ck0001540305-20210930
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Distillate Small/Mid Cash Flow ETF
(DSMC)
Listed
on NYSE Arca, Inc.
PROSPECTUS
August
22, 2022
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
of these securities or passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
Distillate
Small/Mid Cash Flow ETF
The Distillate Small/Mid Cash
Flow ETF (the “Fund”) seeks capital appreciation.
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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ANNUAL
FUND OPERATING EXPENSES
(expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fees |
0.55% |
Distribution
and/or Service (12b-1) Fees |
None |
Other
Expenses1 |
0.00% |
Total
Annual Fund Operating Expenses |
0.55% |
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1
Estimated for the current
fiscal year.
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then continue to hold or redeem all of
your Shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year: |
$56 |
3
Years: |
$176 |
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The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
Example, affect the Fund’s performance. Because the Fund is newly organized,
portfolio turnover information is not yet available.
The
Fund is an actively managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by investing in equity securities of small- and
mid-capitalization companies. The Fund considers companies whose market
capitalization, at the time of purchase, places them in the lowest 15% of the
total market capitalization of the U.S. equity market to be small-cap and
mid-cap companies. Under these market capitalization guidelines, based on market
capitalization data as of July 28, 2022, the market capitalization of such a
company would be equal to or less than $11,567 million. This threshold will
change due to market conditions.
In
selecting securities for the Fund, Distillate Capital Partners LLC, the Fund’s
investment adviser (“Distillate” or the “Adviser”) considers companies that: (i)
are headquartered in the United States; (ii) have sufficient liquidity (based on
the average daily traded value of the security); (iii) have reported free cash
flow data for the last three fiscal years; and (iv) have a forward earnings
before interest, taxes, depreciation and amortization (“EBITDA”) estimate.
Further, companies for which there is a negative forward 12 month free cash flow
estimate from FactSet Research Systems, Inc. will be eliminated from
consideration.
Companies
are then reviewed using the Adviser’s proprietary measure of the company’s free
cash flow yield (a measure comparing a company’s normalized free cash flow to
its enterprise value). In selecting securities, the Adviser seeks to identify
the most undervalued companies using this proprietary measure. The Adviser also
considers a company’s financial indebtedness to measure quality; the Fund does
typically not invest in companies with significant leverage, based on the
Adviser’s proprietary debt-to-income calculation. A company’s valuation and
leverage calculation are referred to as “fundamental factors.” The Adviser may
include or exclude companies from the Fund’s portfolio based on unusual data or
fundamental conditions that the Adviser believes would cause a security’s
inclusion or exclusion to go against the spirit of the fundamental
factors.
The
Adviser generally sells a stock when it no longer satisfies the Adviser’s
investment criteria discussed above. A stock will be sold if it becomes
overvalued as measured using the Adviser’s measure of free cash flow. This could
be the result of stock price appreciation, free cash flow erosion, or other
eligible stocks presenting even more attractive valuation opportunities.
Additionally, a stock will be sold if the company takes on additional debt or
reports a reduction in income such that it no longer satisfies the Adviser’s
measure of financial indebtedness.
Under normal circumstances, at least 80% of
the Fund’s net assets, plus borrowings for investment purposes, will be invested
in small- and mid-capitalization companies. A company whose capitalization is no
longer within the market capitalization range of small- or mid-capitalization
companies (as defined herein) after the purchase of its shares by the Fund will
continue to be considered a small- or mid-capitalization company for purposes of
the 80% policy.
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Fund.”
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests. Common
stocks are generally exposed to greater risk than other types of securities,
such as preferred stock and debt obligations, because common stockholders
generally have inferior rights to receive payment from issuers. In addition,
local, regional or global events such as war, including Russia’s invasion of
Ukraine, acts of terrorism, spread of infectious diseases or other public health
issues, recessions, rising inflation, or other events could have a significant
negative impact on the Fund and its investments. For example, the global
pandemic caused by COVID-19, a novel coronavirus, and the aggressive responses
taken by many governments, including closing borders, restricting international
and domestic travel, and the imposition of prolonged quarantines or similar
restrictions, has had negative impacts, and in many cases severe impacts, on
markets worldwide. The COVID-19 pandemic has caused prolonged disruptions to the
normal business operations of companies around the world and the impact of such
disruptions is hard to predict. Such events may affect certain geographic
regions, countries, sectors and industries more significantly than others. Such
events could adversely affect the prices and liquidity of the Fund’s portfolio
securities or other instruments and could result in disruptions in the trading
markets.
•ETF
Risks. The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
•Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
•Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
•Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
•Trading. Although
Shares are listed for trading on NYSE
Arca, Inc.
(the “Exchange”) and may be traded on U.S. exchanges other than the Exchange,
there can be no assurance that Shares will trade with any volume, or at all, on
any stock exchange. In stressed market conditions, the liquidity of Shares may
begin to mirror the liquidity of the Fund’s underlying portfolio holdings, which
can be significantly less liquid than Shares, and this could lead to differences
between the market price of the Shares and the underlying value of those Shares.
•High
Portfolio Turnover Risk.
The Fund may frequently buy and sell portfolio securities and other assets to
rebalance the Fund’s exposure to specific securities. Higher portfolio turnover
may result in the Fund paying higher levels of transaction costs and generating
greater tax liabilities for shareholders. Portfolio turnover risk may cause the
Fund’s performance to be less than you expect.
•Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
Adviser’s success or failure to implement investment strategies for the Fund.
The Adviser relies on quantitative data that may prove to be incorrect or
incomplete.
•Market
Capitalization Risk.
The securities of small- and mid-capitalization companies may be more vulnerable
to adverse issuer, market, political, or economic developments than securities
of large-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole.
•New
Fund Risk. The Fund is a recently organized investment
company with a limited operating history. As a result, prospective investors
have a limited track record or history on which to base their investment
decision.
Performance information for the Fund is not
included because the Fund had not yet commenced operations as of the date of
this Prospectus. In the future, performance information for the
Fund will be presented in this section. Updated performance information is
available on the Fund’s website at www.distillatefunds.com.
Management
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Investment
Adviser |
Distillate
Capital Partners LLC |
Sub-Adviser |
Vident
Investment Advisory, LLC (“VIA” or the “Sub-Adviser”) |
Portfolio
Managers |
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Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers 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) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.distillatefunds.com.
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an
individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
Additional
Information about the Fund’s Investment Objective.
The Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
Manager
of Managers Structure. The
Fund and the Adviser have received exemptive relief from the SEC permitting the
Adviser (subject to certain conditions and the approval of the Fund’s Board of
Trustees (the “Board”)) to change or select new sub-advisers without obtaining
shareholder approval. The relief also permits the Adviser to materially amend
the terms of agreements with a sub-adviser (including an increase in the fee
paid by the Adviser to the sub-adviser (and not paid by the Fund)) or to
continue the employment of a sub-adviser after an event that would otherwise
cause the automatic termination of services with Board approval, but without
shareholder approval. Shareholders will be notified of any sub-adviser changes.
The Adviser has the ultimate responsibility, subject to oversight by the Board,
to oversee a sub-adviser and recommend their hiring, termination and
replacement.
Additional
Information About the Fund’s Principal Investment Strategies. The
Fund has adopted the following policy to comply with Rule 35d-1 under the
Investment Company Act of 1940 (the “1940 Act”). Such policy has been adopted as
a non-fundamental investment policy and may be changed without shareholder
approval upon 60 days’ written notice to shareholders. Under normal
circumstances, at least 80% of the Fund’s net assets, plus borrowings for
investment purposes, will be invested in securities of small- and mid-cap
companies.
Temporary
Defensive Positions.
To respond to adverse market, economic, political, or other conditions, the Fund
may invest up to 100% of its assets in a temporary defensive manner by holding
all or a substantial portion of its assets in cash, cash equivalents, or other
high quality short-term investments or in other ETFs that invest in such
instruments. The Adviser also may invest in these types of securities or hold
cash while looking for suitable investment opportunities or to maintain
liquidity. In these circumstances, the Fund may be unable to achieve its
investment objective.
Additional
Information about the Fund’s Principal Investment Risks.
This section provides additional information regarding the principal risks
described in the Fund Summary. As in the Fund Summary, the principal risks below
are presented in alphabetical order to facilitate finding particular risks and
comparing them with other funds. Each risk described below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. Each of the factors below could have a negative impact on the Fund’s
performance and trading prices.
•Equity
Market Risk.
Common stocks are susceptible to general stock market fluctuations and to
volatile increases and decreases in value as market confidence in and
perceptions of their issuers change. These investor perceptions are based on
various and unpredictable factors including: expectations regarding government,
economic, monetary and fiscal policies; inflation and interest rates; economic
expansion or contraction; local, regional or global events
such
as acts of terrorism or war, including Russia’s invasion of Ukraine; and global
or regional political, economic, public health, and banking crises. If you held
common stock, or common stock equivalents, of any given issuer, you would
generally be exposed to greater risk than if you held preferred stocks and debt
obligations of the issuer because common stockholders, or holders of equivalent
interests, generally have inferior rights to receive payments from issuers in
comparison with the rights of preferred stockholders, bondholders, and other
creditors of such issuers.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and, in many cases, unprecedented volatility and
severe losses due to the global pandemic caused by COVID-19, a novel
coronavirus. The pandemic resulted in a wide range of social and economic
disruptions, including closed borders, voluntary or compelled quarantines of
large populations, stressed healthcare systems, reduced or prohibited domestic
or international travel, and supply chain disruptions affecting the United
States and many other countries. Some sectors of the economy and individual
issuers have experienced particularly large losses as a result of these
disruptions, and such disruptions may continue for an extended period of time or
reoccur in the future to a similar or greater extent. In response, the U.S.
government and the Federal Reserve have taken extraordinary actions to support
the domestic economy and financial markets. Many countries, including the U.S.,
are subject to few restrictions related to the spread of COVID-19. It is unknown
how long circumstances related to the pandemic will persist, whether they will
reoccur in the future, whether efforts to support the economy and financial
markets will be successful, and what additional implications may follow from the
pandemic. The impact of these events and other epidemics or pandemics in the
future could adversely affect Fund performance.
•ETF
Risks. The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
•APs,
Market Makers, and Liquidity Providers Concentration Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
•Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid-ask spread.” The bid-ask spread varies over time for Shares
based on trading volume and market liquidity, and the spread is generally lower
if Shares have more trading volume and market liquidity and higher if Shares
have little trading volume and market liquidity. Further, a relatively small
investor base in the Fund, asset swings in the Fund, and/or increased market
volatility may cause increased bid-ask spreads. Due to the costs of buying or
selling Shares, including bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
•Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility, periods of
steep market declines, and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant.
•Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500®
Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than Shares, and this
could lead to differences between the market price of the Shares and the
underlying value of those Shares.
•High
Portfolio Turnover Risk. The
Fund may frequently buy and sell portfolio securities and other assets to
rebalance the Fund’s exposure to specific securities. Higher portfolio turnover
may result in the Fund paying higher levels of transaction costs and generating
greater tax liabilities for shareholders. Portfolio turnover risk may cause the
Fund’s performance to be less than you expect.
•Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
Adviser’s success or failure to implement investment strategies for the Fund.
The Adviser relies on quantitative data that may prove to be incorrect or
incomplete.
•Market
Capitalization Risk.
•Mid-Capitalization
Investing. The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole. Some mid-capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization
companies.
•Small-Capitalization
Investing. The
securities of small-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some small capitalization companies have limited product
lines, markets, and financial and managerial resources and tend to concentrate
on fewer geographical markets relative to larger capitalization companies. There
is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and
earnings.
•New
Fund Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
Information
about the Fund’s daily portfolio holdings is available at
www.distillatefunds.com. A complete description of the Fund’s policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is
available in the Fund’s Statement of Additional Information (“SAI”).
Distillate
Capital Partners LLC serves as the investment adviser and has overall
responsibility for the day-to-day management and administration of the Fund. The
Adviser is a recently registered investment adviser, founded in 2018 and is
controlled by each of Matthew T. Swanson, Jacob A. Beidler, and Thomas M. Cole,
with offices at 53 West Jackson Blvd., Suite 530, Chicago, Illinois 60604.
The Adviser arranges for sub-advisory, transfer agency, custody, fund
administration, and all other related services necessary for the Funds to
operate.
The
Adviser provides oversight of the Sub-Adviser, monitoring of the Sub-Adviser’s
buying and selling of securities for the Fund, and review of the Sub-Adviser’s
performance. For the services it provides to the Fund, the Fund pays the Adviser
a unified management fee, which is calculated daily and paid monthly, at an
annual rate of 0.55% based on the Fund’s average daily net assets.
Under
the Investment Advisory Agreement, the Adviser has agreed to pay all expenses
incurred by the Fund except for interest
charges
on any borrowings, taxes, brokerage commissions and other expenses incurred in
placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, distribution fees and expenses paid by the Fund under
any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act, and the
unified management fee payable to the Adviser.
The
basis for the Board’s approval of the Fund’s Investment Advisory Agreement will
be available in the Fund’s first shareholder report.
The
Adviser has retained Vident Investment Advisory, LLC to serve as sub-adviser for
the Fund. VIA is responsible for the day-to-day management of the Funds. VIA, a
registered investment adviser, is a wholly-owned subsidiary of Vident Financial,
LLC. Its principal office is located at 1125 Sanctuary Parkway, Suite 515,
Alpharetta, Georgia 30009. VIA was formed in 2014 and provides investment
advisory services to ETFs, including the Funds. The Sub-Adviser is responsible
for trading portfolio securities for the Fund, including selecting
broker-dealers to execute purchase and sale transactions, subject to the
supervision of the Adviser and the Board.
For
its services, VIA is paid a fee by the Adviser, which fee is calculated daily
and paid monthly, at an annual rate of the Fund’s average daily net assets as
follows:
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Name
of Fund |
Minimum
Fee |
Sub-Advisory
Fee |
Distillate
Small/Mid Cash Flow ETF |
$20,000 |
0.030%
on the first $250 million; |
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0.025%
on the next $250 million; and |
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0.020%
on net assets in excess of $500 million |
The
basis for the Board’s approval of the Fund’s Investment Sub-Advisory Agreement
will be available in the Fund’s first shareholder report.
Jay
A. Beidler, CFA, Matthew T. Swanson, CFA, Rafael Zayas, CFA, and Austin Wen,
CFA, are primarily and jointly responsible for the day-to-day management of the
Fund.
Mr.
Beidler serves as Portfolio Manager for Distillate, having co-founded the firm
in September 2018. Mr. Beidler previously worked for ten years at Institutional
Capital, LLC (ICAP), a Chicago-based value investment firm where he focused on
quantitative analysis and macroeconomic research and worked as an analyst in the
basic resources, energy, and healthcare sectors. Prior to ICAP, Mr. Beidler
worked at Congaree River Limited Partnership, a family office, and was a
consultant before that. Mr. Beidler holds an AB from Brown University, and a MBA
from the University of Chicago Booth School of Business, and is a CFA
charterholder.
Mr.
Swanson serves as Portfolio Manager for Distillate, having co-founded the firm
in September 2018. Mr. Swanson previously worked for 18 years as a portfolio
manager of U.S. and international value strategies, and as an equity analyst
covering the healthcare industry at Institutional Capital, LLC (ICAP), a
Chicago-based value investment firm. Mr. Swanson holds a BA in Economics from
Northwestern University, and an MBA from Kellogg School of Management,
Northwestern University. Mr. Swanson is a CFA charterholder.
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.
Wen serves as Portfolio Manager for VIA. Mr. Wen has been a Portfolio Manager of
the Sub-Adviser since 2016 and has 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 CFA designation.
The
Fund’s SAI provides additional information about each Portfolio Manager’s
compensation structure, other accounts managed by the Portfolio Managers, and
the Portfolio Managers’ ownership of Shares.
The
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute a Participant
Agreement that has been agreed to by the Distributor (defined below), and that
has been accepted by the Fund’s transfer agent, with respect to purchases and
redemptions of Creation Units. Once created, Shares trade in the secondary
market in quantities less than a Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Shares are listed for trading on the secondary market on the Exchange and can be
bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the bid-ask spread on
your transactions. In addition, because secondary market transactions occur at
market prices, you may pay more than NAV when you buy Shares and receive less
than NAV when you sell those Shares.
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, the Board has also
determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, the Fund employs fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by the Fund in effecting trades. In addition, the Fund and
the Adviser reserve the right to reject any purchase order at any time.
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, each day
the NYSE is open for business. The NAV is calculated by dividing the Fund’s net
assets by its Shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. If such information is
not available for a security held by the Fund or is determined to be unreliable,
the security will be valued at fair value estimates under guidelines established
by the Board (as described below).
The
Board has adopted procedures and methodologies to fair value Fund securities
whose market prices are not “readily available” or are deemed to be unreliable.
For example, such circumstances may arise when: (i) a security has been
de-listed or has had its trading halted or suspended; (ii) a security’s primary
pricing source is unable or unwilling to provide a price; (iii) a security’s
primary trading
market
is closed during regular market hours; or (iv) a security’s value is materially
affected by events occurring after the close of the security’s primary trading
market. Generally, when fair valuing a security, the Fund will take into account
all reasonably available information that may be relevant to a particular
valuation including, but not limited to, fundamental analytical data regarding
the issuer, information relating to the issuer’s business, recent trades or
offers of the security, general and/or specific market conditions and the
specific facts giving rise to the need to fair value the security. Fair value
determinations are made in good faith and in accordance with the fair value
methodologies included in the Board-adopted valuation procedures. Due to the
subjective and variable nature of fair value pricing, there can be no assurance
that the Adviser or Sub-Adviser will be able to obtain the fair value assigned
to the security upon the sale of such security.
Householding
is an option available to certain investors of the Fund. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Fund is available through certain broker-dealers. If
you are interested in enrolling in householding and receiving a single copy of
prospectuses and other shareholder documents, please contact your broker-dealer.
If you are currently enrolled in householding and wish to change your
householding status, please contact your broker-dealer.
Section 12(d)(1)
of the 1940 Act restricts investments by registered investment companies in the
securities of other investment companies, including Shares. Registered
investment companies are permitted to invest in the Fund beyond the limits set
forth in section 12(d)(1) subject to certain terms and conditions set forth in
Rule 12d1-4 under the 1940 Act, including that such investment companies enter
into an agreement with the Fund.
Dividends
and Distributions
The
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. The Fund will declare and
pay capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund intends to elect and qualify each year for treatment as a regulated
investment company (“RIC”) under the Code. If it meets certain minimum
distribution requirements, a RIC is not subject to tax at the fund level on
income and gains from investments that are timely distributed to shareholders.
However, the Fund’s failure to qualify as a RIC or to meet minimum distribution
requirements would result (if certain relief provisions were not available) in
fund-level taxation and, consequently, a reduction in income available for
distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when the Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable as long-term capital gains,
which for non-corporate shareholders are subject to tax at reduced rates of up
to 20% (lower rates apply to individuals in lower tax brackets). Distributions
of short-term capital gain will generally be taxable as ordinary income.
Dividends and distributions are generally taxable to you whether you receive
them in cash or reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
noncorporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or
eligible
for tax benefits under certain U.S. income tax treaties. In addition, dividends
that the Fund received in respect of stock of certain foreign corporations may
be qualified dividend income if that stock is readily tradable on an established
U.S. securities market.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your investment.
If
the Fund’s distributions exceed its earnings and profits, all or a portion of
the distributions made for a taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will generally not be
taxable, but will reduce each shareholder’s cost basis in Shares and result in a
higher capital gain or lower capital loss when the Shares are sold. After a
shareholder’s basis in Shares has been reduced to zero, distributions in excess
of earnings and profits in respect of those Shares will be treated as gain from
the sale of the Shares.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
Shares by non-U.S. shareholders generally are not subject to U.S. taxation,
unless you are a nonresident alien individual who is physically present in the
U.S. for 183 days or more per year. The Fund may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are met.
Different tax consequences may result if you are a foreign shareholder engaged
in a trade or business within the United States or if a tax treaty applies.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale or redemption proceeds paid to
any shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that the shareholder is not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of the Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market its
holdings), or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax advisor with
respect to whether wash sales rules apply and when a loss might be
deductible.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax advisor about the
potential tax consequences of an investment in Shares under all applicable tax
laws. For more information, please see the section entitled “Federal Income
Taxes” in the SAI.
The
Distributor, Quasar Distributors, LLC, is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Fund on an agency basis
and does not maintain a secondary market in Shares. The Distributor has no role
in determining the policies of the Fund or the securities that are purchased or
sold by the Fund. The Distributor’s principal address is 111 East Kilbourn
Avenue, Suite 2200, Milwaukee, Wisconsin 53202.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of the Fund’s assets, over time these fees will
increase the cost of your investment and may cost you more than certain other
types of sales charges.
Information
regarding how often Shares are traded on the Exchange at a price above (i.e., at
a premium) or below (i.e., at a discount) the NAV of the Fund is available, free
of charge, on the Fund’s website at www.distillatefunds.com.
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser, Sub-Adviser, and the Fund make no representation or warranty, express
or implied, to the owners of Shares or any member of the public regarding the
advisability of investing in securities generally or in the Fund
particularly.
Financial
information is not available because the Fund had not commenced operations prior
to the date of this Prospectus.
Distillate
Small/Mid Cash Flow ETF
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Adviser |
Distillate
Capital Partners LLC
53
West Jackson Boulevard, Suite 530
Chicago,
Illinois 60604 |
Transfer
Agent |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Sub-Adviser |
Vident
Investment Advisory, LLC
1125
Sanctuary Parkway, Suite 515
Alpharetta,
Georgia 30009 |
Administrator |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Drive Suite 302
Milwaukee,
Wisconsin 53212 |
Distributor |
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue NW
Washington,
DC 20004-2541 |
Investors
may find more information about the Fund in the following documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments of the Fund and
certain other additional information. A current SAI dated August 22, 2022, as
supplemented from time to time, is on file with the SEC and is herein
incorporated by reference into this Prospectus. It is legally considered a part
of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments will be available in the Fund’s annual
and semi-annual reports to shareholders. In the annual report you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at Distillate ETFs, c/o
U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or
by calling 1-800-617-0004.
Shareholder
reports and other information about the Fund are available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Fund’s Internet website at www.distillatefunds.com;
or
(SEC
Investment Company Act File No. 811-22668)