Vident Core U.S. Bond Index – Methodology Summary

The Vident Core U.S. Bond IndexTM

(VUBDX) seeks to allocate capital with better diversification across US bond

sectors and weights individual bonds based on credit worthiness, liquidity, and other bond characteristic to

achieve higher resiliency and better tradeoffs between credit quality, duration and yield versus traditional US core

bond indices. VUBDX diversifies interest rate and credit risks across all core US bond sectors, including Treasuries,

Agencies, Mortgage-Backed Securities (MBS) and Investment Grade (IG) Corporate bonds and non-core fixed

income sectors such as High Yield (HY) Corporate and Treasury Inflation Protected Securities (TIPS) by applying

time-tested investment principles. The index strategy relies on dynamic allocation to reshape the risk/return

profile of the index and is implemented using a systematic, rules-based process that over/under-weights sectors

based on absolute longitudinal valuations, cross-sector relative valuations and other factors rooted in principles.

Within the credit components – Investment Grade and High Yield Corporates – issuers are rated based on

leadership, governance and financial distress factors combined with proprietary creditworthiness scores.

Individual issues within each sector are allocated to maximize the overall yield while keeping duration within a

tight band relative to each sector and allocating to issues with higher creditworthiness in their sector. Thus, bond

weights are not driven by debt outstanding but rather by factors that include creditworthiness, leadership,

governance, valuation, interest rate risk, duration and yield. The index also seeks to improve liquidity by

eliminating small issues and non-US issuers.

The Index methodology consists of the following steps:

1. Establishing universe of sectors, issuers and bonds – As a starting universe, the index begins with the US core bond sectors in the Citi Broad Investment Grade (BIG) index and adds US high yield and US TIPS sectors. To improve liquidity without sacrificing quality or diversification benefits, any non-US issuers and issues with less than $500MM bonds outstanding are screened out. Rest of the universe is rescaled to a base of 100% to come up with starting sector weights. Neutral baseline weights for Treasury is set at 27% and for Agencies at 3%. For other sectors, please see next section.

2. Selecting and weighting sectors based on valuation and momentum: Four remaining

sectors (IG, HY, MBS and TIPS) are ranked from most attractive to least based on long term valuations. For IG, when the momentum signal is turned on and it is among the top two sectors by valuation ranking, then it gets a 25% allocation. HY and TIPS are included only when their momentum signal is on and are capped at 20% and 15% respectively, when they are in the top two sectors. Bottom two sectors are allotted 10% each. Any excess above caps from the HY or TIPS is allocated to Treasuries and any excess from the IG is given to the MBS. When the IG signal is off, MBS allocation is either 35% or 20% depending on if the MBS is in the top two or bottom two sectors.

3. Selecting corporate Issuers - Within the U.S. Corporate Investment Grade and High Yield universe

of bonds issuers are evaluated based on their creditworthiness, leadership, governance and distress considerations. Ranking of issuers is then done systematically based on the Aggregated Credit Risk Score within their respective Industry Group, where issuers are classified as belonging to Insurance, Bank & Financials and All Others. Issuers with low relative scores within each Industry Group are removed from the selection pools, resulting in an approved corporate issuer list from which to select.

4. Eliminating weak credit issuers: For HY and IG, further financial criteria such as interest coverage, expected earnings, debt maturity profile and recent stock performance are applied to eliminate any weak issuers.

5. Choosing bond Issues - In order for an issue to be eligible for its respective bond sector, it must

have positive convexity and a duration within 3 years of that sector’s effective duration*. For each issuer, the eligible issues are ranked by yield to worst (“YTW”) and squared distance to target duration. For each non-corporate sector, the top-ranked thirty issues are selected as constituents of the Index. For each of the corporate sectors, the top-ranked 200 issuers for IG and 100 issuers for HY are selected as constituents of the Index. For MBS, more recent vintages and pools with coupons closer to current pools are chosen.

6. Weighting issues within sectors - Each corporate sector’s selected issues are divided into quartiles based on their Aggregated Credit Risk Score, and a systematic tilt is then applied to quartiles with better scores. Within each quartile, weights of issues are derived using a convex optimization that maximizes its portfolio score which is composite of YTW, distance to target duration and ACRS and subject to minimum effective number of bonds and maximum number of bonds. For non-corporate sectors, also using a convex optimization that maximizes its portfolio score which is composite of YTW, distance to target duration and subject to minimum effective number of bonds and maximum number of bonds.

The Vident Core U.S. Bond Index is reconstituted quarterly in January, April, July and October.

*The duration constraint is not applicable to US TIPS, and the convexity constraint is not applicable to MBS. Additionally MBS are

subject to origination date and coupon constraints.

Appendix

Aggregated Credit Risk Score (ACRS) – The ACRS combines each corporate issuer’s Financial Score and Governance Leadership & Distress Factor Score (GLD) into a composite score.

Convexity – Convexity is a measure of the sensitivity of the duration of a bond to changes in interest rates.

Distance to Target Duration – The distance to target duration is defined as the square of the

difference between the effective duration of a bond and a duration target.

Duration – Duration is a measure of the sensitivity of the price of a bond to the change in interest rates.

Financial Score – The Financial Score calculation is based on financial ratios selected for a particular

issuer’s industry, which is classified by the Citi Industry Classification.

Governance Leadership & Distress (“GLD”) Factor Score – The GLD Factor Score is based on the

Financial Distress Model provided by GMI Ratings, a subsidiary of MSCI ESG Research Inc.

Yield to Worst - The lowest potential yield that can be received on a bond without the issuer actually

defaulting.

DISCLOSURE

Index performance is not illustrative of any fund performance. An investment cannot be made directly in an index. Actual holdings

and allocations of the Vident Core U.S. Bond ETF (VBND) may vary significantly from the VUBDX index information.

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. VBND has the same risks as the underlying securities traded on the

exchange throughout the day. Redemptions are limited and often commissions are charged on each trade. VBND may

invest in illiquid or thinly traded securities which involve additional risks such as limited liquidity and greater

volatility. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually

greater for longer-term debt securities. Investment by the Fund in lower-rated and non-rated securities presents a

greater risk of loss to principal and interest than higher-rated securities. VBND may also invest in asset backed and

mortgage backed securities which include additional risks that investors should be aware of such as credit risk,

prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic

developments. The performance of the fund may diverge from that of the Index. The Fund is a fully replication of the

index, but under abnormal market conditions, the fund may use a representative sampling strategy and may also

invest up to 20% of its assets in securities that are not included in the Index and it may experience tracking error to a

greater extent than a 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 fund invests in securities included in, or representative

of securities included in, the index, regardless of their investment merits. ETFs may trade at a discount or premium to

their NAV. Holdings and allocations are subjects to change at any time and should not be considered a

recommendation to buy or sell any security.

The Vident Core U.S. Bond Strategy ETF is distributed by Quasar Distributors, LLC. Vident Financial is the index

provider of the fund. Exchange Traded Concepts, LLC (ETC) is the investment advisor of the fund and Vident

Investment Advisory (VIA), is the sub-adviser of the fund. Quasar is not affiliated with Vident Financial, ETC, or VIA.

Index performance is not illustrative of any fund performance. An investment cannot be made directly in an index. Additional index information can be found

online at www.videntfinancial.com