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 811-22263
Exchange Traded Concepts Trust
(Exact name of registrant as specified in charter)
________
10900 Hefner Pointe Drive
Suite 207
Oklahoma City, OK 73120
(Address of principal executive offices) (Zip code)
J. Garrett Stevens
Exchange Traded Concepts Trust
10900 Hefner Pointe Drive
Suite 207
Oklahoma City, Oklahoma 73013
(Name and address of agent for service)
Copy to:
Christopher Menconi
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue NW
Washington, DC 20004
Registrant’s telephone number, including area code: 1-405-778-8377
Date of fiscal year end: December 31, 2018
Date of reporting period: December 31, 2018
Item 1. | Reports to Stockholders. |
A copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Act (17 CFR § 270.30e-1) is attached hereto.
EXCHANGE TRADED CONCEPTS TRUST
YieldShares High Income ETF
Annual Report
December 31, 2018
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission (the “Commission”), paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
Please contact your financial intermediary to elect to receive shareholder reports and other Fund communications electronically. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action.
You may elect to receive all future reports in paper free of charge. Please contact your financial intermediary to inform them that you wish to continue receiving paper copies of your shareholder reports and for details about whether your election to receive reports in paper will apply to all funds held with your financial intermediary.
YieldShares High Income ETF
Table of Contents
Management Discussion of Fund Performance | 2 |
Schedule of Investments | 4 |
Statement of Assets and Liabilities | 5 |
Statement of Operations | 6 |
Statements of Changes in Net Assets | 7 |
Financial Highlights | 8 |
Notes to Financial Statements | 9 |
Report of Independent Registered Public Accounting Firm | 17 |
Trustees and Officers of the Trust | 18 |
Disclosure of Fund Expenses | 21 |
Notice to Shareholders | 22 |
Supplemental Information | 23 |
The Fund files its complete schedule of Fund holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q within sixty days after the end of the period. The Fund’s Forms N-Q are available on the Commission’s website at http://www.sec.gov, and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
A description of the policies and procedures that Exchange Traded Concepts uses to determine how to vote proxies relating to Fund securities, as well as information relating to how the Fund voted proxies relating to Fund securities during the most recent 12-month period ended June 30, is available (i) without charge, upon request, by calling 1-855-796-3863; (ii) the Fund’s website at www.YieldShares.com; and (iii) on the Commission’s website at http://www.sec.gov.
1 |
YieldShares High Income ETF
Management Discussion of Fund Performance
December 31, 2018 (Unaudited)
Dear Shareholders,
Thank you for your investment in the YieldShares High Income ETF (the “Fund”). The information presented in this Report relates to the operations of YYY for the fiscal year ended December 31, 2018.
As a reminder, the YieldShares High Income ETF (YYY) seeks to provide investment results that, before fees and expenses, correspond to the price and yield performance of the ISE High Income Index (the “Index”). The Index is comprised of 30 U.S. exchange-listed closed-end funds (CEFs) ranked highest overall in three criteria: fund yield, discount to net asset value and liquidity. The Index reconstitutes once a year.
The Fund had negative performance during the fiscal year ended December 31, 2018. The market price for YYY decreased 10.13% and the NAV decreased 9.97%, while the S&P 500 Index, a broad market index, decreased 4.38% over the same period. The Index fell 9.65%. Meanwhile, outstanding shares ended the period at 10,850,000.
For the period, the largest positive contributor to return was PIMCO Dynamic Credit and Mortgage Income Fund (PCI US), adding 0.12% to the return of the Fund, gaining 3.77% with an average weighting of 3.57%. The second largest contributor to return was Templeton Emerging Markets Income Fund (TEI US), adding 0.02% to the return of the Fund, gaining 1.79% with an average weighting of 0.03%. The third largest contributor to return was AllianzGI Convertible & Income Fund (NCV US), adding 0.00% to the return of the Fund, gaining 0.71% with an average weighting of 0.01%.
For the period, the largest negative contributor to return was Aberdeen Total Dynamic Dividend Fund (AOD US), detracting 0.77% from the return of the Fund, declining 17.62% with an average weighting of 4.27%. The security contributing second-most negatively was ClearBridge MLP & Midstream Fund Inc (CEM US), detracting 0.76% from the return of the Fund, and declining 29.32% with an average weighting of 2.30%. The third largest negative contributor to return was Western Asset Emerging Markets Debt Fund Inc (EMD US), detracting 0.63% from the return of the Fund, and declining 14.95% with an average weight of 3.92%.
YYY began distributing income to shareholders on a monthly basis in late August of 2013. The Fund continued its monthly distributions through the end of the year. The Fund’s 30 Day SEC Yield (see definition below) was 8.33% as of the close of markets on December 31, 2018. For the fiscal year ended December 31, 2018, $0.43 per share of the Fund’s distributions was return of capital.
Sincerely,
J. Garrett Stevens, CEO
Exchange Traded Concepts
Advisor to the Fund
30-Day SEC Yield is a standardized yield calculation developed by the Commission that allows for comparisons among funds. It is based on the most recent month end (in this case December 31, 2018). This figure reflects the income earned during the period after deducting the Fund’s expenses for the period, and is expressed as a percentage of the Fund’s [NAV/market price] per share as of the last day of the period.
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 |
YieldShares High Income ETF
Management Discussion of Fund Performance
December 31, 2018 (Unaudited) (Concluded)
Growth of a $10,000 Investment
(at Net Asset Value)
AVERAGE ANNUAL TOTAL RETURN FOR THE YEAR ENDED DECEMBER 31, 2018 | ||||||||||||||||
One Year Return | Three Year Return | Five Year Return | Annualized Inception to Date* | |||||||||||||
Net Asset Value | Market Price | Net Asset Value | Market Price | Net Asset Value | Market Price | Net Asset Value | Market Price | |||||||||
YieldShares High Income ETF | -9.97%‡ | -10.13%‡ | 5.82%‡ | 5.77%‡ | 1.89%‡ | 1.79%‡ | 5.25%‡ | 5.22%‡ | ||||||||
Hybrid SWM/ISE High Income Index** | -9.65%‡ | -9.65%‡ | 6.31%‡ | 6.31%‡ | 2.14%‡ | 2.14%‡ | 5.28%‡ | 5.28%‡ | ||||||||
S&P 500 Index | -4.38%‡ | -4.38%‡ | 9.26%‡ | 9.26%‡ | 8.49%‡ | 8.49%‡ | 12.75%‡ | 12.75%‡ |
* Fund commenced operations on June 11, 2012.
** Reflects performance of Sustainable North American Oil Sands Index (R) (“SWM Index”) through June 20, 2013 and ISE High Income Index thereafter.
‡Unaudited
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. Prior to June 21, 2013, the Fund sought to provide investment results that, before fees and expenses, corresponded generally to the price and yield performance of the SWM Index. 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 the 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.
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.
See definition of comparative index in Management Discussion of Fund Performance.
3 |
YieldShares High Income ETF
Schedule of Investments
December 31, 2018
Description | Shares | Fair Value | ||||||
CLOSED-END FUNDS — 99.4% | ||||||||
Equity — 20.6% | ||||||||
Aberdeen Total Dynamic Dividend Fund | 952,900 | $ | 6,870,409 | |||||
ClearBridge MLP & Midstream Fund | 324,884 | 3,382,042 | ||||||
Cohen & Steers Quality Income Realty Fund | 693,751 | 7,187,260 | ||||||
Eaton Vance Risk-Managed Diversified Equity Income Fund | 926,364 | 7,522,076 | ||||||
Eaton Vance Tax-Advantaged Dividend Income Fund | 82,520 | 1,567,055 | ||||||
Liberty All Star Equity Fund | 1,403,295 | 7,549,727 | ||||||
Nuveen Real Asset Income and Growth Fund | 133,638 | 1,821,486 | ||||||
35,900,055 | ||||||||
Fixed Income — 78.8% | ||||||||
AllianceBernstein Global High Income Fund | 284,339 | 2,994,090 | ||||||
BlackRock Corporate High Yield Fund | 794,924 | 7,376,895 | ||||||
BlackRock Credit Allocation Income Trust | 302,271 | 3,379,390 | ||||||
BlackRock Debt Strategies Fund | 276,700 | 2,703,359 | ||||||
BlackRock Multi-Sector Income Trust | 481,472 | 7,395,410 | ||||||
Blackstone/GSO Strategic Credit Fund | 367,145 | 4,945,443 | ||||||
Brookfield Real Assets Income Fund | 211,489 | 4,033,095 | ||||||
DoubleLine Income Solutions Fund | 432,911 | 7,502,348 | ||||||
Eaton Vance Limited Duration Income Fund | 645,711 | 7,696,875 | ||||||
First Trust High Income Long/Short Fund | 382,915 | 5,085,111 | ||||||
Invesco Dynamic Credit Opportunities Fund | 661,191 | 6,790,432 |
Description | Shares | Fair Value | ||||||
COMMON STOCK (Continued) | ||||||||
Fixed Income (Continued) | ||||||||
Invesco Senior Income Trust | 634,278 | $ | 2,480,027 | |||||
Morgan Stanley Emerging Markets Domestic Debt Fund | 1,120,075 | 6,787,655 | ||||||
NexPoint Strategic Opportunities Fund | 359,018 | 7,155,229 | ||||||
Nuveen Credit Strategies Income Fund | 986,081 | 7,296,999 | ||||||
PGIM Global Short Duration High Yield Fund | 607,475 | 7,848,577 | ||||||
PGIM Short Duration High Yield Fund | 589,347 | 7,679,191 | ||||||
PIMCO Dynamic Credit and Mortgage Income Fund | 301,630 | 6,349,312 | ||||||
Wells Fargo Income Opportunities Fund | 1,012,966 | 7,323,744 | ||||||
Western Asset Emerging Markets Debt Fund | 565,452 | 6,949,405 | ||||||
Western Asset Global High Income Fund | 714,219 | 5,906,591 | ||||||
Western Asset High Income Fund II | 1,252,483 | 7,214,302 | ||||||
Western Asset High Income Opportunity Fund | 1,075,022 | 4,708,596 | ||||||
137,602,076 | ||||||||
Total Closed-End Funds (Cost $202,661,536) | 173,502,131 | |||||||
Total Investments - 99.4% (Cost $202,661,536) | $ | 173,502,131 |
Percentages are based on Net Assets of $174,526,080.
MLP — Master Limited Partnership
As of December 31, 2018, all of the Fund’s investments were considered Level 1, in accordance with authoritative guidance under U.S. GAAP.
For the year ended December 31, 2018, there were no transfers between Level 1, Level 2 or Level 3 investments.
For the year ended December 31, 2018, there were no Level 3 investments.
The accompanying notes are an integral part of the financial statements.
4 |
YieldShares High Income ETF
Statement of Assets and Liabilities
December 31, 2018
YieldShares High Income ETF | ||||
Assets: | ||||
Investments at Cost | $ | 202,661,536 | ||
Investments at Fair Value | $ | 173,502,131 | ||
Cash | 105,783 | |||
Dividends Receivable | 1,000,987 | |||
Receivable for Investment Securities Sold | 800,425 | |||
Total Assets | 175,409,326 | |||
Liabilities: | ||||
Payable for Capital Shares Redeemed | 805,357 | |||
Advisory Fees Payable | 77,889 | |||
Total Liabilities | 883,246 | |||
Net Assets | $ | 174,526,080 | ||
Net Assets Consist of: | ||||
Paid-in Capital | $ | 212,143,325 | ||
Total Distributable Loss | (37,617,245 | ) | ||
Net Assets | $ | 174,526,080 | ||
Outstanding Shares of Beneficial Interest | ||||
(unlimited authorization — no par value) | 10,850,000 | |||
Net Asset Value, Offering and Redemption Price Per Share | $ | 16.09 |
The accompanying notes are an integral part of the financial statements.
5 |
YieldShares High Income ETF
Statement of Operations
For the year ended December 31, 2018
YieldShares High Income ETF | ||||
Investment Income: | ||||
Dividend Income | $ | 12,999,755 | ||
Total Investment Income | 12,999,755 | |||
Expenses: | ||||
Advisory Fees | 971,389 | |||
Total Expenses | 971,389 | |||
Net Investment Income | 12,028,366 | |||
Net Realized Gain on: | ||||
Investments(1) | 2,224,510 | |||
Capital Gain Distributions From Underlying Closed End Funds | 660,842 | |||
2,885,352 | ||||
Net Change in Unrealized Depreciation on: | ||||
Investments | (35,808,200 | ) | ||
Net Realized and Unrealized Loss on Investments | (32,922,848 | ) | ||
Net Decrease in Net Assets Resulting from Operations | $ | (20,894,482 | ) |
(1) | Includes any realized gains or losses as a result of in-kind transactions. (See Note 4) |
The accompanying notes are an integral part of the financial statements.
6 |
YieldShares High Income ETF
Statements of Changes in Net Assets
Year ended December 31, 2018 | Year ended December 31, 2017 | |||||||
Operations: | ||||||||
Net Investment Income | $ | 12,028,366 | $ | 10,921,035 | ||||
Net Realized Gain (Loss) on Investments(1) | 2,224,510 | (5,108,564 | ) | |||||
Capital Gain Distributions From Underlying Closed End Funds | 660,842 | 1,088,695 | ||||||
Net Change in Unrealized Appreciation (Depreciation) on Investments | (35,808,200 | ) | 13,922,191 | |||||
Net Increase (Decrease) in Net Assets Resulting from Operations | (20,894,482 | ) | 20,823,357 | |||||
Distributions(2) | (12,028,366 | ) | (10,921,035 | ) | ||||
Return of Capital | (4,637,634 | ) | (3,501,965 | ) | ||||
Capital Share Transactions: | ||||||||
Issued | 24,965,540 | 103,859,135 | ||||||
Redeemed | (35,102,029 | ) | (5,853,358 | ) | ||||
Increase (Decrease) in Net Assets from Capital Share Transactions | (10,136,489 | ) | 98,005,777 | |||||
Total Increase (Decrease) in Net Assets | (47,696,971 | ) | 104,406,134 | |||||
Net Assets: | ||||||||
Beginning of Year | 222,223,051 | 117,816,917 | ||||||
End of Year | $ | 174,526,080 | $ | 222,223,051 | ||||
Share Transactions: | ||||||||
Issued | 1,350,000 | 5,350,000 | ||||||
Redeemed | (1,900,000 | ) | (300,000 | ) | ||||
Net Increase (Decrease) in Shares Outstanding from Share Transactions | (550,000 | ) | 5,050,000 |
(1) | Includes any realized gains or losses as a result of in-kind transactions. (See Note 4) |
(2) | Current year presentation of distributions conforms with S-X Disclosure Simplification. Prior year distributions have been consolidated to conform with S-X Disclosure Simplification (see Note 8). |
The accompanying notes are an integral part of the financial statements.
7 |
YieldShares High Income ETF
Financial Highlights
Selected Per Share Data & Ratios
For the year ended December 31
For a Share Outstanding Throughout the Year
Net Asset Value, Beginning of Year | Net Investment Income* | Net Realized and Unrealized Gain (Loss) on Investments | Total from Operations | Distributions from Investment Income | Distributions from Net Realized Capital Gains | Return of Capital | Total Distributions | Net Asset Value, End of Year | Market Price, End of Year | Total Return(1) | Net Assets End of Year (000) | Ratio of Expenses to Average Net Assets | Ratio of Net Investment Income to Average Net Assets | Portfolio Turnover(2) | |||||||||||||||||||||||||||||||||||||||||
YieldShares High Income ETF† | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 | $ | 19.49 | $ | 1.13 | $ | (2.97) | $ | (1.84 | ) | $ | (1.13) | $ | — | $ | (0.43 | ) | $ | (1.56) | $ | 16.09 | $ | 16.07 | (9.97 | )% | $ | 174,526 | 0.50%(3) | 6.19%(3) | 40% | ||||||||||||||||||||||||||
2017 | $ | 18.55 | $ | 1.22 | $ | 1.31 | $ | 2.53 | $ | (1.20) | $ | — | $ | (0.39 | ) | $ | (1.59) | $ | 19.49 | $ | 19.50 | 14.03 | % | $ | 222,223 | 0.50%(3) | 6.27%(3) | 34% | |||||||||||||||||||||||||||
2016 | $ | 17.84 | $ | 1.22 | $ | 1.41 | $ | 2.63 | $ | (1.20) | $ | — | $ | (0.72 | ) | $ | (1.92) | $ | 18.55 | $ | 18.56 | 15.42 | % | $ | 117,817 | 0.50%(3) | 6.62%(3) | 17% | |||||||||||||||||||||||||||
2015 | $ | 21.43 | $ | 1.30 | $ | (2.97) | $ | (1.67 | ) | $ | (1.30) | $ | — | $ | (0.62 | ) | $ | (1.92) | $ | 17.84 | $ | 17.84 | (8.26 | )% | $ | 77,621 | 0.50%(3) | 6.48%(3) | 1% | ||||||||||||||||||||||||||
2014 | $ | 23.16 | $ | 1.18 | $ | (0.85)(4) | $ | 0.33 | $ | (1.17) | $ | (0.02) | $ | (0.87 | ) | $ | (2.06) | $ | 21.43 | $ | 21.56 | 1.03 | % | $ | 77,132 | 0.50%(3) | 5.06%(3) | 111% |
Amounts designated as “—” are $0 or have been rounded to $0.
* | Per share data calculated using average shares method. |
† | Formerly, Sustainable North American Oil Sands ETF. |
(1) | Total return is based on the change in net asset value of a share during the year and assumes reinvestment of dividends and distributions at net asset value. Total return is for the year indicated. The return shown does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. |
(2) | Portfolio turnover rate is for the period indicated. Excludes effect of in-kind transfers. |
(3) | These ratios exclude the impact of expenses of the underlying security holdings as represented in the Schedule of Investments. Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the underlying closed-end investment companies in which the Fund invests. |
(4) | Realized and unrealized gains and losses per share in this caption are balancing amounts necessary to reconcile the change in net asset value per share for the year, and may not reconcile with the aggregate gains and losses in the Statement of Operations due to share transactions for the year. |
The accompanying notes are an integral part of the financial statements.
8 |
YieldShares High Income ETF
Notes to the Financial Statements
December 31, 2018
1. ORGANIZATION
Exchange Traded Concepts Trust (the “Trust”), is a Delaware statutory trust formed on July 17, 2009. The Trust is registered with the Securities and Exchange Commission (the “Commission”) under the Investment Company Act of 1940 (the “1940 Act”) as an open-end management investment company consisting of multiple investment portfolios. The financial statements herein are those of the YieldShares High Income ETF (the “Fund”). The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the ISE High IncomeTM Index (the “Index”). The Fund is classified as a “diversified” fund under the 1940 Act. Exchange Traded Concepts, LLC (the “Adviser”) serves as the investment adviser for the Fund. Vident Investment Advisory, LLC (“Vident”) and Amplify Investments LLC (“Amplify”) (each a, “Sub-Adviser”, and together, the “Sub-Advisers”) serve as sub-advisers to the Fund.
Shares of the Fund (“Shares”) are listed and traded on the NYSE Arca, Inc. Market prices for the Shares may be different from their net asset value (“NAV”). The Fund will issue and redeem Shares on a continuous basis at NAV only in large blocks of Shares, typically 50,000 Shares, called “Creation Units”. Creation Units will be issued and redeemed principally in-kind for securities included in a specified universe. Once created, Shares will 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 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 — Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on 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 for long positions and the most recent ask price for short positions. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. 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. Securities for which market prices are not “readily available” are valued in accordance with Fair Value Procedures established by the Board. The Fund’s Fair Value Procedures are implemented through a Fair Value Committee (the “Committee”) designated by the Board. 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
9 |
YieldShares High Income ETF
Notes to the Financial Statements
December 31, 2018 (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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: 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). |
The valuation techniques used by the Fund to measure fair value for the year ended December 31, 2018 maximized the use of observable inputs and minimized the use of unobservable inputs.
For the year ended December 31, 2018, there have been no significant changes to the Fund’s fair valuation methodologies. It is the Fund’s policy to recognize transfers into or out of all levels at the end of the reporting period.
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 December 31, 2018, the Fund did not have any interest or penalties associated with the underpayment of any income taxes. Tax years that are open remain subject to examination 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.
10 |
YieldShares High Income ETF
Notes to the Financial Statements
December 31, 2018 (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.
Dividends and Distributions to Shareholders — The Fund distributes substantially all of its net investment income monthly. Any net realized capital gains are distributed at least annually. All distributions are recorded on the ex-dividend date.
Cash and Cash Equivalents — Idle cash may be swept into various time deposit accounts and would be classified as cash on the Statement of Assets and Liabilities. The Fund maintains cash in bank deposit accounts which, at times, may exceed United States federally insured limits. Amounts invested are available on the same business day.
Creation Units — The Fund issues and redeems Shares at NAV and only in large blocks of Shares (each block of Shares for a Fund is called a “Creation Unit” or multiples thereof). Purchasers of Creation Units (“Authorized Participants”) at NAV must pay a standard creation transaction fee of $500 per transaction. The fee is a single charge and will be the same regardless of the number of Creation Units purchased by an investor on the same day. An Authorized Participant who holds Creation Units and wishes to redeem at NAV would also pay a standard Redemption Fee of $500 per transaction to the custodian on the date of such redemption, regardless of the number of Creation Units redeemed that day. 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 brokerage, tax, foreign exchange, execution, market impact and other costs and expenses related to the execution of the trades resulting from such transaction. 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 financial institutions (“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 Shares in the secondary market with the assistance of a broker and will be subject to customary brokerage commissions or fees.
If a Creation Unit is purchased or redeemed for cash, a higher transaction fee will be charged. The following table discloses Creation Unit breakdown as of December 31, 2018:
Creation Unit Shares | Transaction Fee | Value | Redemption Fee | |||||||||||
YieldShares High Income ETF | 50,000 | $ | 500 | $ | 804,500 | $ | 500 |
Creation Units may be issued or redeemed in advance of receipt by the Fund of all or a portion of the applicable deposit securities. In these circumstances, the Fund may require the Authorized Participant to maintain with the Trust an amount of 115% of the daily mark-to-market of the missing deposit securities. Amounts are disclosed as Segregated Cash Balance with Authorized Participants for Deposit Security and Collateral Payable upon Return of Deposit Securities on the Statement of Assets and Liabilities, when applicable.
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YieldShares High Income ETF
Notes to the Financial Statements
December 31, 2018 (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Other — The Fund holds certain investments which pay dividends to their shareholders based upon available funds from operations. It is possible for these dividends to exceed the underlying investments’ taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. Distributions received from investments in securities that represent a return of capital or capital gains are recorded as a reduction of the cost of investments or as a realized gain, respectively.
3. AGREEMENTS
Investment Advisory Agreement
Exchange Traded Concepts, LLC, or the Adviser, is an Oklahoma limited liability company located at 10900 Hefner Pointe Drive, Suite 207, Oklahoma City, Oklahoma 73120. The Adviser serves as investment adviser to the Trust, including the Fund, pursuant to an investment advisory agreement (“Advisory Agreement”). Under the Advisory Agreement, the Adviser provides investment advice to the Fund primarily in the form of oversight of the Sub-Advisers, including daily monitoring of the purchase and sale of securities by Vident and regular review of the Sub-Advisers’ performance. The Adviser also arranges for transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate. The Adviser administers the Fund’s business affairs, provides office facilities and equipment and certain clerical, bookkeeping and administrative services, and provides its officers and employees to serve as officers or Trustees of the Trust.
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 0.50% on the average daily net assets of the Fund. Under the Advisory Agreement, the Adviser has agreed to pay all expenses incurred by the Fund 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 Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act (the “Excluded Expenses”).
Certain officers or interested trustees of the Trust are also officers or employees of the Advisor or its affiliates. They receive no fees for services as officers of the Trust.
The Adviser has entered into a Sub-License, Marketing Support, and Expense Reimbursement Agreement (the “Sub-License Agreement”) with YieldShares LLC (the “Sponsor”). Under the Sub-License Agreement, the Sponsor has agreed to sub-license the use of the Index to the Adviser.
Sub-Advisory Agreements
Vident Investment Advisory, LLC is a Delaware limited liability company located at 300 Colonial Center Parkway, Suite 330, Roswell, Georgia 30076. Vident is responsible for trading portfolio securities and other investment instruments on behalf of the Fund, including selecting broker-dealers to execute purchase and sale transactions as instructed by the Adviser or in connection with any rebalancing or reconstitution of the Index, subject to the supervision of the Adviser and the Board. Under a sub-advisory agreement, the Adviser pays Vident a fee calculated daily and paid monthly, at an annual rate of 0.03% on the average daily net assets of the Fund, subject to a $20,000 minimum fee.
Amplify Investments, LLC is a Delaware limited liability company located at 310 S. Hale Street, Wheaton, Illinois 60187. Pursuant to the terms of a sub-advisory agreement between the Adviser and Amplify, other than certain functions delegated to Vident, Amplify is responsible for the day-to-day management of the Fund, may make investment decisions for the Fund as determined necessary by Amplify, and continuously reviews, supervises and administers the investment program of the Fund, subject to the supervision of the Adviser and the Board. Under the sub-advisory agreement, Amplify has agreed to assume the Adviser’s responsibility to pay, or cause to be paid,
12 |
YieldShares High Income ETF
Notes to the Financial Statements
December 31, 2018 (Continued)
3. AGREEMENTS (continued)
all expenses of the Fund, except Excluded Expenses. Amplify receives a fee from the Adviser, calculated daily and paid monthly, at the following annual rates expressed as a percentage of the average daily net assets of the Fund: 0.38% on the first $50 million, 0.39% on the next $200 million, and 0.41% above $250 million.
Distribution Agreement
SEI Investments Distribution Co. (the “Distributor”) serves as the Fund’s underwriter and distributor of Shares pursuant to an amended and restated Distribution Agreement dated November 10, 2011 (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 Trust’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 net assets each year for certain distribution-related activities. Currently, no payments are made under the Plan and the Plan will only be implemented with approval of the Board.
Administrator, Custodian and Transfer Agent
SEI Investments Global Funds Services (the “Administrator”) serves as the Fund’s Administrator pursuant to an Administration Agreement. Brown Brothers Harriman & Co. (the “Custodian” and “Transfer Agent”) serves as the Fund’s Custodian and Transfer Agent pursuant to a Custodian Agreement and Transfer Agency Services Agreement. The Adviser of the Fund pays these fees.
Certain officers of the Trust may also be employees of the Administrator or its affiliates. They receive no fees for serving as officers of the Trust.
4.INVESTMENT TRANSACTIONS
For the year ended December 31, 2018, 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 | |||||
$ | 77,454,114 | $ | 78,011,428 |
There were no purchases or sales of long-term U.S. Government securities by the Fund.
For the year ended December 31, 2018, in-kind transactions associated with creations and redemptions were:
Purchases | Sales | Realized Gain | ||||||||
$ | 24,834,159 | $ | 34,700,477 | $ | 1,423,345 |
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YieldShares High Income ETF
Notes to the Financial Statements
December 31, 2018 (Continued)
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, they are charged or credited to paid-in capital and distributable loss in the period that the differences arise.
The following permanent differences relating to the tax treatment of redemption in-kind transactions have been reclassified to/from the following accounts during the year ended December 31, 2018.
Distributable Loss | Paid–in-Capital | |||||
$ | (1,327,350) | $ | 1,327,350 |
The reclassifications have no impact on net asset value per share.
The tax character of dividends and distributions declared during the year ended December 31, 2018 and ended December 31, 2017:
YieldShares High Income ETF | Income Distribution | Return of Capital | Totals | |||||||||
2018 | $ | 12,028,366 | $ | 4,637,634 | $ | 16,666,000 | ||||||
2017 | 10,921,035 | 3,501,965 | 14,423,000 |
As of December 31, 2018, the components of Distributable Loss on a tax basis were as follows:
YieldShares High Income ETF | ||||
Capital Loss Carryforwards | $ | (7,236,035) | ||
Post October Losses | (4,755) | |||
Unrealized Depreciation | (30,376,455) | |||
Total Distributable Loss | $ | (37,617,245) |
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 December 31, 2018, the Fund has the following capital/loss carry forwards to offset capital gains for an unlimited period:
Non-Expiring Short-Term | Non-Expiring Long-Term | Total Non-Expiring Capital Loss Carryforwards | ||||||||||
YieldShares High Income ETF | $ | 954,966 | $ | 6,281,069 | $ | 7,236,035 |
During the fiscal year ended December 31, 2018, the fund utilized capital loss carryforward to offset capital gains $2,354,978.
The Federal tax cost and aggregate gross unrealized appreciation and depreciation on investments held by the Fund at December 31, 2018, were as follows:
Federal Tax Cost | Aggregated Gross Unrealized Appreciation | Aggregated Gross Unrealized Depreciation | Net Unrealized Depreciation | |||||||||||||
YieldShares High Income ETF | $ | 203,878,586 | $ | 2,605,669 | $ | (32,982,124) | $ | (30,376,455) |
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YieldShares High Income ETF
Notes to the Financial Statements
December 31, 2018 (Continued)
6. 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. A more complete description of principal risks is included in the prospectus under the heading “Principal Risks”.
The Fund will normally invest at least 80% of its total assets in securities of the Index. Because the Index is comprised of securities issued by other investment companies (as opposed to operating companies), the Fund operates in a manner that is commonly referred to as a “fund of funds,” meaning that it invests its assets in shares of funds included in the Index. The Index seeks to measure the performance of the top 30 U.S. exchange-listed closed-end funds (the “Underlying Funds”), as selected and ranked according to factors employed by the Index methodology that are designed to result in a portfolio that produces high current income.
Concentration Risk
Because the Fund’s assets will be concentrated in an industry or group of industries to the extent that 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.
Fund of Funds Risk
Because the Fund is a fund of funds, its investment performance largely depends on the investment performance of the Underlying Funds in which it invests. An investment in the Fund is subject to the risks associated with the Underlying Funds that comprise the Index. The Fund will pay indirectly a proportional share of the fees and expenses of the Underlying Funds in which it invests, including their investment advisory and administration fees, in addition to its own fees and expenses. In addition, at times certain segments of the market represented by constituent Underlying Funds may be out of favor and underperform other segments.
Leverage Risk
Leverage may result from ordinary borrowings, or may be inherent in the structure of certain Underlying Fund investments such as derivatives. If the prices of those investments decrease, or if the cost of borrowing exceeds any increase in the prices of those investments, the NAV of the Underlying Fund’s shares will decrease faster than if the Underlying Fund had not used leverage. To repay borrowings, an Underlying Fund may have to sell investments at a time and at a price that is unfavorable to the Underlying Fund. Interest on borrowings is a expense the Underlying Fund would not otherwise incur. Leverage magnifies the potential for gain and the risk of loss. If an Underlying Fund uses leverage, there can be no assurance that the Underlying Fund’s leverage strategy will be successful.
Risk of Market Price Discount from/Premium to Net Asset Value
The shares of the Underlying Funds may trade at a discount or premium to their NAV. This characteristic is a risk separate and distinct from the risk that an Underlying Fund’s NAV could decrease as a result of investment activities. Whether investors, such as the Fund, will realize gains or losses upon the sale of shares will depend not on the Underlying Funds’ NAVs, but entirely upon whether the market price of the Underlying Funds’ shares at the time of sale is above or below an investor’s purchase price for shares.
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YieldShares High Income ETF
Notes to the Financial Statements
December 31, 2018 (Concluded)
7. OTHER
At December 31, 2018, the records of the Trust reflected that 100% of the Fund’s total Shares outstanding were held by three Authorized Participants, in the form of Creation Units. However, the individual shares comprising such Creation Units are listed and traded on the NYSE Arca, Inc. and have been purchased and sold by persons other than Authorized Participants.
8. NEW ACCOUNTING PRONOUNCEMENTS
On August 17, 2018, the SEC adopted amendments to Regulation S-X. These changes are effective for periods after November 5, 2018. The amendments relevant to registered investment companies were mainly focused on simplifying the presentation of distributable earnings by eliminating the need to present the components of distributable earnings on a book basis in the Statement of Assets and Liabilities. The update also impacted the presentation of undistributed net investment income and distributions to shareholders on the Statements of Changes in Net Assets. The amounts presented in the current Statement of Changes in Net Assets represent the aggregated total distributions of net investment income and realized capital gains, except for distributions classified as return of capital, which are still presented separately. The disaggregated amounts from the prior fiscal year are broken out below if there were both distributions from net investment income and realized capital gains. Otherwise, the amount on the current Statements of Changes in Net Assets for the prior fiscal year end represents distributions of net investment income.
In August 2018, The FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820). The new guidance includes additions and modifications to disclosures requirements for fair value measurements. For public entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. At this time, management is currently evaluating the impact of this new guidance on the financial statements and disclosures.
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, the Fund has determined that no adjustments were required to the financial statements.
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YieldShares High Income ETF
Report of Independent Registered Public Accounting Firm
December 31, 2018
To the Shareholders of YieldShares High Income 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 YieldShares High Income ETF (the “Fund”), a series of Exchange Traded Concepts Trust, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, including the related notes, and the financial highlights for each of the five years in the period then ended (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 December 31, 2018, 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 five years in the period then ended, 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 audits. 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 audits 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 audits 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 December 31, 2018, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers or counterparties were not received. Our audits 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 audits provide 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
February 28, 2019
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YieldShares High Income ETF
Trustees and Officers of the Trust
December 31, 2018 (Unaudited)
Certain officers and/or interested trustees of the Fund are also officers of the Distributor, the Adviser or the Administrator.
Set forth below are the names, years of birth, addresses, position with the Trust, term of office and length of time served, the principal occupations during the past five years, number of portfolios in the fund complex overseen by the Trustees, and other directorships outside the fund complex of each of the persons currently serving as Trustees of the Trust. The address of each Trustee of the Trust is c/o Exchange Traded Concepts Trust, 10900 Hefner Pointe Drive, Suite 207, Oklahoma City, Oklahoma 73120. The Fund’s Statement of Additional Information (“SAI”) includes additional information about the Trustees. The SAI may be obtained without charge by calling 1-855-545-3524.
Name and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served(1) | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen By Trustee(2) | Other Directorships held by Trustee | |||||
Interested Trustee | ||||||||||
J. Garrett Stevens (1979) | Trustee and President | Trustee (Since 2009); President (Since 2011) | T.S. Phillips Investments, Inc., 2000 to present – Investment Advisor/Vice President; Exchange Traded Concepts Trust 2009 to 2011 – Chief Executive Officer and Secretary; 2011 – present – President; Exchange Traded Concepts, LLC 2009 to Present – Chief Executive Officer; Exchange Listed Funds Trust 2012 to present – President | 11 | Trustee, ETF Series Solutions, (2012 – 2014) | |||||
Independent Trustees | ||||||||||
David M. Mahle (1944) | Trustee | Since 2011 | Jones Day 2012 to 2015 – Consultant; Jones Day 2008 to 2011 – Of Counsel; Jones Day 1988 to 2008 – Partner; Simplon International Ltd, 2012 to present – Director; Tuxedo Club, 2014 to Present – Governor | 17 | Trustee, Exchange Listed Funds Trust (6); Source ETF Trust, 2014 to 2015 – Trustee |
(1) | Each Trustee shall serve during the continued life of the Trust until he or she dies, resigns, is declared bankrupt or incompetent by a court of competent jurisdiction, or is removed. |
(2) | The Fund Complex includes each series of the Trust and of Exchange Listed Funds Trust. |
18 |
YieldShares High Income ETF
Trustees and Officers of the Trust
December 31, 2018 (Unaudited) (Continued)
Name and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served(1) | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen By Trustee(2) | Other Directorships held by Trustee | |||||
Independent Trustees (continued) | ||||||||||
Kurt Wolfgruber (1950) | Trustee | Since 2012 | Amherst Asset Management, 2010 to present – Independent Advisor; Oppenheimer Funds, Inc., 2007 to 2009 President | 17 | New Mountain Finance Corp. – Director; Exchange Listed Funds Trust (6) – Trustee; Source ETF Trust, 2014 to 2015 – Trustee | |||||
Mark Zurack (1957) | Trustee | Since 2011 | Columbia Business School 2002 to Present – Professor | 11 | AQR Funds (49) – Trustee; Source ETF Trust, 2014 to 2015 – Trustee | |||||
Timothy J. Jacoby (1952) | Trustee | Since 2014 | Deloitte & Touche LLP, 2000 to 2014 – Senior Partner | 17 | Exchange Listed Funds Trust (6) -Trustee; Source ETF Trust (2014-2015) – Trustee; Edward Jones Money Market Fund – Trustee |
(1) | Each Trustee shall serve during the continued life of the Trust until he or she dies, resigns, is declared bankrupt or incompetent by a court of competent jurisdiction, or is removed. |
(2) | The Fund Complex includes each series of the Trust and of Exchange Listed Funds Trust. |
19 |
YieldShares High Income ETF
Trustees and Officers of the Trust
December 31, 2018 (Unaudited) (Concluded)
Set forth below are the names, years of birth, positions with the Trust, lengths and term of office, and the principal occupations held during at least the last five years of each of the persons currently serving as officers of the Trust. The address of J. Garrett Stevens, Richard Hogan, and James J. Baker is c/o Exchange Traded Concepts Trust, 10900 Hefner Pointe Drive, Suite 207, Oklahoma City, Oklahoma 73120, the address of Eric Kleinschmidt is SEI Investments Company, One Freedom Valley Drive, Oaks, Pennsylvania 19456, and the address of Joseph Scavetti is Cipperman Compliance Services, 480 E. Swedesford Road, Suite 300, Wayne, PA 19087.
Name and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years |
Officers | |||
J. Garrett Stevens (1979) | Trustee and President | Trustee (Since 2009); President (Since 2011) | T.S. Phillips Investments, Inc., 2000 to present – Investment Advisor/Vice President; Exchange Traded Concepts Trust 2009 to 2011 – Chief Executive Officer and Secretary; 2011 to present – President; Exchange Traded Concepts, LLC 2009 to Present – Chief Executive Officer; Exchange Listed Funds Trust 2012 to present – President |
Richard Hogan (1961) | Secretary | Since 2011 | Exchange Traded Concepts, LLC, 2011 to present – Director; Private Investor – 2003 to present; Exchange Traded Concepts Trust, 2011 to present – Secretary; Peconic Land Trust, 2012 to Present – Board Member and Treasurer; Yorkville ETF Advisors, 2011 to 2016 – Managing Member |
James J. Baker Jr. (1951) | Treasurer | Since 2015 | Exchange Traded Concepts, LLC, 2011 to present – Managing Partner; Yorkville ETF Advisors, 2012 to 2016 – Managing Partner; Goldman Sachs, 2000 to 2011 – Vice President. |
Eric Kleinschmidt (1968) | Assistant Treasurer | Since 2013 | SEI Investments Global Funds Services, 2004 to present – Director, Fund Accounting |
Joseph Scavetti (1968) | Chief Compliance Officer | Since 2018 | Palladiem, LLC, 2011 to 2018 – Chief Operating Officer |
(1) | Each officer serves at the pleasure of the Board of Trustees |
20 |
YieldShares High Income ETF
Disclosure of Fund Expenses
(Unaudited)
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, dividend expense on securities sold short, 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 expense ratio and are intended to help you understand the ongoing costs (in dollars) of investing in your 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 (July 1, 2018 to December 31, 2018).
The table below illustrates your 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 7/1/18 | Ending Account Value 12/31/18 | Annualized Expense Ratios | Expenses Paid During Period* | |||||||||||||
YieldShares High Income ETF | ||||||||||||||||
Actual Fund Return | $ | 1,000.00 | $ | 928.60 | 0.50% | $ | 2.43 | |||||||||
Hypothetical 5% Return | $ | 1,000.00 | $ | 1,022.70 | 0.50% | $ | 2.55 |
* | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied 184/365 (to reflect the one-half period shown). |
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YieldShares High Income ETF
Notice to Shareholders
(Unaudited)
For shareholders that do not have a December 31, 2018 tax year end, this notice is for informational purposes only. For shareholders with a December 31, 2018 tax year end, please consult your tax advisor as to the pertinence of this notice.
For the fiscal year ended December 31, 2018, the Fund is designating the following items with regard to distributions paid during the year.
Return of Capital | Long Term Capital Gain Distribution | Ordinary Income Distribution | Total Distributions | Dividends Qualifying For Corporate Dividend Receivable Deduction(1) | Qualifying Dividend Income(2) | U.S. Government Interest(3) | Qualified Interest Income(4) | Qualified Short-Term Capital Gain(5) | ||||||||||||||||||||||||||||
YieldShares High Income ETF | 27.83% | 0.00% | 72.17% | 100.00% | 10.08% | 8.29% | 0.00% | 0.00% | 0.00% |
(1) | Qualifying dividends represent dividends which qualify for the corporate dividends received deduction and is reflected as a percentage of ordinary income distributions (the total of short term capital gain and net investment income distributions). |
(2) | The percentage in this column represents the amount of “Qualifying Dividend Income” as created by the Jobs and Growth Relief Reconciliation Act of 2003 and is reflected as a percentage of ordinary income distributions (the total of short term capital gain and net investment income distributions). It is the intention of the aforementioned fund to designate the maximum amount permitted by law. |
(3) | “U.S. Government Interest” represents the amount of interest that was derived from direct U.S. Government obligations and distributed during the fiscal year. This amount is reflected as a percentage of ordinary income. |
(4) | The percentage in this column represents the amount of “Qualifying Interest Income” as created by the American Jobs Creation Act of 2004 and is a percentage of net investment income that is exempt from U.S. withholding tax when paid for foreign investors. |
(5) | The percentage in this column represents the amount of “Qualifying Short-Term Capital Gain” as created by the American Jobs Creation Act of 2004 and is reflected as a percentage of short-term capital gain distributions that is exempt from U.S. withholding tax when paid to foreign investors. |
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YieldShares High Income ETF
Supplemental Information
(Unaudited)
NAV is the price per share at which the Fund issues and redeems shares. It is calculated in accordance with the standard formula for valuing mutual fund shares. The “Market Price” of the 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. The Fund’s Market Price may be at, above or below its NAV. The NAV of the Fund will fluctuate with changes in the market value of the Fund’s holdings. The Market Price of the 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 the Fund on a given day, generally at the time NAV is calculated. A premium is the amount that the Fund is trading above the reported NAV, expressed as a percentage of the NAV. A discount is the amount that the 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.yieldshares.com.
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10900 Hefner Pointe Drive, Suite 207
Oklahoma City, OK 73120
Investment Adviser:
Exchange Traded Concepts, LLC
10900 Hefner Pointe Drive, Suite 207
Oklahoma City, OK 73120
Investment Sub-Advisers:
Vident Investment Advisory, LLC
300 Colonial Center Parkway, Suite 330
Roswell, GA 30076
Amplify Investments LLC
310 S. Hale St.
Wheaton, IL 60187
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 Ave.
Suite 800
Cleveland, OH 44115
This information must be preceded or accompanied by a current prospectus for the Fund.
YYY-AR-001-0600
Item 2. | Code of Ethics. |
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.
Item 3. | Audit Committee Financial Expert. |
(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:
Fiscal Year Ended December 31, 2018 | Fiscal Year Ended December 31, 2017 | |||||||||||||||||||||||||
All fees and services to the Registrant that were pre-approved | All fees and services to service affiliates that were pre-approved | All other fees and services to service affiliates that did not require pre-approval | All fees and services to the Registrant that were pre-approved | All fees and services to service affiliates that were pre-approved | All other fees and services to service affiliates that did not require pre-approval | |||||||||||||||||||||
(a) | Audit Fees | $ | 14,500 | $ | 0 | N/A | $ | 14,500 | $ | 0 | N/A | |||||||||||||||
(b) | Audit-Related Fees | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||
(c) | Tax Fees | $ | 3,500 | $ | 0 | $ | 0 | $ | 3,500 | $ | 0 | $ | 0 | |||||||||||||
(d) | All Other Fees | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
(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 approved pursuant to the “de minimis” exception of Rule 2-01(c)(7)(i)(C) were as follows (Cohen):
Fiscal Year Ended December 31, 2018 | Fiscal Year Ended December 31, 2017 | |||||||
Audit-Related Fees | 0 | % | 0 | % | ||||
Tax Fees | 0 | % | 0 | % | ||||
All Other Fees | 0 | % | 0 | % |
(f) Not Applicable.
(g) The aggregate non-audit fees and services billed by Cohen for the fiscal year 2018 and 2017 were $3,500 and $3,500, 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.
Items 5. | Audit Committee of Listed Registrants. |
The Registrant has a separately-designated standing Audit Committee, which is composed of the Registrant's Independent Trustees, Timothy Jacoby, Kurt Wolfgruber, David M. Mahle and Mark Zurack.
Item 6. | Schedule of Investments |
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.
Item 8. | Portfolio Managers of Closed-End Management Investment Companies |
Not applicable.
Item 9. | Purchases of Equity Securities by Closed-End Management Company and Affiliated Purchasers. |
Not applicable.
Item 10. | Submission of Matters to a Vote of Security Holders. |
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.
Item 11. | Controls and Procedures. |
(a) The Registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the 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 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.
Items 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. |
Not applicable.
Items 13. | Exhibits. |
(a)(1) Code of Ethics attached hereto.
(a)(2) A separate certification for the principal executive officer and the principal financial officer of the Registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940 Act, as amended (17 CFR 270.30a-2(a)), are filed herewith.
(b) Officer certifications as required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing as exhibits.
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.
Exchange Traded Concepts Trust | |
By | /s/ J. Garrett Stevens |
J. Garrett Stevens, Trustee and President |
Date: March 11, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By | /s/ J. Garrett Stevens |
J. Garrett Stevens, Trustee and President |
Date: March 11, 2019
By | /s/ James J. Baker Jr. |
James J. Baker Jr., Treasurer |
Date: March 11, 2019