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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:
811-22175
ALPS ETF TRUST
(Exact name of registrant as specified in charter)
1290 Broadway, Suite 1100, Denver, Colorado 80203
(Address of principal executive offices) (Zip code)
Tané T. Tyler, Esq.
ALPS ETF Trust
1290 Broadway, Suite 1100
Denver, Colorado 80203
(Name and address of agent for service)
Registrant’s Telephone Number, including Area Code: (303) 623-2577
Date of fiscal year end: December 31
Date of reporting period: January 1, 2010 – December 31, 2010
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Item 1. Reports to Stockholders.
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| 2 | ||||
| 3 | ||||
| 6 | ||||
| 7 | ||||
Financial Statements | ||||
| 8 | ||||
| 12 | ||||
| 13 | ||||
| 14 | ||||
| 15 | ||||
| 16 | ||||
| 24 | ||||
| 25 | ||||
Board Considerations Regarding Continuation of Investment Advisory Agreement | 30 | |||
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When ALPS launched its ETF Trust in 2008 our goal was to bring innovative solutions to the ETF(1) industry that provide investors with access to a unique market segment or strategy. Our first portfolio – the Cohen & Steers Global Realty Majors ETF – is one of the first ETFs to provide investors with access to a diversified portfolio of global real estate securities. US real estate, while already a mainstream asset class, only covers 1/3 of the global real estate universe. Furthermore, development of REITs in the global market continues to be strong as foreign countries seek to securitize their private real estate holdings. As a result, a real estate fund that is global in scope can provide investors with a wider range of opportunities than a purely domestic fund while preserving the diversification and income benefits of US REITs.
By partnering with Cohen & Steers, we have secured a best in breed real estate manager with a great track record and reputation. Furthermore, the transparency(2), low cost and tax efficiency of the ETF structure provides access to global real estate in a very efficient manner. We believe access to global real estate, the benefits of the ETF structure, and the expertise of Cohen & Steers make for a powerful investment combination that will allow investors to build better portfolios.
In the pages that follow our Fund managers have provided a performance overview. We thank you for your investment and for being a GRI shareholder.
Thomas A. Carter*
President, ALPS ETF Trust
| * | Registered representative of ALPS Distributors, Inc. Ordinary brokerage commissions apply. |
| (1) | Exchange Traded Fund (“ETF”). |
| (2) | ETFs are considered transparent because their portfolio holdings are disclosed daily. |
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The Cohen & Steers Global Realty Majors ETF (the “Fund”) seeks investment results that correspond generally to the performance (before the Fund’s fees and expenses) of an equity index called the Cohen & Steers Global Realty Majors Index (the “Index”). The Shares of the Fund are listed and trade on the NYSE Arca under the ticker symbol “GRI.” The Fund will normally invest substantially all of its assets in the 75 stocks that comprise the Cohen & Steers Global Realty Majors Index. The Fund began trading on May 9, 2008.
The Index is a free-float, market-cap-weighted total return index of selected real estate equity securities maintained by Cohen & Steers. It is quoted intraday on a real-time basis by the Chicago Mercantile Exchange under the symbol GRM. The Index’s free-float market capitalization approach and qualitative screening process emphasize companies that the Cohen & Steers Index Committee believes are leading the secu-ritization of real estate globally.
PERFORMANCE OVERVIEW
Global real estate securities posted strong total returns for the 2nd year in a row, outpacing many broad-based domestic and foreign indices. Overall, real estate stocks posted very strong gains for the year as the Cohen & Steers Global Realty Majors Index advanced 20.81%. US real estate securities lead the way rising 30.5%, followed by Asia Paci c (21.2%) and Europe (9.2%).
There were several positive catalysts to overall performance for US real estate stocks in 2010, including a reduction in capitalization rates^, limited supply and accretive acquisitions. Every property sector showed positive gains, lead by the apartment REITs (47.0%). Reduced interest in home buying, short leases and job growth in urban centers helped fuel the rally in these stocks. The hotel sector (42.8%) bene ted from increased demand and tight supply, causing revenue per available room (RevPAR) to increase substantially. Office REITs (18.4%) were some of the worst performers on a relative basis due to lower occupancies and rents in suburban office complexes.
Share prices in the Asia Pacific region rebounded nicely in the 2nd half of the year after an early decline. Despite the yen rising to a 15-year high against the dollar, Japanese real estate stocks rose sharply (26.9%) after the Bank of Japan announced that they would buy J-REITs in an effort to spur consolidation and drive down capital costs. The office sector propelled real estate securities in Hong Kong to a total return of 14.4% and was aided by improving economic conditions and continued expectations of low interest rates. Australia was the worst performing region in the sector rising only 11.6%. The central bank’s decision to raise rates amid a strong Australia dollar put pressure on borrowing costs and lowered expected GDP growth.
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The European real estate market was plagued by volatility in the aftermath of the sovereign debt crisis. Despite these concerns, property markets were still able to show positive price appreciation across the region, rising 9.2%. Sweden (40.8%) led the way, fueled by its sound banking system and strong export-oriented economy. Real estate stocks in France were up 6.9% and were aided substantially by the announcement of a 15% special dividend by its largest property stock, Unibail-Rodamco.
For the year ended December 31, 2010 the Fund’s market price increased 19.20% and the Fund’s net asset value (“NAV”) increased 19.95%. Over the same time period the Fund’s benchmark was up 20.81%.
| Annualized | One Year | Since Inception* | ||||||
Fund Performance | ||||||||
NAV | 19.95 | % | -7.55 | % | ||||
Market Price** | 19.20 | % | -7.41 | % | ||||
Index Performance | ||||||||
Cohen & Steers Global Realty Majors Index | 20.81 | % | -6.68 | % | ||||
FTSE EPRA/NAREIT Developed Real Estate Index | 20.40 | % | -6.01 | % | ||||
Total Expense Ratio (per the current prospectus) 0.55%.
Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. For most current month-end performance data please visit www.alpsetfs.com.
NAV is an exchange-traded fund’s per-share value. The per-share dollar amount of the fund is derived by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding. Market Price is the price at which a share can currently be traded in the market. Information detailing the number of days the Market Price of the Fund was greater than the Fund’s NAV and the number of days it was less than the Fund’s NAV can be obtained at www.alpsetfs.com.
^ Capitalization rate is a rate of return on a real estate investment property based on the expected income that the property will generate.
* Fund Inception 5/7/08.
** Market Price is the price at which a share can currently be traded in the market.
FTSE EPRA/NAREIT Developed Real Estate Index: An unmanaged market-weighted total return index that consists of many companies from developed markets whose oats are larger than $100 million and which derive more than half of their revenue from property-related activities.
An investor cannot invest directly in an index.
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| TOP 10 HOLDINGS* as of December 31,2010 |
Mitsubishi Estate Co., Ltd. | 4.09 | % | ||
Simon Property Group, Inc. | 3.83 | |||
Unibail-Rodamco | 3.69 | |||
Sun Hung Kai Properties, Ltd. | 3.58 | |||
Mitsui Fudosan Co., Ltd. | 3.37 | |||
West eld Group | 3.10 | |||
Equity Residential | 3.00 | |||
Public Storage | 2.89 | % | ||
Vornado Realty Trust | 2.76 | |||
HCP, Inc. | 2.73 | |||
Percent of Net Assets in Top Ten Holdings: | 33.04 | % | ||
* Future holdings are subject to change. |
| |||
| GEOGRAPHIC BREAKDOWN** |
United States | 41.94 | % | ||
Hong Kong | 15.05 | |||
Japan | 12.26 | |||
Australia | 9.58 | |||
United Kingdom | 6.21 | |||
France | 5.51 | |||
Singapore | 4.68 | |||
Netherlands | 1.97 | |||
Canada | 0.77 | % | ||
Brazil | 0.62 | |||
Switzerland | 0.57 | |||
Sweden | 0.48 | |||
Belgium | 0.36 | |||
** % of Total Investments |
| |||
| GROWTH OF $10K as of December 31,2010 |
Comparison of Change in Value of $10,000 Investment in Cohen & Steers Global Realty Majors ETF and Cohen & Steers Global Realty Majors Index.
The chart above represents historical performance of a hypothetical investment of $10,000 in the Fund over the life of the Fund. Performance calculations are as of the end of each month. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
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Shareholder Expense Example: As a shareholder of the Fund, you incur two types of costs: (1) transaction costs which may include creation and redemption fees or brokerage charges, and (2) ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. It is based on an investment of $1,000 invested at July 1, 2010, and held through the period ended December 31, 2010.
Actual Return: The first line of the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you incurred 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” to estimate the expenses attributable to your investment during this period.
Hypothetical 5% Return: The second line of the table 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 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 the other funds.
The expenses shown in the table are meant to highlight ongoing Fund costs only and do not reflect any transaction costs, such as creation and redemption fees, or brokerage charges. Therefore, the second line is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these costs were included, your costs would have been higher.
Beginning Account Value 7/01/10 | Ending Account Value 12/31/10 | Expense Ratio | Expenses Paid During the Period(a) 7/01/10-12/31/10 | |||||||||||
Actual | $ | 1,000.00 | $ | 1,250.70 | 0.55% | $ 3.12 | ||||||||
Hypothetical | $ | 1,000.00 | $ | 1,022.43 | 0.55% | $ 2.80 | ||||||||
| (a) | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (184), then divided by 365. |
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To the Board of Trustees and Shareholders of ALPS ETF Trust:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of the Cohen & Steers Global Realty Majors ETF, one of the funds constituting the ALPS ETF Trust (the “Trust”), as of December 31, 2010, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the two years in the period then ended and the period May 7, 2008 (inception) to December 31, 2008. These financial statements and financial highlights are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Cohen & Steers Global Realty Majors ETF of the ALPS ETF Trust as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the two years in the period then ended, and the period from May 7, 2008 (inception) to December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
February 28, 2011
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| Security Description | Shares | Value | ||||||
Japan (12.19%) | ||||||||
Japan Real Estate Investment Corp. | 43 | $ | 446,409 | |||||
Japan Retail Fund Investment Corp. | 133 | 255,325 | ||||||
Mitsubishi Estate Co., Ltd. | 94,000 | 1,745,441 | ||||||
Mitsui Fudosan Co., Ltd. | 72,000 | 1,437,248 | ||||||
Nippon Building Fund, Inc. | 44 | 451,908 | ||||||
Sumitomo Realty & Development Co., Ltd. | 36,000 | 860,662 | ||||||
| 5,196,993 | ||||||||
Netherlands (1.96%) | ||||||||
Corio N.V. | 7,904 | 509,133 | ||||||
Eurocommercial Properties N.V. | 3,090 | 142,788 | ||||||
Wereldhave N.V. | 1,859 | 182,207 | ||||||
| 834,128 | ||||||||
Singapore (4.66%) | ||||||||
Ascendas Real Estate Investment Trust | 132,066 | 213,400 | ||||||
CapitaLand, Ltd. | 288,000 | 834,066 | ||||||
CapitaMall Trust | 203,347 | 309,533 | ||||||
CapitaMalls Asia, Ltd. | 71,725 | 108,619 | ||||||
City Developments, Ltd. | 53,000 | 519,636 | ||||||
| 1,985,254 | ||||||||
Sweden (0.47%) | ||||||||
Castellum AB | 14,854 | 202,278 | ||||||
Switzerland (0.57%) | ||||||||
PSP Swiss Property AG* | 3,031 | 243,885 | ||||||
United Kingdom (6.18%) | ||||||||
British Land Co., Plc | 76,411 | 627,475 | ||||||
Capital Shopping Centres Group Plc | 44,886 | 293,472 | ||||||
Derwent London Plc | 7,030 | 171,812 | ||||||
Great Portland Estates Plc | 26,966 | 152,327 | ||||||
Hammerson Plc | 61,427 | 401,235 | ||||||
Land Securities Group Plc | 66,381 | 700,484 | ||||||
Segro Plc | 64,323 | 288,426 | ||||||
| 2,635,231 | ||||||||
United States (41.77%) | ||||||||
Alexandria Real Estate Equities, Inc. | 4,731 | 346,593 | ||||||
AMB Property Corp. | 14,616 | 463,473 | ||||||
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| Security Description | Shares | Value | ||||||
United States (continued) | ||||||||
Apartment Investment and | ||||||||
Management Co., Class A | 10,148 | $ | 262,224 | |||||
AvalonBay Communities, Inc. | 7,404 | 833,320 | ||||||
Boston Properties, Inc. | 12,117 | 1,043,274 | ||||||
BRE Properties, Inc. | 5,533 | 240,686 | ||||||
Brookfield Properties Corp. | 21,312 | 373,599 | ||||||
Camden Property Trust | 5,812 | 313,732 | ||||||
Digital Realty Trust, Inc. | 7,576 | 390,467 | ||||||
Douglas Emmett, Inc. | 10,621 | 176,309 | ||||||
Duke Realty Corp. | 21,807 | 271,715 | ||||||
Equity Residential | 24,649 | 1,280,516 | ||||||
Essex Property Trust, Inc. | 2,632 | 300,627 | ||||||
Federal Realty Investment Trust | 5,334 | 415,679 | ||||||
HCP, Inc. | 31,655 | 1,164,587 | ||||||
Health Care REIT, Inc. | 12,392 | 590,355 | ||||||
Host Hotels & Resorts, Inc. | 57,238 | 1,022,843 | ||||||
Kimco Realty Corp. | 35,261 | 636,108 | ||||||
Liberty Property Trust | 9,871 | 315,082 | ||||||
The Macerich Co. | 11,302 | 535,376 | ||||||
ProLogis | 48,389 | 698,737 | ||||||
Public Storage | 12,131 | 1,230,326 | ||||||
Regency Centers Corp. | 7,102 | 299,989 | ||||||
Simon Property Group, Inc. | 16,410 | 1,632,631 | ||||||
SL Green Realty Corp. | 6,793 | 458,595 | ||||||
UDR, Inc. | 15,572 | 366,253 | ||||||
Ventas, Inc. | 13,652 | 716,457 | ||||||
Vornado Realty Trust | 14,108 | 1,175,620 | ||||||
Weingarten Realty Investors | 10,437 | 247,983 | ||||||
| 17,803,156 | ||||||||
TOTAL COMMON STOCKS | ||||||||
(Cost $36,972,739) | 42,430,006 | |||||||
TOTAL INVESTMENTS (99.54%) | ||||||||
(Cost $36,972,739) | 42,430,006 | |||||||
NET OTHER ASSETS AND LIABILITIES (0.46%) |
| 196,329 | ||||||
NET ASSETS (100.00%) | $ | 42,626,335 | ||||||
| * | Non-income producing security. |
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Common Abbreviations: | ||
AB - | Aktiebolag is the Swedish equivalent of the term corporation. | |
AG - | Aktiengesellschaft is a German term that refers to a corporation that is limited by | |
shares, i.e., owned by shareholders. | ||
Ltd.- | Limited. | |
N.V.- | Naamloze Vennootschap is the Dutch term for a public limited liability corporation. | |
Plc - | Public Limited Co. | |
REIT - | Real Estate Investment Trust. | |
SA - | Generally designated corporations in various countries, mostly those employing the | |
civil law. | ||
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Investments, at value | $ | 42,430,006 | ||
Cash | 46,781 | |||
Foreign currency, at value (Cost $8,512) | 8,730 | |||
Receivable for shares sold | 1,776,097 | |||
Foreign tax reclaims | 5,616 | |||
Interest and dividends receivable | 134,353 | |||
Total Assets | 44,401,583 | |||
LIABILITIES: | ||||
Payable for investments purchased | 1,757,037 | |||
Payable to advisor | 18,211 | |||
Total Liabilities | 1,775,248 | |||
NET ASSETS | $ | 42,626,335 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in capital | $ | 40,593,558 | ||
Overdistributed net investment income | (1,044,296 | ) | ||
Accumulated net realized loss on investments and foreign currency transactions | (2,381,704 | ) | ||
Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies | 5,458,777 | |||
NET ASSETS | $ | 42,626,335 | ||
INVESTMENTS, AT COST | $ | 36,972,739 | ||
PRICING OF SHARES | ||||
Net Assets | $ | 42,626,335 | ||
Shares of beneficial interest outstanding (Unlimited number of shares authorized, par value $0.01 per share) | 1,200,000 | |||
Net Asset Value, offering and redemption price per share | $ | 35.52 | ||
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Dividends(a) | $ | 1,244,995 | ||
Total Investment Income | 1,244,995 | |||
EXPENSES: | ||||
Investment advisory fee | 140,275 | |||
Total Net Expenses | 140,275 | |||
NET INVESTMENT INCOME | 1,104,720 | |||
Net realized loss on investments | (962,358 | ) | ||
Net realized gain on foreign currency transactions | 729 | |||
Net change in unrealized appreciation on investments | 5,068,972 | |||
Net change in unrealized appreciation on translation of assets and liabilities in foreign currencies | 1,768 | |||
NET REALIZED AND UNREALIZED | ||||
GAIN ON INVESTMENTS | 4,109,111 | |||
NET INCREASE IN NET ASSETS | ||||
RESULTING FROM OPERATIONS | $ | 5,213,831 | ||
| (a) | Net of foreign withholding tax of $33,498. |
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For the Year Ended December 31, 2010 | For the Year Ended December 31, 2009 | |||||||
Net investment income | $ | 1,104,720 | $ | 212,230 | ||||
Net realized loss on investments and foreign currency transactions | (961,629) | (1,175,772) | ||||||
Net change in unrealized appreciation on investments and foreign currency | 5,070,740 | 2,832,094 | ||||||
Net increase in net assets resulting from operations | 5,213,831 | 1,868,552 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS: |
| |||||||
From net investment income | (1,865,795) | (504,174) | ||||||
Total distributions | (1,865,795) | (504,174) | ||||||
SHARE TRANSACTIONS: |
| |||||||
Proceeds from sale of shares | 26,743,914 | 6,176,164 | ||||||
Cost of shares redeemed | (68,866) | – | ||||||
Net increase from share transactions | 26,675,048 | 6,176,164 | ||||||
Net increase in net assets | 30,023,084 | 7,540,542 | ||||||
NET ASSETS: |
| |||||||
Beginning of year | 12,603,251 | 5,062,709 | ||||||
End of year* | $ | 42,626,335 | $ | 12,603,251 | ||||
*Including overdistributed net | $ | (1,044,296) | $ | (294,951) | ||||
Other Information: | ||||||||
SHARE TRANSACTIONS: | ||||||||
Beginning shares | 402,000 | 202,000 | ||||||
Shares sold | 800,000 | 200,000 | ||||||
Shares redeemed | (2,000) | – | ||||||
Shares outstanding, end of year | 1,200,000 | 402,000 | ||||||
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For the Year Ended December 31, 2010 | For the Year Ended December 31, 2009 | For the Period May 7, 2008 (Inception) through December 31, 2008 | ||||||||||
| $ | 31.35 | $ | 25.06 | $ | 50.00 | |||||||
INCOME/(LOSS) FROM | ||||||||||||
Net investment income | 1.43 | (a) | 0.98 | 0.47 | ||||||||
Net realized and unrealized | 4.68 | 7.00 | (24.92 | ) | ||||||||
Total from Investment Operations | 6.11 | 7.98 | (24.45 | ) | ||||||||
LESS DISTRIBUTIONS: | ||||||||||||
From net investment income | (1.94 | ) | (1.69 | ) | (0.49 | ) | ||||||
Total Distributions | (1.94 | ) | (1.69 | ) | (0.49 | ) | ||||||
NET INCREASE/ | 4.17 | 6.29 | (24.94 | ) | ||||||||
NET ASSET VALUE, | $ | 35.52 | $ | 31.35 | $ | 25.06 | ||||||
TOTAL RETURN(b) | 19.91 | % | 32.51 | % | (48.90 | )% | ||||||
RATIOS/SUPPLEMENTAL | ||||||||||||
Net assets, end of year (in 000s) | $ | 42,626 | $ | 12,603 | $ | 5,063 | ||||||
RATIOS TO AVERAGE NET | ||||||||||||
Net investment income including | 4.33 | % | 3.24 | % | 3.49 | %(c) | ||||||
Operating expenses including | 0.55 | % | 0.55 | % | 0.55 | %(c) | ||||||
Operating expenses excluding | 0.55 | % | 0.55 | % | 0.55 | %(c) | ||||||
PORTFOLIO TURNOVER | 14 | % | 18 | % | 18 | % | ||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period and redemption at the net asset value on the last day of the period and assuming all distributions are reinvested at actual reinvestment prices. Total return calculated for a period of less than one year is not annualized. |
| (c) | Annualized. |
| (d) | Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions. |
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The ALPS ETF Trust (the “Trust”) is an open-end management investment company organized as a Delaware statutory trust on September 13, 2007 and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As of December 31, 2010, the Trust consists of ten separate portfolios. Each portfolio represents a separate series of the Trust. This report pertains solely to the Cohen & Steers Global Realty Majors ETF (the “Fund”), which commenced operations on May 7, 2008. The investment objective of the Fund is to seek investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of the Cohen & Steers Global Realty Majors Index.
The Fund’s Shares (“Shares”) are listed on the New York Stock Exchange (“NYSE”) Arca. The Fund issues and redeems Shares at Net Asset Value (“NAV”) in blocks of 50,000 Shares, each of which is called a “Creation Unit.” Creation Units are issued and redeemed principally in-kind for securities included in a specified index. Except when aggregated in Creation Units, Shares are not redeemable securities of the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.
A. Portfolio Valuation
The Fund’s NAV is determined daily, as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. The NAV is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Portfolio securities listed on any exchange other than the National Association of Securities Dealer Automated Quotation (“NASDAQ”) exchange are valued at the last sale price on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the most recent
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bid and asked prices on such day. Securities traded on the NASDAQ are valued at the NASDAQ Official Closing Price as determined by NASDAQ. Short-term investments that mature in less than 60 days are valued at amortized cost, which approximates market value.
The Fund’s investments are valued at market value or, in the absence of market value with respect to any portfolio securities, at fair value according to procedures adopted by the Trust’s Board of Trustees (the “Board”). When market quotations are not readily available or when events occur that make established valuation methods unreliable, securities of the Fund may be valued in good faith by or under the direction of the Board. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market price is not available from a pre-established primary pricing source or the pricing source is not willing to provide a price; a security with respect to which an event has occurred that is most likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; or a security whose price, as provided by the pricing service, does not reflect the security’s “fair value” due to the security being de-listed from a national exchange or the security’s primary trading market is temporarily closed at a time when, under normal conditions, it would be open. As a general principle, the current “fair value” of a security would be the amount which the owner might reasonably expect to receive from the closing sale prices on the applicable exchange and fair value prices may not reflect the actual value of a security. A variety of factors may be considered in determining the fair value of such securities.
B. Foreign Currency Translation and Foreign Investments
The Fund invests in foreign securities which may involve a number of risk factors and special considerations not present with investments in securities of U.S. corporations.
The accounting records of the Fund are maintained in U.S. dollars. Portfolio securities and other assets and liabilities denominated in a foreign currency are translated to U.S. dollars at the prevailing rates of exchange at period end. Amounts related to the purchases and sales of securities and investment income are translated into U.S. dollars at the prevailing exchange rate on the respective dates of transactions. The effects of changes in foreign currency exchange rates on portfolio investments are included in the net realized and unrealized gains and losses on investments. Net gains and losses on foreign currency transactions include disposition of foreign currencies, and currency gains and losses between the accrual and receipt dates of portfolio investment income and between the trade and settlement dates of portfolio investment transactions.
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C. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis.
D. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. GAAP. Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2010, permanent book and tax differences resulting primarily from differing treatment of foreign currency were identified and reclassified among the components of the Fund’s net assets as follows:
Undistributed Net Investment Income | Accumulated Net Realized Loss | Paid-in Capital | ||
$11,730 | $(9,863) | $(1,867) |
Net investment income/(loss) and net realized gain/(loss), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification.
Capital losses incurred after October 31 (“post-October losses”) within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year.
At December 31, 2010, the Fund had available for tax purposes unused capital loss carryforwards as follows:
| Year of Expiration | ||||||
| 2016 | 2017 | 2018 | Total | |||
$176,692 | $809,982 | $187,843 | $1,174,517 | |||
The Fund intends to defer to its fiscal year ending December 31, 2011 approximately $2,183 of capital and $74,812 of foreign currency and passive foreign investment company losses recognized during the period from November 1, 2010 to December 31, 2010.
E. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid quarterly or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually.
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Distributions from net investment income and capital gains are determined in accordance with income tax regulations, which may differ from U.S. GAAP. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences and differing characterization of distributions made by the Fund.
The tax character of the distributions paid was as follows:
For the Year Ended December 31, 2010 | For the Year Ended December 31, 2009 | |||
Distributions paid from: | ||||
Ordinary income | $ 1,865,795 | $ 504,174 | ||
Total | $ 1,865,795 | $ 504,174 | ||
As of December 31, 2010, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed net investment income | $ 351,629 | |
Accumulated net realized loss on investments and foreign currency transactions | (1,176,700) | |
Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies | 2,932,660 | |
Other Cumulative Effect of Timing Differences | (74,812) | |
Total | $ 2,032,777 | |
The differences between book-basis and tax-basis are primarily due to the deferral of post-October losses and the differing treatment of certain other investments.
F. Income Taxes
No provision for income taxes is included in the accompanying financial statements, as the Fund intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
The Fund evaluates tax positions taken (or expected to be taken) in the course of preparing the Fund’s tax returns to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements.
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Management of the Fund analyzes all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the fiscal year ended December 31, 2010, the Fund did not have a liability for any unrecognized tax benefits. The Fund will le income tax returns in the U.S. federal jurisdiction and Colorado. For the years ended December 31, 2008 through December 31, 2010, the Fund’s returns are still open to examination by the appropriate taxing authority.
G. Fair Value Measurements
The Fund discloses the classification of its fair value measurements following a three-tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.
Various inputs are used in determining the value of the Fund’s investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments. These inputs are categorized in the following hierarchy under applicable financial accounting standards:
Level 1 - | unadjusted quoted prices in active markets for identical investments | |
Level 2 - | other 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) | |
| Investments in Securities at Value* | Level 1- Unadjusted Quoted Prices | Level 2- Other Significant Inputs | Level 3- Significant Unobservable Inputs | Total | ||||||||||||
Common Stocks | $ | 42,430,006 | $ | – | $ | – | $ | 42,430,006 | ||||||||
TOTAL | $ | 42,430,006 | $ | – | $ | – | $ | 42,430,006 | ||||||||
* For a detailed geographical breakdown, see the accompanying Schedule of Investments.
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For the year ended December 31, 2010, the Fund did not have any significant transfers between Level 1 and Level 2 securities. The Fund did not have any securities which used significant unobservable inputs (Level 3) in determining fair value.
| 3. INVESTMENT ADVISORY FEE AND |
OTHER AFFILIATED TRANSACTIONS |
ALPS Advisors, Inc. (the “Investment Adviser”) acts as the Fund’s investment adviser pursuant to an Advisory Agreement with the Trust on behalf of the Fund (the “Advisory Agreement”). Pursuant to the Advisory Agreement, the Fund pays the Investment Adviser a unitary fee for the services and facilities it provides payable on a monthly basis at the annual rate of 0.55% of the Fund’s average daily net assets. From time to time, the Investment Adviser may waive all or a portion of its fee.
Out of the unitary management fee, the Investment Adviser pays substantially all expenses of the Fund, including the fees of the Sub-Adviser, the licensing fee of the Index provider, and the cost of transfer agency, custody, fund administration, legal, audit and other services, except for interest expenses, distribution fees or expenses, brokerage expenses, taxes and extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, the Investment Adviser’s unitary management fee is designed to compensate the Investment Adviser for providing services for the Fund.
Mellon Capital Management Corporation acts as the Fund’s sub-adviser (the “Sub-Adviser”) pursuant to a sub-advisory agreement with the Investment Adviser (the “Sub-Advisory Agreement”). According to this agreement, the Investment Adviser pays the Sub-Adviser on a monthly basis, an annual rate of 0.10% of the Fund’s average daily net assets. The Investment Adviser will pay the Sub-Adviser a minimum of $125,000 per year.
ALPS Fund Services, Inc. (“ALPS”), an affiliate of the Investment Adviser, is the administrator of the Fund.
The Bank of New York Mellon is the custodian, fund accounting agent and transfer agent for the Fund.
Each Trustee who is not an officer or employee of the Investment Adviser, any sub-adviser or any of their affiliates (“Independent Trustees”) is paid a quarterly retainer of $3,500, $1,500 for each regularly scheduled Board meeting attended and $750 for each special meeting held outside of regularly scheduled meetings.
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4. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2010, the cost of purchases and proceeds from sales of investment securities, excluding in-kind transactions and short-term investments, were as follows:
| Purchases | Sales | |
$3,582,526 | $4,592,522 |
For the year ended December 31, 2010, the cost of in-kind purchases and proceeds from in-kind sales were as follows:
| Purchases | Sales | |
$26,337,883 | $0 |
Gains on in-kind transactions are not considered taxable for federal income tax purposes.
As of December 31, 2010, the costs of investments for federal income tax purposes and accumulated net unrealized appreciation/(depreciation) on investments were as follows:
Gross Appreciation (excess of value over tax cost) | $ | 3,763,847 | ||
Gross Depreciation (excess of tax cost over value) | (832,697) | |||
Gross Appreciation of foreign currency and other derivatives | 1,510 | |||
Net unrealized appreciation | $ | 2,932,660 | ||
Cost of investment for income tax purposes | $ | 39,498,856 | ||
5. CAPITAL SHARE TRANSACTIONS
Shares are created and redeemed by the Fund only in Creation Unit size aggregations of 50,000. Only broker-dealers or large institutional investors with creation and redemption agreements called Authorized Participants (“AP”) are permitted to purchase or redeem Creation Units from the Fund. Such transactions are generally permitted on an in-kind basis, with a balancing cash component to equate the transaction to the net asset value per unit of the Fund on the transaction date. Cash may be substituted equivalent to the value of certain securities generally when they are not available in sufficient quantity for delivery, not eligible for trading by the AP or as a result of other market circumstances.
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6. INDEMNIFICATIONS
Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred.
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PROXY VOTING POLICIES AND PROCEDURES
A description of the Fund’s proxy voting policies and procedures used in determining how to vote for proxies and information regarding how the Fund voted proxies related to portfolio securities during the most recent 12-month period ended June 30th is available without charge, (1) on the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov; (2) upon request, by calling 1-866-513-5856; and (3) on the Trust’s website located at http://www.alpsetfs.com.
PORTFOLIO HOLDINGS
The Trust will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Trust’s Form N-Q will be available (1) on the SEC’s website at http://www.sec.gov; (2) by calling 1-866-513-5856; (3) on the Trust’s website located at http://www.alpsetfs.com; and (4) for review and copying at the SEC’s Public Reference Room (“PRR”) in Washington D.C. Information regarding the operation of the PRR may be obtained by calling 1-800-732-0330.
TAX INFORMATION
Tax Designations
The Fund designates the following amounts for the fiscal year ended December 31, 2010:
Qualified Dividend Income | 5.92 | % | ||
Corporate Dividends Received Deduction | 0.00 | % |
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Name, Address and Age of Management Trustee* | Position(s) Held with Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Com- plex Overseen by Trustees*** | Other Directorships Held by Trustees | |||||
Mary K. Anstine, age 70 | Trustee | Since March 2008 | Ms. Anstine was President/ Chief Executive Officer of HealthONE Alliance, Denver, Colorado, and former Executive Vice President of First Interstate Bank of Denver. Ms. Anstine is also Trustee/ Director of the following: AV Hunter Trust; Colorado Up- lift Board. Ms. Anstine was formerly a Director of the Trust Bank of Colorado (later purchased and now known as Northern Trust Bank), HealthONE and Denver Area Council of the Boy Scouts of America and a member of the American Bankers Association Trust Executive Committee. | 24 | Ms. Anstine is a Trustee of Financial Investors Variable Insurance Trust (5 funds); Financial Investors Trust (11 funds); Reaves Utility Income Fund; and Westcore Trust (12 funds). | |||||
Jeremy W. Deems, age 34 | Trustee | Since March 2008 | Mr. Deems is the Co-Founder, Chief Compliance Officer and Chief Financial Officer of Green Alpha Advisors, LLC. Prior to joining Green Alpha Advisors, Mr. Deems was CFO and Treasurer of Forward Management, LLC, ReFlow Management Co., LLC, ReFlow Fund, LLC, a private investment fund, and Sutton Place Management, LLC, an administrative ser- vices company, from 2004 to June 2007. Prior to this, Mr. Deems served as Controller of Forward Management, LLC, ReFlow Man- agement Co., LLC, ReFlow Fund, LLC and Sutton Place Management, LLC. | 24 | Mr. Deems is a Trustee of Financial Investors Trust (11 funds); Financial Investors Variable Insurance Trust (5 funds); and Reaves Utility Income Fund. |
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INDEPENDENT TRUSTEES Continued
Name, Address and Age of Management Trustee* | Position(s) Held with Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Com- plex Overseen by Trustees*** | Other Directorships Held by Trustees | |||||
Rick A. Pederson, age 58 | Trustee | Since March 2008 | President, Foundation Properties, Inc. (a real estate investment management company), 1994 - present; Partner, Western Capital Partners (a prime lending company), 2000 - present; Partner, Bow River Capital Partners (investment manager), 2003 - present; Principal, The Pauls Corporation (real estate development), 2008 - present; Director, Guaranty Bank and Trust (a community bank), 1999 – 2007; Winter Park Recreational Associa- tion (an entity that operates, maintains and develops Winter Park Resort), 2002 – 2008; Neenan Co. (an integrated real estate development, architecture and construction company), 2002 – present; NexCore Properties LLC (a real estate investment company), 2004 – present; Urban Land Conservancy (a not-for-profit organization), 2004 – present. | 10 | Mr. Pederson is Trustee of Westcore Trust (12 funds) |
* | The business address of the Trustee is c/o ALPS Advisors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. | |
** | This is the period for which the Trustee began serving the Trust. Each Trustee serves an indefinite term, until his successor is elected. | |
*** | The Fund Complex includes all series of the Trust and any other investment companies for which ALPS Advisors, Inc. provides investment advisory services. |
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INTERESTED TRUSTEE***
Name, Address and Age of Management Trustee* | Position(s) Held with Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Com- plex Overseen by Trustees**** | Other Directorships Held by Trustees | |||||
Thomas A. Carter, age 44 | Trustee and President | Since March 2008 | Mr. Carter joined ALPS Fund Services, Inc. (“ALPS”) in 1994 and is currently President and Director of ALPS Advisors, Inc. (“AAI”), ALPS Distributors, Inc. (“ADI”) and FTAM Funds Distributor, Inc. (“FDI”) and Executive Vice President and Director of ALPS and ALPS Holdings, Inc. (“AHI”). Because of his position with AHI, ALPS, ADI, FDI and AAI, Mr. Carter is deemed an affiliate of the Fund as defined under the 1940 Act. Before joining ALPS, Mr. Carter was with Deloitte & Touché LLP, where he worked with a diverse group of clients, primarily within the financial services industry. Mr. Carter is a Certified Public Accountant and received his Bachelor of Science in Account- ing from the University of Colorado at Boulder. | 15 | Mr. Carter is a Trustee of Financial Inves- tors Variable Insurance Trust (5 funds) |
* | The business address of the Trustee is c/o ALPS Advisors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. | |
** | This is the period for which the Trustee began serving the Trust. Each Trustee serves an indefinite term, until his successor is elected. | |
*** | Mr.Carter is an interested person of the Trust because of his affiliation with ALPS. | |
**** | The Fund Complex includes all series of the Trust and any other investment companies for which ALPS Advisors, Inc. provides investment advisory services. |
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OFFICERS
Name, Address and Age of Executive Officer* | Position(s) Held with Trust | Length of Time Served** | Principal Occupation(s) During Past 5 Years | |||
Melanie Zimdars, age 34 | Chief Compliance Officer (“CCO”) | Since December 2009 | Ms. Zimdars currently serves as a Deputy Chief Compliance Officer with ALPS. Prior to joining ALPS in September 2009, Ms. Zimdars served as Principal Financial Officer, Treasurer and Secretary for the Wasatch Funds from February 2007 to December 2008. From November 2006 to February 2007, she served as Assistant Treasurer for the Wasatch Funds and served as a Senior Compliance Officer for Wasatch Advisors, Inc. since 2005. From 2001 until joining Wasatch in 2005, she was a Compliance Officer for U.S. Bancorp Fund Services, LLC. Because of her position with ALPS, Ms. Zimdars is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Zimdars is also the CCO of Financial Investors Variable Insurance Trust, Liberty All-Star Growth Fund, Inc. and Liberty All-Star Equity Fund. | |||
Kimberly R. Storms, age 38 | Treasurer | Since March 2008 | Ms. Storms is Director of Fund Administration and Senior Vice President of ALPS. Ms. Storms joined ALPS in 1998 as Assistant Controller. Because of her position with ALPS, Ms. Storms is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Storms is also Assistant Treasurer of the Liberty All-Star Equity Fund, Liberty All-Star Growth Fund and Financial Investors Trust; and Assistant Secretary of Ameristock Mutual Fund, Inc. | |||
William Parmentier, age 58 | Vice President | Since March 2008 | Mr. Parmentier is Chief Investment Officer, ALPS Advisors, Inc. (since 2006); President of the Liberty All-Star Funds (since April 1999); Senior Vice President (2005-2006), Banc of America Investment Advisors, Inc. | |||
Tané T. Tyler, age 45 | Secretary | Since December 2008 | Ms. Tyler is Senior Vice President, General Counsel and Secretary of ALPS. Ms. Tyler joined ALPS in 2004. She served as Secretary, Liberty All-Star Equity Fund and Liberty All-Star Growth Fund from December 2006-2008; Secretary, Reaves Utility Income Fund from December 2004–2007; Secretary, Westcore Funds from February 2005–2007; Secretary, First Funds from November 2004 to January 2007; Secretary, Financial Investors Variable Insurance Trust from December 2004–December 2006; Vice President and Associate Counsel, Oppenheimer Funds from January 2004 to August 2004; Vice President and Assistant General Counsel, INVESCO Funds from September 1991 to December 2003. | |||
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OFFICERS Continued
Name, Address and Age of Executive Officer* | Position(s) Held with Trust | Length of Time Served** | Principal Occupation(s) During Past 5 Years | |||
Monette R. Nickels, age 39 | Tax Officer | Since December 2009 | Ms. Nickels is Senior Vice President and Director of Tax Administration of ALPS. Ms. Nickels joined ALPS in 2004 as Director of Tax Administration. Because of her position with ALPS, Ms. Nickels is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Nickels is also Tax Officer of Financial Investors Trust, Liberty All-Star Equity Fund, Liberty All-Star Growth Fund, Inc., and Financial Investors Variable Insurance Trust. | |||
| * | The business address of each Officer is c/o ALPS Advisors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. | |
| ** | This is the period for which the Officer began serving the Trust. Each Officer serves an indefinite term, until his successor is elected. |
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At an in-person meeting held on September 13, 2010, the Board of Trustees of the Trust (the “Board”), including the Trustees who are not “interested persons” of the Trust within the meaning of the 1940 Act, as amended (the “Independent Trustees”), evaluated a proposal to approve the renewal of the Advisory Agreement between the Trust and the Investment Adviser with respect to the Funds. The Independent Trustees also met separately with their independent legal counsel to consider the renewal of the Advisory Agreement.
In evaluating the Advisory Agreement, the Board considered various factors, including (i) the nature, extent and quality of the services expected to be provided by the Investment Adviser with respect to the Fund under the Advisory Agreement, (ii) costs to the Investment Adviser of its services; and (iii) the extent to which economies of scale would be realized if and as the Fund grows and whether the fee level in the Advisory Agreement reflects these economies of scale.
In evaluating the nature, extent and quality of the Investment Adviser’s services, the Trustees reviewed information concerning the functions performed by the Investment Adviser for the Funds, information describing the Investment Adviser’s organization and the background and experience of the persons responsible for the day-today management of the Funds. The Trustees reviewed financial information regarding the Investment Adviser and its parent company. The Trustees reviewed information on the performance of the Fund and the performance of its benchmark index. The Committee also evaluated the correlation and tracking error between the underlying index and the Fund’s performance. The Trustees noted that the Investment Adviser had delegated to the Sub-Adviser responsibility for the investment of the Fund’s assets. The Trustees considered the Investment Adviser’s responsibility to oversee the Sub-Adviser. Based on its review, the Trustees found that the nature and extent of services provided to the Fund under the Advisory Agreement was appropriate and that the quality was satisfactory.
The Trustees noted that the advisory fee was a unitary fee pursuant to which the Investment Adviser assumes all expenses of the Fund (including the cost of transfer agency, custody, fund administration, legal, audit and other services) other than the payments under the Advisory Agreement, brokerage expenses, taxes, interest, litigation expenses and other extraordinary expenses. The Trustees noted that the advisory fees were generally within the range of the ETF peer funds. The Trustees concluded that the advisory fee for the Fund was reasonable under the circumstances and in light of the quality of services provided.
The Trustees noted the small size of the Fund and concluded that the Investment Adviser was not experiencing any economies of scale. The Trustees considered other benefits available to the Investment Adviser because of its relationship with the Fund and concluded that the advisory fee was reasonable taking into account any such benefits.
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Sub-Advisory Agreement
At the same in person meeting, the Board also evaluated the proposal to approve the renewal of the Sub-Advisory Agreement among the Investment Adviser, the Trust and the Sub-Adviser with respect to the Fund. In deciding whether to approve the renewal of the Sub-Advisory Agreement, the Board considered various factors, including (i) the nature, extent and quality of the services expected to be provided by the Sub-Adviser with respect to the Fund under the Sub-Advisory Agreement, (ii) the fees charged by the Sub-Adviser and any additional benefits received by the Sub-Adviser due to its relationship with the Investment Adviser and the Trust; and (iii) the extent to which economies of scale would be realized if and as the Fund grows and whether the fee levels in the Sub-Advisory Agreement reflect these economies of scale.
With respect to the nature, extent and quality of services provided by the Sub-Adviser, the Trustees considered the qualifications, experience, reputation and skills of the Sub-Adviser’s portfolio management and other key personnel. The Trustees concluded that the Sub-Adviser had personnel qualified to provide the services under the Sub-Advisory Agreement. In evaluating the Sub-Adviser’s performance, the Trustees focused primarily on the Sub-Adviser’s success in tracking the Fund’s underlying Index. The Trustees concluded that the Sub-Adviser’s performance was satisfactory in this regard.
The Trustees considered the sub-advisory fees paid to the Sub-Adviser and considered they were negotiated at arm’s length between the Investment Adviser and the Sub-Adviser and that the Investment Adviser compensates the Sub-Adviser from its fees. On the basis of the information provided, the Trustees concluded that the sub-advisory fee was reasonable.
The Trustees considered the Sub-Adviser’s profitability and noted that the Investment Adviser compensates the Sub-Adviser from its own advisory fees and the Investment Adviser negotiated the Sub-Advisory Agreement with the Sub-Adviser at arm’s length. The Trustees also noted the Sub-Adviser’s statement that it does not perform a profitability analysis specific to the Fund.
Overall Conclusions
Based upon all of the information considered and the conclusions reached, the Trustees determined that the terms of the Advisory Agreement and the Sub-Advisory Agreement, respectively, continue to be fair and reasonable and that the continuation of each Agreement is in the best interests of the Fund.
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Dear Shareholders:
When ALPS launched its ETF Trust in 2008 our goal was to bring innovative solutions to the ETF(1) industry that provide investors with access to a unique market segment or strategy. With the launch of EQL in July of 2009 we fulfilled that promise by bringing to market the world’s first ETF that provides access to an Equal Sector Strategy.
Sectors are one of the most important drivers of risk and return. An Equal Sector Strategy can minimize the negative impact that any one sector can have on a portfolio. At the same time by offering meaningful exposure to each sector of the market, it allows investors the ability to participate in market rallies regardless of where they occur. We believe the transparency(2), liquidity(3) and low fees of the ETF structure make EQL a viable alternative for US large-cap investing.
In the pages that follow our Fund managers have provided a performance overview. We thank you for your investment and for being an EQL shareholder .
Thomas A. Carter*
President, ALPS ETF Trust
| * | Registered representative of ALPS Distributors, Inc. Ordinary brokerage commissions apply. |
| (1) | Exchange Traded Fund (“ETF”). |
| (2) | ETFs are considered transparent because their portfolio holdings are disclosed daily. |
| (3) | ETFs are considered to have continuous liquidity because they allow for an individual to trade throughout the day. |
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INVESTMENT OBJECTIVE
The Fund seeks investment results that replicate as closely as possible, before fees and expenses, the performance of the Banc of America Securities – Merrill Lynch Equal Sector Weight Index (the “Underlying Index”). The Fund’s investment objective is not fundamental and may be changed by the Board of Trustees without shareholder approval.
PRIMARY INVESTMENT STRATEGIES
The Adviser will seek to match the performance of the Underlying Index. The Underlying Index is an index of indexes comprised in equal proportions of the nine Select Sector SPDR Indexes (“The Underlying Sector Indexes”). In order to track the securities in the Underlying Index, the Fund will use a “fund of funds” approach, and seek to achieve its investment objective by investing at least 90% of its total assets in the shares of Select Sector SPDR exchange-traded funds (each, an “Underlying Sector ETF” and collectively the “Underlying Sector ETFs”) that track the Underlying Sector indexes of which the Underlying Index is comprised.
PERFORMANCE OVERVIEW
For the year ended December 31, 2010, the Fund generated a total return of 15.67%, outperforming the Fund’s benchmark as well as the S&P 500 which returned 15.06%. In general, US large-cap equities continued their momentum from 2009. All nine sectors of the S&P 500 had positive returns for the 2nd year in a row for the first time since 1997. In 2010 all of the gains were concentrated in the 2nd half of the year and were lead by the early cycle sectors. The best performing sectors were Industrials (28.2%), Consumer Discretionary (27.5%) and Materials (22.2%). The more defensive Healthcare (3.1%) and Utilities (5.4%) were the worst performing sectors for the year.
Compared to the S&P 500 the Fund benefited from its relative overweight in the Materials and Consumer Discretionary sectors and its underweight in the Technology sector, which was the 4th worst performing sector in 2010 (12.3%). The Fund was negatively impacted by its overweight in Utilities which was the 2nd worst performing sector in the S&P 500. Overall, the Fund’s sector weights relative to the S&P 500 resulted in positive out-performance above the Index in 5 of the 9 sectors.
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PERFORMANCE as of December 31, 2010
| 1 Month | 1 Year | YTD | Since Inception Annualized* | |||||
ALPS Equal Sector Weight ETF | ||||||||
NAV (Net Asset Value) | 6.60% | 15.67% | 15.67% | 28.54% | ||||
Market Price** | 6.59% | 15.59% | 15.59% | 28.70% | ||||
Banc of America Securities Merrill Lynch Equal Sector Weight Index | 6.42% | 13.63% | 13.63% | 26.37% | ||||
S&P 500 Total Return Index | 6.68% | 15.06% | 15.06% | 27.93% | ||||
Total Expense Ratio (per the current Prospectus) | 0.55% |
Performance data quoted represents past performance. Past performance does not guarantee future results. Current performance may be higher or lower than actual data quoted. Call 1.866.675.2639 or visit www.alpsetfs.com for current month end performance. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
NAV is an exchange-traded fund’s per-share value. The per-share dollar amount of the fund is derived by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding. Market Price is the price at which a share can currently be traded in the market. Information detailing the number of days the Market Price of the Fund was greater than the Fund’s NAV and the number of days it was less than the Fund’s NAV can be obtained at www.alpsetfs.com.
| * | The Fund commenced Investment Operations on July 06, 2009 with an Inception Date, the first day of trading on the Exchange, of July 7, 2009. |
| ** | Market Price is based on the midpoint of the bid/ask spread at 4 p.m. ET and does not represent the returns an investor would receive if shares were traded at other times. |
S&P 500 Index: the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices.
An investor cannot invest directly in an index.
The following table shows the sector weights of both the Fund and the S&P 500 as of December 31, 2010:
SECTOR WEIGHTING COMPARISON as of December 31, 2010
| EQL | S&P 500 | |||
Energy (XLE) | 11.4% | 12.0% | ||
Financials (XLF) | 11.3 | 16.1 | ||
Materials (XLB) | 11.2 | 3.7 | ||
Industrials (XLI) | 11.1 | 10.9 | ||
Utilities (XLU) | 11.1 | 3.3 | ||
Consumer Staples (XLP) | 11.0 | 10.6 | ||
Technology (XLK) | 11.0 | 21.9 | ||
Consumer Discretionary (XLY) | 11.0 | 10.6 | ||
Healthcare (XLV) | 10.9 | 10.9 | ||
Source: S&P 500. | ||||
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SECTOR ALLOCATION as of December 31, 2010
GROWTH OF $10,000 as of December 31, 2010
The chart above represents historical performance of a hypothetical investment of $10,000 in the Fund over the life of the Fund. Performance calculations are as of the end of each month. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
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Shareholder Expense Example: As a shareholder of the Fund, you incur two types of costs: (1) transaction costs which may include creation and redemption fees or brokerage charges, and (2) ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. It is based on an investment of $1,000 invested at July 1, 2010 and held through the period ended December 31, 2010.
Actual Return: The first line of the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you incurred 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” to estimate the expenses attributable to your investment during this period.
Hypothetical 5% Return: The second line of the table 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 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 the other funds.
The expenses shown in the table are meant to highlight ongoing Fund costs only and do not reflect any transaction costs, such as creation and redemption fees, or brokerage charges. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these costs were included, your costs would have been higher.
| Beginning Account Value 7/01/10 | Ending Account Value 12/31/10 | Expense Ratio | Expenses Paid 7/01/10- | |||||||||||||||||||||
Actual | $1,000.00 | $1,240.10 | 0.34% | $1.92 | ||||||||||||||||||||
Hypothetical | $1,000.00 | $1,023.49 | 0.34% | $1.73 |
| (a) | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (184), then divided by 365. |
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To the Board of Trustees and Shareholders of ALPS ETF Trust:
We have audited the accompanying statement of assets and liabilities, including the statement of investments, of ALPS Equal Sector Weight ETF, one of the funds constituting the ALPS ETF Trust (the “Fund”), as of December 31, 2010, and the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for the year then ended and the period from July 7, 2009 (inception) to December 31, 2009. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the ALPS Equal Sector Weight ETF of the ALPS ETF Trust as of December 31, 2010, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and the period from July 7, 2009 (inception) to December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
February 28, 2011
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Security Description | Shares | Value | ||||||
EXCHANGE TRADED FUNDS (99.92%) | ||||||||
Consumer Discretionary (10.99%) | ||||||||
Consumer Discretionary Select Sector SPDR Fund | 155,744 | $ | 5,826,383 | |||||
Consumer Staples (10.95%) | ||||||||
Consumer Staples Select Sector SPDR Fund | 198,066 | 5,805,314 | ||||||
Energy (11.37%) | ||||||||
Energy Select Sector SPDR Fund | 88,286 | 6,025,520 | ||||||
Financials (11.28%) | ||||||||
Financial Select Sector SPDR Fund | 374,912 | 5,979,846 | ||||||
Healthcare (10.92%) | ||||||||
Health Care Select Sector SPDR Fund | 183,779 | 5,789,038 | ||||||
Industrials (11.09%) | ||||||||
Industrial Select Sector SPDR Fund | 168,385 | 5,876,637 | ||||||
Materials (11.25%) | ||||||||
Materials Select Sector SPDR Fund | 154,935 | 5,964,998 | ||||||
Technology (11.02%) | ||||||||
Technology Select Sector SPDR Fund | 231,999 | 5,841,735 | ||||||
Utilities (11.05%) | ||||||||
Utilities Select Sector SPDR Fund | 186,974 | 5,859,765 | ||||||
TOTAL EXCHANGE TRADED FUNDS | ||||||||
(Cost $45,643,300) | 52,969,236 | |||||||
TOTAL INVESTMENTS (99.92%) | ||||||||
(Cost $45,643,300) | 52,969,236 | |||||||
NET OTHER ASSETS AND LIABILITIES (0.08%) |
| 42,454 | ||||||
NET ASSETS (100.00%) | $ | 53,011,690 | ||||||
Common Abbreviations: | ||||||||
SPDR - Standard & Poor’s Depositary Receipts | ||||||||
See Notes to Financial Statements.
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ASSETS: | ||||
Investments, at value | $ | 52,969,236 | ||
Cash | 57,562 | |||
Total Assets | 53,026,798 | |||
LIABILITIES: | ||||
Payable to advisor | 15,108 | |||
Total Liabilities | 15,108 | |||
NET ASSETS | $ | 53,011,690 | ||
NET ASSETS CONSIST OF: | ||||
Paid-in capital | $ | 45,662,450 | ||
Undistributed net investment income | 5,557 | |||
Accumulated net realized gain on investments | 17,747 | |||
Net unrealized appreciation on investments | 7,325,936 | |||
NET ASSETS | $ | 53,011,690 | ||
INVESTMENTS, AT COST | $ | 45,643,300 | ||
PRICING OF SHARES | ||||
Net Assets | $ | 53,011,690 | ||
Shares of beneficial interest outstanding | 1,500,000 | |||
Net Asset Value, offering and redemption price per share | $ | 35.34 |
See Notes to Financial Statements.
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INVESTMENT INCOME: | ||||
Dividends | $ | 879,055 | ||
Total Investment Income | 879,055 | |||
EXPENSES: | ||||
Investment advisory fee | 131,355 | |||
Total expenses before reimbursement | 131,355 | |||
Expenses reimbursed/waived by: | (10,650) | |||
NET EXPENSES | 120,705 | |||
NET INVESTMENT INCOME | 758,350 | |||
Net realized gain on investments | 298,723 | |||
Net change in unrealized appreciation on investments | 5,854,347 | |||
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS | 6,153,070 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 6,911,420 | ||
See Notes to Financial Statements.
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For the Year Ended December 31, 2010 | For the Period July 7, 2009 (Inception) through | |||||||
OPERATIONS: | ||||||||
Net investment income | $ | 758,350 | $ | 124,209 | ||||
Net realized gain on investments | 298,723 | 9,220 | ||||||
Net change in unrealized appreciation on investments | 5,854,347 | 1,471,589 | ||||||
Net increase in net assets resulting from operations | 6,911,420 | 1,605,018 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS: | ||||||||
From net investment income | (758,546) | (124,168) | ||||||
From net realized gains on investments | – | (3,593) | ||||||
Total distributions | (758,546) | (127,761) | ||||||
SHARE TRANSACTIONS: | ||||||||
Proceeds from sale of shares | 34,389,889 | 12,530,970 | ||||||
Cost of shares redeemed | (1,539,300) | – | ||||||
Net increase from share transactions | 32,850,589 | 12,530,970 | ||||||
Net increase in net assets | 39,003,463 | 14,008,227 | ||||||
NET ASSETS: | ||||||||
Beginning of period | 14,008,227 | – | ||||||
End of period* | $ | 53,011,690 | $ | 14,008,227 | ||||
* Including undistributed net investment income of: | $ | 5,557 | $ | 41 | ||||
OTHER INFORMATION: | ||||||||
SHARE TRANSACTIONS: | ||||||||
Beginning shares | 450,000 | – | ||||||
Shares sold | 1,100,000 | 450,000 | ||||||
Shares redeemed | (50,000) | – | ||||||
Shares outstanding, end of period | 1,500,000 | 450,000 | ||||||
See Notes to Financial Statements.
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| For the Year Ended December 31, 2010 | For the Period July 7, 2009 (Inception) through December 31, 2009 | |||||||||
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 31.13 | $ | 25.04 | ||||||
INCOME FROM OPERATIONS: | ||||||||||
Net investment income | 0.68 | (a) | 0.31 | |||||||
Net realized and unrealized gain on investments | 4.14 | 6.10 | ||||||||
Total from Investment Operations | 4.82 | 6.41 | ||||||||
LESS DISTRIBUTIONS: | ||||||||||
From net investment income | (0.61 | ) | (0.31 | ) | ||||||
From capital gains | – | (0.01 | ) | |||||||
Total Distributions | (0.61 | ) | (0.32 | ) | ||||||
NET INCREASE IN NET ASSET VALUE | 4.21 | 6.09 | ||||||||
NET ASSET VALUE, END OF PERIOD | $ | 35.34 | $ | 31.13 | ||||||
TOTAL RETURN(b) | 15.67 | % | 25.60 | % | ||||||
RATIOS/SUPPLEMENTAL DATA: | ||||||||||
Net assets, end of period (in 000s) | $ | 53,012 | $ | 14,008 | ||||||
RATIOS TO AVERAGE NET ASSETS: | ||||||||||
Net investment income including reimbursement/waiver | 2.14 | % | 2.60 | %(c) | ||||||
Net investment income excluding reimbursement/waiver | 2.11 | % | 2.57 | %(c) | ||||||
Expenses including reimbursement/waiver | 0.34 | % | 0.34 | %(c) | ||||||
Expenses excluding reimbursement/waiver | 0.37 | % | 0.37 | %(c) | ||||||
PORTFOLIO TURNOVER RATE(d) | 7 | % | 4 | % | ||||||
| (a) | Calculated using average shares outstanding. |
| (b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period and redemption at the net asset value on the last day of the period and assuming all distributions are reinvested at actual reinvestment prices. Total return calculated for a period of less than one year is not annualized. |
| (c) | Annualized. |
| (d) | Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions. |
See Notes to Financial Statements.
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1. ORGANIZATION
The ALPS ETF Trust (the “Trust”) is an open-end management investment company organized as a Delaware statutory trust on September 13, 2007 and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As of December 31, 2010, the Trust consists of ten separate portfolios. Each portfolio represents a separate series of the Trust. This report pertains solely to the ALPS Equal Sector Weight ETF (the “Fund”), which commenced on July 7, 2009. The investment objective of the Fund is to seek investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of the Banc of America Securities Merrill Lynch Equal Sector Weight Index.
The Fund’s Shares (“Shares”) are listed on the New York Stock Exchange (“NYSE”) Arca. The Fund issues and redeems Shares at Net Asset Value (“NAV”) in blocks of 50,000 Shares each of which is called a “Creation Unit.” Creation Units are issued and redeemed principally in-kind for securities included in a specified index. Except when aggregated in Creation Units, Shares are not redeemable securities of the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.
A. Portfolio Valuation
The Fund’s NAV is determined daily, as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. The NAV is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Portfolio securities listed on any exchange other than the National Association of Securities Dealer Automated Quotation (“NASDAQ”) exchange are valued at the last sale price on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the most recent bid and asked prices on such day. Securities traded on the NASDAQ are valued at the NASDAQ Official Closing Price as determined by
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NASDAQ. Short-term investments that mature in less than 60 days are valued at amortized cost, which approximates market value.
The Fund’s investments are valued at market value or, in the absence of market value with respect to any portfolio securities, at fair value according to procedures adopted by the Trust’s Board of Trustees (the “Board”). When market quotations are not readily available or when events occur that make established valuation methods unreliable, securities of the Fund may be valued in good faith by or under the direction of the Board.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis.
C. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. GAAP. Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2010, permanent book and tax differences resulting primarily from in-kind transactions were identified and reclassified among the components of the Fund’s net assets as follows:
Undistributed Net Investment Income | Accumulated Net Realized Loss | Paid-in Capital | ||||||
$5,712 |
$(286,603) | $280,891 |
Net investment income and net realized gain, as disclosed on the Statement of Operations, and net assets were not affected by these reclassifications.
D. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid quarterly or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually.
Distributions from net investment income and capital gains are determined in accordance with income tax regulations, which may differ from U.S GAAP. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences and differing characterization of distributions made by the Fund.
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The tax character of the distributions paid was as follows:
| Period Ended December 31, 2010 | Period Ended December 31, 2009 | |||||||||||
Distributions paid from: | ||||||||||||
Ordinary Income | $ 758,546 | $ | 127,761 | |||||||||
Total | $ 758,546 | $ | 127,761 | |||||||||
As of December 31, 2010, the components of distributable earnings on a tax basis for the Fund were as follows: | ||||||||||||
Undistributed net investment income |
| $ | 50,692 | |||||||||
Net unrealized appreciation on investments |
| 7,298,548 | ||||||||||
Total | $ | 7,349,240 | ||||||||||
The differences between book-basis and tax-basis are primarily due to the deferral of losses from wash sales.
E. Income Taxes
No provision for income taxes is included in the accompanying financial statements, as the Fund intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
The Fund evaluates tax positions taken (or expected to be taken) in the course of preparing the Fund’s tax returns to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements.
Management of the Fund analyzes all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the fiscal year ended December 31, 2010, the Fund did not have a liability for any unrecognized tax benefits. The Fund will file income tax returns in the U.S. federal jurisdiction and Colorado. For the years ended December 31, 2009, and December 31, 2010, the Fund’s returns are open to examination by the appropriate taxing authority.
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F. Fair Value Measurements
The Fund discloses the classification of its fair value measurements following a three-tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.
Various inputs are used in determining the value of the Fund’s investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments. These inputs are categorized in the following hierarchy under applicable financial accounting standards:
Level 1 – | unadjusted quoted prices in active markets for identical investments | |
Level 2 – | other 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) | |
Investments in Securities at Value* | Level 1 – Unadjusted Quoted Prices | Level 2 – Other Significant Observable Inputs | Level 3 – Significant Unobservable Inputs | Total | ||||
Exchange | $52,969,236 | $ – | $ – | $52,969,236 | ||||
TOTAL | $52,969,236 | $ – | $ – | $52,969,236 | ||||
* For detailed descriptions of the sectors, see the accompanying Statement of Investments.
For the year ended December 31, 2010, the Fund did not have any significant transfers between Level 1 and Level 2 securities. The Fund did not have any securities which used significant unobservable inputs (Level 3) in determining fair value.
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3. INVESTMENT ADVISORY FEE AND
OTHER AFFILIATED TRANSACTIONS
ALPS Advisors, Inc. (the “Investment Adviser”) acts as the Fund’s investment adviser pursuant to an Advisory Agreement with the Trust on behalf of the Fund (the “Advisory Agreement”). Pursuant to the Advisory Agreement, the Fund pays the Investment Adviser a unitary fee for the services and facilities it provides payable on a monthly basis at the annual rate of 0.37% of the Fund’s average daily net assets. ALPS Distributors Inc. (“ADI”) is both the distributor for the Fund as well as the Select Sector SPDR exchange traded funds (“Underlying Sector ETFs”) that the Fund invests in. As required by exemptive relief obtained by the Underlying Sector ETFs, the Investment Adviser will reimburse the Fund an amount equal to the distribution fee received by ADI from the Underlying Sector ETFs attributable to the Fund’s investment in the Underlying Sector ETFs, for so long as ADI acts as the distributor to the Fund and the Underlying Sector ETFs. From time to time, the Investment Adviser may waive all or a portion of its fee.
Out of the unitary management fee, the Investment Adviser pays substantially all expenses of the Fund, including the licensing fee of the Index provider, and the cost of transfer agency, custody, fund administration, legal, audit and other services, except for interest expenses, distribution fees or expenses, brokerage expenses, taxes and extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, the Investment Adviser’s unitary management fee is designed to compensate the Investment Adviser for providing services for the Fund.
ALPS Fund Services, Inc. (“ALPS”), an affiliate of the Investment Adviser, is the administrator of the Fund.
The Bank of New York Mellon is the custodian, fund accounting agent and transfer agent for the Fund.
Each Trustee who is not an officer or employee of the Investment Adviser, or any of its affiliates (“Independent Trustees”) is paid a quarterly retainer of $3,500, $1,500 for each regularly scheduled Board meeting attended and $750 for each special meeting held outside of regularly scheduled meetings.
4. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2010, the cost of purchases and proceeds from sales of investment securities, excluding short-term investments and in-kind transactions, were as follows:
| Purchases | Sales | |
$ 2,383,180 | $ 2,423,587 |
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For the year ended December 31, 2010, the cost of in-kind purchases and proceeds from in-kind sales were as follows:
| Purchases | Sales | |
$ 34,396,155 | $1,539,295 |
Gains on in-kind transactions are generally not considered taxable gains for federal income tax purposes.
As of December 31, 2010, the costs of investments for federal income tax purposes and accumulated net unrealized appreciation/(depreciation) on investments were as follows:
Gross Appreciation (excess of value over tax cost) | $ | 7,298,548 | ||
Net Unrealized Appreciation | $ | 7,298,548 | ||
Cost of investments for income tax purposes | $ | 45,670,688 |
5. CAPITAL SHARE TRANSACTIONS
Shares are created and redeemed by the Fund only in Creation Unit size aggregations of 50,000. Only broker-dealers or large institutional investors with creation and redemption agreements called Authorized Participants (“AP”) are permitted to purchase or redeem Creation Units from the Fund. Such transactions are generally permitted on an in-kind basis, with a balancing cash component to equate the transaction to the net asset value per unit of the Fund on the transaction date. Cash may be substituted equivalent to the value of certain securities generally when they are not available in sufficient quantity for delivery, not eligible for trading by the AP or as a result of other market circumstances.
6. INDEMNIFICATIONS
Under the Trust’s organizational documents, its Trustees and Officers are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred.
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PROXY VOTING POLICIES AND PROCEDURES
A description of the Fund’s proxy voting policies and procedures used in determining how to vote for proxies and information regarding how the Fund voted proxies related to portfolio securities during the most recent 12-month period ended June 30th is available without charge, (1) on the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov; (2) upon request, by calling 1-866-513-5856; and (3) on the Trust’s website located at http://www.alpsetfs.com.
PORTFOLIO HOLDINGS
The Trust will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Trust’s Form N-Q will be available (1) on the SEC’s website at http://www. sec .gov; (2) by calling 1-866-513-5856; (3) on the Trust’s website located at http://www.alpsetfs.com; and (4) for review and copying at the SEC’s Public Reference Room (“PRR”) in Washington D.C. Information regarding the operation of the PRR may be obtained by calling 1-800-732-0330.
TAX INFORMATION
Tax Designations
The Fund designates the following amounts for the fiscal year ended December 31, 2010:
Qualified Dividend Income | 100.00 | % | ||
Corporate Dividends Received Deduction | 100.00 | % |
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INDEPENDENT TRUSTEES
Name, Address and Age of Management Trustee* | Position(s) Held with Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past 5 Years | Number of in Fund Complex | Other Directorships Held by Trustees | |||||
Mary K. Anstine, age 70 | Trustee | Since March 2008 | Ms. Anstine was President/Chief Executive Officer of HealthONE Alliance, Denver, Colorado, and former Executive Vice President of First Interstate Bank of Denver. Ms. Anstine is also Trustee/ Director of the following: AV Hunter Trust; Colorado Uplift Board. Ms. Anstine was formerly a Director of the Trust Bank of Colorado (later purchased and now known as Northern Trust Bank), HealthONE and Denver Area Council of the Boy Scouts of America and a member of the American Bankers Association Trust Executive Committee. | 24 | Ms. Anstine is a Trustee of Financial Investors Variable Insurance Trust (5 funds); Financial Investors Trust (11 funds); Reaves Utility Income Fund; and Westcore Trust (12 funds). | |||||
Jeremy W. Deems, age 34 | Trustee | Since March 2008 | Mr. Deems is the Co-Founder, Chief Compliance Officer and Chief Financial Officer of Green Alpha Advisors, LLC. Prior to joining Green Alpha Advisors, Mr. Deems was CFO and Treasurer of Forward Management, LLC, ReFlow Management Co., LLC, ReFlow Fund, LLC, a private in- vestment fund, and Sutton Place Management, LLC, an administrative services company, from 2004 to June 2007. Prior to this, Mr.Deems served as Controller of Forward Management, LLC, ReFlow Management Co., LLC, ReFlow Fund, LLC and Sutton Place Management, LLC. | 24 | Mr.Deems is a Trustee of Financial Investors Trust (11 funds); Financial Investors Variable Insurance Trust (5 funds); and Reaves Utility Income Fund. |
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INDEPENDENT TRUSTEES Continued
Name, Address and Age of Management Trustee* | Position(s) with Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past 5 Years | Number of in Fund Complex | Other Directorships Held by Trustees | |||||
Rick A. Pederson, age 58 | Trustee | Since March 2008 | President, Foundation Properties, Inc. (a real estate investment management company), 1994 - present; Partner, Western Capital Partners (a prime lending company), 2000 - present; Partner, Bow River Capital Partners (investment manager), 2003 - present; Principal, The Pauls Corporation (real estate development), 2008 - present; Director, Guaranty Bank and Trust (a community bank), 1999 – 2007; Winter Park Recreational Association (an entity that operates, maintains and develops Winter Park Re- sort), 2002 – 2008; Neenan Co. (an integrated real estate development, architecture and construction company), 2002 – present; NexCore Properties LLC (a real estate investment company), 2004 – present; Urban Land Conservancy (a not-for-profit organization), 2004 – present. | 10 | Mr.Pederson is Trustee of Westcore Trust (12 funds) |
| * | The business address of the Trustee is c/o ALPS Advisors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. |
| ** | This is the period for which the Trustee began serving the Trust. Each Trustee serves an indefinite term, until his successor is elected. |
| *** | The Fund Complex includes all series of the Trust and any other investment companies for which ALPS Advisors, Inc. provides investment advisory services. |
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INTERESTED TRUSTEE***
Name, Address and Age of Management Trustee* | Position(s) Held with Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by | Other Directorships Held by Trustees | |||||
Thomas A. Carter, age 44 | Trustee and President | Since March 2008 | Mr. Carter joined ALPS Fund Services, Inc. (“ALPS”) in 1994 and is currently President and Director of ALPS Advisors, Inc. (“AAI”), ALPS Distributors, Inc. (“ADI”) and FTAM Funds Distributor, Inc. (“FDI”) and Executive Vice President and Director of ALPS and ALPS Holdings, Inc. (“AHI”). Because of his position with AHI, ALPS, ADI, FDI and AAI, Mr. Carter is deemed an affiliate of the Fund as defined under the 1940 Act. Before joining ALPS, Mr. Carter was with Deloitte & Touché LLP, where he worked with a diverse group of clients, primarily within the financial services industry. Mr. Carter is a Certified Public Accountant and received his Bachelor of Science in Accounting from the University of Colorado at Boulder. | 15 | Mr.Carter is a Trustee of Financial Investors Variable Insurance Trust (5 funds) |
| * | The business address of the Trustee is c/o ALPS Advisors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. |
| ** | This is the period for which the Trustee began serving the Trust. Each Trustee serves an indefinite term, until his successor is elected. |
| *** | Mr. Carter is an interested person of the Trust because of his affiliation with ALPS. |
| **** | The Fund Complex includes all series of the Trust and any other investment companies for which ALPS Advisors, Inc. provides investment advisory services |
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OFFICERS
Name, Address and Age of Executive Officer* | Position(s) Held with Trust | Length of Time Served** | Principal Occupation(s) During Past 5 Years | |||
Melanie Zimdars, age 34 | Chief Compliance Officer (“CCO”) | Since December 2009 | Ms. Zimdars currently serves as a Deputy Chief Compliance Officer with ALPS. Prior to joining ALPS in September 2009, Ms. Zimdars served as Principal Financial Officer, Treasurer and Secretary for the Wasatch Funds from February 2007 to December 2008. From November 2006 to February 2007, she served as Assistant Treasurer for the Wasatch Funds and served as a Senior Compliance Officer for Wasatch Advisors, Inc. since 2005. From 2001 until joining Wasatch in 2005, she was a Compliance Officer for U.S. Bancorp Fund Services, LLC. Because of her position with ALPS, Ms. Zimdars is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Zimdars is also the CCO of Financial Investors Variable Insurance Trust, Liberty All-Star Growth Fund, Inc. and Liberty All-Star Equity Fund. | |||
Kimberly R. Storms, age 38 | Treasurer | Since March 2008 | Ms. Storms is Director of Fund Administration and Senior Vice President of ALPS. Ms. Storms joined ALPS in 1998 as Assistant Controller. Because of her position with ALPS, Ms. Storms is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Storms is also Assistant Treasurer of the Liberty All-Star Equity Fund, Liberty All-Star Growth Fund and Financial Investors Trust; and Assistant Secre tary of Ameristock Mutual Fund, Inc. | |||
William Parmentier, age 58 | Vice President | Since March 2008 | ||||
Tané T. Tyler, age 45 | Secretary | Since December 2008 | Ms. Tyler is Senior Vice President, General Counsel and Secretary of ALPS. Ms. Tyler joined ALPS in 2004. She served as Secretary, Liberty All-Star Equity Fund and Liberty All-Star Growth Fund from December 2006-2008; Secretary, Reaves Utility In-come Fund from December 2004–2007; Secretary, Westcore Funds from February 2005–2007; Secretary, First Funds from November 2004 to January 2007; Secretary, Financial Investors Variable Insurance Trust from December 2004–December 2006; Vice President and Associate Counsel, Oppen heimer Funds from January 2004 to August 2004; Vice President and Assistant General Counsel, IN- VESCO Funds from September 1991 to December 2003. |
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OFFICERS Continued
Name, Address and Age of Executive Officer* | Position(s) with Trust | Length of Time Served** | Principal Occupation(s) During Past 5 Years | |||
Monette R. Nickels, age 39 | Tax Officer | Since December 2009 | Ms. Nickels is Senior Vice President and Director of Tax Administration of ALPS. Ms. Nickels joined ALPS in 2004 as Director of Tax Administration. Because of her position with ALPS, Ms. Nickels is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Nickels is also Tax Officer of Financial Investors Trust, Liberty All-Star Equity Fund, Liberty All-Star Growth Fund, Inc., and Financial Investors Variable Insurance Trust. |
| * | The business address of each Officer is c/o ALPS Advisors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. |
| ** | This is the period for which the Officer began serving the Trust. Each Officer serves an indefinite term, until his successor is elected. |
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The Jefferies | TR/J CRB Global Commodity Equity Index Fund is an Exchange Traded Fund (“ETF”), which provides exposure to the equity securities of a global universe of listed companies engaged in the production and distribution of commodities and commodity-related products and services in the agriculture, base/industrial metals, energy and precious metals sectors. The ETF seeks investment results that replicate as closely as possible, before fees and expenses, the price and yield performance of the Thomson Reuters/Jefferies CRB In-The-Ground Global Commodity Equity Index.
For the year ended December 31, 2010, the ETF’s market price increased 17.01% and its net asset value (“NAV”) increased 16.60%. Over the same time period the ETF’s benchmark was up 17.54%.
| TOP 10 HOLDINGS^ (% of Total Investments) | ||||||
Potash Corp. of Saskatchewan, Inc. | 5.80 | % | ||||
Exxon Mobil Corp. | 5.59 | |||||
Monsanto Co. | 4.68 | |||||
Deere & Co. | 4.41 | |||||
Syngenta AG | 3.48 | |||||
Chevron Corp. | 2.78 | |||||
Archer-Daniels-Midland Co. | 2.41 | |||||
BP Plc | 2.08 | |||||
Total SA | 1.89 | |||||
Agrium, Inc. | 1.82 | |||||
Total % of Top 10 Holdings | 34.94 | % | ||||
^ Future holdings are subject to change |
| |||||
| COUNTRY ALLOCATION (% of Total Investments) | ||||
United States | 35.7 | % | ||
Canada | 17.7 | |||
United Kingdom | 10.3 | |||
Switzerland | 4.2 | |||
Russia | 2.9 | |||
Australia | 2.5 | |||
South Africa | 2.3 | |||
Netherlands | 2.2 | |||
Brazil | 2.0 | |||
France | 1.9 | |||
Other | 18.3 | |||
| PERFORMANCE as of 12.31.10 |
| 1 Year | Since Inception* | |||||||||||
Jefferies | TR/J CRB Global Commodity Equity Index Fund | ||||||||||||
NAV | 16.60% | 19.70% | ||||||||||
Market Price** | 17.01% | 19.49% | ||||||||||
Thomson Reuters/Jefferies CRB In-The-Ground Global Commodity Equity Index | 17.54% | 20.76% | ||||||||||
S&P GSCI Commodity Index | 9.02% | 12.73% | ||||||||||
S&P 500 Index | 15.06% | 15.83% | ||||||||||
Total Expense Ratio (per the current prospectus) 0.65%
| * | The Fund commenced Investment Operations on September 18, 2009 with an Inception Date, the first day of trading on the Exchange, of September 21, 2009. |
| ** | Market Price is based on the midpoint of the bid/ask spread at 4 p.m. ET and does not represent the returns an investor would receive if shares were traded at other times. |
Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. For the most current month-end performance data please visit JAMFUNDS.COM. |
NAV is an exchange-traded fund’s per-share value. The per-share dollar amount of the fund is derived by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding. Market Price is the price at which a share can currently be traded in the market. Information detailing the number of days the Market Price of the Fund was greater than the Fund’s NAV and the number of days it was less than the Fund’s NAV can be obtained at www.alpsetfs.com. |
S&P GSCI Commodity Index: A composite index of commodity sector returns which represents a broadly diversified, unleveraged, long-only position in commodity futures. S&P 500 Index: the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices. An investor cannot invest directly in an index. Thomson Reuters/Jefferies CRB In-The-Ground Global Commodity Equity Index: measures the performance of equity securities of companies engaged in the production and distribution of certain commodities and commodity-related products. Index return does not represent fund return. An investor can not invest directly in an index. |
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT as of 12.31.10 |
Comparison of Change in Value of a hypothetical $10,000 investment in the Jefferies | TR/J CRB Global Commodity Equity Index Fund. |
 |
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The Jefferies | TR/J CRB Global Agriculture Equity Index Fund is an Exchange Traded Fund (“ETF”), which provides exposure to the equity securities of a global universe of listed companies engaged in the production and distribution of agricultural commodities and agricultural commodity-related products and services in the following sectors: producers of traits (characteristics attained through genetic modification), chemicals and fertilizers, farm machinery, equipment and irrigation, agricultural products, and livestock and aquaculture. The ETF seeks investment results that replicate, as closely as possible, before fees and expenses, the price and yield performance of the Thomson Reuters/Jefferies CRB In-The-Ground Global Agriculture Equity Index.
For the year ended December 31, 2010, the ETF’s market price increased 26.87% and its net asset value (“NAV”) increased 25.60%.Over the same time period the ETF’s benchmark was up 26.13%.
| TOP 10 HOLDINGS^ (% of Total Investments) | ||||||
Potash Corp. of Saskatchewan, Inc. | 8.64 | % | ||||
Monsanto Co. | 6.97 | |||||
Deere & Co. | 6.57 | |||||
Agrium, Inc. | 5.36 | |||||
Syngenta AG | 5.20 | |||||
The Mosaic Co. | 5.11 | |||||
K+S AG | 4.89 | |||||
Yara International ASA | 4.81 | |||||
Archer-Daniels-Midland Co. | 4.75 | |||||
CF Industries Holdings, Inc. | 4.59 | |||||
Total % of Top 10 Holdings | 56.89% | |||||
^ Future holdings are subject to change |
| |||||
| COUNTRY ALLOCATION (% of Total Investments) | ||||
United States | 32.4 | % | ||
Canada | 15.5 | |||
Singapore | 6.2 | |||
Switzerland | 5.1 | |||
Bermuda | 4.9 | |||
Malaysia | 4.8 | |||
Germany | 4.8 | |||
Norway | 4.7 | |||
Israel | 4.4 | |||
Australia | 3.7 | |||
Other | 13.5 | |||
| PERFORMANCE as of 12.31.10 |
| 1 Year | Since Inception* | |||||||
Jefferies | TR/J CRB Global Agriculture Equity Index Fund | ||||||||
NAV | 25.60% | 29.56% | ||||||
Market Price** | 26.87% | 29.05% | ||||||
Thomson Reuters/Jefferies CRB In-The-Ground Global Agriculture Equity Index | 26.13% | 30.55% | ||||||
Total Expense Ratio (per the current prospectus) 0.65%
| * | The Fund commenced Investment Operations on October 26, 2009 with an Inception Date, the first day of trading on the Exchange, of October 27, 2009. |
| ** | Market Price is based on the midpoint of the bid/ask spread at 4 p.m. ET and does not represent the returns an investor would receive if shares were traded at other times. |
Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. For the most current month-end performance data please visit JAMFUNDS.COM. |
NAV is an exchange-traded fund’s per-share value. The per-share dollar amount of the fund is derived by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding. Market Price is the price at which a share can currently be traded in the market. Information detailing the number of days the Market Price of the Fund was greater than the Fund’s NAV and the number of days it was less than the Fund’s NAV can be obtained at www.alpsetfs.com. |
Thomson Reuters/Jefferies CRB In-The-Ground Global Agriculture Equity Index: measures the performance of equity securities of companies engaged in the production and distribution of agricultural products, including grains, livestock, fertilizers, chemicals, seeds, traits and equipment. Index return does not represent fund return. An investor can not invest directly in an index. |
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT as of 12.31.10 |
Comparison of Change in Value of a hypothetical $10,000 investment in the Jefferies | TR/J CRB Global Agriculture Equity Index Fund. |
|
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The Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund is an Exchange Traded Fund (“ETF”), which provides exposure to the equity securities of a global universe of listed companies engaged in the production and distribution of base/industrial metals and base/industrial metals products, including copper, aluminum, iron ore, steel and others. The ETF seeks investment results that replicate, as closely as possible, before fees and expenses, the price and yield performance of the Thomson Reuters/Jefferies CRB In-The-Ground Global Industrial Metals Equity Index.
For the year ended December 31, 2010, the ETF’s market price increased 17.15% and its net asset value (“NAV”) increased 16.86%. Over the same time period the ETF’s benchmark was up 17.42%.
| TOP 10 HOLDINGS^ (% of Total Investments) | ||||||
Rio Tinto Plc | 7.57 | % | ||||
BHP Billiton Plc | 5.99 | |||||
Anglo American Plc | 5.21 | |||||
Freeport-McMoRan Copper & Gold, Inc. | 5.10 | |||||
ArcelorMittal | 4.86 | |||||
Vale SA, ADR | 4.85 | |||||
Xstrata Plc | 4.82 | |||||
Teck Resources, Ltd., Class B | 4.81 | |||||
POSCO | 4.71 | |||||
MMC Norilsk Nickel, ADR | 3.82 | |||||
Total % of Top 10 Holdings | 51.74 | % | ||||
^ Future holdings are subject to change |
| |||||
| COUNTRY ALLOCATION (% of Total Investments) | ||||
United Kingdom | 26.6 | % | ||
United States | 17.5 | |||
Japan | 10.3 | |||
Brazil | 9.4 | |||
Canada | 8.0 | |||
Luxembourg | 5.7 | |||
South Korea | 4.7 | |||
Russia | 4.6 | |||
Mexico | 3.1 | |||
Germany | 2.8 | |||
Other | 7.3 | |||
PERFORMANCE as of 12.31.10
| ||||||
| 1 Year | Since Inception* | |||||||
Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund | ||||||||
NAV | 16.86% | 21.66% | ||||||
Market Price** | 17.15% | 20.20% | ||||||
Thomson Reuters/Jefferies CRB In-The-Ground Global Industrial Metals Equity Index | 17.42% | 22.72% | ||||||
Total Expense Ratio (per the current prospectus) 0.65%
| * | The Fund commenced Investment Operations on October 26, 2009 with an Inception Date, the first day of trading on the Exchange, of October 27, 2009. |
| ** | Market Price is based on the midpoint of the bid/ask spread at 4 p.m. ET and does not represent the returns an investor would receive if shares were traded at other times. |
Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. For the most current month-end performance data please visit JAMFUNDS.COM. |
NAV is an exchange-traded fund’s per-share value. The per-share dollar amount of the fund is derived by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding. Market Price is the price at which a share can currently be traded in the market. Information detailing the number of days the Market Price of the Fund was greater than the Fund’s NAV and the number of days it was less than the Fund’s NAV can be obtained at www.alpsetfs.com. |
Thomson Reuters/Jefferies CRB In-The-Ground Global Industrial Metals Equity Index: measures the performance of equity securities of companies engaged in the production and distribution of base/industrial metals and related products and services including copper, aluminum, iron ore, steel, uranium and others. Index return does not represent fund return. An investor can not invest directly in an index. |
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT as of 12.31.10 |
Comparison of Change in Value of a hypothetical $10,000 investment in the Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund. |
 |
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The Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF is an Exchange Traded Fund (“ETF”), which provides exposure to the equity securities of a universe of listed U.S. and Canadian small capitalization companies engaged in the exploration and production (i.e., extraction) of oil and natural gas. The ETF seeks investment results that replicate, as closely as possible, before fees and expenses, the price and yield performance of the Thomson Reuters/Jefferies CRB Wildcatters Energy Exploration & Production Equity Index.
Since inception (1/20/2010) the ETF’s market price increased 23.70% and its net asset value (“NAV”) increased 22.72%.Over the same time period the ETF’s benchmark was up 23.52%.
| TOP 10 HOLDINGS^ (% of Total Investments) | ||||||
Brigham Exploration Co. | 5.50 | % | ||||
SandRidge Energy, Inc. | 4.56 | |||||
Progress Energy Resources Corp. | 3.70 | |||||
Daylight Energy, Ltd. | 3.68 | |||||
Rosetta Resources, Inc. | 3.43 | |||||
Berry Petroleum Co., Class A | 3.41 | |||||
Gran Tierra Energy, Inc. | 3.31 | |||||
Bill Barrett Corp. | 3.30 | |||||
Energy XXI (Bermuda), Ltd. | 3.28 | |||||
Bankers Petroleum, Ltd. | 3.23 | |||||
Total % of Top 10 Holdings | 37.40 | % | ||||
^ Future holdings are subject to change |
| |||||
| COUNTRY ALLOCATION (% of Total Investments) | ||||
United States | 64.9 | % | ||
Canada | 35.1 | |||
PERFORMANCE as of 12.31.10
|
| 6 Months | Since Inception* | |||||||||||
Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF | ||||||||||||
NAV | 38.49% | 22.72% | ||||||||||
Market Price** | 39.22% | 23.70% | ||||||||||
Thomson Reuters/Jefferies CRB Wildcatters Energy Exploration & Production Equity Index | 38.69% | 23.52% | ||||||||||
Total Expense Ratio (per the current prospectus) 0.65%
| * | The Fund commenced Investment Operations on January 19, 2010 with an Inception Date, the first day of trading on the Exchange, of January 20, 2010. |
| ** | Market Price is based on the midpoint of the bid/ask spread at 4 p.m. ET and does not represent the returns an investor would receive if shares were traded at other times. |
Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. For the most current month-end performance data please visit JAMFUNDS.COM. |
NAV is an exchange-traded fund’s per-share value. The per-share dollar amount of the fund is derived by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding. Market Price is the price at which a share can currently be traded in the market. Information detailing the number of days the Market Price of the Fund was greater than the Fund’s NAV and the number of days it was less than the Fund’s NAV can be obtained at www.alpsetfs.com. |
Thomson Reuters/Jefferies CRB Wildcatters Energy Exploration & Production Equity Index: measures the performance of equity securities of companies engaged in the exploration and production of oil and natural gas. Index return does not represent fund return. An investor can not invest directly in an index. |
| GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT as of 12.31.10 |
Comparison of Change in Value of a hypothetical $10,000 investment in the Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF. |
 |
Table of Contents
Shareholder Expense Example: As a shareholder of the Fund, you incur two types of costs: (1) transaction costs which may include creation and redemption fees or brokerage charges, and (2) ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. It is based on an investment of $1,000 invested at July 1, 2010 and held through the period ended December 31, 2010.
Actual Return: The first line of the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you incurred 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 table under the heading entitled “Expenses Paid During the Period” to estimate the expenses attributable to your investment during this period.
Hypothetical 5% Return: The second line of the table 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 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 the other funds.
The expenses shown in the table are meant to highlight ongoing Fund costs only and do not reflect any transaction costs, such as creation and redemption fees, or brokerage charges. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these costs were included, your costs would have been higher.
| Beginning Account Value 7/01/10 | Ending Account Value 12/31/10 | Expense Ratio | Expenses Paid 7/01/10 - 12/31/10 | |||||||||||
Jefferies TR/J CRB Global Commodity Equity Index Fund | ||||||||||||||
Actual | $ 1,000.00 | $ 1,406.40 | 0.65% | $ 3.94 | ||||||||||
Hypothetical | $ 1,000.00 | $ 1,021.93 | 0.65% | $ 3.31 | ||||||||||
Jefferies TR/J CRB Global Agriculture Equity Index Fund | ||||||||||||||
Actual | $ 1,000.00 | $ 1,549.60 | 0.65% | $ 4.18 | ||||||||||
Hypothetical | $ 1,000.00 | $ 1,021.93 | 0.65% | $ 3.31 | ||||||||||
Jefferies TR/J CRB Global Industrial Metals | ||||||||||||||
Equity Index Fund | ||||||||||||||
Actual | $ 1,000.00 | $ 1,476.20 | 0.65% | $ 4.06 | ||||||||||
Hypothetical | $ 1,000.00 | $ 1,021.93 | 0.65% | $ 3.31 | ||||||||||
Jefferies TR/J CRB Wildcatters Exploration & Production Equity ETF | ||||||||||||||
Actual | $ 1,000.00 | $ 1,384.90 | 0.65% | $ 3.91 | ||||||||||
Hypothetical | $ 1,000.00 | $ 1,021.93 | 0.65% | $ 3.31 | ||||||||||
| (a) | The example in the table above is equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (184), then divided by 365. |
Table of Contents
To the Board of Trustees and Shareholders of ALPS ETF Trust:
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of the Jefferies TR/J CRB Global Commodity Equity Index Fund, Jefferies TR/J CRB Global Agriculture Equity Index Fund, and Jefferies TR/J CRB Global Industrial Metals Equity Index Fund of the ALPS ETF Trust (the “Trust”) as of December 31, 2010, and the related statements of operations for the year then ended, and the statements of changes in net assets and the financial highlights for the year then ended and the period September 21, 2009 (inception) to December 31, 2009 for the Jefferies TR/J CRB Global Commodity Equity Index Fund, and for the year then ended and for the period October 27, 2009 (inception) to December 31, 2009 for the Jefferies TR/J CRB Global Agriculture Equity Index Fund and Jefferies TR/J CRB Global Industrial Metals Equity Index Fund. We have also audited the accompanying statement of assets and liabilities, including the schedule of investments, of the Jefferies TR/J CRB Wildcatters Exploration & Production Equity ETF of the Trust as of December 31, 2010, and the related statements of operations and changes in net assets, and the financial highlights for the period January 20, 2010 (inception) to December 31, 2010. These financial statements and financial highlights are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Jefferies TR/J CRB Global Commodity Equity Index Fund, Jefferies TR/J CRB Global Agriculture Equity Index Fund, Jefferies TR/J CRB Global Industrial Metals Equity Index Fund and Jefferies TR/J CRB Wildcatters Exploration & Production Equity Index ETF of the ALPS ETF Trust as of December 31, 2010, the results of their operations, the changes in their net assets, and the financial highlights for each of the respective periods referred to above, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
February 28, 2011
Table of Contents
| Security Description | Shares | Value | ||||||
COMMON STOCKS (99.98%) |
| |||||||
Australia (2.52%) | ||||||||
Fortescue Metals Group, Ltd.* | 21,972 | $ | 147,296 | |||||
Incitec Pivot, Ltd. | 226,604 | 919,831 | ||||||
Newcrest Mining, Ltd. | 28,014 | 1,161,265 | ||||||
Nufarm, Ltd.* | 24,898 | 131,181 | ||||||
Woodside Petroleum, Ltd. | 9,983 | 435,520 | ||||||
| 2,795,093 | ||||||||
Bermuda (1.31%) | ||||||||
Bunge, Ltd. | 20,200 | 1,323,504 | ||||||
Sinofert Holdings, Ltd.* | 246,000 | 127,214 | ||||||
| 1,450,718 | ||||||||
Brazil (1.96%) | ||||||||
Companhia Siderurgica Nacional SA, ADR | 14,048 | 234,180 | ||||||
Gerdau SA, ADR | 11,638 | 162,816 | ||||||
Petroleo Brasileiro SA, ADR | 25,544 | 966,585 | ||||||
Vale SA, ADR | 23,422 | 809,698 | ||||||
| 2,173,279 | ||||||||
Canada (17.69%) | ||||||||
Agnico-Eagle Mines, Ltd. | 6,146 | 473,792 | ||||||
Agrium, Inc. | 21,916 | 2,018,129 | ||||||
Barrick Gold Corp. | 36,464 | 1,949,346 | ||||||
Cameco Corp. | 6,903 | 279,969 | ||||||
Canadian Natural Resources, Ltd. | 18,309 | 817,193 | ||||||
Eldorado Gold Corp. | 20,051 | 373,314 | ||||||
EnCana Corp. | 12,373 | 362,231 | ||||||
Goldcorp, Inc. | 26,956 | 1,244,645 | ||||||
IAMGOLD Corp. | 13,647 | 243,782 | ||||||
Inmet Mining Corp. | 2,054 | 159,706 | ||||||
Ivanhoe Mines, Ltd.* | 9,724 | 225,081 | ||||||
Kinross Gold Corp. | 41,415 | 788,163 | ||||||
New Gold, Inc. * | 14,349 | 139,786 | ||||||
Osisko Mining Corp.* | 11,016 | 160,975 | ||||||
Pan American Silver Corp. | 3,926 | 161,718 | ||||||
Potash Corp. of Saskatchewan, Inc. | 41,417 | 6,437,735 | ||||||
SEMAFO, Inc.* | 9,949 | 107,635 | ||||||
Silver Wheaton Corp.* | 12,680 | 497,425 | ||||||
Suncor Energy, Inc. | 26,303 | 1,013,313 | ||||||
Talisman Energy, Inc. | 17,162 | 382,050 | ||||||
Teck Resources, Ltd., | 8,347 | 519,057 | ||||||
TransCanada Corp. | 11,709 | 447,668 | ||||||
Viterra, Inc.* | 51,700 | 482,842 | ||||||
Yamana Gold, Inc. | 27,132 | 348,690 | ||||||
| 19,634,245 | ||||||||
Cayman Islands (0.25%) | ||||||||
Chaoda Modern Agriculture | 370,000 | 277,489 | ||||||
Chile (0.32%) | ||||||||
Sociedad Quimica y Minerade Chile SA, ADR | 6,030 | 352,273 | ||||||
| Security Description | Shares | Value | ||||||
China (1.16%) | ||||||||
Angang Steel Co., Ltd., | 20,000 | $ | 30,616 | |||||
China BlueChemical, Ltd., | 94,000 | 67,353 | ||||||
China Petroleum & | 282,000 | 269,896 | ||||||
China Shenhua Energy Co., Ltd., | 57,000 | 239,038 | ||||||
Jiangxi Copper Co., Ltd., | 24,000 | 78,882 | ||||||
PetroChina Co., Ltd., | 356,000 | 465,285 | ||||||
Zijin Mining Group Co., Ltd., Class H | 146,000 | 135,414 | ||||||
| 1,286,484 | ||||||||
Denmark (0.55%) | ||||||||
Danisco A/S | 6,627 | 608,436 | ||||||
France (1.89%) | ||||||||
Total SA | 39,525 | 2,102,433 | ||||||
Germany (1.57%) | ||||||||
K+S AG | 19,870 | 1,502,367 | ||||||
ThyssenKrupp AG | 5,844 | 242,923 | ||||||
| 1,745,290 | ||||||||
Hong Kong (0.80%) | ||||||||
China Agri-Industries | 222,000 | 251,882 | ||||||
CNOOC, Ltd. | 268,000 | 635,727 | ||||||
| 887,609 | ||||||||
India (1.23%) | ||||||||
Reliance Industries, Ltd., | 27,533 | 1,308,368 | ||||||
Sterlite Industries India, Ltd., ADR | 3,537 | 58,502 | ||||||
| 1,366,870 | ||||||||
Israel (1.33%) | ||||||||
Israel Chemicals, Ltd. | 62,123 | 1,067,046 | ||||||
The Israel Corp., Ltd.* | 341 | 414,515 | ||||||
| 1,481,561 | ||||||||
Italy (0.93%) | ||||||||
Eni SpA | 46,960 | 1,029,407 | ||||||
Japan (1.04%) | ||||||||
INPEX Corp. | 36 | 211,060 | ||||||
JFE Holdings, Inc. | 8,000 | 278,947 | ||||||
Nippon Steel Corp. | 94,000 | 338,426 | ||||||
Sumitomo Metal Industries, Ltd. | 61,000 | 150,422 | ||||||
Sumitomo Metal Mining Co., Ltd. | 10,000 | 174,958 | ||||||
| 1,153,813 | ||||||||
Table of Contents
| Security Description | Shares | Value | ||||||
Jersey (0.25%) |
| |||||||
Randgold Resources, Ltd. | 3,332 | $ | 275,183 | |||||
Luxembourg (0.77%) |
| |||||||
ArcelorMittal | 15,296 | 582,368 | ||||||
Evraz Group SA, GDR*(b) | 2,121 | 76,080 | ||||||
Tenaris SA, ADR | 3,970 | 194,451 | ||||||
| 852,899 | ||||||||
Malaysia (1.22%) | ||||||||
Genting Plantations BHD | 31,700 | 90,469 | ||||||
IOI Corp. BHD | 429,100 | 808,520 | ||||||
PPB Group BHD | 81,100 | 453,960 | ||||||
| 1,352,949 | ||||||||
Mauritius (0.49%) |
| |||||||
Golden Agri-Resources, Ltd. | 869,000 | 542,680 | ||||||
Mexico (0.24%) |
| |||||||
Grupo Mexico SAB de CV, Series B | 65,900 | 271,636 | ||||||
Netherlands (2.23%) |
| |||||||
CNH Global N ..V.* | 3,722 | 177,688 | ||||||
Nutreco Holding N.V. | 4,887 | 372,324 | ||||||
Schlumberger, Ltd. | 23,000 | 1,920,500 | ||||||
| 2,470,512 | ||||||||
Norway (1.45%) | ||||||||
Norsk Hydro ASA | 16,000 | 117,292 | ||||||
Yara International ASA | 25,604 | 1,486,684 | ||||||
| 1,603,976 | ||||||||
Peru (0.35%) | ||||||||
Companhia de Minas | ||||||||
Buenaventura SA, ADR | 7,850 | 384,336 | ||||||
Russia (2.87%) |
| |||||||
Gazprom OAO, ADR | 49,792 | 1,257,248 | ||||||
LUKOIL OAO, ADR | 7,178 | 405,557 | ||||||
Mechel Steel Group, ADR | 2,508 | 73,309 | ||||||
MMC Norilsk Nickel, ADR | 14,158 | 335,120 | ||||||
Polyus Gold Co., ADR | 4,746 | 172,042 | ||||||
Rosneft Oil Co., GDR (b) | 27,462 | 196,628 | ||||||
Uralkali, GDR(b) | 20,318 | 746,077 | ||||||
| 3,185,981 | ||||||||
Singapore (1.69%) | ||||||||
Olam International, Ltd. | 229,000 | 561,305 | ||||||
Wilmar International, Ltd. | 299,000 | 1,314,055 | ||||||
| 1,875,360 | ||||||||
South Africa (2.33%) |
| |||||||
Anglo Platinum, Ltd.* | 1,906 | 199,979 | ||||||
AngloGold Ashanti, Ltd., ADR | 13,955 | 687,005 | ||||||
Gold Fields, Ltd. | 26,361 | 480,541 | ||||||
Harmony Gold Mining Co., Ltd. | 13,386 | 167,938 | ||||||
| Security Description | Shares | Value | ||||||
South Africa (continued) |
| |||||||
Impala Platinum Holdings, Ltd. | 18,108 | $ | 637,636 | |||||
Sasol, Ltd. | 7,962 | 416,745 | ||||||
| 2,589,844 | ||||||||
South Korea (0.48%) |
| |||||||
POSCO | 1,252 | 537,249 | ||||||
Spain (0.31%) | ||||||||
Repsol YPF SA | 12,498 | 349,586 | ||||||
Switzerland (4.21%) |
| |||||||
Noble Corp. | 4,300 | 153,811 | ||||||
Syngenta AG | 13,157 | 3,860,572 | ||||||
Transocean, Ltd.* | 5,400 | 375,354 | ||||||
Weatherford International, Ltd.* | 12,500 | 285,000 | ||||||
| 4,674,737 | ||||||||
Taiwan (0.61%) |
| |||||||
China Steel Corp. | 200,960 | 230,897 | ||||||
Taiwan Fertilizer Co., Ltd. | 120,000 | 448,614 | ||||||
| 679,511 | ||||||||
United Kingdom (10.24%) |
| |||||||
Anglo American Plc | 23,153 | 1,209,103 | ||||||
Antofagasta Plc | 6,805 | 171,747 | ||||||
BG Group Plc | 56,967 | 1,155,908 | ||||||
BHP Billiton Plc | 37,272 | 1,488,634 | ||||||
BP Plc | 316,256 | 2,305,154 | ||||||
Kazakhmys Plc | 3,717 | 93,927 | ||||||
Lonmin Plc* | 5,581 | 171,787 | ||||||
Petropavlosk Plc | 5,876 | 105,245 | ||||||
Rio Tinto Plc | 26,773 | 1,880,614 | ||||||
Royal Dutch Shell Plc, Class A | 59,659 | 1,979,280 | ||||||
Xstrata Plc | 34,125 | 804,356 | ||||||
| 11,365,755 | ||||||||
United States (35.69%) |
| |||||||
AGCO Corp.* | 12,946 | 655,844 | ||||||
Alcoa, Inc. | 17,918 | 275,758 | ||||||
Allegheny Technologies, Inc. | 1,730 | 95,461 | ||||||
Anadarko Petroleum Corp. | 8,339 | 635,098 | ||||||
Apache Corp. | 6,135 | 731,476 | ||||||
Archer-Daniels-Midland Co. | 88,889 | 2,673,781 | ||||||
Baker Hughes, Inc. | 7,257 | 414,883 | ||||||
Cameron International Corp* | 4,082 | 207,080 | ||||||
CF Industries Holdings, Inc. | 9,897 | 1,337,580 | ||||||
Chesapeake Energy Corp. | 11,003 | 285,088 | ||||||
Chevron Corp. | 33,861 | 3,089,816 | ||||||
Cliffs Natural Resources, Inc. | 2,377 | 185,430 | ||||||
Coeur d’Alene Mines Corp. * | 3,270 | 89,336 | ||||||
ConocoPhillips | 24,722 | 1,683,568 | ||||||
Consol Energy, Inc. | 3,801 | 185,261 | ||||||
Corn Products International, Inc. | 10,521 | 483,966 | ||||||
Deere & Co. | 58,972 | 4,897,625 | ||||||
Devon Energy Corp. | 7,268 | 570,611 | ||||||
Table of Contents
| Security Description | Shares | Value | ||||||
United States (continued) |
| |||||||
Diamond Offshore Drilling, Inc. | 1,170 | $ | 78,238 | |||||
EOG Resources, Inc. | 4,275 | 390,778 | ||||||
Exxon Mobil Corp. | 84,846 | 6,203,940 | ||||||
Freeport-McMoRan | ||||||||
Copper & Gold, Inc. | 8,260 | 991,943 | ||||||
Halliburton Co. | 15,304 | 624,862 | ||||||
Hecla Mining Co.* | 9,385 | 105,675 | ||||||
Hess Corp. | 4,920 | 376,577 | ||||||
Intrepid Potash, Inc.* | 6,166 | 229,930 | ||||||
Marathon Oil Corp. | 11,945 | 442,323 | ||||||
Monsanto Co. | 74,628 | 5,197,094 | ||||||
The Mosaic Co. | 22,322 | 1,704,508 | ||||||
National Oilwell Varco, Inc. | 7,061 | 474,852 | ||||||
Newmont Mining Corp. | 17,799 | 1,093,393 | ||||||
Noble Energy, Inc. | 2,947 | 253,678 | ||||||
Nucor Corp. | 5,539 | 242,719 | ||||||
Occidental Petroleum Corp. | 13,673 | 1,341,321 | ||||||
Peabody Energy Corp. | 4,537 | 290,277 | ||||||
Royal Gold, Inc. | 1,966 | 107,403 | ||||||
Southern Copper Corp. | 2,982 | 145,343 | ||||||
Southwestern Energy Co.* | 5,835 | 218,404 | ||||||
United States Steel Corp. | 2,520 | 147,218 | ||||||
Valero Energy Corp. | 9,528 | 220,287 | ||||||
The Williams Co., Inc. | 9,840 | 243,245 | ||||||
| 39,621,670 | ||||||||
TOTAL COMMON STOCKS (Cost $96,081,534) |
|
| 110,978,864 |
| ||||
RIGHTS (0.01%) |
| |||||||
Canada (0.01%) |
| |||||||
Ivanhoe Mines, Ltd., Rights,strike price 13.93 CAD, Expires 1/26/11* | 9,724 | 13,114 | ||||||
TOTAL RIGHTS (Cost $0) |
|
| 13,114 |
| ||||
TOTAL INVESTMENTS (99.99%) (Cost $96,081,534) |
| 110,991,978 | ||||||
NET OTHER ASSETS |
| 9,306 | ||||||
NET ASSETS (100.00%) |
| $ | 111,001,284 | |||||
| * | Non-income producing security. |
| (a) | Security exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions exempt from registration, normally to qualified institutional buyers. At period end, the market value of this security restricted under Rule 144A was $1,308,368, representing 1.18% of the Fund’s net assets. |
| (b) | These securities initially sold to other parties pursuant to Regulation S under the 1933 Act and subsequently resold to the Fund. At the period end, the aggregate market value of those securities was $1,018,785, representing 0.92% of the Fund’s net assets. |
Common Abbreviations:
A/S - | Aktieselskab is the Danish name for a stock-based corporation. | |
ADR - | American Depositary Receipt. | |
AG - | Aktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e., owned by shareholders. | |
ASA - | Allmennaksjeselskap is the Norwegian term for public limited company. | |
BHD - | Berhad (in Malaysia; equivalent to Public Limited Company). | |
GDR - | Global Depository Receipt. | |
Ltd. - | Limited. | |
N.V. - | Naamloze Vennootschap is the Dutch term for a public limited liability corporation. | |
OAO - | Otkytoe Aktsionernoe Obshchestvo (open Joint Stock Corporation) is a Russian term for a stock- based corporation. Plc - Public Limited Co. | |
Plc - | Public Limited Co. | |
SA - | Generally designated corporations in various countries, mostly those employing the civil law. | |
SAB de CV - A variable capital company. | ||
SpA - | Società Per Azioni is an Italian shared company. | |
See Notes to Financial Statements.
Table of Contents
| Security Description | Shares | Value | ||||||
COMMON STOCKS (96.98%) |
| |||||||
Australia (3.70%) | ||||||||
Incitec Pivot, Ltd. | 62,459 | $ | 253,533 | |||||
Nufarm, Ltd.* | 6,864 | 36,165 | ||||||
| 289,698 | ||||||||
Bermuda (4.81%) | ||||||||
Bunge, Ltd. | 5,200 | 340,704 | ||||||
Sinofert Holdings, Ltd.* | 70,000 | 36,199 | ||||||
| 376,903 | ||||||||
Canada (15.27%) | ||||||||
Agrium, Inc. | 4,421 | 407,106 | ||||||
Potash Corp. of Saskatchewan, Inc. | 4,219 | 655,789 | ||||||
Viterra, Inc.* | 14,252 | 133,104 | ||||||
| 1,195,999 | ||||||||
Cayman Islands (0.98%) |
| |||||||
Chaoda Modern Agriculture |
| |||||||
Holdings, Ltd. | 102,000 | 76,497 | ||||||
Chile (1.24%) | ||||||||
Sociedad Quimica y Minerade Chile SA, ADR | 1,663 | 97,152 | ||||||
China (0.24%) | ||||||||
China BlueChemical, Ltd., Class H | 26,000 | 18,630 | ||||||
Denmark (2.16%) | ||||||||
Danisco A/S | 1,839 | 168,842 | ||||||
Germany (4.74%) | ||||||||
K+S AG | 4,909 | 371,169 | ||||||
Hong Kong (0.88%) | ||||||||
China Agri-Industries | ||||||||
Holdings, Ltd. | 61,000 | 69,211 | ||||||
Israel (4.62%) | ||||||||
Israel Chemicals, Ltd. | 13,648 | 234,423 | ||||||
The Israel Corp., Ltd.* | 105 | 127,636 | ||||||
| 362,059 | ||||||||
Malaysia (3.19%) | ||||||||
Genting Plantations BHD | 5,800 | 16,553 | ||||||
IOI Corp. BHD | 79,100 | 149,042 | ||||||
PPB Group BHD | 15,000 | 83,963 | ||||||
| 249,558 | ||||||||
Mauritius (1.91%) | ||||||||
Golden Agri-Resources, Ltd. | 239,000 | 149,253 | ||||||
| Security Description | Shares | Value | ||||||
Netherlands (1.92%) | ||||||||
CNH Global N.V.* | 1,006 | $ | 48,026 | |||||
Nutreco Holding N .V. | 1,348 | 102,700 | ||||||
| 150,726 | ||||||||
Norway (4.66%) | ||||||||
Yara International ASA | 6,288 | 365,110 | ||||||
Russia (2.63%) | ||||||||
Uralkali, GDR(a) | 5,601 | 205,669 | ||||||
Singapore (6.10%) | ||||||||
Olam International, Ltd. | 64,000 | 156,871 | ||||||
Wilmar International, Ltd. | 73,000 | 320,823 | ||||||
| 477,694 | ||||||||
Switzerland (5.05%) | ||||||||
Syngenta AG | 1,347 | 395,241 | ||||||
Taiwan (0.91%) | ||||||||
Taiwan Fertilizer Co., Ltd. | 19,000 | 71,030 | ||||||
United States (31.97%) | ||||||||
AGCO Corp.* | 3,569 | 180,806 | ||||||
Archer-Daniels-Midland Co. | 11,990 | 360,659 | ||||||
CF Industries Holdings, Inc. | 2,579 | 348,552 | ||||||
Corn Products International, Inc. | 2,901 | 133,446 | ||||||
Deere & Co. | 6,007 | 498,881 | ||||||
Intrepid Potash, Inc.* | 1,700 | 63,393 | ||||||
Monsanto Co. | 7,602 | 529,403 | ||||||
The Mosaic Co. | 5,081 | 387,984 | ||||||
| 2,503,124 | ||||||||
TOTAL COMMON STOCKS (Cost $6,429,913) |
| 7,593,565 | ||||||
TOTAL INVESTMENTS (96.98%) (Cost $6,429,913) |
| 7,593,565 | ||||||
NET OTHER ASSETS |
| 236,631 | ||||||
NET ASSETS (100.00%) | $ | 7,830,196 | ||||||
| * | Non-income producing security. |
| (a) | This security initially sold to other parties pursuant to Regulation S under the 1933 Act and subsequently resold to the Fund. At the period end, the market value of this security was $205,669, representing 2.63% of the Fund’s net assets. |
Table of Contents
Common Abbreviations: | ||
A/S- | Aktieselskab is the Danish name for a stock- based corporation. | |
ADR- | American Depositary Receipt. | |
AG- | Aktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e., owned by shareholders. | |
ASA- | Allmennaksjeselskap is the Norwegian term for public limited company. | |
BHD- | Berhad (in Malaysia; equivalent to Public Limited Company). | |
GDR- | Global Depository Receipt. | |
Ltd.- | Limited. | |
N.V.- | Naamloze Vennootschap is the Dutch term for a public limited liability corporation. | |
SA- | Generally designated corporations in various countries, mostly those employing the civil law. | |
See Notes to Financial Statements.
Table of Contents
Security Description | Shares | Value | ||||||
COMMON STOCKS (100.17%) |
| |||||||
Australia (1.68%) | ||||||||
Fortescue Metals Group, Ltd.* | 12,302 | $ | 82,470 | |||||
Brazil (9.39%) | ||||||||
Companhia Siderurgica Nacional | ||||||||
SA, ADR | 7,866 | 131,126 | ||||||
Gerdau SA, ADR | 6,517 | 91,173 | ||||||
Vale SA, ADR | 6,898 | 238,464 | ||||||
| 460,763 | ||||||||
Canada (8.01%) | ||||||||
Cameco Corp. | 3,864 | 156,714 | ||||||
Teck Resources, Ltd., Class B | 3,801 | 236,365 | ||||||
| 393,079 | ||||||||
China (1.18%) | ||||||||
Angang Steel Co., Ltd., Class H | 10,000 | 15,308 | ||||||
Jiangxi Copper Co., Ltd., Class H | 13,000 | 42,728 | ||||||
| 58,036 | ||||||||
Germany (2.77%) | ||||||||
ThyssenKrupp AG | 3,271 | 135,969 | ||||||
India (0.67%) | ||||||||
Sterlite Industries India, Ltd., ADR | 1,981 | 32,766 | ||||||
Japan (10.32%) | ||||||||
JFE Holdings, Inc. | 4,400 | 153,421 | ||||||
Nippon Steel Corp. | 51,000 | 183,614 | ||||||
Sumitomo Metal Industries, Ltd. | 33,000 | 81,376 | ||||||
Sumitomo Metal Mining Co., Ltd. | 5,000 | 87,479 | ||||||
| 505,890 | ||||||||
Luxembourg (5.73%) | ||||||||
ArcelorMittal | 6,270 | 238,719 | ||||||
Evraz Group SA, GDR*(a) | 1,178 | 42,255 | ||||||
| 280,974 | ||||||||
Mexico (3.09%) | ||||||||
Grupo Mexico SAB de CV, Series B | 36,800 | 151,687 | ||||||
Norway (1.35%) | ||||||||
Norsk Hydro ASA | 9,000 | 65,977 | ||||||
Russia (4.59%) | ||||||||
Mechel Steel Group, ADR | 1,287 | 37,619 | ||||||
MMC Norilsk Nickel, ADR | 7,927 | 187,632 | ||||||
| 225,251 | ||||||||
South Korea (4.72%) | ||||||||
POSCO | 539 | 231,292 | ||||||
Taiwan (2.45%) | ||||||||
China Steel Corp. | 104,508 | 120,077 | ||||||
Security Description | Shares | Value | ||||||
United Kingdom (26.66%) |
| |||||||
Anglo American Plc | 4,903 | $ | 256,046 | |||||
Antofagasta Plc | 3,810 | 96,158 | ||||||
BHP Billiton Plc | 7,368 | 294,276 | ||||||
Kazakhmys Plc | 2,080 | 52,561 | ||||||
Rio Tinto Plc | 5,292 | 371,725 | ||||||
Xstrata Plc | 10,050 | 236,887 | ||||||
| 1,307,653 | ||||||||
United States (17.56%) | ||||||||
Alcoa, Inc. | 10,032 | 154,392 | ||||||
Allegheny Technologies, Inc. | 961 | 53,028 | ||||||
Cliffs Natural Resources, Inc. | 1,330 | 103,753 | ||||||
Freeport-McMoRan | ||||||||
Copper & Gold, Inc. | 2,085 | 250,388 | ||||||
Nucor Corp. | 3,101 | 135,886 | ||||||
Southern Copper Corp. | 1,669 | 81,347 | ||||||
United States Steel Corp. | 1,410 | 82,372 | ||||||
| 861,166 | ||||||||
TOTAL COMMON STOCKS (Cost $4,010,493) |
| 4,913,050 | ||||||
TOTAL INVESTMENTS (100.17%) (Cost $4,010,493) |
| 4,913,050 | ||||||
NET LIABILITIES |
| (8,463 | ) | |||||
NET ASSETS (100.00%) |
| $ | 4,904,587 | |||||
| * | Non-income producing security. |
| (a) | This security initially sold to other parties pursuant to Regulation S under the 1933 Act and subsequently resold to the Fund. At the period end, the market value of this security was $42,255, representing 0.86% of the Fund’s net assets. |
Common Abbreviations:
ADR - | American Depositary Receipt. | |
AG - | Aktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e., owned by shareholders. | |
ASA - | Allmennaksjeselskap is the Norwegian term for public limited company. | |
GDR - | Global Depository Receipt. | |
Ltd. - | Limited. | |
Plc - | Public Limited Co. | |
SA - | Generally designated corporations in various countries, mostly those employing the civil law. | |
SAB de CV - A variable capital company. | ||
See Notes to Financial Statements.
Table of Contents
Security Description | Shares | Value | ||||||
COMMON STOCKS (99.79%) |
| |||||||
Canada (34.98%) | ||||||||
Advantage Oil & Gas, Ltd.* | 41,202 | $ | 280,305 | |||||
Angle Energy, Inc.* | 16,031 | 133,908 | ||||||
Bankers Petroleum, Ltd. * | 62,369 | 477,034 | ||||||
Birchcliff Energy, Ltd. * | 31,926 | 306,520 | ||||||
Celtic Exploration, Ltd.* | 17,989 | 320,802 | ||||||
Chinook Energy, Inc.* | 54,639 | 117,675 | ||||||
Corridor Resources, Inc.* | 22,429 | 134,080 | ||||||
Crew Energy, Inc.* | 20,513 | 394,302 | ||||||
Daylight Energy, Ltd. | 52,281 | 543,514 | ||||||
Delphi Energy Corp. * | 27,667 | 60,421 | ||||||
Fairborne Energy, Ltd.* | 24,609 | 104,514 | ||||||
Galleon Energy, Inc., Class A * | 16,633 | 68,798 | ||||||
Ivanhoe Energy, Inc. * | 70,026 | 191,688 | ||||||
Legacy Oil + Gas, Inc. * | 28,440 | 445,068 | ||||||
Midway Energy, Ltd. * | 15,756 | 70,087 | ||||||
NuVista Energy, Ltd. | 22,671 | 211,047 | ||||||
OPTI Canada, Inc. * | 71,990 | 48,541 | ||||||
Paramount Resources, Ltd., Class A* | 8,804 | 280,693 | ||||||
Progress Energy Resources Corp. | 42,823 | 547,328 | ||||||
Questerre Energy Corp.* | 52,168 | 107,628 | ||||||
TransGlobe Energy Corp.* | 17,115 | 273,695 | ||||||
Twin Butte Energy, Ltd.* | 31,001 | 63,646 | ||||||
| 5,181,294 | ||||||||
United States (64.81%) | ||||||||
Abraxas Petroleum Corp.* | 19,519 | 89,202 | ||||||
Approach Resources, Inc.* | 3,955 | 91,361 | ||||||
ATP Oil & Gas Corp.* | 10,218 | 171,049 | ||||||
Berry Petroleum Co., Class A | 11,518 | 503,337 | ||||||
Bill Barrett Corp.* | 11,857 | 487,678 | ||||||
BPZ Resources, Inc.* | 25,086 | 119,409 | ||||||
Brigham Exploration Co. * | 29,863 | 813,468 | ||||||
CAMAC Energy, Inc. * | 11,141 | 22,171 | ||||||
Carrizo Oil & Gas, Inc.* | 8,922 | 307,720 | ||||||
Clayton Williams Energy, Inc.* | 1,522 | 127,802 | ||||||
Comstock Resources, Inc.* | 12,090 | 296,930 | ||||||
Contango Oil & Gas Co. * | 3,282 | 190,126 | ||||||
Delta Petroleum Corp.* | 48,098 | 36,554 | ||||||
Energy Partners, Ltd. * | 9,220 | 137,009 | ||||||
Energy XXI (Bermuda), Ltd.* | 17,512 | 484,557 | ||||||
GeoResources, Inc.* | 3,281 | 72,871 | ||||||
Goodrich Petroleum Corp.* | 6,239 | 110,056 | ||||||
Gran Tierra Energy, Inc.* | 60,012 | 488,600 | ||||||
Gulfport Energy Corp. * | 7,064 | 152,936 | ||||||
Harvest Natural Resources, Inc. * | 8,646 | 105,222 | ||||||
Hess Corp. | 1 | 77 | ||||||
Houston American Energy Corp. | 4,602 | 83,250 | ||||||
Hyperdynamics Corp. * | 29,062 | 144,148 | ||||||
Magnum Hunter Resources Corp.* | 14,051 | 101,167 | ||||||
McMoRan Exploration Co.* | 27,126 | 464,940 | ||||||
Northern Oil and Gas, Inc.* | 10,773 | 293,133 | ||||||
Penn Virginia Corp. | 11,637 | 195,734 | ||||||
Petroleum Development Corp.* | 5,982 | 252,500 | ||||||
Petroquest Energy, Inc.* | 14,207 | 106,979 | ||||||
Security Description |
Shares |
Value | ||||||
United States (continued) |
| |||||||
Quicksilver Resources, Inc.* | 30,026 | $ | 442,583 | |||||
Rex Energy Corp.* | 8,286 | 113,104 | ||||||
Rosetta Resources, Inc.* | 13,464 | 506,785 | ||||||
SandRidge Energy, Inc.* | 92,012 | 673,528 | ||||||
Stone Energy Corp.* | 12,401 | 276,418 | ||||||
Swift Energy Co.* | 10,638 | 416,478 | ||||||
Toreador Resources Corp.* | 5,874 | 91,164 | ||||||
Vaalco Energy, Inc.* | 14,429 | 103,312 | ||||||
Vanguard Natural Resources LLC | 6,181 | 183,267 | ||||||
Venoco, Inc.* | 5,405 | 99,722 | ||||||
W&T Offshore, Inc. | 8,963 | 160,169 | ||||||
Warren Resources, Inc.* | 18,188 | 82,210 | ||||||
| 9,598,726 | ||||||||
TOTAL COMMON STOCKS (Cost $12,691,092) |
| 14,780,020 | ||||||
TOTAL INVESTMENTS (99.79%) (Cost $12,691,092) |
| 14,780,020 | ||||||
NET OTHER ASSETS |
| 30,367 | ||||||
NET ASSETS (100.00%) |
| $ | 14,810,387 | |||||
| * | Non-income producing security. |
Common Abbreviations:
LLC - Limited Liability Company.
Ltd. - Limited.
See Notes to Financial Statements.
Table of Contents
| Jefferies | TR/J CRB Global Commodity Equity Index Fund | Jefferies | TR/J CRB Global Agriculture Equity Index Fund | Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund | Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF | |||||||||||||
ASSETS: | ||||||||||||||||
Investments, at value | $ | 110,991,978 | $ | 7,593,565 | $ | 4,913,050 | $ | 14,780,020 | ||||||||
Cash | – | 48,592 | – | 20,495 | ||||||||||||
Foreign currency, at value (Cost $7,202, $240, $1,894 and $5,546, respectively) | 7,575 | 259 | 1,942 | 5,580 | ||||||||||||
Receivable for investments | 12,065 | – | – | – | ||||||||||||
Receivable for shares sold | – | 2,610,066 | – | 2,474,541 | ||||||||||||
Foreign tax reclaims | 26,553 | 1,461 | 593 | – | ||||||||||||
Interest and dividends receivable | 57,724 | 2,708 | 2,484 | 5,723 | ||||||||||||
Total Assets | 111,095,895 | 10,256,651 | 4,918,069 | 17,286,359 | ||||||||||||
LIABILITIES: | ||||||||||||||||
Payable to advisor | 59,031 | 2,756 | 2,596 | 6,562 | ||||||||||||
Payable to custodian | 35,311 | – | 10,886 | – | ||||||||||||
Payable for investments | 269 | 2,423,699 | – | 2,469,410 | ||||||||||||
Total Liabilities | 94,611 | 2,426,455 | 13,482 | 2,475,972 | ||||||||||||
NET ASSETS | $ | 111,001,284 | $ | 7,830,196 | $ | 4,904,587 | $ | 14,810,387 | ||||||||
NET ASSETS CONSIST OF: |
| |||||||||||||||
Paid-in capital | $97,603,944 | $ | 6,669,151 | $ | 4,167,821 | $ | 12,738,079 | |||||||||
(Over)/Undistributed net investment income | (27,176) | (58) | 1,255 | – | ||||||||||||
Accumulated net realized loss on investments and foreign currency transactions | (1,488,668) | (2,746) | (167,097) | (16,688) | ||||||||||||
Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies | 14,913,184 | 1,163,849 | 902,608 | 2,088,996 | ||||||||||||
NET ASSETS | $ | 111,001,284 | $ | 7,830,196 | $ | 4,904,587 | $ | 14,810,387 | ||||||||
INVESTMENTS, AT COST | $96,081,534 | $ | 6,429,913 | $ | 4,010,493 | $ | 12,691,092 | |||||||||
PRICING OF SHARES |
| |||||||||||||||
Net Assets | $ | 111,001,284 | $ | 7,830,196 | $ | 4,904,587 | $ | 14,810,387 | ||||||||
Shares of beneficial interest outstanding (Unlimited number of shares authorized, par value $0.01 per share) | 2,250,001 | 150,000 | 100,000 | 300,000 | ||||||||||||
Net Asset Value, offering and redemption price per share | $ 49.33 | $ | 52.20 | $ | 49.05 | $ | 49.37 | |||||||||
See Notes to Financial Statements.
Table of Contents
| Jefferies | TR/J CRB Global Commodity Equity Index Fund | Jefferies | TR/J CRB Global Agriculture Equity Index Fund | Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund | Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF(a) | |||||||||||||
INVESTMENT INCOME: | ||||||||||||||||
Dividends(b) | $ | 1,317,325 | $ | 62,852 | $ | 83,798 | $ | 32,611 | ||||||||
Total Investment Income | 1,317,325 | 62,852 | 83,798 | 32,611 | ||||||||||||
EXPENSES: | ||||||||||||||||
Investment advisory fee | 493,500 | 27,743 | 32,116 | 37,261 | ||||||||||||
Total Net Expenses | 493,500 | 27,743 | 32,116 | 37,261 | ||||||||||||
NET INVESTMENT INCOME/(LOSS) | 823,825 | 35,109 | 51,682 | (4,650) | ||||||||||||
Net realized gain/(loss) on investments | (422,061) | 136,139 | (337,596) | 330,002 | ||||||||||||
Net realized gain/(loss) on foreign currency transactions | (42,429) | (1,549) | (1,931) | 833 | ||||||||||||
Net change in unrealized appreciation on investments | 11,819,513 | 898,923 | 591,980 | 2,088,928 | ||||||||||||
Net change in unrealized appreciation on translation of assets and liabilities in foreign currencies | 2,613 | 163 | 56 | 68 | ||||||||||||
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS | 11,357,636 | 1,033,676 | 252,509 | 2,419,831 | ||||||||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 12,181,461 | $ | 1,068,785 | $ | 304,191 | $ | 2,415,181 | ||||||||
| (a) | For the period January 20, 2010 (Inception) through December 31, 2010. |
| (b) | Net of foreign tax withholdings of $98,777, $4,626, $6,191 and $3,316, respectively. |
See Notes to Financial Statements.
Table of Contents
| For Year Ended December 31, 2010 | For the Period September 21, 2009 (Inception) through December 31, 2009 | ||||||||||||||
OPERATIONS: | |||||||||||||||
Net investment income | $ | 823,825 | $ 199,284 | ||||||||||||
Net realized loss on investments and foreign currency transactions | (464,490 | ) | (58,266 | ) | |||||||||||
Net change in unrealized appreciation on investments and foreign currency | 11,822,126 | 3,091,058 | |||||||||||||
Net increase in net assets resulting from operations | 12,181,461 | 3,232,076 | |||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS: |
| ||||||||||||||
From net investment income | (873,185 | ) | (202,000 | ) | |||||||||||
Total distributions | (873,185 | ) | (202,000 | ) | |||||||||||
SHARE TRANSACTIONS: |
| ||||||||||||||
Proceeds from sale of shares | 51,567,090 | 69,712,566 | |||||||||||||
Cost of shares redeemed | (22,531,834 | ) | (2,084,890 | ) | |||||||||||
Net increase from share transactions | 29,035,256 | 67,627,676 | |||||||||||||
Net increase in net assets | 40,343,532 | 70,657,752 | |||||||||||||
NET ASSETS: | |||||||||||||||
Beginning of period | 70,657,752 | – | |||||||||||||
End of period* | $ | 111,001,284 | $ 70,657,752 | ||||||||||||
*Including overdistributed net investment income of: | $ | (27,176 | ) | $ (9,317) | |||||||||||
Other Information: | |||||||||||||||
SHARE TRANSACTIONS: | |||||||||||||||
Beginning shares | 1,650,000 | – | |||||||||||||
Shares sold | 1,150,001 | 1,700,000 | |||||||||||||
Shares redeemed | (550,000 | ) | (50,000 | ) | |||||||||||
Shares outstanding, end of period | 2,250,001 | 1,650,000 | |||||||||||||
See Notes to Financial Statements.
Table of Contents
| For Year Ended December 31, 2010 | For the Period October 27, 2009 (Inception) through December 31, 2009 | |||||||||
OPERATIONS: | ||||||||||
Net investment income | $ 35,109 | $ 22,578 | ||||||||
Net realized gain on investments and foreign currency transactions | 134,590 | 30,997 | ||||||||
Net change in unrealized appreciation on investments and foreign currency | 899,086 | 264,763 | ||||||||
Net increase in net assets resulting from operations | 1,068,785 | 318,338 | ||||||||
DISTRIBUTIONS TO SHAREHOLDERS: | ||||||||||
From net investment income | (71,522 | ) | (25,500 | ) | ||||||
Total distributions | (71,522 | ) | (25,500 | ) | ||||||
SHARE TRANSACTIONS: | ||||||||||
Proceeds from sale of shares | 7,283,996 | 3,930,030 | ||||||||
Cost of shares redeemed | (4,673,931 | ) | – | |||||||
Net increase from share transactions | 2,610,065 | 3,930,030 | ||||||||
Net increase in net assets | 3,607,328 | 4,222,868 | ||||||||
NET ASSETS: | ||||||||||
Beginning of period | 4,222,868 | – | ||||||||
End of period* | $ 7,830,196 | $ 4,222,868 | ||||||||
*Including overdistributed net investment income of: | $ (58) | $ (2,653) | ||||||||
Other Information: | ||||||||||
SHARE TRANSACTIONS: | ||||||||||
Beginning shares | 100,000 | – | ||||||||
Shares sold | 150,000 | 100,000 | ||||||||
Shares redeemed | (100,000 | ) | – | |||||||
Shares outstanding, end of period | 150,000 | 100,000 | ||||||||
See Notes to Financial Statements.
Table of Contents
| For Year Ended December 31, 2010 | For the Period October 27, 2009 (Inception) through December 31, 2009 | |||||||
OPERATIONS: | ||||||||
Net investment income/(loss) | $ | 51,682 | $ | (264 | ) | |||
Net realized loss on investments and foreign currency transactions | (339,527 | ) | (503 | ) | ||||
Net change in unrealized appreciation on investments and foreign currency | 592,036 | 310,572 | ||||||
Net increase in net assets resulting from operations | 304,191 | 309,805 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS: | ||||||||
From net investment income | (50,139 | ) | – | |||||
Total distributions | (50,139 | ) | – | |||||
SHARE TRANSACTIONS: | ||||||||
Proceeds from sale of shares | 8,585,907 | 3,941,376 | ||||||
Cost of shares redeemed | (8,186,553 | ) | – | |||||
Net increase from share transactions | 399,354 | 3,941,376 | ||||||
Net increase in net assets | 653,406 | 4,251,181 | ||||||
NET ASSETS: | ||||||||
Beginning of period | 4,251,181 | – | ||||||
End of period* | $ | 4,904,587 | $ | 4,251,181 | ||||
*Including(over)/undistributed net investment income of: | $ | 1,255 | $ | (1,010 | ) | |||
Other Information: | ||||||||
SHARE TRANSACTIONS: | ||||||||
Beginning shares | 100,000 | – | ||||||
Shares sold | 200,000 | 100,000 | ||||||
Shares redeemed | (200,000 | ) | – | |||||
Shares outstanding, end of period | 100,000 | 100,000 | ||||||
See Notes to Financial Statements.
Table of Contents
For the Period January 20, 2010 (Inception) through December 31, 2010 | ||||
OPERATIONS: | ||||
Net investment loss | $ | (4,650 | ) | |
Net realized gain on investments and foreign currency transactions | 330,835 | |||
Net change in unrealized appreciation on investments and foreign currency | 2,088,996 | |||
Net increase in net assets resulting from operations | 2,415,181 | |||
SHARE TRANSACTIONS: | ||||
Proceeds from sale of shares | $ | 18,794,978 | ||
Cost of shares redeemed | (6,399,772 | ) | ||
Net increase from share transactions | 12,395,206 | |||
Net increase in net assets | 14,810,387 | |||
NET ASSETS: | ||||
Beginning of period | – | |||
End of period* | $ | 14,810,387 | ||
*Includingoverdistributed net investment income of: | $ | – | ||
Other Information: | ||||
SHARE TRANSACTIONS: | ||||
Beginning shares | – | |||
Shares sold | 450,000 | |||
Shares redeemed | (150,000 | ) | ||
Shares outstanding, end of period | 300,000 | |||
See Notes to Financial Statements.
Table of Contents
| For the Year Ended December 31, 2010 | For the Period September 21, 2009 (Inception) through December 31, 2009 | |||||
NET ASSET VALUE, BEGINNING OF PERIOD | $ 42.82 | $ 39.74 | ||||
INCOME FROM OPERATIONS: | ||||||
Net investment income | 0.46(a) | 0.12 | ||||
Net realized and unrealized gain on investments | 6.54 | 3.08 | ||||
Total from Investment Operations | 7.00 | 3.20 | ||||
LESS DISTRIBUTIONS: | ||||||
From net investment income | (0.49) | (0.12) | ||||
Total Distributions | (0.49) | (0.12) | ||||
NET INCREASE IN NET ASSET VALUE | 6.51 | 3.08 | ||||
NET ASSET VALUE, END OF PERIOD | $ 49.33 | $ 42.82 | ||||
TOTAL RETURN (b) | 16.60% | 8.06% | ||||
RATIOS/ SUPPLEMENTAL DATA: | ||||||
Net assets, end of period (in 000s) | $ 111,001 | $ 70,658 | ||||
RATIOS TO AVERAGE NET ASSETS: | ||||||
Net investment income | 1.09% | 1.53%(c) | ||||
Expenses | 0.65% | 0.65%(c) | ||||
PORTFOLIO TURNOVER RATE(d) | 18% | 7% | ||||
| (a) | Calculated using average shares outstanding. |
| (b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period and redemption at the net asset value on the last day of the period and assuming all distributions are reinvested at actual reinvestment prices. Total return calculated for a period of less than one year is not annualized. |
| (c) | Annualized. |
| (d) | Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions. |
See Notes to Financial Statements.
Table of Contents
For the Year Ended December 31, 2010 | For the Period October 27, 2009 (Inception) through December 31, 2009 | |||||||
NET ASSET VALUE, BEGINNING OF PERIOD | $ 42.23 | $ 39.30 | ||||||
INCOME FROM OPERATIONS: | ||||||||
Net investment income | 0.35 | (a) | 0.23 | |||||
Net realized and unrealized gain on investments | 10.34 | 2.96 | ||||||
Total from Investment Operations | 10.69 | 3.19 | ||||||
LESS DISTRIBUTIONS: | ||||||||
From net investment income | (0.72 | ) | (0.26 | ) | ||||
Total Distributions | (0.72 | ) | (0.26 | ) | ||||
NET INCREASE IN NET ASSET VALUE | 9.97 | 2.93 | ||||||
NET ASSET VALUE, END OF PERIOD | $ 52.20 | $ 42.23 | ||||||
TOTAL RETURN(b) | 25.60 | % | 8.10 | % | ||||
RATIOS/ SUPPLEMENTAL DATA: | ||||||||
Net assets, end of period (in 000s) | $ 7,830 | $ 4,223 | ||||||
RATIOS TO AVERAGE NET ASSETS: | ||||||||
Net investment income | 0.82 | % | 3.03 | %(c) | ||||
Expenses | 0.65 | % | 0.65 | %(c) | ||||
PORTFOLIO TURNOVER RATE(d) | 16 | % | 9 | % | ||||
| (a) | Calculated using average shares outstanding. |
| (b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period and redemption at the net asset value on the last day of the period and assuming all distributions are reinvested at actual reinvestment prices. Total return calculated for a period of less than one year is not annualized. |
| (c) | Annualized. |
| (d) | Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions. |
See Notes to Financial Statements.
Table of Contents
For the Year Ended December 31, 2010 | For the Period October 27, 2009 (Inception) through December 31, 2009 | |||||||
NET ASSET VALUE, BEGINNING OF PERIOD | $ 42.51 | $ 39.41 | ||||||
INCOME/(LOSS) FROM OPERATIONS: | ||||||||
Net investment income/(loss) | 0.42 | (a) | (0.00) | (b) | ||||
Net realized and unrealized gain on investments | 6.59 | 3.10 | ||||||
Total from Investment Operations | 7.01 | 3.10 | ||||||
LESS DISTRIBUTIONS: | ||||||||
From net investment income | (0.47) | – | ||||||
Total Distributions | (0.47) | – | ||||||
NET INCREASE IN NET ASSET VALUE | 6.54 | 3.10 | ||||||
NET ASSET VALUE, END OF PERIOD | $ 49.05 | $ 42.51 | ||||||
TOTAL RETURN(c) | 16.86 | % | 7.87 | % | ||||
RATIOS/ SUPPLEMENTAL DATA: | ||||||||
Net assets, end of period (in 000s) | $ 4,905 | $ 4,251 | ||||||
RATIOS TO AVERAGE NET ASSETS: | ||||||||
Net investment income/(loss) | 1.05 | % | (0.04) | %(d) | ||||
Expenses | 0.65 | % | 0.65 | %(d) | ||||
PORTFOLIO TURNOVER RATE (e) | 17 | % | 5 | % | ||||
| (a) | Calculated using average shares outstanding. |
| (b) | Less than $(0.005) per share. |
| (c) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period and redemption at the net asset value on the last day of the period and assuming all distributions are reinvested at actual reinvestment prices. Total return calculated for a period of less than one year is not annualized. |
| (d) | Annualized. |
| (e) | Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions. |
See Notes to Financial Statements.
Table of Contents
For the Period (Inception) through December 31, 2010 | ||||
NET ASSET VALUE, BEGINNING OF PERIOD | $ | 40.23 | ||
INCOME/(LOSS) FROM OPERATIONS: | ||||
Net investment loss | (0.03 | )(a) | ||
Net realized and unrealized gain on investments | 9.17 | |||
Total from Investment Operations | 9.14 | |||
NET INCREASE IN NET ASSET VALUE | 9.14 | |||
NET ASSET VALUE, END OF PERIOD | $ | 49.37 | ||
TOTAL RETURN(b) | 22.72 | % | ||
RATIOS/ SUPPLEMENTAL DATA: | ||||
Net assets, end of period (in 000s) | $ | 14,810 | ||
RATIOS TO AVERAGE NET ASSETS: | ||||
Net investment loss | (0.08 | )%(c) | ||
Expenses | 0.65 | %(c) | ||
PORTFOLIO TURNOVER RATE (d) | 34 | % | ||
| (a) | Calculated using average shares outstanding. |
| (b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period and redemption at the net asset value on the last day of the period and assuming all distributions are reinvested at actual reinvestment prices. Total return calculated for a period of less than one year is not annualized. |
| (c) | Annualized. |
| (d) | Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions. |
See Notes to Financial Statements.
Table of Contents
1. ORGANIZATION
The ALPS ETF Trust (the “Trust”) is an open-end management investment company organized as a Delaware statutory trust on September 13, 2007 and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As of December 31, 2010, the Trust consists of ten separate portfolios. Each portfolio represents a separate series of the Trust. This report pertains to the Jefferies | TR/J CRB Global Commodity Equity Index Fund, Jefferies | TR/J CRB Global Agriculture Equity Index Fund, Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund and the Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF (the “Funds”). The investment objective of the Funds is to seek investment results that correspond generally to the price and yield (before the Funds’ fees and expenses) of the Thomson Reuters/Jefferies CRB In-The-Ground Global Commodity Equity Index, the Thomson Reuters/Jefferies CRB In-The-Ground Global Agriculture Equity Index Thomson Reuters/Jefferies CRB In-The-Ground Global Industrial Metals Equity Index and the Thomson Reuters/Jefferies CRB Wildcatters Energy Exploration & Production Equity Index (the “Underlying Indices”), respectively.
The Funds’ Shares (“Shares”) are listed on the New York Stock Exchange (“NYSE”) Arca. The Funds issue and redeem Shares, at net asset value (“NAV”) in blocks of 50,000 Shares, each of which is called a “Creation Unit.” Creation Units are issued and redeemed principally in-kind for securities included in a specified index. Except when aggregated in Creation Units, Shares are not redeemable securities of the Funds.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.
A. Portfolio Valuation
The Funds’ NAV is determined daily, as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. The NAV is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Portfolio securities listed on any exchange other than the National Association of Securities Dealer Automated Quotation (“NAS-DAQ”) exchange are valued at the last sale price on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the most recent bid and asked prices on such day. Securities traded on the NASDAQ are valued at the NASDAQ Official Closing Price as determined by NASDAQ. Portfolio securities traded on more than one securities exchange are valued at the last sale price on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities. Portfolio securities traded in the over-the-counter market, but excluding securities traded on the NASDAQ, are valued at the closing bid prices. Short-term investments that mature in less than 60 days are valued at amortized cost, which approximates market value.
The Funds’ investments are valued at market value or, in the absence of market value with respect to any portfolio securities, at fair value according to procedures adopted by the Trust’s Board of Trustees (the “Board”). When market quotations are not readily available or when events occur that make established valuation methods unreliable, securities of the Funds may be valued in good faith by or under the direction of the Board. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market price is not available from a pre-established primary pricing source or the pricing source is not willing to provide a price; a security with respect to which an event has occurred that is most likely to materially affect the value of the security after the market has closed but before the calculation of the Funds’ NAV or make it difficult or impossible to obtain a reliable market quotation; or a security whose price, as provided by the pricing service, does not reflect the security’s “fair value” due to the security being de-listed from a national exchange or the security’s primary trading market is temporarily closed at a time when, under normal conditions, it would be open. As a general principle, the current “fair value” of a security would be the amount which the owner might reasonably expect to receive from the closing sale prices on the applicable exchange and fair value prices may not reflect the actual value of a security. A variety of factors may be considered in determining the fair value of such securities.
Table of Contents
B. Foreign Currency Translation and Foreign Investments
The Funds invest in foreign securities which may involve a number of risk factors and special considerations not present with investments in securities of U.S. Corporations.
The accounting records of the Funds are maintained in U.S. dollars. Portfolio securities and other assets and liabilities denominated in a foreign currency are translated to U.S. dollars at the prevailing rates of exchange at period end. Amounts related to the purchases and sales of securities and investment income are translated into U.S. dollars at the prevailing exchange rate on the respective dates of transactions. The effects of changes in foreign currency exchange rates on portfolio investments are included in the net realized and unrealized gains and losses on investments. Net gains and losses on foreign currency transactions include disposition of foreign currencies, and currency gains and losses between the accrual and receipt dates of portfolio investment income and between the trade and settlement dates of portfolio investment transactions.
C. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis.
D. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. GAAP. Reclassifications are made to the Funds’ capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
For the year ended December 31, 2010, permanent book and tax differences resulting primarily from differing treatment of foreign currency and in-kind transactions were identified and reclassified among the components of the Funds’ net assets as follows:
| Undistributed Net Investment Income | Accumulated Net Realized Gain/(Loss) | Paid-in Capital | ||||||||||||||
Jefferies | TR/J CRB Global Commodity Equity Index Fund | $ | 31,501 | $ | (977,831 | ) | $ | 946,330 | |||||||||
Jefferies | TR/J CRB Global Agriculture Equity Index Fund | $ | 39,008 | $ | (168,064 | ) | $ | 129,056 | |||||||||
Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund | $ | 722 | $ | 172,187 | $ | (172,909 | ) | |||||||||
Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF | $ | 4,650 | $ | (347,523 | ) | $ | 342,873 | |||||||||
Net investment income/(loss) and net realized gain/(loss), as disclosed on the Statements of Operations, and net assets were not affected by this reclassification.
At December 31, 2010, the Funds had available for tax purposes unused capital loss carryforwards as follows:
| Expiring December 31, 2018 | ||||||||
Jefferies | TR/J CRB Global Commodity Equity Index Fund | $ | 742,161 | ||||||
Jefferies | TR/J CRB Global Agriculture Equity Index Fund | 0 | |||||||
Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund | 110,168 | |||||||
Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF | 0 | |||||||
Capital losses incurred after October 31 (“post-October losses”) within the taxable year are deemed to arise on the first business day of each Fund’s next taxable year.
The Funds intend to defer to their fiscal year ending December 31, 2011 the following losses recognized during the period from November 1, 2010 to December 31, 2010:
| Post-October Capital Loses | Post-October Currency Losses | |||||||||||
Jefferies | TR/J CRB Global Commodity Equity Index Fund | $ | 5,776 | $ | 13,574 | ||||||||
Jefferies | TR/J CRB Global Agriculture Equity Index Fund | $ | 0 | $ | 58 | ||||||||
Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund | $ | 34,751 | $ | 220 | ||||||||
Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF | $ | 0 | $ | 0 | ||||||||
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E. Dividends and Distributions to Shareholders
Dividends from net investment income of the Funds, if any, are declared and paid quarterly or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Funds, if any, are distributed at least annually.
Distributions from net investment income and capital gains are determined in accordance with income tax regulations, which may differ from U.S. GAAP. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Funds, timing differences and differing characterization of distributions made by the Funds.
The tax character of the distributions paid was as follows:
| Period Ended December 31, 2010 Distributions paid from: Ordinary Income | Period Ended December 31, 2009 Distributions paid from: Ordinary Income | |||||||||||
Jefferies | TR/J CRB Global Commodity Equity Index Fund | $ | 873,185 | $ | 202,000 | ||||||||
Jefferies | TR/J CRB Global Agriculture Equity Index Fund | $ | 71,522 | $ | 25,500 | ||||||||
Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund | $ | 50,139 | $ | 0 | ||||||||
Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF | $ | 0 | $ | 0 | ||||||||
As of December 31, 2010, the components of distributable earnings on a tax basis for the Funds were as follows:
| Jefferies | TR/J CRB Global Commodity Equity Index Fund | Jefferies | TR/J CRB Global Agriculture | Jefferies | TR/J CRB Global Industrial | Jefferies | TR/J CRB Wildcatters | |||||
Undistributed net investment income | $ 39,019 | $ 8,858 | $ 1,475 | $ 69,194 | ||||
Accumulated Capital gains/(losses) | (747,937) | 2,117 | (144,919) | 0 | ||||
Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies | 14,119,563 | 1,150,128 | 880,430 | 2,003,114 | ||||
Other Cumulative Effect of Timing Differences | (13,305) | (58) | (220) | 0 | ||||
Total | $ 13,397,340 | $ 1,161,045 | $ 736,766 | $ 2,072,308 |
The differences between book-basis and tax-basis are primarily due to the deferral of post-October losses and the differing treatment of certain other investments.
F. Income Taxes
No provision for income taxes is included in the accompanying financial statements, as the Funds intend to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
The Funds evaluate tax positions taken (or expected to be taken) in the course of preparing the Funds’ tax returns to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements.
Management of the Funds analyzes all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the fiscal year ended December 31, 2010, the Funds did not have a liability for any unrecognized tax benefits. The Funds will file income tax returns in the U.S. federal jurisdiction and Colorado. For the years ended December 31, 2009 and December 31, 2010, the Funds’ returns will be open to examination by the appropriate taxing authority.
G. New Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-06, “Improving Disclosures About Fair Value Measurements” (“ASU”). The ASU requires enhanced disclosures about (1) transfers into and out of Levels 1 and 2; and (2) purchases, sales, issuances, and settlements on a gross basis relating to Level 3 measurements. Certain disclosures were effective for the first reporting period (including interim periods) beginning after December 15, 2009.
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H. Fair Value Measurements
The Funds disclose the classification of their fair value measurements following a three-tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.
Various inputs are used in determining the value of the Funds’ investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments. These inputs are categorized in the following hierarchy under applicable financial accounting standards:
Level 1 – | unadjusted quoted prices in active markets for identical investments | |
Level 2 – | other 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) |
Jefferies | TR/J CRB Global Commodity Equity Index Fund
Investments in Securities at Value* | Level 1 - Unadjusted Quoted Prices | Level 2 - Other Significant | Level 3 - Significant Unobservable Inputs | Total | ||||
Common Stocks | $ 110,978,864 | $ 0 | $ 0 | $ 110,978,864 | ||||
Rights | 13,114 | 0 | 13,114 | |||||
TOTAL | $ 110,991,978 | $ 0 | $ 0 | $ 110,991,978 | ||||
Jefferies | TR/J CRB Global Agriculture Equity Index Fund
| ||||||||
Investments in Securities at Value* | Level 1 - Unadjusted Quoted Prices | Level 2 - Other Significant Observable Inputs | Level 3 - Significant Unobservable Inputs | Total | ||||
Common Stocks | $ 7,593,565 | $ 0 | $ 0 | $ 7,593,565 | ||||
TOTAL | $ 7,593,565 | $ 0 | $ 0 | $ 7,593,565 | ||||
Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund
| ||||||||
Investments in Securities at Value* | Level 1 - Unadjusted Quoted Prices | Level 2 - Other Significant Observable Inputs | Level 3 - Significant Unobservable Inputs | Total | ||||
Common Stocks | $ 4,913,050 | $ 0 | $ 0 | $ 4,913,050 | ||||
TOTAL | $ 4,913,050 | $ 0 | $ 0 | $ 4,913,050 | ||||
Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF
| ||||||||
Investments in Securities at Value* | Level 1 - Unadjusted Quoted Prices | Level 2 - Other Significant Observable Inputs | Level 3 - Significant Unobservable Inputs | Total | ||||
Common Stocks | $ 14,780,020 | $ 0 | $ 0 | $ 14,780,020 | ||||
TOTAL | $ 14,780,020 | $ 0 | $ 0 | $ 14,780,020 | ||||
| * | For detailed country descriptions, see the accompanying Schedule of Investments. |
For the period ended December 31, 2010, the Funds did not have any significant transfers between Level 1 and Level 2 securities. The Funds did not have any securities which used significant unobservable inputs (Level 3) in determining fair value.
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3. INVESTMENT ADVISORY FEE AND OTHER AFFILIATED TRANSACTIONS
ALPS Advisors, Inc. (the “Investment Adviser”) acts as the Funds’ investment adviser pursuant to an advisory agreement with the Trust on behalf of the Fund (the “Advisory Agreement”). Pursuant to the Advisory Agreement, the Funds pay the Investment Adviser a unitary fee for the services and facilities it provides payable on a monthly basis at the annual rate of 0.65% of the Funds’ average daily net assets. From time to time, the Investment Adviser may waive all or a portion of its fee.
Out of the unitary management fee, the Investment Adviser pays substantially all expenses of the Funds, including the fees of the Sub-Adviser, the licensing fee of the Index provider, and the cost of transfer agency, custody, fund administration, legal, audit and other services, except for interest expenses, distribution fees or expenses, brokerage expenses, taxes and extraordinary expenses not incurred in the ordinary course of the Funds’ business. In addition, the Investment Adviser’s unitary management fee is designed to compensate the Investment Adviser for providing services for the Funds.
Arrow Investment Advisors, LLC acts as the Funds’ sub-adviser (the “Sub-Adviser”) pursuant to a sub-advisory agreement with the Investment Adviser (the “Sub-Advisory Agreement”). According to this agreement, the Investment Adviser pays the Sub-Adviser on a monthly basis, an annual rate of 0.05% of the Funds’ average daily net assets. The Investment Adviser will pay the Sub-Adviser a minimum of $40,000 per year per Fund.
ALPS Fund Services, Inc. (“ALPS”), an affiliate of the Investment Adviser, is the administrator of the Funds.
The Bank of New York Mellon is the custodian, fund accounting agent and transfer agent for the Funds.
Each Trustee who is not an officer or employee of the Investment Adviser, any sub-adviser or any of their affiliates (“Independent Trustees”) is paid a quarterly retainer of $3,500, $1,500 for each regularly scheduled Board meeting attended and $750 for each special meeting held outside of regularly scheduled meetings.
4. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2010, the cost of purchases and proceeds from sales of investment securities, excluding short-term investments and in-kind transactions, were as follows:
| Purchases | Sales | |||||||||||
Jefferies | TR/J CRB Global Commodity Equity Index Fund | $ | 13,538,721 | $ | 15,937,917 | ||||||||
Jefferies | TR/J CRB Global Agriculture Equity Index Fund | 689,348 | 1,002,847 | ||||||||||
Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund | 808,819 | 1,192,427 | ||||||||||
Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF (a) | 2,152,705 | 2,139,510 | ||||||||||
For the period ended June 30, 2010, the cost of in-kind purchases and proceeds from in-kind sales were as follows:
| Purchases | Sales | |||||||||||
Jefferies | TR/J CRB Global Commodity Equity Index Fund | $ | 48,521,134 | $ | 17,115,198 | ||||||||
Jefferies | TR/J CRB Global Agriculture Equity Index Fund | 3,232,032 | 573,117 | ||||||||||
Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund | 4,523,935 | 3,686,255 | ||||||||||
Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF (a) | 14,009,522 | 1,661,627 | ||||||||||
Gains on in-kind transactions are not considered taxable for federal income tax purposes.
| (a) | For the period January 20, 2010 (Inception) through December 31, 2010. |
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As of December 31, 2010, the costs of investments for federal income tax purposes and accumulated net unrealized appreciation/(depreciation) on investments were as follows:
Jefferies | TR/J CRB Global Commodity Equity Index Fund | Jefferies | TR/J CRB Global Agriculture Equity Index Fund | Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund | Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF | |||||||||||||
Gross Appreciation (excess of value over tax cost) | $ | 15,554,853 | $ | 1,188,163 | $ | 923,460 | $ | 2,248,064 | ||||||||
Gross Depreciation (excess of tax cost over value) | (1,438,030 | ) | (38,232 | ) | (43,081 | ) | (245,018 | ) | ||||||||
Gross Appreciation of foreign currency and other derivatives | 2,740 | 197 | 51 | 68 | ||||||||||||
Net Unrealized Appreciation | $ | 14,119,563 | $ | 1,150,128 | $ | 880,430 | $ | 2,003,114 | ||||||||
Cost of investments for income tax purposes | $ | 96,875,155 | $ | 6,443,634 | $ | 4,032,671 | $ | 12,776,974 | ||||||||
5. CAPITAL SHARE TRANSACTIONS
Shares are created and redeemed by the Fund only in Creation Unit size aggregations of 50,000. Only broker-dealers or large institutional investors with creation and redemption agreements called Authorized Participants (“AP”) are permitted to purchase or redeem Creation Units from the Fund. Such transactions are generally permitted on an in-kind basis, with a balancing cash component to equate the transaction to the net asset value per unit of the Fund on the transaction date. Cash may be substituted equivalent to the value of certain securities generally when they are not available in sufficient quantity for delivery, not eligible for trading by the AP or as a result of other market circumstances.
6. INDEMNIFICATIONS
Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred.
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PROXY VOTING POLICIES AND PROCEDURES
A description of the Fund’s proxy voting policies and procedures used in determining how to vote for proxies and information regarding how the Fund voted proxies related to portfolio securities during the most recent 12-month period ended June 30th is available without charge, (1) on the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov; (2) upon request, by calling 1-866-513-5856; and (3) on the Trust’s website located at http://www.alpsetfs.com.
PORTFOLIO HOLDINGS
The Trust will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Trust’s Form N-Q will be available (1) on the SEC’s website at http://www.sec.gov; (2) by calling 1-866-513-5856; (3) on the Trust’s website located at http://www.alpsetfs.com; and (4) for review and copying at the SEC’s Public Reference Room (“PRR”) in Washington D.C. Information regarding the operation of the PRR may be obtained by calling 1-800-732-0330.
TAX INFORMATION
Tax Designations
The Fund designates the following amounts for the fiscal year ended December 31, 2010:
Jefferies | TR/J CRB Global Commodity Equity Index Fund | ||||
Qualified Dividend Income | 94.84 | % | ||
Corporate Dividends Received Deduction | 56.72 | % | ||
Jefferies | TR/J CRB Global Agriculture Equity Index Fund | ||||
Qualified Dividend Income | 57.68 | % | ||
Corporate Dividends Received Deduction | 23.41 | % | ||
Jefferies | TR/J CRB Global Industrial Metals Equity Index Fund | ||||
Qualified Dividend Income | 100.00 | % | ||
Corporate Dividends Received Deduction | 30.00 | % | ||
Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF | ||||
Qualified Dividend Income | 0.00 | % | ||
Corporate Dividends Received Deduction | 0.00 | % |
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INDEPENDENT TRUSTEES***
| Name, Address and Age of Management Trustee* | Position(s) Held with Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustees*** | Other Directorships Held by Trustees | |||||
Mary K. Anstine, age 70 | Trustee | Since March 2008 | Ms. Anstine was President/Chief Executive Officer of HealthONE Alliance, Denver, Colorado, and former Executive Vice President of First Interstate Bank of Denver. Ms. Anstine is also Trustee/Director of the following: AV Hunter Trust; Colorado Uplift Board. Ms. Anstine was formerly a Director of the Trust Bank of Colorado (later purchased and now known as Northern Trust Bank), HealthONE and Denver Area Council of the Boy Scouts of America and a member of the American Bankers Association Trust Executive Committee.
| 24 | Ms. Anstine is a Trustee of Financial Investors Variable Insurance Trust (5 funds); Financial Investors Trust (11 funds); Reaves Utility Income Fund; and Westcore Trust (12 funds). | |||||
Jeremy W. Deems, age 34 | Trustee | Since March 2008 | Mr. Deems is the Co-Founder, Chief Compliance Officer and Chief Financial Officer of Green Alpha Advisors, LLC. Prior to joining Green Alpha Advisors, Mr. Deems was CFO and Treasurer of Forward Management, LLC, ReFlow Management Co., LLC, ReFlow Fund, LLC, a private investment fund, and Sutton Place Management, LLC, an administrative services company, from 2004 to June 2007. Prior to this, Mr. Deems served as Controller of Forward Management, LLC, ReFlow Management Co., LLC, ReFlow Fund, LLC and Sutton Place Management, LLC.
| 24 | Mr. Deems is a Trustee of Financial Investors Trust (11 funds); Financial Investors Variable Insurance Trust (5 funds); and Reaves Utility Income Fund. | |||||
Rick A. Pederson, age 58 | Trustee | Since March 2008 | President, Foundation Properties, Inc. (a real estate investment management company), 1994 - present; Partner, Western Capital Partners (a prime lending company), 2000 - present; Partner, Bow River Capital Partners (investment manager), 2003 - present; Principal, The Pauls Corporation (real estate development), 2008 - present; Director, Guaranty Bank and Trust (a community bank), 1999 – 2007; Winter Park Recreational Association (an entity that operates, maintains and develops Winter Park Resort), 2002 – 2008; Neenan Co. (an integrated real estate development, architecture and construction company), 2002 – present; NexCore Properties LLC (a real estate investment company), 2004 – present; Urban Land Conservancy (a not- for-profit organization), 2004 – present.
| 10 | Mr. Pederson is Trustee of Westcore Trust (12 funds) | |||||
| * | The business address of the Trustee is c/o ALPS Advisors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. |
| ** | This is the period for which the Trustee began serving the Trust. Each Trustee serves an indefinite term, until his successor is elected. |
| *** | The Fund Complex includes all series of the Trust and any other investment companies for which ALPS Advisors, Inc. provides investment advisory services. |
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INTERESTED TRUSTEE***
Name, Address and Age of Management Trustee* | Position(s) Held with Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past 5 Years | Number of Portfolios In Fund Complex Overseen by Trustees**** | Other Directorships Held by Trustees | |||||
Thomas A. Carter, age 44 | Trustee and President | Since March 2008 | Mr. Carter joined ALPS Fund Services, Inc. (“ALPS”) in 1994 and is currently President and Director of ALPS Advisors, Inc. (“AAI”), ALPS Distributors, Inc. (“ADI”) and FTAM Funds Distributor, Inc. (“FDI”) and Executive Vice President and Director of ALPS and ALPS Holdings, Inc. (“AHI”). Because of his position with AHI, ALPS, ADI, FDI and AAI, Mr. Carter is deemed an affiliate of the Fund as defined under the 1940 Act. Before joining ALPS, Mr. Carter was with Deloitte & Touché LLP, where he worked with a diverse group of clients, primarily within the financial services industry. Mr. Carter is a Certified Public Accountant and received his Bachelor of Science in Accounting from the University of Colorado at Boulder.
| 15 | Mr. Carter is a Trustee of Financial Investors Variable Insurance Trust (5 funds) |
| * | The business address of the Trustee is c/o ALPS Advisors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. |
| ** | This is the period for which the Trustee began serving the Trust. Each Trustee serves an indefinite term, until his successor is elected. |
| *** | Mr. Carter is an interested person of the Trust because of his affiliation with ALPS. |
| **** | The Fund Complex includes all series of the Trust and any other investment companies for which ALPS Advisors, Inc. provides investment advisory services. |
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OFFICERS
Name, Address and Age of Executive Officer* | Position(s) Held with Trust | Length of Time Served** | Principal Occupation(s) During Past 5 Years | |||
Melanie Zimdars, age 34 | Chief Compliance Officer (“CCO”) | Since December 2009 | Ms. Zimdars currently serves as a Deputy Chief Compliance Officer with ALPS. Prior to joining ALPS in September 2009, Ms. Zimdars served as Principal Financial Officer, Treasurer and Secretary for the Wasatch Funds from February 2007 to December 2008. From November 2006 to February 2007, she served as Assistant Treasurer for the Wasatch Funds and served as a Senior Compliance Officer for Wasatch Advisors, Inc. since 2005. From 2001 until joining Wasatch in 2005, she was a Compliance Officer for U.S. Bancorp Fund Services, LLC. Because of her position with ALPS, Ms. Zimdars is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Zimdars is also the CCO of Financial Investors Variable Insurance Trust, Liberty All-Star Growth Fund, Inc. and Liberty All-Star Equity Fund.
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Kimberly R. Storms, age 38 | Treasurer | Since March 2008 | Ms. Storms is Director of Fund Administration and Senior Vice President of ALPS. Ms. Storms joined ALPS in 1998 as Assistant Controller. Because of her position with ALPS, Ms. Storms is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Storms is also Assistant Treasurer of the Liberty All-Star Equity Fund, Liberty All-Star Growth Fund and Financial Investors Trust; and Assistant Secretary of Ameristock Mutual Fund, Inc.
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William Parmentier, age 58 | Vice President | Since March 2008 | Mr. Parmentier is Chief Investment Officer, ALPS Advisors, Inc. (since 2006); President of the Liberty All-Star Funds (since April 1999); Senior Vice President (2005-2006), Banc of America Investment Advisors, Inc.
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Tané T. Tyler, age 45 | Secretary | Since December 2008 | Ms. Tyler is Senior Vice President, General Counsel and Secretary of ALPS. Ms. Tyler joined ALPS in 2004. She served as Secretary, Liberty All-Star Equity Fund and Liberty All-Star Growth Fund from December 2006-2008; Secretary, Reaves Utility Income Fund from December 2004–2007; Secretary, Westcore Funds from February 2005– 2007; Secretary, First Funds from November 2004 to January 2007; Secretary, Financial Investors Variable Insurance Trust from December 2004–December 2006; Vice President and Associate Counsel, Oppenheimer Funds from January 2004 to August 2004; Vice President and Assistant General Counsel, INVESCO Funds from September 1991 to December 2003.
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Monette R. Nickels, age 39 | Tax Offcer | Since December 2009 | Ms. Nickels is Senior Vice President and Director of Tax Administration of ALPS. Ms. Nickels joined ALPS in 2004 as Director of Tax Administration. Because of her position with ALPS, Ms. Nickels is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Nickels is also Tax Officer of Financial Investors Trust, Liberty All- Star Equity Fund, Liberty All-Star Growth Fund, Inc., and Financial Investors Variable Insurance Trust.
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| * | The business address of each Officer is c/o ALPS Advisors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. |
| ** | This is the period for which the Officer began serving the Trust. Each Officer serves an indefinite term, until his successor is elected. |
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Board Considerations Regarding Approval of Investment Advisory Agreement | 28 | |||||||
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Dear Shareholders:
When ALPS launched its ETF Trust in 2008 our goal was to bring innovative solutions to the ETF(1) industry that provide investors with access to a unique market segment or strategy. The launch of AMLP in August of 2010 epitomized that philosophy as we were able to bring to market the world’s first MLP ETF under the ticker symbol AMLP.
Investors have long been attracted to the distribution yields, lower correlation(2) and tax efficiency of the MLP asset class. However, investing in individual MLPs can be complex from a diversification and tax reporting perspective. AMLP provides diversified access to the MLP asset class with 1099 Tax Reporting, IRA and 401-k eligibility, and the transparency(3), liquidity(4) and low cost benefits of the ETF structure. We believe this combination of factors makes AMLP a viable option for many investors that are looking to participate in the MLP sector.
In the pages that follow our Fund managers have provided a performance overview. We thank you for your investment and for being an AMLP shareholder.
Thomas A. Carter*
President, ALPS ETF Trust
* Registered representative of ALPS Distributors, Inc. Ordinary brokerage commissions apply.
(1) Exchange Traded Fund (“ETF”).
(2) A statistical measure of how two securities move in relation to each other.
(3) ETFs are considered transparent because their portfolio holdings are disclosed daily.
(4) ETFs are considered to have continuous liquidity because they allow for an individual to trade throughout the day.
Investments in securities of MLPs involve risks that differ from an investment in common stock. MLPs are controlled by their general partners, which generally have conflicts of interest and limited fiduciary duties to the MLP, which may permit the general partner to favor its own interests over the MLPs.
The benefit you are expected to derive from the Fund’s investment in MLPs depends largely on the MLPs being treated as partnerships for federal income tax purposes. As a partnership, an MLP has no federal income tax liability at the entity level. Therefore, treatment of one or more MLPs as a corporation for federal income tax purposes could affect the Fund’s ability to meet its investment objective and would reduce the amount of cash available to pay or distribute to you. Legislative, judicial, or administrative changes and differing interpretations, possibly on a retroactive basis, could negatively impact the value of an investment in MLPs and therefore the value of your investment in the Fund.
The Fund invests primarily in energy infrastructure companies which may be adversely affected by changes in worldwide energy prices, exploration, production spending, government regulation, changes in exchange rates and depletion of natural resources.
All K-1s are received and processed by the Alerian MLP ETF. The Alerian MLP ETF distributes a single Form 1099 to its shareholders. This notice is provided to you for informational purposes only, and should not be considered tax advice. Please consult your tax advisor for further assistance.
There are risks involved with investing in ETFs including the loss of money. An investment in the Fund is subject to investment risk including the possible loss of the entire principal amount that you invest.
The Fund is taxed as a regular corporation for federal income tax purposes. This differs from most investment companies, which elect to be treated as “regulated investment companies” under the Code in order to avoid paying entity level income taxes.
The Alerian MLP ETF is a new product with limited operating history.
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Fund Description
The Alerian MLP ETF (the “Fund”) seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the Alerian MLP Infrastructure Index (the “Index”). The Shares of the Fund are listed and trade on the New York Stock Exchange (“NYSE”) Arca under the ticker symbol AMLP. The Fund generally will invest in all of the securities that comprise the Index in proportion to their weightings in the Index. The Fund began trading on August 25, 2010.
The Index is a rules based, modified capitalization weighted, float adjusted index intended to give investors a means of tracking the overall performance of the United States energy infrastructure Master Limited Partnership (“MLP”) asset class. The Index is comprised of 25 energy infrastructure MLPs that earn a majority of their cash flow from the transportation and storage of energy commodities.
Performance Overview
MLPs continued their 2009 rally into 2010, posting strong gains for the 2nd year in a row and outpacing the returns of many other asset classes. For the calendar year, the Alerian MLP Infrastructure Index (AMZI) rose 34.98%. The Alerian MLP ETF was launched on August 25, 2010 and since inception rose 8.73% vs. 13.49% for its benchmark Index.
The strong performance in the MLP sector was driven by solid underlying fundamentals, including improved refined product demand and consumption, increased infrastructure demands from new natural gas shale plays such as the Eagle Ford and Marcellus, announced organic projects being completed on time and on budget and robust acquisition activity. These factors enabled MLPs in the AMZI Index to raise their distributions on average roughly 6% year-over-year (third quarter 2010 versus third quarter 2009).
After a two year hiatus dating back to May 2008, the MLP initial public offering (“IPO”) market finally reopened in 2010 with the offering of six new MLPs. Between the two natural-gas storage, two coal, one natural gas gathering and one general partner IPOs, the average offering size was roughly $275 million, representing a 21% increase from the average offering size of $226 million in 2007.
Additionally, the MLP asset class raised nearly $11.4 billion in equity via 59 followon offerings, representing a 75% increase versus the $6.5 billion raised in 2009 via 51 follow-on offerings. The average public follow-on offering sizes have dramatically increased as well, largely attributable to the number of MLP growth projects and acquisitions, but also as a testament to the large amount of interest in the asset class, as most offerings have been placed overnight.
Looking forward to 2011, with an overall lower cost of capital, MLPs are expected to benefit from the consolidation of midstream assets, either from exploration and
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production companies and majors looking to fund their capital programs toward higher growth areas, or from private equity firms wanting to monetize their investments. Additionally, given industry analysts’ expectations of low natural gas prices throughout 2011, drilling focused in liquids-rich gas areas is likely to grow because liquids prices enhance overall drilling economics. This should provide a wide variety of expansion opportunities for some MLPs, both in such regions, but also at regional liquids hubs.
Since inception (8/25/10) the Fund’s market price increased 8.73% and the Fund’s net asset value (“NAV”) increased 8.66%. Over the same time period the Fund’s benchmark was up 13.49%.
Alerian MLP ETF Performance as of December 31, 2010 | Since Inception* | |
NAV | 8.66% | |
Market Price** | 8.73% | |
Alerian MLP Infrastructure Index | 13.49% |
Total Expense Ratio (per the current prospectus) 0.85%
Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. For most current month-end performance data please visit www.alpsetfs.com.
NAV is an exchange-traded fund’s per-share value. The per-share dollar amount of the fund is derived by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding. Market Price is the price at which a share can currently be traded in the market. Information detailing the number of days the Market Price of the Fund was greater than the Fund’s NAV and the number of days it was less than the Fund’s NAV can be obtained at www.alpsetfs.com.
| * | The Fund commenced Investment Operations on August 24, 2010 with an Inception Date, the first day of trading on the Exchange, of August 25, 2010. |
| ** | Market Price is based on the midpoint of the bid-ask spread at 4 p.m. ET and does not represent the returns an investor would receive if shares were traded at other times. |
The Alerian MLP Infrastructure Index is comprised of 25 midstream energy Master Limited Partnerships.
An investor cannot invest directly in an index.
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Top 10 Holdings* as of December 31, 2010
Enterprise Products Partners LP | 9.53% | NuStar Energy LP | 4.81% | |||||
Kinder Morgan Energy Partners LP | 9.26 | ONEOK Partners LP | 4.75 | |||||
Energy Transfer Partners LP | 7.14 | Buckeye Partners LP | 4.73 | |||||
Magellan Midstream Partners LP | 7.08 | Mark West Energy Partners LP | 4.44 | |||||
Plains All American Pipeline LP | 6.80 | Percent of Net Assets in Top Ten Holdings: | 65.11% | |||||
Enbridge Energy Partners LP | 6.57 | |||||||
* Holdings are subject to change. | ||||||||
Growth of $10k as of December 31, 2010
Comparison of Change in Value of $10,000 Investment in Alerian MLP ETF and Alerian MLP Infrastructure Index.
The chart above represents historical performance of a hypothetical investment of $10,000 in the Fund over the life of the Fund. Performance calculations are as of the end of each month. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
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Shareholder Expense Example: As a shareholder of the Fund, you incur two types of costs: (1) transaction costs which may include creation and redemption fees or brokerage charges, and (2) ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. It is based on an investment of $1,000 invested at August 25, 2010, and held through the period ended December 31, 2010.
Actual Return: The first line of the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you incurred 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” to estimate the expenses attributable to your investment during this period.
Hypothetical 5% Return: The second line of the table 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 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 the other funds.
The expenses shown in the table are meant to highlight ongoing Fund costs only and do not reflect any transaction costs, such as creation and redemption fees, or brokerage charges. Therefore, the second line is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these costs were included, your costs would have been higher.
| Beginning Account Value 8/25/10 | Ending Account Value 12/31/10 | Expense Ratio(a) | Expenses Paid 8/25/10-12/31/10 | |||||
Actual(b) | $ 1,000.00 | $ 1,086.60 | 0.85% | $ 3.13 | ||||
Hypothetical(c) | $ 1,000.00 | $ 1,020.92 | 0.85% | $ 4.33 |
| (a) | The Fund’s expense ratios have been annualized based on the Fund’s inception date of August 25, 2010 through December 31,2010. |
| (b) | The “Actual” example in the table above is equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days the Fund was in existence in the most recent fiscal half year (129), then divided by 365. |
| (c) | The “Hypothetical” example in the table above is equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (184), then divided by 365. |
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To the Board of Trustees and Shareholders of ALPS ETF Trust:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of the Alerian MLP ETF, one of the funds constituting the ALPS ETF Trust (the “Trust”), as of December 31, 2010, and the related statements of operations and changes in net assets, and the financial highlights for the period August 25, 2010 (inception) to December 31, 2010. These financial statements and financial highlights are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Alerian MLP ETF of ALPS ETF Trust as of December 31, 2010, the results of its operations, the changes in its net assets, and the financial highlights for the period from August 25, 2010 (inception) to December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
February 28, 2011
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| Security Description | Shares | Value | ||||||
Master Limited Partnerships Shares (102.15%) | ||||||||
Gathering & Processing (22.91%) | ||||||||
Copano Energy LLC | 572,919 | $ | 19,336,016 | |||||
DCP Midstream Partners LP | 248,920 | 9,309,608 | ||||||
MarkWest Energy Partners LP | 640,074 | 27,721,605 | ||||||
Regency Energy Partners LP | 995,275 | 27,131,197 | ||||||
Targa Resources Partners LP | 564,105 | 19,157,006 | ||||||
Western Gas Partners LP | 335,437 | 10,163,741 | ||||||
Williams Partners LP | 584,339 | 27,259,414 | ||||||
| 140,078,587 | ||||||||
Natural Gas Pipelines (33.43%) | ||||||||
Boardwalk Pipeline Partners LP | 580,663 | 18,076,039 | ||||||
Duncan Energy Partners LP | 211,536 | 6,788,190 | ||||||
El Paso Pipeline Partners LP | 735,808 | 24,612,778 | ||||||
Energy Transfer Partners LP | 860,141 | 44,572,507 | ||||||
Enterprise Products Partners LP | 1,430,638 | 59,528,847 | ||||||
ONEOK Partners LP | 373,492 | 29,692,614 | ||||||
Spectra Energy Partners LP | 235,974 | 7,751,746 | ||||||
TC Pipelines LP | 257,192 | 13,373,984 | ||||||
| 204,396,705 | ||||||||
Other \ Refining (0.51%) | ||||||||
Calumet Specialty Products Partners LP | 147,214 | 3,135,658 | ||||||
Petroleum Transportation (45.30%) | ||||||||
Buckeye Partners LP | 442,183 | 29,551,090 | ||||||
Enbridge Energy Partners LP | 657,364 | 41,006,366 | ||||||
Genesis Energy LP | 312,617 | 8,253,089 | ||||||
Holly Energy Partners LP | 122,548 | 6,238,919 | ||||||
Kinder Morgan Energy Partners LP | 823,279 | 57,843,583 | ||||||
Magellan Midstream Partners LP | 783,150 | 44,247,975 | ||||||
NuStar Energy LP | 432,781 | 30,069,624 | ||||||
Plains All American Pipeline LP | 676,551 | 42,480,637 | ||||||
Sunoco Logistics Partners LP | 207,421 | 17,338,321 | ||||||
| 277,029,604 | ||||||||
Total Master Limited Partnerships Shares | ||||||||
(Cost $588,978,279) | 624,640,554 | |||||||
| �� | ||||||||
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| Value | ||||
Total Investments (102.15%) | ||||
(Cost $588,978,279) | $ | 624,640,554 | ||
Net Liabilities Less Other Assets (-2.15%) | (13,173,976 | ) | ||
Net Assets (100.00%) | $ | 611,466,578 | ||
Common Abbreviations:
LLC - Limited Liability Company
LP - Limited Partnerships
See Notes to Financial Statements.
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Assets: | ||||||
Investments, at value | $ | 624,640,554 | ||||
Receivable for investments sold | 982,216 | |||||
Receivable for shares sold | 47,333,559 | |||||
Deferred tax asset | 937,415 | |||||
Total Assets | 673,893,744 | |||||
Liabilities: | ||||||
Payable to custodian | 903,548 | |||||
Payable for investments purchased | 47,452,738 | |||||
Deferred tax liability | 13,717,270 | |||||
Payable to advisor | 353,610 | |||||
Total Liabilities | 62,427,166 | |||||
Net Assets | $ | 611,466,578 | ||||
Net Assets Consist Of: | ||||||
Paid-in capital | $ | 591,021,258 | ||||
Undistributed net investment loss, net of income taxes | (525,794 | ) | ||||
Accumulated net realized loss on investments, net of income taxes | (973,891 | ) | ||||
Net unrealized appreciation on investments,net of income taxes | 21,945,005 | |||||
Net Assets | $ | 611,466,578 | ||||
Investments, At Cost | $ | 588,978,279 | ||||
Pricing Of Shares | ||||||
Net Assets | $ | 611,466,578 | ||||
Shares of beneficial interest outstanding | 38,100,000 | |||||
Net Asset Value, offering and redemption | $ | 16.05 | ||||
See Notes to Financial Statements.
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Investment Income: | ||||||
Distributions from master limited partnerships | $ | 5,103,415 | ||||
Less return of capital distributions | (5,103,415 | ) | ||||
Total Investment Income | 0 | |||||
Expenses: | ||||||
Investment advisory fee | 854,455 | |||||
Total Expenses | 854,455 | |||||
Net Investment Loss, before Income Taxes | (854,455 | ) | ||||
Deferred tax benefit | 328,661 | |||||
Net Investment Loss | (525,794 | ) | ||||
Realized and Unrealized Gain/(Loss): | ||||||
Net realized loss on investments, before income taxes | (1,582,645 | ) | ||||
Deferred tax benefit | 608,754 | |||||
Net realized loss on investments | (973,891 | ) | ||||
Net change in unrealized appreciation on investments, | 35,662,275 | |||||
Deferred tax expense | (13,717,270 | ) | ||||
Net change in unrealized appreciation on investments | 21,945,005 | |||||
Net Realized and Unrealized Gain | 20,971,114 | |||||
Net Increase in Net Assets from Operations | $ | 20,445,320 | ||||
See Notes to Financial Statements.
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For the Period August 25, 2010 (Inception) through December 31, 2010 | ||||||
Operations: | ||||||
Net investment loss | $ | (525,794 | ) | |||
Net realized loss on investments | (973,891 | ) | ||||
Net change in unrealized appreciation on investments | 21,945,005 | |||||
Net increase in net assets resulting from operations | 20,445,320 | |||||
Distributions To Shareholders: | ||||||
Tax return of capital | (5,380,298 | ) | ||||
Total distributions | (5,380,298 | ) | ||||
Share Transactions: | ||||||
Proceeds from sale of shares | 596,401,556 | |||||
Net increase from share transactions | 596,401,556 | |||||
Net increase in net assets | 611,466,578 | |||||
Net Assets: | ||||||
Beginning of period | – | |||||
End of period* | $ | 611,466,578 | ||||
*Including undistributed net investment loss, | $ | (525,794 | ) | |||
Other Information: | ||||||
Share Transactions: | ||||||
Beginning shares | – | |||||
Shares sold | 38,100,000 | |||||
Shares outstanding, end of period | 38,100,000 | |||||
See Notes to Financial Statements.
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For the Period August 25, 2010 (Inception) through December 31, 2010 | ||||
Net Asset Value, Beginning Of Period | $ | 15.00 | ||
Income From Operations: | ||||
Net investment loss(a) | (0.03 | ) | ||
Net realized and unrealized gain on investments | 1.33 | |||
Total from Investment Operations | 1.30 | |||
Less Distributions: | ||||
From tax return of capital | (0.25 | ) | ||
Total Distributions | (0.25 | ) | ||
Net Increase In Net Asset Value | 1.05 | |||
Net Asset Value, End Of Period | $ | 16.05 | ||
Total Return(b) | 8.66 | % | ||
Ratios/Supplemental Data: | ||||
Net assets, end of period (in 000s) | $ | 611,467 | ||
Ratios To Average Net Assets: | ||||
Ratio of expenses (including deferred tax benefit) to average net assets | 0.52 | %(c) | ||
Ratio of expenses (excluding deferred tax benefit) to average net assets | 0.85 | %(c) | ||
Ratio of net investment loss (including deferred tax benefit) to average net assets | (0.52 | %)(c) | ||
Ratio of net investment loss (excluding deferred tax benefit) to average net assets | (0.85 | %)(c) | ||
Portfolio Turnover Rate(d) | 12 | % | ||
| (a) | Calculated using average shares outstanding. |
| (b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period and redemption at the net asset value on the last day of the period, and assuming all distributions are reinvested at actual reinvestment prices. Total return calculated for a period of less than one year is not annualized. |
| (c) | Annualized. |
| (d) | Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions. |
See Notes to Financial Statements.
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1. Organization
The ALPS ETF Trust (the “Trust”) is an open-end management investment company organized as a Delaware statutory trust on September 13, 2007 and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As of December 31, 2010, the Trust consists of ten separate portfolios. Each portfolio represents a separate series of the Trust. This report pertains to the Alerian MLP ETF (the “Fund”), which commenced investment operations on August 24, 2010 and began trading on the exchange on August 25, 2010. The investment objective of the Fund is to seek investment results that correspond generally to the price and yield performance (before the Fund’s fees and expenses) of its underlying index, the Alerian MLP Infrastructure Index (the “Index”).
The Fund’s Shares (“Shares”) are listed on the New York Stock Exchange (“NYSE”) Arca. The Fund issues and redeems Shares at Net Asset Value (“NAV”), in blocks of 50,000 Shares, each of which is called a “Creation Unit.” Creation Units are issued and redeemed principally in-kind for securities included in a specified index. Except when aggregated in Creation Units, Shares are not redeemable securities of the Fund.
2. Significant Accounting Policies
A. Use of Estimates
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.
B. Portfolio Valuation
The Fund’s NAV is determined daily, as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. The NAV is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Portfolio securities listed on any exchange other than the National Association of Securities Dealer Automated Quotation (“NASDAQ”) exchange are valued at the last sale price on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the
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most recent bid and asked prices on such day. Securities traded on the NASDAQ are valued at the NASDAQ Official Closing Price as determined by NASDAQ. Shortterm investments that mature in less than 60 days are valued at amortized cost, which approximates market value.
The Fund’s investments are valued at market value or, in the absence of market value with respect to any portfolio securities, at fair value according to procedures adopted by the Trust’s Board of Trustees (the “Board”). When market quotations are not readily available or when events occur that make established valuation methods unreliable, securities of the Fund may be valued in good faith by or under the direction of the Board. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market price is not available from a pre-established primary pricing source or the pricing source is not willing to provide a price; a security with respect to which an event has occurred that is most likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; or a security whose price, as provided by the pricing service, does not reflect the security’s “fair value” due to the security being de-listed from a national exchange or the security’s primary trading market is temporarily closed at a time when, under normal conditions, it would be open. As a general principle, the current “fair value” of a security would be the amount which the owner might reasonably expect to receive from the closing sale prices on the applicable exchange and fair value prices may not reflect the actual value of a security. A variety of factors may be considered in determining the fair value of such securities.
C. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis, including amortization of premiums and accretion of discounts.
D. Dividends and Distributions to Shareholders
The Fund intends to declare and make quarterly distributions, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. Distributions from net investment income and capital gains are determined in accordance with income tax regulations, which may differ from U.S. GAAP. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences and differing characterization of distributions made by the Fund.
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Distributions received from the Fund’s investments in Master Limited Partnerships (“MLPs”) generally are comprised of income and return of capital. The Fund records investment income and return of capital based on estimates made at the time such distributions are received. Such estimates are based on historical information available from each MLP and other industry sources. These estimates may subsequently be revised based on information received from MLPs after their tax reporting periods are concluded. For the period ended December 31, 2010, the Fund distributed $5,380,298, which was characterized as return of capital from MLP distributions received.
The Fund also expects that a portion of the distributions it receives from MLPs may be treated as a tax deferred return of capital, thus reducing the Fund’s current tax liability. Return of capital distributions are not taxable income to the shareholder, but reduce the investor’s tax basis in the investor’s Fund Shares. Such a reduction in tax basis will result in larger taxable gains and/or lower tax losses on a subsequent sale of Fund Shares. Shareholders who periodically receive the payment of dividends or other distributions consisting of a return of capital may be under the impression that they are receiving net profits from the Fund when, in fact, they are not. Shareholders should not assume that the source of the distributions is from the net profits of the Fund.
E. Federal Income Taxation
The Fund is taxed as a regular C-corporation for federal income tax purposes. Currently, the maximum marginal regular federal income tax rate for a corporation is 35 percent. The Fund may be subject to a 20 percent federal alternative minimum tax on its federal alternative taxable income to the extent that its alternative minimum tax exceeds its regular federal income tax. This differs from most investment companies, which elect to be treated as “regulated investment companies” under the Code in order to avoid paying entity level income taxes. Under current law, the Fund is not eligible to elect treatment as a regulated investment company due to its investments primarily in MLPs invested in energy assets. As a result, the Fund will be obligated to pay applicable federal and state corporate income taxes on its taxable income as opposed to most other investment companies which are not so obligated. The Fund expects that a portion of the distributions it receives from MLPs may be treated as a tax-deferred return of capital, thus reducing the Fund’s current tax liability. However, the amount of taxes currently paid by the Fund will vary depending on the amount of income and gains derived from investments and/or sales of MLP interests and such taxes will reduce your return from an investment in the Fund.
Cash distributions from MLPs to the Fund that exceed such Fund’s allocable share of such MLP’s net taxable income are considered a tax-deferred return of capital that will reduce the Fund’s adjusted tax basis in the equity securities of the MLP. These reductions in such Fund’s adjusted tax basis in the MLP equity securities will increase the amount of gain (or decrease the amount of loss) recognized by the Fund on a subsequent sale of the securities. The Fund will accrue deferred income taxes for any
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future tax liability associated with (i) that portion of MLP distributions considered to be a tax-deferred return of capital as well as (ii) capital appreciation of its investments. Upon the sale of an MLP security, the Fund may be liable for previously deferred taxes. The Fund will rely to some extent on information provided by the MLPs, which is not necessarily timely, to estimate deferred tax liability for purposes of financial statement reporting and determining the NAV. From time to time, ALPS Advisors, Inc. will modify the estimates or assumptions regarding the Fund’s deferred tax liability as new information becomes available. The Fund will generally compute deferred income taxes based on the marginal regular federal income tax rate applicable to corporations and an assumed rate attributable to state taxes.
Since the Fund will be subject to taxation on its taxable income, the NAV of Fund shares will also be reduced by the accrual of any deferred tax liabilities. The Index however is calculated without any adjustments for taxes. As a result, the Fund’s after tax performance could differ significantly from the Index even if the pretax performance of the Fund and the performance of the Index are closely correlated.
3. Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes. Components of the Fund’s deferred tax assets and liabilities as of December 31, 2010, are as follows:
Deferred tax assets: | ||||
Loss carryforwards | $ | 937,415 | ||
Less Deferred tax liabilities: | ||||
Unrealized gain on investment securities | $ | (13,717,270 | ) | |
Net Deferred tax liability | $ | (12,779,855 | ) |
The Fund has elected a November 30 year-end for income tax purposes. The net operating loss carryforward and capital loss carryforward are available to offset future taxable income. The Fund has the following net operating loss and capital loss amounts:
| Net Operating Loss | Amount | Expiration | ||||||
Year ended November 30, 2010 | $ | 482,711 | November 30, 2030 | |||||
For the month ended December 31, 2010 | 353,591 | November 30, 2031 | ||||||
Total for year ended December 31, 2010 | $ | 836,302 | ||||||
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| Capital Loss | Amount | Expiration | ||||||
Year ended November 30, 2010 | $ | 0 | – | |||||
For the month ended December 31, 2010 | 62,857 | November 30, 2016 | ||||||
Total for year ended December 31, 2010 | $ | 62,857 | ||||||
For corporations, capital losses can only be used to offset capital gains and cannot be used to offset ordinary income. The capital loss may be carried forward for 5 years and, accordingly, would begin to expire as of November 30, 2015. The net operating loss can be carried forward for 20 years and, accordingly, would begin to expire as of November 30, 2030.
Total income tax benefit (current and deferred) differs from the amount computed by applying the federal statutory income tax rate of 35% to net investment and realized and unrealized gains/(losses) on investments before taxes for the period August 25, 2010 (inception date) to December 31, 2010, as follows:
Application of statutory income tax rate | $ | 11,628,811 | ||
State income taxes (net of federal benefit) | 1,151,044 | |||
Total tax expense | $ | 12,779,855 |
As of December 31, 2010, the gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
Gross Appreciation | $ | 34,573,293 | ||
Gross Depreciation | (448,944 | ) | ||
Net unrealized appreciation | $ | 34,124,349 | ||
Cost basis of investments | $ | 590,516,205 |
The difference between cost amounts for financial statement and federal income tax purposes is due primarily to wash sale adjustments.
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 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 U.S. tax returns and state tax returns filed since inception of the Fund. No income tax returns are currently under examination. The tax period ended November 30, 2010 remains subject to examination by the tax authorities in the United States. Due to the nature of the Fund’s investments, the Fund may be required to file income tax returns in several states and other local jurisdictions. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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E. Fair Value Measurements
The Fund discloses the classification of its fair value measurements following a three-tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.
Various inputs are used in determining the value of the Fund’s investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments. These inputs are categorized in the following hierarchy under applicable financial accounting standards:
Level 1 – | unadjusted quoted prices in active markets for identical investments | |
Level 2 – | other 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) |
Investments in Securities at Value* | Level 1 - Unadjusted Quoted Prices | Level 2 - Other Significant Observable Inputs | Level 3 - Significant Unobservable Inputs | Total | ||||||||||||
Master Limited Partnerships | $ | 624,640,554 | $ | 0 | $ | 0 | $ | 624,640,554 | ||||||||
TOTAL | $ | 624,640,554 | $ | 0 | $ | 0 | $ | 624,640,554 | ||||||||
| * | For detailed descriptions of sectors, see the accompanying Schedule of Investments. |
For the period ended December 31, 2010, the Fund did not have any significant transfers between Level 1 and Level 2 securities. The Fund did not have any securities which used significant unobservable inputs (Level 3) in determining fair value.
4. Investment Advisory Fee and Other Affiliated Transactions
ALPS Advisors, Inc. (the “Investment Adviser”) acts as the Fund’s investment adviser pursuant to an advisory agreement with the Trust on behalf of the Fund (the “Advisory Agreement”). Pursuant to the Advisory Agreement, the Fund pays the Investment Adviser a unitary fee for the services and facilities it provides payable on a monthly basis at the annual rate of 0.85% of the Fund’s average daily net assets. From time to time, the Investment Adviser may waive all or a portion of its fee.
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Out of the unitary management fee, the Investment Adviser pays substantially all expenses of the Fund, including the fees of the Sub-Adviser, the cost of transfer agency, custody, fund administration, legal, audit and other services, other than taxes, interest expenses, distribution fees or expenses, brokerage expenses, and extraordinary expenses such as litigation not incurred in the ordinary course of the Fund’s business.
Arrow Investment Advisors, LLC acts as the Fund’s sub-adviser (the “Sub-Adviser”) pursuant to a sub-advisory agreement with the Investment Adviser (the “Sub-Advisory Agreement”). Pursuant to the Sub-Advisory Agreement, the Investment Adviser pays the Sub-Adviser on a monthly basis a portion the net advisory fees it receives from the Fund, at an annual rate of 0.08% of the Fund’s average daily net assets.
ALPS Fund Services, Inc. (“ALPS”), an affiliate of the Investment Adviser, is the administrator of the Fund.
The Bank of New York Mellon is the custodian, fund accounting agent and transfer agent for the Fund.
Each Trustee who is not an officer or employee of the Investment Adviser, any subadviser or any of their affiliates (“Independent Trustees”) is paid a quarterly retainer of $3,500, $1,500 for each regularly scheduled Board meeting attended and $750 for each special meeting held outside of regularly scheduled meetings.
5. Purchases and Sales of Securities
For the period ended December 31, 2010, the cost of purchases and proceeds from sales of investment securities, excluding short-term investments and in-kind transactions, were as follows:
Purchases | Sales | |
$38,419,980 | $37,377,561 |
For the period ended December 31, 2010, the cost of in-kind purchases and proceeds from in-kind sales were as follows:
Purchases | Sales | |
$594,621,920 | $0 |
Gains on in-kind transactions are not considered taxable for federal income tax purposes.
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6. Capital Share Transactions
Shares are created and redeemed by the Fund only in Creation Unit size aggregations of 50,000. Only broker-dealers or large institutional investors with creation and redemption agreements called Authorized Participants (“AP”) are permitted to purchase or redeem Creation Units from the Fund. Such transactions are generally permitted on an in-kind basis, with a balancing cash component to equate the transaction to the net asset value per unit of the Fund on the transaction date. Cash may be substituted equivalent to the value of certain securities generally when they are not available in sufficient quantity for delivery, not eligible for trading by the AP or as a result of other market circumstances.
7. Master Limited Partnerships
MLPs are publicly traded partnerships engaged in the transportation, storage and processing of minerals and natural resources. By confining their operations to these specific activities, their interests, or units, are able to trade on public securities exchanges exactly like the shares of a corporation, without entity level taxation. Of the seventy MLPs eligible for inclusion in the Index, approximately two-thirds trade on the NYSE and the rest trade on the NASDAQ. To qualify as a MLP and to not be taxed as a corporation, a partnership must receive at least 90% of its income from qualifying sources as set forth in Section 7704(d) of the Internal Revenue Code of 1986, as amended (the “Code”). These qualifying sources include natural resource based activities such as the processing, transportation and storage of mineral or natural resources. MLPs generally have two classes of owners, the general partner and limited partners. The general partner of an MLP is typically owned by a major energy company, an investment fund, the direct management of the MLP, or is an entity owned by one or more of such parties. The general partner may be structured as a private or publicly traded corporation or other entity. The general partner typically controls the operations and management of the MLP through an up to 2% equity interest in the MLP plus, in many cases, ownership of common units and subordinated units. Limited partners typically own the remainder of the partnership, through ownership of common units, and have a limited role in the partnership’s operations and management. MLPs are typically structured such that common units and general partner interests have first priority to receive quarterly cash distributions up to an established minimum amount (“minimum quarterly distributions” or “MQD”). Common and general partner interests also accrue arrearages in distributions to the extent the MQD is not paid. Once common and general partner interests have been paid, subordinated units receive distributions of up to the MQD; however, subordinated units do not accrue arrearages. Distributable cash in excess of the MQD is paid to both common and subordinated units and is distributed to both common and subordinated units generally on a pro rata basis. The general partner is also eligible to receive incentive distributions if the general partner operates the business in a manner which results in distributions paid per common unit surpassing specified target levels. As the general partner increases cash distributions to the
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limited partners, the general partner receives an increasingly higher percentage of the incremental cash distributions.
8. Indemnifications
Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred.
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PROXY VOTING POLICIES AND PROCEDURES
A description of the Fund’s proxy voting policies and procedures used in determining how to vote for proxies and information regarding how the Fund voted proxies related to portfolio securities during the most recent 12-month period ended June 30th is available without charge, (1) on the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov; (2) upon request, by calling 1-866-513-5856; and (3) on the Trust’s website located at http://www.alpsetfs.com.
PORTFOLIO HOLDINGS
The Trust will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Trust’s Form N-Q will be available (1) on the SEC’s website at http://www.sec.gov; (2) by calling 1-866-513-5856; (3) on the Trust’s website located at http://www.alpsetfs.com; and (4) for review and copying at the SEC’s Public Reference Room (“PRR”) in Washington D.C. Information regarding the operation of the PRR may be obtained by calling 1-800-732-0330.
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Independent Trustees
Name, Address and Age of Management Trustee* | Position(s) Held with Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustees*** | Other Directorships Held by Trustees | |||||
Mary K. Anstine, age 70 | Trustee | Since March 2008 | Ms. Anstine was President/Chief Executive Officer of HealthONE Alliance, Denver, Colorado, and former Executive Vice President of First Interstate Bank of Denver. Ms. Anstine is also Trustee/Director of the following: AV Hunter Trust; Colorado Uplift Board. Ms. Anstine was formerly a Director of the Trust Bank of Colorado (later purchased and now known as Northern Trust Bank), HealthONE and Denver Area Council of the Boy Scouts of America and a member of the American Bankers Association Trust Executive Committee.
| 24 | Ms. Anstine is a Trustee of Financial Investors Variable Insurance Trust (5 funds); Financial Investors Trust (11 funds); Reaves Utility Income Fund; and Westcore Trust (12 funds). | |||||
Jeremy W. Deems, age 34 | Trustee | Since March 2008 | Mr. Deems is the Co- Founder, Chief Compliance Officer and Chief Financial Officer of Green Alpha Advisors, LLC. Prior to joining Green Alpha Advisors, Mr. Deems was CFO and Treasurer of Forward Management, LLC, ReFlow Management Co., LLC, ReFlow Fund, LLC, a private investment fund, and Sutton Place Management, LLC, an administrative services company, from 2004 to June 2007. Prior to this, Mr. Deems served as Controller of Forward Management, LLC, ReFlow Management Co., LLC, ReFlow Fund, LLC and Sutton Place Management, LLC. | 24 | Mr. Deems is a Trustee of Financial Investors Trust (11 funds); Financial Investors Variable Insurance Trust (5 funds); and Reaves Utility Income Fund. |
| * | The business address of each Trustee is c/o ALPS Advisors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. |
| ** | This is the period for which the Trustee began serving the Trust. Each Trustee serves an indefinite term, until his successor is elected. |
| *** | The Fund Complex includes all series of the Trust and any other investment companies for which ALPS Advisors, Inc. provides investment advisory services. |
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Independent Trustees (continued)
Name, Address and Age of Management Trustee* | Position(s) Held with Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustees*** | Other Directorships Held by Trustees | |||||
Rick A. Pederson, age 58 | Trustee | Since March 2008 | President, Foundation Properties, Inc. (a real estate investment management company), 1994 - present; Partner, Western Capital Partners (a prime lending company), 2000 - present; Partner, Bow River Capital Partners (investment manager), 2003 - present; Principal, The Pauls Corporation (real estate development), 2008 - present; Director, Guaranty Bank and Trust (a community bank), 1999 – 2007; Winter Park Recreational Association (an entity that operates, maintains and develops Winter Park Resort), 2002 – 2008; Neenan Co. (an integrated real estate development, architecture and construction company), 2002 – present; NexCore Properties LLC (a real estate investment company), 2004 – present; Urban Land Conservancy (a not-for-profit organization), 2004 – present. | 10 | Mr. Pederson is Trustee of Westcore Trust (12 funds) |
| * | The business address of the Trustee is c/o ALPS Advisors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. |
| ** | This is the period for which the Trustee began serving the Trust. Each Trustee serves an indefinite term, until his successor is elected. |
| *** | The Fund Complex includes all series of the Trust and any other investment companies for which ALPS Advisors, Inc. provides investment advisory services. |
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Interested Trustee***
Name, Address and Age of Management Trustee* | Position(s) Held with Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustees*** | Other Directorships Held by Trustees | |||||
Thomas A. Carter, age 44 | Trustee and President | Since March 2008 | Mr. Carter joined ALPS Fund Services, Inc. (“ALPS”) in 1994 and is currently President and Director of ALPS Advisors, Inc. (“AAI”), ALPS Distributors, Inc. (“ADI”) and FTAM Funds Distributor, Inc. (“FDI”) and Executive Vice President and Director of ALPS and ALPS Holdings, Inc. (“AHI”). Because of his position with AHI, ALPS, ADI, FDI and AAI, Mr. Carter is deemed an affiliate of the Fund as defined under the 1940 Act. Before joining ALPS, Mr. Carter was with Deloitte & Touché LLP, where he worked with a diverse group of clients, primarily within the financial services industry. Mr. Carter is a Certified Public Accountant and received his Bachelor of Science in Accounting from the University of Colorado at Boulder. | 15 | Mr. Carter is a Trustee of Financial Investors Variable Insurance Trust (5 funds) |
| * | The business address of the Trustee is c/o ALPS Advisors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. |
| ** | This is the period for which the Trustee began serving the Trust. Each Trustee serves an indefinite term, until his successor is elected. |
| *** | Mr. Carter is an interested person of the Trust because of his affiliation with ALPS. |
| **** | The Fund Complex includes all series of the Trust and any other investment companies for which ALPS Advisors, Inc. provides investment advisory services. |
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Officers
Name, Address and Age of Executive Officer* | Position(s) Held with Trust | Length of Time Served** | Principal Occupation(s) During Past 5 Years | |||
Melanie Zimdars, age 34 | Chief Compliance Officer (“CCO”) | Since December 2009 | Ms. Zimdars currently serves as a Deputy Chief Compliance Officer with ALPS. Prior to joining ALPS in September 2009, Ms. Zimdars served as Principal Financial Officer, Treasurer and Secretary for the Wasatch Funds from February 2007 to December 2008. From November 2006 to February 2007, she served as Assistant Treasurer for the Wasatch Funds and served as a Senior Compliance Officer for Wasatch Advisors, Inc. since 2005. From 2001 until joining Wasatch in 2005, she was a Compliance Officer for U.S. Bancorp Fund Services, LLC. Because of her position with ALPS, Ms. Zimdars is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Zimdars is also the CCO of Financial Investors Variable Insurance Trust, Liberty All-Star Growth Fund, Inc. and Liberty All-Star Equity Fund. | |||
Kimberly R. Storms, age 38 | Treasurer | Since March 2008 | Ms. Storms is Director of Fund Administration and Senior Vice President of ALPS. Ms. Storms joined ALPS in 1998 as Assistant Controller. Because of her position with ALPS, Ms. Storms is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Storms is also Assistant Treasurer of the Liberty All-Star Equity Fund, Liberty All-Star Growth Fund and Financial Investors Trust; and Assistant Secretary of Ameristock Mutual Fund, Inc. | |||
William Parmentier, age 58 | Vice President | Since March 2008 | Mr. Parmentier is Chief Investment Officer, ALPS Advisors, Inc. (since 2006); President of the Liberty All-Star Funds (since April 1999); Senior Vice President (2005-2006), Banc of America Investment Advisors, Inc. | |||
Tané T. Tyler, age 45 | Secretary | Since December 2008 | Ms. Tyler is Senior Vice President, General Counsel and Secretary of ALPS. Ms. Tyler joined ALPS in 2004. She served as Secretary, Liberty All-Star Equity Fund and Liberty All-Star Growth Fund from December 2006-2008; Secretary, Reaves Utility Income Fund from December 2004–2007; Secretary, Westcore Funds from February 2005–2007; Secretary, First Funds from November 2004 to January 2007; Secretary, Financial Investors Variable Insurance Trust from December 2004–December 2006; Vice President and Associate Counsel, Oppenheimer Funds from January 2004 to August 2004; Vice President and Assistant General Counsel, INVESCO Funds from September 1991 to December 2003. | |||
Monette R. Nickels, age 39 | Tax Officer | Since December 2009 | Ms. Nickels is Senior Vice President and Director of Tax Administration of ALPS. Ms. Nickels joined ALPS in 2004 as Director of Tax Administration. Because of her position with ALPS, Ms. Nickels is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Nickels is also Tax Officer of Financial Investors Trust, Liberty All-Star Equity Fund, Liberty All-Star Growth Fund, Inc., and Financial Investors Variable Insurance Trust. | |||
| * | The business address of each Officer is c/o ALPS Advisors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203. |
| ** | This is the period for which the Officer began serving the Trust. Each Officer serves an indefinite term, until his successor is elected. |
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At an in-person meeting held on August 3, 2010, the Board of Trustees of the Trust (the “Board”), including the Trustees who are not “interested persons” of the Trust within the meaning of the 1940 Act, as amended (the “Independent Trustees”), evaluated proposals to approve the Advisory Agreement between the Trust and the Investment Adviser with respect to the Funds. At the same in person meeting, the Board also evaluated the proposal to approve the Sub-Advisory Agreement among the Investment Adviser, the Trust and the Sub-Adviser with respect to the Funds. The Independent Trustees also met separately with their independent legal counsel to consider the Advisory and Sub-Advisory Agreements.
In evaluating the Advisory and Sub-Advisory Agreements, the Board considered various factors, including (i) the nature, extent and quality of the services expected to be provided by the Investment Adviser and Sub-Adviser with respect to the Funds under the Advisory and Sub-Advisory Agreements, (ii) costs to the Investment Adviser and Sub-Adviser of their respective services; and (iii) the extent to which economies of scale would be realized if and as the Funds grow and whether the fee level in the Advisory and Sub-Advisory Agreements reflects these economies of scale.
The Board of Trustees, including a majority of the Independent Trustees, determined that approval of the Advisory and Sub-Advisory Agreements were in the best interests of the Funds. The Board of Trustees, including the Independent Trustees, did not identify any single factor or group of factors as all important or controlling and considered all factors together. In evaluating whether to approve the Advisory and Sub-Advisory Agreements for the Funds, the Board considered numerous factors, as described below.
With respect to the nature, extent and quality of the services to be provided by the Investment Adviser under the Advisory Agreement and the Sub-Adviser under the Sub-Advisory agreement, the Board considered and reviewed information concerning the services proposed to be provided under the Advisory and the Sub- Advisory Agreements, the proposed investment parameters of the index for the Funds, financial information regarding the Investment Adviser, its parent company and the Sub-Adviser, information describing the Investment Adviser’s and Sub-Adviser’s current organizations and the background and experience of the persons who would be responsible for the day-to-day management of the Funds, the anticipated financial support of the Funds and the nature and quality of services provided to other exchange-traded (“ETFs”), open-end and closed-end funds by the Investment Adviser and nature and quality of services provided to investment products by the Sub-Adviser. Based upon their review, the Board concluded that the Investment Adviser was qualified to oversee the services to be provided by other service providers and that the services to be provided by the Investment Adviser to the Funds are expected to be satisfactory. The Board also concluded that the Sub-Adviser was qualified to manage the Funds and that the services to be provided by the Sub-Adviser to the Funds are expected to be satisfactory.
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With respect to the costs of services to be provided and profits to be realized by the Adviser and Sub-Advisor, the Board considered the resources involved in managing the Funds as well as the fact that the Adviser agreed to pay all of the Funds’ expenses (except for interest expenses, distribution fees or expenses, brokerage expenses, taxes and extraordinary expenses such as litigation and other expenses not incurred in the ordinary course of the Funds’ business) out of the unitary advisory fee. Based on its review, the Board concluded that the expected profitability of the Funds to the Adviser and the Sub-Adviser, respectively, were not unreasonable.
The Board also reviewed information provided by the Adviser showing the proposed advisory fee for the Alerian Fund as compared to those of a peer group of ETFs compiled using Lipper fee data as well as other comparative fee data. The Board noted the services to be provided by the Adviser for the annual advisory fee of the greater of $100,000 or 0.10% of the Alerian Fund’s average daily net assets. The Board also considered that the advisory fee was a unitary one and that, as set forth above, the Adviser had agreed to pay all of the Alerian Fund’s expenses (except for interest expenses, marketing fees, distribution fees or expenses, brokerage expenses, taxes and extraordinary expenses such as litigation and other expenses not incurred in the ordinary course of the Alerian Fund’s business) out of the unitary fee. The Board considered that, taking into account the impact of the Alerian Fund’s unitary advisory fee, the Alerian Fund’s expense ratio was expected to be within range of the expense ratios of the peer group of ETFs provided by the Adviser and significantly below the expense ratio of other investment companies which invest primarily in MLPs. The Board considered the extent to which economies of scale would be realized as the Alerian Fund grows and whether fee levels reflect a reasonable sharing of such economies of scale for the benefit of Alerian Fund investors. Because the Alerian Fund is newly organized, the Board reviewed the Funds proposed unitary advisory fee and anticipated expenses and determined to review economies of scale in the future when the Alerian Fund had attracted assets.
The Board also considered other benefits that may be realized by the Adviser and/or the Sub-Adviser from their relationship with the Funds.
In voting to approve the Advisory and Sub-Advisory Agreements, the Trustees, including the Independent Trustees, concluded that the terms of the Advisory and Sub-Advisory Agreements are reasonable and fair in light of the services to be performed, the fees paid by certain other funds, expenses to be incurred and such other matters as the Trustees considered relevant in the exercise of their reasonable business judgment.
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This report has been prepared for Alerian MLP ETF shareholders and may be distributed to others only if preceded or accompanied by a prospectus.
ALPS Distributors, Inc., distributor for the Alerian MLP ETF.
ALR000140 8/31/11
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| Item 2. | Code of Ethics. |
(a) The Registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller or any persons performing similar functions on behalf of the Registrant.
(b) Not applicable.
(c) During the period covered by this report, no amendments to the provisions of the code of ethics adopted in 2(a) above were made.
| (d) | During the period covered by this report, no implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a) above were granted. |
(e) Not applicable.
(f) The Registrant’s Code of Ethics is attached as an Exhibit hereto.
| Item 3. | Audit Committee Financial Expert. |
The Board of Trustees of the Registrant has determined that the Registrant has at least one Audit Committee Financial Expert serving on its audit committee. The Board of Trustees of the Registrant has designated Jeremy W. Deems as the Registrant’s “Audit Committee Financial Expert”. Mr. Deems is “independent” as defined in paragraph (a)(2) of Item 3 to Form N-CSR.
| Item 4. | Principal Accountant Fees and Services. |
| (a) | Audit Fees: For the Registrant’s fiscal year ended December 31, 2010 and December 31, 2009, the aggregate fees billed for professional services rendered by the principal accountant for the audit of the Registrant’s annual financial statements were $124,000 and $89,000, respectively. |
| (b) | Audit-Related Fees: For the Registrant’s fiscal year ended December 31, 2010 and December 31, 2009, the aggregate fees billed for professional services rendered by the principal accountant for the verification of the Registrant’s securities and similar investments in accordance with Rule 17f-2 under the Investment Company Act of 1940 were $6,000 and $6,000, respectively. |
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| (c) | Tax Fees: For the Registrant’s fiscal year ended December 31, 2010 and December 31, 2009, the aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning were $35,420 and $28,500, respectively. The fiscal year 2010 and 2009 tax fees were for services pertaining to federal and state income tax return review, review of year end dividend distributions and excise tax preparation. |
| (d) | All Other Fees: For the Registrant’s fiscal year ended December 31, 2010 and December 31, 2009, aggregate fees billed to the Registrant by the principal accountant for services provided by the principal accountant other than the services reported in paragraphs (a) through (c) of this Item 4 were $1,500 and $0, respectively. |
| (e)(1) | Audit Committee Pre-Approval Policies and Procedures: All services to be performed by the Registrant’s principal accountant must be pre-approved by the Registrant’s audit committee. |
| (e)(2) | No services described in paragraphs (b) through (d) of this Item were approved by the Registrant’s audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
| (f) | Not applicable. |
| (g) | The aggregate non-audit fees billed by the Registrant’s accountant for the fiscal year ended December 31, 2010 and December 31, 2009 of the Registrant were $231,920 and $201,500, respectively. These fees consisted of non-audit fees billed to (i) the Registrant of $36,920 and $28,500 as described in response to paragraph (c) above and (ii) to ALPS Fund Services, Inc. (“AFS”), an entity under common control with ALPS Advisors, Inc., the Registrant’s investment adviser, of $195,000 and $173,000, respectively. The non-audit fees billed to AFS related to SAS 70 services and other compliance-related matters. |
| (h) | The Registrant’s audit committee has considered whether the provision of non-audit services that were rendered to the Registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with maintaining the principal accountant’s independence. The Registrant’s audit committee determined that the provision of such non-audit services is compatible with maintaining the principal accountant’s independence. |
| Item 5. | Audit Committee of Listed Registrants. |
Not applicable.
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| Item 6. | Investments. |
| (a) | Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form N-CSR. |
| (b) | Not applicable. |
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable.
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable.
| Item 10. | Submission of Matters to Vote of Security Holders. |
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees, where those changes were implemented after the Registrant last provided disclosure in response to the requirements of Item 407(c)(2) of Regulation S-K, or this Item.
| Item 11. | Controls and Procedures. |
| (a) | The Registrant’s principal executive officer and principal financial officer 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) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. |
| (b) | There was no change in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) during the second fiscal quarter of 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. | Exhibits. |
| (a)(1) | Registrant’s Code of Ethics for Senior Financial Officers, which is the subject of the disclosure required by Item 2 of Form N-CSR, was filed as Exhibit 12(a)(1) to the Registrant’s Certified Shareholder Report on Form N-CSR, File No. 811-22175, on March 6, 2009. |
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| (a)(2) | The certifications required by Rule 30a-2(a) of the Investment Company Act of 1940, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto as Exhibit 99.Cert. |
| (a)(3) | Not applicable. |
| (b) | The certifications by the Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(b) of the Investment Company Act of 1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto as Exhibit 99.906Cert. |
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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.
ALPS ETF TRUST | ||
By: | /s/ Thomas A. Carter | |
Thomas A. Carter | ||
President (Principal Executive Officer) | ||
Date: | March 8, 2011 | |
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: | /s/ Thomas A. Carter | |
Thomas A. Carter | ||
President (Principal Executive Officer) | ||
Date: | March 8, 2011 | |
By: | /s/ Kimberly R. Storms | |
Kimberly R. Storms | ||
Treasurer (Principal Financial Officer) | ||
Date: | March 8, 2011 | |