Selected
Per Share Data & Ratios
For a Share
Outstanding Throughout the Period
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of
Expenses to Average Net Assets
|
|
Ratio
of Investment Income/(Loss) to Average Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Asset
Value,
Beginning
of
Period
($)
4/18/2012
|
Net
Investment
Income
($)*
|
Net
Realized
and
Unrealized
Gain
on
Investments
($)
|
Total
from
Operations
($)
|
Distribution
from
Net
Investment
Income
($)
|
Tax
Return
of
Capital
($)
|
Total
from
Distributions
($)
|
Net
Asset
Value,
End
of
Period
($)
|
Total
Return
(%)**
|
Net
Assets
End
of
Period
($)(000)
|
|
Before
Net
Tax
Benefit/
(Expense)
(%)
|
Net
Tax
Benefit/
(Expense)
(%)
|
Total
Expenses
(%)
|
|
Before
Net
Tax
Benefit/
(Expense)
(%)
|
Net
Tax
Benefit/
(Expense)
(%)
|
Net
Investment
Income
(%)
|
Portfolio
Turnover
(%)
|
|
|
Global
X
MLP ETF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
(1)
|
14
.96
|
(0 .04)
|
0 .58
|
0 .54
|
(0.02)
|
(0
.63)
|
(0 .65)
|
14
.85
|
3 .74
|
16,330
|
|
0
.45†
|
3 .07†
|
3 .52†
|
|
(0
.45)†
|
0
.17†
|
(0
.28)†
|
6 .43††
|
|
|
|
(1)
|
The
Fund commenced investment
operations on April 18,
2012.
|
|
|
*
|
Per
share data calculated using average
shares method.
|
|
|
**
|
Total
Return
is for
the
period
indicated
and
has
not
been
annualized.
The
return
shown
does
not
reflect
the
deduction
of taxes
that
a shareholder
would
pay
on Fund
distributions
or the
redemption
of Fund
shares.
|
|
|
†
|
Annualized.
|
|
|
†
|
†
Portfolio
turnover rate is for the period indicated
and has not been annualized. Excludes
effect of in-kind transfers.
|
Amounts designated as “—”
are either $0 or have been rounded to $0.
The accompanying notes are an integral part of
the financial statements.
Notes
to Financial Statements
November
30, 2012
1. ORGANIZATION
The Global X Funds (the "Trust") is
a Delaware Statutory Trust formed on March 6, 2008. The Trust is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company. As of November 30, 2012, the Trust had eighty-eight portfolios, thirty-one of which
were operational. The financial statements herein and the related notes pertain to the Global X MLP ETF (the “Fund”).
The Fund is non-diversified.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Significant Accounting Policies
followed by the Fund.
USE OF ESTIMATES -- The preparation of financial statements in conformity with U.S. Generally Accepted Accounting
Principles ("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,
and could have a material impact to the Fund.
RETURN OF CAPITAL ESTIMATES – Distributions received by the Global X MLP Fund
from underlying master limited partnership investments generally are comprised of income and return of capital. The Fund records
investment income and return of capital based on estimates made at the time such distributions are received. Such estimates are
based on historical information available from the MLPs and other industry sources. These estimates may subsequently be revised
based on information received from the MLPs after their tax reporting periods are concluded. For the period ended November 30,
2012, the Fund estimated that 100% of the MLP distributions received are classified as return of capital.
MASTER LIMITED PARTNERSHIPS
– MLPs are publicly traded partnerships engaged in the transportation, storage and processing of minerals and natural resources.
By confining their operations to these specific activities, their interests, or units, are able to trade on public securities exchanges
exactly like the shares of a corporation, without entity level taxation. Of the seventy MLPs eligible for inclusion in the Index,
approximately two-thirds trade on the NYSE and the remainder trade on the NASDAQ. To qualify as a MLP and to not be taxed as a
corporation, a partnership must receive at least 90% of its income from qualifying sources as set forth in Section 7704(d) of the
Internal Revenue Code of 1986, as amended (the “Code”). These qualifying sources include natural resource based activities
such as the processing, transportation and storage of mineral or natural resources. MLPs generally have two classes of owners,
the general partner and limited partners. The general partner of an MLP is typically owned by a major energy company, an investment
fund, the direct management of the MLP, or is an entity owned by one or more of such parties. The general partner may be structured
as a private or publicly traded corporation or other entity. The general partner typically controls the operations and management
of the MLP through an up to 2% equity interest in the MLP plus, in many cases, ownership of common units and subordinated units.
Limited partners typically own the remainder of the partnership, through ownership of common units, and have a limited role in
the partnership’s operations and management. MLPs are typically structured such that common units and general partner interests
have first priority to receive quarterly cash distributions up to an established minimum amount (“minimum quarterly distributions”
or “MQD”). Common and general partner interests also accrue arrearages in distributions to the extent the MQD is not
paid. Once common and general partner interests have been paid, subordinated units receive distributions of up to the MQD; however,
subordinated units do not accrue arrearages. Distributable cash in excess of the MQD is paid to both common and subordinated units
and is distributed to both common and subordinated units generally on a pro rata basis. The general partner is also eligible to
receive incentive distributions if the general partner operates the business in a manner which results in distributions paid per
common unit surpassing specified target levels. As the general partner increases cash distributions to the limited partners, the
general partner receives an increasingly higher percentage of the incremental cash distributions.
Notes
to Financial Statements (continued)
November
30, 2012
2. SIGNIFICANT ACCOUNTING
POLICIES (continued)
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 if a
security’s primary exchange is normally open at that time), or, if there is no such reported sale, at the most recent
mean between the quoted bid and asked prices (absent both bid and asked prices on such exchange, the bid price may be
used).
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. The prices for foreign securities are reported in local
currency and converted to U.S. dollars using currency exchange rates. Prices for most securities held in the Funds 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 of Trustees (the “Board”). The Funds’
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 its primary trading exchange; the security's primary trading
market is temporarily closed at a time when under normal conditions it would be open; the security has not been traded for an extended
period of time; the security's primary pricing source is not able or willing to provide a price; or trading of the security is
subject to local government-imposed restrictions. In addition, the Fund may fair value its securities if an event that may materially
affect the value of the Fund’s securities that traded outside of the United States (a “Significant Event”) has
occurred between the time of the security's last close and the time that the Fund calculates its net asset value. A Significant
Event may relate to a single issuer or to an entire market sector. Events that may be Significant Events include: government actions,
natural disasters, armed conflict, acts of terrorism and significant market fluctuations. If Global X Management Company LLC (“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 all relevant information reasonably available
to the Committee. As of November 30, 2012, there were no securities priced using the Fair Value Procedures.
In accordance with the authoritative guidance on fair value
measurements and disclosure under U.S. GAAP, the Fund discloses the 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:
Notes
to Financial Statements (continued)
November
30, 2012
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
SECURITY VALUATION (continued)
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 – Other significant observable inputs
(including quoted prices in non-active markets, quoted prices for similar investments, fair value of investments for which the
Fund has the ability to fully redeem tranches at net asset value as of the measurement date or within the near term, and short-term
investments valued at amortized cost)
Level 3 – Significant unobservable inputs
(including the Fund’s own assumptions in determining the fair value of investments, fair value of investments for which the
Fund does not have the ability to fully redeem tranches at net asset value as of the measurement date or within the near term)
Investments are classified within the level of the
lowest significant input considered in determining fair value. Investments classified within Level 3 whose fair value measurement
considers several inputs may include Level 1 or Level 2 inputs as components of the overall fair value measurement.
For the period ended November 30, 2012 there have been
no significant changes to the Fund’s fair valuation methodologies.
In May 2011, the
Financial Accounting Standards Board issued Accounting Standards Updates (“ASU”) No. 2011-04, “Amendments
to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting
Standards” (“IFRS”) (“ASU 2011-04”). ASU 2011-04 includes common requirements for measurement
of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 requires reporting entities to disclose
the following information for fair value measurements categorized within Level 3 of the fair value hierarchy: quantitative
information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting
entity, and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and
the interrelationships between those unobservable inputs. In addition, ASU 2011-04 requires reporting entities to make
disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. Adoption
of ASU 2011-04 did not materially affect the Fund’s financial condition or results of operations.
FEDERAL INCOME TAXES – The Fund
is taxed as a regular C-corporation for federal income tax purposes. Currently, the maximum marginal regular federal income tax
rate for a corporation is 35 percent. The Fund may be subject to a 20 percent federal alternative minimum tax on its federal alternative
taxable income to the extent that its alternative minimum tax exceeds its regular federal income tax. This differs from most investment
companies, which elect to be treated as “regulated investment companies” under the Code in order to avoid paying entity
level income taxes. Under current law, the Fund is not eligible to elect treatment as a regulated investment company due to its
investments primarily in MLPs invested in energy assets. As a result, the Fund will be obligated to pay applicable federal and
state corporate income taxes on its taxable income as opposed to most other investment companies which are not so obligated. The
Fund expects that a portion of the distributions it receives from MLPs may be treated as a tax-deferred return of capital, thus
reducing the Fund’s current tax liability. However, the amount of taxes currently paid by the Fund will vary depending on
the amount of income and gains derived from investments and/or sales of MLP interests and such taxes will reduce your return from
an investment in the Fund.
Notes
to Financial Statements (continued)
November
30, 2012
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash distributions from MLPs to the
Fund that exceed such Fund’s allocable share of such MLP’s net taxable income are considered a tax-deferred
return of capital that will reduce the Fund’s adjusted tax basis in the equity securities of the MLP. These reductions
in such Fund’s adjusted tax basis in the MLP equity securities will increase the amount of gain (or decrease the amount
of loss) recognized by the Fund on a subsequent sale of the securities. The Fund will accrue deferred income taxes for any
future tax liability associated with (i) that portion of MLP distributions considered to be a tax-deferred return of capital
as well as (ii) capital appreciation of its investments. Upon the sale of an MLP security, the Fund may be liable
for previously deferred taxes. The Fund will rely to some extent on formation in provided by the MLPs, which is not
necessarily timely, to estimate deferred tax liability for purposes of financial statement reporting and determining the
Fund’s NAV. From time to time, Global X Management Company LLC. will modify the estimates or assumptions related to the
Fund’s deferred tax liability as new information becomes available. The Fund will generally compute deferred income
taxes based on the marginal regular federal income tax rate applicable to corporations and an assumed rate attributable to
state taxes.
The Fund recognizes interest and penalties, if any,
related to unrecognized tax benefits within the income tax expense line in the accompanying statement of operations. Accrued interest
and penalties, if any, are included within the related tax liability line in the balance sheet. During the period the Fund did
not incur any interest or penalities.
Since the Fund will be subject to
taxation on its taxable income, the NAV of Fund shares will also be reduced by the accrual of any deferred tax
liabilities.
The Fund’s income tax expense/(benefit) consists of the
following:
|
November 30, 2012
|
|
|
Current
|
|
|
|
Deferred
|
|
|
|
Total
|
|
|
Federal
|
|
$
|
10,365
|
|
|
$
|
145,633
|
|
|
$
|
155,998
|
|
|
State
|
|
|
717
|
|
|
|
10,078
|
|
|
|
10,795
|
|
|
Total tax expense
|
|
$
|
11,082
|
|
|
$
|
155,711
|
|
|
$
|
166,793
|
|
Deferred income taxes reflect the net tax effect of
temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes.
Components of the Fund’s deferred tax assets and liabilities
are as follows:
|
|
|
Inception to
|
|
|
|
|
November 30,
|
|
|
Deferred tax assets:
|
|
2012
|
|
|
Basis adjustment from sale of MLP investments
|
|
$
|
8,198
|
|
|
|
|
|
|
|
|
Less deferred tax liabilities:
|
|
|
|
|
|
Net unrealized gain on investment securities
|
|
|
(163,909
|
)
|
|
Net deferred tax liability
|
|
$
|
(155,711
|
)
|
Although the Fund currently has a
net deferred tax liability, it reviews the recoverability of its deferred tax assets based upon the weight of available
evidence. When assessing the recoverability of its deferred tax assets, significant weight was given to the effects of
potential future realized and unrealized gains on investments and the period over which these deferred tax assets can be
realized Currently, any capital losses that may be generated by the Fund in the future are eligible to becarried back up
to three years and can be carried forward for five years to offset capital gains recognized by the fund in those years. Net
operating losses that may be generated by the Fund in the future are eligible to be carried back up to two years and can be
carried forward for 20 years to offset income generated by the Fund in those years.
Notes
to Financial Statements (continued)
November
30, 2012
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Based upon the Fund’s
assessment, it has determined that it is more likely than not that its deferred tax assets will be realized through future
taxable income of the appropriate character. Accordingly, no valuation allowance has been established for the Fund’s
deferred tax assets. The Fund will continue to assess the need for a valuation allowance in the future. Significant declines
in the fair value of its portfolio of investments may change the Fund’s assessment of the recoverability of these
assets and may result in the recording of a valuation allowance against all or a portion of the Fund’s gross deferred
tax assets.
Total income tax benefit (current
and deferred) differs from the amount computed by applying the federal statutory income tax rate of 35% to net investment and
realized and unrealized gain/(losses) on investment before taxes as follows:
|
|
|
Inception to
|
|
|
|
|
November 30,
|
|
|
|
|
2012
|
|
|
Income tax expense at statutory rate (35%)
|
|
$
|
155,998
|
|
|
State income taxes (net of federal benefit) (2.422%)
|
|
|
10,795
|
|
|
Other
|
|
|
-
|
|
|
|
|
$
|
166,793
|
|
The following is a tabular reconciliation of the total amounts
of unrecognized tax benefits:
|
|
|
Inception to
|
|
|
|
|
November 30,
|
|
|
|
|
2012
|
|
|
Unrecognized tax benefit - Beginning
|
|
$
|
-
|
|
|
Gross increases - tax positions in prior period
|
|
|
-
|
|
|
Gross decreases - tax positions in prior period
|
|
|
-
|
|
|
Gross increases - tax positions in current period
|
|
|
-
|
|
|
Settlement
|
|
|
-
|
|
|
Lapse of statute of limitations
|
|
|
-
|
|
|
Unrecognized tax benefit - Ending
|
|
$
|
-
|
|
The Fund recognizes the tax benefits of uncertain tax positions
only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management
has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded
related to uncertain tax positions taken on U.S. tax returns and state tax returns filed since inception of the fund. No U.S. federal
or state income tax returns are currently under examination. The tax period ended November 30, 2012 remains subject to examination
by tax authorities in the United States. Due to the nature of the Fund’s investments, the Fund may be required to file income
tax returns in several states. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts
of unrecognized tax benefits will change materially in the next 12 months.
Notes to Financial Statements (continued)
NOVEMBER 30, 2012
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
The adjusted cost basis of investment and gross unrealized
appreciation and depreciation of investments for federal income tax purposes were as follows:
|
|
|
|
Federal
Tax Cost
|
|
|
|
Aggregated
Gross
Unrealized
Appreciation
|
|
|
|
Aggregated
Gross
Unrealized
Depreciation
|
|
|
|
Net
Unrealized
Appreciation
|
|
|
Global X MLP ETF
|
|
$
|
16,068,256
|
|
|
$
|
1,128,608
|
|
|
$
|
(690,606
|
)
|
|
$
|
438,002
|
|
The difference between cost amounts for
financial statement purposes is due primarily to the recognition of pass-through income from the Fund’s investments in MLP’s.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
-- Security transactions are accounted for on the trade date for financial reporting purposes. 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.
FOREIGN CURRENCY TRANSLATION -- The books
and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a
foreign currency are translated into U.S. dollars on the date of valuation. Purchases and sales of investment securities, income
and expenses are translated into U.S. dollars at the relevant rates of exchange prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of realized or unrealized gains and losses resulting from changes in the foreign exchange
rate from fluctuations arising from changes in the market prices of the securities. These gains and losses are included in net
realized and unrealized gains and losses on investments on the Statement of Operations. Net realized and unrealized gains and losses
on foreign currency transactions represent net foreign exchange gains or losses from foreign currency exchange contracts, disposition
of foreign currencies, currency gains or losses realized between trade and settlement dates on securities transactions and the
difference between the amount of the investment income and foreign withholding taxes recorded on the Funds’ books and the
U.S. dollar equivalent amounts actually received or paid.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
-- The Fund intends to declare and make quarterly distributions, or as the Board of Trustees may determine from time to time. Distributions
from net investment income are determined in accordance with income tax regulations, which may differ from U.S. GAAP. These differences
are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences
and differing characterization of distributions made by the Fund.
Distributions received from the Fund’s investments
in Master Limited Partnerships (“MLPs”) generally are comprised of income and return of capital. The Fund records
investment income and return of capital based on estimates made at the time such distributions are received. Such estimates
are based on historical information available from each MLP and other industry sources. These estimates may subsequently be
revised based on information received from MLPs after their tax reporting periods are concluded. For the period ended
November 30, 2012, the Fund distributed $485,452 of which $466,203 was characterized as return of capital and $19,249
characterized as net investment income from MLP distributions received.
Notes to Financial Statements (continued)
November
30, 2012
2. SIGNIFICANT ACCOUNTING POLICIES (concluded)
The Fund also expects that a
portion of the distributions it receives from MLPs may be treated as a tax deferred return of capital, thus reducing the
Fund’s current tax liability. Return of capital distributions are not taxable income to the shareholder, but reduce
the investor’s tax basis in the investor’s Fund Shares. Such a reduction in tax basis will result in larger
taxable gains and/or lower tax losses on a subsequent sale of Fund Shares. Shareholders who periodically receive the payment
of dividends or other distributions consisting of a return of capital may be under the impression that they are receiving
net profits from the Fund when, in fact, they are not. Shareholders should not assume that the source of the distributions is
from the net profits of the Fund.
CREATION UNITS -- The Fund issues and
redeems shares(“Shares”) at Net Asset Value (“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 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 per
transaction to the custodian on the date of such redemption, regardless of the number of Creation Units redeemed that
day.
If a Creation Unit is purchased or redeemed for cash,
a higher Transaction Fee will be charged. The following table discloses Creation Unit breakdown:
|
|
|
|
Creation
Unit Shares
|
|
|
|
Transaction
Fee
|
|
|
|
Value
|
|
|
|
Redemption
Fee
|
|
|
Global X MLP ETF
|
|
|
50,000
|
|
|
$
|
500
|
|
|
$
|
742,500
|
|
|
$
|
500
|
|
3. RELATED PARTY TRANSACTIONS
The Adviser serves as the
investment adviser and the administrator for the Fund. Subject to the supervision of the Board of Trustees, the Adviser is
responsible for managing the investment activities of the Fund and the Fund’s business affairs and other administrative
matters and provides or causes to be furnished all supervisory, administrative and other services reasonably necessary for
the operation of the Fund, including certain distribution services (provided pursuant to a separate Distribution Agreement),
certain shareholder and distribution-related services (provided pursuant to a separate Rule 12b-1 Plan and related
agreements) and investment advisory services (provided pursuant to a separate Investment Advisory Agreement), under what is
essentially an "all-in" fee structure. For its service to the Funds, under the Supervision and Administration
Agreement, each Fund pays a monthly fee to the Adviser at the annual rate (stated as a percentage of the average daily net
assets of the Fund). In addition, the Fund bears other expenses that are not covered by the Supervision and Administration
Agreement, which may vary and affect the total expense ratios of the Fund, such as taxes, brokerage fees, commissions,
acquired fund fees, and other transaction expenses, interest expenses and extraordinary expenses (such as litigation and
indemnification expenses).
|
|
|
Supervision and
|
|
|
|
Administration Fee
|
|
|
Global X MLP ETF
|
0.45%
|
Notes to Financial Statements (continued)
November
30, 2012
3. RELATED PARTY
TRANSACTIONS (continued)
SEI Investments Global Funds Services
(“SEIGFS”) serves as Sub-Administrator to the Fund. As Sub-Administrator, SEIGFS provides the Fund with the
required general administrative services, including, without limitation: office space, equipment, and personnel; clerical and
general back office services; bookkeeping, internal accounting and secretarial services; the calculation of NAV; and
assistance with the preparation and filing of reports, registration statements, proxy statements and other materials required
to be filed or furnished by the Fund under federal and state securities laws. As compensation for these services, the Sub
-Administrator receives certain out-of-pocket costs,transaction fees and asset-based fees which are accrued daily and paid
monthly by the Adviser.
Cohen Fund Audit Services, Ltd. (“Cohen”)
prepares Federal 1120 and state tax returns for the Fund. In addition, among other things, Cohen calculated the estimated tax
provisions for financial statement purposes for the Fund’s fiscal period ended November 30, 2012.
SEI Investments Distribution Co.
(“SIDCO”) serves as the Fund’s underwriter and distributor of Shares pursuant to a Distribution
Agreement. Under the Distribution Agreement, SIDCO, as agent, receives orders to create and redeem Shares in Creation Unit
Aggregations 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. SIDCO bears the following costs and expenses relating to the distribution of
Shares: (i) the costs of processing and maintaining records of creations of Creation Units; (ii) all costs of maintaining the
records required of a registered broker/dealer; (iii) the expenses of maintaining its registration or qualification as a
dealer or broker under Federal or state laws; (iv) filing fees; and (v) all other expenses incurred in connection with the
distribution services as contemplated in the Distribution Agreement. SIDCO receives no fee for its distribution services
under the Distribution Agreement.
4. INVESTMENT TRANSACTIONS
For the period ended November 30, 2012, the purchases
and sales of investments in securities excluding in-kind transactions, long-term U.S. Government and short-term securities were:
|
|
|
Purchases
|
|
|
Sales
|
|
|
Global X MLP ETF
|
|
$
|
589,784
|
|
|
$
|
639,862
|
|
For the period ended November 30, 2012, in-kind transactions
associated with creations and redemptions were:
|
|
|
Purchases
|
|
|
Sales and Maturities
|
|
|
Realized
Gain (Loss)
|
|
|
Global X MLP ETF
|
|
$
|
16,519,194
|
|
|
$
|
-
|
|
|
$
|
-
|
|
There were no purchases or sales of long term U.S. Government
securities for the Fund.
Notes to Financial Statements (continued)
November
30, 2012
5. CONCENTRATION
OF RISKS
The Fund uses a replication strategy. A
replication strategy is an indexing strategy that involves investing in the securities of the Underlying Index in approximately
the same proportions as in the Underlying Indices. The Fund may utilize a representative sampling strategy with respect to its
Underlying Indices when a replication strategy might be detrimental to its shareholders, such as when there are practical difficulties
or substantial costs involved in compiling a portfolio of equity securities to follow its Underlying Index, or, in certain instances,
when securities in the Underlying Indices become temporarily illiquid, unavailable or less liquid, or due to legal restrictions
(such as diversification requirements that apply to the Fund but not the Underlying Indices).
Under normal circumstances, the Global X MLP Fund intends to
invest at least 80% of its total assets in securities of MLPs, which are subject to certain risks, such as supply and demand risk,
depletion and exploration risk, and the risk associated with the hazards inherent in midstream energy industry activities. A substantial
portion of the cash flow received by the Fund is derived from investment in equity securities of MLPs. The amount of cash that
an MLP has available for distributions and the tax character of such distributions are dependent upon the amount of cash generated
by the MLP’s operations.
6. OTHER
At November 30, 2012, the total Shares
outstanding that were held by Authorized Participants were as follows. The Authorized Participants have entered into an
agreement with the Funds’ Distributor.
|
|
Authorized
Participants
|
Percentage of
Shares
Outstanding
|
|
Global X MLP ETF
|
2
|
100%
|
Pursuant to the Trust’s organizational documents, the
Trustees of the Trust and the Trust’s officers are indemnified against certain liabilities that may arise out of the
performance of their duties.
7. LOANS OF PORTFOLIO SECURITIES
The Fund may lend portfolio
securities having a market value up to one-third of the Funds’ total assets. Such loans are secured by collateral equal
to no less than the market value of the loaned securities determined daily. Such collateral will be cash or debt securities
issued or guaranteed by the U.S. Government or any agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments. It is the Funds’ policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending
securities entails a risk of loss to the Funds if and to the extent that the market value of the securities loans were to
increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. The
Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in
the amount of the collateral available for return to the borrower due to any loss on the collateral invested. As of November
30, 2012, the Fund had no securities on loan.
8. CONTRACTUAL OBLIGATIONS
The Fund enters into contracts in the normal
course of business that contain a variety of indemnifications. The Funds’ maximum exposure under these arrangements is
unknown. However the Fund has not had prior gains or losses pursuant to these contracts. Management has reviewed the
Funds’ existing contracts and expects the risk of loss to be remote.
Notes to Financial Statements (continued)
November
30, 2012
9. RECENT ACCOUNTING PRONOUNCEMENT
In December 2011, the Financial Accounting Standards
Board 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.
10. SUBSEQUENT EVENT
The Fund has evaluated the need for additional disclosures and/or
adjustments resulting from subsequent events.
Subsequent to the fiscal year-end, the following investment
portfolio was added to the Trust:
Fund Name
Global X MLP & Affiliates ETF
Subsequent to the fiscal year-end, the following Trust investment
portfolio commenced operations:
|
Fund Name
|
Commenced Operations
|
|
|
|
|
Global X Junior MLP ETF
|
01/14/2013
|
Report
of Independent Registered Public Accounting Firm
November
30, 2012
To the Shareholders and Board of Trustees of Global X Funds
We have audited the accompanying statement of
assets and liabilities, including the schedule of investments, of Global X MLP ETF, (one of the portfolios constituting the
Global X funds) (the “Fund”) as of November 30, 2012, and the related statement of operations, statement of
changes in net assets, and financial highlights for the period from April 18, 2012 (commencement of operations) to November
30, 2012. These financial statements and financial highlights are the responsibility of the Fund’s management. Our
responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities
owned as of November 30, 2012, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where
replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material respects, the financial position of the Fund at November 30, 2012,
and the results of its operations, the changes in its net assets, and its financial highlights for the period from April 18, 2012
(commencement of operations) to November 30, 2012, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
January 29, 2013
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, commissions, and shareholder reports like this one. It is important for you
to understand the impact of these costs on your investment returns. In addition, a shareholder is responsible for brokerage fees
as a result of their investment in the Fund.
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 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 Securities and Exchange 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
6/1/2012
|
|
|
Ending
Account
Value
11/30/2012
|
|
|
Annualized Expense
Ratios
(2)
|
|
|
Expenses
Paid
During
Period
(1)
|
|
|
Global X MLP ETF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual Fund Return
|
|
$
|
1,000.00
|
|
|
$
|
1,091.30
|
|
|
|
0 .45
|
%
|
|
$
|
2.35
|
|
|
Hypothetical 5% Return
|
|
|
1,000.00
|
|
|
|
1,022.75
|
|
|
|
0 .45
|
|
|
|
2.28
|
|
|
|
(1)
|
Expenses are equal to the Fund’s annualized
expense ratio
multiplied by
the averagecountac
value over the
period, multiplied
183/366 (to
reflect the one-half year period.)
|
|
|
|
|
|
|
(2)
|
Tax benefit/(expense) is not included in the ratio
calculation.
|
Approval
of Investment Advisory Agreement
(unaudited)
Section 15(c) of
the Investment Company Act of 1940, as amended ("1940 Act"), requires that each mutual fund’s board of trustees,
including a majority of those trustees who are not "interested persons" of the mutual fund, as defined in the 1940 Act
("Independent Trustees"), consider on an initial basis and periodically thereafter (as required by the 1940 Act), at
an in person meeting called for such purpose, the terms of each fund’s investment advisory agreement and approve each agreement
with such changes as the Independent Trustees deem appropriate.
At a quarterly
Board meeting held on November 16, 2012, the Board of Trustees (including the Independent Trustees) considered and unanimously
approved the continuation of (i) the Investment Advisory Agreement ("Renewal Investment Advisory Agreement") for the
Global X MLP ETF (the "Renewal Fund") and (ii) the Supervision and Administration Agreement between the Trust ("Renewal
Supervision and Administration Agreement"), on behalf of the Renewal Fund, and Global X Management Company ("Global X
Management"). The Renewal Investment Advisory Agreement and the Renewal Supervision and Administration Agreement are referred
to herein as the "Renewal Agreements."
In advance of the
Board meeting, the Board (including the Independent Trustees) requested (in writing) detailed information from Global X Management
in connection with their consideration of the Renewal Agreements and received and reviewed written responses from Global X Management
and supporting materials relating to those requests for information.
In determining
to approve the continuation of the Renewal Agreements for the Renewal Fund, the Board concluded that the Renewal Agreements were
fair and reasonable and in the best interests of the Renewal Fund and its shareholders, respectively. In approving the continuation
of the Renewal Agreements for the Renewal Fund, the Board considered among other things the following categories of material factors.
In addition, the Board based their determinations regarding the continuation of the Renewal Fund Agreements on their consideration
of all of the materials provided to them by Global X Management and the Renewal Fund’s other service providers throughout
the year.
In reaching this decision, the Board did not
assign relative weights to the factors discussed below nor did the Board deem any one factor or group of them to be controlling
in and of themselves. Certain factors considered by the Board (including the Independent Trustees) with respect to the approval
of the continuation of the Renewal Agreements are discussed separately below.
RENEWAL AGREEMENTS
Nature, extent and quality of services
With respect to this factor, the Board considered:
|
|
•
|
the terms of the Renewal Agreements and the range of
services that would continue to be provided to the Renewal Fund in accordance with the Renewal Agreements;
|
|
|
•
|
Global X Management’s key personnel and the portfolio managers who
would continue to provide investment advisory, supervision and administrative services to the Renewal Fund. In
connection with these considerations, the Board noted Global X Managements’ support staff and operational
resources;
|
|
|
•
|
Global X Management’s responsibilities under
the Renewal Agreements, among other things, to: (i) manage the investment operations of the
Renewal Fund and the composition of the Renewal Fund’s assets, including the purchase, retention and disposition of its holdings,
(ii) provide quarterly reports to the Trust’s officers and Board and other reports as the Board deems necessary or appropriate,
(iii) vote proxies, exercise consents, and exercise all other rights relating to securities and assets held by the Renewal Fund,
(iv) select broker- dealers to execute portfolio transactions for the Renewal Fund when necessary, (v) assist in the
|
Approval
of Investment Advisory Agreement
(unaudited)
|
|
|
preparation and filing of reports and proxy
statements (if any) to the shareholders of the Renewal Fund, the periodic updating of the registration statement, prospectuses,
statement of additional information, and other reports and documents for the Renewal Fund that are required to be filed by the
Trust with the SEC and other regulatory and governmental bodies, and (vi) monitor anticipated purchases and redemptions of the
shares (including creation units) of the Renewal Fund by shareholders and new investors;
|
|
|
•
|
the nature, extent and quality of the all of the services
(including advisory administrative and compliance services) that have been provided by Global X Management or made available to
the Renewal Fund and the adequacy of Global X Management’s personnel resources that would continue to be made available to
the Renewal Fund; and
|
|
|
•
|
Global X Management’s experience and the professional qualifications
of Global X Management’s key personnel.
|
Based on these considerations, the Board
concluded that it was satisfied with the nature, extent and quality of the services provided to the Renewal Fund by Global X
Management.
Performance
With respect to this fact, the Board considered the
Renewal Fund’s total return and investment performance relative to (i) the performance of unaffiliated comparable specialized
and/or focused exchange-traded funds and other registered funds in the same classification as the Renewal Fund, which performance
information is publicly available from such registered funds as well as other third party sources; and (ii) the performance of
comparable registered funds, pertinent indexes, and pertinent registered fund performance rankings.
Based on these considerations and comparisons, the
Board concluded that the investment performance of the Renewal Fund did not adversely affect the Board approval of the continuance
of the Renewal Agreements.
Cost of Services and Profitability
The Board considered
Global X Management’s cost to provide investment management and related services to the Renewal Fund. In this regard, the
Board considered the Management Fee that has been borne by the Renewal Fund under the Renewal Agreements for the various investment
advisory, supervisory and administrative services that the Renewal Fund requires under a unitary fee structure (including the types
of fees and expenses that are not included within the unitary fee and would be borne by the Renewal Fund).
In addition, the
Board considered the current and expected profitability to Global X Management from all services provided to the Renewal Fund and
all aspects of Global X Management’s relationship with the Renewal Fund. In connection with these considerations, the Global
X Management provided the Board with financial information regarding its operations and services to the Renewal Fund and discussed
with the Board its current and expected profitability with respect to the Renewal Fund.
Based on these considerations, the Board concluded
that the profits anticipated to be realized by Global X Management from its relationship with the Renewal Fund would not be excessive
and should not preclude approval of the continuance of the Renewal Agreement.
Comparison of Fees and Services
With respect to this factor, the Board considered:
|
|
•
|
comparative information with respect to the Management
Fee paid to Global Management by the Renewal Fund. In connection with this consideration, Global X Management provided the Board
with detailed comparative expense data for the Renewal Fund, including fees
|
Approval
of Investment Advisory Agreement
(unaudited)
|
|
|
and
expenses paid by unaffiliated comparable specialized and/or focused exchange-traded funds and other comparable registered funds
and fees and expenses paid by other funds that are series of the Trust under the same unified Management Fee structure;
|
|
|
•
|
the structure of the unified Management Fee structure
(which includes as one component the investment advisory fee for the Renewal Fund) and the current total expense ratios for the
Renewal Fund. In this regard, the Board took into consideration that the purpose of adopting a unitary Management Fee structure
for the Renewal Fund was to create a simple, all-inclusive fee that would provide a level of predictability with respect to the
overall expense ratio (i.e., the total fees) of the Renewal Fund and that the proposed Management Fee for the Renewal Fund was
set at a competitive fee to make the Renewal Fund viable in the marketplace; and
|
|
|
•
|
that Global X Management is responsible for most ordinary
expenses of the Renewal Fund, including the costs of various third-party services required by the Fund, including investment advisory,
administrative, audit, certain custody, portfolio accounting, legal, transfer agency and printing costs, but that the Renewal
Fund would bear other expenses not covered under the proposed all-inclusive Management Fee, such as, taxes, brokerage fees, commissions,
and other transaction expenses, interest, and extraordinary expenses.
|
Based on these considerations, the Board concluded
that the Management Fee and total expense ratio of the Renewal Fund should not preclude approval of the Renewal Agreements.
Economies of Scale
With respect to this factor, the Board considered:
|
|
•
|
the extent to which economies of scale would be realized as the Renewal Fund
grow and whether the unitary Management Fee for the Renewal Fund reflected these economies of scale;
|
|
|
•
|
the significant investment of time, personnel and other resources that Global X Management
has made and intends to make in the Renewal Fund in order to seek to assure that the Renewal Fund is attractive to investors; and
|
|
|
•
|
that the proposed unitary Management Fee would provide a high level of certainty
as to the total level of expenses for the Renewal Fund and their shareholders.
|
Based on these considerations, the Board concluded
that continuation of the unitary Management Fee for the Renewal Fund was reasonable.
Other Benefits
The Board considered any other benefits realized by
Global X Management as a result from its relations relationships with the Renewal Fund and concluded that all information it considered
supported approval of the continuation of the Renewal Agreements.
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 is 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
their NAV. The NAV of the Fund will fluctuate with changes in the market value of its 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 GlobalXFunds.com