NOTE
1–Organization
Invesco India Exchange-Traded Fund Trust (the “Trust”) was organized as a Massachusetts business
trust on August 3, 2007 and is authorized to have multiple series of portfolios. The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the
“1940 Act”). This report includes Invesco India ETF (PIN), an exchange-traded index fund (the “Portfolio”). The Portfolio carries out its investment strategy by investing at least 90% of its total assets in securities that
comprise the FTSE India Quality and Yield Select Index (the “Underlying Index”), as well as American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”) based on securities in the Underlying Index.
Prior to March 25, 2019, the Portfolio invested substantially all of its assets in Invesco Mauritius PIN, a wholly-owned subsidiary organized in Mauritius (the “Subsidiary”) to gain exposure to Indian equity securities. Invesco
Capital Management LLC (the “Adviser”) serves as the investment adviser to the Portfolio and, prior to March 25, 2019, both the Portfolio and the Subsidiary (collectively the “Fund”). Through such investment structure, the
Fund historically sought to obtain benefits from a tax treaty between Mauritius and India (the “Tax Treaty”), and the Subsidiary was required to meet certain tests and conditions, including the establishment of Mauritius tax residence, in
order to obtain such benefits. In response to amendments in the Tax Treaty between India and Mauritius, the Portfolio exercised its rights as the sole shareholder of the Subsidiary to transition all of its Indian securities out of the Subsidiary and
as such all investments were liquidated on March 25, 2019. As a result, foreign taxes were incurred on short-term capital gains resulting from the sale of investment securities purchased after April 1, 2017, as a result of the amendments
to the Tax Treaty. Although certain disclosures contained herein refer to the Fund, the Portfolio currently holds its investments in Indian securities directly.
The Fund’s shares (“Shares”) are listed on NYSE Arca, Inc. The market price of a Share may differ to some degree
from the Fund’s net asset value (“NAV”). Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at NAV, only in a large specified number of Shares, each called a “Creation Unit.” Creation
Units are issued and redeemed principally in exchange for the deposit or delivery of cash. Except when aggregated in Creation Units by Authorized Participants, Shares are not individually redeemable securities of the Fund.
The investment objective of the Fund is to seek to track the investment results (before fees and expenses) of its Underlying Index.
NOTE 2–Significant Accounting Policies
The following is a summary of the significant accounting policies followed by the Fund in preparation of its consolidated financial statements.
The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance in
accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services–Investment Companies.
A. Security Valuation - Securities, including restricted securities, are valued according to the following policies:
A security listed or traded on an exchange (except convertible securities) is generally valued at its last sales
price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded or, lacking any sales or official closing price on a particular day, the security may be valued at the closing
bid price on that day. Securities traded in the over-the-counter (“OTC”) market are valued based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are
valued at the mean between the last bid and asked prices from the exchange on which they are principally traded, or at the final settlement price set by such exchange. Swaps and options not listed on an exchange are valued by an independent source.
For purposes of determining NAV per Share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investment companies are valued using such company’s NAV per share, unless the shares are exchange-traded, in
which case they are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote
provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate
(for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Securities with a demand feature exercisable within one to seven days are valued at par. Pricing services generally value
debt obligations assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd lot sizes. Odd lots often trade at lower prices than institutional round lots.
Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts’) prices are converted into U.S. dollar amounts
using the applicable exchange rates as of the close of the London world markets. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading
hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events
occur that Invesco Capital Management LLC (the “Adviser”) determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of
certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to
reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, the potential for sharply
devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes
furnished by independent sources. The last bid price may be used to value exchange-traded equity securities. The mean between the last bid and asked prices may be used to value debt obligations, including corporate loans, and unlisted equity
securities.
Securities for which market quotations are not readily available or became unreliable are
valued at fair value as determined in good faith following procedures approved by the Board of Trustees. Issuer-specific events, market trends, bid/asked quotes of brokers and information providers and other market data may be reviewed in the course
of making a good faith determination of a security’s fair value.
The Fund may invest in securities
that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in
interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain Fund investments.
Valuations change in response to many factors, including the historical and prospective earnings of the issuer, the
value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the consolidated financial statements may
materially differ from the value received upon actual sale of those investments.
B. Other Risks
Authorized Participant Concentration Risk. Only Authorized Participants (“APs”) may engage in
creation or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have no obligation to submit creation or redemption orders. Consequently, there is no assurance that those
APs will establish or maintain an active trading market for the Shares. This risk may be heightened to the extent that securities underlying the Fund is traded outside a collateralized settlement system. In that case, APs may be required to post
collateral on certain trades on an agency basis (i.e., on behalf of other market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are unable to proceed with creation and/or
redemption orders with respect to the Fund and no other AP is able to step forward to create or redeem Creation Units, this may result in a significantly diminished trading market for Fund Shares, which may be more likely to trade at a premium or
discount to the Fund’s NAV and possibly face trading halts and/or delisting. This risk may be heightened for the Fund if it invests in non-U.S. securities, which may have lower trading volumes.
Cash Transaction Risk. Most exchange-traded funds (“ETFs”) generally make in-kind redemptions to avoid being taxed on gains on the distributed portfolio securities at the fund level. However, the Fund currently intends to effect creations and redemptions principally for cash, rather than
principally in-kind, due to the nature of the Fund’s investments. As such, the Fund may be required to sell portfolio securities to obtain the cash needed to distribute redemption proceeds. Therefore, the
Fund may recognize a capital gain on these sales that might not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to ETFs that utilize an in-kind redemption process and there may be a substantial difference in the after-tax rate of the return between the Fund and conventional ETFs.
Currency Risk. Because the Fund’s NAV is determined in U.S. dollars, the Fund’s NAV could decline
if the currency of a non-U.S. market in which the Fund invests depreciates against the U.S. dollar. Generally, an increase in the value of the U.S. dollar against a foreign currency will reduce the value of a
security denominated in that foreign currency, thereby decreasing
the Fund’s overall NAV. Exchange rates may be volatile and may change quickly and unpredictably in response to both global economic developments and economic conditions, causing an adverse impact on the Fund. As a result,
investors have the potential for losses regardless of the length of time they intend to hold Shares.
Equity Risk. Equity risk is the risk that the value of equity securities, including common stocks, may fall
due to both changes in general economic conditions that impact the market as a whole, as well as factors that directly relate to a specific company or its industry. Such general economic conditions include changes in interest rates, periods of
market turbulence or instability, or general and prolonged periods of economic decline and cyclical change. It is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds. In addition,
equity risk includes the risk that investor sentiment toward particular industries will become negative. The value of a company’s common stock may fall solely because of factors, such as an increase in production costs that negatively impact
other companies in the same region, industry or sector of the market. A company’s common stock also may decline significantly in price over a short period of time due to factors specific to that company, including decisions made by its
management or lower demand for the company’s products or services. For example, an adverse event, such as an unfavorable earnings report or the failure to make anticipated dividend payments, may depress the value of common stock.
Index Risk. Unlike many investment companies, the Fund does not utilize an investing strategy that seeks
returns in excess of its Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed, respectively, from its Underlying Index, even if that security generally is underperforming.
Indian Securities Risk. Investment in Indian securities involves risks in addition to those
associated with investments in securities of issuers in more developed countries, which may adversely affect the value of the Fund’s assets. Such heightened risks include, among others, political and legal uncertainty, greater government
control over the economy, currency fluctuations or blockage and the risk of nationalization or expropriation of assets. In addition, religious and border disputes persist in India. Certain restrictions on foreign investment may decrease the
liquidity of the Fund’s portfolio or inhibit the Fund’s ability to track the Underlying Index. The Fund’s investment in securities of issuers located or operating in India as well as its ability to track the Underlying Index may be
limited or prevented at times, due to the limits on foreign ownership imposed by the Reserve Bank of India.
Non-Correlation Risk. The Fund’s return may not match the return of its Underlying Index for a number of reasons. For example, the Fund incurs operating expenses not applicable to
the Underlying Index, and incurs costs in buying and selling securities, especially when rebalancing the Fund’s securities holdings to reflect changes in the composition of its Underlying Index. Additionally, a Fund’s use of a
representative sampling approach may cause the Fund not to be as well-correlated with the return of its Underlying Index as would be the case if the Fund purchased all of the securities in its Underlying Index in the proportions represented in the
Underlying Index. In addition, the performance of the Fund and its Underlying Index may vary due to asset valuation differences and differences between the Fund’s portfolio and its Underlying Index resulting from legal restrictions, costs or
liquidity constraints.
Non-Diversified Fund Risk. The
Fund is non-diversified and can invest a greater portion of its assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single investment could cause
greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Regulatory Risk. The Adviser is a qualified foreign portfolio investor (“FPI”) with
the Securities and Exchange Board of India (“SEBI”), and the Subsidiary, prior to March 25, 2019, was registered as a sub-account with the SEBI in order to obtain certain benefits relating to
the Fund’s ability to make and dispose of investments. There can be no assurances that the Indian regulatory authorities will continue to grant such qualifications, and the loss of such qualifications could adversely impact the ability of the
Fund to make investments in India.
Small- and
Mid-Capitalization Company Risk. The Fund invests in securities of small- and mid- capitalization companies, which involves greater risk than customarily is
associated with investing in larger, more established companies. These companies’ securities may be more volatile and less liquid than those of more established companies. These securities may have returns that vary, sometimes significantly,
from the overall securities market. Often small- and mid-capitalization companies and the industries in which they focus are still evolving and, as a result, they may be more sensitive to changing market
conditions.
C. Investment Transactions and Investment Income - Investment transactions are
accounted for on a trade date basis. Realized gains and losses from the sale or disposition of securities are computed on the specific identified cost basis. Interest income is recorded on the accrual basis from settlement date. Pay-in-kind interest income and non-cash dividend income received in the form of securities
in-lieu of cash are recorded at the fair value of the securities received. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Realized
gains, dividends and interest received by the Fund may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. For the current period,
the Fund is expected to be subject to a maximum effective rate of tax of 3% in Mauritius on its net dividend and interest income.
The Fund may periodically participate in litigation related to the Fund’s investments. As such, the Fund may
receive proceeds from litigation settlements. Any proceeds received are included in the Consolidated Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost
basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Consolidated
Statement of Operations and the Consolidated Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Consolidated Financial Highlights. Transaction costs are included in the calculation of
the Fund’s NAV and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Consolidated Statement of Operations and
the Consolidated Statement of Changes in Net Assets, or the net investment income per share and the ratios of expenses and net investment income reported in the Consolidated Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the Adviser.
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D.
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Country Determination - For the purposes of presentation in the Consolidated Schedule of
Investments, the Adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include whether the Fund’s Underlying Index has made a country determination and may include
the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s
securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements,
the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted.
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E.
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Dividends and Distributions to Shareholders - The Fund declares and pays dividends from net
investment income, if any, to its shareholders quarterly and records such dividends on ex-dividend date. Generally, the Fund distributes net realized taxable capital gains, if any, annually in cash and records
them on ex-dividend date. Such distributions on a tax basis are determined in conformity with federal income tax regulations, which may differ from accounting principles generally accepted in the United States
of America (“GAAP”). Distributions in excess of tax basis earnings and profits, if any, are reported in such Fund’s consolidated financial statements as a tax return of capital at fiscal
year-end.
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F.
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Taxes - The Fund intends to comply with the provisions of the Internal Revenue Code of 1986,
as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute substantially all of the Fund’s taxable earnings to its shareholders. As such, the Fund will not be subject to federal income
taxes on otherwise taxable income (including net realized gains) that is distributed to the shareholders. Therefore, no provision for federal income taxes is recorded in the consolidated financial statements. Under the applicable foreign tax laws, a
withholding tax may be imposed on interest, dividends and capital gains at various rates.
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The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for
unrecognized tax benefits should be recorded related to uncertain tax positions. Management 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.
Income and capital gain distributions are determined in accordance with federal income tax
regulations, which may differ from GAAP. These differences are primarily due to differing book and tax treatments for in-kind transactions, losses deferred due to wash sales and passive foreign investment company adjustments, if any.
The Fund files U.S. federal tax returns and tax returns in certain other jurisdictions. Generally, the Fund is
subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
On May 10, 2016, India and Mauritius signed a protocol amending their Tax Treaty. With this protocol, Mauritius entities are subject to a 15% short-term capital gains tax in India on the sale of shares of Indian resident
companies purchased on or after April 1, 2017. The protocol grandfathers shares acquired on or before March 31, 2017, so that gains on these shares will remain exempt from taxation irrespective of their date of disposal. In addition,
during a transition period from April 1, 2017 through March 31, 2019, the tax rate was limited to 50% of the domestic tax rate in India on such gains, subject to fulfillment of conditions in the Limitation of Benefits article of the Tax
Treaty. Short-term gains arising on shares acquired on or after April 1, 2017, and transferred on or after April 1, 2019 were taxed fully in India as per the India tax laws. It is important to note that the amendments to the capital gains
article in the protocol relates to the taxation of shares only and would not affect the taxation of other “securities.” In February 2018, an amendment to the India Income Tax Acts extended the scope of capital gain taxation to apply to
gains on the transfer of long-term assets beginning on April 1, 2018. Securities acquired prior to February 1, 2018 will benefit from limited grandfathering in the form of a step-up in the cost basis
of securities. Changes in the India tax law could reduce the return to the Fund on its investments and the return received by Fund shareholders.
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G.
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Expenses - The Fund has agreed to pay an annual unitary management fee to the Adviser. Out
of the unitary management fee, the Adviser has agreed to pay for substantially all expenses of the Fund and, through March 25, 2019, the Subsidiary, including the cost of transfer agency, custody, fund administration, legal, audit and other
services, except for advisory fees,
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distribution fees, if any, brokerage expenses, taxes, interest, acquired fund fees and expenses, if any, litigation expenses and other extraordinary expenses. The Subsidiary paid through March 25, 2019 for its distribution fees
(if any), brokerage expenses, taxes, interest, litigation expenses and extraordinary expenses.
To the
extent the Fund invests in other investment companies, the expenses shown in the accompanying consolidated financial statements reflect the expenses of the Fund and do not include any expenses of the investment companies in which it invests. The
effects of such investment companies’ expenses are included in the realized and unrealized gain or loss on the investments in the investment companies.
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H.
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Accounting Estimates - The preparation of the consolidated financial statements in
accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements, including estimates and assumptions related to taxation. Actual results could
differ from these estimates. All inter-company accounts and transactions have been eliminated in consolidation. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the consolidated financial statements are released to print.
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I.
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Indemnifications - Under the Trust’s organizational documents, its Officers and
Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. Each Board member who is not an “interested person” (as defined in the 1940 Act) of the Trust (each, an “Independent
Trustee”) is also indemnified against certain liabilities arising out of the performance of their duties to the Trust pursuant to an Indemnification Agreement between such trustee and the Trust. Additionally, in the normal course of business,
the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that
have not yet occurred. However, based on experience, the Trust believes the risk of loss to be remote.
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J.
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Foreign Currency Translations - Foreign currency is valued at the close of the NYSE based on
quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities
(net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of
market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Consolidated Statement of Operations. Reported net realized foreign currency gains or
losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period-end, resulting from changes in exchange rates.
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The Fund may invest in foreign securities, which may be subject to foreign taxes on income, gains on investments or
currency repatriation, a portion of which may be recoverable. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests.
NOTE 3–Investment Advisory Agreement and Other Agreements
The Trust has entered into an Investment Advisory Agreement with the Adviser on behalf of the Fund, pursuant to which the Adviser has overall
responsibility for the selection and ongoing monitoring of the Fund’s investments, managing the Fund’s business affairs and providing certain clerical, bookkeeping and other administrative services.
Pursuant to the Investment Advisory Agreement, the Fund accrues daily and pays monthly to the Adviser an annual unitary management
fee of 0.78% of the Fund’s average daily net assets. Out of the unitary management fee, the Adviser has agreed to pay for substantially all expenses of the Fund and, through March 25, 2019, the Subsidiary, including the costs of transfer
agency, custody, fund administration, legal, audit and other services, except for advisory fees, distribution fees, if any, brokerage expenses, taxes, interest, acquired fund fees and expenses, if any, litigation expenses and other extraordinary
expenses.
Further, effective April 11, 2019 through August 31, 2021, the Adviser has contractually agreed to
waive a portion of the Fund’s management fee in an amount equal to 100% of the net advisory fees an affiliate of the Adviser receives that are attributable to certain of the Fund’s investments in money market funds managed by that
affiliate (excluding investments of cash collateral from securities lending). The Adviser cannot discontinue this waiver prior to its expiration.
For the fiscal year ended October 31, 2019, the Adviser waived fees of $564.
The Trust has entered into a Distribution Agreement with Invesco Distributors, Inc. (the “Distributor”), which serves as
the distributor of Creation Units for the Fund. The Distributor does not maintain a secondary market in the Shares. The Fund is not charged any fees pursuant to the Distribution Agreement. The Distributor is an affiliate of the Adviser.
The Adviser has entered into a licensing agreement for the Fund with FTSE International Ltd. (the “Licensor”). The
Underlying Index name trademark is owned by the Licensor. The trademark has been licensed to the Adviser for use by the Fund. The Fund is
entitled to use the Underlying Index pursuant to the Trust’s sub-licensing agreement with the Adviser. The Fund is not sponsored, endorsed, sold or promoted by the Licensor, and the
Licensor makes no representation regarding the advisability of investing in the Fund. The Fund is not a party to the licensing agreement.
The Trust has entered into service agreements whereby The Bank of New York Mellon, a wholly-owned subsidiary of The Bank of New York Mellon Corporation, serves as the administrator, custodian, fund accountant and transfer agent for
the Fund.
NOTE 4–Additional Valuation Information
GAAP defines fair value as 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, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active
market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments
are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
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Level 1
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–
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Prices are determined using quoted prices in an active market for identical assets.
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Level 2
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–
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Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar
securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others.
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Level 3
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–
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Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at
the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the
best available information.
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The following is a summary of the tiered valuation input levels, as of October 31, 2019. The
level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the consolidated financial
statements may materially differ from the value received upon actual sale of those investments.
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Level 1
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Level 2
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Level 3
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Total
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Investments in Securities
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Common Stocks & Other Equity Interests
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$
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132,235,623
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$
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-
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$
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47,074
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$
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132,282,697
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Non-U.S. Dollar Denominated Bonds &
Notes
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-
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7,806
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-
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7,806
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Total Investments
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$
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132,235,623
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$
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7,806
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$
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47,074
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$
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132,290,503
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NOTE 5–Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended October 31, 2019 and 2018:
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2019
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2018
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Ordinary income
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$
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2,308,318
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$-
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Long-term capital gain
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10,390,227
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-
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Tax Components of Net Assets at Fiscal
Year-End:
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Undistributed long-term capital gains
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|
|
$ 28,743,405
|
|
|
Net unrealized appreciation (depreciation) – investments
|
|
|
|
|
|
|
|
|
(5,946,437
|
)
|
|
Net unrealized appreciation (depreciation) – foreign currencies and foreign
taxes
|
|
|
|
|
|
|
|
|
(10,373
|
)
|
|
Shares of beneficial interest
|
|
|
|
|
|
|
|
|
109,779,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
|
|
|
|
|
|
$
|
132,565,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital loss carryforwards are calculated and reported as of a specific date. Results of
transactions and other activity after that date may affect the amount of capital loss carryforwards actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an
unlimited period, whereas previous losses expire in eight tax years. Capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Capital loss
carryforwards with no expiration date will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforwards in the future may be
limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund
does not have a capital loss carryforward as of October 31, 2019.
NOTE 6–Investment Transactions
For the fiscal year ended October 31, 2019, the cost of securities
purchased and proceeds from sales of securities (other than short-term securities, U.S. Treasury obligations, money market funds and in-kind transactions, if any) were $283,559,482 and $376,702,035,
respectively.
At October 31, 2019, the aggregate cost of investments, including any derivatives, on a tax
basis includes adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end:
|
|
|
|
|
|
|
Aggregate unrealized appreciation of investments
|
|
$
|
8,513,406
|
|
|
Aggregate unrealized (depreciation) of investments
|
|
|
(14,459,843
|
)
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation) of investments
|
|
$
|
(5,946,437
|
)
|
|
|
|
|
|
|
Cost of investments for tax purposes is $138,236,940.
NOTE 7–Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of deemed distributions, foreign currency transactions and foreign tax reclasses, Shares of
beneficial interest was increased by $10,290,195 and undistributed net investment income and undistributed net realized gain (loss) were decreased by $1,317,094 and $8,973,101, respectively. These reclassifications had no effect on the net assets of
the Fund.