At your request, the Trust will send you a free copy of the most recent audited annual report for the relevant Fund or its current prospectus and statement of additional information (“SAI”). Please call the Funds at 1-800-617-0004 or write to the Distillate Funds, c/o U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701, to request an annual report, prospectus, or SAI, or with any questions you may have relating to this Proxy Statement.
Pursuant to a purchase agreement signed on March 24, 2023, Vident Capital Holdings, LLC, a subsidiary of MM VAM, LLC is expected to acquire VA (the “Transaction”). MM VAM, LLC is an entity controlled by Casey Crawford. The Transaction is expected to be completed on or around June 30, 2023 (the “Closing Date”), subject to the satisfaction of customary closing conditions, including obtaining certain Fund and client consents and receipt of customary regulatory approvals. As of the Closing Date, Mr. Crawford will effectively control VA. Pursuant to the Investment Company Act of 1940, as amended (the “1940 Act”), the investment advisory agreement between the Trust, on behalf of the Funds and VA (the “Current Advisory Agreement”)Current Sub-Advisory Agreement will automatically terminate on the Closing Date. The Current Sub-Advisory Agreement among the Adviser, VIA, and the Trust, on behalf of the Funds (the “Current VIA Sub-Advisory Agreement”) will also automatically terminate on the Closing Date.
At a meeting of the Board, held on April 20, 2023 (the “Meeting”), the Adviser requested, and the Board, including a majority of the Trustees who are not interested persons of the Trust (as defined by the 1940 Act) (the “Independent Trustees”), approved (i) a new investment advisorysub-advisory agreement between the Trust, on behalf of the Funds,Adviser and the AdviserVA (the “New AdvisorySub-Advisory Agreement”); and (ii) an interim advisorysub-advisory agreement between the Trust, on behalf of the Funds,Adviser and the AdviserVA (the “Interim Sub-Advisory Agreement”).
The table below shows brokerage commissions paid in the aggregate amount by each Fund for its most recent fiscal year (ended August 31, 2022 for VBND, VUSE, and VIDI and ended February 28, 2023 for PPTY)September 30, 2022).
During its most recent fiscal year no Fund paid brokerage commissions to any registered broker-dealer affiliates of the Funds or the Adviser. The Funds did not holdNo Fund held any securities of “regular broker dealers” as of its most recent fiscal year end.
Portfolio Managers. Austin Wen, CFA, Portfolio Manager for VIA, and Rafael Zayas, CFA, SVP, Head of Portfolio Management and Trading for VIA, and Ryan Dofflemeyer, Senior Portfolio Manager for VIA, are jointly responsible for the day-to-day management of VUSE, VIDI, and PPTY. Messrs. Wen, Zayas, and Dofflemyer will contine to be responsible for the management of VUSE, VIDI, and PPTY after the close of the Transaction.3
Jeff Kernagis, CFA, Senior Portfolio Manager for VIA, and Jim Iredale, CFA, Senior Portfolio Manager for VIA, are jointly responsible for the day-to-day management of VBND. Messrs. Kernagis and Iredale will continue to be responsible for the management of VBND after the close of the Transaction.
Mr. Wen serves as Portfolio Manager for VIA. Mr. Wen has been a Portfolio Manager of VIA since 2016 and has over eight years of investment management experience. His focus at VIA is on portfolio management and trading, risk monitoring and investment analysis. Previously, he was an analyst for Vident Financial, beginning in 2014, working on the development and review of investment solutions. He began his career in 2011 as a State Examiner for the Georgia Department of Banking and Finance. Mr. Wen obtained a BA in Finance from the University of Georgia and holds the Chartered Financial Analyst (“CFA”) designation.
Mr. Zayas serves as Portfolio Manager for VIA. Mr. Zayas has over 15 years of trading and portfolio management experience in global equity products and ETFs. He is SVP, Head of Portfolio Management and Trading. Mr. Zayas specializes in managing and trading of developed, emerging, and frontier market portfolios. Prior to joining VIA in 2017, he was a Portfolio Manager at Russell Investments for over $5 billion in quantitative strategies across global markets, including emerging, developed, and frontier markets and listed alternatives. Before that, he was an equity Portfolio Manager at BNY Mellon Asset Management, where he was responsible for $150 million in internationally listed global equity ETFs and assisted in managing $3 billion of global ETF assets. Mr. Zayas holds a BS in Electrical Engineering from Cornell University. He also holds the Chartered Financial Analyst designation.
Mr. Dofflemeyer serves as Portfolio Manager for VIA. Mr. Dofflemeyer has over 16 years of trading and portfolio management experience across various asset classes including both ETFs and mutual funds. He is Senior Portfolio Manager for VIA, specializing in managing and trading of global equity and multi-asset portfolios. Prior to joining VIA in August 2020, he was a Senior Portfolio Manager at ProShare Advisors LLC (“ProShare”) for over $3 billion in ETF assets across global equities, commodities, and volatility strategies. Mr. Dofflemeyer held various positions with ProShare from October 2003 until August 2020. From 2001 to 2003, he was a Research Analyst at the Investment Company Institute in Washington DC. Mr. Dofflemeyer holds a BA from the University of Virginia and an MBA from the University of Maryland.
Mr. Kernagis serves as a Portfolio Manager for VIA. Mr. Kernagis has 32 years of investment experience. Prior to joining VIA in 2022, Mr. Kernagis was a Senior Vice President at Northern Trust Asset Management. Before that, Mr. Kernagis spent almost 14 years at Invesco/PowerShares, whereas Senior Portfolio Manager he directed the fixed income ETF PM team and helped grow assets to $40 billion in bond ETFs globally. Mr. Kernagis was also a PM at Claymore (Guggenheim) Securities where he managed both equity ETFs and bond Unit Investment Trusts. In addition, he was a senior bond trader at Mid-States (Alloya) Corporate Federal Credit Union. Prior to working in investment management, Mr. Kernagis held institutional derivative sales positions at ABN Amro, Bear Stearns, and Prudential Securities. Mr. Kernagis earned a BBA degree from the University of Notre Dame and an MBA from DePaul University. He also holds the CFA designation.
Mr. Iredale serves as a Portfolio Manager for VIA. Mr. Iredale became a Senior Portfolio Manager – Fixed Income at VIA in 2015 and has over 15 years of experience managing fixed income products. Prior to joining VIA, Mr. Iredale was a Manager – Fixed Income with Ronald Blue & Co., one of the largest independent wealth management firms in the U.S., where he started in 1999. Mr. Iredale graduated with a BBA from the University of Georgia, Terry College of Business and obtained his JD from the University of Georgia School of Law. He holds the CFA designation.
Executive Officers and Directors of VA. Information regarding the principal executive officers and directors of VA is set forth below. The address of VA and its executive officers and directors is 1125 Sanctuary Parkway, Suite 515, Alpharetta, Georgia 30009. The following individuals are the executive officers and directors of VA:
Name | Position with VA |
Deborah Kimery | Chief Executive Officer |
Erik Olsen | Chief Compliance Officer |
No Trustee or officer of the Trust currently holds any position with VA or its affiliated persons. No Trustee or officer of the Trust holds any position with Vident Capital Holdings, LLC or its affiliated persons.
Required Vote. Approval of the Proposal requires the affirmative “vote of the holders of a majority of the outstanding voting securities” of a Fund. Under the 1940 Act, the “vote of the holders of a majority of the outstanding voting securities” means the affirmative vote of the lesser of (a) 67% or more of the shares of a Fund present or represented by proxy at the Special Meeting if the holders of more than 50% of the outstanding shares are present or represented by proxy at the Special Meeting, or (b) more than 50% of the outstanding shares of a Fund. If the Proposal is approved by a Fund’s shareholders, the New Advisory Agreement is expected to become effective upon the closing of the Transaction. The Transaction is subject to customary closing conditions, including obtaining approval of a certain number of the new agreements by the Board of Trustees of the Trust and shareholders of each applicable Fund. If the shareholders of a Fund do not approve the Proposal at the Special Meeting, a condition to the closing of the Transaction may not be satisfied and VA will continue to serve as the investment adviser to the Fund and VIA will continue to serve as the investment sub-adviser to the Fund pursuant to the Current Advisory Agreement and Current Sub-Advisory Agreement. Accordingly, if the Proposal is not approved by each Fund’s shareholders, as applicable, at the Special Meeting, the Board will take such action as it deems necessary and in the best interests of each Fund and its respective shareholders, which may include further solicitation of a Fund’s shareholders with respect to the Proposal, solicitation of the approval of a different Proposal, or the liquidation of one or more Funds.
Recommendation of the Board of Trustees. The Board believes that the terms and conditions of the New AdvisorySub-Advisory Agreement are fair to, and in the best interests of, each Fund and its shareholders. The Board believes that, upon shareholder approval of the Proposal, the AdviserVA (the “Sub-Adviser”) will provide at least the same level of services that it and its affiliate VIA currently provideprovides each Fund under the Current Agreements.Sub-Advisory Agreement. The Board was presented with information demonstrating that the New AdvisorySub-Advisory Agreement would enable the Funds’ shareholders to continue to obtain quality services at a cost that is fair and reasonable. At the Meeting, the Board, including all of the Independent Trustees, approved the New AdvisorySub-Advisory Agreement and recommends that shareholders of each Fund approve the Proposal.
In considering the New AdvisorySub-Advisory Agreement, the Board focused on the effect that the Transaction could be expected to have on the Adviser’sSub-Adviser’s business and operations as they relate to the Funds and also took into consideration (i) the nature, extent, and quality of the services provided by VIA and to be provided by VA; (ii) the historical performance of each Fund; (iii) the cost of the services provided and the profits realized by VAVIA or its affiliates from services rendered to the Funds as well as the estimated cost of the services to be provided by its affiliate VA and the profits expected to be realized by VA from providing such services, including any other financial benefits enjoyed by VIA, or that will be enjoyed by VA, or itstheir affiliates; (iv) comparative fee and expense data for the Funds and other investment companies with similar investment objectives, including a report prepared by Barrington Partners, an independent third party, that compares each Fund’s investment performance, fees and expenses to relevant market benchmarks and peer groups (the “Barrington Report”); (v) the extent to which any economies of scale realized by VIA or VA in connection with its services to the Funds are, or will be, shared with Fund shareholders; and (vi) other factors the Board deemed to be relevant.
The Board also considered that the Adviser and its affiliate VIA, along with other service providers of the Funds, had provided written and oral updates on the firm over the course of the year with respect to its role as investment adviser and sub-adviser to the Funds, and the Board considered that information alongside the written materials presented at the Meeting, as well as the quarterly Board meeting held on April 5-6, 2023, in its consideration of whether the New AdvisorySub-Advisory Agreement should be approved. In addition, the Board took into consideration performance and due diligence information related to VA,VIA, including the Barrington Report,Reports, that was provided to the Board in advance of its (i) annual review of the Funds’ Current AdvisorySub-Advisory Agreement, with respect to DSTL and DSTX, at its January 11-12, 2023 quarterly meeting.meeting on April 20-21, 2022, and (ii) initial approval of the Current Sub-Advisory Agreement, with respect to DSMC, at its quarterly meeting on July 21, 2022. At both the Meeting and the April 5-6 meeting, representatives from VA provided an overview of the Transaction and the effect it would have on the management of the Funds. Representatives from the AdviserSub-Adviser also provided an overview of the Funds’ strategies, the services to be provided to each Fund by the Adviser,Sub-Adviser, and additional information about the Adviser’sSub-Adviser’s personnel and business operations. Further, subsequent to the April 5-6 meeting, at the Board’s request, VA representatives provided additional information about the Transaction and discussed this information with Fund counsel prior to the Meeting. The Board then met with representatives of the AdviserSub-Adviser at the Meeting to further discuss the Transaction and the additional information the AdviserSub-Adviser had provided. The AdviserSub-Adviser confirmed that the Transaction would not result in changes to Funds’ fees and expenses or the nature, extent and quality of services provided to the Funds, including their day-to-day management, or the personnel providing these services. The Board then discussed the materials and the Adviser’sSub-Adviser’s oral presentations that the Board had received and any other information that the Board received at the Meeting and at prior meetings, and deliberated on the approval of the New AdvisorySub-Advisory Agreement in light of this information. In its deliberations, the Board did not identify any single piece of information discussed below that was all-important or controlling.
Nature, Extent, and Quality of Services Provided. The Trustees considered the scope of services provided under the New AdvisorySub-Advisory Agreement, noting that the AdviserVIA had provided and VA, its affiliate, would continue to provide investment management services to the Funds. The Trustees also considered that the services to be provided under the New AdvisorySub-Advisory Agreement were identical in all material respects to those services provided under the Current Agreements.Sub-Advisory Agreement. The Trustees noted that although VIA will cease to exist upon the close of the Transaction, VIA personnel will become AdviserVA personnel at such time and continue to provide services to the Funds on behalf of the Adviser.VA. In considering the nature, extent, and quality of the services provided by the Adviser,VIA, and to be provided by VA, the Board considered the quality of the Adviser’sSub-Adviser’s compliance program and past reports from the Trust’s Chief Compliance Officer (“CCO”) regarding the CCO’s review of the Adviser’sVIA’s compliance program. The Board also considered its previous experience with the AdviserVIA providing investment management services to the Funds. The Board noted that it had received a copy of the Adviser’sVA’s registration form and financial statements, as well as the Adviser’sVA’s response to a detailed series of questions that included, among other things, information about the Adviser’sVA’s decision-making process, the background and experience of the firm’s key personnel, and the firm’s compliance policies, marketing practices, and brokerage information.
The Board noted the responsibilities that the Sub-Adviser will have as each Fund’s investment sub-adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of each Fund; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of each Fund’s shares conducted on a cash-in-lieu basis; oversight of general portfolio compliance with applicable securities laws, regulations, and investment restrictions; responsibility for quarterly reporting to the Board; and implementation of Board directives as they relate to the Funds. The Board also considered the Adviser’sSub-Adviser’s resources and capacity with respect to portfolio management, compliance, and operations given the number of funds for which it provides sub-advisory services. The Board also considered VA’s statements that the scope and quality of services provided to the Funds by the AdviserSub-Adviser would not diminish as a result of the Transaction.
The Board also considered other services provided by the Adviser to the Funds, monitoring each Fund’s adherence to its investment restrictions and compliance with the Funds’ policies and procedures and applicable securities regulations, as well as monitoring the extent to which a Fund achieves its investment objective as a passively managed fund. Additionally, the Board considered that each Fund tracks an index created and owned by an affiliate of the Adviser. The Board noted the Adviser’s belief that shareholders invest in a Fund based on the investment principles incorporated into the index methodology of such Fund and the expectation that the Adviser will provide advisory services to such Fund based on its index methodology.
Historical Performance. The Trustees next considered each Fund’s performance, except the recently launched DSMC, noting that itthey had recently undertaken a comprehensive review of such matters, with respect to DSTL and DSTX, at its January 11-12, 2023July 21, 2022 meeting. The Board observed that information regarding each Fund’s past investment performance, for periods ended September 30,March 31, 2022, had been included in the written materials previously provided to the Board, including the Barrington Report,Reports, which compared the performance results of each FundDSTL and DSTX with the returns of a group of ETFs selected by Barrington Partners as most comparable (the “Peer Group”) as well as with funds in each Fund’s Morningstar category – US Fund Real Estate, US Fund Intermediate Core-Plus Bond,Large Blend and US Fund Foreign Large Value, and US Fund Mid-Cap Value,Blend, respectively (each, a “Category Peer Group”). Additionally, at the Board’s request, the Adviser identified the funds the Adviser considered to be each Fund’s most direct competitors (each, a “Selected Peer Group”) and provided the Selected Peer Group’s performance results.
In addition to reviewing the results of the Barrington Reports, the Board noted that, for each applicable period ended September 30,December 31, 2022, each Fund’s performance on a gross of fees basis (i.e., excluding the effect of fees and expenses on Fund performance) was generally consistent with the performance ofDSTL outperformed its underlying index, indicating that each Fund tracked its underlying index closely and in an appropriate manner.
U.S. Diversified Real Estate ETF: The Board noted that the Fund underperformed its broad-based benchmark, the MSCI US REIT Gross Index, for each ofS&P 500, over the one-year, three-year, and since inception periods. The MSCI US REIT Gross Index provides an indication of the performance of the U.S. REIT market. In comparing the Fund’s performance to that of the benchmark, the Board noted that the Fund, unlike its benchmark, screens out companies that are externally managed and companies that derive at least 85% of their income from ownership or management of real property.
The Board then noted that, for the one-year, three-year,one-, three- year and since inception periods, ended September 30, 2022, the Fund outperformed the median return of its Peer Group, but the Fund only outperformed the median return of its Category Peer Group over the since inception period. The Board took into consideration that the Peer Group includes a mix of U.S. real estate and global real estate ETFs. The Board also noted that the Fund generally performed within the range of funds in the Selected Peer Group for the one-year and three-year periods ended September 30, 2022. The Board considered that the funds included in the Selected Peer Group were described by the Adviser as funds with a similar investment universe, investment exposure, REIT sector exposure, and number of holdings.
Vident U.S. Bond Strategy ETF: The Board noted that the FundDSTX underperformed its broad-based benchmark, the FTSE Broad Investment Grade Bond Index, for the one-year, three-year, five-year, and since inception periods. The FTSE Broad Investment Grade Bond Index tracks the performance of the U.S. Dollar-denominated bonds issued in the U.S. investment-grade bond market. In comparing the Fund’s performance to that of the benchmark, the Board noted that the Fund provides more diversified exposure to the U.S. bond market, including exposure to non-investment grade bonds excluded from the benchmark.
The Board then noted that, for the one-year, three-year, five-year, and since inception periods ended September 30, 2022, the Fund slightly underperformed the median return of its Peer Group and Category Peer Group. The Board took into consideration that only a small percentage of the ETFs in the Peer Group have the flexibility, like the Fund, to invest in non-core fixed income sectors, such as high-yield corporate bonds (also known as “junk bonds”) and Treasury Inflation-Protected Securities (“TIPS”). The Board also noted that the Fund generally performed within the range of funds in the Selected Peer Group for the one-year, three-year and five-year periods ended September 30, 2022. The Board considered that the funds included in the Selected Peer Group were described by the Adviser as funds with similar objectives, investment universes, sector exposure, and average maturity.
Vident International Equity Strategy ETF: The Board noted that the Fund outperformed its broad-based benchmark, the Morningstar Global Markets ex-US Index, forover the one-year period ended September 30, 2022, but the Fund underperformed its benchmark for each of the three-year, five-year, and since inception periods. The Morningstar Global Markets ex-US Index provides exposure to the top 97% market capitalization in each of two economic segments, developed markets, excluding the United States, and emerging markets. In comparing the Fund’s performance to that of the benchmark, the Board noted that the Fund, unlike the benchmark, invests in companies in emerging markets.
The Board noted that, for the one-year, three-year, five-year and since inception periods ended September 30, 2022, the Fund underperformed the median return of its Category Peer Group, but slightly outperformed its Peer Group over the one-year and three-year periods. The Board also noted that the Fund generally performed within the range of funds in the Selected Peer Group for the one-year and five-year periods and outperformed all of the funds from the Selected Peer Group over the three-year period ended September 30, 2022. The Board considered that the funds included in the Selected Peer Group were described by the Adviser as funds with similar objectives, investment universes, and average market capitalizations.
Vident U.S. Equity Strategy ETF: The Board noted that the Fund outperformed its broad-based benchmark, the Morningstar U.S. Market Total Return Index, for the one-year and three-year periods ended September 30, 2022, but the Fund underperformed this benchmark for the five-year and since inception periods. With respect to the Fund’s second benchmark, the S&P 500, the Board noted that the Fund outperformed the S&P 500 for the one-year period, but the Fund underperformed the S&P 500 for the three-year, five-year, and since inception periods. The Morningstar U.S. Market Total Return Index measures the performance of U.S. securities and targets 97% market capitalization coverage of the investable universe. The S&P 500 Index provides an indication of the performance of U.S. large-cap companies
The Board noted that, for the one-year and three-year periods ended September 30, 2022, the Fund outperformed the median return of its Peer Group, and the Fund outperformed the median return of its Category Peer Group over the three-year, five-year, and since inception periods. The Board also noted that the Fund generally performed within the range of funds in the Selected Peer Group for the one-year, three-year, and five-year periods ended September 30, 2022. The Board considered that the funds included in the Selected Peer Group were described by the Adviser as funds with similar objectives, investment universes, and quantitative approaches to security selection.
Cost of Services Provided and Economies of Scale. The Board observed that the Transaction would not result in an increase in the level of the advisorymanagement fee paid by each Fund to the Adviser.Adviser or the sub-advisory fee paid by the Adviser to the Sub-Adviser. In this regard, the Board reviewed each Fund’s fees and expenses, noting that the advisory fees to be paid to the AdviserVA for its services to the Funds under the New AdvisorySub-Advisory Agreement were identical to those inthe fees paid to VIA for its services under the Current AdvisorySub-Advisory Agreement. In addition, the Board took into consideration that the Adviser had charged, and would continue to charge, a “unified fee,” meaning each Fund pays no expenses other than the advisory fee and, if applicable, certain other costs such as interest, brokerage, acquired fund fees and expenses, extraordinary expenses, and, to the extent it is implemented, fees pursuant to a Distribution and/or Shareholder Servicing (12b‑1) Plan. The Board noted that the Adviser had been and would continue to be responsible for compensating the Trust’s other service providers and paying the Funds’ other expenses out of the Adviser’s own fee and resources.
The Board noted that each Fund’s net expense ratio was equal to its unified fee (described above), except that the U.S. Diversified Real Estate ETF has a fee waiver of four basis points and, as a result, its net expense ratio is less than its unified fee. The fee waiver would terminate effective June 30, 2023. The Board further took into consideration that it had recently evaluated a comparison of each Fund’s net expense ratio to its Peer Group and Category Peer Group, as shown in the Barrington Report, and its Selected Peer Group.
U.S. Diversified Real Estate ETF: The Board noted that the Fund’s net expense ratio was higher than the median net expense ratio, but within the range, of the funds in the Peer Group, and lower than the median net expense ratio of funds in the Category Peer Group. In addition, the Board notedhad found that theeach Fund’s net expense ratio was within the range of net expense ratios for each of funds in its Selected Peer Group.
Vident U.S. Bond Strategy ETF: The Board noted that the Fund’s net expense ratio was higher than the median net expense ratio, but within the range, of the funds in the Peer Group and lower than the median net expense ratio of funds in the Category Peer Group. In addition, the Board noted that the Fund’s net expense ratio was within the range of net expense ratios of funds in its Selected Peer Group.
Vident International Equity Strategy ETF: The Board noted that the Fund’s net expense ratio was higher than the median net expense ratio, but within the range, of the funds in the Peer Group and lower than the median net expense ratio of funds in the Category Peer Group. In addition, the Board noted that the Fund’s net expense ratio was slightly higher than the highest net expense ratio of the other funds in its Selected Peer Group.
Vident U.S. Equity Strategy ETF: The Board noted that the Fund’s net expense ratio was higher than the median net expense ratio, but within the range, of the funds in the Peer Group and lower than the median net expense ratio of funds in the Category Peer Group. In addition, the Board noted that the Fund’s net expense ratio was within the range of net expense ratios of funds in its Selected Peer Group.Groups.
The Board then considered the Adviser’sSub-Adviser’s financial resources and information regarding the Adviser’sSub-Adviser’s ability to support its management of the Funds, and obligations under the unified fee arrangement, noting that the AdviserSub-Adviser had provided its financial statements for the Board’s review. The Board also evaluated the compensation and benefits received, and expected to be received, by the AdviserSub-Adviser from its relationship with the Funds, taking into account an analysis of the Adviser’sVIA’s profitability, and VA’s expected profitability, with respect to each Fund at various actual and projected Fund asset levels. In evaluating these matters, the Board considered the resources that would become available to the AdviserSub-Adviser as a result of the Transaction.
The Board expressed the view that it currently appeared that the AdviserSub-Adviser might realize economies of scale in managing the Funds as assets grow in size. The Board noted that shouldeach Fund’s sub-advisory fee rate schedule includes breakpoints that are initiated as Fund assets grow. The Board further noted that because each Fund pays the Adviser realizea unified fee, any benefits from such breakpoints in the sub-advisory fee schedule would accrue to the Adviser, rather than such Fund’s respective shareholders. Consequently, the Board determined that it would monitor fees as the Funds grow to determine whether economies of scale in the future, the Board would evaluate whether those economies were appropriatelybeing effectively shared with Fund shareholders, whether through the structureFunds and amount of the fee or by other means.their shareholders.
Conclusion. No single factor was determinative of the Board’s decision to approve the New AdvisorySub-Advisory Agreement; rather, the Board based its determination on the total mix of information available to it. Based on a consideration of all the factors in their totality, the Board, including the Independent Trustees, determined that the New AdvisorySub-Advisory Agreement, including the compensation payable under the agreement, was fair and reasonable to each Fund. The Board, including the Independent Trustees, determined that the approval of the New AdvisorySub-Advisory Agreement was in the best interests of each Fund and its shareholders.
Expenses RelatedPROPOSAL 2: APPROVAL OF “MANAGER OF MANAGERS” ARRANGEMENT
You are being asked to approve a “manager of managers” arrangement that would permit the Proposal. All expenses associatedFunds and the Adviser to enter into, and materially amend, sub-advisory agreements with the Proposal will be borneany sub-advisers retained by the Adviser to manage all or its affiliates and nota portion of a Fund’s assets without obtaining shareholder approval, if the Board concludes that such an arrangement would be in the best interests of the Fund’s shareholders. The Board, including the Independent Trustees, has approved the use of a “manager of managers” arrangement by the Funds.Adviser with respect to each of the Funds, and any such arrangement utilized by the Funds would be subject to Board oversight and conditions imposed by the SEC in either a rule or an exemptive order, including the requirement that any sub-advisory agreement or material change to such agreement be approved by the Board (including a majority of the Independent Trustees). The Board believes that it is in the best interest of each Fund to afford the Adviser the flexibility to provide investment advisory services to each Fund through one or more sub-advisers. The Board also considered that Fund expenses will remain unaffected, and that any increases in the total fees paid by the Funds to the Adviser would still require shareholder approval.
If shareholders of a Fund approve Proposal 2, that Fund would be able to implement a “manager of managers” arrangement. Under a “manager of managers” arrangement, the Adviser and the Board of Trustees would be authorized to (1) engage new or additional affiliated or unaffiliated sub-advisers for the relevant Fund; (2) enter into and modify existing sub-advisory agreements for the relevant Fund with affiliated or unaffiliated sub-advisers; and (3) terminate and replace sub-advisers for a Fund with affiliated or unaffiliated sub-advisors without obtaining further approval of the Fund’s shareholders, provided the Board, including a majority of the Independent Trustees, has approved the new or amended agreement. The Board has determined to approve the proposed “manager of managers” arrangement for each Fund as this approach is expected to save a Fund the considerable cost and delay of seeking shareholder approval for any amendment or change to a Fund’s sub-advisory relationship. Each Fund would be authorized to disclose fees paid to sub-advisers on an aggregated basis rather than separately. Under the terms and conditions of the Order, the Funds would be subject to several conditions imposed by the SEC. For example, within 90 days of the hiring of a new sub-adviser, a Fund would be required to provide shareholders with (or electronic access to) an information statement containing information about the sub-adviser and the sub-advisory agreement, similar to that which would have been provided in a proxy statement seeking shareholder approval of such an agreement or change thereto.
THE BOARD RECOMMENDS THAT SHAREHOLDERS OF EACH FUND VOTE “FOR” THE PROPOSAL.PROPOSALS.
Importantly, approval of the Proposal will not result in any increase in shareholder fees or expenses.
OTHER INFORMATION
Section 15(f) of the 1940 Act. Because the Transaction may be considered to result in a change of control of the AdviserVIA under the 1940 Act resulting in the assignment of the Former AdvisoryCurrent Sub-Advisory Agreement, the AdviserSub-Adviser intends for the Transaction to come within the safe harbor provided by Section 15(f) of the 1940 Act, which permits an investment adviser of a registered investment company (or any affiliated persons of the investment adviser) to receive any amount or benefit in connection with a sale of an interest in the investment adviser that results in an assignment of an investment advisory contract, provided that the following two conditions are satisfied.satisfied:
First, an “unfair burden” may not be imposed on the investment company as a result of the sale of the interest, or any express or implied terms, conditions or understandings applicable to the sale of the interest. The term “unfair burden,” as defined in the 1940 Act, includes any arrangement during the two-year period following the transaction whereby the investment adviser (or predecessor or successor adviser), or any “interested person” of the adviser (as defined in the 1940 Act), receives or is entitled to receive any compensation, directly or indirectly, from the investment company or its security holders (other than fees for bona fide investment advisory or other services), or from any person in connection with the purchase or sale of securities or other property to, from or on behalf of the investment company (other than ordinary fees for bona fide principal underwriting services). The AdviserSub-Adviser has confirmed for the Board that the Transaction will not impose an unfair burden on the Fund within the meaning of Section 15(f) of the 1940 Act.
Second, during the three-year period following the Transaction, at least 75% of the members of the investment company’s board of trustees cannot be “interested persons” (as defined in the 1940 Act) of the sub-adviser (or predecessor sub-adviser). At the present time, 75% of the Trustees are classified as Independent Trustees; i.e., not interested persons of the Trust. The Board has committed to ensuring that at least 75% of the Trustees will not be “interested persons” of the Sub-Adviser for a period of three years after the Transaction.
Expenses Related to the Proposals. All expenses associated with the Proposals will be borne by VA or its affiliates and not by the Funds.
Record Date/Shareholders Entitled to Vote. Each Fund is a separate series, or portfolio, of the Trust, a Delaware statutory trust and registered investment company under the 1940 Act. The record holders of outstanding shares of each Fund are entitled to vote one vote per share (and a fractional vote per fractional share) on all matters presented at the Special Meeting with respect to each Fund, including the Proposal.Proposals.
Shareholders of each Fund at the close of business on May 9,15, 2023, the Record Date, will be entitled to be present and vote at the Special Meeting. As of the close of business on the Record Date, the following shares of each Fund were issued and outstanding:
Vident U.S. Bond Strategy ETF™Distillate Small/Mid Cash Flow ETF | 8,800,000[] |
VidentDistillate U.S. Equity Strategy ETF™Fundamental Stability & Value ETF | 11,300,000[] |
VidentDistillate International Equity Strategy ETF™ | 15,700,000 |
U.S. Diversified Real EstateFundamental Stability & Value ETF | 4,200,000[] |
Voting Proxies. You should read the entire Proxy Statement before voting. If you have any questions regarding the Proxy Statement, please call toll-free 866-839-1852. If you sign and return the accompanying proxy card, you may revoke it by giving written notice of such revocation to the Secretary of the Trust prior to the Special Meeting or by delivering a subsequently dated proxy card or by attending and voting at the Special Meeting in person. Proxies voted by telephone or internet may be revoked at any time before they are voted by proxy voting again through the website or toll-free number listed in the enclosed proxy card. Properly executed proxies will be voted, as you instruct, by the persons named in the accompanying proxy card. In the absence of such direction, however, the persons named in the accompanying proxy card intend to vote “FOR” the Proposal and may vote at their discretion with respect to other matters not now known to the Board that may be presented at the Special Meeting. Attendance by a shareholder at the Special Meeting does not, in itself, revoke a proxy.
If sufficient votes are not received for thea Proposal by the date of the Special Meeting, the Special Meeting may be adjourned with respect to such Proposal, once or more, by motion of the chair of the Special Meeting or by the vote of the holders of a majority of a Fund’s shares present at the Special Meeting in person or by proxy to permit further solicitation of proxies. If there is a vote to adjourn, persons named as proxies will vote all proxies in favor of adjournment that voted in favor of the ProposalProposals and vote against adjournment all proxies that voted against the Proposal.Proposals.
Quorum Required. Each Fund must have a quorum of shares represented at the Special Meeting, in person or by proxy, to take action on any matter relating to such Fund. Under the Trust’s Agreement and Declaration of Trust, as amended, a quorum is constituted by the presence in person or by proxy of at least one-third of the outstanding shares of a Fund entitled to vote at the Special Meeting.
Abstentions and broker non-votes (i.e., proxies from brokers or nominees indicating that they have not received instructions from the beneficial owners on an item for which the brokers or nominees do not have discretionary power to vote) will be treated as present for determining whether a quorum is present with respect to a particular matter. However, abstentions and broker non-votes will have the effect of a vote AGAINST the ProposalProposals and any other matter that requires the affirmative vote of a Fund’s outstanding shares for approval. Abstentions and broker non-votes will not be counted as voting on any other matter at the Special Meeting when the voting requirement is based on achieving a plurality or percentage of the “voting securities present.”
If a quorum is not present at the Special Meeting, or a quorum is present at the Special Meeting but sufficient votes to approve a Proposal is not received, the chair of the Special Meeting or the holders of a majority of a Fund’s shares present at the Special Meeting, in person or by proxy, may adjourn the Special Meeting with respect to such Proposal to permit further solicitation of proxies.
Required Vote. Approval of each Proposal requires the affirmative “vote of the holders of a majority of the outstanding voting securities” of a Fund. Under the 1940 Act, the “vote of the holders of a majority of the outstanding voting securities” means the affirmative vote of the lesser of (a) 67% or more of the shares of a Fund present or represented by proxy at the Special Meeting if the holders of more than 50% of the outstanding shares are present or represented by proxy at the Special Meeting, or (b) more than 50% of the outstanding shares of a Fund. If Proposal 1 is approved by a Fund’s shareholders prior to the close of the Transaction, the New Sub-Advisory Agreement is expected to become effective at the the closing of the Transaction. The Transaction is subject to customary closing conditions, including obtaining approval of a certain number of the new agreements by the Board of Trustees of the Trust and shareholders of each applicable Fund. If the shareholders of a Fund do not approve Proposal 1 at the Special Meeting, a condition to the closing of the Transaction may not be satisfied. Accordingly, if Proposal 1 is not approved by a Fund’s shareholders, as applicable, at the Special Meeting, the Board will take such action as it deems necessary and in the best interests of the Fund and its respective shareholders, which may include further solicitation of a Fund’s shareholders with respect to the Proposal or solicitation of the approval of a different proposal.
Method and Cost of Proxy Solicitation. Proxies will be solicited by the Trust, the Adviser, and/or Morrow Sodali Fund Solutions, LLC, a professional proxy solicitor (the “Proxy Solicitor”), primarily by mail. The solicitation may also include telephone, facsimile, electronic or oral communications by certain officers or employees of the Trust or the Adviser, none of whom will be paid for these services, or by the Proxy Solicitor. The Adviser will pay the costs of the Special Meeting and the expenses incurred in connection with the solicitation of proxies, including any expenses associated with the services of the Proxy Solicitor. The Trust may also request broker-dealer firms, custodians, nominees and fiduciaries to forward proxy materials to the beneficial owners of the shares of the Funds held of record by such persons. The estimated cost of the Proxy Solicitor for their services soliciting proxies from brokers, banks and other nominee holders is approximately $5,000 per Fund. The Adviser may reimburse such broker-dealer firms, custodians, nominees, and fiduciaries for their reasonable expenses incurred in connection with such proxy solicitation, including reasonable expenses in communicating with persons for whom they hold shares of a Fund.
Meeting Venue. We intend to hold the Special Meeting in person at the offices of U.S. Bank Global Fund Services, 615 East Michigan Street, Milwaukee, Wisconsin 53202. However, we are sensitive to the public health and travel concerns our shareholders may have and recommendations that public health officials may issue in light of the evolving COVID-19 pandemic. As a result, we may impose additional procedures or limitations on Special Meeting attendees or may decide to hold the Special Meeting in a different location or solely by means of remote communication. We plan to announce any such updates on our proxy website www.videntam.com,https://proxyvotinginfo.com/p/distillate2023, and we encourage you to check this website prior to the Special Meeting if you plan to attend. We also encourage you to consider your options to vote by internet, telephone, or mail, as discussed in the enclosed proxy card, in advance of the Special Meeting in the event that, as of June 9,30, 2023, in-person attendance at the Special Meeting is either prohibited under a federal, state, or local order or contrary to the advice of public health care officials.
Distributor, Administrator and Transfer Agent. The Funds’ distributor and principal underwriter is ALPSQuasar Distributors, Inc.,LLC, located at 1290 Broadway,111 East Kilbourn Avenue, Suite 1000, Denver, Colorado 80203.2200, Milwaukee, Wisconsin, 53202. U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services, located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the Funds’ transfer agent and administrator.
Share Ownership. To the knowledge of the Trust’s management, as of the close of business on May 9,15, 2023, the officers and Trustees of the Trust, as a group, beneficially owned less than one percent of each Fund’s outstanding shares and less than one percent of the Trust’s outstanding shares. To the knowledge of the Trust’s management, as of the close of business on May 9,15, 2023, persons owning of record more than 5% of the outstanding shares of a Fund are as listed in the table below. The Trust believes that most of the shares referred to below were held by the persons indicated in accounts for their fiduciary, agency or custodial customers. Any shareholder listed below as owning 25% or more of the outstanding shares of a Fund may be presumed to “control” (as that term is defined in the 1940 Act) the applicable Fund. Shareholders controlling a Fund could have the ability to vote a majority of the shares of the applicable Fund on any matter requiring the approval of that Fund’s shareholders.
Vident U.S. Bond Strategy ETF™Distillate Small/Mid Cash Flow ETF
Name and Address | % Ownership | Type of Ownership |
National Financial Services, LLC
200 Liberty Street
New York, NY 10281
| 97.83% | Record |
Ronald Blue Trust
1000 Health Park Drive, Suite 180
Brentwood, TN 37027
| 92.90%* | Beneficial |
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*This figure is based on information reported on Form 13F as of March 31, 2023, the Trust believes Ronald Blue Trust owns a majority of the Fund’s shares as of Record Date.
VidentDistillate U.S. Equity Strategy ETF™Fundamental Stability & Value ETF
Name and Address | % Ownership | Type of Ownership |
National Financial Services, LLC
200 Liberty Street
New York, NY 10281
| 96.86% | Record |
Ronald Blue Trust
1000 Health Park Drive, Suite 180
Brentwood, TN 37027
| 89.94%* | Beneficial |
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*This figure is based on information reported on Form 13F as of March 31, 2023, the Trust believes Ronald Blue Trust owns a majority of the Fund’s shares as of Record Date.8
Vident
Distillate International Equity Strategy ETF™Fundamental Stability & Value ETF
Name and Address | % Ownership | Type of Ownership |
National Financial Services, LLC
200 Liberty Street
New York, NY 10281
| 94.30% | Record |
Ronald Blue Trust
1000 Health Park Drive, Suite 180
Brentwood, TN 37027
| 91.65%* | Beneficial |
*This figure is based on information reported on Form 13F as of March 31, 2023, the Trust believes Ronald Blue Trust owns a majority of the Fund’s shares as of Record Date.
U.S. Diversified Real Estate ETF
Name and Address
| % Ownership
| Type of Ownership
|
National Financial Services, LLC
200 Liberty Street
New York, NY 10281
| 85.01% | Record |
Ronald Blue Trust
1000 Health Park Drive, Suite 180
Brentwood, TN 37027
| 73.59%* | Beneficial |
Charles Schwab & Co., Inc.
211 Main Street
San Francisco, CA 94105
| 6.62% | Record |
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*This figure is based on information reported on Form 13F as of March 31, 2023, the Trust believes Ronald Blue Trust owns a majority of the each Fund’s shares as of Record Date.
Reports to Shareholders. Copies of the Funds’ most recent annual and semi-annual reports may be requested without charge by writing to theDistillate Funds, c/o U.S. Bank Global Fund Services, 615 East Michigan Street, Milwaukee, Wisconsin 53202 or by calling toll-free 1-800-617-0004.
Other Matters to Come Before the Special Meeting. The Trust’s management does not know of any matters to be presented at the Special Meeting other than the ProposalProposals described above. If other business should properly come before the Special Meeting, the proxy holders will vote thereon in accordance with their best judgment.
Shareholder Proposal. The Agreement and Declaration of Trust, as amended, and the Amended and Restated By-laws of the Trust do not provide for annual meetings of shareholders, and the Trust does not currently intend to hold such meetings in the future. Shareholder proposal for inclusion in a proxy statement for any subsequent meeting of the Trust’s shareholders must be received by the Trust a reasonable period of time prior to any such meeting.
Householding. If possible, depending on shareholder registration and address information, and unless you have otherwise opted out, only one copy of this Proxy Statement will be sent to shareholders at the same address. However, each shareholder will receive separate proxy cards. If you would like to receive a separate copy of the Proxy Statement, please call 866-839-1852. If you currently receive multiple copies of Proxy Statements or shareholder reports and would like to request to receive a single copy of documents in the future, please call 1-800-617-0004 or write to the Funds, c/o U.S. Bank Global Fund Services at 615 East Michigan Street, Milwaukee, Wisconsin 53202.
Important Notice Regarding the Availability of Proxy Materials for the Special Meeting.
This Proxy Statement is available on the internet at https://proxyvotinginfo.com/p/videntetfs2023.distillate2023. Use the control number on your proxy card to vote by internet or by telephone. You may request a copy by mail (Vident(Distillate Funds, c/o U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee, WI 53201-0701) or by telephone at 866-839-1852. You may also call for information on how to obtain directions to be able to attend the Special Meeting and vote in person.
EXHIBIT A
INVESTMENT ADVISORYSUB-ADVISORY AGREEMENT
with
VIDENT ADVISORY, LLC
Vident Advisory, LLC