Exchange Traded Concepts
Statement of Assets and Liabilities
October 31, 2012 (Unaudited)
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Sustainable North American Oil Sands ETF
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Assets:
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Investments at Cost
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$
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1,020,943
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Investments at Market Value
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$
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1,126,142
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Foreign Cash (Cost $269)
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269
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Dividends Receivable
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2,180
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Total Assets
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1,128,591
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Liabilities:
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Payable to Adviser
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482
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Net Assets
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$
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1,128,109
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Net Assets Consist of:
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Paid-in Capital
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$
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874,500
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Undistributed Net Investment Income
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2,270
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Accumulated Net Realized Gain on Investments and Foreign Currency Transactions
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146,142
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Net Unrealized Appreciation on Investments
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105,199
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Net Unrealized Depreciation on Foreign Currencies and Translation of Other Assets and
Liabilities Denominated in Foreign Currencies
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(2
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)
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Net Assets
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$
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1,128,109
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Outstanding Shares of Beneficial Interest
(unlimited authorization — no par value)
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50,000
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Net Asset Value, Offering and Redemption Price Per Share
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$
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22.56
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The accompanying notes are an integral part of the financial statements.
3
Exchange Traded Concepts
Statement of Operations
For the period ended October 31, 2012
(1)
(Unaudited)
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Sustainable
North
American
Oil Sands
ETF
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Investment Income:
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Dividend Income
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$
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18,699
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Less: Foreign Taxes Withheld
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(1,972
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)
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Total Investment Income
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16,727
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Expenses:
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Management Fees
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3,254
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Total Expenses
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3,254
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Net Investment Income
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13,473
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Net Realized and Unrealized Gain (Loss) on Investments:
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Net Realized Gain on Investments
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146,519
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Net Realized Loss on Foreign Currency Transactions
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(377
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)
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Net Unrealized Appreciation on Investments
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105,199
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Net Unrealized Depreciation on Foreign Currencies and Translation of Other Assets and
Liabilities Denominated in Foreign Currencies
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(2
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)
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Net Realized and Unrealized Gain on Investments
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251,339
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Net Increase in Net Assets Resulting from Operations
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$
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264,812
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(1)
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The Fund commenced operations on June 11, 2012.
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The accompanying notes are an integral part of the financial statements.
4
Exchange Traded Concepts
Statement of Changes in Net Assets
For the period ended October 31, 2012
(1)
(Unaudited)
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Sustainable
North
American
Oil Sands
ETF
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Operations:
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Net Investment Income
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$
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13,473
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Net Realized Gain on Investments and Foreign Currency Transactions
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146,142
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Net Unrealized Appreciation on Investments, Foreign Currencies and Translation of
of Other Assets and Liabilities Denominated in Foreign Currencies
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105,197
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Net Increase in Net Assets Resulting from Operations
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264,812
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Distributions to Shareholders:
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Investment Income
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(11,203
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)
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Total Distributions to Shareholders
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(11,203
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)
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Capital Share Transactions:
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Issued In-Kind
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2,000,000
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Redeemed
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(1,125,500
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)
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Increase in Net Assets from Capital Share Transactions
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874,500
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Total Increase in Net Assets
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1,128,109
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Net Assets:
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Beginning of Period
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—
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End of Period (Includes Undistributed Net Investment Income of $2,270)
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$
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1,128,109
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Share Transactions:
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Issued In-Kind
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100,000
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Redeemed
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(50,000
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)
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Net Increase in Shares Outstanding from Share Transactions
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50,000
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(1)
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The Fund commenced operations on June 11, 2012.
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The accompanying notes are an integral part of the financial statements.
5
6
Exchange Traded Concepts
Notes to the Financial Statements
October 31, 2012 (Unaudited)
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 amended, as an open-end management investment company with 2 investment portfolios. The financial statements herein are those of the Sustainable North American Oil Sands 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 Sustainable North American Oil Sands Index® (the “SNAOS Index” or the “Index”). The Fund is classified as a “diversified” fund under the 1940 Act. Exchange Traded Concepts, LLC (the “Adviser”), an Oklahoma limited liability company, serves as the investment adviser for the Fund and is subject to the supervision of the Board of Trustees (the “Board”). The Adviser is responsible for managing the investment activities of the Fund, the Fund’s business affairs and other administrative matters.
Shares of the Fund 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 amounts less than a Creation Unit.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Significant Accounting Policies followed by the Fund.
Use of Estimates and Indemnifications
— The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts 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 enters into contracts that contain a variety of representations which provide general indemnifications. The Trust’s maximum exposure under these arrangements cannot be known; however, the Trust 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 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. 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 market value for such securities. Debt obligations with remaining maturities of sixty days or less may be valued at their amortized cost, which approximates market value. 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
7
Exchange Traded Concepts
Notes to the Financial Statements
October 31, 2012 (Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES – (continued)
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. 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 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:
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•
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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;
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•
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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
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•
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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).
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The valuation techniques used by the Fund to measure fair value during the period ended October 31, 2012 maximized the use of observable inputs and minimized the use of unobservable inputs.
For the period ended October 31, 2012, there have been no significant changes to the Fund’s fair valuation methodologies.
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 October 31, 2012, the Fund did not have any interest or penalties associated with the underpayment of any income taxes. All tax years since inception 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.
Deferred income taxes can reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, the tax benefit of net operating loss and capital loss carry forwards, and the net tax effect of unrealized (gains)/losses on investment securities for the temporary differences between the fair market value and tax basis of investment securities.
Foreign Currency Translation
— The books and records of the Fund is 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
8
Exchange Traded Concepts
Notes to the Financial Statements
October 31, 2012 (Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES – (continued)
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.
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 from the settlement date.
Dividends and Distributions to Shareholders
— The Fund distributes substantially all of its net investment income quarterly. Any net realized capital gains are distributed annually. All distributions are recorded on ex-dividend date.
Creation Units
— Purchasers of Creation Units at NAV must pay a standard creation transaction fee of $500 to the Adviser. The maximum creation transaction fee for the Fund is $3,000. An Authorized Participant who holds Creation Units and wishes to redeem at NAV would also pay a standard redemption transaction fee of $500 to the Adviser. The maximum redemption transaction fee for the Fund is $3,000.
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.
3. AGREEMENTS
Investment Advisory Agreement
The Adviser serves as the investment adviser to the Fund. Index Management Solutions, LLC (the “Sub-Adviser”), serve as sub-advisers to the Fund.
The Adviser has retained the Sub-Adviser to be responsible for trading portfolio securities 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 of Trustees.
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, subject to a $25,000 minimum fee. Under the Advisory Agreement, the Adviser has agreed to pay all expenses incurred by the Fund except for 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”).
9
Exchange Traded Concepts
Notes to the Financial Statements
October 31, 2012 (Unaudited)
3. AGREEMENTS – (continued)
Sub-Advisory Agreements
Index Management Solutions, LLC or the Sub-Adviser, is a wholly-owned subsidiary of VTL Associates, LLC and a Pennsylvania limited liability company, located at One Commerce Square, 2005 Market Street, Suite 2020, Philadelphia, Pennsylvania 19103. The Sub-Adviser is responsible for trading portfolio securities 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 the Sub-Adviser a
fee calculated daily and paid monthly, at an annual rate of 0.055% on the average daily net assets of the Fund, subject to a $10,000 minimum fee.
Distribution Agreement
SEI Investments Distribution Co. (the “Distributor”) serves as the Fund’s underwriter and distributor of Shares pursuant to a 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 Trust 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. For the period ended October 31, 2012, no fees were charged by the Distributor 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.
4. INVESTMENT TRANSACTIONS
For the period ended October 31, 2012, the purchases and sales of investments in securities, excluding in-kind transactions, long-term U.S. Government and short-term securities were:
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Purchases
|
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Sales and
Maturities
|
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Sustainable North American Oil Sands ETF
|
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$
|
478,521
|
|
|
$
|
445,177
|
|
There were no purchases or sales of long-term U.S. Government securities by the Fund.
For the period ended October 31, 2012, in-kind transactions associated with creations and redemptions were:
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|
|
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|
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|
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Purchases
|
|
Sales and
Maturities
|
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Realized Gain (Loss)
|
|
Sustainable North American Oil Sands ETF
|
|
$
|
1,960,218
|
|
|
$
|
1,120,515
|
|
|
$
|
116,408
|
|
10
Exchange Traded Concepts
Notes to the Financial Statements
October 31, 2012 (Unaudited)
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 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 undistributed net investment income (loss), accumulated net realized gain (loss) or paid-in capital, as appropriate, in the
period that the differences arise.
The Federal tax cost and aggregate gross unrealized appreciation and depreciation on investments held by the Fund at October 31, 2012, were as follows:
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Exchange Traded Concepts
|
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Federal Tax
Cost
|
|
Aggregated
Gross
Unrealized
Appreciation
|
|
Aggregated
Gross
Unrealized
Depreciation
|
|
Net
Unrealized
Appreciation
|
|
Sustainable North American Oil Sands ETF
|
|
$
|
1,020,943
|
|
|
$
|
111,956
|
|
|
$
|
(6,757
|
)
|
|
$
|
105,199
|
|
6. CONCENTRATION OF RISKS
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. By concentrating its assets in a particular industry or group of industries, the Fund is subject to the risk that economic, political or other conditions that have a negative effect on that industry or group of industries will negatively impact the Fund to a greater extent than if the Fund’s net assets were invested in a wider variety of industries.
Under normal circumstances, the Fund intends to invest at least 80% of its total assets in securities of North American oil sands companies, which are subject to certain risks, such as supply and demand risk, geographic risk, environmental regulation risk and the risk associated with the hazards inherent in energy industry activities.
7. OTHER
At October 31, 2012, the records of the Trust reflected that 100% of the Fund’s total Shares outstanding were held by 1 Authorized Participant, 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. RECENT ACCOUNTING PRONOUNCEMENT
In December 2011, the FASB issued a further update to the guidance “
Balance Sheet — Disclosures about Offsetting Assets and Liabilities”.
The amendments to this standard require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The amended guidance is effective for interim and annual reporting periods beginning after January 1, 2013. At this time, management is evaluating the implications of this update and its impact on the financial statements has not
been determined.
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 adjustments were required to the financial statements.
11
Exchange Traded Concepts
Approval of Advisory Agreements & Board Considerations
October 31, 2012 (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on February 23, 2012, the Board of Trustees (the “Board”) of Exchange Traded Concepts Trust (the “Trust”) considered the approval of the following agreements (collectively, the “Agreements”): 1) an Advisory Agreement between Exchange Traded Concepts, LLC (the “Adviser”) and the Trust, on behalf of the Sustainable North American Oil Sands ETF (the “Fund”) and 2) a Sub-Advisory Agreement between the Adviser and Index Management Solutions LLC (the
“Sub-Adviser”) on behalf of the Fund.
After their initial two-year terms, the Agreements must be approved: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Agreements or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. Each year after the initial two-year term, the Board will call and hold a meeting to decide whether to renew the Agreements for an additional one-year term. In preparation for such meetings, the
Board requests and reviews a wide variety of information from the Adviser and the Sub-Adviser.
Prior to the meeting held on February 23, 2012, the Board, including the Independent Trustees, reviewed written materials from the Adviser and the Sub-Adviser regarding, among other things: (i) the nature, extent and quality of the services to be provided to fund shareholders by the Adviser and the Sub-Adviser; (ii) the Adviser and the Sub-Adviser’s costs and profits expected to be realized in providing their services, including any fall-out benefits expected to be enjoyed by the Adviser and the Sub-Adviser; and (iii) the existence, or anticipated existence, of economies of scale.
Prior to and at the meeting held on February 23, 2012, representatives from the Adviser and the Sub-Adviser, along with other service providers of the Fund, presented additional oral and written information to help the Board evaluate the Adviser and the Sub-Adviser’s fees and other aspects of the Agreements. Among other things, representatives from the Adviser and the Sub-Adviser provided overviews of their advisory businesses, including investment personnel and investment processes. The representatives discussed the services to be provided by IMS, which would be responsible for executing purchase and sale transactions in
the Fund. The representatives also discussed the rationale for launching the Fund, the Fund’s fees and fee structures of comparable investment companies. The Board then discussed the written materials that it received before the meeting and the Adviser and Sub-Adviser’s oral presentations and any other information that the Board received at the meeting, and deliberated on the approval of the Agreements in light of this information. In its deliberations, the Board did not identify any single piece of information discussed below that was all-important, controlling or determinative of its decision.
Nature, Extent and Quality of Services Provided by the Adviser and the Sub-Adviser
In considering the nature, extent and quality of the services to be provided by the Adviser and the Sub-Adviser to the Fund, the Board reviewed the portfolio management services to be provided by the Adviser and the Sub-Adviser. Among other things, the Board considered the quality of the Adviser and the Sub-Adviser’s portfolio management personnel. The Adviser and the Sub-Adviser’s registration form (“Form ADV”) was provided to the Board, as was the response of the Adviser and the Sub-Adviser to a detailed series of questions which included, among other things, information about the background and experience
of the portfolio managers primarily responsible for the day-to-day management of the Fund.
The Board also considered other services to be provided to the Fund by the Adviser and the Sub-Adviser, such as selecting broker-dealers for executing portfolio transactions, monitoring adherence to the Fund’s investment restrictions, and monitoring compliance with various Fund policies and procedures and with applicable securities regulations. Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services to be provided to the Fund by the Adviser and the Sub-Adviser.
12
Exchange Traded Concepts
Approval of Advisory Agreements & Board Considerations
October 31, 2012 (Unaudited)
Cost of Services Provided and Economies of Scale
The Board reviewed the expense ratio and the advisory fees payable to the Adviser and the Sub-Adviser, considered fees paid by comparable funds, and concluded that the advisory fees were reasonable and each represents a charge within the range of what would have been negotiated at arm’s length in light of all the surrounding circumstances. The Board took into consideration that the advisory fee was a “unified fee,” meaning that the Fund would pay no expenses other than the advisory fee and certain other costs such as 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, extraordinary expenses, and distribution fees and expenses paid by the Trust under any distribution plan. The Board noted that the Adviser would be responsible for compensating the Trust’s other service providers, including the Sub-Adviser, and paying the Fund’s other expenses out of its own fee. The Board also evaluated the compensation and benefits expected to be received by the Adviser and the Sub-Adviser from their relationship with the Fund, taking into account projections of the Adviser and the Sub-Adviser’s anticipated profitability at different asset levels. Because it was not possible to determine the extent to which economies of scale would be realized by the Adviser and the Sub-Adviser as assets of the Fund grow, the Board did not make any conclusions regarding economies of scale. During future considerations of the Agreements, the Board will consider whether any
economies of scale are being realized by the Adviser and the Sub-Adviser and, if so, an appropriate mechanism for sharing the benefits of such economies of scale.
Based on the Board’s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Agreements were fair and reasonable; (b) concluded that the Adviser and the Sub-Adviser’s fees are reasonable in light of the services that the Adviser and the Sub-Adviser will provide to the Fund; and (c) agreed to approve the Agreements for an initial term of two years.
13
Exchange Traded Concepts
Disclosure of Fund Expenses (Unaudited)
All Exchange Traded Funds (“ETF”) have operating expenses. As a shareholder of an ETF, your investment is affected by these ongoing costs, which include (among others) costs for ETF management, administrative services, brokerage fees and shareholder reports like this one. It is important for you to understand the impact of these costs on your investment returns.
Operating expenses such as these are deducted from an ETF’s gross income and directly reduce its final investment return. These expenses are expressed as a percentage of the ETF’s average net assets; this percentage is known as the ETF’s expense ratio.
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.
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 $1,000 = 8.6), then multiply that ratio by the number shown for your Fund under “Expenses Paid During Period.”
Hypothetical 5% Return
. This section helps you compare your Fund’s costs with those of other funds. It assumes that the Fund had an annual 5% return before expenses during the year, but that the expense ratio (Column 3) for the period is unchanged. This example is useful in making comparisons because the Commission requires all funds to make this 5% calculation. You can assess your Fund’s comparative cost by comparing the hypothetical result for your Fund in the “Expenses Paid During Period” column with those that appear in the same charts in the shareholder reports for other funds.
NOTE:
Because the return is set at 5% for comparison purposes — NOT your Fund’s actual return — the account values shown may not apply to your specific investment.
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Beginning
Account
Value
5/1/12
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Ending
Account
Value
10/31/12
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Annualized
Expense
Ratios
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Expenses
Paid
During
Period
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Sustainable North American Oil Sands ETF
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Actual Fund Return
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$
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1,000 .00
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$
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1,138 .80
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0.50 %
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$
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2.09
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(1)
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Hypothetical 5% Return
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$
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1,000 .00
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$
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1,017 .63
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0.50 %
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$
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2.54
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(2)
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(1)
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Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied 143/365 (to reflect the actual time the Fund was operational from 6/11/12 – 10/31/12).
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(2)
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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 year period).
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Exchange Traded Concepts
Supplemental Information (Unaudited)
Net asset value, or “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.swmetfs.com.
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![[GRAPHIC MISSING]](http://content.edgar-online.com/edgar_conv_img/2013/01/07/0001144204-13-001077_LOGO_ETC-PMS.JPG)
2545 S. Kelly Avenue, Suite C
Edmond, OK 73013
Investment Adviser:
Exchange Traded Concepts, LLC
2545 S. Kelly Avenue, Suite C
Edmond, OK 73013
Distributor:
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
Legal Counsel:
Bingham McCutchen LLP
2020 K Street NW
Washington, DC 20006-1806
Independent Registered Public Accounting Firm:
Cohen Fund Audit Services, Ltd.
800 Westpoint Pkwy.
Suite 1100
Westlake, OH 44145
This information must be preceded or accompanied by a current prospectus for the Fund.
SWM-SA-001-0100