J. Garrett Stevens
Item 1. Reports to Stockholders.
EXCHANGE TRADED CONCEPTS TRUST
KPOP and Korean Entertainment ETF
Annual Report
April 30, 2023
KPOP and Korean Entertainment ETF
Table of Contents
The Fund files its complete schedule of holdings with the U.S. Securities and Exchange Commission (the “Commission” or the “SEC”) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT within sixty days after the end of the period. The Fund’s Form N-PORT reports are available on the Commission’s website at https://www.sec.gov.
Exchange Traded Concepts, LLC’s proxy voting policies and procedures are attached to the Fund’s Statement of Additional Information (the “SAI”). The SAI, as well as information relating to how the Fund voted proxies relating to the Fund’s securities during the most recent 12-month period ended June 30, is available without charge, upon request, by calling (833) 599-5767, and on the Commission’s website at https://www.sec.gov.
KPOP and Korean Entertainment ETF
Management Discussion of Fund Performance
April 30, 2023 (Unaudited)
Dear Shareholders,
On behalf of the entire team, we want to express our appreciation for the confidence you have placed in the KPOP and Korean Entertainment ETF (“KPOP” or the “Fund”). The following information pertains to the period from the commencement of operations on September 1, 2022 through April 30, 2023.
The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the KPOP Index (the “Index”). The Index was designed to measure the performance of companies that describe themselves as being engaged in Korean popular music, movies, drama, entertainment, and interactive media content.
Since its inception through April 30, 2023, the Fund experienced high volatility, in part, due to changes in the exchange rate between the U.S. Dollar and Korean Won. Due to the strong performance of Korean entertainment companies, however, the Fund experienced strong gains of 43.63% after reaching its lowest NAV on October 13, 2022.
The Fund had negative performance for the fiscal period ended April 30, 2023. The market price for KPOP decreased 2.15% and the NAV decreased 2.10% while the S&P Korea BMI, a broad Korean equity market index, increased 4.12% over the same period. The Fund’s Index decreased 2.68%.
The Fund commenced operations on September 1, 2022, and had 140,000 shares outstanding on April 30, 2023.
Thank you for your investment in KPOP.
Sincerely,
J. Garrett Stevens
Chief Executive Officer
Exchange Traded Concepts, LLC, Adviser to the Fund
1
KPOP and Korean Entertainment ETF
Management Discussion of Fund Performance
April 30, 2023 (Unaudited) (Continued)
The KPOP Index is a 30-stock equity index that provides focused exposure to KRX-listed companies that are engaged in the entertainment and interactive media & services industries.
The S&P Korea BMI is a country sub-index of the S&P Global BMI that includes all eligible companies domiciled in Korea. The S&P Global BMI captures the full universe of institutionally investable stocks in developed and emerging markets with float-adjusted market capitalizations of at least USD 100 million meeting 6- and 12-month median value traded requirements.
The Fund is designed to track, before fees and expenses, the total return performance of the Index.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice.
2
KPOP and Korean Entertainment ETF
Management Discussion of Fund Performance
April 30, 2023 (Unaudited) (Concluded)
Growth of a $10,000 Investment
(at Net Asset Value)
| | CUMULATIVE
TOTAL RETURN FOR
THE PERIOD ENDED
April 30, 2023 |
| | | Cumulative
Inception to Date* |
| | | Net Asset
Value | | Market
Price |
KPOP and Korean Entertainment ETF | | (2.10)% | | (2.15)% |
KPOP Index | | (2.68)% | | (2.68)% |
S&P Korea BMI | | 4.12% | | 4.12% |
The performance data quoted herein represents past performance and the return and value of an investment in the Fund will fluctuate so that shares, when redeemed or sold in the market, may be worth more or less than their original cost. Past performance is no guarantee of future performance and should not be considered as a representation of the future results of the Fund. The Fund’s performance assumes the reinvestment of all dividends and all capital gains. Index returns assume reinvestment of dividends and, unlike a Fund’s returns, do not reflect any fees or expenses. If such fees and expenses were included in the index returns, the performance would have been lower. Please note that one cannot invest directly in an unmanaged index.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. A prospectus, containing this and other information, is available at www.kpopetf.com. Investors should read the prospectus carefully before investing. There are risks associated with investing, including possible loss of principal.
Current performance may be lower or higher than the performance data shown above.
There are no assurances that the Fund will meet its stated objectives.
The Fund’s holdings and allocations are subject to change and should not be considered recommendations to buy individual securities.
Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
3
KPOP and Korean Entertainment ETF
Schedule of Investments
April 30, 2023
Description | | Shares | | Fair Value |
COMMON STOCK — 97.1% | | | | | |
South Korea — 97.1% | | | | | |
Entertainment — 76.3% | | | | | |
ANIPLUS INC* | | 6,036 | | $ | 18,039 |
ASTORY Co Ltd | | 1,706 | | | 26,194 |
Chorokbaem Media
Co Ltd* | | 4,299 | | | 28,812 |
CJ CGV Co Ltd* | | 11,185 | | | 127,778 |
CJ ENM Co Ltd | | 2,020 | | | 120,138 |
CUBE ENTERTAINMENT Inc* | | 2,469 | | | 43,259 |
Daewon Media Co Ltd | | 2,257 | | | 25,548 |
Dexter Studios Co Ltd* | | 4,961 | | | 39,884 |
Genie Music Corp* | | 5,961 | | | 16,925 |
Giantstep Inc* | | 8,674 | | | 117,952 |
HYBE Co Ltd* | | 1,865 | | | 376,233 |
IHQ Inc | | 36,816 | | | 6,574 |
JYP Entertainment Corp | | 4,552 | | | 306,777 |
KEYEAST Co Ltd* | | 3,765 | | | 22,420 |
Next Entertainment World Co Ltd* | | 4,884 | | | 23,172 |
NHN BUGS Corp* | | 2,652 | | | 11,770 |
Pan Entertainment Co Ltd* | | 4,953 | | | 18,263 |
Raemongraein Co Ltd* | | 1,256 | | | 17,596 |
RBW Inc* | | 1,720 | | | 16,835 |
SAMHWA NETWORKS Co Ltd* | | 7,687 | | | 20,073 |
SHOWBOX Corp | | 9,455 | | | 24,478 |
SM Culture & Contents Co Ltd* | | 17,102 | | | 37,695 |
SM Entertainment Co Ltd | | 3,780 | | | 302,762 |
Studio Dragon Corp* | | 2,468 | | | 121,888 |
Wysiwyg Studios Co Ltd* | | 10,758 | | | 141,146 |
YG Entertainment Inc | | 2,910 | | | 132,629 |
| | | | | | 2,144,840 |
Description | | Shares | | Fair Value |
Interactive Media & Services — 20.8% | | | |
4by4 Inc* | | 1,882 | | $ | 18,646 |
AfreecaTV Co Ltd | | 2,046 | | | 118,474 |
Kakao Corp | | 4,066 | | | 176,505 |
NAVER Corp | | 1,744 | | | 250,576 |
SBS Contents Hub Co Ltd* | | 3,838 | | | 20,761 |
| | | | | | 584,962 |
Total Common Stock | | | | | |
(Cost $2,443,166) | | | | | 2,729,802 |
| | | | | | |
Total Investments — 97.1% | | | | | |
(Cost $2,443,166) | | | | $ | 2,729,802 |
The following is a summary of the inputs used as of April 30, 2023 when valuing the Fund’s investments carried at value:
Investments in Securities | | Level 1 | | Level 2 | | Level 3 | | Total |
Common Stock | | $ | 2,723,228 | | $ | 6,574 | | $ | — | | $ | 2,729,802 |
Total Investments in Securities | | $ | 2,723,228 | | $ | 6,574 | | $ | — | | $ | 2,729,802 |
The accompanying notes are an integral part of the financial statements.
4
KPOP and Korean Entertainment ETF
Statement of Assets and Liabilities
April 30, 2023
Assets: | | | |
Investments at Cost | | $ | 2,443,166 |
Investments at Fair Value | | $ | 2,729,802 |
Receivable for Investment Securities Sold | | | 85,323 |
Total Assets | | | 2,815,125 |
| | | | |
Liabilities: | | | |
Due to Custodian — Overdraft | | | 3,250 |
Advisory Fees Payable | | | 1,716 |
| | | | |
Total Liabilities | | | 4,966 |
| | | | |
Net Assets | | $ | 2,810,159 |
| | | | |
Net Assets Consist of: | | | |
Paid-in Capital | | $ | 2,668,011 |
Total Distributable Earnings (Accumulated Losses) | | | 142,148 |
| | | | |
Net Assets | | $ | 2,810,159 |
Outstanding Shares of Beneficial Interest
(unlimited authorization — no par value) | | | 140,000 |
Net Asset Value, Offering and Redemption Price Per Share | | $ | 20.07 |
The accompanying notes are an integral part of the financial statements.
5
KPOP and Korean Entertainment ETF
Statement of Operations
For the period ended April 30, 2023†
Investment Income: | | | | |
Dividend Income | | $ | 9,768 | |
Less: Foreign Taxes Withheld | | | (1,981 | ) |
Total Investment Income | | | 7,787 | |
| | | | | |
Expenses: | | | | |
Advisory Fees | | | 12,634 | |
Total Expenses | | | 12,634 | |
| | | | | |
Net Investment Income (Loss) | | | (4,847 | ) |
| | | | | |
Net Realized Gain (Loss) on: | | | | |
Investments | | | (140,140 | ) |
Foreign Currency Transactions | | | (5,908 | ) |
| | | | | |
Net Realized Gain (Loss) | | | (146,048 | ) |
| | | | | |
Net Change in Unrealized Appreciation (Depreciation) on: | | | | |
Investments | | | 286,636 | |
| | | | | |
Net Change in Unrealized Appreciation (Depreciation) | | | 286,636 | |
| | | | | |
Net Realized and Unrealized Gain (Loss) | | | 140,588 | |
| | | | | |
Net Increase (Decrease) in Net Assets Resulting from Operations | | $ | 135,741 | |
The accompanying notes are an integral part of the financial statements.
6
KPOP and Korean Entertainment ETF
Statement of Changes in Net Assets
| | Period Ended
April 30, 2023† |
Operations: | | | | |
Net Investment Income (Loss) | | $ | (4,847 | ) |
Net Realized Gain (Loss) | | | (146,048 | ) |
Net Change in Unrealized Appreciation (Depreciation) | | | 286,636 | |
| | | | | |
Net Increase (Decrease) in Net Assets Resulting from Operations | | | 135,741 | |
| | | | | |
Capital Share Transactions: | | | | |
Issued | | | 2,674,418 | |
| | | | | |
Increase (Decrease) in Net Assets from Capital Share Transactions | | | 2,674,418 | |
| | | | | |
Total Increase (Decrease) in Net Assets | | | 2,810,159 | |
| | | | | |
Net Assets: | | | | |
Beginning of Period | | | — | |
End of Period | | $ | 2,810,159 | |
| | | | | |
Share Transactions: | | | | |
Issued | | | 140,000 | |
| | | | | |
Net Increase (Decrease) in Shares Outstanding from Share Transactions | | | 140,000 | |
The accompanying notes are an integral part of the financial statements.
7
KPOP and Korean Entertainment ETF
Financial Highlights
Selected Per Share Data & Ratios
For the Period Ended April 30, 2023
For a Share Outstanding Throughout the Period
| | Net Asset
Value,
Beginning of
Period | | Net
Investment
Income
(Loss)* | | Net
Realized
and
Unrealized
Gain
(Loss) on
Investments | | Total from
Operations | | Net
Asset
Value,
End of
Period | | Net
Asset
Value,
Total
Return(1) | | Net
Assets
End of
Period
(000) | | Ratio of
Expenses
to Average
Net
Assets | | Ratio of
Net
Investment
Income
(Loss) to
Average
Net
Assets | | Portfolio
Turnover(2) |
2023† | | $ 20.50 | | $ (0.04) | | $ (0.39)^ | | $ (0.43) | | $ 20.07 | | (2.10)% | | $ 2,810 | | 0.75%(3) | | (0.29)%(3) | | 40% |
The accompanying notes are an integral part of the financial statements.
8
KPOP and Korean Entertainment ETF
Notes to the Financial Statements
1. ORGANIZATION
Exchange Traded Concepts Trust (the “Trust”) is a Delaware statutory trust formed on July 17, 2009. The Trust is registered with the Commission under the Investment Company Act of 1940 (the “1940 Act”) as an open-end management investment company with multiple investment portfolios. The financial statements herein are those of the KPOP and Korean Entertainment ETF (the “Fund”). The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the KPOP Index (the “Index”). Exchange Traded Concepts, LLC (the “Adviser”), an Oklahoma limited liability company, serves as the investment adviser for the Fund. The Fund is classified as “non-diversified” under the 1940 Act (see “Non-Diversification Risk” under Note 6). The Fund commenced operations on September 1, 2022.
Shares of the Fund are listed and traded on the NYSE Arca, Inc. (the “Exchange”). Market prices for shares of the Fund may be different from their net asset value (“NAV”). The Fund issues and redeems shares on a continuous basis to certain institutional investors (typically market makers or other broker-dealers) at NAV only in large blocks of shares, called “Creation Units.” Creation Units are available for purchase and redemption on each business day and are offered and redeemed on an in-kind basis, together with the specified cash amount, or for an all cash amount. Once created, shares trade in a secondary market at market prices that change throughout the day in share amounts less than a Creation Unit.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Trust, are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for investment companies. The accompanying financial statements have been prepared in accordance with U.S. GAAP on the accrual basis of accounting. Management has reviewed Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services — Investment Companies (“ASC 946”), and concluded that the Fund meets the criteria of an “investment company,” and therefore, the Fund prepares its financial statements in accordance with investment company accounting as outlined in ASC 946.
Use of Estimates and Indemnifications — The Fund is an investment company in conformity with U.S. GAAP. Therefore, the Fund follows the accounting and reporting guidelines for investment companies. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
In the normal course of business, the Trust, on behalf of the Fund, enters into contracts that contain a variety of representations which provide general indemnifications. The Fund’s maximum exposure under these arrangements cannot be known; however, the Fund expects any risk of loss to be remote.
Security Valuation — The Fund records its investments at fair value. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on the NASDAQ Stock Market (“NASDAQ”)), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded (or at approximately 4:00 pm Eastern Time if a security’s primary exchange is normally open at that time), or, if there is no such reported sale, at the most recent quoted bid price for long positions and at the most recent quoted ask price for short positions. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. If available, debt securities are priced based upon valuations provided by independent, third-party pricing agents. Such values generally reflect the last reported sales price if the security is actively traded.
9
KPOP and Korean Entertainment ETF
Notes to the Financial Statements
April 30, 2023 (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
The third-party pricing agents may also value debt securities at an evaluated bid price by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the fair value for such securities. Debt obligations with remaining maturities of sixty days or less when acquired will be valued at their market value. If a market value is not available from a pricing vendor or from an independent broker, the security shall be fair valued according to the Trust’s fair value procedures. Prices for most securities held in the Fund are provided daily by recognized independent pricing agents. If a security price cannot be obtained from an independent, third-party pricing agent, the Fund seeks to obtain a bid price from at least one independent broker.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing requirements to determine fair value in good faith for purposes of the 1940 Act. The rule permits fund boards to designate a fund’s investment adviser to perform fair-value determinations, subject to board oversight and certain other conditions. The rule also defines when market quotations are “readily available” for purposes of the 1940 Act and requires a fund to fair value a portfolio investment when a market quotation is not readily available. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair-value determinations.
Pursuant to the requirements of Rule 2a-5, the Trust’s Board of Trustees (the “Board”) (i) has designated the Adviser as the Board’s valuation designee to perform fair-value determinations for the Fund through the Adviser’s Valuation Committee and (ii) approved the Adviser’s Valuation Procedures.
Some of the more common reasons that may necessitate that a security be valued using fair value procedures include: the security’s trading has been halted or suspended; the security has been de-listed from a national exchange; the security’s primary trading market is temporarily closed at a time, when under normal conditions, it would be open; the security has not been traded for an extended period of time; the security’s primary pricing source is not able or willing to provide a price; or trading of the security is subject to local government-imposed restrictions. In addition, the Fund may fair value its securities if an event that may materially affect the value of the Fund’s securities that traded outside of the United States (a ‘‘Significant Event’’) has occurred between the time of the security’s last close and the time that the Fund calculates its net asset value. A Significant Event may relate to a single issuer or to an entire market sector. Events that may be Significant Events include, but are not limited to, government actions, natural disasters, armed conflict, acts of terrorism and significant market fluctuations. If the Adviser becomes aware of a Significant Event that has occurred with respect to a security or group of securities after the closing of the exchange or market on which the security or securities principally trade, but before the time at which the Fund calculates its net asset value, it may request that a Committee meeting be called. When a security is valued in accordance with the fair value procedures, the Committee will determine the value after taking into consideration relevant information reasonably available to the Committee.
In accordance with the authoritative guidance on fair value measurements and disclosure under U.S. GAAP, the Fund discloses fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Accordingly, the fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
• Level 1 — Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Fund has the ability to access at the measurement date;
• Level 2 — Quoted prices which are not active, or inputs that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and
• Level 3 — Prices, inputs or exotic modeling techniques which are both significant to the fair value measurement and unobservable (supported by little or no market activity).
10
KPOP and Korean Entertainment ETF
Notes to the Financial Statements
April 30, 2023 (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
The valuation techniques used by the Fund to measure fair value during the period ended April 30, 2023 maximized the use of observable inputs and minimized the use of unobservable inputs. Investments are classified within the level of the lowest significant input considered in determining fair value.
Federal Income Taxes — It is the Fund’s intention to qualify as a regulated investment company for Federal income tax purposes by complying with the appropriate provisions of Subchapter M of the Internal Revenue Code of 1986, as amended. Accordingly, no provisions for Federal income taxes have been made in the financial statements.
The Fund’s policy is to classify interest and penalties associated with underpayment of federal and state income taxes, if any, as income tax expense on its Statement of Operations. As of April 30, 2023, the Fund did not have any interest or penalties associated with the underpayment of any income taxes. Current tax years remain open and subject to examination by tax jurisdictions. The Fund has reviewed all major jurisdictions and concluded that there is no impact on the Fund’s net assets and no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on its tax returns.
Foreign Taxes — The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The Fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains earned.
Security Transactions and Investment Income — Security transactions are accounted for on trade date. Costs used in determining realized gains and losses on the sale of investment securities are based on specific identification. Dividend income is recorded on the ex-dividend date. Interest income is recognized on the accrual basis. Withholding taxes and reclaims on foreign dividends, if any, have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.
Foreign Currency Translation — The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars on the date of valuation. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the relevant rates of exchange prevailing on the respective dates of such transactions. The Fund does not isolate that portion of realized or unrealized gains and losses resulting from changes in the foreign exchange rate from fluctuations arising from changes in the market prices of the securities. These gains and losses are included in net realized and unrealized gains and losses on investments on the Statement of Operations. Net realized and unrealized gains and losses on foreign currency transactions represent net foreign exchange gains or losses from foreign currency exchange contracts, disposition of foreign currencies, currency gains or losses realized between trade and settlement dates on securities transactions and the difference between the amount of the investment income and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent amounts actually received or paid. The Fund may be subject to foreign taxes related to foreign income received, capital gain on the sale of securities and certain foreign currency transactions (a portion of which may be reclaimable). All foreign taxes are recorded in accordance with the applicable regulations and rates that exist in the foreign jurisdictions in which the Fund invests.
Cash and Cash Equivalents — Idle cash may be swept into various overnight demand deposits and is classified as Cash and Cash equivalents on the Statement of Assets and Liabilities, if any. The Fund maintains cash in bank deposit accounts which, at times, may exceed United States federally insured limits. Amounts swept overnight are available on the next business day.
Dividends and Distributions to Shareholders — The Fund pays out dividends from its net investment income and distributes its net capital gains, if any, to investors at least annually. All distributions are recorded on ex-dividend date.
11
KPOP and Korean Entertainment ETF
Notes to the Financial Statements
April 30, 2023 (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Creation Units — The Fund issues and redeems shares at NAV and only in Creation Units, or multiples thereof. Purchasers of Creation Units (“Authorized Participants”) at NAV must pay a standard creation transaction fee of $700 per transaction, regardless of the number of Creation Units created in a given transaction. An Authorized Participant who holds Creation Units and wishes to redeem at NAV would also pay a standard minimum redemption transaction fee of $700 per transaction to the custodian on the date of such redemption, regardless of the number of Creation Units redeemed in a given transaction. The Fund may charge, either in lieu of or in addition to the fixed creation transaction fee, a variable fee for creations and redemptions in order to cover certain non-standard brokerage, tax, foreign exchange, execution, market impact and other costs and expenses related to the execution of trades resulting from such transactions. In all cases, such fees will be limited in accordance with the requirements of the Commission applicable to management investment companies offering redeemable securities.
The Adviser may retain all or a portion of the transaction fee to the extent the Adviser bears the expenses that otherwise would be borne by the Trust in connection with the purchase or redemption of a Creation Unit, which the transaction fee is designed to cover.
Except when aggregated in Creation Units, shares are not redeemable securities of the Fund. Shares of the Fund may only be purchased or redeemed by certain Authorized Participants. An Authorized Participant is either (i) a broker dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a Depository Trust Company (“DTC”) participant and, in each case, must have executed an Authorized Participant Agreement with the Fund’s distributor. Most retail investors will not qualify as Authorized Participants or have the resources to buy and sell whole Creation Units. Therefore, they will be unable to purchase or redeem the shares directly from the Fund. Rather, most retail investors will purchase and sell shares in the secondary market with the assistance of a broker and will be subject to customary brokerage commissions or fees.
To the extent contemplated by an Authorized Participant Agreement, in the event an Authorized Participant has submitted a redemption request in proper form but is unable to transfer all or part of the shares comprising a Creation Unit to be redeemed to SEI Investments Distribution Co. (the “Distributor”), on behalf of the Fund, by the time as set forth in the Authorized Participant Agreement, the Distributor may nonetheless accept the redemption request in reliance on the undertaking by the Authorized Participant to deliver the missing shares as soon as possible, which undertaking shall be secured by the Authorized Participant’s delivery and maintenance of collateral equal to a percentage of the value of the missing shares as specified in the Authorized Participant Agreement. An Authorized Participant Agreement may permit the Fund to use such collateral to purchase the missing shares, and could subject an Authorized Participant to liability for any shortfall between the cost of the Fund acquiring such shares and the value of the collateral. Amounts are disclosed as Segregated Cash Balance from Authorized Participants for Deposit Securities and Collateral Payable upon Return of Deposit Securities on the Statement of Assets and Liabilities, when applicable.
3. SERVICE PROVIDERS
Investment Advisory and Administrative Services
The Adviser is an Oklahoma limited liability company, located at 10900 Hefner Pointe Drive, Suite 400, Oklahoma City, Oklahoma 73120, its principal place of business, and 295 Madison Avenue, New York, New York 10017. The Adviser serves as investment adviser to the Fund pursuant to an investment advisory agreement with the Trust (the “Advisory Agreement”). Under the Advisory Agreement, the Adviser provides investment advisory services to the Fund and is responsible for the day-to-day management of the Fund, including, among other things, implementing changes to the Fund’s portfolio in connection with any rebalancing or reconstitution of the Index, trading portfolio securities on behalf of the Fund, and selecting broker-dealers to execute purchase and sale transactions, subject
12
KPOP and Korean Entertainment ETF
Notes to the Financial Statements
April 30, 2023 (Continued)
3. SERVICE PROVIDERS (continued)
to the oversight of the Board. For the services it provides to the Fund, the Fund pays the Adviser a fee, which is calculated daily and paid monthly, at an annual rate of 0.75% on the first $1 billion of the Fund’s average daily net assets, 0.70% on the next $2 billion, and 0.65% on assets greater than $3 billion.
Effective January 2, 2023, ETC Platform Services, LLC (“ETC Platform Services”), a direct wholly-owned subsidiary of the Adviser, began providing services to the Fund. ETC Platform Services administers the Fund’s business affairs and provides office facilities and equipment, certain clerical, bookkeeping and administrative services, paying agent services under the Fund’s unitary fee arrangement (as described below), and its officers and employees to serve as officers or Trustees of the Trust. ETC Platform Services also arranges for transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate. For the services it provides to the Fund, ETC Platform Services is paid a fee calculated daily and paid monthly based on a percentage of the Fund’s average daily net assets.
Under the Advisory Agreement, the Adviser has agreed to pay all expenses incurred by the Fund (including the fee charged by ETC Platform Services) except for the advisory fee, interest, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses, and distribution fees and expenses paid by the Fund under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act (“Excluded Expenses”).
CT Investments, Inc., is the sponsor of the Fund’s Index and the Fund (the “Sponsor”). In connection with an arrangement between the Adviser and the Sponsor, the Sponsor has agreed to assume the obligation of the Adviser to pay all expenses of the Fund (except Excluded Expenses) and, to the extent applicable, pay the Adviser a minimum fee. For its services, the Sponsor is entitled to a fee from the Adviser, which is calculated daily and paid monthly, based on a percentage of the average daily net assets of the Fund. The Sponsor does not make investment decisions, provide investment advice, or otherwise act in the capacity of an investment adviser to the Fund.
A Trustee and certain officers of the Trust are affiliated with the Adviser and receive no compensation from the Trust for serving as officers and/or Trustee.
Distribution Arrangement
The Distributor serves as the Fund’s underwriter and distributor of shares pursuant to a distribution agreement (the “Distribution Agreement”). Under the Distribution Agreement, the Distributor, as agent, receives orders to purchase shares in Creation Units and transmits such orders to the Fund’s custodian and transfer agent. The Distributor has no obligation to sell any specific quantity of Fund shares. The Distributor bears the following costs and expenses relating to the distribution of shares: (i) the expenses of maintaining its registration or qualification as a dealer or broker under federal or state laws; (ii) filing fees; and (iii) all other expenses incurred in connection with the distribution services that are not reimbursed by the Adviser, as contemplated in the Distribution Agreement. The Distributor does not maintain any secondary market in Fund shares.
The Fund has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year for certain distribution-related activities. For the period ended April 30, 2023, no fees were charged by the Distributor under the Plan and the Plan will only be implemented with approval of the Board.
13
KPOP and Korean Entertainment ETF
Notes to the Financial Statements
April 30, 2023 (Continued)
3. SERVICE PROVIDERS (continued)
Administrator, Custodian and Transfer Agent
SEI Investments Global Funds Services serves as the Fund’s administrator pursuant to an administration agreement. The Bank of New York Mellon serves as the Fund’s custodian and transfer agent pursuant to a custodian agreement and transfer agency services agreement. The Adviser pays these fees.
An officer of the Trust is affiliated with the administrator and receives no compensation from the Trust for serving as an officer.
4. INVESTMENT TRANSACTIONS
For the period ended April 30, 2023, the purchases and sales of investments in securities, excluding in-kind transactions, long-term U.S. Government and short-term securities were:
| | Purchases | | Sales and
Maturities | | |
$ | 3,631,484 | | $ | 1,048,178 | |
For the period ended April 30, 2023, there were no purchases or sales of long-term U.S. Government securities by the Fund.
For the period ended April 30, 2023, there were no in-kind transactions associated with creations and redemptions.
5. TAX INFORMATION
The amount and character of income and capital gain distributions to be paid, if any, are determined in accordance with Federal income tax regulations, which may differ from U.S. GAAP. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. These book/tax differences may be temporary or permanent. To the extent these differences are permanent in nature, they are charged or credited to paid-in capital or distributable earnings (accumulated losses), as appropriate, in the year that the differences arise.
Accordingly, the following permanent differences primarily attributable to Net Operating Losses have been reclassified within the components of net assets for the period ended April 30, 2023.
| | Paid-in
Capital | | Distributable
Earnings
(Accumulated Losses) | | |
$ | (6,407) | | $ | 6,407 | |
The reclassification had no impact on net assets or net asset value per share.
As April 30, 2023 the components of Distributable Earnings (Accumulated Losses) on a tax basis were as follows:
Post-October Losses | | | (78,570) |
Capital Loss Carryforwards | | | (11,306) |
Unrealized Appreciation (Depreciation) | | | 232,024 |
Total Distributable Earnings (Accumulated Losses) | | $ | 142,148 |
Post-October capital losses represent capital losses realized on investment transactions from November 1, 2022 through April 30, 2023, that, in accordance with Federal income tax regulations, the Fund may elect to defer and treat as having arisen in the following fiscal year.
14
KPOP and Korean Entertainment ETF
Notes to the Financial Statements
April 30, 2023 (Continued)
5. TAX INFORMATION (continued)
The Fund is permitted to utilize capital losses that are carried forward and will retain their character as either short-term or long-term capital losses. As of April 30, 2023, the Fund has the following capital loss carryforwards to offset capital gains for an unlimited period:
| | Non-Expiring
Short-Term | | Non-Expiring
Long-Term | | Total
Capital Loss
Carryforward | | |
$ | 11,306 | | $ | — | | $ | 11,306 | |
For Federal income tax purposes, the cost of securities owned at April 30, 2023 and the net realized gains or losses on securities sold for the period were different from amounts reported for financial reporting purposes primarily due to wash sales, which cannot be used for Federal income tax purposes in the current period and have been deferred for use in future years, as well as investments in passive foreign investment companies. The Federal tax cost and aggregate gross unrealized appreciation and depreciation on investments and foreign currency transactions held by the Fund at April 30, 2023, were as follows:
| | Federal
Tax Cost | | Aggregated
Gross
Unrealized
Appreciation | | Aggregated
Gross
Unrealized
Depreciation | | Net
Unrealized Appreciation (Depreciation) | | |
$ | 2,497,778 | | $ | 430,067 | | $ | (198,043 | ) | | $ | 232,024 | |
6. PRINCIPAL RISKS OF INVESTING IN THE FUND
As with all exchange traded funds (“ETFs”), a shareholder of the Fund is subject to the risk that his or her investment could lose money. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s NAV, trading price, yield, total return and ability to meet its investment objective. Additional principal risks are disclosed in the Fund’s prospectus. Please refer to the Fund’s prospectus for a complete description of the principal risks of investing in the Fund.
Cash Transactions Risk: The Fund expects to effect all of its creations and redemptions for cash, rather than in-kind securities. As a result, the Fund may have to sell portfolio securities at inopportune times in order to obtain the cash needed to meet redemption orders. This may cause the Fund to sell a security and recognize a capital gain or loss that might not have been incurred if it had made a redemption in-kind. The use of cash greater premiums or discounts to the Fund’s NAV. In effecting creations and redemptions in exchange for cash, the Fund may incur certain costs, including brokerage costs in connection with investing cash received and may recognize capital gains in connection with cash redemptions, unlike an ETF that effects creations and redemptions only in-kind. In addition, costs could be imposed on the Fund which would have the effect of decreasing the Fund’s NAV to the extent the costs are not offset by a transaction fee payable by an Authorized Participant.
Currency Exchange Rate Risk: The Fund expects to invest in securities denominated in South Korean won. Changes in currency exchange rates and the relative value of non-U.S. currencies will affect the value of the Fund’s investment and the value of your shares. Because the Fund’s net NAV is determined in U.S. dollars, the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign currency, increases. Currency exchange rates can be very volatile and can change quickly and unpredictably. As a result, the value of the Fund’s investment may change quickly and without warning and the Fund may lose money.
Emerging Markets Securities Risk: Emerging markets are subject to greater market volatility, lower trading volume, political and economic instability, uncertainty regarding the existence of trading markets, and more governmental limitations on foreign investment than more developed markets. In addition, securities in emerging markets
15
KPOP and Korean Entertainment ETF
Notes to the Financial Statements
April 30, 2023 (Continued)
6. PRINCIPAL RISKS OF INVESTING IN THE FUND (continued)
may be subject to greater price fluctuations than securities in more developed markets. Differences in regulatory, accounting, auditing, and financial reporting and recordkeeping standards could impede the Adviser’s ability to evaluate local companies and impact the Fund’s performance. Investments in securities of issuers in emerging markets may also be exposed to risks related to a lack of liquidity, greater potential for market manipulation, issuers’ limited reliable access to capital, and foreign investment structures. Additionally, the Fund may have limited rights and remedies available to it to pursue claims against issuers in emerging markets.
Foreign Securities Risk: Investments in non-U.S. securities involve certain risks that may not be present with investments in U.S. securities. For example, investments in non-U.S. securities may be subject to risk of loss due to foreign currency fluctuations or to expropriation, nationalization or adverse political or economic developments. Foreign securities may have relatively low market liquidity and decreased publicly available information about issuers. Investments in non-U.S. securities also may be subject to withholding or other taxes and may be subject to additional trading, settlement, custodial, and operational risks. Non-U.S. issuers may also be subject to inconsistent and potentially less stringent accounting, auditing, financial reporting and investor protection standards than U.S. issuers. These and other factors can make investments in the Fund more volatile and potentially less liquid than other types of investments. In addition, where all or a portion of the Fund’s portfolio holdings trade in markets that are closed when the Fund’s market is open, there may be valuation differences that could lead to differences between the Fund’s market price and the value of the Fund’s portfolio holdings.
Geographic Investment Risk: To the extent the Fund invests a significant portion of its assets in the securities of companies of a single country or region, it is more likely to be impacted by events or conditions affecting that country or region.
Investing in South Korea Risk: The Fund invests a significant portion of its assets in securities of South Korean issuers. Investments in South Korean issuers may subject the Fund to legal, regulatory, political, currency, security, and economic risks that are specific to South Korea. In addition, economic and political developments of South Korea’s neighbors may have an adverse effect on the South Korean economy.
Industry Concentration Risk: Because the Fund’s assets will be concentrated in an industry or group of industries to the extent the Index concentrates in a particular industry or group of industries, the Fund is subject to loss due to adverse occurrences that may affect that industry or group of industries. As of April 30, 2023, the Index was concentrated in the Entertainment Industry and Interactive Media & Services Industry.
Entertainment Industry Risk: The Entertainment Industry is highly competitive and relies on consumer spending and the availability of disposable income for success. The prices of the securities of companies in the Entertainment Industry may fluctuate widely due to competitive pressures, heavy expenses incurred for research and development of products, problems related to bringing products to market, consumer preferences and rapid obsolescence of products. Legislative or regulatory changes and increased government supervision also may affect companies in the Entertainment Industry.
Interactive Media & Services Industry Risk: The success of the Interactive Media & Services Industry may be tied closely to the performance of the overall global economy, interest rates, competition and consumer confidence. Success depends heavily on disposable household income and consumer spending. Also, companies in the Interactive Media & Services Industry may be subject to severe competition, which may have an adverse impact on their respective profitability. Changes in demographics and consumer tastes can also affect the demand for, and success of, interactive media and services in the marketplace.
16
KPOP and Korean Entertainment ETF
Notes to the Financial Statements
April 30, 2023 (Continued)
6. PRINCIPAL RISKS OF INVESTING IN THE FUND (continued)
Limited Authorized Participants, Market Makers and Liquidity Providers Risk: Because the Fund is an ETF, only a limited number of institutional investors (known as “Authorized Participants”) are authorized to purchase and redeem shares directly from the Fund. In addition, there may be a limited number of market makers and/or liquidity providers in the marketplace. To the extent either of the following events occurs, the risk of which is higher during periods of market stress, shares of the Fund may trade at a material discount to NAV and possibly face delisting: (i) Authorized Participants exit the business or otherwise become unable to process creation and/or redemption orders and no other Authorized Participants step forward to perform these services, or (ii) market makers and/or liquidity providers exit the business or significantly reduce their business activities and no other entities step forward to perform their functions.
Market Risk: The market price of an investment could decline, sometimes rapidly or unpredictably, due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic or political conditions throughout the world, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment generally. The market value of an investment also may decline because of factors that affect a particular industry or industries such as labor shortages, increased production costs, and competitive conditions. Local, regional, or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the market generally and on specific investments. For example, in recent years, the COVID-19 pandemic, the large expansion of government deficits and debt as a result of government actions to mitigate the effects of the pandemic, Russia’s invasion of Ukraine, and the rise of inflation have resulted in extreme volatility in the global economy and in global financial markets. Economies and financial markets throughout the world are becoming increasingly interconnected. As a result, whether or not the Fund invests in securities of issuers located in or with significant exposure to countries experiencing economic and financial difficulties, the value and liquidity of the Fund’s investments may be negatively affected.
Non-Diversification Risk: The Fund is non-diversified under the 1940 Act, meaning that, as compared to a diversified fund, it can invest a greater percentage of its assets in securities issued by or representing a small number of issuers. As a result, the performance of these issuers can have a substantial impact on the Fund’s performance.
7. OTHER
At April 30, 2023, the records of the Trust reflected that 100% of the Fund’s total shares outstanding were held by two Authorized Participants, in the form of Creation Units. However, the individual shares comprising such Creation Units are listed and traded on the Exchange and have been purchased and sold by persons other than Authorized Participants.
8. RECENT MARKET EVENTS
Local, regional, or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the market generally and on specific securities. Periods of market volatility may occur in response to such events and other economic, political, and global macro factors. The COVID-19 pandemic, Russia’s invasion of Ukraine, and higher inflation have resulted in extreme volatility in the financial markets, economic downturns around the world, severe losses to some sectors of the economy and individual issuers, and reduced liquidity of certain instruments. These events have caused significant disruptions to business operations, including business closures; strained healthcare systems; disruptions to supply chains and employee availability; large fluctuations in consumer demand; large expansion of government deficits and debt as a result of government actions to mitigate the effects of such events; and widespread uncertainty regarding the long-term effects of such events.
17
KPOP and Korean Entertainment ETF
Notes to the Financial Statements
April 30, 2023 (Concluded)
8. RECENT MARKET EVENTS (continued)
Governments and central banks, including the Federal Reserve in the United States, took extraordinary and unprecedented actions to support local and global economies and the financial markets in response to the COVID-19 pandemic, including by keeping interest rates at historically low levels for an extended period. The Federal Reserve concluded its market support activities in 2022 and began to raise interest rates in an effort to fight inflation. The Federal Reserve may determine to raise interest rates further. This and other government intervention into the economy and financial markets to address the pandemic, inflation, or other significant events in the future may not work as intended, particularly if the efforts are perceived by investors as being unlikely to achieve the desired results.
9. SUBSEQUENT EVENTS
The Fund has evaluated the need for additional disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. Based on this evaluation, no additional disclosures and/or adjustments were required to the financial statements.
18
KPOP and Korean Entertainment ETF
Report of Independent Registered Public Accounting
To the Shareholders of KPOP and Korean Entertainment ETF and
Board of Trustees of Exchange Traded Concepts Trust
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of KPOP and Korean Entertainment ETF (the “Fund”), a series of Exchange Traded Concepts Trust, as of April 30, 2023, the related statements of operations and changes in net assets, the related notes, and the financial highlights for the period from September 1, 2022 (commencement of operations) through April 30, 2023 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of April 30, 2023, the results of its operations, the changes in net assets, and the financial highlights for the period from September 1, 2022 (commencement of operations) through April 30, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of April 30, 2023, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
We have served as the auditor of one or more investment companies advised by Exchange Traded Concepts, LLC since 2012.
COHEN & COMPANY, LTD.
Cleveland, Ohio
June 23, 2023
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KPOP and Korean Entertainment ETF
Review of Liquidity Risk Management Program
April 30, 2023 (Unaudited)
Pursuant to Rule 22e-4 under the Investment Company Act of 1940, the Trust, on behalf of the series of the Trust covered by this shareholder report (the “Fund”), has adopted a liquidity risk management program to govern the Trust’s approach to managing liquidity risk. Rule 22e-4 seeks to promote effective liquidity risk management, thereby reducing the risk that the Fund will be unable to meet its redemption obligations and mitigating dilution of the interests of its shareholders. The Trust’s liquidity risk management program (the “Program”), which adopts the liquidity risk management policies and procedures of Exchange Traded Concepts, LLC, the Trust’s investment adviser (the “Adviser”), is tailored to reflect the Fund’s particular risks, but not to eliminate all adverse impacts of liquidity risk, which would be incompatible with the nature of the Fund.
The Adviser, which is the administrator of the Program, has formed a Liquidity Risk Working Group (“LRWG”) consisting of certain individuals from the Adviser’s portfolio management, capital markets and compliance teams. The LRWG is responsible for conducting an initial assessment of the liquidity risk of the Fund and to manage the liquidity risk of the Fund on an ongoing basis. Meetings of the LRWG are held no less than monthly.
At the February 2023 meeting of the Board of Trustees of the Trust, the Trustees received a report pertaining to the operation, adequacy, and effectiveness of implementation of the Program for the period ended December 31, 2022. The report concluded that the Program is adequately designed to assess and manage the Fund’s liquidity risk and has been effectively implemented. The report reflected that no material changes have been made to the Program since its implementation.
There can be no assurance that the Program will achieve its objectives in the future. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other principal risks to which an investment in the Fund may be subject.
20
KPOP and Korean Entertainment ETF
Trustee and Officers of the Trust
Set forth below is information about the Trustees of the Trust. The address of each Trustee of the Trust is c/o Exchange Traded Concepts Trust, 10900 Hefner Pointe Drive, Suite 400, Oklahoma City, Oklahoma 73120. The Fund’s SAI includes additional information about the Trustees and Officers. The SAI may be obtained without charge by calling 833-599-5767.
Name and
Year of Birth | Position(s)
Held with
Trust | Term of Office
and Length of
Time Served(1) | Principal
Occupation(s)
During the Past 5 Years | Number of
Portfolios in
Fund Complex
Overseen By
Trustee(2) | Other
Directorships
Held by
Trustee During
Past 5 Years |
Interested Trustee(3) | | | | |
J. Garrett Stevens
(1979) | Trustee and President | Trustee
since 2009;
President
since 2011 | Investment Adviser/Vice President, T.S. Phillips Investments, Inc. (since 2000); Chief Executive Officer, Exchange Traded Concepts, LLC (since 2009); President, Exchange Traded Concepts Trust (since 2011); President, Exchange Listed Funds Trust (since 2012). | 19 | None. |
Independent Trustees |
Timothy Jacoby
(1952) | Trustee | Since 2014 | None. | 37 | Independent Trustee, Bridge Builder Trust (14 portfolios) (since 2022); Independent Trustee, Edward Jones Money Market Fund (since 2017); Audit Committee Chair, Perth Mint Physical Gold ETF (2018 to 2020). |
Linda Petrone
(1962) | Trustee | Since 2019 | Founding Partner, Sage Search Advisors (since 2012). | 37 | None. |
Stuart Strauss
(1953) | Trustee | Since 2021 | Partner, Dechert LLP
(2009 to 2020). | 37 | None. |
Mark Zurack
(1957) | Trustee | Since 2011 | Professor, Columbia Business School (since 2002). | 19 | Independent Trustee, AQR Funds (36 portfolios) (since 2014); Independent Trustee, Exchange Listed Funds Trust (2019). |
21
KPOP and Korean Entertainment ETF
Trustee and Officers of the Trust
Set forth below is information about each of the persons currently serving as Officers of the Trust. The address of J. Garrett Stevens, James Baker Jr., Richard Malinowski, Christopher Roleke and Matthew Fleischer is c/o Exchange Traded Concepts Trust, 10900 Hefner Pointe Drive, Suite 400, Oklahoma City, Oklahoma 73120; and the address of Eric Olsen is SEI Investments Company, One Freedom Valley Drive, Oaks, Pennsylvania 19456.
Name and Year of Birth | | Position(s) Held
with Trust | | Term of Office and
Length of Time Served(1) | | Principal Occupation(s)
During Past 5 Years |
Officers | | | | | | |
J. Garrett Stevens
(1979)
| | Trustee and President | | Trustee since 2009;
President since 2011 | | Investment Adviser/Vice President, T.S. Phillips Investments, Inc. (since 2000); Chief Executive Officer, Exchange Traded Concepts, LLC (since 2009); President, Exchange Listed Funds Trust (since 2012). |
James Baker Jr.
(1951)
| | Vice President | | Since 2015 | | Managing Partner, Exchange Traded Concepts, LLC (since 2011); Managing Partner |
Richard Malinowski
(1983)
| | Vice President and Secretary | | Since 2022 | | General Counsel, Exchange Traded Concepts, LLC (since 2022); Senior Vice President and Senior Managing Counsel, Ultimus Fund Solutions LLC, (2020 to 2022); Senior Vice President, Ultimus Fund Solutions LLC (2017 to 2020). |
Christopher Roleke
(1972)
| | Treasurer | | Since 2022 | | Controller, Exchange Traded Concepts, LLC (since 2022); Managing Director/Fund Principal Financial Officer, Foreside Management Services, LLC (2011 to 2022). |
Eric Olsen
(1970) | | Assistant Treasurer | | Since 2021 | | Director, Fund Accounting, SEI Investments Global Funds Services (since 2021); Deputy Head of Fund Operations, Traditional Assets, Aberdeen Standard Investments (2013 to 2021). |
Matthew Fleischer
(1983) | | Chief Compliance Officer | | Since 2021 | | Chief Compliance Officer, Exchange Traded Concepts Trust (since 2021); Chief Compliance Officer, Exchange Listed Funds Trust (since 2021); Vice President, Compliance, Goldman Sachs Asset Management Funds (2017 to 2021). |
22
KPOP and Korean Entertainment ETF
Disclosure of Fund Expenses
All ETFs have operating expenses. As a shareholder of the Fund you incur an advisory fee. In addition to the advisory fee, a shareholder may pay brokerage expenses, taxes, interest, litigation expenses, and other extraordinary expenses (including acquired fund fees and expenses), if any. It is important for you to understand the impact of these ongoing costs on your investment returns. Shareholders may incur brokerage commissions on their purchases and sales of Fund shares, which are not reflected in these examples.
The following examples use the annualized expense ratio and are intended to help you understand the ongoing costs (in dollars) of investing in the Fund and to compare these costs with those of other funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period (November 1, 2022 to April 30, 2023) (unless otherwise noted below). The table below illustrates the Fund’s costs in two ways:
Actual Fund Return. This section helps you to estimate the actual expenses after fee waivers that your Fund incurred over the period. The “Expenses Paid During Period” column shows the actual dollar expense cost incurred by a $1,000 investment in the Fund, and the “Ending Account Value” number is derived from deducting that expense cost from the Fund’s gross investment return.
You can use this information, together with the actual amount you invested in the Fund, to estimate the expenses you paid over that period. Simply divide your actual account value by $1,000 to arrive at a ratio (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply that ratio by the number shown for your Fund under “Expenses Paid During Period.”
Hypothetical 5% Return. This section helps you compare your Fund’s costs with those of other funds. It assumes that the Fund had an annual 5% return before expenses during the year, but that the expense ratio (Column 3) for the period is unchanged. This example is useful in making comparisons because the Commission requires all funds to make this 5% calculation. You can assess your Fund’s comparative cost by comparing the hypothetical result for your Fund in the “Expenses Paid During Period” column with those that appear in the same charts in the shareholder reports for other funds.
NOTE: Because the return is set at 5% for comparison purposes — NOT your Fund’s actual return — the account values shown may not apply to your specific investment.
| | Beginning
Account Value
11/1/2022 | | Ending
Account Value
4/30/2023 | | Annualized
Expense
Ratios | | Expenses
Paid During
Period(1) |
Actual Fund Return | | $ | 1,000.00 | | $ | 1,346.10 | | 0.75 | % | | $ | 4.36 |
Hypothetical 5% Return | | $ | 1,000.00 | | $ | 1,021.08 | | 0.75 | % | | $ | 3.76 |
23
KPOP and Korean Entertainment ETF
Supplemental Information
NAV is the price per share at which a fund issues and redeems shares. It is calculated in accordance with the standard formula for valuing fund shares. The “Market Price” of a fund generally is determined using the midpoint between the highest bid and the lowest offer on the stock exchange on which the shares of the fund are listed for trading, as of the time that the fund’s NAV is calculated. A fund’s Market Price may be at, above or below its NAV. The NAV of a fund will fluctuate with changes in the market value of the fund’s holdings. The NAV of a fund may also be impacted by the accrual of deferred taxes. The Market Price of a fund will fluctuate in accordance with changes in its NAV, as well as market supply and demand.
Premiums or discounts are the differences (expressed as a percentage) between the NAV and Market Price of a fund on a given day, generally at the time NAV is calculated. A premium is the amount that a fund is trading above the reported NAV, expressed as a percentage of the NAV. A discount is the amount that a fund is trading below the reported NAV, expressed as a percentage of the NAV.
Further information regarding premiums and discounts is available on the Fund’s website at www.kpopetf.com.
24
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10900 Hefner Pointe Drive, Suite 400
Oklahoma City, OK 73120
Investment Adviser:
Exchange Traded Concepts, LLC
10900 Hefner Pointe Drive, Suite 400
Oklahoma City, OK 73120
Distributor:
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
Administrator:
SEI Investments Global Funds Services
One Freedom Valley Drive
Oaks, PA 19456
Legal Counsel:
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue, NW
Washington, DC 20004
Independent Registered Public Accounting Firm:
Cohen & Company, Ltd.
1350 Euclid Avenue
Suite 800
Cleveland, OH 44115
This information must be preceded or accompanied by a current prospectus for the Fund.
KPO-AR-001-0100
The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer, principal financial officer, comptroller or principal accounting officer or any person who performs a similar function.
(a) (1) The Registrant’s Board of Trustees has determined that the Registrant has an audit committee financial expert serving on the audit committee.
(a) (2) The audit committee financial expert Timothy Jacoby is an independent trustee as defined in Form N-CSR Item 3 (a) (2).
Item 4. Principal Accountant Fees and Services.
Fees billed by Cohen & Company, Ltd (Cohen) related to the Registrant.
Cohen billed the Registrant aggregate fees for services rendered to the Registrant for the last two fiscal years as follows:
(e)(1) The Trust’s Audit Committee has adopted, and the Board of Trustees has ratified, an Audit and Non-Audit Services Pre-Approval Policy (the “Policy”), which sets forth the procedures and the conditions pursuant to which services proposed to be performed by the independent auditor of the Trust may be pre-approved.
(e)(2) Percentage of fees billed applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:
(f) Not Applicable.
(g) The aggregate non-audit fees and services billed by Cohen for the fiscal years 2023 and 2022 were $17,500 and $14,000, respectively.
(h) During the past fiscal year, Registrant's principal accountant provided certain non-audit services to Registrant's investment adviser or to entities controlling, controlled by, or under common control with Registrant's investment adviser that provide ongoing services to Registrant that were not subject to pre-approval pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The Audit Committee of Registrant's Board of Trustees reviewed and considered these non-audit services provided by Registrant's principal accountant to Registrant's affiliates, including whether the provision of these non-audit services is compatible with maintaining the principal accountant's independence.
The Registrant has a separately-designated standing Audit Committee, which is composed of the Registrant's Independent Trustees: Timothy Jacoby, Stuart Strauss, Linda Petrone and Mark Zurack.
Schedule of Investments is included as part of the Report to Shareholders filed under Item 1 of this form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to open-end management investment companies.
Not applicable to open-end management investment companies.
Not applicable to open-end management investment companies.
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees during the period covered by this report.
(a) The Registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c))) as of a date within 90 days of the filing date of the report, are effective based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There has been no change in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for the Closed-End Management Investment Companies.
Not applicable to open-end management investment companies.
Item 13. Exhibits.
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.
