Vident Core U.S. Equity Fund TM Advisor Packet... · of 6/30/2014. Diversification does not assure a profit or protect against a loss in a ... PEPSICO INC 0.59% GENERAL ELECTRIC

Vident Core U.S. Equity Index TM

Bloomberg Symbol: VIUSX

Vident Core U.S. Equity Fund TM

NASDAQ: VUSE

As of June 30, 2014

Vident Core US Equity Fund TM (VUSE) | Overview

Defining the Risk Problem

Disregard for important principles-based risks in expense recognition, financial reporting, and corporate governance – Companies included in passive indices are not always evaluated for principles-based risks

Lack of valuation discipline – Cap-weighted indices may emphasize equities that have recently appreciated most while de-emphasizing those that have lost relative value in terms of market cap and are trading at more reasonable valuations

Concentration at company level and within sectors – Capitalization-weighted indices may sometimes be dominated by the largest companies (e.g., Top 10% of the S&P 500 is comprised of only 5 companies while 30% of each sector can be comprised of as few one company (depending on the sector).

The Vident Core U.S. Equity Fund TM (VUSE) seeks to track the performance of the Vident Core U.S. Equity IndexTM (VIUSX), a principles-based U.S. equity strategy that was designed to address the following unintended and unmanaged risks that can sometimes be present within typical capitalization-weighted investment strategies:

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Vident Core U.S. Equity Fund (VUSE) – Strategy Overview

Vident Core U.S. Equity Index - Strategy Highlights Applying time-tested investment principles to seek to improve U.S. equity exposure by screening for

companies with better expense recognition, financial reporting, and corporate governance

A combination of risk premia factors seeks to result in a portfolio of companies with strong governance, higher relative quality, positive momentum, and favorable valuations

Risk-balanced exposure to companies within each sector seeks to enhance the resilience of the portfolio while providing additional diversification benefits within each sector*

A systematic (rules-based) process that attempts to establish valuation discipline

In its attempt to track the performance of the Vident Core U.S. Equity Index, VUSE seeks to apply time-tested investment principles to address the risks and opportunities of U.S. equity investing.

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* Diversification does not assure a profit or protect against a loss in a declining market. Specific investor objectives and allocations may differ.

VUSE A Core U.S. Equity

Portfolio Allocation

Equity

Alternatives

Fixed Income


Vident Core U.S. Equity Index - Process Overview

*Risk-balanced weightings adjusted for liquidity and other frictional costs. Reconstituted and rebalanced twice annually. Please see disclosures for further notes.

Beginning Universe: ~3000 largest U.S. companies

Eliminate bottom 20% of companies within each sector based on: Expense Recognition, Financial Reporting, and Corporate Governance

Select the top 1/3 most attractive stocks within each sector based on: Governance/Quality (20%)Valuation (60%), Momentum (20%)

Within each sector, assign company weightings according to risk contribution at the sector level*

Core portfolio of U.S. equities, cut from a universe of companies with higher governance / quality, positive momentum, and trading at attractive relative valuations

Investable Universe: Apply basic market cap and liquidity screens

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Investable Universe (~2000 Companies)

Avg. Daily Volume > 1.5Mn, Market Cap > 500Mn

Principles-Based Screen (~1600 Companies)

Factor-Based Security Selection

(450-525 Companies)

Risk-Balanced Weighting

within Sectors

Vident Core U.S. EquityCore US Equity Strategy

Comprised of 450-525 Companies


Vident Financial’s Investment Framework5

Apply time-tested principles to investment research

Identify sources of wealth creation

Utilize time-tested principles as a lens for investment research and decision-making

Establishes rules-based processes—which may help limit “stockpicker” bias and emotional decision-making


Our Principles:

Applied WisdomHow We Seek to Build a Resilient Investment Strategy

UncertaintyWhy We Plan, Save & Invest

Human ProductivityHow Wealth is Created

Leadership & GovernanceWhere Wealth is Created

Inherent ValueHow to Find Opportunities

InstabilityHow to Manage Risk

Core Economic & Investment PrinciplesAn investment decision-making framework that combines time-tested

principles, rigorous global research, and an in-depth evaluation of risk dynamics.

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The above principles are general in nature and not intended as specific advice.

Our Applications / Solutions:

Implement a principles-based investment decision-making framework, focused on long-term risks rather than short-term volatility

Risk-balanced solutions for long-term investment planning

Companies with higher productivity levels (work environments with higher integrity, favorable demographics, etc.)—environments more conducive to human flourishing

Companies and Boards with favorable environments (higher levels of fiscal ethics, governance scores, better leadership, etc.)

A disciplined valuation methodology in order to avoid “chasing returns”

Diversified solutions that avoid the pitfalls associated with concentration risks (cap-weighting).


Principles of Uncertainty & Instability

• Diversify Risks

Our Investment Principles in Perspective

*This data does not include historical performance from any fund. These are simply some of the characteristics within the composition of VUSE as of 6/30/2014. Diversification does not assure a profit or protect against a loss in a declining market. Please see disclosures for further notes. Source data provided by Lattice Strategies and MSCI.

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Vident Core U.S. Equity Fund

MSCI USA IMI (All-Cap Universe of 2500)

As of 6/30/2014

14.1%

25.2%

50.2%

5.7%

12.1%

34.5%

Top 10 Exposures Top 25 Exposures Top 100 Exposures

Exposures


VUSE MSCI USA IMI

Company Weight Company Weight

EXXON MOBIL CORP 0.80% APPLE 2.69%

WAL-MART STORES INC 0.66% EXXON MOBIL CORP 2.01%

CONOCOPHILLIPS 0.62% MICROSOFT CORP 1.52%

CHEVRON CORP NEW 0.60% JOHNSON & JOHNSON 1.37%

PEPSICO INC 0.59% GENERAL ELECTRIC CO 1.22%

KROGER CO 0.53% WELLS FARGO & CO 1.22%

SAFEWAY INC 0.48% CHEVRON CORP 1.15%

EXELON CORP 0.47% JPMORGAN CHASE & CO 1.01%

C&J ENERGY SVCS INC 0.47% PROCTER & GAMBLE CO 0.99%

SANDERSON FARMS INC 0.46% VERIZON COMMUNICATIONS 0.94%

5.68% 14.12%

Reduced Concentration in Top Ten Positions

Top Ten Positions

Principles of Uncertainty & Instability

• Diversify Risks

This data does not include historical performance from any fund. These are simply some of the characteristics within the composition of VUSE as of 6/30/2014. Allocations are subject to change at any time and should not be considered a recommendation to buy or sell any security. Please see disclosures for further notes. Source data provided by US Bancorp and MSCI.

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As of 6/30/2014


Principles in PerspectiveAs of 6/30/2014


Vident Core U.S. Equity Index

Principle of Inherent Value

Seeks Higher Valuation Discipline

VIUSX MSCI USA IMI

Dividend Yield 2.1 1.8

Price/Earnings 23.3 20.4

Forward Price/Earnings (12 Mo.) 16.6 17.8

Price/Book 1.9 2.8

Price/Sales 0.8 1.4

Price/Cash Flow 7.6 9.4

Valuation

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*These are some of the Valuation characteristics within the composition of VIUSX as of 6/30/2014. Please see disclosures for further notes. Source data provided by Lattice Strategies and MSCI.

1.8

2.8

1.4

2.11.9

0.8

Dividend Yield Price/Book Price/Sales

Valuation


Sector Weighting and Market Capitalization

Market CapitalizationSector Weightings Remain in Line With Industry

VUSE MSCI USA IMI

Sector Exposure

Consumer Discretionary 12.3% 12.6%

Consumer Staples 8.7% 8.4%

Energy 11.9% 10.1%

Financials 16.8% 16.8%

Health Care 12.0% 13.0%

Industrials 10.9% 11.2%

Information Technology 18.1% 18.6%

Materials 3.7% 3.9%

Telecom. Services 2.3% 2.2%

Utilities 3.2% 3.2%

VUSEMSCI

USA IMI

MSCI U.S. Small Cap

1750 Index

Market Capitalization

> $200B 4.3% 16.9% 0.0%

$10B - $200B 38.2% 62.5% 0.0%

$2B - $10B 34.9% 16.4% 71.5%

$500M - $2B 22.4% 3.8% 26.0%

$250 - $500M 0.3% 0.3% 2.3%

$0 - $250M 0.0% 0.0% 0.1%

Weighted Average ($B) $34.0 $103.7 $3.4

*This data does not include historical performance from any fund. These are simply some of the characteristics within the composition of the VIUSX as of 6/30/2014. Please see disclosures for further notes. Source data provided by Lattice Strategies and MSCI.

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As of 6/30/2014


We believe that: Corporations with higher standards of leadership and governance are

going to significantly influence the productivity of the people and the company they’re leading.

Increased productivity often leads to more fertile ground for investment.

General Characteristics of “Good” Governance: Leaders who recognize that they are not the real owners of the company,

but managers and stewards

Those who lead with integrity—exercising diligence, honesty, faithfulness and little/no conflicts of interest

Our Principle of Leadership & Governance


Principled, Multi-Factor, and Risk-Balanced Approach

Nine Objective Criteria: Other Principles Represented:

• Asset Efficiency - a measure of how efficient a company is with its use of its assets Inherent Value, Uncertainty, Instability

• Loan Accounting Quality - a measure of a company’s loan accounting policies in regard to writing off “bad debt” in a timely manner

Inherent Value, Uncertainty, Instability

• Executive Compensation Balance – Compares the compensation of CEO’s to other executives, suggesting a potential imbalance of power.

Human Productivity, Inherent Value, Instability

• Board member Commitment – Does the company have an “overboarding” policy that prevents members from being over committed, which could suggest their memberships are their primary source of income and creates a conflict of interest with their leadership.


• Performance Pay Quality – Does the Board of Directors have the discretion to change the CEO’s past salary (backpay) according to his recent performance?


• Female Directors – Does the Board of Directors have female representation? Human Productivity, Inherent Value, Instability

• Growth Quality – measures the proportion of a company’s organic growth with the absence of Mergers & Acquisitions (M&As)


• Legal Risk Management – a measure of the number of litigation and other regulatory concerns in the past


• Pension Liability Funding – a measure of how optimistic a company’s pension growth rate is, leading to the potential of being under-funded in the future


Below are the nine objective criteria that help shape our Principled Universe of investable companies. ThePrinciples of Leadership & Governance and Applied Wisdom are the primary filters, although other Principles are also crucially embedded.

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Principle of Leadership & Governance

Seeks Higher Quality Financial Reporting

Loan Accounting Quality – a measure of a company’s loan accounting policies in regard to writing off “bad debt” in a timely mannerAsset Efficiency – a measure of how efficient a company is with its use of its assetsPension Liability Funding – a measure of how optimistic a company’s pension growth rate is, leading to the potential of being under-funded in the futureLegal Risk Management – a measure of the number of litigation and other regulatory concerns in the past

32.8

40.3

66.561.4

Loan AccountingQuality

Asset Efficiency

Balance Sheet

45.4

24.6

52.2

59.3

Pension LiabilityFunding

Legal RiskManagement

Principles in Perspective1/1/2000 – 6/30/2014

*Graphs calculated using historical data related to index composition, not historical performance. Data was collected from January 1, 2000through 6/30/2014. The Vident Core U.S. Equity Index inception date was 6/30/13 and this index did not exist prior to this inception date. Pleasesee disclosures for further notes. Source data provided by Lattice Strategies and MSCI.

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Growth Quality – measures the proportion of a company’s organic growth with the absence of M&AsExecutive Compensation Balance – Compares the compensation of CEO’s to other executives, suggesting a potential imbalance of power.Boardmember Commitment – Does the company have an “overboarding” policy that prevents members from being over committed, which could suggest their memberships are their primary source of income and creates a conflict of interest with their leadership.Performance Pay Quality – Does the Board of Directors have the discretion to change the CEO’s past salary (backpay) according to his recent performance

Principle of Leadership & Governance

Seeks Higher Quality Leadership and Governance

Principles in Perspective14

*Graphs calculated using historical data related to index composition, not historical performance. Data was collected from January 1, 2000through 6/30/2014. The Vident Core U.S. Equity Index inception date was 6/30/13 and this index did not exist prior to this inception date. Pleasesee disclosures for further notes. Source data provided by Lattice Strategies and MSCI.

24.7

37.8

49.1 47.0

55.8

46.3

56.8 58.0

Growth Quality ExecutiveCompensation

Balance

BoardmemberCommitment

Performance PayQuality

Governance Scores

1/1/2000 – 6/30/2014




Vident Core U.S. Equity FundTM - Performance1/22/2014 – 6/30/2014

Average Returns (as of 6/30/2014) Q1 Q2Since VUSEInception

1-Year

Vident Core US Equity Fund (NAV) N/A 3.82% 6.43% N/A

Vident Core US Equity Fund (Market Price) N/A 3.81% 6.63% N/A

Vident Core US Equity Index 2.17% 3.79% 6.40% N/A

MSCI USA IMI 1.94% 4.97% 6.96% 25.2%

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Returns are average annualized total returns, except those for periods of less than one year, which are cumulative. Performancequoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate,so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted. Short termperformance is not a good indication of the fund's future performance, and an investment should not be made based solely onreturns. To obtain performance data current to the most recent month-end, please call (800) 617-0004. All performance figures arenet of management fees. The Gross Expense ratio of VUSE is .55%. The VUSE inception date was 1/22/2014. Please see disclosurefor further notes. Source data provided by US Bancorp and Lattice Strategies.

6.96%6.43%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

22-Jan 5-Feb 20-Feb 6-Mar 20-Mar 3-Apr 17-Apr 2-May 16-May 31-May 14-Jun 28-Jun

VUSE and MSCI USA IMINAV Cumulative Total Return Since Inception

VUSE MSCI USA IMI


Fund Disclosure

It is not possible to invest directly in an Index. All data described is reported using semiannual rebalancing and the assumed re-investment of dividends. Complete index methodology details for the Vident Indexes and other Vident Indices (if any), including the manner in which it/they is/are rebalanced, the timing of such rebalancing, criteria for additions and deletions, as well as all index calculations, please visit www.videntfinancial.com.

Any charts and graphs are provided for illustrative purposes only. Vident maintains the Vident Index and other Vident Indices (if any) and calculates (either itself or through an Index Calculation Agent and/or another third party selected by Vident in its sole discretion from time to time) the index levels and performance shown or discussed, but does not manage actual assets.

The fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus and summary prospectus contains this and other important information about the investment company, and it may be obtained by calling (800) 617-0004. Read it carefully before investing.

Investing involves risk. Principal loss is possible. VUSE has the same risks as the underlying securities traded on the exchange throughout the day. Redemptions arelimited and often commission are charged on each trade. The performance of the fund may diverge from that of the Index. Because the fund employs a representativesampling strategy and may also invest up to 20% of its assets in securities that are not included in the Index, it may experience tracking error to a greater extent thana fund that seeks to replicate an index. The fund is not actively managed and may be affected by a general decline in market segments related to the index. The fundinvests in securities included in, or representative of securities included in, the index, regardless of their investment merits. Small and medium-capitalizationcompanies tend to have more limited liquidity and greater price volatility than large-capitalization companies. ETFs may trade at a discount or premium to theirNAV.

Sources for company analytics are as follows: Bloomberg, GMI Consulting (Environmental/Social/Governance (ESG) and Accounting and Governance Risk (AGR) data sets) Bloomberg and MSCI are the sources for all index data shown; further analytics provided by Lattice Strategies. * Graphs calculated using historical data related to index composition, not historical performance. Data was collected from January 1, 2000 through June 30, 2014. The inception date of the VIUSX Index was 6/30/2013. All dividends will be reinvested back into the fund to keep future costs low.

MSCI U.S. IMI 2500 is MSCI”s U.S.-based Investable Market Index (IMI), which includes over 2,400 large, mid and small-cap U.S. stocks. Vident Core U.S. Equity IndexTM (VIUSX)is a principles-based U.S. equity strategy that seeks to emphasize companies with high-quality leadership and governance standards and trading at attractive valuations. TheMSCI US Small Cap 1750 Index targets for inclusion 1,750 U.S. small cap companies and represents approximately 12% of the capitalization of the US equity market. S&P 500data (as of 1/21/14) includes the largest 500 U.S. companies and captures approximately 80% coverage of available market capitalization. Price/earnings is the valuation ratioof a company's current share price compared to its per-share earnings. Forward Price Earnings (P/E) is a measure of the price-to-earnings ratio (P/E) using forecasted earningsfor the P/E calculation, in this case using the next 12-month period. Price/book is the ratio used to compare a stock's market value to its book value. Price/sales is a ratio forvaluing a stock relative to its own past performance, other companies or the market itself. Price/cash flow is the measure of the market's expectations of a firm's future financialhealth. Market cap is an estimation of the value of a business that is obtained by multiplying the number of shares outstanding by the current price of a share. All dividends willbe reinvested back into the fund to keep future costs low.

The Vident Core U.S. Equity Fund ETF is distributed by Quasar Distributors, LLC. Vident Financial is the index provider of the fund. Lattice Strategies helps Vident withRisk management and index construction of its solutions. Exchange Traded Concepts, LLC (ETC) is the investment advisor of the fund and Index ManagementSolutions (IMS) is the sub-adviser of the fund. Quasar is not affiliated with Vident Financial, ETC, Lattice Strategies or IMS.

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http://www.videntfinancial.com/

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Vident Core U.S. Equity Fund TM Advisor Packet... · of 6/30/2014. Diversification does not assure a profit or protect against a loss in a ... PEPSICO INC 0.59% GENERAL ELECTRIC