Following the conclusion of a regular tax analysis conducted on the InfraCap MLP ETF (the "Fund"), Virtus ETF Advisers LLC, the Fund’s investment adviser, is announcing a change in accounting estimate related to the Fund's net deferred tax liability.
Key Points:
- As a result of a change in accounting estimate the Fund will record a Deferred Tax Liability of approximately $14,455,365 (approximately $1.5232 per share).
- The accrual of the Deferred Tax Liability will be calculated into the net asset value of the Fund on July 31, 2023.
- Going forward, the Fund will continue to review the inputs related to Deferred Tax Liabilities and update any assumptions to estimates as new information becomes available.
Details:
Tax Law Changes and Current Period Changes in Taxable Income: Various tax law changes were considered by the Fund in assessing the recoverability of its deferred tax assets. Importantly, the Tax Cuts and Jobs Act ("TCJA"), signed into law on December 22, 2017, made modifications to the corporate net operating loss ("NOL") deduction. The TCJA eliminated the NOL carryback ability and replaced the 20-year carryforward period with an indefinite carryforward period for any NOLs arising in tax years beginning after December 31, 2017. The TCJA also established a limitation for any NOLs generated in tax years beginning after December 31, 2017 to the lesser of the aggregate of available NOLs or 80% of taxable income before any NOL utilization (the "80% limitation"). The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), signed into law on March 27, 2020, included a provision restricting the 80% limitation to tax years beginning after December 31, 2020. As of October 31, 2022, the Fund had NOLs available to offset future taxable income. Based on the Fund's taxable income estimates for the current fiscal year end, the Fund anticipates it will fully utilize the pre-TCJA NOLs and the post-TCJA NOLs, resulting in an estimated federal tax liability owed for the year ended October 31, 2023.
The Fund will rely to a large extent on information provided by the Master Limited Partnerships (MLPs), which is largely reported on a delayed basis and is not necessarily timely, to estimate deferred tax liability for purposes of financial statement reporting and determining the NAV. From time to time, the Adviser will modify the estimates or assumptions regarding the Fund's deferred tax liability as new information becomes available and may consider, among other matters, the duration of statutory carryforward periods, shareholder transactions and market conditions. The Fund's estimates regarding its deferred tax liability are made in good faith; however, the daily estimate of the Fund's deferred tax liability used to calculate the Fund's NAV could vary significantly from the Fund's actual tax liability.
VP Distributors, Inc. is the distributor for the InfraCap MLP ETF. Please direct any inquiries to info@virtus.com or by calling 1-888-383-0553.
Important Disclosures
Please consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. The prospectus contains this and other information about the Fund. Contact us at 1-888-383-0553 or visit www.virtus.com for a copy of the Fund's prospectus. Read the prospectus carefully before you invest or send money.
IMPORTANT RISK CONSIDERATIONS
Exchange-Traded Funds (ETF): The value of an ETF may be more volatile than the underlying portfolio of securities it is designed to track. The costs to the fund of owning shares of an ETF may exceed the cost of investing directly in the underlying securities. Master Limited Partnerships: Investments in MLPs may be adversely impacted by interest rates, tax law changes, regulation, or factors affecting underlying assets. Energy Industry Concentration: The portfolio’s investments are concentrated in the energy industry and presents greater risks than if the portfolio was broadly diversified over numerous sectors of the economy. Leverage: When a portfolio is leveraged, the value of its securities may be more volatile and all other risks may be compounded. Options: Selling call options may limit the opportunity to profit from the increase in price of the underlying asset. Selling put options risks loss if the option is exercised while the price of the underlying asset is rising. Buying options risks loss of the premium paid for those options. Market Price/NAV: At the time of purchase and/or sale, an investor’s shares may have a market price that is above or below the Fund’s NAV, which may increase the investor’s risk of loss. Market Volatility: The value of the securities in the portfolio may go up or down in response to the prospects of individual companies and/or general economic conditions. Local, regional, or global events such as war, terrorism, pandemic, or recession could impact the portfolio, including hampering the ability of the portfolio’s manager(s) to invest its assets as intended. Prospectus: For additional information on risks, please see the Fund’s prospectus.
MLPs taxed as partnerships generally do not pay U.S. federal income tax at the partnership level, subject to the application of certain partnership audit rules. Rather, each partner is allocated a share of the MLP’s income, gains, losses, deductions and expenses. A change in current tax law, or a change in the underlying business mix of a given MLP, could result in an MLP being treated as a corporation for U.S. federal income tax purposes, which would result in such MLP being required to pay U.S. federal income tax on its taxable income. The classification of an MLP as a corporation for U.S. federal income tax purposes would have the effect of reducing the amount of cash available for distribution by the MLP. Thus, if any of the MLPs owned by the Fund were treated as corporations for U.S. federal income tax purposes, it could result in a reduction in the value of your investment in the Fund and lower income.
The Fund is classified for federal income tax purposes as a taxable regular corporation or so-called Subchapter “C” corporation. As a “C” corporation, the Fund accrues deferred tax liability for its future tax liability associated with the capital appreciation of its investments and the distributions received by the Fund on equity securities of master limited partnerships considered to be a return of capital and for any net operating gains. The Fund’s accrued deferred tax liability, if any, is reflected each day in the Fund’s net asset value per share. The deferred income tax expense/(benefit) represents an estimate of the Fund’s potential tax expense/(benefit) if it were to recognize the unrealized gains/ (losses) in the portfolio. An estimate of deferred income tax expense/(benefit) is dependent upon the Fund’s net investment income/(loss) and realized and unrealized gains/(losses) on investments and such expenses may vary greatly from year to year and from day to day depending on the nature of the Fund’s investments, the performance of those investments and general market conditions. Therefore, any estimate of deferred income tax expense/(benefit) cannot be reliably predicted from year to year.
Not insured by FDIC/NCUSIF or any federal government agency. No bank guarantee. Not a deposit. May lose value.
ETFs distributed by VP Distributors, LLC, member FINRA and subsidiary of Virtus Investment Partners, Inc.
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