ETFs 101

Capital Gains Distribution FAQ

What is a capital gains distribution?

ETFs generally rebalance their portfolios throughout the year in order to track their underlying index. They do this by buying and selling stocks and other assets from within their holdings. ETFs are required by the US Internal Revenue Service (IRS) to pay out a portion of any proceeds related to these transactions at least once a year to shareholders. This is called a capital gains distribution. Investors will receive their pro-rata distribution in proportion to the number of shares they hold. Investors can receive cash or reinvest their distributions in new shares.

Do capital gains distributions affect the ETF's performance?

Capital gains distributions generally do not impact an ETF's performance. After the capital gains distribution occurs, the ETF price is reduced by the distribution amount. Investors then have the proceeds reinvested in the ETF or are given their proportionate amount of cash into the account where they hold the ETF.

I invested in an ETF recently. Will I still receive a capital gains distribution?

Capital gains distributions will occur if the fund realizes gains from the sale of stocks and other assets throughout the fund's fiscal year. An ETF's fiscal year may differ from the calendar year. Investors will receive a capital gains distribution per US regulations if they hold the ETF (or shares from a recent transaction have settled) on the ETF’s "record date".

When will I receive my share of the capital gains distribution?

The capital gains distribution leaves the fund on the "ex-date," and payment is distributed to shareholders on a pro-rata basis on the "payable date".

KraneShares publicly disseminates distribution information for all of its ETFs on KraneShares' fund pages.

Are there tax implications from capital gains distributions?

ETF shareholders may be responsible for taxes on capital gains distributions regardless of whether they sold shares of the ETF or reinvested the proceeds from their distribution. Whether distributions are recognized as short-term or long-term capital gains is based on how long the fund held the securities before selling them, not based on how long the investor owned shares of the ETF. Investors holding ETFs in tax-advantaged accounts such as IRAs and retirement plans are generally unaffected by capital gains distributions.

Please note that KraneShares does not provide tax advice. Please consult an independent tax advisor.

Additional information can be found in the funds' Statement of Additional Information (SAI) under the "Dividends and Distributions" section.