trustees’ fees and expenses” in the Statement of Operations. The liability for the Deferred Plan is shown as “Deferred Trustee fees” in the Statement of Assets and Liabilities.
Note 11—Recent Accounting Pronouncements and Regulatory Requirements—The Funds early adopted certain provisions of Accounting Standards Update No. 2018-13Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement(“ASU 2018-13”) that eliminate and modify certain disclosure requirements for fair value measurements. The adoption of certain provisions of the ASU 2018-13 had no material effect on financial statements and related disclosures. Management is currently evaluating the potential impact of additional requirements, not yet adopted, to financial statements. The ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.
Note 12—Subsequent Event Review—The Funds have evaluated subsequent events and transactions for potential recognition or disclosure through the date the financial statements were issued.
46 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited)
GLOBAL HARD ASSETS FUND
INTERNATIONAL INVESTORS GOLD FUND
(each, a “Fund”)
The Investment Company Act of 1940, as amended (the “1940 Act”), provides, in substance, that an investment advisory agreement between a fund and its investment adviser may be entered into only if it is approved, and may continue in effect from year to year after an initial two-year period only if its continuance is approved, at least annually by the fund’s board of trustees, including by a vote of a majority of the trustees who are not “interested persons” of the fund as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of considering such approval. On June 21, 2019, the Board of Trustees (the “Board”) of VanEck Funds (the “Trust”), which is comprised exclusively of Independent Trustees, voted to approve the continuation of the existing advisory agreement (each, an “Advisory Agreement”) between each Fund and its investment adviser, Van Eck Associates Corporation (together with its affiliated companies, the “Adviser”). Information regarding the material factors considered and related conclusions reached by the Board in approving the continuation of each Fund’s Advisory Agreement is set forth below.
In considering the continuation of each Advisory Agreement, the Board reviewed and considered information that had been provided by the Adviser throughout the year at meetings of the Board and its committees, including information requested by the Board and furnished by the Adviser for meetings of the Board held on June 5, 2019 and June 21, 2019 specifically for the purpose of considering the continuation of the Advisory Agreement. Although the Advisory Agreements for the Funds were considered at the same Board meetings, the Board considered the information provided to it about the Funds together and with respect to each Fund separately as the Board deemed appropriate. The written and oral reports provided to the Board included, among other things, the following:
■ | Information about the overall organization of the Adviser and the Adviser’s short-term and long-term business plans with respect to its mutual fund operations and other lines of business; |
■ | The consolidated financial statements of the Adviser for the past two fiscal years; |
47 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited) (continued)
■ | A copy of each Advisory Agreement and descriptions of the services provided by the Adviser thereunder; |
■ | Information regarding the qualifications, education and experience of the investment professionals responsible for portfolio management, investment research and trading activities for each Fund, the structure of their compensation and the resources available to support these activities; |
■ | A report prepared by an independent consultant comparing each Fund’s investment performance gross of expenses for a representative class of shares (including, where relevant, total returns, standard deviations, Sharpe ratios, information ratios, beta and alpha) for the one-, three-, five- and ten-year periods (as applicable) ended March 31, 2019 with the investment performance of (i) a universe of mutual funds selected by the independent consultant with similar investment characteristics, utilizing for these purposes the oldest share class of each fund gross of expenses (each, a “Performance Category”), (ii) a sub-group of funds selected from its Performance Category by the independent consultant further limited to approximate more closely the Fund’s investment style without regard to asset size (each, a “Performance Peer Group”), and (iii) an appropriate benchmark index; |
■ | A report prepared by an independent consultant comparing the advisory fees and other expenses of a representative class of shares of each Fund during its fiscal year ended December 31, 2018 with a similar share class of (i) funds in its Performance Category that have the same share class (each, an “Expense Category”) and (ii) a sub-set of the funds that comprise its Performance Peer Group that have the same share class (each, an “Expense Peer Group”); |
■ | With respect to the International Investors Gold Fund, a supplemental report prepared by an independent consultant comparing total management fee rates, which include both advisory and administrative fee rates on a combined basis (the “Management Fee Rates”), and, separately, the administrative fee rates and advisory fee rates with respect to a representative class of shares of the Fund during its fiscal year ended December 31, 2018 with those of the Fund’s (i) Expense Category and (ii) Expense Peer Group; |
48 |
■ | An analysis of the profitability of the Adviser with respect to its services for each Fund and the VanEck complex of mutual funds as a whole (the “VanEck Complex”); |
■ | Information regarding other investment products and services offered by the Adviser involving investment objectives and strategies similar to each Fund (“Comparable Products”), including the fees charged by the Adviser for managing the Comparable Products, a description of material differences and similarities in the services provided by the Adviser for each Fund and the Comparable Products, the sizes of the Comparable Products and the identity of the individuals responsible for managing the Comparable Products; |
■ | Information concerning the Adviser’s compliance program, the resources devoted to compliance efforts undertaken by the Adviser on behalf of each Fund, and reports regarding a variety of compliance-related issues; |
■ | Information with respect to the Adviser’s brokerage practices, including the Adviser’s processes for monitoring best execution of portfolio transactions and the benefits received by the Adviser from research acquired with soft dollars; |
■ | Information regarding the procedures used by the Adviser in monitoring the valuation of portfolio securities, including the methodologies used in making fair value determinations, and the Adviser’s due diligence process for recommending the selection of pricing vendors and monitoring the quality of the inputs provided by such vendors; |
■ | Information regarding how the Adviser safeguards the confidentiality and integrity of its data and files (both physical and electronic), as well as of any communications with third parties containing Fund and shareholder information, including reports regarding the Adviser’s cybersecurity framework and its implementation, the identification and monitoring of cybersecurity risks (including the risks that arise out of arrangements with third party service providers), the Adviser’s cybersecurity response policy and other initiatives of the Adviser to mitigate cybersecurity risks; |
■ | Information regarding the Adviser’s policies and practices with respect to personal investing by the Adviser and its employees, |
49 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited) (continued)
including reports regarding the administration of the Adviser’s code of ethics and the Adviser’s policy with respect to investments in a Fund by the Adviser’s investment personnel; | |
■ | Information regarding the Adviser’s investment process for each Fund, including how the Adviser integrates non-accounting-based information (including, but not limited to “environmental, social and governance” factors) and the non-security-selection, non-portfolio-construction activities of the investment teams, such as engagement with portfolio companies and industry group participation; |
■ | Information regarding the Adviser’s role as the administrator of the Trust’s liquidity risk management program; |
■ | Descriptions of sub-transfer agency, omnibus account and other shareholder servicing arrangements for each Fund with intermediaries (collectively, “Servicing Arrangements”), including a description of the services provided by the intermediaries pursuant to such Servicing Arrangements and the payment terms of the Servicing Arrangements, as well as reports regarding the amounts paid pursuant to the Servicing Arrangements and the amounts paid to intermediaries with respect to each Fund by the Adviser pursuant to any revenue sharing arrangements and Servicing Arrangements (to the extent not paid by the applicable Fund); |
■ | Descriptions of other administrative and other non-investment management services provided by the Adviser for each Fund, including the Adviser’s activities in managing relationships with each Fund’s custodian, transfer agent and other service providers; and |
■ | Other information provided by the Adviser in its response to a comprehensive questionnaire prepared by independent legal counsel on behalf of the Independent Trustees. |
In determining whether to approve the continuation of each Advisory Agreement, the Board considered, among other things, the following: (1) the nature, quality, extent and cost of the investment management, administrative and other non-investment management services provided by the Adviser; (2) the nature, quality and extent of the services performed by the Adviser in interfacing with, and monitoring the services performed by, third parties, such as the Fund’s
50 |
custodian, transfer agent, sub-transfer agents and independent auditor, and the Adviser’s commitment and efforts to review the quality and pricing of third party service providers to the Fund with a view to reducing non-management expenses of the Fund; (3) the terms of the Advisory Agreement and the services performed thereunder; (4) the willingness of the Adviser to reduce the overall expenses of the Fund from time to time, if necessary or appropriate, by means of waiving a portion of its fees or paying expenses of the Fund; (5) the quality of the services, procedures and processes used to determine the value of the Fund’s assets and the actions taken to monitor and test the effectiveness of such services, procedures and processes; (6) the ongoing efforts of, and resources devoted by, the Adviser with respect to the development and implementation of a comprehensive compliance program; (7) the responsiveness of the Adviser to inquiries from, and examinations by, regulatory authorities, including the Securities and Exchange Commission; (8) the resources committed by the Adviser in recent periods to information technology and cybersecurity; and (9) the ability of the Adviser to attract and retain quality professional personnel to perform investment advisory and administrative services for the Fund.
The Board considered the fact that the Adviser is managing other investment products, including exchange-traded funds, private funds, separate accounts and UCITs, one or more of which may invest in the same financial markets and may be managed by the same investment professionals according to a similar investment objective and/or strategy as each Fund. The Board concluded that the management of these products contributes to the Adviser’s financial stability and is helpful to the Adviser in attracting and retaining quality portfolio management personnel for each Fund. In addition, the Board concluded that the Adviser has established appropriate procedures to monitor conflicts of interest involving the management of each Fund and the other products and for resolving any such conflicts of interest in a fair and equitable manner.
The performance data and the advisory fee and expense ratio data described below for each Fund is based on data for a representative class of shares of that Fund. The performance data is gross of expenses for periods on an annualized basis ended March 31, 2019, and the advisory fee and expense ratio data is as of the Funds’ fiscal year end of December 31, 2018.
51 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited) (continued)
Performance.
Global Hard Assets Fund. The Board noted, based on a review of comparative annualized total returns, that the Fund had underperformed its Performance Peer Group and Performance Category medians for the one-, three-, five- and ten-year periods. The Board also noted that the Fund had underperformed its benchmark index for the one-, three-, five-, and ten-year periods. The Board noted that the Fund’s large holdings in the energy sector detracted from Fund performance. The Board also noted that the Fund’s performance has improved after being adversely affected by a prevailing bear market in recent years.
International Investors Gold Fund. The Board noted, based on a review of comparative annualized total returns, that the Fund had underperformed its Performance Category and Performance Peer Group medians for the one-year period, and the Fund had outperformed its Performance Category and Performance Peer Group medians for the three-, five- and ten-year periods. The Board also noted that the Fund had outperformed its benchmark index for the three-, five- and ten-year periods, and the Fund had underperformed its benchmark for the one-year period. On the basis of the foregoing and other relevant information provided in response to inquiries by the Board, the Board concluded that the performance of the Fund was satisfactory.
Fees and Expenses.
Global Hard Assets Fund. The Board noted that the fee rate payable for advisory services and the total expense ratio, net of waivers or reimbursements, were higher than the median advisory fee rates and total expense ratios of the Fund’s Expense Category and Expense Peer Group. The Board also noted that the Adviser has agreed to waive fees or pay expenses of the Fund through May 1, 2020 to the extent necessary to prevent the expense ratio of the Fund from exceeding a specified maximum amount (subject to certain exclusions).
International Investors Gold Fund. The Board noted that the Fund pays an advisory fee, as well as a separate administrative fee. The Board further noted that the fee rate payable for advisory services was equal to the median advisory fee rates of its Expense Category and Expense Peer Group, and that the Fund’s total expense ratio, net
52 |
of waivers or reimbursements and its Management Fee Rate (which includes both advisory and administrative fee rates) were higher than the median expense ratios and Management Fee Rates of its Expense Category and Expense Peer Group. The Board further noted that the Adviser has agreed to waive fees or pay expenses of the Fund through May 1, 2020 to the extent necessary to prevent the expense ratio of the Fund from exceeding a specified maximum amount (subject to certain exclusions).
On the basis of the foregoing, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the advisory fee rate charged to each Fund is reasonable.
Profitability and Economies of Scale.The Board considered the profits, if any, realized by the Adviser from managing each Fund and other mutual funds in the VanEck Complex and the methodology used to determine such profits. The Board noted that the levels of profitability reported on a fund-by-fund basis varied widely depending on such factors as the size, type of fund and operating history. The Board further noted that, in evaluating the reasonableness of the Adviser’s profits from managing any particular Fund, it would be appropriate to consider the size of the Adviser relative to other firms in the investment management industry and the impact on the Adviser’s profits of the volatility of the markets in which each Fund invests and the volatility of cash flow into and out of each Fund through various market cycles. Based on its review of the foregoing information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the profits realized by the Adviser from managing each Fund, if any, are deemed not to be excessive. In this regard, the Board also considered the extent to which the Adviser may realize economies of scale, if any, as each Fund grows and whether each Fund’s fee schedule reflects any economies of scale for the benefit of shareholders. The Board concluded that, with respect to each Fund, any economies of scale being realized are currently being shared by the Adviser and that Fund, and that adding or modifying existing (if any) breakpoints would not be warranted at this time for each Fund.
Conclusion.In determining the material factors to be considered in evaluating the Advisory Agreement for each Fund and the weight to be given to such factors, the members of the Board relied upon the advice of independent legal counsel and their own business
53 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENTS
June 30, 2019 (unaudited) (continued)
judgment. The Board did not consider any single factor as controlling in determining whether to approve the continuation of each Advisory Agreement and each member of the Board may have placed varying emphasis on particular factors considered in reaching a conclusion. Moreover, this summary description does not necessarily identify all of the factors considered or conclusions reached by the Board. Based on its consideration of the foregoing factors and conclusions, and such other factors and conclusions as it deemed relevant, the Board (comprised exclusively of Independent Trustees) concluded that the continuation of each Advisory Agreement is in the interests of that Fund’s shareholders and, accordingly, the Board approved the continuation of the Advisory Agreement for each Fund for an additional one-year period.
54 |
This report is intended for the Fund’s shareholders. It may not be distributed to prospective investors unless it is preceded or accompanied by the Fund’s prospectus and summary prospectus, which includes more complete information. Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
Additional information about the VanEck Fund’s (the “Trust”) 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 800.826.2333, or by visiting vaneck.com, or on the Securities and Exchange Commission’s website at https://www.sec.gov.
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-PORT. The Trust’s Form N-PORTs are available on the Commission’s website at https://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 202.942.8090. The Fund’s complete schedule of portfolio holdings is also available by calling 800.826.2333 or by visiting vaneck.com.
Investment Adviser: | Van Eck Associates Corporation | |
Distributor: | Van Eck Securities Corporation | |
666 Third Avenue, New York, NY 10017 | ||
vaneck.com | ||
Account Assistance: | 800.544.4653 | GHAIIGSAR |
SEMI-ANNUAL REPORT June 30, 2019 (unaudited) |
VanEck Funds
Unconstrained Emerging Markets Bond Fund
800.826.2333 | vaneck.com |
Certain information contained in this shareholder letter represents the opinion of the investment adviser which may change at any time. This information is not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Also, unless otherwise specifically noted, any discussion of the Fund’s holdings, the Fund’s performance, and the views of the investment adviser are as of June 30, 2019.
UNCONSTRAINED EMERGING MARKETS BOND FUND
June 30, 2019 (unaudited)
We are pleased to present this semi-annual report.
Investment Outlook
In brief, the two engines of the global economy, the U.S. and China, are moving forward, albeit at a moderate pace. In this environment, with stocks having had a very solid year so far, our main message is that investors should not be too conservative with their fixed income portfolios. See our blogIs There Enough Risk in Your Fixed Income Portfolio?
Getting to this current environment was, however, a result of a lot of turbulence.
At the beginning of December last year, we were worried about the impact the European Central Bank’s (ECB) and the U.S. Federal Reserve’s (Fed) continued tightening would have on the financial markets. Typically, central bank tightening is unfavorable for financial assets, and markets decelerated going into December. Then, suddenly the Fed signaled it would stop raising rates and reverse on quantitative tightening. This led to a rally in U.S. equities and other asset classes.
The ECB is also now delaying any tightening steps. At its March 7 policy meeting, the ECB pushed back its timing for increasing interest rates and is expected to stay on hold through the end of 2019. It also announced a program to stimulate bank lending, with another round of targeted longer-term refinancing operations (TLTRO) launching in September. TLTRO loans from the ECB provides banks in the euro zone with cheap rates.
Last but not least, China’s non-manufacturing Purchasing Managers’ Index (PMI) shows a strong rate of expansion, which one would expect with the emergence of the “new China” economy—one that is increasingly driven by consumption. However, the manufacturing PMI shows several recent dips below the important 50 mark into contraction territory, corresponding to the “recession” in late 2018, followed by a recovery after Q1 2019. It saw another fall into contraction territory in Q2 2019, though this was slightly smaller than the Q4 2018 drop, indicating that China’s stimulus measures may have softened the impact of external factors, such as tariffs and trade tensions. If so, we believe more stimulus may be expected to support domestic demand in the months ahead.
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UNCONSTRAINED EMERGING MARKETS BOND FUND
(unaudited) (continued)
Doubtless there are risks to the global economy and financial markets. Concerns around the strength of global economic growth, the strength of the U.S. dollar, the trajectory of U.S. interest rates, certain country-specific factors, e.g., Iran and Venezuela, and the, as yet, unresolved trade dispute between the U.S. and China continue to hang over the market.
We encourage you to stay in touch with us through the videos, email subscriptions, and research blogs available on our website, www.vaneck.com.I have started my own email subscription where I share interesting research—you can sign up on vaneck.com.Should you have any questions regarding fund performance, please contact us at 800.826.2333 or visit our website.
We sincerely thank you for investing in VanEck’s investment strategies. On the following pages, you will find the Fund’s financial statements for the six month period ended June 30, 2019. As always, we value your continued confidence in us and look forward to helping you meet your investment goals in the future.
Jan F. van Eck
CEO and President
VanEck Funds
July 16, 2019
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
2 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
June 30, 2019 (unaudited)
The Unconstrained Emerging Market Bond Fund (the “Fund”) gained 9.67% (Class A shares, excluding sales charge) over the six month period ended June 30, 2019, slightly underperforming the Fund’s benchmark. The Fund’s benchmark—a blended index consisting of 50% of J.P. Morgan’s hard currency1sovereign index (J.P. Morgan Emerging Markets Bond Index Global Diversified Index (EMBI2)) and 50% of J.P. Morgan’s local currency3sovereign index (J.P. Morgan Government Bond Index Emerging Markets Global Diversified Index (GBI-EM4))—gained 10.03%. EMBI gained 11.31% and the local currency GBI-EM gained 8.72%.
Market Review
Emerging markets debt, along with most asset prices, was significantly driven by global macroeconomic factors, particularly U.S. interest rate policy and tensions between the U.S. and the large trading nations. The U.S. 10-year Treasury started 2019 with a yield of 2.69%, and ended June 2019 with a yield of 2.00%. The yield drop was associated with weaker growth in trade, particularly in Asia, combined with no warning signs on inflation. The dovish pivot by the U.S. Federal Reserve (the “Fed”) was also associated with more nebulous developments such as (further) risks to growth that could emanate from a stalemate in the trade war, the late stage of the U.S. economic cycle and rising risks around China (not just those that are trade-related). Pressure on the Fed to ease policy also came from the White House, as well as a “state of nature” in which the Fed increasingly followsmarketimperatives, even ifeconomicones are not obvious.
Trade policy was the significant market driver, hitting emerging markets local currencies (“EMFX”) in particular. In the first half of 2019, the U.S. largely settled its trade issues with Mexico, but trade tensions with China rose, culminating in tariff impositions and threats of even more tariffs from the U.S. After the G-20 meeting at the end of June, these issues were “contained” within the current resumption of trade talks. Nonetheless, the market is in “wait and see” mode. In addition, as the quarters roll by, U.S. tension with China is less and less defined by trade talks, and increasingly defined by the more intractable issues of intellectual property and strategic competition. Moreover, we think that many in the market expect a deal because both the U.S. and Chinese leadership want a resolution to boost domestic political support. We are not comfortable coming to such a conclusion, certainly not with any conviction. Finally, looming over trade talks is the risk that China floats its exchange rate (or,
3 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
(unaudited) (continued)
more likely, manages its currency weaker) in the event of an adverse outcome. That would have a significant knock on EMFX which compete with China directly and indirectly.
There is clear “circularity” here—the worse trade goes the more the Fed will compensate by lowering interest rates; the implication is that lower yields are a more confident prediction than a weaker U.S. dollar. The bottom line is that, at this mid-point in 2019, both the Fed and trade talks are up in the air. What we have seen, though, is a Fed citing trade friction resulting from policy as a reason (among others) to ease. While that is happening, yield curve inversion and the length (record-breaking) of the U.S. economic recovery mean that a recession countdown has started for many. We are more confident, as a result, that interest rates are anchored at low levels than we are that the U.S. dollar will follow U.S. interest rates lower.
There have been some important country-specific developments in Mexico, Brazil, Argentina, Turkey and South Africa. In Mexico, the market continues to debate whether the new president is truly orthodox in terms of economic policy, or just buying time while heterodoxy spreads. The resignation of his first finance minister makes a case for the last, as do delays and confusion surrounding the plans for fixing state-owned oil giant Pemex. In Brazil, we await the passage of pension reform as it progresses through the legislature, which would be an important signal that the country is dealing with its critical problem—chronically high government spending. Argentina came into 2019 a market loser, with high external debt and a weakening currency; as the year developed, though, market-friendly President Mauricio Macri made a shrewd political deal with a rival and is benefiting from declining inflation and stabilizing growth. Turkey had a terrible 2018 and is having a bad start in 2019. The country’s president is stimulating fiscal policy while co-opting the central bank to ease, in a context of large corporate debt rollovers and low reserves; we see a serious risk of capital controls and default on U.S. dollar corporate bonds. South Africa saw its new president basically dither and not get ahead of the ongoing debacle at state-owned utility Eskom.
Fund Review
The Fund was boosted by country exposures in Venezuela (underweight), Argentina (overweight) and Ukraine (overweight), and hurt by Mexico (underweight), Russia (underweight) and Brazil (overweight). In Venezuela, the Fund had a tactical exposure that was successful, but most importantly completely exited the position after a brief holding period. In
4 |
Argentina, the Fund slowly re-entered exposure as market panic continued, on the idea that the selling was overdone and that a positive narrative could ensue. Currently, that positive narrative—President Mauricio Macri’s poll numbers rising with growth stabilizing and inflation declining—looks to be continuing. In Ukraine, recent presidential elections resulted in a landslide for a candidate supporting the International Monetary Fund (“IMF”); an IMF program would generate good policy, but most importantly would address large looming amortizations. In Mexico, the Fund is skeptical of President Andrés Manuel López Obrador’s economic ideology, furthermore the country has low reserves to withstand such risks, so the Fund missed out on the high carry. In Russia, the Fund sees the risk of further sanctions as somewhat un-analyzable, and thus 50-50; the asset-price outcomes, though, are not symmetric, with a lot more downside than upside, so the Fund also missed carry there.
During the first half of the year, the Fund took forward positions in a number of currencies that permitted long positions in securities. Forward positions in the South African rand, Turkish lira and Korean won contributed positively to the Fund’s performance. Forward positions in the Mexican peso, Thailand baht and the Euro detracted. Forwards as a whole had almost no impact of the Fund’s performance over this period.
For more information or to access investment and market insights, visit our web site or subscribe to our commentaries. To review timely updates related to emerging markets bonds, please visit www.vaneck.com/blogs/emerging-markets-bonds. To subscribe to VanEck’s emerging markets bonds updates, please contact us at 800.826.2333 or visit vaneck.com/subscribe to register.
The Fund is subject to risks associated with its investments in emerging markets debt securities. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. As the Fund may invest in securities denominated in foreign currencies and some of the income received by the Fund will be in foreign currencies, changes in currency exchange rates may negatively impact the Fund’s return. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. The Fund may also be subject to credit risk, counterparty risk, interest rate risk, sovereign debt risk, tax risk, hedging risk, non-diversification risk, and risks associated with noninvestment grade securities. Please see the
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UNCONSTRAINED EMERGING MARKETS BOND FUND
(unaudited) (continued)
prospectus and summary prospectus for information on these and other risk considerations.
As always, we value your continued confidence in us and look forward to helping you meet your investment goals in the future.
Eric Fine | David Austerweil |
Portfolio Manager | Deputy Portfolio Manager |
Represents the opinions of the investment adviser. Past performance is no guarantee of future results. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
1 | Hard currency refers to currencies that are generally widely accepted around the world such as the U.S. dollar, euro, or yen. |
2 | J.P. Morgan Emerging Markets Bond Index Global Diversified Index (EMBI) tracks returns for actively traded external debt instruments in emerging markets, and is also J.P. Morgan’s most liquid U.S. dollar emerging markets debt benchmark. |
3 | Emerging markets local currency bonds are bonds denominated in the local currency of the issuer. |
4 | J.P. Morgan Government Bond Index-Emerging Markets Global Diversified Index (GBI-EM) tracks local currency bonds issued by emerging markets governments. The index spans over 15 countries. |
6 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
June 30, 2019 (unaudited)
Average Annual Total Return (%)* | Class A Before Sales Charge | Class A After Maximum Sales Charge | Class C Before Sales Charge | Class C After Maximum Sales Charge | ||||||||||||
Six Months | 9.67 | 3.29 | 9.60 | 8.60 | ||||||||||||
One Year | 9.27 | 2.99 | 8.62 | 7.62 | ||||||||||||
Five Year | (0.50) | (1.66) | (1.16) | (1.16) | ||||||||||||
Life^ (annualized) | 1.80 | 0.94 | 1.10 | 1.10 |
Average Annual Total Return (%)* | Class I** | Class Y** | 50% EMBI/ 50% GBI-EM | EMBI | GBI-EM | |||||||||||||||
Six Months | 9.97 | 9.98 | 10.03 | 11.31 | 8.72 | |||||||||||||||
One Year | 9.57 | 9.61 | 10.77 | 12.45 | 8.99 | |||||||||||||||
Five Year | (0.18) | (0.24) | 2.46 | 5.30 | (0.45) | |||||||||||||||
Life^ (annualized) | 2.09 | 2.03 | 2.98 | 5.42 | 0.47 |
* | Returns less than one year are not annualized. |
** | Classes are not subject to a sales charge |
^ | Since July 9, 2012 (inception date for all share classes) |
The performance quoted represents past performance. Past performance does not guarantee future results; current performance may be lower or higher than the performance data quoted.
Investment return and value of shares of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance information reflects temporary waivers of expenses and/or fees. Had the Fund incurred all expenses, investment returns would have been reduced. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at net asset value (NAV). These returns do not reflect the deduction of taxes that a shareholder would pay on Fund dividends and distributions or the redemption of Fund shares. Performance information current to the most recent month end is available by calling 800.826.2333 or by visiting www.vaneck.com.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
J.P. Morgan Emerging Markets Bond Index Global Diversified Index (EMBI) tracks returns for actively traded external debt instruments in emerging markets, and is also J.P. Morgan’s most liquid U.S. dollar emerging markets debt benchmark. J.P. Morgan Government Bond Index-Emerging Markets Global Diversified Index (GBI-EM) tracks local currency bonds issued by emerging markets governments. The index spans over 15 countries.
7 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges on purchase payments; and (2) ongoing costs, including management fees and other Fund expenses. This disclosure is intended to help you understand the ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The disclosure is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, January 1, 2019 to June 30, 2019.
Actual Expenses
The first line in the table below provides information about account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period.”
Hypothetical Example for Comparison Purposes
The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as fees on purchase payments. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
8 |
Beginning Account Value January 1, 2019 | Ending Account Value June 30, 2019 | Annualized Expense Ratio During Period | Expenses Paid During the Period* January 1, 2019 – June 30, 2019 | |||||||||||||
Unconstrained Emerging Markets Bond Fund | ||||||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,096.70 | 1.28 | % | $ | 6.65 | ||||||||
Hypothetical** | $ | 1,000.00 | $ | 1,018.45 | 1.28 | % | $ | 6.41 | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,096.00 | 1.98 | % | $ | 10.29 | ||||||||
Hypothetical** | $ | 1,000.00 | $ | 1,014.98 | 1.98 | % | $ | 9.89 | ||||||||
Class I | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,099.70 | 0.98 | % | $ | 5.10 | ||||||||
Hypothetical** | $ | 1,000.00 | $ | 1,019.93 | 0.98 | % | $ | 4.91 | ||||||||
Class Y | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,099.80 | 1.03 | % | $ | 5.36 | ||||||||
Hypothetical** | $ | 1,000.00 | $ | 1,019.69 | 1.03 | % | $ | 5.16 |
* | Expenses are equal to the Fund’s annualized expense ratio (for the six months ended June 30, 2019), multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year divided by the number of the days in the fiscal year (to reflect the one-half year period). |
** | Assumes annual return of 5% before expenses |
9 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
June 30, 2019 (unaudited)
Principal Amount | Value | |||||||
CORPORATE BONDS: 34.8% | ||||||||
Argentina: 0.3% | ||||||||
USD | 45,000 | YPF SA 144A 8.50%, 03/27/29 (c) | $ | 44,379 | ||||
Cayman Islands: 3.4% | ||||||||
173,000 | China Evergrande Group Reg S 8.75%, 06/28/21 (c) | 153,816 | ||||||
Fantasia Holdings Group Co. Ltd. Reg S | ||||||||
130,000 | 7.38%, 10/04/19 (c) | 119,281 | ||||||
82,000 | 8.38%, 03/08/21 | 78,640 | ||||||
197,000 | NagaCorp. Ltd. 144A 9.38%, 05/21/20 (c) | 208,426 | ||||||
560,163 | ||||||||
China / Hong Kong: 1.0% | ||||||||
167,000 | Agile Group Holdings Ltd. Reg S 6.88% (US Treasury Yield Curve Rate T 5 Year+9.22%), 03/07/23 (c) | 164,014 | ||||||
Georgia: 0.5% | ||||||||
91,000 | TBC Bank JSC 144A 5.75%, 06/19/24 | 90,659 | ||||||
Indonesia: 1.2% | ||||||||
186,000 | Bukit Makmur Mandiri Utama PT Reg S 7.75%, 02/13/20 (c) | 192,804 | ||||||
Ireland: 3.9% | ||||||||
205,000 | Aragvi Finance International DAC 144A 12.00%, 04/09/24 | 209,100 | ||||||
182,000 | Eurotorg LLC via Bonitron DAC 144A 8.75%, 10/30/22 | 192,465 | ||||||
227,000 | Oilflow SPV 1 DAC Reg S 12.00%, 01/13/22 | 237,308 | ||||||
638,873 | ||||||||
Luxembourg: 4.5% | ||||||||
202,000 | CSN Resources SA 144A 7.63%, 04/17/22 (c) | 214,794 | ||||||
113,000 | Millicom International Cellular SA 144A 6.25%, 03/25/24 (c) | 121,475 | ||||||
239,000 | Puma International Financing SA Reg S 5.00%, 01/24/21 (c) | 208,095 | ||||||
182,000 | Topaz Marine SA 144A 9.13%, 07/29/19 (c) | 183,877 | ||||||
728,241 |
See Notes to Financial Statements
10 |
Principal Amount | Value | |||||||
Mexico: 0.1% | ||||||||
USD | 380,000 | Corp. GEO SAB de CV Reg S 9.25%, 07/29/19 (c) (d) * | $ | 46 | ||||
23,000 | Trust F/1401 144A 6.39%, 07/15/49 (c) | 23,633 | ||||||
23,679 | ||||||||
Mongolia: 1.2% | ||||||||
195,000 | Mongolian Mining Corp./Energy Resources LLC 144A 9.25%, 04/15/21 (c) | 194,610 | ||||||
Netherlands: 4.8% | ||||||||
170,000 | Metinvest BV 144A 7.75%, 01/23/23 (c) | 176,180 | ||||||
570,000 | Petrobras Global Finance BV 6.90%, 03/19/49 | 608,190 | ||||||
784,370 | ||||||||
Nigeria: 1.2% | ||||||||
183,000 | Seplat Petroleum Development Co. Plc 144A 9.25%, 04/01/20 (c) | 193,065 | ||||||
Norway: 1.3% | ||||||||
200,000 | DNO ASA Reg S 144A 8.75%, 05/31/21 (c) | 206,000 | ||||||
Panama: 1.1% | ||||||||
187,000 | Avianca Holdings SA Reg S 8.38%, 07/29/19 (c) | 182,888 | ||||||
Paraguay: 0.4% | ||||||||
57,000 | Telefónica Celular del Paraguay SA 144A 5.88%, 04/15/22 (c) | 59,565 | ||||||
Singapore: 3.2% | ||||||||
150,444 | Eterna Capital Pte Ltd. 8.00% 07/29/19 (c) | 125,767 | ||||||
37,785 | Eterna Capital Pte Ltd. Reg S 6.00% 07/29/19 (c) | 37,179 | ||||||
209,000 | Indika Energy Capital III Pte Ltd. Reg S 5.88%, 11/09/21 (c) | 205,127 | ||||||
55,127 | Innovate Capital Pte Ltd. Reg S 6.00% 07/29/19 (c) | 31,023 | ||||||
123,000 | Medco Oak Tree Pte Ltd. 144A 7.38%, 05/14/23 (c) | 123,822 | ||||||
522,918 | ||||||||
United Arab Emirates: 1.0% | ||||||||
170,000 | ADES International Holding Plc 144A 8.63%, 04/24/21 (c) | 169,119 |
See Notes to Financial Statements
11 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
SCHEDULE OF INVESTMENTS
(unaudited) (continued)
Principal Amount | Value | |||||||
United Kingdom: 3.3% | ||||||||
USD | 193,831 | DTEK Finance Plc 10.75% 07/29/19 (c) | $ | 197,542 | ||||
160,000 | Tullow Oil Plc 144A 7.00%, 03/01/21 (c) | 163,000 | ||||||
170,000 | Vedanta Resources Finance II Plc 144A 9.25%, 04/23/23 (c) | 173,016 | ||||||
533,558 | ||||||||
United States: 2.4% | ||||||||
194,000 | Azul Investments LLP Reg S 5.88%, 10/26/21 (c) | 191,817 | ||||||
204,000 | Gran Tierra Energy, Inc. 144A 7.75%, 05/23/23 (c) | 201,042 | ||||||
392,859 | ||||||||
Total Corporate Bonds (Cost: $5,591,743) | 5,681,764 | |||||||
FOREIGN GOVERNMENT OBLIGATIONS: 60.9% | ||||||||
Argentina: 6.8% | ||||||||
Argentine Republic Government International Bonds | ||||||||
473,000 | 6.88%, 04/22/21 | 416,476 | ||||||
185,069 | 8.28%, 12/31/33 | 155,228 | ||||||
ARS | 3,917,000 | Autonomous City of Buenos Aires 56.07% (Argentina Deposit Rates Badlar Private Banks ARS 30 to 35 Days+5.00%), 01/23/22 (f) | 78,658 | |||||
23,992,000 | Provincia de Buenos Aires 54.53% (Argentina Deposit Rates Badlar Private Banks ARS 30 to 35 Days+3.83%), 05/31/22 (f) | 465,977 | ||||||
USD | 499 | Provincia de Buenos Aires Reg S 4.00%, 05/15/35 (s) | 306 | |||||
1,116,645 | ||||||||
Armenia: 1.3% | ||||||||
169,000 | Republic of Armenia International Bond 144A 7.15%, 03/26/25 | 195,322 | ||||||
15,000 | Republic of Armenia International Bond Reg S 7.15%, 03/26/25 | 17,336 | ||||||
212,658 | ||||||||
Azerbaijan: 2.1% | ||||||||
326,000 | Republic of Azerbaijan International Bond Reg S 5.13%, 09/01/29 | 341,812 |
See Notes to Financial Statements
12 |
Principal Amount | Value | |||||||
Belarus: 4.9% | ||||||||
BYN | 400,000 | Development Bank of the Republic of Belarus JSC 144A 12.00%, 05/15/22 | $ | 195,619 | ||||
USD | 208,000 | Republic of Belarus International Bond 144A 6.20%, 02/28/30 | 223,233 | |||||
351,000 | Republic of Belarus International Bond Reg S 6.88%, 02/28/23 | 378,532 | ||||||
797,384 | ||||||||
Brazil: 3.0% | ||||||||
BRL | 1,638,000 | Brazil Notas do Tesouro Nacional, Series F 10.00%, 01/01/25 (a) | 482,217 | |||||
Costa Rica: 2.9% | ||||||||
Costa Rica International Bonds Reg S | ||||||||
USD | 135,000 | 7.00%, 04/04/44 | 134,495 | |||||
344,000 | 7.16%, 03/12/45 | 346,153 | ||||||
480,648 | ||||||||
Dominican Republic: 2.0% | ||||||||
DOP | 7,700,000 | Dominican Republic International Bond 144A 9.75%, 06/05/26 | 154,923 | |||||
8,850,000 | Dominican Republic International Bond Reg S 8.90%, 02/15/23 | 174,254 | ||||||
329,177 | ||||||||
El Salvador: 3.9% | ||||||||
El Salvador Government International Bonds Reg S | ||||||||
USD | 151,000 | 5.88%, 01/30/25 | 151,002 | |||||
169,000 | 7.65%, 06/15/35 | 176,395 | ||||||
154,000 | 8.25%, 04/10/32 | 169,979 | ||||||
123,000 | 8.63%, 02/28/29 | 140,221 | ||||||
637,597 | ||||||||
Ghana: 5.4% | ||||||||
Ghana Government International Bonds Reg S | ||||||||
326,000 | 8.13%, 01/18/26 | 351,659 | ||||||
518,000 | 8.63%, 06/16/49 | 523,711 | ||||||
875,370 | ||||||||
Jamaica: 1.0% | ||||||||
130,000 | Jamaica Government International Bond 7.88%, 07/28/45 | 160,876 |
See Notes to Financial Statements
13 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
SCHEDULE OF INVESTMENTS
(unaudited) (continued)
Principal Amount | Value | |||||||
Jordan: 2.4% | ||||||||
USD | 177,000 | Jordan Government International Bond 144A 7.38%, 10/10/47 | $ | 183,185 | ||||
200,000 | Jordan Government International Bond Reg S 7.38%, 10/10/47 | 206,989 | ||||||
390,174 | ||||||||
Mexico: 2.9% | ||||||||
MXN | 8,550,000 | Mexican Bonos 8.50%, 11/18/38 | 477,130 | |||||
Mongolia: 2.8% | ||||||||
USD | 398,000 | Mongolia Government International Bond Reg S 8.75%, 03/09/24 | 449,981 | |||||
Nigeria: 6.0% | ||||||||
205,000 | Nigeria Government International Bond Reg S 7.88%, 02/16/32 | 214,862 | ||||||
Nigeria Government International Bonds 144A | ||||||||
134,000 | 7.63%, 11/21/25 | 146,646 | ||||||
540,000 | 9.25%, 01/21/49 | 612,669 | ||||||
974,177 | ||||||||
Peru: 5.0% | ||||||||
Peru Government Bonds Reg S 144A | ||||||||
PEN | 783,000 | 5.94%, 02/12/29 | 259,290 | |||||
954,000 | 6.15%, 08/12/32 (a) | 318,205 | ||||||
182,000 | Peru Government International Bond 144A 5.40%, 08/12/34 | 56,522 | ||||||
501,000 | Peru Government International Bond Reg S 6.90%, 08/12/37 | 177,947 | ||||||
811,964 | ||||||||
Tunisia: 3.8% | ||||||||
USD | 673,000 | Banque Centrale de Tunisie International Bond Reg S 5.75%, 01/30/25 | 628,003 | |||||
Ukraine: 2.0% | ||||||||
146,000 | Ukraine Government International Bond 144A 8.99%, 02/01/24 | 159,414 | ||||||
242,000 | Ukraine Government International Bond Reg S 0.00%, 05/31/40 (s) | 174,153 | ||||||
333,567 | ||||||||
United Kingdom: 2.7% | ||||||||
UAH | 11,900,000 | Ukreximbank Via Biz Finance Plc Reg S 16.50%, 03/02/21 | 446,932 | |||||
Total Foreign Government Obligations (Cost: $9,557,971) | 9,946,312 |
See Notes to Financial Statements
14 |
Number of Shares | Value | |||||||
COMMON STOCK: 0.0% | ||||||||
Mexico: 0.0% (Cost: $0) | ||||||||
10,247 | Corp. GEO SAB de CV * # ∞ | $ | 0 | |||||
MONEY MARKET FUND: 0.8% (Cost: $132,505) | ||||||||
USD | 132,505 | AIM Treasury Portfolio - Institutional Class | 132,505 | |||||
Total Investments: 96.5% (Cost: $15,282,219) | 15,760,581 | |||||||
Other assets less liabilities: 3.5% | 578,874 | |||||||
NET ASSETS: 100.0% | $ | 16,339,455 |
Definitions: | |
ARS | Argentine Peso |
BRL | Brazilian Real |
BYN | Belarusian Ruble |
DOP | Dominican Peso |
MXN | Mexican Peso |
PEN | Peruvian Nuevo Sol |
UAH | Ukrainian Hryvnia |
USD | United States Dollar |
Footnotes: | |
(a) | All or a portion of these securities are segregated for foreign forward currency contracts. |
(c) | Callable Security - the redemption date shown is when the security may be redeemed by the issuer |
(d) | Security in default of coupon payment |
(f) | Floating Rate Bond - coupon reflects the rate in effect at the end of the reporting period |
(s) | Step Bond - the rate shown reflects the rate in effect at the end of the reporting period. Coupon adjusts periodically based upon a predetermined schedule. |
* | Non-income producing |
∞ | Security is valued using significant unobservable inputs and is classified as Level 3 inthe fair value hierarchy. |
# | Security has been valued in good faith pursuant to guidelines established by the Board of Trustees. The aggregate value of fair valued securities is $0 which represents 0.0% of net assets. |
Reg S | Security was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. |
144A | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended, or otherwise restricted. These securities may be resold in transactions exempt from registration, unless otherwise noted, and the value amounted to $5,453,255, or 33.4% of net assets. |
See Notes to Financial Statements
15 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
SCHEDULE OF INVESTMENTS
(unaudited) (continued)
Schedule of Open Forward Foreign Currency Contracts – June 30, 2019
Counterparty | Currency to be sold | Currency to be purchased | Settlement Dates | Unrealized Appreciation (Depreciation) | |||||||||||
State Street Bank and Trust Company | USD | 118,998 | MYR | 492,057 | 7/10/2019 | $ | 60 | ||||||||
State Street Bank and Trust Company | MYR | 492,057 | USD | 118,425 | 7/10/2019 | (633 | ) | ||||||||
State Street Bank and Trust Company | USD | 319,892 | MXN | 6,150,282 | 7/11/2019 | 72 | |||||||||
State Street Bank and Trust Company | MXN | 4,731,741 | USD | 239,669 | 7/11/2019 | (6,496 | ) | ||||||||
State Street Bank and Trust Company | MXN | 1,547,306 | USD | 80,223 | 7/11/2019 | (274 | ) | ||||||||
State Street Bank and Trust Company | TRY | 475,461 | USD | 80,572 | 7/22/2019 | (595 | ) | ||||||||
State Street Bank and Trust Company | TRY | 477,101 | USD | 81,493 | 7/22/2019 | 47 | |||||||||
State Street Bank and Trust Company | TRY | 475,909 | USD | 81,095 | 7/22/2019 | (147 | ) | ||||||||
State Street Bank and Trust Company | TRY | 484,452 | USD | 81,805 | 7/22/2019 | (896 | ) | ||||||||
State Street Bank and Trust Company | USD | 48,753 | CLP | 33,162,042 | 7/29/2019 | 206 | |||||||||
State Street Bank and Trust Company | CLP | 387,262,462 | USD | 570,342 | 7/29/2019 | (1,394 | ) | ||||||||
Net unrealized depreciation on forward foreign currency contracts | $ | (10,050 | ) |
Definitions: | |
CLP | Chilean Peso |
MXN | Mexican Peso |
MYR | Malaysian Ringgit |
TRY | Turkish Lira |
USD | United States Dollar |
See Notes to Financial Statements
16 |
Summary of Investments by Sector | % of Investments | Value | |||||||
Basic Materials | 4.8 | % | $ | 756,794 | |||||
Communications | 1.2 | 181,040 | |||||||
Consumer, Cyclical | 4.9 | 775,596 | |||||||
Energy | 15.9 | 2,502,833 | |||||||
Financial | 6.8 | 1,076,451 | |||||||
Government | 63.1 | 9,946,312 | |||||||
Industrial | 2.5 | 389,050 | |||||||
Money Market Fund | 0.8 | 132,505 | |||||||
100.0 | % | $ | 15,760,581 |
The summary of inputs used to value the Fund’s investments as of June 30, 2019 is as follows:
Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Value | ||||||||||||||
Corporate Bonds* | $ | — | $ | 5,681,764 | $ | — | $ | 5,681,764 | |||||||||
Foreign Government Obligations* | — | 9,946,312 | — | 9,946,312 | |||||||||||||
Common Stocks* | — | — | 0 | 0 | |||||||||||||
Money Market Fund | 132,505 | — | — | 132,505 | |||||||||||||
Total | $ | 132,505 | $ | 15,628,076 | $ | 0 | $ | 15,760,581 | |||||||||
Other Financial Instruments: | |||||||||||||||||
Forward Foreign Currency Contracts | $ | — | $ | (10,050 | ) | $ | — | $ | (10,050 | ) | |||||||
* See Schedule of Investments for geographic sector breakouts. |
See Notes to Financial Statements
17 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2019 (unaudited)
Assets: | ||||
Investments, at value (Cost $15,282,219) | $ | 15,760,581 | ||
Cash denominated in foreign currency, at value (Cost $24) | 21 | |||
Receivables: | ||||
Investments sold | 817,948 | |||
Due from Adviser | 58,851 | |||
Dividends and interest | 357,606 | |||
Prepaid expenses | 97 | |||
Total assets | 16,995,104 | |||
Liabilities: | ||||
Payables: | ||||
Investments purchased | 495,871 | |||
Shares of beneficial interest redeemed | 1,372 | |||
Due to custodian | 28,047 | |||
Due to Distributor | 2,209 | |||
Deferred Trustee fees | 12,320 | |||
Accrued expenses | 105,780 | |||
Unrealized depreciation on forward foreign currency contracts | 10,050 | |||
Total liabilities | 655,649 | |||
NET ASSETS | $ | 16,339,455 | ||
Class A Shares: | ||||
Net Assets | $ | 5,159,054 | ||
Shares of beneficial interest outstanding | 787,106 | |||
Net asset value and redemption price per share | $ | 6.55 | ||
Maximum offering price per share (Net asset value per share ÷ 94.25%) . | $ | 6.95 | ||
Class C Shares: | ||||
Net Assets | $ | 1,524,816 | ||
Shares of beneficial interest outstanding | 241,048 | |||
Net asset value, offering and redemption price per share (Redemption may be subject to a contingent deferred sales charge within the first year of ownership) | $ | 6.33 | ||
Class I Shares: | ||||
Net Assets | $ | 6,439,941 | ||
Shares of beneficial interest outstanding | 969,392 | |||
Net asset value, offering and redemption price per share | $ | 6.64 | ||
Class Y Shares: | ||||
Net Assets | $ | 3,215,644 | ||
Shares of beneficial interest outstanding | 486,551 | |||
Net asset value, offering and redemption price per share | $ | 6.61 | ||
Net Assets consist of: | ||||
Aggregate paid in capital | $ | 48,652,697 | ||
Total distributable earnings (loss) | (32,313,242 | ) | ||
$ | 16,339,455 |
See Notes to Financial Statements
18 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
For the Six Months Ended June 30, 2019 (unaudited)
Income: | ||||||||
Dividends | $ | 5,592 | ||||||
Interest (net of foreign taxes withheld of $6,087) | 658,019 | |||||||
Total income | 663,611 | |||||||
Expenses: | ||||||||
Management fees | $ | 70,375 | ||||||
Distribution fees — Class A | 6,202 | |||||||
Distribution fees — Class C | 7,981 | |||||||
Transfer agent fees — Class A | 9,789 | |||||||
Transfer agent fees — Class C | 7,391 | |||||||
Transfer agent fees — Class I | 8,694 | |||||||
Transfer agent fees — Class Y | 9,564 | |||||||
Custodian fees | 9,977 | |||||||
Professional fees | 42,015 | |||||||
Registration fees — Class A | 22,791 | |||||||
Registration fees — Class C | 22,197 | |||||||
Registration fees — Class I | 22,322 | |||||||
Registration fees — Class Y | 22,198 | |||||||
Reports to shareholders | 12,506 | |||||||
Insurance | 1,035 | |||||||
Trustees’ fees and expenses | 855 | |||||||
Interest | 2,694 | |||||||
Other | 655 | |||||||
Total expenses | 279,241 | |||||||
Waiver of management fees | (70,375 | ) | ||||||
Expenses assumed by the Adviser | (106,250 | ) | ||||||
Net expenses | 102,616 | |||||||
Net investment income | 560,995 | |||||||
Net realized gain (loss) on: | ||||||||
Investments (net of foreign taxes of $4,786) | 329,175 | |||||||
Forward foreign currency contracts | 6,327 | |||||||
Foreign currency transactions and foreign denominated assets and liabilities | 749 | |||||||
Net realized gain | 336,251 | |||||||
Net change in unrealized appreciation (depreciation) on: | ||||||||
Investments (net of foreign taxes of $1,312) | 793,037 | |||||||
Forward foreign currency contracts | (10,050 | ) | ||||||
Foreign currency transactions and foreign denominated assets and liabilities | (583 | ) | ||||||
Net change in unrealized appreciation | 782,404 | |||||||
Net Increase in Net Assets Resulting from Operations | $ | 1,679,650 |
See Notes to Financial Statements
19 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended June 30, 2019 | Year Ended 2018 | ||||||||
(unaudited) | |||||||||
Operations: | |||||||||
Net investment income | $ | 560,995 | $ | 2,152,000 | |||||
Net realized gain (loss) | 336,251 | (3,628,928 | ) | ||||||
Net change in unrealized appreciation (depreciation) | �� | 782,404 | (1,085,060 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 1,679,650 | (2,561,988 | ) | ||||||
Distributions to shareholders: | |||||||||
Dividends and distributions | |||||||||
Class A Shares | (147,159 | ) | — | ||||||
Class C Shares | (28,712 | ) | — | ||||||
Class I Shares | (221,773 | ) | — | ||||||
Class Y Shares | (151,692 | ) | — | ||||||
(549,336 | ) | — | |||||||
Return of capital | |||||||||
Class A Shares | — | (345,906 | ) | ||||||
Class C Shares | — | (107,070 | ) | ||||||
Class I Shares | — | (1,437,225 | ) | ||||||
Class Y Shares | — | (471,089 | ) | ||||||
— | (2,361,290 | ) | |||||||
Total distributions | (549,336 | ) | (2,361,290 | ) | |||||
Share transactions: | |||||||||
Proceeds from sale of shares | |||||||||
Class A Shares | 101,790 | 369,249 | |||||||
Class C Shares | 45,743 | 161,154 | |||||||
Class I Shares | 305,692 | 656,158 | |||||||
Class Y Shares | 163,502 | 1,075,717 | |||||||
616,727 | 2,262,278 | ||||||||
Reinvestment of distributions | |||||||||
Class A Shares | 98,383 | 212,528 | |||||||
Class C Shares | 26,900 | 87,344 | |||||||
Class I Shares | 64,338 | 193,474 | |||||||
Class Y Shares | 134,897 | 365,743 | |||||||
324,518 | 859,089 | ||||||||
Cost of shares redeemed | |||||||||
Class A Shares | (153,343 | ) | (888,235 | ) | |||||
Class C Shares | (243,909 | ) | (856,227 | ) | |||||
Class I Shares | (4,267,456 | ) | (16,135,572 | ) | |||||
Class Y Shares | (2,268,732 | ) | (7,653,625 | ) | |||||
(6,933,440 | ) | (25,533,659 | ) | ||||||
Net decrease in net assets resulting from share transactions | (5,992,195 | ) | (22,412,292 | ) | |||||
Total decrease in net assets | (4,861,881 | ) | (27,335,570 | ) | |||||
Net Assets: | |||||||||
Beginning of period | 21,201,336 | 48,536,906 | |||||||
End of period | $ | 16,339,455 | $ | 21,201,336 |
See Notes to Financial Statements
20 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class A | |||||||||||||||||||||||||
For the Six | |||||||||||||||||||||||||
Months | |||||||||||||||||||||||||
Ended | |||||||||||||||||||||||||
June 30, | Year Ended December 31, | ||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||
Net asset value, beginning of period | $6.15 | $7.00 | $6.77 | $6.64 | $8.18 | $8.55 | |||||||||||||||||||
Income from investment operations: | |||||||||||||||||||||||||
Net investment income | 0.20 | (b) | 0.38 | (b) | 0.49 | (b) | 0.25 | 0.45 | 0.54 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.39 | (0.81 | ) | 0.29 | 0.15 | (1.53 | ) | (0.37 | ) | ||||||||||||||||
Total from investment operations | 0.59 | (0.43 | ) | 0.78 | 0.40 | (1.08 | ) | 0.17 | |||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||||||
Net investment income | (0.19 | ) | — | (0.55 | ) | (0.16 | ) | — | (0.38 | ) | |||||||||||||||
Return of capital | — | (0.42 | ) | — | (0.11 | ) | (0.46 | ) | (0.16 | ) | |||||||||||||||
Total dividends and distributions | (0.19 | ) | (0.42 | ) | (0.55 | ) | (0.27 | ) | (0.46 | ) | (0.54 | ) | |||||||||||||
Net asset value, end of period | $6.55 | $6.15 | $7.00 | $6.77 | $6.64 | $8.18 | |||||||||||||||||||
Total return (a) | 9.67 | %(c) | (6.39 | )% | 11.68 | % | 6.06 | % | (13.60 | )% | 1.83 | % | |||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||||||
Net assets, end of period (000’s) | $5,159 | $4,793 | $5,821 | $8,657 | $11,763 | $36,990 | |||||||||||||||||||
Ratio of gross expenses to average net assets | 3.15 | %(d) | 2.05 | % | 1.71 | % | 1.68 | % | 1.44 | % | 1.32 | % | |||||||||||||
Ratio of net expenses to average net assets | 1.28 | %(d) | 1.26 | % | 1.26 | % | 1.25 | % | 1.25 | % | 1.25 | % | |||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 1.25 | %(d) | 1.25 | % | 1.25 | % | 1.25 | % | 1.25 | % | 1.25 | % | |||||||||||||
Ratio of net investment income to average net assets | 6.30 | %(d) | 5.78 | % | 7.02 | % | 3.70 | % | 5.63 | % | 6.04 | % | |||||||||||||
Portfolio turnover rate | 160 | %(c) | 269 | % | 568 | % | 546 | % | 605 | % | 410 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized. |
(d) | Annualized. |
See Notes to Financial Statements
21
UNCONSTRAINED EMERGING MARKETS BOND FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class C | |||||||||||||||||||||||||
For the Six | |||||||||||||||||||||||||
Months | |||||||||||||||||||||||||
Ended | |||||||||||||||||||||||||
June 30, | Year Ended December 31, | ||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||
Net asset value, beginning of period | $5.88 | $6.68 | $6.53 | $6.45 | $8.02 | $8.45 | |||||||||||||||||||
Income from investment operations: | |||||||||||||||||||||||||
Net investment income | 0.17 | (b) | 0.32 | (b) | 0.43 | (b) | 0.21 | 0.37 | 0.46 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.39 | (0.79 | ) | 0.27 | 0.14 | (1.48 | ) | (0.35 | ) | ||||||||||||||||
Total from investment operations | 0.56 | (0.47 | ) | 0.70 | 0.35 | (1.11 | ) | 0.11 | |||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||||||
Net investment income | (0.11 | ) | — | (0.55 | ) | (0.16 | ) | — | (0.38 | ) | |||||||||||||||
Return of capital | — | (0.33 | ) | — | (0.11 | ) | (0.46 | ) | (0.16 | ) | |||||||||||||||
Total dividends and distributions | (0.11 | ) | (0.33 | ) | (0.55 | ) | (0.27 | ) | (0.46 | ) | (0.54 | ) | |||||||||||||
Net asset value, end of period | $6.33 | $5.88 | $6.68 | $6.53 | $6.45 | $8.02 | |||||||||||||||||||
Total return (a) | 9.60 | %(c) | (7.15 | )% | 10.86 | % | 5.45 | % | (14.26 | )% | 1.11 | % | |||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||||||
Net assets, end of period (000’s) | $1,525 | $1,582 | $2,447 | $2,723 | $3,669 | $6,714 | |||||||||||||||||||
Ratio of gross expenses to average net assets | 6.31 | %(d) | 3.53 | % | 3.38 | % | 3.01 | % | 2.68 | % | 2.60 | % | |||||||||||||
Ratio of net expenses to average net assets | 1.98 | %(d) | 1.96 | % | 1.96 | % | 1.95 | % | 1.95 | % | 1.95 | % | |||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 1.95 | %(d) | 1.95 | % | 1.95 | % | 1.95 | % | 1.95 | % | 1.95 | % | |||||||||||||
Ratio of net investment income to average net assets | 5.57 | %(d) | 5.01 | % | 6.38 | % | 3.20 | % | 4.93 | % | 5.37 | % | |||||||||||||
Portfolio turnover rate | 160 | %(c) | 269 | % | 568 | % | 546 | % | 605 | % | 410 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized. |
(d) | Annualized. |
See Notes to Financial Statements
22
UNCONSTRAINED EMERGING MARKETS BOND FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class I | |||||||||||||||||||||||||
For the Six | |||||||||||||||||||||||||
Months | |||||||||||||||||||||||||
Ended | |||||||||||||||||||||||||
June 30, | Year Ended December 31, | ||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||
Net asset value, beginning of period | $6.25 | $7.13 | $6.87 | $6.71 | $8.23 | $8.58 | |||||||||||||||||||
Income from investment operations: | |||||||||||||||||||||||||
Net investment income | 0.21 | (b) | 0.40 | (b) | 0.51 | (b) | 0.31 | 0.47 | 0.55 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.41 | (0.83 | ) | 0.30 | 0.12 | (1.53 | ) | (0.36 | ) | ||||||||||||||||
Total from investment operations | 0.62 | (0.43 | ) | 0.81 | 0.43 | (1.06 | ) | 0.19 | |||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||||||
Net investment income | (0.23 | ) | — | (0.55 | ) | (0.16 | ) | — | (0.38 | ) | |||||||||||||||
Return of capital | — | (0.45 | ) | — | (0.11 | ) | (0.46 | ) | (0.16 | ) | |||||||||||||||
Total dividends and distributions | (0.23 | ) | (0.45 | ) | (0.55 | ) | (0.27 | ) | (0.46 | ) | (0.54 | ) | |||||||||||||
Net asset value, end of period | $6.64 | $6.25 | $7.13 | $6.87 | $6.71 | $8.23 | |||||||||||||||||||
Total return (a) | 9.97 | %(c) | (6.21 | )% | 11.96 | % | 6.45 | % | (13.27 | )% | 2.06 | % | |||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||||||
Net assets, end of period (000’s) | $6,440 | $9,902 | $28,261 | $82,960 | $130,494 | $135,421 | |||||||||||||||||||
Ratio of gross expenses to average net assets | 2.55 | %(d) | 1.33 | % | 1.06 | % | 0.96 | % | 0.94 | % | 0.95 | % | |||||||||||||
Ratio of net expenses to average net assets | 0.98 | %(d) | 0.96 | % | 0.96 | % | 0.95 | % | 0.94 | % | 0.95 | % | |||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 0.95 | %(d) | 0.95 | % | 0.95 | % | 0.95 | % | 0.94 | % | 0.95 | % | |||||||||||||
Ratio of net investment income to average net assets | 6.60 | %(d) | 5.91 | % | 7.08 | % | 4.37 | % | 6.27 | % | 6.38 | % | |||||||||||||
Portfolio turnover rate | 160 | %(c) | 269 | % | 568 | % | 546 | % | 605 | % | 410 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized. |
(d) | Annualized. |
See Notes to Financial Statements
23
UNCONSTRAINED EMERGING MARKETS BOND FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class Y | |||||||||||||||||||||||||
For the Six | |||||||||||||||||||||||||
Months | |||||||||||||||||||||||||
Ended | |||||||||||||||||||||||||
June 30, | Year Ended December 31, | ||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||
Net asset value, beginning of period | $6.23 | $7.10 | $6.84 | $6.69 | $8.22 | $8.57 | |||||||||||||||||||
Income from investment operations: | |||||||||||||||||||||||||
Net investment income | 0.20 | (b) | 0.39 | (b) | 0.51 | (b) | 0.29 | 0.48 | 0.50 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.41 | (0.82 | ) | 0.30 | 0.13 | (1.55 | ) | (0.31 | ) | ||||||||||||||||
Total from investment operations | 0.61 | (0.43 | ) | 0.81 | 0.42 | (1.07 | ) | 0.19 | |||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||||||
Net investment income | (0.23 | ) | — | (0.55 | ) | (0.16 | ) | — | (0.38 | ) | |||||||||||||||
Return of capital | — | (0.44 | ) | — | (0.11 | ) | (0.46 | ) | (0.16 | ) | |||||||||||||||
Total dividends and distributions | (0.23 | ) | (0.44 | ) | (0.55 | ) | (0.27 | ) | (0.46 | ) | (0.54 | ) | |||||||||||||
Net asset value, end of period | $6.61 | $6.23 | $7.10 | $6.84 | $6.69 | $8.22 | |||||||||||||||||||
Total return (a) | 9.98 | %(c) | (6.30 | )% | 12.01 | % | 6.32 | % | (13.41 | )% | 2.06 | % | |||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||||||
Net assets, end of period (000’s) | $3,216 | $4,924 | $12,008 | $22,970 | $22,505 | $47,564 | |||||||||||||||||||
Ratio of gross expenses to average net assets | 3.02 | %(d) | 1.65 | % | 1.30 | % | 1.19 | % | 1.07 | % | 1.08 | % | |||||||||||||
Ratio of net expenses to average net assets | 1.03 | %(d) | 1.01 | % | 1.01 | % | 1.00 | % | 1.00 | % | 1.00 | % | |||||||||||||
Ratio of net expenses to average net assets, excluding interest expense | 1.00 | %(d) | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | |||||||||||||
Ratio of net investment income to average net assets | 6.37 | %(d) | 5.83 | % | 7.15 | % | 4.12 | % | 6.08 | % | 6.14 | % | |||||||||||||
Portfolio turnover rate | 160 | %(c) | 269 | % | 568 | % | 546 | % | 605 | % | 410 | % |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized. |
(d) | Annualized. |
See Notes to Financial Statements
24
UNCONSTRAINED EMERGING MARKETS BOND FUND
June 30, 2019 (unaudited)
Note 1—Fund Organization—VanEck Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Trust was organized as a Massachusetts business trust on April 3, 1985. The Unconstrained Emerging Markets Bond Fund (the “Fund”) is a non-diversified series of the Trust and seeks total return, consisting of income and capital appreciation by investing primarily in emerging market debt securities. The Fund currently offers four classes of shares: Class A, C, I and Y shares. Each share class represents an interest in the same portfolio of investments of the Fund and is substantially the same in all respects, except that the classes are subject to different distribution fees and sales charges. Class I and Y Shares are sold without a sales charge; Class A Shares are sold subject to a front-end sales charge; and Class C Shares are sold with a contingent deferred sales charge.
Note 2—Significant Accounting Policies—The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The Fund is an investment company and follows accounting and reporting requirements of Accounting Standards Codification (“ASC”) 946Financial Services — Investment Companies.
The following is a summary of significant accounting policies followed by the Fund.
A. | Security Valuation—The Fund values its investments in securities and other assets and liabilities at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Debt securities are valued on the basis of evaluated prices furnished by an independent pricing service approved by the Fund’s Board of Trustees or provided by securities dealers. The pricing services may use valuation models or matrix pricing, which consider: (i) yield or price with respect to bonds that are considered comparable in characteristics such as rating, interest rate and maturity date and/or (ii) quotations from bond dealers to determine current value and are categorized as Level 2 in the fair value hierarchy (as described below). Short-term debt securities with sixty days or less to maturity are valued at amortized cost, which with accrued interest approximates fair value. Money market fund investments are valued at net asset value and are categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are valued at the spot currency rate |
25 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
plus an amount (“points”), which reflects the differences in interest rates between the U.S. and foreign markets and are categorized as Level 2 in the fair value hierarchy. Securities traded on national exchanges or traded on the NASDAQ Stock Market LLC (“NASDAQ”) are valued at the last sales price as reported at the close of each business day. Securities traded on NASDAQ are valued at the NASDAQ official closing price. Over-the-counter securities not included in the NASDAQ and listed securities for which no sale was reported are valued at the mean of the bid and ask prices. To the extent these securities are actively traded they are categorized as Level 1 in the fair value hierarchy. The Pricing Committee of Van Eck Associates Corporation (the “Adviser”) provides oversight of the Fund’s valuation policies and procedures, which are approved by the Fund’s Board of Trustees. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and other market sources to determine fair value. The Pricing Committee convenes regularly to review the fair value of financial instruments or other assets. If market quotations for a security or other asset are not readily available, or if the Adviser believes it does not otherwise reflect the fair value of a security or asset, the security or asset will be fair valued by the Pricing Committee in accordance with the Fund’s valuation policies and procedures. The Pricing Committee employs various methods for calibrating the valuation approaches utilized to determine fair value, including a regular review of key inputs and assumptions, periodic comparisons to valuations provided by other independent pricing services, transactional back-testing and disposition analysis.
Certain factors such as economic conditions, political events, market trends, the nature of and duration of any restrictions on disposition, trading in similar securities of the issuer or comparable issuers and other security specific information are used to determine the fair value of these securities. Depending on the relative significance of valuation inputs, these securities may be classified either as Level 2 or Level 3 in the fair value hierarchy. The price which the Fund may realize upon sale of an investment may differ materially from the value presented in the Schedule of Investments.
The Fund utilizes various methods to measure the fair value of its investments on a recurring basis, which includes a hierarchy that prioritizes inputs to valuation methods used to measure fair value. The fair value hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The inputs or methodologies used for valuing securities are not necessarily an indication
26 |
of the risk associated with investing in those securities. The three levels of the fair value hierarchy are described below:
Level 1 – | Quoted prices in active markets for identical securities. |
Level 2 – | Significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). |
Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
A summary of the inputs and the levels used to value the Fund’s investments are located in the Schedule of Investments. Additionally, tables that reconcile the valuation of the Fund’s Level 3 investments, and that present additional information about the valuation methodologies and unobservable inputs, if applicable, are located in the Schedule of Investments.
B. | Federal Income Taxes—It is the Fund’s policy to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net investment income and net realized capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. |
C. | Currency Translation—Assets and liabilities denominated in foreign currencies and commitments under foreign currency contracts are translated into U.S. dollars at the closing prices of such currencies each business day as quoted by one or more sources. Purchases and sales of investments are translated at the exchange rates prevailing when such investments are acquired or sold. Foreign denominated income and expenses are translated at the exchange rates prevailing when accrued. The portion of realized and unrealized gains and losses on investments that result from fluctuations in foreign currency exchange rates is not separately disclosed in the financial statements. Such amounts are included with the net realized and unrealized gains and losses on investment securities in the Statement of Operations. Recognized gains or losses attributable to foreign currency fluctuations on foreign currency denominated assets, other than investments and forward foreign currency contracts, and liabilities are recorded as net realized gain (loss) and net change in unrealized appreciation (depreciation) on foreign currency transactions and foreign denominated assets and liabilities in the Statement of Operations. The total net realized gains and losses from fluctuations of foreign exchange rates on investments and other foreign currency denominated assets and liabilities are disclosed in Note 5 – Income Taxes. |
27 |
UNCONSTRAINED EMERGING MARKETS BOND FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
D. | Dividends and Distributions to Shareholders—Dividends to shareholders from net investment income, if any, are declared and paid at least monthly. Distributions from net realized capital gains, if any, generally are declared and paid annually. Income dividends and capital gain distributions are determined in accordance with U.S. income tax regulations, which may differ from such amounts determined in accordance with GAAP. |
E. | Use of Derivative Instruments—The Fund may make investments in derivative instruments, including, but not limited to, options, futures, swaps and other derivatives relating to foreign currency transactions. A derivative is an instrument whose value is derived from underlying assets, indices, reference rates or a combination of these factors. Derivative instruments may be privately negotiated contracts (often referred to as over-the-counter (“OTC”) derivatives) or they may be listed and traded on an exchange. Derivative contracts may involve future commitments to purchase or sell financial instruments or commodities at specified terms on a specified date, or to exchange interest payment streams or currencies based on a notional or contractual amount. Derivative instruments may involve a high degree of financial risk. The use of derivative instruments also involves the risk of loss if the investment adviser is incorrect in its expectation of the timing or level of fluctuations in securities prices, interest rates or currency prices. Investments in derivative instruments also include the risk of default by the counterparty, the risk that the investment may not be liquid and the risk that a small movement in the price of the underlying security or benchmark may result in a disproportionately large movement, unfavorable or favorable, in the price of the derivative instrument. Details of this disclosure are found below as well as in the Schedule of Investments. |
Forward Foreign Currency Contracts—The Fund is subject to foreign currency risk in the normal course of pursuing its investment objectives. The Fund may buy and sell forward foreign currency contracts to settle purchases and sales of foreign denominated securities, gain currency exposure, or to hedge foreign denominated assets. Realized gains and losses from forward foreign currency contracts, if any, are included in net realized gain (loss) on forward foreign currency contracts in the Statement of Operations. During the period ended June 30, 2019, the Fund held forward foreign currency contracts for each of the six months. The average amounts purchased and sold (in U.S. dollars) were $434,243 and $434,221, respectively. Forward foreign currency contracts held at June 30, 2019 are reflected in the Schedule of Open Forward Foreign Currency Contracts. |
28 |
At June 30, 2019, the Fund held the following derivative instruments:
Liabilities Derivatives | ||
Foreign Currency Risk | ||
Foreign forward currency contracts1 | $10,050 |
1 | Statement of Assets and Liabilities location: Unrealized depreciation on forward foreign currency contracts |
The impact of transactions in derivatives instruments during the period ended June 30, 2019 was as follows:
Foreign Currency Risk | ||||
Realized gain (loss): | ||||
Foreign forward currency contracts1 | $ 6,327 | |||
Net change in unrealized appreciation (depreciation): | ||||
Foreign forward currency contracts2 | (10,050 | ) |
1 | Statement of Operations location: Net realized gain (loss) on forward foreign currency contracts |
2 | Statement of Operations location: Net change in unrealized appreciation (depreciation) on forward foreign currency contracts |
F. | Offsetting Assets and Liabilities—In the ordinary course of business, the Fund enters into transactions subject to enforceable master netting or other similar agreements. Generally, the right of setoff in those agreements allows the Fund to set off any exposure to a specific counterparty with any collateral received or delivered to that counterparty based on the terms of the agreements. The Fund may pledge or receive cash and/or securities as collateral for derivative instruments. Collateral held, if any, at June 30, 2019 is presented in the Schedule of Investments. |
The table below presents both gross and net information about the derivative instruments eligible for offset in the Statement of Assets and Liabilities subject to a master netting or similar agreements, as well as financial collateral received or pledged (including cash collateral) as of June 30, 2019. The total amount of collateral reported, if any, is limited to the net amounts of financial assets and liabilities presented in the Statement of Assets and Liabilities for the respective financial instruments. In general, collateral received or pledged exceeds the net amount of the unrealized gain/loss or market value of financial instruments. |
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UNCONSTRAINED EMERGING MARKETS BOND FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
Gross Amount of Recognized Assets | Gross Amount Offset in the Statement of Assets and Liabilities | Net Amount of Assets Presented in the Statement of Assets and Liabilities | Financial Instruments and Collateral Received | Net Amount | ||||||||||||||||||||
Forward foreign currency contracts | $ | 385 | $ | (385 | ) | $ | — | $ | — | $ | — | |||||||||||||
Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts of Liabilities Presented in the Statements of Assets and Liabilities | Financial Instruments and Collateral Pledged | Net Amount | ||||||||||||||||||||
Foreign forward currency contracts | $ | (10,435 | ) | $ | 385 | $ | (10,050 | ) | $ | 10,050 | $ | — |
G. | Other—Security transactions are accounted for on trade date. Realized gains and losses are determined based on the specific identification method. Dividend income is recorded on the ex-dividend date. Interest income, including amortization of premiums and discounts, is accrued as earned. Income, non-class specific expenses, gains and losses on investments are allocated based on the relative net assets of each class. Expenses directly attributable to a specific class are charged to that class. |
In the normal course of business, the Fund enters into contracts that contain a variety of general indemnifications. The Fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Adviser believes the risk of loss under these arrangements to be remote. |
Note 3—Investment Management and Other Agreements—The Adviser is the investment adviser to the Fund. The Adviser receives a management fee, calculated daily and payable monthly based on an annual rate of 0.80% of the first $1.5 billion of average daily net assets and 0.75% of the average daily net assets in excess of $1.5 billion. The Adviser has agreed, until at least May 1, 2020, to waive management fees and/or pay Fund expenses to prevent the Fund’s annual operating expenses (excluding acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses) from exceeding expense limitations listed in the table below.
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The current expense limitations and the amounts waived by the Adviser for the period ended June 30, 2019, are as follows:
Expense Limitation | Waiver of Management Fees | Expenses Assumed by the Adviser | ||||||||||
Unconstrained Emerging Markets Bond Fund | ||||||||||||
Class A | 1.25 | % | $ | 19,890 | $ | 26,650 | ||||||
Class C | 1.95 | 6,393 | 28,110 | |||||||||
Class I | 0.95 | 26,141 | 24,830 | |||||||||
Class Y | 1.00 | 17,951 | 26,660 |
For the period ended June 30, 2019, Van Eck Securities Corporation (the “Distributor”), an affiliate and wholly-owned subsidiary of the Adviser, received a total of $1,791 in sales loads relating to the sale of shares of the Fund, of which $1,560 was reallowed to broker/dealers and the remaining $231 was retained by the Distributor.
Certain officers of the Trust are officers, directors or stockholders of the Adviser and the Distributor.
Note 4—Investments—For the period ended June 30, 2019, the cost of purchases and proceeds from sales of investments, excluding U.S. Government securities and short-term obligations, aggregated $27,647,057 and $33,806,907, respectively.
Note 5—Income Taxes—As of June 30, 2019, for Federal income tax purposes, the identified cost of investments owned, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) of investments were as follows:
Tax Cost of Investments | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | |||
$15,346,173 | $619,227 | $(204,819) | $414,408 |
The tax character of dividends paid during the year ended December 31, 2018 was as follows:
Return of capital | $2,361,290 |
The tax character of current year distributions will be determined at the end of the current fiscal year.
At December 31, 2018, the Fund had capital loss carryforwards available to offset future capital gains as follows:
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UNCONSTRAINED EMERGING MARKETS BOND FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
Short-Term Capital Losses With No Expiration | Long-Term Capital Losses With No Expiration | Total | ||
$(32,070,018) | $(880,904) | $(32,950,922) |
Realized gains or losses attributable to fluctuations in foreign exchange rates on investments and other foreign currency denominated assets and liabilities result in permanent book to tax differences which may affect the tax character of distributions and undistributed net investment income at the end of the Fund’s fiscal year. For the period January 1, 2019 to June 30, 2019, the Fund’s net realized gains from foreign currency translations were $10,326.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more-likely-than-not” to be sustained assuming examination by applicable tax authorities. Management has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on return filings for all open tax years. The Fund does not have exposure for additional years that might still be open in certain foreign jurisdictions. Therefore, no provision for income tax is required in the Fund’s financial statements. However, the Fund may be subject to foreign taxes on the appreciation in value of certain investments. The Fund provides for such taxes, if any, on both realized and unrealized appreciation.
The Fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended June 30, 2019, the Fund did not incur any interest or penalties.
Note 6—Principal Risks—The Fund may purchase securities on foreign exchanges. Securities of foreign issuers involve special risks and considerations not typically associated with investing in U.S. issuers. These risks include devaluation of currencies, less reliable information about issuers, different securities transaction clearance and settlement practices, and future adverse political and economic developments. These risks are heightened for investments in emerging market countries. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than those of comparable U.S. issuers. The Fund may invest in debt securities which are rated below investment grade by rating agencies. Such securities involve more risk of default than higher rated securities and are subject to greater price variability.
The Fund may invest directly in the Russian local market. As a result of events involving the United States and the European Union (“EU”) have imposed sanctions on certain Russian individuals and companies. These sanctions do
32 |
not currently impact the Fund. Additional economic sanctions may be imposed or other actions may be taken that may adversely affect the value and liquidity of the Russian-related issuers held by the Fund.
A more complete description of risks is included in the Fund’s prospectus and Statement of Additional Information.
Note 7—12b-1 Plan of Distribution—Pursuant to a Rule 12b-1 Plan of Distribution (the “Plan”), the Fund is authorized to incur distribution expenses which will principally be payments to securities dealers who have sold shares and serviced shareholder accounts, and payments to the Distributor for reimbursement of other actual promotion and distribution expenses incurred by the Distributor on behalf of the Fund. The amount paid under the Plan in any one year is limited to 0.25% of average daily net assets for Class A Shares and 1.00% of average daily net assets for Class C Shares, and is recorded as Distribution fees in the Statement of Operations.
Note 8—Shareholder Transactions—Shares of beneficial interest issued, reinvested and redeemed (unlimited number of $0.001 par value shares authorized):
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | |||||||
(unaudited) | ||||||||
Class A | ||||||||
Shares sold | 15,625 | 55,123 | ||||||
Shares reinvested | 15,366 | 32,416 | ||||||
Shares redeemed | (23,902 | ) | (138,727 | ) | ||||
Net increase (decrease) | 7,089 | (51,188 | ) | |||||
Class C | ||||||||
Shares sold | 7,432 | 27,080 | ||||||
Shares reinvested | 4,387 | 13,956 | ||||||
Shares redeemed | (39,614 | ) | (138,265 | ) | ||||
Net decrease | (27,795 | ) | (97,229 | ) | ||||
Class I | ||||||||
Shares sold | 46,301 | 98,335 | ||||||
Shares reinvested | 9,882 | 28,716 | ||||||
Shares redeemed | (670,896 | ) | (2,505,934 | ) | ||||
Net decrease | (614,713 | ) | (2,378,883 | ) | ||||
Class Y | ||||||||
Shares sold | 24,908 | 156,095 | ||||||
Shares reinvested | 20,804 | 54,737 | ||||||
Shares redeemed | (349,365 | ) | (1,112,357 | ) | ||||
Net decrease | (303,653 | ) | (901,525 | ) |
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UNCONSTRAINED EMERGING MARKETS BOND FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
Note 9—Bank Line of Credit—The Trust may participate with VanEck VIP Funds (collectively the “VE/VIP Funds”) in a $30 million committed credit facility (the “Facility”) to be utilized for temporary financing until the settlement of sales or purchases of portfolio securities, the repurchase or redemption of shares of the Fund and other temporary or emergency purposes. The participating VE/VIP Funds have agreed to pay commitment fees, pro rata, based on the unused but available balance. Interest is charged to the VE/VIP Funds at rates based on prevailing market rates in effect at the time of borrowings. During the period ended June 30, 2019, the average daily loan balance during the 11 day period for which a loan was outstanding amounted to $1,145,803 and the average interest rate was 3.73%. At June 30, 2019, the Fund had no outstanding borrowings under the Facility.
Note 10—Trustee Deferred Compensation Plan—The Trust has a Deferred Compensation Plan (the “Deferred Plan”), for Trustees under which the Trustees can elect to defer receipt of their trustee fees until retirement, disability or termination from the Board of Trustees. The fees otherwise payable to the participating Trustees are deemed invested in eligible shares of the VE/VIP Funds as directed by the Trustees.
The expense for the Deferred Plan is included in “Trustees’ fees and expenses” in the Statement of Operations. The liability for the Deferred Plan is shown as “Deferred Trustee fees” in the Statement of Assets and Liabilities.
Note 11—Recent Accounting Pronouncements—Effective January 1, 2019, the Fund adopted Accounting Standards Update No. 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities(“ASU 2017-08”), that shortens the amortization period for certain purchased callable debt securities held at premium to the earliest call date. The new guidance does not change the accounting for purchased callable debt securities held at a discount. The adoption of ASU 2017-08 had no material effect on financial statements and related disclosures.
The Fund early adopted certain provisions of Accounting Standards Update No. 2018-13Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement(“ASU 2018-13”) that eliminate and modify certain disclosure requirements for fair value measurements. The adoption of certain provisions of the ASU 2018-13 had no material effect on financial statements and related disclosures. Management is currently evaluating the potential impact of additional requirements, not yet adopted, to financial statements. The ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.
34 |
Note 12—Subsequent Event Review—The Fund has evaluated subsequent events and transactions for potential recognition or disclosure through the date the financial statements were issued.
35 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited)
UNCONSTRAINED EMERGING MARKETS BOND FUND
(the “Fund”)
The Investment Company Act of 1940, as amended (the “1940 Act”), provides, in substance, that an investment advisory agreement between a fund and its investment adviser may be entered into only if it is approved, and may continue in effect from year to year after an initial two-year period only if its continuance is approved, at least annually by the fund’s board of trustees, including by a vote of a majority of the trustees who are not “interested persons” of the fund as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of considering such approval. On June 21, 2019, the Board of Trustees (the “Board”) of VanEck Funds (the “Trust”), which is comprised exclusively of Independent Trustees, voted to approve the continuation of the existing advisory agreement (the “Advisory Agreement”) between the Fund and its investment adviser, Van Eck Associates Corporation (together with its affiliated companies, the “Adviser”). Information regarding the material factors considered and related conclusions reached by the Board in approving the continuation of the Fund’s Advisory Agreement is set forth below.
In considering the continuation of the Advisory Agreement, the Board reviewed and considered information that had been provided by the Adviser throughout the year at meetings of the Board and its committees, including information requested by the Board and furnished by the Adviser for meetings of the Board held on June 5, 2019 and June 21, 2019 specifically for the purpose of considering the continuation of the Advisory Agreement. The written and oral reports provided to the Board included, among other things, the following:
■ | Information about the overall organization of the Adviser and the Adviser’s short-term and long-term business plans with respect to its mutual fund operations and other lines of business; |
■ | The consolidated financial statements of the Adviser for the past two fiscal years; |
■ | A copy of the Advisory Agreement and descriptions of the services provided by the Adviser thereunder; |
■ | Information regarding the qualifications, education and experience of the investment professionals responsible for portfolio management, investment research and trading activities for the |
36 |
Fund, the structure of their compensation and the resources available to support these activities;
■ | A report prepared by an independent consultant comparing the Fund’s investment performance gross of expenses for a representative class of shares (including, where relevant, total returns, standard deviations, Sharpe ratios, information ratios, beta and alpha) for the one-, three-, five- and ten-year periods (as applicable) ended March 31, 2019 with the investment performance of (i) a universe of mutual funds selected by the independent consultant with similar investment characteristics, utilizing for these purposes the oldest share class of each fund gross of expenses (the “Performance Category”), (ii) a sub-group of funds selected from the Performance Category by the independent consultant further limited to approximate more closely the Fund’s investment style without regard to asset size (the “Performance Peer Group”), and (iii) an appropriate benchmark index; |
■ | A report prepared by an independent consultant comparing the advisory fees and other expenses of a representative class of shares of the Fund during its fiscal year ended December 31, 2018 with a similar share class of (i) funds in the Performance Category that have the same share class (the “Expense Category”) and (ii) a sub-set of the funds that comprise the Performance Peer Group that have the same share class (the “Expense Peer Group”); |
■ | An analysis of the profitability of the Adviser with respect to its services for the Fund and the VanEck complex of mutual funds as a whole (the “VanEck Complex”); |
■ | Information regarding other investment products and services offered by the Adviser involving investment objectives and strategies similar to the Fund (“Comparable Products”), including the fees charged by the Adviser for managing the Comparable Products, a description of material differences and similarities in the services provided by the Adviser for the Fund and the Comparable Products, the sizes of the Comparable Products and the identity of the individuals responsible for managing the Comparable Products; |
■ | Information concerning the Adviser’s compliance program, the resources devoted to compliance efforts undertaken by the Adviser on behalf of the Fund, and reports regarding a variety of compliance-related issues; |
37 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited) (continued)
■ | Information with respect to the Adviser’s brokerage practices, including the Adviser’s processes for monitoring best execution of portfolio transactions and the benefits received by the Adviser from research acquired with soft dollars; |
■ | Information regarding the procedures used by the Adviser in monitoring the valuation of portfolio securities, including the methodologies used in making fair value determinations, and the Adviser’s due diligence process for recommending the selection of pricing vendors and monitoring the quality of the inputs provided by such vendors; |
■ | Information regarding how the Adviser safeguards the confidentiality and integrity of its data and files (both physical and electronic), as well as of any communications with third parties containing Fund and shareholder information, including reports regarding the Adviser’s cybersecurity framework and its implementation, the identification and monitoring of cybersecurity risks (including the risks that arise out of arrangements with third party service providers), the Adviser’s cybersecurity response policy and other initiatives of the Adviser to mitigate cybersecurity risks; |
■ | Information regarding the Adviser’s policies and practices with respect to personal investing by the Adviser and its employees, including reports regarding the administration of the Adviser’s code of ethics and the Adviser’s policy with respect to investments in the Fund by the Adviser’s investment personnel; |
■ | Information regarding the Adviser’s investment process for the Fund, including how the Adviser integrates non-accounting-based information (including, but not limited to “environmental, social and governance” factors) and the non-security-selection, non-portfolio-construction activities of the investment teams, such as engagement with portfolio companies and industry group participation; |
■ | Information regarding the Adviser’s role as the administrator of the Trust’s liquidity risk management program; |
■ | Descriptions of sub-transfer agency, omnibus account and other shareholder servicing arrangements for the Fund with intermediaries (collectively, “Servicing Arrangements”), including a description of the services provided by the intermediaries pursuant to such Servicing Arrangements and the payment terms of the Servicing Arrangements, as well as reports regarding the amounts paid pursuant to the Servicing Arrangements and the |
38 |
amounts paid to intermediaries with respect to the Fund by the Adviser pursuant to any revenue sharing arrangements and Servicing Arrangements (to the extent not paid by the Fund); | |
■ | Descriptions of other administrative and other non-investment management services provided by the Adviser for the Fund, including the Adviser’s activities in managing relationships with the Fund’s custodian, transfer agent and other service providers; and |
■ | Other information provided by the Adviser in its response to a comprehensive questionnaire prepared by independent legal counsel on behalf of the Independent Trustees. |
In determining whether to approve the continuation of the Advisory Agreement, the Board considered, among other things, the following: (1) the nature, quality, extent and cost of the investment management, administrative and other non-investment management services provided by the Adviser; (2) the nature, quality and extent of the services performed by the Adviser in interfacing with, and monitoring the services performed by, third parties, such as the Fund’s custodian, transfer agent, sub-transfer agents and independent auditor, and the Adviser’s commitment and efforts to review the quality and pricing of third party service providers to the Fund with a view to reducing non-management expenses of the Fund; (3) the terms of the Advisory Agreement and the services performed thereunder; (4) the willingness of the Adviser to reduce the overall expenses of the Fund from time to time, if necessary or appropriate, by means of waiving a portion of its fees or paying expenses of the Fund; (5) the quality of the services, procedures and processes used to determine the value of the Fund’s assets and the actions taken to monitor and test the effectiveness of such services, procedures and processes; (6) the ongoing efforts of, and resources devoted by, the Adviser with respect to the development and implementation of a comprehensive compliance program; (7) the responsiveness of the Adviser to inquiries from, and examinations by, regulatory authorities, including the Securities and Exchange Commission; (8) the resources committed by the Adviser in recent periods to information technology and cybersecurity; and (9) the ability of the Adviser to attract and retain quality professional personnel to perform investment advisory and administrative services for the Fund.
The Board considered the fact that the Adviser is managing other investment products, including exchange-traded funds, private funds,
39 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited) (continued)
separate accounts and UCITs, one or more of which may invest in the same financial markets and may be managed by the same investment professionals according to a similar investment objective and/or strategy as the Fund. The Board concluded that the management of these products contributes to the Adviser’s financial stability and is helpful to the Adviser in attracting and retaining quality portfolio management personnel for the Fund. In addition, the Board concluded that the Adviser has established appropriate procedures to monitor conflicts of interest involving the management of the Fund and the other products and for resolving any such conflicts of interest in a fair and equitable manner.
The performance data and the advisory fee and expense ratio data described below for the Fund is based on data for a representative class of shares of the Fund. The performance data is gross of expenses for periods on an annualized basis ended March 31, 2019, and the advisory fee and expense ratio data is as of the Fund’s fiscal year end of December 31, 2018.
Performance.The Board noted, based on a review of comparative annualized total returns, that the Fund had underperformed its Performance Category and Performance Peer Group medians for the one-, three- and five-year periods. The Board also noted that the Fund had underperformed its benchmark index for the one-, three- and five-year periods. The Board noted that actions that had been taken by the Adviser to establish additional risk-control investment guidelines that limit the Fund’s exposure to certain issuer-specific and country-specific risks and acknowledged the recent improvement in the Fund’s performance.
Fees and Expenses.The Board noted that the fee rate payable for advisory services and the total expense ratio, net of waivers or reimbursements, were higher than the median advisory fee rates and total expense ratios of the Fund’s Expense Category and Expense Peer Group. The Board also noted that the Adviser makes use of a complex and unique proprietary strategy for managing the Fund’s portfolio and that the Adviser has agreed to waive fees or pay expenses of the Fund through May 1, 2020 to the extent necessary to prevent the expense ratio of the Fund from exceeding a specified maximum amount (subject to certain exclusions).
On the basis of the foregoing, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the advisory fee rate charged to the Fund is reasonable.
40 |
Profitability and Economies of Scale.The Board considered the profits, if any, realized by the Adviser from managing the Fund and other mutual funds in the VanEck Complex and the methodology used to determine such profits. The Board noted that the levels of profitability reported on a fund-by-fund basis varied widely depending on such factors as the size, type of fund and operating history. The Board further noted that, in evaluating the reasonableness of the Adviser’s profits from managing any particular Fund, it would be appropriate to consider the size of the Adviser relative to other firms in the investment management industry and the impact on the Adviser’s profits of the volatility of the markets in which the Fund invests and the volatility of cash flow into and out of the Fund through various market cycles. Based on its review of the foregoing information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the profits realized by the Adviser, if any, are deemed not to be excessive. In this regard, the Board also considered the extent to which the Adviser may realize economies of scale, if any, as the Fund grows and whether the Fund’s fee schedule reflects any economies of scale for the benefit of shareholders. The Board concluded that, with respect to the Fund, any economies of scale being realized are currently being shared by the Adviser and the Fund, and that adding or modifying existing (if any) breakpoints would not be warranted at this time for the Fund.
Conclusion.In determining the material factors to be considered in evaluating the Advisory Agreement for the Fund and the weight to be given to such factors, the members of the Board relied upon the advice of independent legal counsel and their own business judgment. The Board did not consider any single factor as controlling in determining whether to approve the continuation of the Advisory Agreement and each member of the Board may have placed varying emphasis on particular factors considered in reaching a conclusion. Moreover, this summary description does not necessarily identify all of the factors considered or conclusions reached by the Board. Based on its consideration of the foregoing factors and conclusions, and such other factors and conclusions as it deemed relevant, the Board (comprised exclusively of Independent Trustees) concluded that the continuation of the Advisory Agreement is in the interests of shareholders and, accordingly, the Board approved the continuation of the Advisory Agreement for the Fund for an additional one-year period.
41 |
This report is intended for the Fund’s shareholders. It may not be distributed to prospective investors unless it is preceded or accompanied by the Fund’s prospectus and summary prospectus, which includes more complete information. Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
Additional information about the VanEck Fund’s (the “Trust”) 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 800.826.2333, or by visiting vaneck.com, or on the Securities and Exchange Commission’s website at https://www.sec.gov.
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-PORT. The Trust’s Form N-PORTs are available on the Commission’s website at https://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 202.942.8090. The Fund’s complete schedule of portfolio holdings is also available by calling 800.826.2333 or by visiting vaneck.com.
Investment Adviser: | Van Eck Associates Corporation | |
Distributor: | Van Eck Securities Corporation | |
666 Third Avenue, New York, NY 10017 | ||
vaneck.com | ||
Account Assistance: | 800.544.4653 | UEMBSAR |
SEMI-ANNUAL REPORT June 30, 2019 (unaudited) |
VanEck Funds
VanEck Morningstar Wide Moat Fund
800.826.2333 | vaneck.com |
Certain information contained in this shareholder letter represents the opinion of the investment adviser which may change at any time. This information is not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Also, unless otherwise specifically noted, any discussion of the Fund’s holdings, the Fund’s performance, and the views of the investment adviser are as of June 30, 2019.
VANECK MORNINGSTAR WIDE MOAT FUND
June 30, 2019 (unaudited)
We are pleased to present this semi-annual report.
Investment Outlook
In brief, the two engines of the global economy, the U.S. and China, are moving forward, albeit at a moderate pace. In this environment, with stocks having had a very solid year so far, our main message is that investors should not be too conservative with their fixed income portfolios. See our blogIs There Enough Risk in Your Fixed Income Portfolio?
Getting to this current environment was, however, a result of a lot of turbulence.
At the beginning of December last year, we were worried about the impact the European Central Bank’s (ECB) and the U.S. Federal Reserve’s (Fed) continued tightening would have on the financial markets. Typically, central bank tightening is unfavorable for financial assets, and markets decelerated going into December. Then, suddenly the Fed signaled it would stop raising rates and reverse on quantitative tightening. This led to a rally in U.S. equities and other asset classes.
The ECB is also now delaying any tightening steps. At its March 7 policy meeting, the ECB pushed back its timing for increasing interest rates and is expected to stay on hold through the end of 2019. It also announced a program to stimulate bank lending, with another round of targeted longer-term refinancing operations (TLTRO) launching in September. TLTRO loans from the ECB provides banks in the euro zone with cheap rates.
Last but not least, China’s non-manufacturing Purchasing Managers’ Index (PMI) shows a strong rate of expansion, which one would expect with the emergence of the “new China” economy – one that is increasingly driven by consumption. However, the manufacturing PMI shows several recent dips below the important 50 mark into contraction territory, corresponding to the “recession” in late 2018, followed by a recovery after Q1 2019. It saw another fall into contraction territory in Q2 2019, though this was slightly smaller than the Q4 2018 drop, indicating that China’s stimulus measures may have softened the impact of external factors, such as tariffs and trade tensions. If so, we believe more stimulus may be expected to support domestic demand in the months ahead.
1 |
VANECK MORNINGSTAR WIDE MOAT FUND
(unaudited) (continued)
Doubtless there are risks to the global economy and financial markets. Concerns around the strength of global economic growth, the strength of the U.S. dollar, the trajectory of U.S. interest rates, certain country-specific factors, e.g., Iran and Venezuela, and the, as yet, unresolved trade dispute between the U.S. and China continue to hang over the market.
We encourage you to stay in touch with us through the videos, email subscriptions, and research blogs available on our website, www.vaneck.com.I have started my own email subscription where I share interesting research – you can sign up on vaneck.com. Should you have any questions regarding fund performance, please contact us at 800.826.2333 or visit our website.
We sincerely thank you for investing in VanEck’s investment strategies. On the following pages, you will find the Fund’s financial statements for the six month period ended June 30, 2019. As always, we value your continued confidence in us and look forward to helping you meet your investment goals in the future.
Jan F. van Eck
CEO and President
VanEck Funds
July 16, 2019
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
2 |
VANECK MORNINGSTAR WIDE MOAT FUND
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges on purchase payments; and (2) ongoing costs, including management fees and other Fund expenses. This disclosure is intended to help you understand the ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The disclosure is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, January 1, 2019 to June 30, 2019.
Actual Expenses
The first line in the table below provides information about account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period.”
Hypothetical Example for Comparison Purposes
The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as fees on purchase payments. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
3 |
VANECK MORNINGSTAR WIDE MOAT FUND
EXPLANATION OF EXPENSES
(unaudited) (continued)
Beginning Account Value January 1, 2019 | Ending Account Value June 30, 2019 | Annualized Expense Ratio During Period | Expenses Paid During the Period* January 1, 2019 - June 30, 2019 | |||||||||||||
Morningstar Wide Moat Fund | ||||||||||||||||
Class I | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,167.50 | 0.59 | % | $ | 3.17 | ||||||||
Hypothetical** | $ | 1,000.00 | $ | 1,021.87 | 0.59 | % | $ | 2.96 | ||||||||
Class Z | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,168.30 | 0.49 | % | $ | 2.63 | ||||||||
Hypothetical** | $ | 1,000.00 | $ | 1,022.36 | 0.49 | % | $ | 2.46 |
* | Expenses are equal to the Fund’s annualized expense ratio (for the six months ended June 30, 2019), multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year divided by the number of the days in the fiscal year (to reflect the one-half year period). |
** | Assumes annual return of 5% before expenses. |
4 |
VANECK MORNINGSTAR WIDE MOAT FUND
June 30, 2019 (unaudited)
Number of Shares | Value | |||||||
COMMON STOCKS: 100.0% | ||||||||
Automobiles & Components: 1.3% | ||||||||
2,483 | Harley-Davidson, Inc. | $ | 88,966 | |||||
Banks: 2.5% | ||||||||
3,642 | Wells Fargo & Co. | 172,339 | ||||||
Capital Goods: 10.1% | ||||||||
1,303 | Caterpillar, Inc. | 177,586 | ||||||
2,690 | Emerson Electric Co. | 179,477 | ||||||
1,001 | General Dynamics Corp. | 182,002 | ||||||
485 | Raytheon Co. | 84,332 | ||||||
691 | United Technologies Corp. | 89,968 | ||||||
713,365 | ||||||||
Consumer Durables & Apparel: 2.5% | ||||||||
1,038 | NIKE, Inc. | 87,140 | ||||||
962 | Polaris Industries, Inc. | 87,763 | ||||||
174,903 | ||||||||
Consumer Services: 1.3% | ||||||||
452 | McDonald’s Corp. | 93,862 | ||||||
Diversified Financials: 9.8% | ||||||||
389 | BlackRock, Inc. | 182,558 | ||||||
2,916 | State Street Corp. | 163,471 | ||||||
1,640 | T. Rowe Price Group, Inc. | 179,924 | ||||||
3,984 | The Charles Schwab Corp. | 160,117 | ||||||
686,070 | ||||||||
Energy: 2.6% | ||||||||
1,320 | Cheniere Energy, Inc. * | 90,354 | ||||||
1,772 | Core Laboratories NV | 92,640 | ||||||
182,994 |
Number of Shares | Value | |||||||
Food, Beverage & Tobacco: 12.5% | ||||||||
4,230 | Campbell Soup Co. | $ | 169,496 | |||||
3,438 | General Mills, Inc. | 180,564 | ||||||
726 | Hershey Co. | 97,306 | ||||||
3,137 | Kellogg Co. | 168,049 | ||||||
1,727 | Mondelez International, Inc. | 93,085 | ||||||
2,178 | Philip Morris International, Inc. | 171,038 | ||||||
879,538 | ||||||||
Health Care Equipment & Services: 9.5% | ||||||||
979 | AmerisourceBergen Corp. | 83,470 | ||||||
1,746 | Cardinal Health, Inc. | 82,237 | ||||||
674 | McKesson Corp. | 90,579 | ||||||
1,706 | Medtronic Plc | 166,147 | ||||||
351 | UnitedHealth Group, Inc. | 85,648 | ||||||
1,371 | Zimmer Biomet Holdings, Inc. | 161,422 | ||||||
669,503 | ||||||||
Materials: 2.4% | ||||||||
3,082 | Compass Minerals International, Inc. | 169,356 | ||||||
Media & Entertainment: 9.3% | ||||||||
79 | Alphabet, Inc. * | 85,541 | ||||||
4,307 | Comcast Corp. | 182,100 | ||||||
1,040 | Facebook, Inc. * | 200,720 | ||||||
1,782 | John Wiley & Sons, Inc. | 81,723 | ||||||
746 | The Walt Disney Co. | 104,171 | ||||||
654,255 | ||||||||
Pharmaceuticals & Biotechnology: 9.8% | ||||||||
654 | Allergan Plc | 109,499 | ||||||
489 | Amgen, Inc. | 90,113 | ||||||
632 | Biogen, Inc. * | 147,806 | ||||||
1,801 | Bristol-Myers Squibb Co. | 81,675 | ||||||
2,590 | Gilead Sciences, Inc. | 174,980 | ||||||
1,986 | Pfizer, Inc. | 86,034 | ||||||
690,107 |
See Notes to Financial Statements
5 |
VANECK MORNINGSTAR WIDE MOAT FUND
SCHEDULE OF INVESTMENTS
(unaudited) (continued)
Number of Shares | Value | |||||||
Real Estate: 1.1% | ||||||||
536 | Jones Lang LaSalle, Inc. | $ | 75,410 | |||||
Retailing: 2.6% | ||||||||
97 | Amazon.com, Inc. * | 183,682 | ||||||
Semiconductor: 10.0% | ||||||||
4,263 | Applied Materials, Inc. | 191,451 | ||||||
3,390 | Intel Corp. | 162,279 | ||||||
1,490 | KLA-Tencor Corp. | 176,118 | ||||||
2,018 | Microchip Technology, Inc. | 174,961 | ||||||
704,809 | ||||||||
Software & Services: 10.2% | ||||||||
1,083 | Blackbaud, Inc. | 90,430 | ||||||
1,876 | Guidewire Software, Inc. * | 190,189 | ||||||
724 | Microsoft Corp. | 96,987 | ||||||
1,112 | Salesforce.com, Inc. * | 168,724 | ||||||
8,766 | The Western Union Co. | 174,356 | ||||||
720,686 |
Number of Shares | Value | |||||||
Utilities: 2.5% | ||||||||
2,269 | Dominion Energy, Inc. | $ | 175,439 | |||||
Total Common Stocks (Cost: $6,511,279) | 7,035,284 | |||||||
MONEY MARKET FUND: 0.3% (Cost: $23,265) | ||||||||
23,265 | AIM Treasury Portfolio – Institutional Class | 23,265 | ||||||
Total Investments: 100.3% (Cost: $6,534,544) | 7,058,549 | |||||||
Liabilities in excess of other assets: (0.3)% | (22,275 | ) | ||||||
NET ASSETS: 100.0% | $ | 7,036,274 |
Footnote:
* | Non-income producing |
Summary of Investments by Sector | % of Investments | Value | ||||||
Communication Services | 9.3 | % | $ | 654,255 | ||||
Consumer Discretionary | 7.7 | 541,413 | ||||||
Consumer Staples | 12.4 | 879,538 | �� | |||||
Energy | 2.6 | 182,994 | ||||||
Financials | 12.1 | 858,409 | ||||||
Health Care | 19.3 | 1,359,610 | ||||||
Industrials | 10.1 | 713,365 | ||||||
Information Technology | 20.2 | 1,425,495 | ||||||
Materials | 2.4 | 169,356 | ||||||
Real Estate | 1.1 | 75,410 | ||||||
Utilities | 2.5 | 175,439 | ||||||
Money Market Fund | 0.3 | 23,265 | ||||||
100.0 | % | $ | 7,058,549 |
See Notes to Financial Statements
6 |
The summary of inputs used to value the Fund’s investments as of June 30, 2019 is as follows:
Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Value | |||||||||||||||
Common Stocks* | $ | 7,035,284 | $ | — | $ | — | $ | 7,035,284 | ||||||||||
Money Market Fund | 23,265 | — | — | 23,265 | ||||||||||||||
Total | $ | 7,058,549 | $ | — | $ | — | $ | 7,058,549 |
* See Schedule of Investments for industry sector breakouts.
See Notes to Financial Statements
7 |
VANECK MORNINGSTAR WIDE MOAT FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2019 (unaudited)
Assets: | ||||
Investments, at value (Cost $6,534,544) | $ | 7,058,549 | ||
Receivables: | ||||
Shares of beneficial interest sold | 493 | |||
Due from Adviser | 16,752 | |||
Dividends | 5,989 | |||
Prepaid expenses | 8 | |||
Total assets | 7,081,791 | |||
Liabilities: | ||||
Payables: | ||||
Deferred Trustee fees | 3,577 | |||
Accrued expenses | 41,940 | |||
Total liabilities | 45,517 | |||
NET ASSETS | $ | 7,036,274 | ||
Class I Shares: | ||||
Net Assets | $ | 1,223,264 | ||
Shares of beneficial interest outstanding | 43,765 | |||
Net asset value, offering and redemption price per share | $ | 27.95 | ||
Class Z Shares: | ||||
Net Assets | $ | 5,813,010 | ||
Shares of beneficial interest outstanding | 207,745 | |||
Net asset value, offering and redemption price per share | $ | 27.98 | ||
Net Assets consist of: | ||||
Aggregate paid in capital | $ | 6,327,415 | ||
Total distributable earnings (loss) | 708,859 | |||
$ | 7,036,274 |
See Notes to Financial Statements
8 |
VANECK MORNINGSTAR WIDE MOAT FUND
For the Six Months Ended June 30, 2019 (unaudited)
Income: | ||||||||
Dividends | $ | 75,562 | ||||||
Expenses: | ||||||||
Management fees | $ | 14,814 | ||||||
Transfer agent fees – Class I | 6,629 | |||||||
Transfer agent fees – Class Z | 6,959 | |||||||
Custodian fees | 5,995 | |||||||
Professional fees | 38,613 | |||||||
Registration fees – Class I | 11,576 | |||||||
Registration fees – Class Z | 12,587 | |||||||
Reports to shareholders | 7,867 | |||||||
Insurance | 123 | |||||||
Trustees’ fees and expenses | 1,210 | |||||||
Interest | 55 | |||||||
Other | 801 | |||||||
Total expenses | 107,229 | |||||||
Waiver of management fees | (14,814 | ) | ||||||
Expenses assumed by the Adviser | (75,650 | ) | ||||||
Net expenses | 16,765 | |||||||
Net investment income | 58,797 | |||||||
Net realized gain on: | ||||||||
Investments | 99,380 | |||||||
Net change in net unrealized appreciation (depreciation) on: | ||||||||
Investments | 819,320 | |||||||
Net Increase in Net Assets Resulting from Operations | $ | 977,497 |
See Notes to Financial Statements
9 |
VANECK MORNINGSTAR WIDE MOAT FUND
STATEMENT OF CHANGES IN NET ASSETS
Six Months | ||||||||
Ended | Year Ended | |||||||
June 30, | December 31, | |||||||
2019 | 2018 | |||||||
(unaudited) | ||||||||
Operations: | ||||||||
Net investment income | $ | 58,797 | $ | 108,949 | ||||
Net realized gain | 99,380 | 376,138 | ||||||
Net change in unrealized appreciation (depreciation) | 819,320 | (551,198 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 977,497 | (66,111 | ) | |||||
Distributions to shareholders: | ||||||||
Class I Shares | — | (90,450 | ) | |||||
Class Z Shares | — | (406,218 | ) | |||||
Total distributions | — | (496,668 | ) | |||||
Share transactions: | ||||||||
Proceeds from sale of shares | ||||||||
Class Z Shares | 1,005,211 | 744,750 | ||||||
Reinvestment of distributions | ||||||||
Class I Shares | — | 90,450 | ||||||
Class Z Shares | — | 406,218 | ||||||
— | 496,668 | |||||||
Cost of shares redeemed | ||||||||
Class Z Shares | (680,593 | ) | (252,780 | ) | ||||
Net increase in net assets resulting from share transactions | 324,618 | 988,638 | ||||||
Total increase in net assets | 1,302,115 | 425,859 | ||||||
Net Assets: | ||||||||
Beginning of period | 5,734,159 | 5,308,300 | ||||||
End of period | $ | 7,036,274 | $ | 5,734,159 |
See Notes to Financial Statements
10 |
VANECK MORNINGSTAR WIDE MOAT FUND
For a share outstanding throughout each period:
Class I | |||||||||||||||
For the Six Months Ended | |||||||||||||||
June 30, | For the Year Ended December 31, | ||||||||||||||
2019 | 2018 | 2017 (a) | |||||||||||||
(unaudited) | |||||||||||||||
Net asset value, beginning of period | $ | 23.94 | $ | 26.63 | $ | 25.15 | |||||||||
Income from investment operations: | |||||||||||||||
Net investment income (b) | 0.23 | 0.49 | 0.07 | ||||||||||||
Net realized and unrealized gain (loss) on investments | 3.78 | (0.91 | ) | 1.48 | |||||||||||
Total from investment operations | 4.01 | (0.42 | ) | 1.55 | |||||||||||
Less dividends and distributions from: | |||||||||||||||
Net investment income | — | (0.48 | ) | (0.07 | ) | ||||||||||
Net realized capital gains | — | (1.79 | ) | — | |||||||||||
Total dividends and distributions | — | (2.27 | ) | (0.07 | ) | ||||||||||
Net asset value, end of period | $ | 27.95 | $ | 23.94 | $ | 26.63 | |||||||||
Total return (c) | 16.75 | %(d) | (1.30 | )% | 6.15 | %(d) | |||||||||
Ratios/Supplemental Data | |||||||||||||||
Net assets, end of period (000’s) | $ | 1,223 | $ | 1,048 | $ | 1,062 | |||||||||
Ratio of gross expenses to average net assets | 5.23 | %(e) | 3.42 | % | 16.25 | %(e) | |||||||||
Ratio of net expenses to average net assets | 0.59 | %(e) | 0.59 | % | 0.59 | %(e) | |||||||||
Ratio of net expenses to average net assets excluding interest expense | 0.59 | %(e) | 0.59 | % | 0.59 | %(e) | |||||||||
Ratio of net investment income to average net assets | 1.69 | %(e) | 1.79 | % | 1.89 | %(e) | |||||||||
Portfolio turnover rate | 31 | %(d) | 76 | % | 10 | %(d) |
(a) | For the period November 6, 2017 (commencement of operations) through December 31, 2017. |
(b) | Calculated based upon average shares outstanding. |
(c) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(d) | Not annualized |
(e) | Annualized |
See Notes to Financial Statements
11 |
VANECK MORNINGSTAR WIDE MOAT FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class Z | |||||||||||||||
For the | |||||||||||||||
Six Months | |||||||||||||||
Ended | |||||||||||||||
June 30, | For the Year Ended December 31, | ||||||||||||||
2019 | 2018 | 2017 (a) | |||||||||||||
(unaudited) | |||||||||||||||
Net asset value, beginning of period | $ | 23.95 | $ | 26.63 | $ | 25.15 | |||||||||
Income from investment operations: | |||||||||||||||
Net investment income (b) | 0.24 | 0.50 | 0.08 | ||||||||||||
Net realized and unrealized gain (loss) of investments | 3.79 | (0.90 | ) | 1.47 | |||||||||||
Total from investment operations | 4.03 | (0.40 | ) | 1.55 | |||||||||||
Less dividends and distributions from: | |||||||||||||||
Net investment income | — | (0.49 | ) | (0.07 | ) | ||||||||||
Net realized capital gains | — | (1.79 | ) | — | |||||||||||
Total dividends and distributions | — | (2.28 | ) | (0.07 | ) | ||||||||||
Net asset value, end of period | $ | 27.98 | $ | 23.95 | $ | 26.63 | |||||||||
Total return (c) | 16.83 | %(d) | (1.22 | )% | 6.17 | %(d) | |||||||||
Ratios/Supplemental Data | |||||||||||||||
Net asset, end of period (000’s) | $ | 5,813 | $ | 4,686 | $ | 4,247 | |||||||||
Ratio of gross expenses to average net assets | 2.83 | %(e) | 2.16 | % | 13.17 | %(e) | |||||||||
Ratio of net expenses to average net assets | 0.49 | %(e) | 0.49 | % | 0.49 | %(e) | |||||||||
Ratio of net expenses to average net assets excluding interest expense | 0.49 | %(e) | 0.49 | % | 0.49 | %(e) | |||||||||
Ratio of net investment income to average net assets | 1.81 | %(e) | 1.90 | % | 1.99 | %(e) | |||||||||
Portfolio turnover rate | 31 | %(d) | 76 | % | 10 | %(d) |
(a) | For the period November 6, 2017 (commencement of operations) through December 31, 2017. |
(b) | Calculated based upon average shares outstanding. |
(c) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(d) | Not annualized |
(e) | Annualized |
See Notes to Financial Statements
12 |
VANECK MORNINGSTAR WIDE MOAT FUND
June 30, 2019 (unaudited)
Note 1—Fund Organization—Van Eck Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Trust was organized as a Massachusetts business trust on April 3, 1985. The VanEck Morningstar Wide Moat Fund (the “Fund”) is a non-diversified series of the Trust and seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Morningstar Wide Moat Focus Index. The Fund currently offers two classes of shares: Class I Shares and Z Shares. Each share class represents an interest in the same portfolio of investments of the Fund and is substantially the same in all respects.
Note 2—Significant Accounting Policies—The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The Fund is an investment company and follows accounting and reporting requirements of Accounting Standards Codification (“ASC”) 946Financial Services — Investment Companies.
The following is a summary of significant accounting policies followed by the Fund.
A. | Security Valuation—The Fund values its investments in securities and other assets and liabilities at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Securities traded on national exchanges are valued at the last sales price as reported at the close of each business day. Securities traded on the NASDAQ Stock Market LLC (“NASDAQ”) are valued at the NASDAQ official closing price. Over-the-counter securities not included on NASDAQ and listed securities for which no sale was reported are valued at the mean of the bid and ask prices. To the extent these securities are actively traded they are categorized as Level 1 in the fair value hierarchy (as described below). Short-term debt securities with sixty days or less to maturity are valued at amortized cost, which with accrued interest approximates fair value. Money market fund investments are valued at net asset value and are classified as Level 1 in the fair value hierarchy. The Pricing Committee of Van Eck Associates Corporation (“the Adviser”) provides oversight of the Fund’s valuation policies and procedures, which are approved by the Fund’s Board of Trustees. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, |
13 |
VANECK MORNINGSTAR WIDE MOAT FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
and other market sources to determine fair value. The Pricing Committee convenes regularly to review the fair value of financial instruments or other assets. If market quotations for a security or other asset are not readily available, or if the Adviser believes it does not otherwise reflect the fair value of a security or asset, the security or asset will be fair valued by the Pricing Committee in accordance with the Fund’s valuation policies and procedures. The Pricing Committee employs various methods for calibrating the valuation approaches utilized to determine fair value, including a regular review of key inputs and assumptions, periodic comparisons to valuations provided by other independent pricing services, transactional back-testing and disposition analysis.
Certain factors such as economic conditions, political events, market trends, the nature of and duration of any restrictions on disposition, trading in similar securities of the issuer or comparable issuers and other security specific information are used to determine the fair value of these securities. Depending on the relative significance of valuation inputs, these securities may be classified either as Level 2 or Level 3 in the fair value hierarchy. The price which the Fund may realize upon sale of an investment may differ materially from the value presented on the Schedule of Investments.
The Fund utilizes various methods to measure the fair value of its investments on a recurring basis, which includes a hierarchy that prioritizes inputs to valuation methods used to measure fair value. The fair value hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels of the fair value hierarchy are described below:
Level 1 – | Quoted prices in active markets for identical securities. | |
Level 2 – | Significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). | |
Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
A summary of the inputs and the levels used to value the Fund’s investments are located in the Schedule of Investments. Additionally, tables that reconcile the valuation of the Fund’s Level 3 investments and that present additional information about the valuation methodologies and
14 |
unobservable inputs, if applicable, are located in the Schedule of Investments. | |
B. | Federal Income Taxes—It is the Fund’s policy to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net investment income and net realized capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. |
C. | Dividends and Distributions to Shareholders—Dividends to shareholders from net investment income and distributions from net realized capital gains, if any, are declared and paid annually. Income dividends and capital gain distributions are determined in accordance with U.S. income tax regulations, which may differ from such amounts determined in accordance with GAAP. |
D. | Other—Security transactions are accounted for on trade date. Realized gains and losses are calculated on the specific identified cost basis. Dividend income is recorded on the ex-dividend date. Income, non-class specific expenses, gains and losses on investments are allocated based on the relative net assets of each class. Expenses directly attributable to a specific class are charged to that class. |
In the normal course of business, the Fund enters into contracts that contain a variety of general indemnifications. The Fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Adviser believes the risk of loss under these arrangements to be remote. |
Note 3—Investment Management and Other Agreements—The Adviser is the investment adviser to the Fund. The Adviser receives a management fee, calculated daily and payable monthly based on annual rate of 0.45% of the Fund’s average daily net assets. The Adviser has agreed, until at least May 1, 2020, to waive management fees and assume expenses to prevent the Fund’s total annual operating expenses (excluding acquired fund fees and expenses, interest expense, trading expenses, dividend and interest payments on securities sold short, taxes, and extraordinary expenses) from exceeding the expense limitations listed in the table below.
15 |
VANECK MORNINGSTAR WIDE MOAT FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
The current expense limitations and the amounts waived/assumed by the Adviser for the period ended June 30, 2019, are as follows:
Expense Limitation | Waiver of Management Fees | Expenses Assumed by the Adviser | ||||||||||
Class I | 0.59 | % | $ | 2,626 | $ | 24,424 | ||||||
Class Z | 0.49 | 12,188 | 51,226 |
Van Eck Securities Corporation (the “Distributor”), an affiliate of the Adviser, acts as the Fund’s distributor. Certain officers and trustees of the Trust are officers, directors or stockholders of the Adviser and Distributor.
Note 4—Investments—For the period ended June 30, 2019, the cost of purchases and proceeds from sales of investments, excluding U.S. government securities and short-term obligations, aggregated $2,457,433 and $2,069,234, respectively.
Note 5—Income Taxes—As of June 30, 2019, for Federal income tax purposes, the identified tax cost of investments owned, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) of investments were as follows:
Tax Cost of Investments | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | |||
$6,541,923 | $725,995 | $(209,369) | $516,626 |
The tax character of dividends and distributions paid to shareholders during the year ended December 31, 2018 was as follows:
Ordinary income* | $496,668 |
* Includes short-term capital gains
The tax character of current year distributions will be determined at the end of the current fiscal year.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more-likely-than-not” to be sustained assuming examination by applicable tax authorities. Management has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on return filings for all open tax years. Therefore, no provision for income tax is required in the Fund’s financial statements.
The Fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended June 30, 2019, the Fund did not incur any interest or penalties.
16 |
Note 6—Principal Risks—The Fund is classified as non-diversified under the Investment Company Act of 1940, as amended. Therefore, the Fund may invest a relatively high percentage of its assets in a smaller number of issuers or may invest a larger proportion of its assets in a single issuer. As a result, the gains and losses on a single investment may have a greater impact on the Fund’s net asset value and may make the Fund more volatile than more diversified funds.
The value of the equity securities held by the Fund may fall due to general market and economic conditions, perceptions regarding the markets in which the issuers of securities held by the Fund participate, or factors relating to specific issuers in which the Fund invests. While broad market measures of equity securities have historically generated higher average returns than fixed income securities, equity securities have generally also experienced significantly more volatility in those returns.
Competitive advantages for wide moat companies may erode in a relatively short period of time due to, among other reasons, changes in laws and regulations, intellectual property rights, economic and political conditions and technological developments.
At June 30, 2019, the Adviser owned approximately 100% of Class I Shares and 84% of Class Z Shares.
A more complete description of risks is included in the Fund’s Prospectus and Statement of Additional Information.
Note 7—Shareholder Transactions—Shares of beneficial interest issued, reinvested and redeemed (unlimited number of $0.001 par value shares authorized):
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | |||||||
(unaudited) | ||||||||
Class I | ||||||||
Shares reinvested | — | 3,902 | ||||||
Class Z | ||||||||
Shares sold | 37,353 | 27,662 | ||||||
Shares reinvested | — | 17,509 | ||||||
Shares redeemed | (25,248 | ) | (9,008 | ) | ||||
Net increase | 12,105 | 36,163 |
Note 8—Bank Line of Credit—The Trust participates with VanEck VIP Funds (collectively the “VE/VIP Funds”) in a $30 million committed credit facility (the “Facility”) to be utilized for temporary financing until the settlement of sales or
17 |
VANECK MORNINGSTAR WIDE MOAT FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
purchases of portfolio securities, the repurchase or redemption of shares of the participating Fund and other temporary or emergency purposes. The participating VE/VIP Funds have agreed to pay commitment fees, pro rata, based on the unused but available balance. Interest is charged to the participating VE/VIP Funds at rates based on prevailing market rates in effect at the time of borrowings. During the period ended June 30, 2019, the average daily loan balance during the seven day period for which a loan was outstanding amounted to $104,155 and the average interest rate was 3.70%. At June 30, 2019, the Fund had no outstanding borrowings under the Facility.
Note 9—Trustee Deferred Compensation Plan—The Trust has a Deferred Compensation Plan (the “Deferred Plan”), for Trustees under which the Trustees can elect to defer receipt of their trustee fees until retirement, disability or termination from the Board of Trustees. The fees otherwise payable to the participating Trustees are deemed invested in eligible shares of the VE/VIP Funds as directed by the Trustees.
The expense for the Deferred Plan is included in “Trustees’ fees and expenses” in the Statement of Operations. The liability for the Deferred Plan is shown as “Deferred Trustee fees” in the Statement of Assets and Liabilities.
Note 10—Recent Accounting Pronouncements and Regulatory Requirements—The Funds early adopted certain provisions of Accounting Standards Update No. 2018-13Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement(“ASU 2018-13”) that eliminate and modify certain disclosure requirements for fair value measurements. The adoption of certain provisions of the ASU 2018-13 had no material effect on financial statements and related disclosures. Management is currently evaluating the potential impact of additional requirements, not yet adopted, to financial statements. The ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.
Note 11—Subsequent Event Review—The Fund has evaluated subsequent events and transactions for potential recognition or disclosure through the date the financial statements were issued.
18 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited)
VANECK MORNINGSTAR WIDE MOAT FUND
(the “Fund”)
The Investment Company Act of 1940, as amended (the “1940 Act”), provides, in substance, that an investment advisory agreement between a fund and its investment adviser may be entered into only if it is approved, and may continue in effect from year to year after an initial two-year period only if its continuance is approved, at least annually by the fund’s board of trustees, including by a vote of a majority of the trustees who are not “interested persons” of the fund as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of considering such approval. On June 21, 2019, the Board of Trustees (the “Board”) of VanEck Funds (the “Trust”), which is comprised exclusively of Independent Trustees, voted to approve the continuation of the existing advisory agreement (the “Advisory Agreement”) between the Fund and its investment adviser, Van Eck Associates Corporation (together with its affiliated companies, the “Adviser”). Information regarding the material factors considered and related conclusions reached by the Board in approving the continuation of the Fund’s Advisory Agreement is set forth below.
In considering the continuation of the Advisory Agreement, the Board reviewed and considered information that had been provided by the Adviser throughout the year at meetings of the Board and its committees, including information requested by the Board and furnished by the Adviser for meetings of the Board held on June 5, 2019 and June 21, 2019 specifically for the purpose of considering the continuation of the Advisory Agreement. The written and oral reports provided to the Board included, among other things, the following:
■ | Information about the overall organization of the Adviser and the Adviser’s short-term and long-term business plans with respect to its mutual fund operations and other lines of business; |
■ | The consolidated financial statements of the Adviser for the past two fiscal years; |
■ | A copy of the Advisory Agreement and descriptions of the services provided by the Adviser thereunder; |
■ | Information regarding the qualifications, education and experience of the investment professionals responsible for portfolio management, investment research and trading activities for the |
19 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited) (continued)
Fund, the structure of their compensation and the resources available to support these activities; | |
■ | A report prepared by an independent consultant comparing the Fund’s investment performance gross of expenses for a representative class of shares (including, where relevant, total returns, standard deviations, Sharpe ratios, information ratios, beta and alpha) for the one-, three-, five- and ten-year periods (as applicable) ended March 31, 2019 with the investment performance of (i) a universe of mutual funds selected by the independent consultant with similar investment characteristics, utilizing for these purposes the oldest share class of each fund gross of expenses (the “Performance Category”), (ii) a sub-group of funds selected from the Performance Category by the independent consultant further limited to approximate more closely the Fund’s investment style without regard to asset size (the “Performance Peer Group”), and (iii) an appropriate benchmark index; |
■ | A report prepared by an independent consultant comparing the advisory fees and other expenses of a representative class of shares of the Fund during its fiscal year ended December 31, 2018 with a similar share class of (i) funds in the Performance Category that have the same share class (the “Expense Category”) and (ii) a sub-set of the funds that comprise the Performance Peer Group that have the same share class (the “Expense Peer Group”); |
■ | An analysis of the profitability of the Adviser with respect to its services for the Fund and the VanEck complex of mutual funds as a whole (the “VanEck Complex”); |
■ | Information regarding other investment products and services offered by the Adviser involving investment objectives and strategies similar to the Fund (“Comparable Products”), including the fees charged by the Adviser for managing the Comparable Products, a description of material differences and similarities in the services provided by the Adviser for the Fund and the Comparable Products, the sizes of the Comparable Products and the identity of the individuals responsible for managing the Comparable Products; |
■ | Information concerning the Adviser’s compliance program, the resources devoted to compliance efforts undertaken by the Adviser on behalf of the Fund, and reports regarding a variety of compliance-related issues; |
20 |
■ | Information with respect to the Adviser’s brokerage practices, including the Adviser’s processes for monitoring best execution of portfolio transactions and the benefits received by the Adviser from research acquired with soft dollars; |
■ | Information regarding the procedures used by the Adviser in monitoring the valuation of portfolio securities, including the methodologies used in making fair value determinations, and the Adviser’s due diligence process for recommending the selection of pricing vendors and monitoring the quality of the inputs provided by such vendors; |
■ | Information regarding how the Adviser safeguards the confidentiality and integrity of its data and files (both physical and electronic), as well as of any communications with third parties containing Fund and shareholder information, including reports regarding the Adviser’s cybersecurity framework and its implementation, the identification and monitoring of cybersecurity risks (including the risks that arise out of arrangements with third party service providers), the Adviser’s cybersecurity response policy and other initiatives of the Adviser to mitigate cybersecurity risks; |
■ | Information regarding the Adviser’s policies and practices with respect to personal investing by the Adviser and its employees, including reports regarding the administration of the Adviser’s code of ethics and the Adviser’s policy with respect to investments in the Fund by the Adviser’s investment personnel; |
■ | Information regarding the Adviser’s investment process for the Fund, including how the Adviser integrates non-accounting-based information (including, but not limited to “environmental, social and governance” factors) and the non-security-selection, non-portfolio-construction activities of the investment teams, such as engagement with portfolio companies and industry group participation; |
■ | Information regarding the Adviser’s role as the administrator of the Trust’s liquidity risk management program; |
■ | Descriptions of sub-transfer agency, omnibus account and other shareholder servicing arrangements for the Fund with intermediaries (collectively, “Servicing Arrangements”), including a description of the services provided by the intermediaries |
21 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited) (continued)
pursuant to such Servicing Arrangements and the payment terms of the Servicing Arrangements, as well as reports regarding the amounts paid pursuant to the Servicing Arrangements and the amounts paid to intermediaries with respect to the Fund by the Adviser pursuant to any revenue sharing arrangements and Servicing Arrangements (to the extent not paid by the Fund); | |
■ | Descriptions of other administrative and other non-investment management services provided by the Adviser for the Fund, including the Adviser’s activities in managing relationships with the Fund’s custodian, transfer agent and other service providers; and |
■ | Other information provided by the Adviser in its response to a comprehensive questionnaire prepared by independent legal counsel on behalf of the Independent Trustees. |
In determining whether to approve the continuation of the Advisory Agreement, the Board considered, among other things, the following: (1) the nature, quality, extent and cost of the investment management, administrative and other non-investment management services provided by the Adviser; (2) the nature, quality and extent of the services performed by the Adviser in interfacing with, and monitoring the services performed by, third parties, such as the Fund’s custodian, transfer agent, sub-transfer agents and independent auditor, and the Adviser’s commitment and efforts to review the quality and pricing of third party service providers to the Fund with a view to reducing non-management expenses of the Fund; (3) the terms of the Advisory Agreement and the services performed thereunder; (4) the willingness of the Adviser to reduce the overall expenses of the Fund from time to time, if necessary or appropriate, by means of waiving a portion of its fees or paying expenses of the Fund; (5) the quality of the services, procedures and processes used to determine the value of the Fund’s assets and the actions taken to monitor and test the effectiveness of such services, procedures and processes; (6) the ongoing efforts of, and resources devoted by, the Adviser with respect to the development and implementation of a comprehensive compliance program; (7) the responsiveness of the Adviser to inquiries from, and examinations by, regulatory authorities, including the Securities and Exchange Commission; (8) the resources committed by the Adviser in recent periods to information technology and cybersecurity; and (9) the ability of the Adviser to attract and retain quality professional personnel to perform investment advisory and administrative services for the Fund.
22 |
The Board considered the fact that the Adviser is managing other investment products, including exchange-traded funds, private funds, separate accounts and UCITs, one or more of which may invest in the same financial markets and may be managed by the same investment professionals according to a similar investment objective and/or strategy as the Fund. The Board concluded that the management of these products contributes to the Adviser’s financial stability and is helpful to the Adviser in attracting and retaining quality portfolio management personnel for the Fund. In addition, the Board concluded that the Adviser has established appropriate procedures to monitor conflicts of interest involving the management of the Fund and the other products and for resolving any such conflicts of interest in a fair and equitable manner.
The performance data and the advisory fee and expense ratio data described below for the Fund is based on data for a representative class of shares of the Fund. The performance data is gross of expenses for periods on an annualized basis ended March 31, 2019, and the advisory fee and expense ratio data is as of the Fund’s fiscal year end of December 31, 2018.
Performance. The Board noted, based on a review of comparative annualized total returns, that the Fund had outperformed its Performance Category and Performance Peer Group medians for the one-year period. The Board also noted that the Fund had underperformed its benchmark for the one-year period. On the basis of the foregoing and other relevant information provided in response to inquiries by the Board, the Board concluded that the performance of the Fund was satisfactory.
Fees and Expenses. The Board noted that the fee rate payable for advisory services and the total expense ratio, net of waivers or reimbursements, for the Fund were higher than the median advisory fee rate and total expense ratio of the Fund’s Expense Category and lower than the median advisory fee rate and total expense ratio of the Fund’s Expense Peer Group. The Board also noted that the Adviser has agreed to waive fees or pay expenses of the Fund through May 1, 2020 to the extent necessary to prevent the expense ratio of the Fund from exceeding a specified maximum amount (subject to certain exclusions).
On the basis of the foregoing, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the advisory fee rate charged to the Fund is reasonable.
23 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited) (continued)
Profitability and Economies of Scale. The Board considered the profits, if any, realized by the Adviser from managing the Fund and other mutual funds in the VanEck Complex and the methodology used to determine such profits. The Board noted that the levels of profitability reported on a fund-by-fund basis varied widely depending on such factors as the size, type of fund and operating history. The Board further noted that, in evaluating the reasonableness of the Adviser’s profits from managing any particular Fund, it would be appropriate to consider the size of the Adviser relative to other firms in the investment management industry and the impact on the Adviser’s profits of the volatility of the markets in which the Fund invests and the volatility of cash flow into and out of the Fund through various market cycles. Based on its review of the foregoing information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the profits realized by the Adviser, if any, are deemed not to be excessive. In this regard, the Board also considered the extent to which the Adviser may realize economies of scale, if any, as the Fund grows and whether the Fund’s fee schedule reflects any economies of scale for the benefit of shareholders. The Board concluded that, with respect to the Fund, any economies of scale being realized are currently being shared by the Adviser and the Fund, and that adding or modifying existing (if any) breakpoints would not be warranted at this time for the Fund.
Conclusion. In determining the material factors to be considered in evaluating the Advisory Agreement for the Fund and the weight to be given to such factors, the members of the Board relied upon the advice of independent legal counsel and their own business judgment. The Board did not consider any single factor as controlling in determining whether to approve the continuation of the Advisory Agreement and each member of the Board may have placed varying emphasis on particular factors considered in reaching a conclusion. Moreover, this summary description does not necessarily identify all of the factors considered or conclusions reached by the Board. Based on its consideration of the foregoing factors and conclusions, and such other factors and conclusions as it deemed relevant, the Board (comprised exclusively of Independent Trustees) concluded that the continuation of the Advisory Agreement is in the interests of shareholders and, accordingly, the Board approved the continuation of the Advisory Agreement for the Fund for an additional one-year period.
24 |
This report is intended for the Fund’s shareholders. It may not be distributed to prospective investors unless it is preceded or accompanied by the Fund’s prospectus and summary prospectus, which includes more complete information. Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
Additional information about the VanEck Fund’s (the “Trust”) 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 800.826.2333, or by visiting vaneck.com, or on the Securities and Exchange Commission’s website at https://www.sec.gov.
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-PORT. The Trust’s Form N-PORTs are available on the Commission’s website at https://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 202.942.8090. The Fund’s complete schedule of portfolio holdings is also available by calling 800.826.2333 or by visiting vaneck.com.
Investment Adviser: | Van Eck Associates Corporation | |||
Distributor: | Van Eck Securities Corporation | |||
666 Third Avenue, New York, NY 10017 | ||||
vaneck.com | ||||
Account Assistance: | 800.544.4653 | MWMSAR |
SEMI-ANNUAL REPORT June 30, 2019 (unaudited) |
VanEck Funds
VanEck NDR Managed Allocation Fund
800.826.2333 | vaneck.com |
Certain information contained in this shareholder letter represents the opinion of the investment adviser which may change at any time. This information is not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Also, unless otherwise specifically noted, any discussion of the Fund’s holdings, the Fund’s performance, and the views of the investment adviser are as of June 30, 2019.
VANECK NDR MANAGED ALLOCATION FUND
June 30, 2019 (unaudited)
We are pleased to present this semi-annual report.
Investment Outlook
In brief, the two engines of the global economy, the U.S. and China, are moving forward, albeit at a moderate pace. In this environment, with stocks having had a very solid year so far, our main message is that investors should not be too conservative with their fixed income portfolios. See our blogIs There Enough Risk in Your Fixed Income Portfolio?
Getting to this current environment was, however, a result of a lot of turbulence.
At the beginning of December last year, we were worried about the impact the European Central Bank’s (ECB) and the U.S. Federal Reserve’s (Fed) continued tightening would have on the financial markets. Typically, central bank tightening is unfavorable for financial assets, and markets decelerated going into December. Then, suddenly the Fed signaled it would stop raising rates and reverse on quantitative tightening. This led to a rally in U.S. equities and other asset classes.
The ECB is also now delaying any tightening steps. At its March 7 policy meeting, the ECB pushed back its timing for increasing interest rates and is expected to stay on hold through the end of 2019. It also announced a program to stimulate bank lending, with another round of targeted longer-term refinancing operations (TLTRO) launching in September. TLTRO loans from the ECB provides banks in the euro zone with cheap rates.
Last but not least, China’s non-manufacturing Purchasing Managers’ Index (PMI) shows a strong rate of expansion, which one would expect with the emergence of the “new China” economy—one that is increasingly driven by consumption. However, the manufacturing PMI shows several recent dips below the important 50 mark into contraction territory, corresponding to the “recession” in late 2018, followed by a recovery after Q1 2019. It saw another fall into contraction territory in Q2 2019, though this was slightly smaller than the Q4 2018 drop, indicating that China’s stimulus measures may have softened the impact of external factors, such as tariffs and trade tensions. If so, we believe more stimulus may be expected to support domestic demand in the months ahead.
1 |
VANECK NDR MANAGED ALLOCATION FUND
(unaudited) (continued)
Doubtless there are risks to the global economy and financial markets. Concerns around the strength of global economic growth, the strength of the U.S. dollar, the trajectory of U.S. interest rates, certain country-specific factors, e.g., Iran and Venezuela, and the, as yet, unresolved trade dispute between the U.S. and China continue to hang over the market.
We encourage you to stay in touch with us through the videos, email subscriptions, and research blogs available on our website, www.vaneck.com.I have started my own email subscription where I share interesting research—you can sign up on vaneck.com. Should you have any questions regarding fund performance, please contact us at 800.826.2333 or visit our website.
We sincerely thank you for investing in VanEck’s investment strategies. On the following pages, you will find the Fund’s financial statements for the six month period ended June 30, 2019. As always, we value your continued confidence in us and look forward to helping you meet your investment goals in the future.
Jan F. van Eck
CEO and President
VanEck Funds
July 16, 2019
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
2 |
VANECK NDR MANAGED ALLOCATION FUND
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges on purchase payments; and (2) ongoing costs, including management fees and other Fund expenses. This disclosure is intended to help you understand the ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The disclosure is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, January 1, 2019 to June 30, 2019.
Actual Expenses
The first line in the table below provides information about account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period.”
Hypothetical Example for Comparison Purposes
The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as fees on purchase payments. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
3 |
VANECK NDR MANAGED ALLOCATION FUND
EXPLANATION OF EXPENSES
(unaudited) (continued)
Beginning Account Value January 1, 2019 | Ending Account Value June 30, 2019 | Annualized Expense Ratio During Period | Expenses Paid During the Period* January 1, 2019 - June 30, 2019 | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,058.80 | 1.16 | % | $5.92 | |||||||||
Hypothetical** | $ | 1,000.00 | $ | 1,019.04 | 1.16 | % | $5.81 | |||||||||
Class I | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,060.50 | 0.86 | % | $4.39 | |||||||||
Hypothetical** | $ | 1,000.00 | $ | 1,020.53 | 0.86 | % | $4.31 | |||||||||
Class Y | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,060.10 | 0.91 | % | $4.65 | |||||||||
Hypothetical** | $ | 1,000.00 | $ | 1,020.28 | 0.91 | % | $4.56 |
* | Expenses are equal to the Fund’s annualized expense ratio (for the six months ended June 30, 2019), multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year divided by the number of the days in the fiscal year (to reflect the one-half year period). |
** | Assumes annual return of 5% before expenses |
4 |
VANECK NDR MANAGED ALLOCATION FUND
SCHEDULE OF INVESTMENTS
June 30, 2019 (unaudited)
Number of Shares | Value | |||||||
EXCHANGE TRADED FUNDS: 99.3% (a) | ||||||||
116,086 | iShares Barclays Aggregate Bond Fund | $ | 12,926,176 | |||||
15,346 | iShares MSCI Canada ETF | 439,203 | ||||||
26,985 | iShares MSCI Eurozone ETF | 1,067,392 | ||||||
12,421 | iShares MSCI Pacific ex Japan ETF | 586,644 | ||||||
1,876 | iShares MSCI South Korea Capped ETF | 112,316 | ||||||
7,063 | iShares MSCI Switzerland Capped ETF | 265,286 | ||||||
24,703 | iShares MSCI United Kingdom ETF | 798,401 | ||||||
32,084 | iShares Russell 1000 Growth Index Fund | 5,048,097 | ||||||
24,667 | iShares Russell 1000 Value ETF | 3,138,136 | ||||||
4,427 | iShares Russell 2000 Growth ETF | 889,251 | ||||||
4,551 | iShares Russell 2000 Value ETF | 548,395 | ||||||
17,096 | JPMorgan BetaBuilders Japan ETF | 389,960 | ||||||
18,972 | Vanguard FTSE Emerging Markets ETF | 806,879 | ||||||
155,862 | Vanguard Total Bond Market ETF | 12,947,456 | ||||||
Total Exchange Traded Funds (Cost: $37,001,013) | 39,963,592 | |||||||
MONEY MARKET FUND: 0.9% (a) (Cost: $374,354) | ||||||||
374,354 | AIM Treasury Portfolio – Institutional Class | 374,354 | ||||||
Total Investments: 100.2% (Cost: $37,375,367) | 40,337,946 | |||||||
Liabilities in excess of other assets: (0.2)% | (79,881 | ) | ||||||
NET ASSETS: 100.0% | $ | 40,258,065 |
Footnotes:
(a) | Each underlying fund’s shareholder reports and registration documents are available free of charge on the SEC’s website at https://www.sec.gov/. |
Summary of Investments by Sector | % of Investments | Value | |||||||
Exchange Traded Funds | 99.1 | % | $ | 39,963,592 | |||||
Money Market Fund | 0.9 | 374,354 | |||||||
100.0 | % | $ | 40,337,946 |
The summary of inputs used to value the Fund’s investments as of June 30, 2019 is as follows:
Level 2 | Level 3 | ||||||||||||||||
Level 1 | Significant | Significant | |||||||||||||||
Quoted | Observable | Unobservable | |||||||||||||||
Prices | Inputs | Inputs | Value | ||||||||||||||
Exchange Traded Funds | $ | 39,963,592 | $ | — | $ | — | $ | 39,963,592 | |||||||||
Money Market Fund | 374,354 | — | — | 374,354 | |||||||||||||
Total | $ | 40,337,946 | $ | — | $ | — | $ | 40,337,946 |
See Notes to Financial Statements
5 |
VANECK NDR MANAGED ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2019 (unaudited)
Assets: | ||||
Investments, at value (Cost: $37,375,365) | $ | 40,337,946 | ||
Receivables: | ||||
Shares of beneficial interest sold | 1,324 | |||
Due from Adviser | 3,832 | |||
Dividends | 387 | |||
Prepaid expenses | 74 | |||
Total assets | 40,343,563 | |||
Liabilities: | ||||
Payables: | ||||
Shares of beneficial interest redeemed | 18,938 | |||
Due to Distributor | 2,912 | |||
Deferred Trustee fees | 26,897 | |||
Accrued expenses | 36,751 | |||
Total liabilities | 85,498 | |||
NET ASSETS | $ | 40,258,065 | ||
Class A Shares: | ||||
Net Assets | $ | 14,144,972 | ||
Shares of beneficial interest outstanding | 503,324 | |||
Net asset value and redemption price per share | $ | 28.10 | ||
Maximum offering price per share (Net asset value per share ÷ 94.25%) | $ | 29.81 | ||
Class I Shares: | ||||
Net Assets | $ | 15,428,537 | ||
Shares of beneficial interest outstanding | 546,290 | |||
Net asset value, offering and redemption price per share | $ | 28.24 | ||
Class Y Shares: | ||||
Net Assets | $ | 10,684,556 | ||
Shares of beneficial interest outstanding | 378,581 | |||
Net asset value, offering and redemption price per share | $ | 28.22 | ||
Net Assets consist of: | ||||
Aggregate paid in capital | $ | 40,005,119 | ||
Total distributable earnings (loss) | 252,946 | |||
$ | 40,258,065 |
See Notes to Financial Statements
6 |
VANECK NDR MANAGED ALLOCATION FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2019 (unaudited)
Income: | ||||||||
Dividends | $ | 411,794 | ||||||
Expenses: | ||||||||
Management fees | $ | 162,918 | ||||||
Distribution fees – Class A | 17,837 | |||||||
Transfer agent fees – Class A | 14,008 | |||||||
Transfer agent fees – Class I | 10,400 | |||||||
Transfer agent fees – Class Y | 13,388 | |||||||
Custodian fees | 7,048 | |||||||
Professional fees | 44,183 | |||||||
Registration fees – Class A | 24,095 | |||||||
Registration fees – Class I | 23,876 | |||||||
Registration fees – Class Y | 24,252 | |||||||
Reports to shareholders | 11,478 | |||||||
Insurance | 976 | |||||||
Trustees’ fees and expenses | 4,368 | |||||||
Interest | 2,249 | |||||||
Other | 1,323 | |||||||
Total expenses | 362,399 | |||||||
Waiver of management fees | (162,778 | ) | ||||||
Net expenses | 199,621 | |||||||
Net investment income | 212,173 | |||||||
Net realized loss on: | ||||||||
Investments | (1,433,935 | ) | ||||||
Net change in unrealized appreciation on: | ||||||||
Investments | 3,666,472 | |||||||
Net Increase in Net Assets Resulting from Operations | $ | 2,444,710 |
See Notes to Financial Statements
7 |
VANECK NDR MANAGED ALLOCATION FUND
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | |||||||||
(unaudited) | ||||||||||
Operations: | ||||||||||
Net investment income | $ | 212,173 | $ | 572,748 | ||||||
Net realized loss | (1,433,935 | ) | (1,562,376 | ) | ||||||
Net change in unrealized appreciation (depreciation) | 3,666,472 | (2,915,087 | ) | |||||||
Net increase (decrease) in net assets resulting from operations | 2,444,710 | (3,904,715 | ) | |||||||
Distributions to shareholders: | ||||||||||
Class A Shares | — | (209,270 | ) | |||||||
Class I Shares | — | (215,860 | ) | |||||||
Class Y Shares | — | (312,720 | ) | |||||||
Total distributions | — | (737,850 | ) | |||||||
Share transactions: | ||||||||||
Proceeds from sale of shares | ||||||||||
Class A Shares | 1,722,249 | 12,868,755 | ||||||||
Class I Shares | 2,820,236 | 4,033,923 | ||||||||
Class Y Shares | 374,591 | 15,849,854 | ||||||||
4,917,076 | 32,752,532 | |||||||||
Reinvestment of distributions | ||||||||||
Class A Shares | — | 204,226 | ||||||||
Class I Shares | — | 215,860 | ||||||||
Class Y Shares | — | 259,452 | ||||||||
— | 679,538 | |||||||||
Cost of shares redeemed | ||||||||||
Class A Shares | (3,126,427 | ) | (6,820,488 | ) | ||||||
Class I Shares | (561,069 | ) | (3,273,417 | ) | ||||||
Class Y Shares | (9,843,199 | ) | (8,176,894 | ) | ||||||
(13,530,695 | ) | (18,270,799 | ) | |||||||
Net increase (decrease) in net assets resulting from share transactions | (8,613,619 | ) | 15,161,271 | |||||||
Total increase (decrease) in net assets | (6,168,909 | ) | 10,518,706 | |||||||
Net Assets: | ||||||||||
Beginning of period | 46,426,974 | 35,908,268 | ||||||||
End of period | $ | 40,258,065 | $ | 46,426,974 |
See Notes to Financial Statements
8 |
VANECK NDR MANAGED ALLOCATION FUND
For a share outstanding throughout each period:
Class A | |||||||||||||||||||||
For the | |||||||||||||||||||||
Six Months Ended | Year Ended December 31, | ||||||||||||||||||||
June 30, 2019 | 2018 | 2017 | 2016(a) | ||||||||||||||||||
(unaudited) | |||||||||||||||||||||
Net asset value, beginning of period | $ | 26.54 | $ | 29.31 | $ | 25.97 | $ | 25.15 | |||||||||||||
Income from investment operations: | |||||||||||||||||||||
Net investment income | 0.12 | (c) | 0.34 | (c) | 0.22 | (c) | 0.20 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.44 | (2.73 | ) | 3.71 | 1.12 | ||||||||||||||||
Total from investment operations | 1.56 | (2.39 | ) | 3.93 | 1.32 | ||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||
Net investment income | — | (0.23 | ) | (0.16 | ) | (0.25 | ) | ||||||||||||||
Net realized gains | — | (0.15 | ) | (0.43 | ) | (0.25 | ) | ||||||||||||||
Total dividends and distributions | — | (0.38 | ) | (0.59 | ) | (0.50 | ) | ||||||||||||||
Net asset value, end of period | $ | 28.10 | $ | 26.54 | $ | 29.31 | $ | 25.97 | |||||||||||||
Total return (b) | 5.88 | %(d) | (8.13 | )% | 15.15 | % | 5.27 | %(d) | |||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||
Net assets, end of period (000’s) | $ | 14,145 | $ | 14,710 | $ | 10,006 | $ | 3,724 | |||||||||||||
Ratio of gross expenses to average net assets (f) | 1.94 | %(e) | 1.62 | % | 2.09 | % | 2.67 | %(e) | |||||||||||||
Ratio of net expenses to average net assets (f) | 1.16 | %(e) | 1.15 | % | 1.15 | % | 1.15 | %(e) | |||||||||||||
Ratio of net expenses to average net assets, excluding interest expense (f) | 1.15 | %(e) | 1.15 | % | 1.15 | % | 1.15 | %(e) | |||||||||||||
Ratio of net investment income to average net assets (f) | 0.90 | %(e) | 1.16 | % | 0.79 | % | 1.79 | %(e) | |||||||||||||
Portfolio turnover rate | 111 | %(d) | 202 | % | 229 | % | 140 | %(d) |
(a) | For the period May 11, 2016 (commencement of operations) through December 31, 2016. |
(b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(c) | Calculated based upon average shares outstanding. |
(d) | Not annualized. |
(e) | Annualized. |
(f) | The ratios presented do not reflect the Fund’s proportionate share of income and expenses from the Fund’s investment in underlying funds. |
See Notes to Financial Statements
9 |
VANECK NDR MANAGED ALLOCATION FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class I | |||||||||||||||||||||
For the | |||||||||||||||||||||
Six Months Ended | Year Ended December 31, | ||||||||||||||||||||
June 30, 2019 | 2018 | 2017 | 2016(a) | ||||||||||||||||||
(unaudited) | |||||||||||||||||||||
Net asset value, beginning of period | $ | 26.63 | $ | 29.41 | $ | 26.02 | $ | 25.15 | |||||||||||||
Income from investment operations: | |||||||||||||||||||||
Net investment income | 0.17 | (c) | 0.38 | (c) | 0.35 | (c) | 0.30 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.44 | (2.70 | ) | 3.67 | 1.07 | ||||||||||||||||
Total from investment operations | 1.61 | (2.32 | ) | 4.02 | 1.37 | ||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||
Net investment income | — | (0.31 | ) | (0.20 | ) | (0.25 | ) | ||||||||||||||
Net realized gains | — | (0.15 | ) | (0.43 | ) | (0.25 | ) | ||||||||||||||
Total dividends and distributions | — | (0.46 | ) | (0.63 | ) | (0.50 | ) | ||||||||||||||
Net asset value, end of period | $ | 28.24 | $ | 26.63 | $ | 29.41 | $ | 26.02 | |||||||||||||
Total return (b) | 6.05 | %(d) | (7.85 | )% | 15.48 | % | 5.47 | %(d) | |||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||
Net assets, end of period (000’s) | $ | 15,429 | $ | 12,371 | $ | 12,741 | $ | 3,285 | |||||||||||||
Ratio of gross expenses to average net assets (f) | 1.64 | %(e) | 1.36 | % | 1.79 | % | 2.40 | %(e) | |||||||||||||
Ratio of net expenses to average net assets (f) | 0.86 | %(e) | 0.85 | % | 0.85 | % | 0.85 | %(e) | |||||||||||||
Ratio of net expenses to average net assets, excluding interest expense (f) | 0.85 | %(e) | 0.85 | % | 0.85 | % | 0.85 | %(e) | |||||||||||||
Ratio of net investment income to average net assets (f) | 1.21 | %(e) | 1.33 | % | 1.23 | % | 1.95 | %(e) | |||||||||||||
Portfolio turnover rate | 111 | %(d) | 202 | % | 229 | % | 140 | %(d) |
(a) | For the period May 11, 2016 (commencement of operations) through December 31, 2016. |
(b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(c) | Calculated based upon average shares outstanding. |
(d) | Not annualized. |
(e) | Annualized. |
(f) | The ratios presented do not reflect the Fund’s proportionate share of income and expenses from the Fund’s investment in underlying funds. |
See Notes to Financial Statements
10 |
VANECK NDR MANAGED ALLOCATION FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
Class Y | |||||||||||||||||||||
For the | |||||||||||||||||||||
Six Months Ended | Year Ended December 31, | ||||||||||||||||||||
June 30, 2019 | 2018 | 2017 | 2016(a) | ||||||||||||||||||
(unaudited) | |||||||||||||||||||||
Net asset value, beginning of period | $ | 26.62 | $ | 29.39 | $ | 26.01 | $ | 25.15 | |||||||||||||
Income from investment operations: | |||||||||||||||||||||
Net investment income | 0.14 | (c) | 0.39 | (c) | 0.36 | (c) | 0.27 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.46 | (2.72 | ) | 3.65 | 1.09 | ||||||||||||||||
Total from investment operations | 1.60 | (2.33 | ) | 4.01 | 1.36 | ||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||
Net investment income | — | (0.29 | ) | (0.20 | ) | (0.25 | ) | ||||||||||||||
Net realized gains | — | (0.15 | ) | (0.43 | ) | (0.25 | ) | ||||||||||||||
Total dividends and distributions | — | (0.44 | ) | (0.63 | ) | (0.50 | ) | ||||||||||||||
Net asset value, end of period | $ | 28.22 | $ | 26.62 | $ | 29.39 | $ | 26.01 | |||||||||||||
Total return (b) | 6.01 | %(d) | (7.90 | )% | 15.45 | % | 5.43 | %(d) | |||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||
Net assets, end of period (000’s) | $ | 10,685 | $ | 19,346 | $ | 13,161 | $ | 1,848 | |||||||||||||
Ratio of gross expenses to average net assets (f) | 1.76 | %(e) | 1.33 | % | 1.75 | % | 2.90 | %(e) | |||||||||||||
Ratio of net expenses to average net assets (f) | 0.91 | %(e) | 0.90 | % | 0.90 | % | 0.90 | %(e) | |||||||||||||
Ratio of net expenses to average net assets, excluding interest expense (f) | 0.90 | %(e) | 0.90 | % | 0.90 | % | 0.90 | %(e) | |||||||||||||
Ratio of net investment income to average net assets (f) | 1.02 | %(e) | 1.36 | % | 1.25 | % | 2.12 | %(e) | |||||||||||||
Portfolio turnover rate | 111 | %(d) | 202 | % | 229 | % | 140 | %(d) |
(a) | For the period May 11, 2016 (commencement of operations) through December 31, 2016. |
(b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of period, reinvestment of any dividends and distributions at net asset value on the dividend/distributions payment date and a redemption at the net asset value on the last day of the period. The return does not reflect the deduction of taxes that a shareholder would pay on Fund dividends/distributions or the redemption of Fund shares. |
(c) | Calculated based upon average shares outstanding. |
(d) | Not annualized. |
(e) | Annualized. |
(f) | The ratios presented do not reflect the Fund’s proportionate share of income and expenses from the Fund’s investment in underlying funds. |
See Notes to Financial Statements
11 |
VANECK NDR MANAGED ALLOCATION FUND
June 30, 2019 (unaudited)
Note 1—Fund Organization—Van Eck Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Trust was organized as a Massachusetts business trust on April 3, 1985. The NDR Managed Allocation Fund (the “Fund”) is a diversified series of the Trust and seeks to achieve its investment objective by investing in exchange traded products using a customized version of a global tactical asset allocation model developed by Ned Davis Research, Inc. The Fund currently offers three classes of shares: Class A, I and Y Shares. Each share class represents an interest in the same portfolio of investments of the Fund and is substantially the same in all respects, except that the classes are subject to different distribution fees and sales charges. Class I and Y Shares are sold without a sales charge; Class A Shares are sold subject to a front-end sales charge.
Note 2—Significant Accounting Policies—The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
The Fund is an investment company and follows accounting and reporting requirements of Accounting Standards Codification (“ASC”) 946Financial Services — Investment Companies.
The following is a summary of significant accounting policies followed by the Fund.
A. | Security Valuation—The Fund values its investments in securities and other assets and liabilities at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Securities traded on national exchanges are valued at the last sales price as reported at the close of each business day. Securities traded on the NASDAQ Stock Market LLC (“NASDAQ”) are valued at the NASDAQ official closing price. Over-the-counter securities not included on NASDAQ and listed securities for which no sale was reported are valued at the mean of the bid and ask prices. To the extent these securities are actively traded they are categorized as Level 1 in the fair value hierarchy (as described below). Short-term obligations with sixty days or less to maturity are valued at amortized cost, which with accrued interest approximates fair value. Open-end mutual fund investments (including money market funds) are valued at their closing net asset value each business day and are categorized as Level 1 in the fair value hierarchy. The Pricing Committee of |
12 |
Van Eck Associates Corporation (“the Adviser”) provides oversight of the Fund’s valuation policies and procedures, which are approved by the Fund’s Board of Trustees. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and other market sources to determine fair value. The Pricing Committee convenes regularly to review the fair value of financial instruments or other assets. If market quotations for a security or other asset are not readily available, or if the Adviser believes it does not otherwise reflect the fair value of a security or asset, the security or asset will be fair valued by the Pricing Committee in accordance with the Fund’s valuation policies and procedures. The Pricing Committee employs various methods for calibrating the valuation approaches utilized to determine fair value, including a regular review of key inputs and assumptions, periodic comparisons to valuations provided by other independent pricing services, transactional back-testing and disposition analysis.
Certain factors such as economic conditions, political events, market trends, the nature of and duration of any restrictions on disposition, trading in similar securities of the issuer or comparable issuers and other security specific information are used to determine the fair value of these securities. Depending on the relative significance of valuation inputs, these securities may be classified either as Level 2 or Level 3 in the fair value hierarchy. The price which the Fund may realize upon sale of an investment may differ materially from the value presented on the Schedule of Investments.
The Fund utilizes various methods to measure the fair value of its investments on a recurring basis, which includes a hierarchy that prioritizes inputs to valuation methods used to measure fair value. The fair value hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three levels of the fair value hierarchy are described below:
Level 1 – | Quoted prices in active markets for identical securities. | |
Level 2 – | Significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). | |
Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
13 |
VANECK NDR MANAGED ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
A summary of the inputs and the levels used to value the Fund’s investments are located in the Schedule of Investments. Additionally, tables that reconcile the valuation of the Fund’s Level 3 investments, and that present additional information about the valuation methodologies and unobservable inputs, if applicable, are located in the Schedule of Investments.
B. | Federal Income Taxes—It is the Fund’s policy to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net investment income and net realized capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. |
C. | Dividends and Distributions to Shareholders—Dividends to shareholders from net investment income and distributions from net realized capital gains, if any, are declared and paid annually. Income dividends and capital gain distributions are determined in accordance with U.S. income tax regulations, which may differ from such amounts determined in accordance with GAAP. |
D. | Other—Security transactions are accounted for on trade date. Realized gains and losses are determined based on the specific identified cost. Dividend income is recorded on the ex-dividend date. Income, non-class specific expenses, gains and losses on investments are allocated based on the relative net assets of each class. Expenses directly attributable to a specific class are charged to that class. |
In the normal course of business, the Fund enters into contracts that contain a variety of general indemnifications. The Fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the investment adviser believes the risk of loss under these arrangements to be remote.
Note 3—Investment Management and Other Agreements—The Adviser is the investment adviser to the Fund. The Adviser receives a management fee, calculated daily and payable monthly based on annual rate of 0.80% of the Fund’s average daily net assets. The Adviser has agreed, until at least May 1, 2020, to waive management fees and assume expenses to prevent the Fund’s total annual operating expenses (excluding acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses) from exceeding the expense limitations listed in the table below.
14 |
The current expense limitations and the amounts waived/assumed by the Adviser for the period ended June 30, 2019, are as follows:
Expense Limitation | Waiver of Management Fees | |||||||
NDR Managed Allocation Fund | ||||||||
Class A | 1.15 | % | $55,400 | |||||
Class I | 0.85 | 55,081 | ||||||
Class Y | 0.90 | 52,297 |
For the period ended June 30, 2019, Van Eck Securities Corporation (the “Distributor”), and affiliate and wholly-owned subsidiary of the Adviser, received a total of $2,492 in sales loads relating to the sale of shares of the Fund, of which $2,205 was reallowed to broker/dealers and the remaining $287 was retained by the Distributor.
Certain officers of the Trust are officers, directors or stockholders of the Adviser and the Distributor.
Note 4—Investments—For the period ended June 30, 2019, the cost of purchases and proceeds from sales of investments, excluding U.S. government securities and short-term obligations, aggregated $45,735,617 and $53,802,593, respectively.
Note 5—Income Taxes—As of June 30, 2019, for Federal income tax purposes, the identified tax cost of investments owned, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation (depreciation) of investments were as follows:
Tax Cost of Investments | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | |||
$38,112,953 | $2,985,280 | $(760,287) | $2,224,993 |
The tax character of dividends paid to shareholders during the year ended December 31, 2018 was as follows:
Ordinary income* | $496,668 |
* Includes short-term capital gains
The tax character of current year distributions will be determined at the end of the current fiscal year.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more-likely-than-not” to be sustained assuming examination by applicable tax authorities. Management has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on return filings for all open
15 |
VANECK NDR MANAGED ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
tax years. The Fund does not have exposure for additional years that might still be open in certain foreign jurisdictions. Therefore, no provision for income tax is required in the Fund’s financial statements. However, the Fund may be subject to foreign taxes on the appreciation in value of certain investments. The Fund provides for such taxes, if any, on both realized and unrealized appreciation.
The Fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense on the Statement of Operations. During the period ended June 30, 2019, the Fund did not incur any interest or penalties.
Note 6—Principal Risks—The Fund may concentrate its investments in exchange traded products that invest directly in, or have exposure to, equity and debt securities, as well as other asset categories such as commodities and derivative instruments. Such investments may subject the exchange traded product to greater volatility than investments in traditional securities. The Fund may indirectly own foreign securities. Securities of foreign issuers involve special risks and considerations not typically associated with investing in U.S. issuers. These risks include devaluation of currencies, less reliable information about issuers, different securities transaction clearance and settlement practices, and future adverse political and economic developments. These risks are heightened for investments in emerging market countries. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than those of comparable U.S. issuers. The Fund may invest directly or indirectly in debt securities which are rated below investment grade by rating agencies. Such securities involve more risk of default than higher rated securities and are subject to greater price variability.
At June 30, 2019, the Adviser owned approximately 22% of Class A, 43% of Class I, and 33% of Class Y.
A more complete description of risks is included in the Fund’s Prospectus and Statement of Additional Information.
Note 7—12b-1 Plan of Distribution—Pursuant to a Rule 12b-1 Plan of Distribution (the “Plan”), the Fund is authorized to incur distribution expenses which will principally be payments to securities dealers who have sold shares and serviced shareholder accounts, and payments to the Distributor for reimbursement of other actual promotion and distribution expenses incurred by the Distributor on behalf of the Fund. The amount paid under the Plan in any one year is limited to 0.25% of average daily net assets for Class A Shares and is recorded as Distribution fees in the Statement of Operations.
16 |
Note 8—Shareholder Transactions—Shares of beneficial interest issued, reinvested and redeemed (unlimited number of $0.001 par value shares authorized):
Six Months Ended June 30, 2019 | Year Ended December 31, 2018 | |||||||
(unaudited) | ||||||||
Class A | ||||||||
Shares sold | 62,335 | 441,160 | ||||||
Shares reinvested | — | 7,849 | ||||||
Shares redeemed | (113,359 | ) | (236,079 | ) | ||||
Net increase (decrease) | (51,024 | ) | 212,930 | |||||
Class I | ||||||||
Shares sold | 101,851 | 139,013 | ||||||
Shares reinvested | — | 8,267 | ||||||
Shares redeemed | (20,162 | ) | (115,906 | ) | ||||
Net increase | 81,689 | 31,374 | ||||||
Class Y | ||||||||
Shares sold | 13,484 | 551,616 | ||||||
Shares reinvested | — | 9,941 | ||||||
Shares redeemed | (361,742 | ) | (282,614 | ) | ||||
Net increase (decrease) | (348,258 | ) | 278,943 |
Note 9—Bank Line of Credit—The Trust participates with VanEck VIP Funds (collectively the “VE/VIP Funds”) in a $30 million committed credit facility (the “Facility”) to be utilized for temporary financing until the settlement of sales or purchases of portfolio securities, the repurchase or redemption of shares of the participating Fund and other temporary or emergency purposes. The participating VE/VIP Funds have agreed to pay commitment fees, pro rata, based on the unused but available balance. Interest is charged to the participating VE/VIP Funds at rates based on prevailing market rates in effect at the time of borrowings. During the period ended June 30, 2019, the average daily loan balance during the 30 day period for which a loan was outstanding amounted to $673,821 and the average interest rate was 3.73%. At June 30, 2019, the Fund had no outstanding borrowings under the Facility.
Note 10—Trustee Deferred Compensation Plan—The Trust has a Deferred Compensation Plan (the “Deferred Plan”), for Trustees under which the Trustees can elect to defer receipt of their trustee fees until retirement, disability or termination from the Board of Trustees. The fees otherwise payable to the participating Trustees are deemed invested in eligible shares of the VE/VIP Funds as directed by the Trustees.
17 |
VANECK NDR MANAGED ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
The expense for the Deferred Plan is included in “Trustees’ fees and expenses” in the Statement of Operations. The liability for the Deferred Plan is shown as “Deferred Trustee fees” in the Statement of Assets and Liabilities.
Note 11—Recent Accounting Pronouncements and Regulatory Requirements—The Funds early adopted certain provisions of Accounting Standards Update No. 2018-13Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement(“ASU 2018-13”) that eliminate and modify certain disclosure requirements for fair value measurements. The adoption of certain provisions of the ASU 2018-13 had no material effect on financial statements and related disclosures. Management is currently evaluating the potential impact of additional requirements, not yet adopted, to financial statements. The ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.
Note 12—Subsequent Event Review—The Fund has evaluated subsequent events and transactions for potential recognition or disclosure through the date the financial statements were issued.
18 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited)
VANECK NDR MANAGED ALLOCATION FUND
(the “Fund”)
The Investment Company Act of 1940, as amended (the “1940 Act”), provides, in substance, that an investment advisory agreement between a fund and its investment adviser may be entered into only if it is approved, and may continue in effect from year to year after an initial two-year period only if its continuance is approved, at least annually by the fund’s board of trustees, including by a vote of a majority of the trustees who are not “interested persons” of the fund as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of considering such approval. On June 21, 2019, the Board of Trustees (the “Board”) of VanEck Funds (the “Trust”), which is comprised exclusively of Independent Trustees, voted to approve the continuation of the existing advisory agreement (the “Advisory Agreement”) between the Fund and its investment adviser, Van Eck Associates Corporation (together with its affiliated companies, the “Adviser”). Information regarding the material factors considered and related conclusions reached by the Board in approving the continuation of the Fund’s Advisory Agreement is set forth below.
In considering the continuation of the Advisory Agreement, the Board reviewed and considered information that had been provided by the Adviser throughout the year at meetings of the Board and its committees, including information requested by the Board and furnished by the Adviser for meetings of the Board held on June 5, 2019 and June 21, 2019 specifically for the purpose of considering the continuation of the Advisory Agreement. The written and oral reports provided to the Board included, among other things, the following:
■ | Information about the overall organization of the Adviser and the Adviser’s short-term and long-term business plans with respect to its mutual fund operations and other lines of business; |
■ | The consolidated financial statements of the Adviser for the past two fiscal years; |
■ | A copy of the Advisory Agreement and descriptions of the services provided by the Adviser thereunder; |
■ | Information regarding the qualifications, education and experience of the investment professionals responsible for portfolio management, investment research and trading activities for the |
19 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited) (continued)
Fund, the structure of their compensation and the resources available to support these activities; | |
■ | A report prepared by an independent consultant comparing the Fund’s investment performance gross of expenses for a representative class of shares (including, where relevant, total returns, standard deviations, Sharpe ratios, information ratios, beta and alpha) for the one-, three-, five- and ten-year periods (as applicable) ended March 31, 2019 with the investment performance of (i) a universe of mutual funds selected by the independent consultant with similar investment characteristics, utilizing for these purposes the oldest share class of each fund gross of expenses (the “Performance Category”), (ii) a sub-group of funds selected from the Performance Category by the independent consultant further limited to approximate more closely the Fund’s investment style without regard to asset size (the “Performance Peer Group”), and (iii) an appropriate benchmark index; |
■ | A report prepared by an independent consultant comparing the advisory fees and other expenses of a representative class of shares of the Fund during its fiscal year ended December 31, 2018 with a similar share class of (i) funds in the Performance Category that have the same share class (the “Expense Category”) and (ii) a sub-set of the funds that comprise the Performance Peer Group that have the same share class (the “Expense Peer Group”); |
■ | An analysis of the profitability of the Adviser with respect to its services for the Fund and the VanEck complex of mutual funds as a whole (the “VanEck Complex”); |
■ | Information about the Adviser’s use of a customized version of a global tactical asset allocation model (the “NDR Model”) created by Ned Davis Research, Inc. (“NDR”) to guide the Fund’s asset allocation decisions, including information about the structure of the NDR Model, the process followed in managing the Fund in accordance with the NDR Model, the manner in which the NDR Model was customized at the request of the Adviser and the reasons for such customizations, among other things; |
■ | Information concerning the Adviser’s compliance program, the resources devoted to compliance efforts undertaken by the Adviser on behalf of the Fund, and reports regarding a variety of compliance-related issues; |
20 |
■ | Information with respect to the Adviser’s brokerage practices, including the Adviser’s processes for monitoring best execution of portfolio transactions and the benefits received by the Adviser from research acquired with soft dollars; |
■ | Information regarding the procedures used by the Adviser in monitoring the valuation of portfolio securities, including the methodologies used in making fair value determinations, and the Adviser’s due diligence process for recommending the selection of pricing vendors and monitoring the quality of the inputs provided by such vendors; |
■ | Information regarding how the Adviser safeguards the confidentiality and integrity of its data and files (both physical and electronic), as well as of any communications with third parties containing Fund and shareholder information, including reports regarding the Adviser’s cybersecurity framework and its implementation, the identification and monitoring of cybersecurity risks (including the risks that arise out of arrangements with third party service providers), the Adviser’s cybersecurity response policy and other initiatives of the Adviser to mitigate cybersecurity risks; |
■ | Information regarding the Adviser’s policies and practices with respect to personal investing by the Adviser and its employees, including reports regarding the administration of the Adviser’s code of ethics and the Adviser’s policy with respect to investments in the Fund by the Adviser’s investment personnel; |
■ | Information regarding the Adviser’s investment process for the Fund, including how the Adviser integrates non-accounting-based information (including, but not limited to “environmental, social and governance” factors) and the non-security-selection, non-portfolio–construction activities of the investment teams, such as engagement with portfolio companies and industry group participation; |
■ | Information regarding the Adviser’s role as the administrator of the Trust’s liquidity risk management program; |
■ | Descriptions of sub-transfer agency, omnibus account and other shareholder servicing arrangements for the Fund with intermediaries (collectively, “Servicing Arrangements”), including a description of the services provided by the intermediaries pursuant to such Servicing Arrangements and the payment terms of the Servicing Arrangements, as well as reports regarding the |
21 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited) (continued)
amounts paid pursuant to the Servicing Arrangements and the amounts paid to intermediaries with respect to the Fund by the Adviser pursuant to any revenue sharing arrangements and Servicing Arrangements (to the extent not paid by the Fund); | |
■ | Descriptions of other administrative and other non-investment management services provided by the Adviser for the Fund, including the Adviser’s activities in managing relationships with the Fund’s custodian, transfer agent and other service providers; and |
■ | Other information provided by the Adviser in its response to a comprehensive questionnaire prepared by independent legal counsel on behalf of the Independent Trustees. |
In determining whether to approve the continuation of the Advisory Agreement, the Board considered, among other things, the following: (1) the nature, quality, extent and cost of the investment management, administrative and other non-investment management services provided by the Adviser; (2) the nature, quality and extent of the services performed by the Adviser in interfacing with, and monitoring the services performed by, third parties, such as the Fund’s custodian, transfer agent, sub-transfer agents and independent auditor, and the Adviser’s commitment and efforts to review the quality and pricing of third party service providers to the Fund with a view to reducing non-management expenses of the Fund; (3) the terms of the Advisory Agreement and the services performed thereunder; (4) the willingness of the Adviser to reduce the overall expenses of the Fund from time to time, if necessary or appropriate, by means of waiving a portion of its fees or paying expenses of the Fund; (5) the quality of the services, procedures and processes used to determine the value of the Fund’s assets and the actions taken to monitor and test the effectiveness of such services, procedures and processes; (6) the ongoing efforts of, and resources devoted by, the Adviser with respect to the development and implementation of a comprehensive compliance program; (7) the responsiveness of the Adviser to inquiries from, and examinations by, regulatory authorities, including the Securities and Exchange Commission; (8) the resources committed by the Adviser in recent periods to information technology and cybersecurity; and (9) the ability of the Adviser to attract and retain quality professional personnel to perform investment advisory and administrative services for the Fund.
22 |
The Board considered the fact that the Adviser is managing other investment products, including exchange-traded funds, private funds, separate accounts and UCITs, one or more of which may invest in the same financial markets and may be managed by the same investment professionals according to a similar investment objective and/or strategy as the Fund. The Board concluded that the management of these products contributes to the Adviser’s financial stability and is helpful to the Adviser in attracting and retaining quality portfolio management personnel for the Fund. In addition, the Board concluded that the Adviser has established appropriate procedures to monitor conflicts of interest involving the management of the Fund and the other products and for resolving any such conflicts of interest in a fair and equitable manner.
The performance data and the advisory fee and expense ratio data described below for the Fund is based on data for a representative class of shares of the Fund. The performance data is gross of expenses for periods on an annualized basis ended March 31, 2019, and the advisory fee and expense ratio data is as of the Fund’s fiscal year end of December 31, 2018.
Performance.The Board noted, based on a review of comparative annualized total returns, that the Fund had underperformed its Performance Category and Performance Peer Group median for the one-year period. The Board also noted that the Fund had outperformed its benchmark index for the one-year period. On the basis of the foregoing and other relevant information provided in response to inquiries by the Board, the Board concluded that the performance of the Fund was satisfactory.
Fees and Expenses.The Board noted that the fee rate payable for advisory services and the total expense ratio, net of waivers or reimbursements, were lower than the median advisory fee rates and total expense ratios of the Fund’s Expense Category and Expense Peer Group. The Board also noted that the Adviser has agreed to waive fees or pay expenses of the Fund through May 1, 2020 to the extent necessary to prevent the expense ratio of the Fund from exceeding a specified maximum amount (subject to certain exclusions).
On the basis of the foregoing, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the advisory fee rate charged to the Fund is reasonable.
23 |
VANECK FUNDS
APPROVAL OF ADVISORY AGREEMENT
June 30, 2019 (unaudited) (continued)
Profitability and Economies of Scale.The Board considered the profits, if any, realized by the Adviser from managing the Fund and other mutual funds in the VanEck Complex and the methodology used to determine such profits. The Board noted that the levels of profitability reported on a fund-by-fund basis varied widely depending on such factors as the size, type of fund and operating history. The Board further noted that, in evaluating the reasonableness of the Adviser’s profits from managing any particular Fund, it would be appropriate to consider the size of the Adviser relative to other firms in the investment management industry and the impact on the Adviser’s profits of the volatility of the markets in which the Fund invests and the volatility of cash flow into and out of the Fund through various market cycles. Based on its review of the foregoing information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the profits realized by the Adviser, if any, are deemed not to be excessive. In this regard, the Board also considered the extent to which the Adviser may realize economies of scale, if any, as the Fund grows and whether the Fund’s fee schedule reflects any economies of scale for the benefit of shareholders. The Board concluded that, with respect to the Fund, any economies of scale being realized are currently being shared by the Adviser and the Fund, and that adding or modifying existing (if any) breakpoints would not be warranted at this time for the Fund.
Conclusion.In determining the material factors to be considered in evaluating the Advisory Agreement for the Fund and the weight to be given to such factors, the members of the Board relied upon the advice of independent legal counsel and their own business judgment. The Board did not consider any single factor as controlling in determining whether to approve the continuation of the Advisory Agreement and each member of the Board may have placed varying emphasis on particular factors considered in reaching a conclusion. Moreover, this summary description does not necessarily identify all of the factors considered or conclusions reached by the Board. Based on its consideration of the foregoing factors and conclusions, and such other factors and conclusions as it deemed relevant, the Board (comprised exclusively of Independent Trustees) concluded that the continuation of the Advisory Agreement is in the interests of shareholders and, accordingly, the Board approved the continuation of the Advisory Agreement for the Fund for an additional one-year period.
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This report is intended for the Fund’s shareholders. It may not be distributed to prospective investors unless it is preceded or accompanied by the Fund’s prospectus and summary prospectus, which includes more complete information. Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
Additional information about the VanEck Fund’s (the “Trust”) 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 800.826.2333, or by visiting vaneck.com, or on the Securities and Exchange Commission’s website at https://www.sec.gov.
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-PORT. The Trust’s Form N-PORTs are available on the Commission’s website at https://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 202.942.8090. The Fund’s complete schedule of portfolio holdings is also available by calling 800.826.2333 or by visiting vaneck.com.
Investment Adviser: | Van Eck Associates Corporation | |||
Distributor: | Van Eck Securities Corporation | |||
666 Third Avenue, New York, NY 10017 | ||||
vaneck.com | ||||
Account Assistance: | 800.544.4653 | NDRSAR |
Item 2. CODE OF ETHICS. Not applicable. Item 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. Item 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. Item 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. Item 6. SCHEDULE OF INVESTMENTS. Information included in Item 1. Item 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. Item 8. PORTFOLIO MANAGER OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. Item 9. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. Item 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. Item 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c)) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. (a) Not applicable. (b) Not applicable. Item 13. EXHIBITS. (a)(1) Not applicable. (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)) is attached as Exhibit 99.CERT. (b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is furnished as Exhibit 99.906CERT.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) VANECK FUNDS By (Signature and Title) /s/ John J. Crimmins, Treasurer & Chief Financial Officer --------------------------------------------------------- Date September 6, 2019 ------------------ Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ Jan F. van Eck, Chief Executive Officer -------------------------------------------- Date September 6, 2019 ------------------ By (Signature and Title) /s/ John J. Crimmins, Treasurer & Chief Financial Officer ----------------------------------------------------------- Date September 6, 2019 ------------------