MASTER INCOME ETF (HIPS) a series of ETF Series Solutions. November 13, 2017

Transcription

1 MASTER INCOME ETF (HIPS) a series f ETF Series Slutins Nvember 13, 2017 Supplement t the Summary Prspectus, Prspectus, and Statement f Additinal Infrmatin dated March 31, 2017, as previusly supplemented This supplement prvides new and additinal infrmatin beynd that cntained in the Fund s currently effective Summary Prspectus, Prspectus, and Statement f Additinal Infrmatin and shuld be read in cnjunctin with thse dcuments. The Bard f Trustees f ETF Series Slutins has unanimusly apprved an Agreement and Plan f Rerganizatin ( Agreement ) prviding fr the rerganizatin ( Rerganizatin ) f the Master Incme ETF (the Target Fund ) int the GraniteShares HIPS US High Incme ETF (the Acquiring Fund ). The Acquiring Fund is a newly-created, separate series f the GraniteShares ETF Trust, has the same investment bjective and substantially similar investment strategies, plicies, and risks as the Target Fund, and will be perated in a substantially similar manner, except that the Acquiring Fund will be managed by GraniteShares Advisrs LLC. Pursuant t the Agreement, all f the assets and certain liabilities f the Target Fund will be transferred t the Acquiring Fund in exchange fr shares f the Acquiring Fund. As a result f the Rerganizatin, sharehlders f the Target Fund will becme sharehlders f the Acquiring Fund. Sharehlders f the Target Fund will receive shares f the Acquiring Fund with a value equal t the aggregate net asset value f their Target Fund shares held immediately prir t the Rerganizatin. The Rerganizatin is expected t be a tax-free transactin. The Rerganizatin is subject t sharehlder apprval. In the next few weeks, sharehlders f recrd f the Target Fund as f September 25, 2017 will receive a prxy statement sliciting their vte with respect t the Rerganizatin. The prxy statement cntains imprtant infrmatin abut the Rerganizatin and the Acquiring Fund, including infrmatin abut the Acquiring Fund s investment strategies, risks, fees and expenses and shuld be read carefully befre making any investment decisins. If apprved by sharehlders, the Rerganizatin is expected t clse n r abut December 15, A cpy f the prxy statement, when available, can be fund at prxynline.cm/dcs/masterincmeetf.pdf. The freging is nt an ffer t sell, nr a slicitatin f an ffer t buy, shares f the Target Fund, nr is it a slicitatin f any prxy. Please retain this Supplement with yur Summary Prspectus, Prspectus, and Statement f Additinal Infrmatin fr future reference.

2 Master Incme ETF Trading Symbl: HIPS Listed n: NYSE Arca Summary Prspectus March 31, Befre yu invest, yu may want t review the Master Incme ETF (the Fund ) statutry prspectus and statement f additinal infrmatin, which cntain mre infrmatin abut the Fund and its risks. The current statutry prspectus and statement f additinal infrmatin dated March 31, 2017, are incrprated by reference int this Summary Prspectus. Yu can find the Fund s statutry prspectus, statement f additinal infrmatin and ther infrmatin abut the Fund nline at Yu can als get this infrmatin at n cst by calling r by sending an request t ETF@usbank.cm. Investment Objective The Master Incme ETF (the Fund ) seeks t track the perfrmance, befre fees and expenses, f the TFMS HIPS 300 Index (the Index ). Fees and Expenses f the Fund This table describes the fees and expenses that yu may pay if yu buy and hld shares f the Fund ( Shares ). This table and the Example belw d nt include the brkerage cmmissins that investrs may pay n their purchases and sales f Shares. Annual Fund Operating Expenses (expenses that yu pay each year as a percentage f the value f yur investment) Management Fees 0.75% Distributin and/r Service (12b-1) Fees Nne Other Expenses 0.00% Acquired Fund Fees and Expenses % Ttal Annual Fund Operating Expenses 1.47% 1 Acquired Fund Fees and Expenses are the indirect csts f investing in ther investment cmpanies. Ttal Annual Fund Operating Expenses d nt reflect Fund expenses paid indirectly and d nt crrelate t the expense ratis in the Fund s Financial Highlights because the Financial Highlights include nly the direct perating expenses incurred by the Fund and exclude Acquired Fund Fees and Expenses. Expense Example This Example is intended t help yu cmpare the cst f investing in the Fund with the cst f investing in ther funds. This Example assumes that yu invest $10,000 in the Fund fr the time perids indicated and then redeem all f yur shares at the end f thse perids. The Example als assumes that yur investment has a 5% return each year and that the Fund s perating expenses remain the same. Althugh yur actual csts may be higher r lwer, based n these assumptins yur csts wuld be: 1 Year 3 Years 5 Years 10 Years $150 $465 $803 $1,757 Prtfli Turnver The Fund pays transactin csts, such as cmmissins, when it buys and sells securities (r turns ver its prtfli). A higher prtfli turnver rate may indicate higher transactin csts and may result in higher taxes when Shares are held in a taxable accunt. These csts, which are nt reflected in annual fund perating expenses r in the Example, affect the Fund s perfrmance. Fr the fiscal year ended Nvember 30, 2016, the Fund s prtfli turnver rate was 54% f the average value f its prtfli. Principal Investment Strategies f the Fund The Fund emplys a passive management r indexing investment apprach designed t track the perfrmance f the Index. The rules-based Index measures the perfrmance f up t 300 high incme U.S.-listed securities that typically have pass-thrugh structures that require them t distribute substantially all f their earnings t sharehlders as cash distributins. This high incme, pass-thrugh strategy is knwn as HIPS.

3 The Index The Index is cnstructed t capture up t 300 high incme securities, typically with pass-thrugh structures, acrss the fllwing sectrs: (i) clsed-end funds ( CEFs ), (ii) mrtgage real estate investment trusts ( REITs ), (iii) cmmercial equity REITs, (iv) residential/diversified REITs, (v) asset management and business develpment cmpanies ( BDCs ), and (vi) energy prductin and energy transprtatin & prcessing cmpanies. Energy-related cmpanies included in the Index are expected t primarily be structured as master limited partnerships ( MLPs ). The instruments in which such CEFs invest may include debt securities f any maturity r quality. CEFs included in the Index are limited t taxable, debt-based funds and may include CEFs that invest primarily in bank lans, high-yield securities (als knwn as junk bnds ), freign securities (including thse in emerging markets), and mrtgage- r asset-backed securities. The Index applies a quantitative screen t the securities in such sectrs fr minimum sectr-specific yields relative t the yield f the S&P 500 Index, minimum market capitalizatins and minimum liquidity threshlds. The Index may include small-, mid-, and largecapitalizatin cmpanies meeting the screening criteria. The Index is rebalanced semi-annually, and securities in the Index are market capitalizatin weighted at the time f each rebalance. The Index s expsure t each f the abve sectrs is capped at 25% f the ttal Index at the time f each rebalance. Additinally, at the time f each rebalance, the Index s expsure t an individual security is capped at 20% f the Index s expsure t that security s sectr. The Fund s Investment Strategy The Fund attempts t invest all, r substantially all, f its assets in the securities that make up the Index. The Fund will generally use a replicatin strategy t achieve its investment bjective, meaning it generally will invest in all f the cmpnent securities f the Index, but may, when the sub-adviser believes it is in the best interests f the Fund, use a representative sampling strategy, meaning it may invest in a sample f the securities in the Index whse risk, return and ther characteristics are expected t clsely resemble the risk, return and ther characteristics f the Index as a whle. Under nrmal circumstances, at least 80% f the Fund s ttal assets (exclusive f cllateral held frm securities lending) will be invested in the cmpnent securities f the Index and investments that have ecnmic characteristics that are substantially identical t the ecnmic characteristics f such cmpnent securities. Exchange Traded Cncepts, LLC ( ETC r the Adviser ), the Fund s investment adviser, expects that, ver time, the crrelatin between the Fund s perfrmance and that f the Index, befre fees and expenses, will be 95% r better. T the extent the Index cncentrates (i.e., hlds 25% r mre f its ttal assets) in the securities f a particular industry r grup f related industries, the Fund will cncentrate its investments t apprximately the same extent as the Index. Principal Risks f Investing in the Fund The principal risks f investing in the Fund are summarized belw. As with any investment, there is a risk that yu culd lse all r a prtin f yur investment in the Fund. The fllwing risks culd affect the value f yur investment in the Fund: Bank Debt Risk. The Fund may invest in CEFs that primarily invest in bank lans and participatins. Risks assciated with these bligatins include, but are nt limited t, risks invlving the enfrceability f security interests and lan transactins, inadequate cllateral, liabilities relating t cllateral securing bligatins, and the liquidity f these lans. The market fr crprate lans may be subject t irregular trading activity, wide bid/ask spreads and extended trade settlement perids. The crprate lans in which such CEFs invest may be rated belw investment grade. BDC Risk. BDCs may carry risks similar t thse f a private equity r venture capital fund. BDC cmpany securities are nt redeemable at the ptin f the sharehlder and they may trade in the market at a discunt t their net asset value ( NAV ). BDCs usually trade at a discunt t their NAV because they invest in unlisted securities and have limited access t capital markets. BDCs are subject t management and ther expenses, which will be indirectly paid by the Fund. Belw Investment-Grade Instruments Risk. The Fund may invest in CEFs that primarily invest in belw-investment grade debt (als knwn as junk bnds ). Althugh junk bnds generally pay higher rates f interest than investment grade bnds, junk bnds are speculative, high risk investments that may cause incme and principal lsses fr such CEFs and cnsequently, negatively affect the value f the Fund s investment in such CEFs. Cash Redemptin Risk. The Fund s investment strategy may require it t redeem shares fr cash r t therwise include cash as part f its redemptin prceeds. The Fund may be required t sell r unwind prtfli investments t btain the cash needed t distribute redemptin prceeds. This may cause the Fund t recgnize a capital gain that it might nt have recgnized if it had made a redemptin in-kind. As a result, the Fund may pay ut higher annual capital gain distributins than if the in-kind redemptin prcess was used. 2

4 Debt Securities Risk. The Fund may invest in CEFs that invest primarily in debt securities. Debt securities, such as bnds and certain asset-backed securities, invlve certain risks, which include: Credit Risk. Credit risk refers t the pssibility that the issuer f a security will nt be able t make payments f interest and principal when due. Changes in an issuer s credit rating r the market s perceptin f an issuer s creditwrthiness may als affect the value f the Fund s investment in that issuer. Event Risk. Event risk is the risk that crprate issuers may underg restructurings, such as mergers, leveraged buyuts, takevers, r similar events financed by increased debt. As a result f the added debt, the credit quality and market value f a cmpany s bnds and/r ther debt securities may decline significantly. Extensin Risk. When interest rates rise, certain bligatins will be paid ff by the bligr mre slwly than anticipated, causing the value f these securities t fall. Interest Rate Risk. Generally, the value f fixed incme securities will change inversely with changes in interest rates. As interest rates rise, the market value f fixed incme securities tends t decrease. Cnversely, as interest rates fall, the market value f fixed incme securities tends t increase. This risk will be greater fr lng-term securities than fr shrt-term securities. In recent perids, gvernmental financial regulatrs, including the U.S. Federal Reserve, have taken steps t maintain histrically lw interest rates, which may increase interest rate risk. Changes in gvernment interventin may have adverse effects n investments, vlatility, and illiquidity in debt markets. Prepayment Risk. When interest rates fall, certain bligatins will be paid ff by the bligr mre quickly than riginally anticipated, and the prceeds may have t be invested in securities with lwer yields. Variable and Flating Rate Instrument Risk. The absence f an active market fr these securities culd make it difficult t dispse f them if the issuer defaults. Equity Market Risk. Cmmn stcks are generally expsed t greater risk than ther types f securities, such as preferred stck and debt bligatins, because cmmn stckhlders generally have inferir rights t receive payment frm specific issuers. The equity securities held in the Fund s prtfli may experience sudden, unpredictable drps in value r lng perids f decline in value. This may ccur because f factrs that affect securities markets generally r factrs affecting specific industries, sectrs r cmpanies in which the Fund invests. Freign Securities Risk. The Fund may invest in CEFs that invest primarily in freign securities. Investments in nn-u.s. securities invlve certain risks that may nt be present with investments in U.S. securities. Fr example, investments in nn-u.s. securities may be subject t risk f lss due t freign currency fluctuatins r t plitical r ecnmic instability. Investments in nn-u.s. securities als may be subject t withhlding r ther taxes and may be subject t additinal trading, settlement, custdial, and peratinal risks. These and ther factrs can make investments in the Fund mre vlatile and ptentially less liquid than ther types f investments. These risks may be enhanced fr securities f cmpanies rganized in emerging market natins. Investment Cmpany Risk. The risks f investment in investment cmpanies, such as CEFs and BDCs, typically reflect the risks f the types f instruments in which the investment cmpanies invest. By investing in anther investment cmpany, the Fund becmes a sharehlder f that investment cmpany and bears its prprtinate share f the fees and expenses f the ther investment cmpany. The Fund may be subject t statutry limits with respect t the amunt it can invest in ther investment cmpanies, which may adversely affect the Fund s ability t achieve its investment bjective. Investments in exchange-listed investment cmpanies ( ETP ) are als subject t the fllwing risks: (i) the market price f an ETP s shares may trade abve r belw their NAV; (ii) an active trading market fr an ETP s shares may nt develp r be maintained; and (iii) trading f an ETP s shares may be halted fr a number f reasns. MLP Risk. MLP investment returns are enhanced during perids f declining r lw interest rates and tend t be negatively influenced when interest rates are rising. In additin, mst MLPs are fairly leveraged and typically carry a prtin f a flating rate debt. As such, a significant upward swing in interest rates wuld als drive interest expense higher. Furthermre, mst MLPs grw by acquisitins partly financed by debt, and higher interest rates culd make it mre difficult t make acquisitins. MLP investments als entail many f the general tax risks f investing in a partnership. Limited partners in an MLP typically have limited cntrl and limited rights t vte n matters affecting the partnership. Additinally, there is always the risk that an MLP will fail t qualify fr favrable tax treatment. Mrtgage- and Asset-Backed Securities Risk. Mrtgage- and asset-backed securities are subject t credit, interest rate, prepayment and extensin risks (see Debt Securities Risk abve). These securities als are subject t risk f default n the underlying mrtgage r asset, particularly during perids f ecnmic dwnturn. Small mvements in interest rates may quickly and significantly reduce the value f certain mrtgage-backed securities. Passive Investment Risk. The Fund invests in the securities included in, r representative f, its Index regardless f their investment merit. The Fund des nt attempt t utperfrm its Index r take defensive psitins in declining markets. As a result, the Fund s perfrmance may be adversely affected by a general decline in the market segments relating t its Index. 3

5 REIT Investment Risk. Investments in REITs invlve unique risks. REITs may have limited financial resurces, may trade less frequently and in limited vlume, and may be mre vlatile than ther securities. The risks f investing in REITs include certain risks assciated with the direct wnership f real estate and the real estate industry in general. REITs are als subject t heavy cash flw dependency, defaults by brrwers and self-liquidatin. Sectr Risk. T the extent the Fund invests mre heavily in particular sectrs f the ecnmy, its perfrmance will be especially sensitive t develpments that significantly affect thse sectrs. Energy Sectr Risk. The Fund will invest significantly in securities, particularly MLPs, tied t the energy sectr and energy infrastructure. Cmpanies perating in the energy sectr are subject t significant gvernmental regulatin and may be affected by fluctuatins in the prices f energy cmmdities, the depletin f natural resurces, and changes in the supply r demand fr energy cmmdities. Rising interest rates can als adversely impact the financial perfrmance f these cmpanies by increasing their csts f capital. Extreme weather r ther natural disasters, threats f r actual attacks by terrrists, and significant accidents r similar events may adversely affect the securities issued by the cmpany. Finance and Insurance Sectr Risk. The Fund may invest in cmpanies in the finance and insurance sectr, and therefre the perfrmance f the Fund culd be negatively impacted by events affecting this sectr. This sectr can be significantly affected by changes in interest rates, gvernment regulatin, the rate f defaults n crprate, cnsumer and gvernment debt, the availability and cst f capital, and fallut frm the husing and sub-prime mrtgage crisis. This sectr has experienced significant lsses in the recent past, and the impact f mre stringent capital requirements and f recent r future regulatin n any individual financial cmpany r n the sectr as a whle cannt be predicted. In recent years, cyber attacks and technlgy malfunctins and failures have becme increasingly frequent in this sectr and have caused significant lsses. Real Estate Risk Sectr Risk. Securities in the real estate sectr are subject t the risk that the value f their underlying real estate may g dwn. Many factrs may affect real estate values, including the general and lcal ecnmies, the amunt f new cnstructin in a particular area, the laws and regulatins (including zning and tax laws) affecting real estate, and the csts f wning, maintaining and imprving real estate. The availability f mrtgages and changes in interest rates may als affect real estate values. Shares May Trade at Prices Other Than Net Asset Value. As with all exchange traded funds ( ETFs ), Shares may be bught and sld in the secndary market at market prices. Althugh it is expected that the market price f the Shares will apprximate the Fund s NAV, there may be times when the market price f the Shares is mre than the NAV intra-day (premium) r less than the NAV intra-day (discunt) due t supply and demand f the Shares r during perids f market vlatility. This risk is heightened in times f market vlatility, perids f steep market declines, and perids when there is limited trading activity fr Shares in the secndary market, in which case such premiums r discunts may be significant. Small and Mid-Sized Cmpany Stck Risk. Small t mid-sized cmpany stcks have histrically been subject t greater investment risk than large cmpany stcks. The prices f small- t mid-sized cmpany stcks tend t be mre vlatile and less liquid than large cmpany stcks. Tax Risk. The Fund intends t qualify fr treatment as a regulated investment cmpany (a RIC ) under Subchapter M f the Internal Revenue Cde f 1986, as amended (the Cde ), by meeting certain surce-f-incme, asset diversificatin and annual distributin requirements. RICs are generally subject t favrable tax treatment under the Cde. T meet the diversificatin requirements, the Fund must generally limit its investments in MLPs t n mre than 25% f the Fund s ttal assets. If the Fund fails t qualify fr treatment as a RIC, the Fund may be subject t tax n its incme at crprate rates, distributins frm the Fund may be taxable t sharehlders, and sharehlders returns n their investments in the Fund culd be significantly reduced. Depreciatin r ther cst recvery deductins passed thrugh t the Fund frm investments in MLPs in a given year will generally reduce the Fund s taxable incme, but thse deductins may be recaptured in the Fund s incme in ne r mre subsequent years. When recgnized and distributed, recapture incme will generally be taxable t sharehlders at the time f the distributin at rdinary incme tax rates, even thugh thse sharehlders might nt have held shares in the Fund at the time the deductins were taken by the Fund, and even thugh thse sharehlders will nt have crrespnding ecnmic gain n their shares at the time f the recapture. T distribute recapture incme r t fund redemptin requests, the Fund may need t liquidate investments. MLPs taxed as partnerships have histrically made cash distributins t limited partners that exceed the amunt f taxable incme allcable t limited partners r members, due t a variety f factrs, including significant nn-cash deductins such as depreciatin and depletin. These excess cash distributins wuld nt be treated as incme t a Fund but rather wuld be treated as a return f capital t the extent f the Fund s basis in the MLP. As a cnsquence, the Fund may make distributins that exceed its earnings and prfits, which wuld be recharacterized as a return f capital t sharehlders. A return f capital distributin will generally nt be taxable, but will reduce each sharehlder s cst basis in Shares and result in a higher capital gain r lwer capital lss when the shares are sld. After a sharehlder s basis in shares has been reduced t zer, distributins in excess f earnings and prfits in respect f thse shares will be treated as gain frm the sale f the shares. 4

6 Tracking Errr Risk. As with all index funds, the perfrmance f the Fund and its Index may differ frm each ther fr a variety f reasns. Fr example, the Fund incurs perating expenses and prtfli transactin csts nt incurred by the Index. In additin, the Fund may nt be fully invested in the securities f the Index at all times r may hld securities nt included in the Index. Perfrmance The fllwing perfrmance infrmatin indicates sme f the risks f investing in the Fund. The bar chart shws the Fund s perfrmance fr the calendar year ended December 31, The table illustrates hw the Fund s average annual returns fr the 1-year and since inceptin perids cmpare with thse f the Index and a brad measure f market perfrmance. The Fund s past perfrmance, befre and after taxes, des nt necessarily indicate hw it will perfrm in the future. Updated perfrmance infrmatin is als available n the Fund s website at r by calling the Fund tll free at Calendar Year Ttal Return 30% 20% 21.12% 10% 0% -10% 2016 During the perid f time shwn in the bar chart, the Fund s highest quarterly return was 9.24% fr the quarter ended June 30, 2016, and the lwest quarterly return was 1.63% fr the quarter ended March 31, Average Annual Ttal Returns Fr the Perid Ended December 31, 2016 Master Incme ETF 1 Year Since Inceptin (1/6/2015) Return Befre Taxes 21.12% 1.37% Return After Taxes n Distributins 17.04% -1.09% Return After Taxes n Distributins and Sale f Shares 11.68% -0.10% TFMS HIPS 300 Index (reflects n deductin fr fees, expenses, r taxes) S&P 500 Ttal Return Index (reflects n deductin fr fees, expenses, r taxes) 22.07% 1.85% 11.96% 8.09% After-tax returns are calculated using the histrical highest individual federal marginal incme tax rates during the perid cvered by the table abve and d nt reflect the impact f state and lcal taxes. Actual after-tax returns depend n an investr s tax situatin and may differ frm thse shwn. In certain cases, the figure representing Return After Taxes n Distributins and Sale f Fund Shares may be higher than the ther return figures fr the same perid. A higher after-tax return results when a capital lss ccurs upn redemptin and prvides an assumed tax deductin that benefits the investr. After-tax returns shwn are nt relevant t investrs wh hld their Shares thrugh tax-deferred arrangements such as an individual retirement accunt ( IRA ) r ther tax-advantaged accunts. 5

7 Management Investment Adviser and Sub-Adviser Exchange Traded Cncepts, LLC serves as investment adviser t the Fund. Penserra Capital Management LLC ( Penserra r the Sub-Adviser ) serves as sub-adviser t the Fund. Prtfli Managers Dustin Lewellyn, CFA, Chief Investment Officer f Penserra, has been a prtfli manager f the Fund since its inceptin in January Ernest Tng, CFA, Managing Directr f Penserra, has been a prtfli manager f the Fund since June Anand Desai, Assciate f Penserra, has been a prtfli manager f the Fund since Nvember Purchase and Sale f Shares Shares are listed n a natinal securities exchange, such as NYSE Arca, Inc. ( NYSE Arca r the Exchange ), and mst investrs will buy and sell Shares thrugh brkers at market prices, rather than NAV. Because Shares trade at market prices rather than NAV, Shares may trade at a price greater than NAV (premium) r less than NAV (discunt). The Fund issues and redeems shares at NAV nly in large blcks knwn as Creatin Units, which nly Authrized Participants ( APs ) (typically, brker-dealers) may purchase r redeem. Creatin Units generally cnsist f 50,000 shares, thugh this may change frm time t time. The Fund generally issues and redeems Creatin Units in exchange fr a prtfli f securities clsely apprximating the hldings f the Fund (the Depsit Securities ) and/r a designated amunt f U.S. cash. Tax Infrmatin Fund distributins are generally taxable as rdinary incme, qualified dividend incme, r capital gains (r a cmbinatin), unless yur investment is in an individual retirement accunt ( IRA ) r ther tax-advantaged accunt. Distributins n investments made thrugh tax-deferred arrangements may be taxed later upn withdrawal f assets frm thse accunts. Financial Intermediary Cmpensatin If yu purchase Shares thrugh a brker-dealer r ther financial intermediary (such as a bank) (an Intermediary ), the Adviser, Sub- Adviser, Index Prvider r their affiliates may pay Intermediaries fr certain activities related t the Fund, including participatin in activities that are designed t make Intermediaries mre knwledgeable abut exchange traded prducts, including the Fund, r fr ther activities, such as marketing, educatinal training r ther initiatives related t the sale r prmtin f Shares. These payments may create a cnflict f interest by influencing the Intermediary and yur salespersn t recmmend the Fund ver anther investment. Any such arrangements d nt result in increased Fund expenses. Ask yur salespersn r visit the Intermediary s website fr mre infrmatin. 6