Notes
to Financial Statements
December
31, 2019
1.
ORGANIZATION
GraniteShares
HIPS US High Income ETF (“HIPS”) and Graniteshares XOUT U.S. Large Cap ETF (“XOUT”) (each, a “Fund”,
and collectively, the “Funds”) are each a diversified series of GraniteShares ETF Trust (the “Trust”),
an open-end management investment company consisting of three investment series, organized as a Delaware statutory trust on November
7, 2016. The remaining Fund in the Trust is presented separately. The Trust is registered with the SEC under the Investment Company
Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Funds’
shares is registered under the Securities Act of 1933, as amended (the “Securities Act”). The investment objective
of HIPS and XOUT are to track the performance, before fees and expenses, of the TFMS HIPS 300 Index and XOUT U.S. Large Cap Index
(each, an “Index”, and collectively, the “Indexes”), respectively. HIPS and XOUT commenced operations
on January 6, 2015 and October 4, 2019, respectively.
On
December 13, 2017, the shareholders of the Master Income ETF (the “Reorganizing Fund”), a series of the ETF Series
Solutions, approved an Agreement and Plan of Reorganization providing for the transfer of all assets and liabilities of the Reorganizing
Fund to the GraniteShares ETF Trust. HIPS, a new series of the Trust, assumed the financial and performance history of the Master
Income ETF. The tax-free merger took place on December 15, 2017.
HIPS
fiscal year was changed to June 30. As a result, HIPS had a shortened fiscal year covering the transitional period between the
Fund’s prior fiscal year end November 30, 2017 and June 30, 2018.
2.
SIGNIFICANT ACCOUNTING POLICIES
The
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America
(U.S. GAAP), which require management to make certain estimates and assumptions at the date of the financial statements. Actual
results could differ from those estimates. The Funds follow the accounting and reporting guidance in the Accounting Standards
Codifications 946, “Financial Services—Investment Companies” issued by the U.S. Financial Accounting Standards
Board.
The
following is a summary of significant accounting policies followed by the Funds in the preparation of its financial statements.
Investment
Transactions and Investment Income: Investment transactions are recorded on the trade date. Gains and losses on securities
sold are determined on the basis of identified cost. Dividend income, if any, is recorded on the ex-dividend date or, in the case
of foreign securities, as soon as each Fund is informed of the ex-dividend dates. Interest income, including accretion of discounts
and amortization of premiums, is recorded on the accrual basis. Withholding taxes on foreign dividends have been provided for
in accordance with each Fund’s understanding of the applicable tax rules and regulations.
Distributions
received from the Funds’ investments in master limited partnerships (“MLPs”) generally are comprised of ordinary
income and return of capital from the MLPs. The Funds allocate distributions between investment income and return of capital based
on estimates. Such estimates are based on information provided by each MLP and other industry sources. These estimates may subsequently
be revised based on actual allocations received from MLPs after their tax reporting periods are concluded, as the actual character
of these distributions is not known until after the fiscal year end of the Funds.
Distributions
received from the Funds’ investments in real estate investment trusts (“REITs”) may be characterized as ordinary
income, net capital gain, or a return of capital. The proper characterization of REIT distributions is generally not known until
after the end of each calendar year. As such, the Funds must use estimates in reporting the character of its income and distributions
for financial statement purposes. The actual character of distributions to the Funds’ shareholders will be reflected on
the Form 1099 received by shareholders after the end of the calendar year. Due to the nature of REIT investments, a portion of
the distributions received by the Funds’ shareholders may represent a return of capital.
Distributions
received from the Funds’ investments in closed-end funds (“CEFs”) are recorded as ordinary income, net realized
capital gain or return of capital based on information reported by the CEFs and management’s estimates of such amounts based
on historical information. These estimates are adjusted with the tax returns after the actual source of distributions has been
disclosed by the CEFs and may differ from the estimated amounts.
Dividend
Distributions: Distributions to shareholders are recorded on the ex-dividend date and are determined in accordance with federal
income tax regulations, which may differ from U.S. GAAP. The Funds distribute all or substantially all of their net investment
income to shareholders in the form of dividends.
GraniteShares
ETF Trust
Notes
to Financial Statements (continued)
December
31, 2019
3.
SECURITIES VALUATION
The
NAV per share of each Fund is calculated by dividing the sum of the value of the securities held by each Fund, plus cash and other
assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding of each Fund, rounded
to the nearest cent. The Fund’s shares will not be priced on the days on which the New York Stock Exchange Arca, Inc. (“NYSE
Arca”) is closed for trading. The offering and redemption price per share for each Fund is equal to the Fund’s NAV
per share.
Equity
securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official
closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange
on which the security is primarily traded or as of 4 p.m. Eastern time. The value is then converted into its U.S. dollar equivalent
at the foreign exchange rate in effect at 4 p.m. Eastern time on the day that the value of the security is determined.
Investments
in open-end mutual funds are valued at the closing NAV. Investments in closed-end funds are valued at closing quoted sale price
or the official closing price of the day, respectively. Registered fund positions held by HIPS and XOUT at December 31, 2019 are
represented by closed-ended (single class) registered funds, respectively.
Certain
securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Board or its
delegate at fair value. These securities generally include but are not limited to, restricted securities (securities which may
not be publicly sold without registration under the 1933 Act) for which a pricing service is unable to provide a market price;
securities whose trading has been formally suspended; a security whose market price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after
the market has closed but before the calculation of each Fund net asset value (as may be the case in foreign markets on which
the security is primarily traded) or make it difficult or impossible to obtain a reliable market quotation; and a security whose
price, as provided by the pricing service, does not reflect the security’s “fair value.” A variety of factors
may be considered in determining the fair value of such securities.
Valuing
each Fund’s investments using fair value pricing will result in using prices for those investments that may differ from
current market valuations.
4.
FAIR VALUE MEASUREMENT
The
Financial Accounting Standards Board (FASB) established a framework for measuring fair value in accordance with U.S. GAAP. Under
Fair Value Measurements and Disclosures, various inputs are used in determining the value of the exchange traded fund’s
investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with
investing in those securities. The three Levels of inputs of the fair value hierarchy are defined as follows:
|
Level
1 -
|
Unadjusted
quoted prices in active markets for identical assets or liabilities.
|
|
Level
2 -
|
Observable
inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar securities,
interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
|
|
Level
3 -
|
Unobservable
inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s
own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based
on the best information available.
|
A
financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant
to the fair value measurement.
The
availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including,
for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets,
and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less
observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment
exercised in determining fair value is greatest for instruments categorized in Level 3.
The
hierarchy classification of inputs used to value each Fund’s investments at December 31, 2019, is disclosed at the end of
each Fund’s Schedule of Investments.
GraniteShares
ETF Trust
Notes
to Financial Statements (continued)
December
31, 2019
5.
ADVISORY AND OTHER AGREEMENTS
GraniteShares
Advisors LLC (the “Adviser”), the investment adviser to the Funds, is a Delaware limited Liability Company located
at 205 Hudson Street, 7th Floor, New York, NY 10013. The Adviser provides investment advisory services to exchange-traded funds.
The Adviser serves as investment adviser to the Funds with overall responsibility for the portfolio management of the Funds, subject
to the supervision of the Board of Trustees (the “Board”) of the Trust.
For
its services, the Adviser receives a fee that is equal to 0.70% per annum of the average daily net assets of HIPS and 0.60% per
annum of the average daily net assets of XOUT, calculated daily and paid monthly. Pursuant to the Advisory Agreement, the Adviser
is responsible for substantially all expenses of each Fund (excluding interest, taxes, brokerage commissions, expenses related
to short sales, other expenditures which are capitalized in accordance with generally accepted accounting principles, other extraordinary
expenses not incurred in the ordinary course of each Fund’s business, and amounts, if any, payable pursuant to a plan adopted
in accordance with Rule 12b-1 under the 1940 Act).
Pursuant
to the Advisory Agreement, the Adviser has agreed to pay all expenses of each Fund, except for: (i) brokerage expenses and other
fees, charges, taxes, levies or expenses (such as stamp taxes) incurred in connection with the execution of portfolio transactions
or in connection with creation and redemption transactions; (ii) legal fees or expenses in connection with any arbitration, litigation
or pending or threatened arbitration or litigation, including any settlements in connection therewith; (iii) compensation and
expenses of the Independent Trustees; (iv) compensation and expenses of counsel to the Independent Trustees; (v) compensation
and expenses of the Trust’s Chief Compliance Officer; (vi) extraordinary expenses; (vii) distribution fees and expenses
paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act; (viii) interest and taxes of
any kind or nature; (ix) any fees and expenses related to the provision of securities lending services; and (x) the advisory fee
payable to the Adviser under the Advisory Agreement.
During
the period ended December 31, 2019, the Funds received no reimbursed payments from the Adviser.
The
Adviser is the only related party involved with the operations of the Funds.
The
Bank of New York Mellon (in each capacity, the “Administrator”, “Custodian,” “Accounting Agent”
or “Transfer Agent”) serves as the Funds’ Administrator, Custodian, Accounting Agent and Transfer Agent pursuant
to the Fund Administration and Accounting Agreement. The Bank of New York Mellon is a subsidiary of The Bank of New York Mellon
Corporation, a financial holding company.
Foreside
Fund Services, LLC. (“Distributor”) serves as the Funds’ distributor. The Trust has adopted a distribution and
service plan (“Rule 12b-1 Plan”) pursuant to Rule 12b-1 under the 1940 Act. Under the Rule 12b-1 Plan, the Funds are
authorized to pay an amount up to a maximum annual rate of 0.25% of its average net assets in connection with the sale and distribution
of its shares and pay service fees in connection with the provision of ongoing services to shareholders. No distribution fees
are currently charged to the Funds; there are no plans to impose these fees.
6.
SHARE TRANSACTIONS
Shares
of the Funds are listed and traded on NYSE Arca. Market prices for the shares may be different from their NAV. The Funds issue
and redeem shares on a continuous basis at NAV only in blocks of 50,000 shares, called “Creation Units.” Creation
Units are issued and redeemed principally in-kind for securities included in a specified universe. Once created, shares generally
trade in the secondary market at market prices that change throughout the day. Except when aggregated in Creation Units,
shares are not redeemable securities of the Funds. Creation Units 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 participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors
do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable
to purchase or redeem shares directly from the Fund. Rather, most retail investors may purchase shares in the secondary market
with the assistance of a broker and are subject to customary brokerage commissions or fees.
GraniteShares
ETF Trust
Notes
to Financial Statements (continued)
December
31, 2019
The
Funds currently offer one class of shares, which have no front-end sales load, no deferred sales charge, and no redemption fee.
A fixed transaction fee is imposed for the transfer and other transaction costs associated with the purchase or sale of a Creation
Unit. The standard fixed transaction fee for each Fund is $750, payable to the Custodian. In addition, a variable fee may be charged
on all cash transactions or substitutes for Creation
Units of up to a maximum of 2% of the value of the Creation Units subject to the transaction. Variable fees are imposed to compensate
each Fund for the transaction costs associated with the cash transactions. There were no variable fees received during the year.
The Funds may issue an unlimited number of shares of beneficial interest, with no par value. All shares of the Funds have equal
rights and privileges.
7.
INVESTMENT TRANSACTIONS
During
the period ended December 31, 2019, purchases and sales of securities by HIPS, excluding short-term securities and in-kind transactions,
were $3,754,104 and $3,760,582, respectively, and purchases and sales of securities by XOUT, excluding short-term securities and
in-kind transactions, were $1,170,767 and $1,171,208, respectively.
During
the period ended December 31, 2019, in-kind transactions for HIPS associated with creations and redemptions were $1,661,703 and
$840,426, respectively, and in-kind transactions for XOUT associated with creations and redemptions were $19,756,097 and $ -,
respectively.
8.
FEDERAL INCOME TAX MATTERS
The
Funds intend to qualify as a “regulated investment company” under Subchapter M of the Internal Revenue
Code of 1986, as amended. If so qualified, the Funds will not be subject to Federal income tax to the extent they distribute substantially
all of their net investment income and net capital gains to its shareholders. Accounting for Uncertainty in Income Taxes provides
guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements,
and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Funds’ tax returns
to determine whether the tax positions are ’‘more-likely-than-not’’ of being sustained by the applicable
tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense
in the current year. Interest and penalty related to income taxes would be recorded as income tax expense. Management of the Funds
is required to analyze all open tax years, as defined by IRS statute of limitations, for all major jurisdictions, including federal
tax authorities and certain state tax authorities. As of June 30, 2019, the Funds did not have a liability for any unrecognized
tax benefits. The Funds have no examination in progress and are not aware of any tax positions for which it is reasonably possible
that the amounts of unrecognized tax benefits will significantly change in the next twelve months.
At
June 30, 2019, the cost of investments and net unrealized appreciation (depreciation) for federal income tax purposes were as
follows:
|
Federal Tax Cost of Investments
|
|
|
Gross Unrealized Appreciation
|
|
|
Gross Unrealized Depreciation
|
|
|
Net Unrealized Appreciation (Depreciation)
|
|
|
$
|
7,515,135
|
|
|
$
|
86,688
|
|
|
$
|
(68,504
|
)
|
|
$
|
18,184
|
|
9.
INDEMNIFICATION
In
the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties which provide
general indemnities. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims
that may be made against each Fund that has not yet occurred. Management expects this risk of loss to be remote.
10.
PRINCIPAL RISKS
In
the normal course of business, the Funds make investments in financial instruments where the risk of potential loss exists due
to changes in the market. The following is a description of select risks of investing in the Fund.
REIT
Investment Risk: Investments in REITs involve unique risks. REITs may have limited financial resources,
may trade less frequently and in limited volume, and may be more volatile than other securities. The risks of investing in REITs
include certain risks associated with the direct ownership of real estate and the real estate industry in general. REITs are also
subject to heavy cash flow dependency, defaults by borrowers and self-liquidation.
GraniteShares
ETF Trust
Notes
to Financial Statements (continued)
December
31, 2019
MLP
Risk: MLP investment returns are enhanced during periods of declining or low interest rates and
tend to be negatively influenced when interest rates are rising. In addition, most MLPs are fairly leveraged and typically carry
a portion of a “floating” rate debt. As such, a significant upward swing in interest rates would also drive interest
expense higher. Furthermore, most MLPs grow by acquisitions partly financed by debt, and higher interest rates could make it more
difficult to make acquisitions. MLP investments also entail many of the general tax risks of investing in a partnership. Limited
partners in an MLP typically have limited control and limited rights to vote on matters affecting the partnership. Additionally,
there is always the risk that an MLP will fail to qualify for favorable tax treatment.
Business
Development Company (“BDC”) Risk: BDC’s may carry risks similar to those of a private equity or venture
capital fund. BDC company securities are not redeemable at the option of the shareholder and they may trade in the market at a
discount to their net asset value. BDCs usually trade at a discount to their NAV because they invest in unlisted securities and
have limited access to capital markets. BDC’s are subject to management and other expenses, which will be indirectly paid
by each Fund.
Investment
Company Risk: The risks of investment in investment companies typically reflect the risks of the types of instruments in which
the investment companies invest in. By investing in another investment company, each Fund becomes a shareholder of that investment
company and bears its proportionate share of the fees and expenses of the other investment company. The Funds may be subject to
statutory limits with respect to the amount it can invest in other investment companies, which may adversely affect the Funds’
ability to achieve its investment objective.
Sector
Risk: To the extent the Funds invest more heavily in particular sectors of the economy, performance
will be especially sensitive to developments that significantly affect those sectors.
11.
SUBSEQUENT EVENTS
Management
has evaluated the events and transactions that have occurred through the date the financial statements were issued and noted no
items requiring adjustment of the financial statements or additional disclosures.
Board
Considerations Regarding Approval of Investment Advisory Agreement
GRANITESHARES
ETF TRUST
GraniteShares
XOUT U.S. Large Cap ETF
GraniteShares
ETF Trust (the “Trust”) was organized as a Delaware statutory trust on November 7, 2016, and is authorized to establish
multiple series, with each series representing interests in a separate portfolio of securities and other assets of the Trust (each,
a “Fund” and collectively, the “Funds”). The Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the “1940 Act”). On August 20, 2019, GraniteShares Advisors
LLC (“GraniteShares” or the “Adviser”) was approved to serve as the investment adviser to GraniteShares
XOUT U.S. Large Cap ETF (the “New Fund” or “XOUT”), pursuant to Amendment No. 2, dated September 24, 2019,
to the Amended and Restated Investment Advisory Agreement, dated August 17, 2018, between GraniteShares and the Trust (as amended,
the “Advisory Agreement”).
Under
the supervision of the Board of Trustees of the Trust (the “Board,” with the members of the Board referred to individually
as the “Trustees”), GraniteShares provides a continuous program of investment management for each Fund and, among
other services, determines, in its discretion, the securities to be purchased, retained or sold with respect to each Fund. GraniteShares
will provide those same services to the New Fund.
The
1940 Act provides, in substance, that an investment advisory agreement between a fund and its investment adviser may be entered
into only if it is approved by the fund’s board of trustees, including by a vote of a majority of the trustees who are not
“interested person[s],” as defined by the 1940 Act, of the fund, cast in person at a meeting called for the purpose
of considering such approval. At a meeting held in person on August 20, 2019 (the “August Meeting”), the Trustees
who are not “interested persons” (collectively, the “Independent Trustees”) considered the approval of
the Advisory Agreement with respect to the New Fund. As part of its review process, counsel to the Trust reviewed and discussed
with the Independent Trustees various factors relevant to the consideration of the Advisory Agreement and the legal responsibilities
of the Trustees related to such consideration. In this connection, the Independent Trustees also took into account their previous
discussions with counsel regarding the foregoing. The Trustees, including the Independent Trustees, discussed the Advisory Agreement
in light of the regulatory requirements and criteria and assessed information concerning the New Fund’s proposed investment
advisory fee and expense structure, investment objective, index provider and index construction methodology, and peer funds and
market opportunity, among other things.
Following
an analysis and discussion of the factors identified below, in the exercise of their reasonable business judgment and in light
of their respective fiduciary duties, the Trustees unanimously concluded that it was in the best interest of the New Fund to approve
the Advisory Agreement for an initial term of two years from commencement of the New Fund’s operations. In making determinations
regarding the factors identified below, the Trustees considered information received (both oral and written) at the August Meeting
as well as information obtained through the Board’s accumulated experience overseeing the existing Funds. In this regard,
the Board’s conclusions were also based on its knowledge of how well the Adviser performs its duties obtained through Board
meetings, discussions and reports during the year.
Nature,
Extent and Quality of Services to Be Provided by the Adviser: With respect to the nature, extent and quality of services to
be provided by the Adviser for the New Fund, the Independent Trustees considered the functions to be performed by the Adviser
for the New Fund and the nature and quality of services provided by GraniteShares in the past, including the firm’s management
capabilities demonstrated with respect to the existing Funds. The Trustees considered the responsibilities to be assumed by the
Adviser, including, among other things: responsibility for the general management of the day-to-day investment and reinvestment
of the assets of the New Fund to track the performance of the underlying index; determining the daily basket of deposit securities
and cash components; executing portfolio security trades for purchases and redemptions of shares; and monitoring and coordinating
the provision of services to the New Fund by each of the third-party service providers, including the fund administrator, transfer
agent, custodian and distributor.
In
considering the nature, extent and quality of the services to be provided by the Adviser, the Board considered the qualifications,
experience and responsibilities of the Adviser’s investment personnel and the quality of the compliance infrastructure,
including the regular reports provided by the Trust’s Chief Compliance Officer regarding compliance procedures and practices.
The
Board also noted the distinctive nature of the New Fund, as an ETF, which is constructed to track the performance of a defined
index of securities, before fund fees and expenses. Therefore, the New Fund does not follow traditional methods of active management,
which may involve the buying and selling of securities based upon analysis of economic and market factors. Rather, the Adviser
employs a “passive management”—or indexing—investment approach to seek achieve the New Fund’s investment
objective. In this connection, the Board considered the Adviser’s expected efforts to promote the New Fund and the Adviser’s
prior experience in organizing, managing and overseeing ETFs and coordinating their operation and administration. The Board also
considered the acceptability of the terms of the Advisory Agreement, including the scope of services required to be performed
by the Adviser, noting that the terms were consistent with the services provided for the existing Funds.
Based
on the foregoing, the Board concluded that the Adviser and its personnel were qualified to serve the New Fund in such capacity,
and that the nature, quality and extent of services proposed to be provided by the Adviser would be satisfactory and adequate
for the New Fund.
Investment
Performance: With respect to investment performance, the Board noted that the New Fund has no operating history. Consequently,
the Board considered the investment objective and strategies of the New Fund and noted the following:
GraniteShares
XOUT U.S. Large Cap ETF: The New Fund seeks to provide investment results that, before fees and expenses, correspond generally
to the total return performance of the XOUT U.S. Large Cap Index (the “Index”). The Index utilizes a proprietary,
quantitative methodology developed by XOUT Capital, LLC (the “Index Provider”), designed to identify companies that
have a risk of being disrupted and as a result could underperform their relevant sector. The companies identified are then excluded
from the index selection. In order to identify the companies to be excluded, each eligible company receives a score, the XOUT
Score, based on the following 7 quantitative factors:
|
|
-
|
Profitability
and deposit growth (for banks)
|
Each
quantitative factor receives a quintile score from 1 to 5, 5 being the best. The quintile scores are weighted to achieve an aggregate
quintile score for each company. Companies scoring below the median quintile are excluded from the index selection. The Index
is market capitalization weighted and reconstituted on a quarterly basis.
The
Board also noted that the Index Provider is deemed to be affiliated with the Adviser and publishes information regarding the market
value of the Index.
In
addition to the foregoing, the Board considered the Adviser’s plans for implementing the above-described Index strategy
and its ability to manage the New Fund. The Board also considered the Adviser’s overall performance record in managing the
existing Funds, as well as the portfolio managers’ expertise, and determined that the Adviser’s performance was expected
to be acceptable.
Comparative
Fees, Costs of Services to Be Provided and the Profits to Be Realized by the Adviser from Its Relationship with the New Fund:
The Board noted that the proposed advisory fee for the New Fund is a unitary fee pursuant to which the Adviser assumes substantially
all expenses of the Fund (excluding interest, taxes, brokerage commissions, expenses related to short sales, other expenditures
which are capitalized in accordance with generally accepted accounting principles, other extraordinary expenses not incurred in
the ordinary course of the New Fund’s business, and amounts, if any, payable pursuant to a plan adopted in accordance with
Rule 12b-1 under the 1940 Act.) In this connection, the Board reviewed information provided in the meeting materials comparing
the New Fund’s proposed unitary fee to certain other funds identified by the Adviser, taking into account the uniqueness
of the New Fund’s strategy. Specifically, the Adviser identified six ETFs focusing on U.S. large cap stocks and employing
certain similar screens to identify target stocks. Based on the information presented by the Adviser, the average advisory fee
charged by these funds is 0.61%, above the New Fund’s proposed unitary fee of 60 basis points. The fee data provided by
the Adviser also indicated that for the broader universe of approximately 200 U.S. large cap mutual funds, the average fee advisory
fee is 0.96%.
The
Board concluded that the New Fund’s proposed unitary fee was reasonable given the nature, extent and anticipated quality
of the services expected to be provided under the Advisory Agreement.
With
respect to the costs of advisory services to be provided and estimated level of profitability, the Trustees noted that the New
Fund is newly organized and has no assets, and that they would have the opportunity in the future to periodically reexamine this
matter.
Economies
of Scale to Be Realized: With respect to economies of scale, the Board was of the view that New Fund benefits from economies
of scale (if any) by virtue of a unitary fee arrangement set at a competitive level at the New Fund’s inception, that subsumes
economies of scale in the fee itself. The Board also noted the start-up status of the New Fund.
Overall
Conclusions
Based
on the foregoing, the Trustees determined that the proposed advisory fee for the New Fund is fair and reasonable in light of the
extent and anticipated quality of the services expected to be provided and the other benefits to be received and that the approval
of the Advisory Agreement is in the best interest of the New Fund. In reaching this conclusion, no single factor was determinative
or conclusive and each Trustee, in the exercise of his business judgment, may attribute different weights to different factors.
At the August Meeting, the Board, including all of the Independent Trustees, approved the Advisory Agreement for an initial term
of two years term of two years from commencement of operations with respect to the New Fund.
GraniteShares
ETF Trust
Supplemental
Information
Quarterly Portfolio Holdings Information
The Funds
will be required to file their complete schedule of portfolio holdings with the SEC for their first and third quarters on Form
N-PORT. Copies of the filings will be available without charge on the SEC’s website at www.sec.gov. You will also be able
obtain copies of Form N-PORT by visiting the SEC’s Public Reference Room in Washington, DC. Information
on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Proxy Voting Information
A description
of the Funds proxy voting policies and procedures, as well as a record of how the Funds voted proxies during the most recent 12-month
period ended June 30, is available without charge upon request by calling 1-844-476-8747. This
information will also be available on the SEC’s website at www.sec.gov.
Premium/Discount Information
Information about the differences
between the daily market price on the secondary market for the shares of a Fund and the Fund’s net asset value may be found
on the Fund’s website at www.graniteshares.com.
Authorized
for distribution only when accompanied or preceded by a prospectus. Investors should carefully consider the fund’s investment
goals, risks, charges and expense before investing. A prospectus contains this and other important information. Please read carefully
before investing.
Distributor, Foreside Fund Services, LLC
GraniteShares
ETF Trust
205
Hudson Street, 7th Floor
New
York, NY 10013