N-CSR 1 usdreetf-ncsra.htm U.S. DIVERSIFIED REAL ESTATE ETF ANNUAL REPORT 2-28-22
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES




Investment Company Act file number 811-22668


ETF Series Solutions
(Exact name of registrant as specified in charter)



615 East Michigan Street
Milwaukee, WI 53202
(Address of principal executive offices) (Zip code)



Kristina R. Nelson
ETF Series Solutions
615 East Michigan Street
Milwaukee, WI 53202
(Name and address of agent for service)



(414)-765-6076
Registrant's telephone number, including area code



Date of fiscal year end: February 28



Date of reporting period: February 28, 2022


Item 1. Reports to Stockholders.

(a)






Annual Report
February 28, 2022
 

 

 
U.S. DIVERSIFIED REAL ESTATE ETF
(Formerly: PPTY – U.S. Diversified Real Estate ETF)
Ticker: PPTY








U.S. DIVERSIFIED REAL ESTATE ETF

TABLE OF CONTENTS
 
   
Page
Letter to Shareholders
   
1
Performance Summary
   
4
Portfolio Allocation
   
6
Schedule of Investments
   
7
Statement of Assets and Liabilities
   
12
Statement of Operations
   
13
Statements of Changes in Net Assets
   
14
Financial Highlights
   
16
Notes to Financial Statements
   
18
Report of Independent Registered Public Accounting Firm
   
27
Trustees and Officers
   
28
Expense Example
   
32
Review of Liquidity Risk Management Program
   
33
Approval of Advisory Agreement & Board Considerations
   
34
Federal Tax Information
   
37
Information About the Portfolio Holdings
   
37
Information About Proxy Voting
   
37
Frequency Distribution of Premiums and Discounts
   
37


U.S. DIVERSIFIED REAL ESTATE ETF


Dear Shareholders,
 
On behalf of the entire team, we want to express our appreciation for the confidence you have placed in the U.S. Diversified Real Estate ETF (“PPTY” or the “Fund”). The following information pertains to the fiscal period of March 1, 2021 through February 28, 2022 (the “Period”). The Fund seeks to track the total return performance, before fees and expenses, of the USREX – U.S. Diversified Real Estate IndexTM (the “Index”).
 
The Index is a passive, rules-based strategy index of U.S. real estate equity that selects companies using proprietary factors that take into account property type, property values, leverage, and location data.
 
The Fund had positive performance during the Period ending on February 28, 2022. The market price for PPTY increased 21.76% and the Net Asset Value (“NAV”) increased 22.23%, while the MSCI US REIT Gross Index, a broad market index, gained 23.75% over the same Period. The Fund’s Index returned 23.14%. Meanwhile, outstanding shares ended the Period at 4,100,000.
 
For the Period, the largest positive contributor to return was Prologis, Inc. (PLD US), adding 1.84% to the return of the Fund, gaining 50.18% with an average weighting of 4.14%. The second largest contributor to return was AvalonBay Communities, Inc. (AVB US), adding 1.45% to the return of the Fund, gaining 39.81% with an average weighting of 3.74%. The third largest contributor to return was VEREIT, Inc. (VER US)1, adding 1.26% to the return of the Fund, gaining 33.14% with an average weighting of 2.48%.
 
For the Period, the largest negative contributor to return was Broadstone Net Lease, Inc. (BNL US), detracting 0.39% from the return of the Fund, declining 15.00% with an average weighting of 1.31%. The security contributing second-most negatively was Empire State Realty Trust, Inc. (ESRT US), detracting 0.38% from the return of the Fund, and declining 18.15% with an average weighting of 0.74%. The third largest negative contributor to return was Omega Healthcare Investors, Inc. (OHI US), detracting 0.10% from the return of the Fund, and declining 17.58% with an average weight of 0.47%.
 
For the Period, the best performing security in the Fund was Independence Realty Trust, Inc. (IRT US), gaining 84.59% and contributing 0.48% to the return of the Fund. The second-best performing security for the Period was Camden Property Trust (CPT US), gaining 62.35% and contributing 0.77% to the return of the Fund. The third-best performing security was Public Storage (PSA US), gaining 55.90% for the Period and contributing 0.43% to the return of the Fund.
 
For the Period, the worst performing security in the Fund was Americold Realty Trust (COLD US), declining 21.77% and reducing the return of the Fund by 0.05%. The
1

U.S. DIVERSIFIED REAL ESTATE ETF


second-worst performing security in the Fund was Orion Office REIT Inc. (ONL US), declining 20.05% and reducing the return of the Fund by 0.01%. The third-worst performing security in the Fund was Sunstone Hotel Investors, Inc. (SHO US), declining 19.91% and reducing the return of the Fund by 0.09%.
 
Sincerely,
 
Deborah K. Kimery, CFA
Chief Executive Officer, Vident Advisory, LLC
___________
 
1
On November 1, 2021, Realty Income Corporation (O US) announced the completion of a previously announced merger with VEREIT, Inc. The combined company now trades under the ticker symbol “O”. PPTY held Realty Income Corporation as of February 28, 2022.

Past performance is not a guarantee of future results.
 
Opinions expressed are those of the Fund manager and are subject to change, are not guaranteed and should not be considered investment advice.
 
Fund holdings are subject to change and are not recommendations to buy or sell any security. For more complete information regarding performance and holdings, please refer to the schedules of investments on pages 7-11.
 
Investments involve risk. Principal loss is possible. The Fund has the same risks as the underlying securities traded on the exchange throughout the day at market price. The Fund is a diversified management investment company. The Fund’s investments will be concentrated in an industry or group of industries to the extent the Index is so concentrated, and the Index is expected to be concentrated in real estate-related industries. The composition of the Index is heavily dependent on a proprietary quantitative model as well as information and data supplied by third parties (“Models and Data”). The Fund is expected to invest substantially all of its assets in real estate-related companies. Investments in real estate companies involve unique risks. Real estate companies, including REITs, may have limited financial resources, may trade less frequently and in limited volume, and may be more volatile than other securities. The risks of investing in real estate companies include certain risks associated with the direct ownership of real estate and the real estate industry in general. Securities in the real estate sector are subject to the risk that the value of their underlying real estate may go down. 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. The equity securities of smaller companies have historically been subject to greater investment risk than securities of larger companies.
 
The USREX – U.S. Diversified Real Estate IndexTM is constructed from a universe of U.S.-listed equity securities with a market capitalization of at least $750 million and meeting certain liquidity thresholds (the “Equity Universe”). For companies currently in the index, the minimum market capitalization is $375 million. Companies in the Equity Universe are then screened to keep only those that derive at least 85% of their income from ownership or management of real property. Companies that meet this criterion are then screened to remove companies that are externally managed or that have a low percentage of their shares directly or indirectly available to the public. The companies remaining after the above screens will constitute the Index. The Index is designed to ensure diversification by property type and by location, while favoring companies with prudent leverage (i.e., the debt-to-enterprise value ratio of real estate investments), all subject to a
2

U.S. DIVERSIFIED REAL ESTATE ETF


maximum individual security weighting of 4% at the time of each reconstitution of the Index. The Index is expected to be primarily composed of companies that qualify as real estate investment trusts (“REITs”), but may also include real estate companies that do not qualify as REITs.
 
The MSCI US REIT Index is a free float-adjusted market capitalization weighted index that is comprised of equity Real Estate Investment Trusts (REITs). The index is based on the MSCI USA Investable Market Index (IMI), its parent index, which captures the large, mid and small cap segments of the USA market. With 149 constituents, it represents about 99% of the U.S. REIT universe and securities are classified under the Equity REITs Industry (under the Real Estate Sector) according to the Global Industry Classification Standard (GICS®), have core real estate exposure (i.e., only selected Specialized REITs are eligible) and carry REIT tax status.
 
It is not possible to invest directly in an index.
 
Must be preceded or accompanied by a Prospectus.
3

U.S. DIVERSIFIED REAL ESTATE ETF

PERFORMANCE SUMMARY
(Unaudited)

Growth of $10,000





This chart illustrates the performance of a hypothetical $10,000 investment made on March 26, 2018, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The chart assumes reinvestment of capital gains and dividends.  It is not possible to invest directly in an index.
4

U.S. DIVERSIFIED REAL ESTATE ETF

PERFORMANCE SUMMARY
(Unaudited) (Continued)
Average Annual Returns
One
Three
Since
February 28, 2022
Year
Years
Inception(1)
U.S. Diversified Real Estate ETF – NAV
22.23%
10.99%
13.26%
U.S. Diversified Real Estate ETF – Market
21.76%
10.88%
13.23%
USREX – U.S. Diversified Real Estate Index(2)(3)
23.14%
11.62%
13.67%
MSCI US REIT Gross Index(2)(4)
23.75%
10.03%
12.76%

The Performance data quoted is historical.  Past performance is no guarantee of future results.  Current performance may be higher or lower than the performance data quoted.  The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost.  The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemptions of Fund shares. The total operating expenses as stated in the fee table to the Fund’s prospectus dated June 30, 2021, is 0.53%.  Effective February 1, 2020, the Adviser has contractually agreed to waive 0.04% of its adviser fee until at least June 30, 2022.  For performance information current to the most recent month-end, please call 1-800-617-0004.
 
(1)
Inception date is March 26, 2018.
(2)
Indexes are unmanaged statistical composites and their returns do not include fees an investor would pay to purchase the securities they represent.  Such costs would lower performance.  It is not possible to invest directly in an index.
(3)
The index is designed to use stable geographic and property type targets to provide diversified exposure to U.S. real estate. The index is designed to provide diversification by property type and location.
(4)
The MSCI US REIT Gross Index is a free float-adjusted market capitalization weighted index that is comprised of equity Real Estate Investment Trusts (REITs). REITs are companies that in most cases own and operate income producing real estate assets.

5

U.S. DIVERSIFIED REAL ESTATE ETF

PORTFOLIO ALLOCATION
As of February 28, 2022 (Unaudited)
 
Percentage of
Sector
Net Assets
Residential REITs
   
21.7
%
Office REITs
   
18.4
%
Retail REITs
   
16.4
%
Industrial REITs
   
12.5
%
Specialized REITs
   
9.4
%
Health Care REITs
   
6.9
%
Diversified REITs
   
6.4
%
Hotels, Resorts & Cruise Lines
   
5.4
%
Hotel & Resort REITs
   
2.6
%
Health Care Facilities
   
0.3
%
Short-Term Investments
   
0.9
%
Investments Purchased with Proceeds from Securities Lending
   
28.9
%
Liabilities in Excess of Assets
   
(29.8
)%
Total
   
100.0
%



6

U.S. DIVERSIFIED REAL ESTATE ETF

SCHEDULE OF INVESTMENTS
February 28, 2022
Shares
 
Security Description
 
Value
 
   
COMMON STOCKS – 100.0%
 
           
   
Health Care Facilities – 0.3%
     
 
6,020
 
National HealthCare Corporation
 
$
391,420
 
               
     
Hotels, Resorts & Cruise Lines – 5.4%
       
 
4,635
 
Choice Hotels International, Inc.
   
669,062
 
 
14,774
 
Hilton Worldwide Holdings, Inc. (a)
   
2,199,258
 
 
7,879
 
Hyatt Hotels Corporation – Class A (a)
   
765,130
 
 
16,559
 
Marriott International, Inc. – Class A (a)
   
2,817,348
 
 
12,804
 
Travel + Leisure Company
   
717,664
 
 
8,401
 
Wyndham Hotels & Resorts, Inc. (b)
   
725,930
 
           
7,894,392
 
               
     
Diversified REITs – 6.4%
       
 
9,279
 
Alexander & Baldwin, Inc.
   
208,128
 
 
45,936
 
American Assets Trust, Inc.
   
1,679,421
 
 
79,646
 
Armada Hoffler Properties, Inc.
   
1,169,203
 
 
142,129
 
Broadstone Net Lease, Inc. (b)
   
3,078,513
 
 
20,987
 
DigitalBridge Group, Inc. (a)(b)
   
152,156
 
 
30,939
 
Essential Properties Realty Trust, Inc.
   
782,138
 
 
8,143
 
PS Business Parks, Inc. (b)
   
1,297,098
 
 
23,296
 
STORE Capital Corporation
   
715,653
 
 
6,036
 
Washington Real Estate Investment Trust
   
141,001
 
 
3,600
 
WP Carey, Inc.
   
278,640
 
           
9,501,951
 
               
     
Health Care REITs – 6.9%
       
 
22,981
 
CareTrust REIT, Inc.
   
402,168
 
 
9,412
 
Community Healthcare Trust, Inc.
   
392,480
 
 
26,107
 
Global Medical REIT, Inc.
   
409,880
 
 
19,912
 
Healthcare Realty Trust, Inc.
   
519,305
 
 
24,699
 
Healthcare Trust of America, Inc. – Class A (b)
   
725,904
 
 
39,792
 
Healthpeak Properties, Inc.
   
1,235,940
 
 
12,491
 
LTC Properties, Inc.
   
422,571
 
 
23,440
 
Medical Properties Trust, Inc. (b)
   
476,770
 
 
9,061
 
National Health Investors, Inc. (b)
   
483,042
 
 
17,847
 
Omega Healthcare Investors, Inc. (b)
   
502,750
 
 
32,993
 
Physicians Realty Trust (b)
   
536,466
 
 
30,789
 
Ventas, Inc.
   
1,662,605
 
               

The accompanying notes are an integral part of these financial statements.

7

U.S. DIVERSIFIED REAL ESTATE ETF

SCHEDULE OF INVESTMENTS
February 28, 2022 (Continued)
Shares
 
Security Description
 
Value
 
   
COMMON STOCKS – 100.0% (Continued)
 
   
   
Health Care REITs – 6.9% (Continued)
     
 
29,182
 
Welltower, Inc. (b)
 
$
2,430,568
 
           
10,200,449
 
               
     
Hotel & Resort REITs – 2.6%
       
 
34,207
 
Apple Hospitality REIT, Inc.
   
605,122
 
 
9,419
 
CorePoint Lodging, Inc. (a)
   
150,421
 
 
50,511
 
DiamondRock Hospitality Company (a)
   
482,380
 
 
58,618
 
Host Hotels & Resorts, Inc. (a)(b)
   
1,070,950
 
 
6,862
 
Pebblebrook Hotel Trust (b)
   
154,464
 
 
5,761
 
Ryman Hospitality Properties, Inc. (a)
   
507,602
 
 
15,868
 
Summit Hotel Properties, Inc. (a)(b)
   
156,935
 
 
43,226
 
Sunstone Hotel Investors, Inc. (a)(b)
   
457,331
 
 
8,561
 
Xenia Hotels & Resorts, Inc. (a)
   
158,721
 
           
3,743,926
 
               
     
Industrial REITs – 12.5%
       
 
22,893
 
Americold Realty Trust (b)
   
611,701
 
 
35,243
 
Duke Realty Corporation
   
1,867,879
 
 
4,441
 
EastGroup Properties, Inc.
   
847,165
 
 
14,083
 
First Industrial Realty Trust, Inc.
   
810,899
 
 
7,376
 
Indus Realty Trust, Inc.
   
561,609
 
 
4,020
 
Innovative Industrial Properties, Inc.
   
757,609
 
 
93,544
 
LXP Industrial Trust (b)
   
1,446,190
 
 
6,936
 
Plymouth Industrial REIT, Inc.
   
180,891
 
 
39,276
 
Prologis, Inc.
   
5,728,406
 
 
3,030
 
Rexford Industrial Realty, Inc.
   
212,494
 
 
44,414
 
STAG Industrial, Inc. (b)
   
1,730,369
 
 
54,614
 
Terreno Realty Corporation
   
3,756,897
 
           
18,512,109
 
               
     
Office REITs – 18.4%
       
 
18,251
 
Alexandria Real Estate Equities, Inc.
   
3,456,739
 
 
23,488
 
Boston Properties, Inc. (b)
   
2,872,817
 
 
11,478
 
Brandywine Realty Trust (b)
   
153,002
 
 
33,001
 
Corporate Office Properties Trust
   
864,956
 
 
46,921
 
Cousins Properties, Inc. (b)
   
1,812,558
 
 
30,109
 
Douglas Emmett, Inc. (b)
   
954,455
 
 
214,006
 
Easterly Government Properties, Inc. (b)
   
4,455,606
 


The accompanying notes are an integral part of these financial statements.
8

U.S. DIVERSIFIED REAL ESTATE ETF

SCHEDULE OF INVESTMENTS
February 28, 2022 (Continued)
Shares
 
Security Description
 
Value
 
   
COMMON STOCKS – 100.0% (Continued)
 
           
   
Office REITs – 18.4% (Continued)
     
 
46,782
 
Equity Commonwealth (a)(b)
 
$
1,242,998
 
 
62,917
 
Highwoods Properties, Inc. (b)
   
2,743,181
 
 
6,398
 
Hudson Pacific Properties, Inc. (b)
   
168,907
 
 
26,902
 
JBG SMITH Properties
   
717,745
 
 
57,427
 
Kilroy Realty Corporation (b)
   
4,112,923
 
 
45,089
 
Orion Office REIT, Inc. (a)
   
767,866
 
 
24,183
 
Piedmont Office Realty Trust, Inc. – Class A
   
412,078
 
 
30,912
 
SL Green Realty Corporation (b)
   
2,458,091
 
           
27,193,922
 
     
Residential REITs – 21.7%
       
 
14,541
 
American Campus Communities, Inc.
   
782,451
 
 
73,011
 
American Homes 4 Rent – Class A
   
2,775,148
 
 
47,907
 
Apartment Income REIT Corporation
   
2,472,480
 
 
20,388
 
AvalonBay Communities, Inc.
   
4,864,372
 
 
9,686
 
Camden Property Trust
   
1,599,255
 
 
16,511
 
Centerspace
   
1,551,869
 
 
14,635
 
Equity LifeStyle Properties, Inc.
   
1,092,064
 
 
48,575
 
Equity Residential
   
4,143,448
 
 
8,299
 
Essex Property Trust, Inc.
   
2,632,194
 
 
83,413
 
Independence Realty Trust, Inc. (b)
   
2,107,847
 
 
26,011
 
Invitation Homes, Inc.
   
983,216
 
 
13,180
 
Mid-America Apartment Communities, Inc.
   
2,696,760
 
 
8,252
 
Sun Communities, Inc. (b)
   
1,493,612
 
 
45,434
 
UDR, Inc.
   
2,492,964
 
 
16,807
 
UMH Properties, Inc.
   
387,569
 
           
32,075,249
 
               
     
Retail REITs – 16.4%
       
 
7,402
 
Acadia Realty Trust
   
158,699
 
 
14,422
 
Agree Realty Corporation (b)
   
925,171
 
 
5,945
 
Brixmor Property Group, Inc.
   
149,338
 
 
20,767
 
Federal Realty Investment Trust
   
2,441,784
 
 
30,812
 
Getty Realty Corporation (b)
   
848,871
 
 
6,274
 
InvenTrust Properties Corporation
   
162,810
 
 
75,901
 
Kimco Realty Corporation (b)
   
1,785,951
 
 
7,047
 
Kite Realty Group Trust (b)
   
154,541
 


The accompanying notes are an integral part of these financial statements.
9

U.S. DIVERSIFIED REAL ESTATE ETF

SCHEDULE OF INVESTMENTS
February 28, 2022 (Continued)
Shares
 
Security Description
 
Value
 
   
COMMON STOCKS – 100.0% (Continued)
 
           
   
Retail REITs – 16.4% (Continued)
     
 
27,186
 
National Retail Properties, Inc. (b)
 
$
1,158,395
 
 
6,769
 
NETSTREIT Corporation (b)
   
149,866
 
 
32,430
 
Phillips Edison & Company, Inc.
   
1,048,138
 
 
61,369
 
Realty Income Corporation (b)
   
4,055,876
 
 
28,733
 
Regency Centers Corporation (b)
   
1,893,217
 
 
97,254
 
Retail Opportunity Investments Corporation (b)
   
1,766,133
 
 
11,753
 
RPT Realty
   
152,201
 
 
2,992
 
Saul Centers, Inc. (b)
   
137,722
 
 
26,584
 
Simon Property Group, Inc.
   
3,656,895
 
 
48,443
 
SITE Centers Corporation
   
753,289
 
 
20,897
 
Spirit Realty Capital, Inc. (b)
   
968,994
 
 
8,405
 
Tanger Factory Outlet Centers, Inc. (b)
   
140,195
 
 
8,121
 
Urban Edge Properties
   
147,965
 
 
77,997
 
Urstadt Biddle Properties, Inc. – Class A
   
1,468,684
 
           
24,124,735
 
               
     
Specialized REITs – 9.4%
       
 
7,377
 
CubeSmart
   
355,644
 
 
20,793
 
CyrusOne, Inc.
   
1,878,648
 
 
28,140
 
Digital Realty Trust, Inc.
   
3,796,649
 
 
7,413
 
Equinix, Inc.
   
5,261,228
 
 
3,473
 
Extra Space Storage, Inc.
   
653,445
 
 
2,782
 
Life Storage, Inc.
   
352,173
 
 
5,817
 
National Storage Affiliates Trust
   
338,957
 
 
3,484
 
Public Storage
   
1,236,890
 
           
13,873,634
 
     
TOTAL COMMON STOCKS
       
     
  (Cost $119,592,339)
   
147,511,787
 
Principal
           
Amount
           
SHORT-TERM INVESTMENTS – 0.9%
 
               
     
Money Market Deposit Account – 0.9%
       
$
1,386,001
 
U.S. Bank Money Market
       
     
  Deposit Account, 0.003% (c)
   
1,386,001
 
     
TOTAL SHORT-TERM INVESTMENTS
       
     
  (Cost $1,386,001)
   
1,386,001
 


The accompanying notes are an integral part of these financial statements.
10

U.S. DIVERSIFIED REAL ESTATE ETF

SCHEDULE OF INVESTMENTS
February 28, 2022 (Continued)
Units
 
Security Description
 
Value
 
INVESTMENTS PURCHASED WITH PROCEEDS
 
  FROM SECURITIES LENDING – 28.9%
 
   
Private Funds – 28.9%
     
 
42,750,576
 
Mount Vernon Liquid Assets
     
     
  Portfolio, LLC, 0.130% (d)(e)
 
$
42,750,576
 
     
TOTAL INVESTMENTS PURCHASED WITH
       
     
  PROCEEDS FROM SECURITIES LENDING
       
     
  (Cost $42,750,576)
   
42,750,576
 
     
TOTAL INVESTMENTS – 129.8%
       
     
  (Cost $163,728,916)
   
191,648,364
 
     
Liabilities in Excess of Other Assets – (29.8)%
   
(43,954,739
)
     
NET ASSETS – 100.0%
 
$
147,693,625
 

Percentages are stated as a percent of net assets.
(a)
Non-income producing security.
(b)
All or portion of this security is out on loan as of February 28, 2022. Total value of securities out on loan is $41,228,375 or 27.9% of net assets.
(c)
The Money Market Deposit Account (the “MMDA”) is a short-term investment vehicle in which the Fund holds cash balances. The MMDA will bear interest at a variable rate that is determined based on conditions and may change daily and by any amount. The rate shown is as of February 28, 2022.
(d)
Annualized seven-day yield as of February 28, 2022.
(e)
Privately offered liquidity fund. See Note 4 in Notes to Financial Statements.
REIT – Real Estate Investment Trust

The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. (“MSCI”) and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI and S&P and has been licensed for use by the Fund’s Administrator, U.S. Bancorp Fund Services, LLC.
 

The accompanying notes are an integral part of these financial statements.
11

U.S. DIVERSIFIED REAL ESTATE ETF

STATEMENT OF ASSETS AND LIABILITIES
February 28, 2022
ASSETS
     
Investments in securities, at value*+
 
$
191,648,364
 
Dividends and interest receivable
   
89,445
 
Securities lending income receivable
   
1,952
 
Total assets
   
191,739,761
 
         
LIABILITIES
       
Collateral received for securities loaned (Note 4)
   
42,750,576
 
Payable for securities purchased
   
1,239,509
 
Management fees payable, net of waiver
   
56,051
 
Total liabilities
   
44,046,136
 
         
NET ASSETS
 
$
147,693,625
 
         
NET ASSETS CONSIST OF:
       
Paid-in capital
 
$
124,825,257
 
Total distributable earnings (accumulated deficit)
   
22,868,368
 
Net assets
 
$
147,693,625
 
         
Net assets value:
       
Net assets
 
$
147,693,625
 
Shares outstanding^
   
4,100,000
 
Net asset value, offering and redemption price per share
 
$
36.02
 
*  Identified Cost:
       
     Investments in securities
 
$
163,728,916
 
+  Includes loaned securities with a value of
 
$
41,228,375
 

^  No par value, unlimited number of shares authorized.


The accompanying notes are an integral part of these financial statements.
12

U.S. DIVERSIFIED REAL ESTATE ETF

STATEMENT OF OPERATIONS
For the Year Ended February 28, 2022
INCOME
     
Dividends
 
$
2,663,420
 
Non-cash dividends
   
142,725
 
Securities lending income, net (Note 4)
   
18,948
 
Interest
   
9
 
Total investment income
   
2,825,102
 
         
EXPENSES
       
Management fees
   
771,834
 
Total expenses
   
771,834
 
Fees waived by adviser (Note 3)
   
(58,251
)
Net expenses
   
713,583
 
Net investment income (loss)
   
2,111,519
 
         
REALIZED AND UNREALIZED
       
  GAIN (LOSS) ON INVESTMENTS
       
Net realized gain (loss) on investments
   
11,898,530
 
Change in unrealized appreciation (depreciation) on investments
   
13,222,697
 
Net realized and unrealized gain (loss) on investments
   
25,121,227
 
Net increase (decrease) in net assets
       
  resulting from operations
 
$
27,232,746
 
         

The accompanying notes are an integral part of these financial statements.

13

U.S. DIVERSIFIED REAL ESTATE ETF

STATEMENTS OF CHANGES IN NET ASSETS


   
Year Ended
   
Year Ended
 
   
February 28, 2022
   
February 28, 2021
 
OPERATIONS
           
Net investment income (loss)
 
$
2,111,519
   
$
1,999,718
 
Net realized gain (loss) on investments
   
11,898,530
     
(6,389,664
)
Change in unrealized appreciation
               
  (depreciation) on investments
   
13,222,697
     
8,414,707
 
Net increase (decrease) in net assets
               
  resulting from operations
   
27,232,746
     
4,024,761
 
                 
DISTRIBUTIONS TO SHAREHOLDERS
               
Net distributions to shareholders
   
(2,111,519
)
   
(1,999,718
)
Tax return of capital to shareholders
   
(2,513,350
)
   
(1,870,007
)
Total distributions to shareholders
   
(4,624,869
)
   
(3,869,725
)
                 
CAPITAL SHARE TRANSACTIONS
               
Proceeds from shares sold
   
30,767,240
     
21,559,155
 
Payments for shares redeemed
   
(27,307,150
)
   
(19,324,310
)
Net increase (decrease) in
               
  net assets derived from
               
  capital share transactions(a)
   
3,460,090
     
2,234,845
 
Net increase (decrease) in net assets
 
$
26,067,967
   
$
2,389,881
 
                 
NET ASSETS
               
Beginning of year
 
$
121,625,658
   
$
119,235,777
 
End of year
 
$
147,693,625
   
$
121,625,658
 

(a)
A summary of capital share transactions is as follows:

     
Shares
   
Shares
 
 
Shares sold
   
850,000
     
800,000
 
 
Shares redeemed
   
(750,000
)
   
(750,000
)
 
Net increase (decrease)
   
100,000
     
50,000
 

The accompanying notes are an integral part of these financial statements.

14

U.S. DIVERSIFIED REAL ESTATE ETF










(This Page Intentionally Left Blank.)









 

 
15

U.S. DIVERSIFIED REAL ESTATE ETF

FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the year/period



Net asset value, beginning of year/period

INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(2)
Net realized and unrealized gain (loss) on investments(7)
Total from investment operations

DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from:
Net investment income
Realized gains
Tax return of capital to shareholders
Total distributions to shareholders

CAPITAL SHARE TRANSACTIONS
Transaction fees (Note 7)
Net asset value, end of year/period
Total return

SUPPLEMENTAL DATA:
Net assets at end of year/period (000’s)

RATIOS TO AVERAGE NET ASSETS:
Expenses to average net assets (before management fees waived)
Expenses to average net assets (after management fees waived)
Net investment income (loss) to average net assets (before management fees waived)
Net investment income (loss) to average net assets (after management fees waived)
Portfolio turnover rate(6)

(1)
Commencement of operations on March 26, 2018.
(2)
Calculated based on average shares outstanding during the period.
(3)
Represents less than $0.005 per share.
(4)
Not annualized.
(5)
Annualized.
(6)
Excludes the impact of in-kind transactions.
(7)
Realized and unrealized gains and losses per share in this caption are balancing amounts necessary to reconcile the change in net asset value per share for the period, and may not reconcile with the aggregate gains and losses in the Statement of Operations due to share transactions for the period.

The accompanying notes are an integral part of these financial statements.
16

U.S. DIVERSIFIED REAL ESTATE ETF

FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the year/period


   

   
Year Ended
   
Period Ended
 
Year Ended February 28,
   
February 29,
   
February 28,
 
2022
   
2021
   
2020
   
2019(1)
 
$
30.41
   
$
30.19
   
$
29.23
   
$
25.00
 
                             
                             
 
0.52
     
0.52
     
0.65
     
0.58
 
 
6.22
     
0.70
     
1.38
     
4.21
 
 
6.74
     
1.22
     
2.03
     
4.79
 
                             
                             
                             
 
(0.52
)
   
(0.52
)
   
(0.67
)
   
(0.48
)
 
     
     
(0.05
)
   
(0.08
)
 
(0.61
)
   
(0.48
)
   
(0.35
)
   
 
 
(1.13
)
   
(1.00
)
   
(1.07
)
   
(0.56
)
                             
                             
 
     
     
(3) 
   
(3) 
$
36.02
   
$
30.41
   
$
30.19
   
$
29.23
 
 
22.23
%
   
4.67
%
   
6.86
%
   
19.32
%(4)
                             
                             
$
147,694
   
$
121,626
   
$
119,236
   
$
105,215
 
                             
                             
 
0.53
%
   
0.53
%
   
0.53
%
   
0.53
%(5)
 
0.49
%
   
0.49
%
   
0.53
%
   
0.53
%(5)
 
1.41
%
   
1.88
%
   
2.05
%
   
2.26
%(5)
 
1.45
%
   
1.92
%
   
2.05
%
   
2.26
%(5)
 
29
%
   
42
%
   
18
%
   
22
%(4)



The accompanying notes are an integral part of these financial statements.
17

U.S. DIVERSIFIED REAL ESTATE ETF

NOTES TO FINANCIAL STATEMENTS
February 28, 2022
NOTE 1 – ORGANIZATION
 
U.S. Diversified Real Estate ETF (the “Fund”) is a diversified series of ETF Series Solutions (“ESS”) or (the “Trust”), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on February 9, 2012. The Trust is registered with the U.S. Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Fund’s shares is registered under the Securities Act of 1933, as amended (the “Securities Act”). The investment objective of the Fund is to track the performance, before fees and expenses, of the USREX – U.S. Diversified Real Estate Index (the “Index”). The Fund commenced operations on March 26, 2018.
 
The end of the reporting period for the Fund is February 28, 2022, and the period covered by these Notes to Financial Statements is the fiscal year ended February 28, 2022 (the “current fiscal period”).
 
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
 
The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 946 Financial Services – Investment Companies.
 
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
 
A.
Security Valuation. All equity securities, including domestic and foreign common stocks, preferred stocks and exchange traded funds that are traded on a national securities exchange, except those listed on the Nasdaq Global Market®, Nasdaq Global Select Market®, and Nasdaq Capital Market® Exchange (collectively “Nasdaq”) are valued at the last reported sale price on the exchange on which the security is principally traded. Securities traded on Nasdaq will be valued at the Nasdaq Official Closing Price (“NOCP”). If, on a particular day, an exchange-traded or Nasdaq security does not trade, then the mean between the most recent quoted bid and asked prices will be used. All equity securities that are not traded on a listed exchange are valued at the last sale price in the over-the- counter market. If a non-exchange traded security does not trade on a particular day, then the mean between the last quoted closing bid and asked price will be used. Prices denominated in foreign currencies are converted to U.S. dollar equivalents at the current exchange rate, which approximates fair value.
   
 
Investments in mutual funds, including money market funds, are valued at their net asset value (“NAV”) per share.
18

U.S. DIVERSIFIED REAL ESTATE ETF

NOTES TO FINANCIAL STATEMENTS
February 28, 2022 (Continued)
 
Units of Mount Vernon Liquid Assets Portfolio are not traded on an exchange and are valued at the investment company’s NAV per share as provided by its administrator. These shares are generally classified as Level 2 instruments.
   
 
Deposit accounts are valued at acquisition cost, which approximates fair value.
   
 
Securities for which quotations are not readily available are valued at their respective fair values in accordance with pricing procedures adopted by the Fund’s Board of Trustees (the “Board”). When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Board. The use of fair value pricing by the Fund may cause the NAV of its shares to differ significantly from the NAV that would be calculated without regard to such considerations.
   
 
As described above, the Fund utilizes various methods to measure the fair value of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuations methods. The three levels of inputs are:

 
Level 1 –
Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
     
 
Level 2 –
Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
     
 
Level 3 –
Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.

 
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
   
 
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
19

U.S. DIVERSIFIED REAL ESTATE ETF

NOTES TO FINANCIAL STATEMENTS
February 28, 2022 (Continued)
 
The following is a summary of the inputs used to value the Fund’s investments as of the end of the current fiscal period:

  Assets^
  Level 1
    Level 2
    Level 3     Total  
 
Common Stocks
 
$
147,511,787
   
$
   
$
   
$
147,511,787
 
 
Short-Term Investments
   
1,386,001
     
     
     
1,386,001
 
 
Investments Purchased
                               
 
  with Proceeds from
                               
 
  Securities Lending
   
     
42,750,576
     
     
42,750,576
 
 
Total Investments
                               
 
  in Securities
 
$
148,897,788
   
$
42,750,576
   
$
   
$
191,648,364
 
                                   
 
^  See Schedule of Investments for sector breakouts.
                               

 
During the current fiscal period, the Fund did not recognize any transfers into or out of Level 3.
   
B.
Federal Income Taxes. The Fund’s policy is to comply with the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all net investment income and net capital gains to shareholders. Therefore, no federal income tax provision is required. The Fund plans to file U.S. Federal and applicable state and local tax returns.
   
 
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and conclude that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months. Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits on uncertain tax positions as income tax expenses in the Statement of Operations. During the current fiscal period, the Fund did not incur any interest or penalties.
   
C.
Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized from sales of securities are determined on a specific identification basis. Dividend income is recorded on the ex-dividend date. Non-cash dividends included in dividend income or separately disclosed, if any, are recorded at fair value of the security received. Interest income is recorded on an accrual basis.
   
 
Distributions received from the Fund’s investments in real estate investment trusts (“REIT”) may be characterized as ordinary income, net capital gain, or a return of capital. The proper characterization of REIT distributions is generally not known
20

U.S. DIVERSIFIED REAL ESTATE ETF

NOTES TO FINANCIAL STATEMENTS
February 28, 2022 (Continued)
 
until after the end of each calendar year. As such, the Fund must use estimates in reporting the character of its income and distributions received during the current calendar year for financial statement purposes. The actual character of distributions to a Fund’s shareholders will be reflected on the Form 1099 received by shareholders after the end of the calendar year. Due to the nature of REIT investments, a portion of the distributions received by a Fund’s shareholders may represent a return of capital.
   
D.
Distributions to Shareholders. Distributions to shareholders from net investment income for the Fund are declared and paid by the Fund on a quarterly basis and distributions from net realized gains on securities are normally declared and paid on an annual basis. Distributions are recorded on the ex-dividend date.
   
E.
Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
   
F.
Share Valuation. The NAV per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding of the Fund, rounded to the nearest cent. The Fund’s shares will not be priced on the days on which the New York Stock Exchange, Inc. (“NYSE”) is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s NAV per share.
   
G.
Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be against the Fund that have not yet occurred.  However, based on experience, the Fund expects the risk of loss to be remote.
   
H.
Reclassification of Capital Accounts. U.S. GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or NAV per share. These timing differences are primarily due to differing book and tax treatments for in-kind transactions. During the fiscal year ended February 28, 2022, the following table shows the reclassifications made:

 
Distributable Earnings
   
 
(Accumulated Deficit)
Paid-In Capital
 
 
$(9,021,146)
$9,021,146
 

21

U.S. DIVERSIFIED REAL ESTATE ETF

NOTES TO FINANCIAL STATEMENTS
February 28, 2022 (Continued)
 
During the fiscal year ended February 28, 2022, the Fund realized $9,021,146 of net capital gains resulting from in-kind redemptions, in which shareholders exchanged Fund shares for securities held by the Fund rather than for cash. Because such gains are not taxable to the Fund, and are not distributed to shareholders, they have been reclassified from distributable earnings (accumulated deficit) to paid-in capital.
   
I.
Subsequent Events. In preparing these financial statements, management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. There were no events or transactions that occurred during the period subsequent to the end of the current fiscal period that materially impacted the amounts or disclosures in the Fund’s financial statements.
 
NOTE 3 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
 
Vident Advisory, LLC (the “Adviser”) serves as the investment adviser to the Fund, and is a wholly-owned subsidiary of Vident Financial LLC, the Index Provider (“Vident Financial”). Pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the Trust, on behalf of the Fund, and the Adviser, the Adviser provides investment advice to the Fund and oversees the day-to-day operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Adviser has agreed to pay all expenses incurred by the Fund except for the fee paid to the Adviser pursuant to this Agreement, interest charges on any borrowings, dividends and other expenses on securities sold short, 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, and distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act (collectively, “Excluded Expenses”). The Adviser may delegate its responsibility to pay some or all expenses incurred by the Fund, except for Excluded Expenses, to one or more third parties, including but not limited to, Vident Investment Advisory, LLC (the “Sub-Adviser”), a wholly-owned subsidiary of Vident Financial. For its services, the Sub-Adviser is paid a fee by the Adviser, which is calculated daily and paid monthly, at an annual rate based on the average daily net asset of the Fund. For services provided to the Fund, the Fund paid the Adviser 0.53% at an annual rate based on the Fund’s average daily net assets. Effective February 1, 2020, the Adviser has contractually agreed to waive 0.04% of its adviser fee until at least June 30, 2022. This agreement may only be terminated by or with the consent of the Fund’s Board. Fees waived under this waiver agreement are not subject to recoupment by the Adviser.
 
U.S. Bancorp Fund Services, LLC (“Fund Services” or “Administrator”), doing business as U.S. Bank Global Fund Services, acts as the Fund’s Administrator and, in that capacity, performs various administrative and accounting services for the Fund. The Administrator prepares various federal and state regulatory filings, reports and returns
22

U.S. DIVERSIFIED REAL ESTATE ETF

NOTES TO FINANCIAL STATEMENTS
February 28, 2022 (Continued)
for the Fund, including regulatory compliance monitoring and financial reporting; prepares reports and materials to be supplied to the Board; and monitors the activities of the Fund’s Custodian, transfer agent and fund accountant. Fund Services also serves as the transfer agent and fund accountant to the Fund. U.S. Bank N.A. (the “Custodian”), an affiliate of Fund Services, serves as the Fund’s Custodian.
 
The Custodian acts as securities lending agent (the “Securities Lending Agent”) for the Fund.
 
A Trustee and all officers of the Trust are affiliated with the Administrator and Custodian.
 
NOTE 4 – SECURITIES LENDING
 
The Fund may lend up to 331/3% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending programs administered by the Custodian, who also serves as the Securities Lending Agent. The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any domestic loaned securities at the time of the loan, plus accrued interest. The use of loans of foreign securities, which are denominated and payable in U.S. dollars, shall be collateralized in an amount equal to 105% of the value of any loaned securities at the time of the loan plus accrued interest. The Fund receives compensation in the form of fees and earns interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss in the value of securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand.
 
The securities lending agreement provides that, in the event of a borrower’s material default, the Securities Lending Agent shall take all actions the Securities Lending Agent deems appropriate to liquidate the collateral, purchase replacement securities at the Securities Lending Agent’s expense, or pay the Fund an amount equal to the market value of the loaned securities, subject to certain limitations which are set forth in detail in the securities lending agreement between the Fund and the Securities Lending Agent.
 
As of the end of the current fiscal period, the Fund had loaned securities that were collateralized by cash equivalents. The cash collateral is invested by the Securities Lending Agent in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Fund could also
23

U.S. DIVERSIFIED REAL ESTATE ETF

NOTES TO FINANCIAL STATEMENTS
February 28, 2022 (Continued)
experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the Securities Lending Agent.
 
As of the end of the current fiscal period, the values of the securities on loan was $41,228,375 and payable for collateral due to the Securities Lending Agent was $42,750,576.
 
The interest income earned by the Fund on investments of cash collateral received from borrowers for the securities loaned to them (“Securities Lending Income”) is reflected in the Fund’s Statement of Operations. Net fees and interest income earned on collateral investments and recognized by the Fund during the current fiscal period was $18,948.
 
SECURED BORROWINGS
 
The cash collateral received of $42,750,576 was invested in the Mount Vernon Liquid Assets Portfolio, LLC as shown on the Schedule of Investments, a short-term investment portfolio with an overnight and continuous maturity. The investment objective is to seek to maximize current income to the extent consistent with the preservation of capital and liquidity and maintain a stable NAV of $1.00 per unit.
 
Due to the absence of a master netting agreement related to the Fund’s participation in securities lending, no additional offsetting disclosures have been made on behalf of the Fund.
 
NOTE 5 – PURCHASES AND SALES OF SECURITIES
 
During the current fiscal period, purchases and sales of securities by the Fund, excluding short-term securities and in-kind transactions, were as follows:
 
 
Purchases
Sales
 
 
$41,689,367
$42,281,134
 

During the current fiscal period, in-kind transactions associated with creations and redemptions were as follows:
 
 
In-Kind Purchases
In-Kind Sales
 
 
$30,717,659
$27,314,277
 

There were no purchases or sales of U.S. Government securities in the Fund during the period.
24

U.S. DIVERSIFIED REAL ESTATE ETF

NOTES TO FINANCIAL STATEMENTS
February 28, 2022 (Continued)
NOTE 6 – INCOME TAX INFORMATION
 
The components of tax basis cost of investments and net unrealized appreciation for federal income tax purposes as of February 28, 2022 in the Fund, were as follows:
 
Tax cost of investments
 
$
164,665,757
 
Gross tax unrealized appreciation
   
30,875,800
 
Gross tax unrealized depreciation
   
(3,893,193
)
Net tax unrealized appreciation/(depreciation)
   
26,982,607
 
Undistributed ordinary income
   
 
Undistributed long-term capital gain
   
 
Other accumulated gain/(loss)
   
(4,114,239
)
Distributable earnings/(accumulated deficit)
 
$
22,868,368
 
         
The difference between book and tax-basis cost is attributable to wash sales.
 
A regulated investment company may elect for any taxable year to treat any portion of any qualified late year loss as arising on the first day of the next taxable year. Qualified late year losses are certain capital and ordinary losses which occur during the portion of the Fund’s taxable year subsequent to October 31 and December 31, respectively. For the taxable year ended February 28, 2022, the Fund did not elect to defer any post-October capital losses or any late-year ordinary losses.
 
During the current fiscal year, the Fund utilized $128,577 of short-term capital loss carry forward and $2,482,877 of long-term capital loss carry forward that was available as of February 28, 2021.
 
At February 28, 2022, the Fund had the following capital loss carryforwards:
 
 
Short-Term
Long-Term
Expires
 
 
$2,572,615
$1,541,624
Indefinite
 

The tax character of distributions paid by the Fund during the year ended February 28, 2022 were as follows:
 
 
Ordinary Income
Return of Capital
 
 
$2,111,519
$2,513,350
 

The tax character of distributions paid by the Fund during the year ended February 28, 2021 were as follows:
 
 
Ordinary Income
Return of Capital
 
 
$1,999,718
$1,870,007
 
 
NOTE 7 – SHARE TRANSACTIONS
 
Shares of the Fund are listed and traded on New York Stock Exchange Arca, Inc. (“NYSE Arca”). Market prices for the shares may be different from their NAV. The Fund issues and redeems shares on a continuous basis at NAV only in blocks of 50,000 shares,
25

U.S. DIVERSIFIED REAL ESTATE ETF

NOTES TO FINANCIAL STATEMENTS
February 28, 2022 (Continued)
called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified universe. Once created, shares generally trade in the secondary market at market prices that change throughout the day. Except when aggregated in Creation Units, shares are not redeemable securities of the Fund. Creation Units of the Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a Depository Trust Company participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the shares directly from the Fund. Rather, most retail investors may purchase shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees.
 
The Fund currently offers one class of shares, which have no front end sales load, no deferred sales charge, and no redemption fee. A fixed transaction fee is imposed for the transfer and other transaction costs associated with the creation or redemption of Creation Units. The standard fixed creation and redemption transaction fee for the Fund is $250 payable to the Custodian. The fixed transaction fee may be waived on transaction orders if the Fund’s Custodian has determined to waive some or all of the costs associated with the order, or another party, such as the Adviser, has agreed to pay such fee. In addition, a variable fee, payable to the Fund, may be charged on all cash transactions or substitutes for Creation Units of up to a maximum of 2% as a percentage of the value of the Creation Units subject to the transaction. Variable fees are imposed to compensate the Fund for the transaction costs associated with the cash transaction fees. Variable fees received by the Fund, if any, are displayed in the Capital Shares Transactions section of the Statement of Changes in Net Assets. The Fund may issue an unlimited number of shares of beneficial interest, with no par value. All shares of the Fund have equal rights and privileges.
 
NOTE 8 – PRINCIPAL RISKS
 
Concentration Risk. The Fund’s investments will be concentrated in an industry or group of industries to the extent the Index is so concentrated, and the Index is expected to be concentrated in real estate-related industries. Accordingly, the value of shares may rise and fall more than the value of shares that invest in securities of companies in a broader range of industries.
 
Real Estate Investment Risk. The Fund is expected to invest substantially all of its assets in real estate-related companies. Investments in real estate companies involve unique risks. Real estate companies, including REITs, may have limited financial resources, may trade less frequently and in limited volume, and may be more volatile than other securities.
26

U.S. DIVERSIFIED REAL ESTATE ETF

NOTES TO FINANCIAL STATEMENTS
February 28, 2022 (Continued)
The risks of investing in real estate companies include certain risks associated with the direct ownership of real estate and the real estate industry in general. Securities in the real estate sector are subject to the risk that the value of their underlying real estate may go down. Many factors may affect real estate values, including the general and local economies, the amount of new construction in a particular area, the laws and regulations (including zoning and tax laws) affecting real estate, and the costs of owning, maintaining and improving real estate. The availability of mortgages and changes in interest rates may also affect real estate values. Real estate companies are also subject to heavy cash flow dependency, defaults by borrowers, and self-liquidation. Because the Fund invests primarily in real estate companies, its performance will be especially sensitive to developments that significantly affect real estate companies.
 
COVID-19 Risk. The global outbreak of COVID-19 has disrupted economic markets and the prolonged economic impact is uncertain. The operational and financial performance of the issuers of securities in which the Fund invests depends on future developments, including the duration and spread of the outbreak, and such uncertainty may in turn impact the value of the Fund’s investments.
 
NOTE 9 – BENEFICIAL OWNERSHIP
 
The beneficial ownership, either directly or indirectly, of 25% or more of the voting securities of a fund creates a presumption of control of a fund, under section 2(a)(9) of the 1940 Act. As of the end of the reporting period, Thrivent Trust Company, as a beneficial shareholder, owned greater than 25% of the outstanding shares of the Fund.
27

U.S. DIVERSIFIED REAL ESTATE ETF

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders of U.S. Diversified Real Estate ETF and
Board of Trustees of ETF Series Solutions
 
Opinion on the Financial Statements
 
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of U.S. Diversified Real Estate ETF (formerly PPTY – U.S. Diversified Real Estate ETF) (the “Fund”), a series of ETF Series Solutions, as of February 28, 2022, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the related notes, and the financial highlights for each of the four periods in the period then ended (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of February 28, 2022, the results of its operations for the year then ended, the changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four periods in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
 
Basis for Opinion
 
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud.
 
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.  Our procedures included confirmation of securities owned as of February 28, 2022, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.  We believe that our audits provide a reasonable basis for our opinion.
 
We have served as the auditor of one or more of Vident Advisory, LLC’s investment companies since 2013.
 
 
COHEN & COMPANY, LTD.
 
Milwaukee, Wisconsin
April 28, 2022
 
28

U.S. DIVERSIFIED REAL ESTATE ETF

TRUSTEES AND OFFICERS
(Unaudited)
Additional information about each Trustee of the Trust is set forth below. The address of each Trustee of the Trust is c/o U.S. Bank Global Fund Services, 615 E. Michigan Street, Milwaukee, WI 53202.
 
   
Term of
 
Number of
Other
 
Position
Office
 
Portfolios
Directorships
 
Held
and
 
in Fund
Held by
Name
with
Length
 
Complex
Trustee
and Year
the
of Time
Principal Occupation(s)
Overseen by
During Past
of Birth
Trust
Served
During Past 5 Years
Trustee
5 Years
           
Independent Trustees
         
           
Leonard M.
Lead
Indefinite
Retired; formerly Chief
60
Independent
Rush, CPA
Indepen-
term;
Financial Officer,
 
Trustee,
Born: 1946
dent
since 2012
Robert W. Baird & Co.
 
Managed
 
Trustee
 
Incorporated (wealth
 
Portfolio Series
 
and Audit
 
management firm)
 
(34 portfolios)
 
Committee
 
(2000–2011).
 
(since 2011).
 
Chairman
       
           
David A. Massart
Trustee
Indefinite
Partner and Manager
60
Independent
Born: 1967

term;
Director, Beacon Pointe
 
Trustee,
   
since 2012
Advisors, LLC (since 2022);

Managed
     
Co-Founder, President,
 
Portfolio Series
     
and Chief Investment
 
(34 portfolios)
     
Strategist, Next Generation
 
(since 2011).
     
Wealth Management, Inc.
   
     
(2005–2021).
   
           
Janet D. Olsen
Trustee
Indefinite
Retired; formerly Managing
60
Independent
Born: 1956
 
term;
Director and General Counsel,

Trustee,
   
since 2018
Artisan Partners Limited
 
PPM Funds
     
Partnership (investment adviser)

(3 portfolios)
     
(2000–2013); Executive Vice

(since 2018).
     
President and General Counsel,
   
     
Artisan Partners Asset
   
     
Management Inc. (2012–2013);
   
     
Vice President and General
   
     
Counsel, Artisan Funds, Inc.
   
     
(investment company)
   
     
(2001–2012).
   
           
Interested Trustee
         
           
Michael A. Castino
Trustee
Indefinite
Senior Vice President, U.S.
60
None
Born: 1967
and
term;
Bancorp Fund Services, LLC
   
 
Chairman
Trustee
(since 2013); Managing Director
   
   
since 2014;
of Index Services, Zacks
   
   
Chairman
Investment Management
   
   
since 2013
(2011–2013).
   
29

U.S. DIVERSIFIED REAL ESTATE ETF

TRUSTEES AND OFFICERS
(Unaudited) (Continued)
The officers of the Trust conduct and supervise its daily business. The address of each officer of the Trust is c/o U.S. Bank Global Fund Services, 615 E. Michigan Street, Milwaukee, WI 53202. Additional information about the Trust’s officers is as follows:
 
   
Term of
 
   
Office
 
   
and
 
Name
Position(s)
Length
 
and Year
Held with
of Time
Principal Occupation(s)
of Birth
the Trust
Served
During Past 5 Years
       
Principal Officers of the Trust
   
       
Kristina R. Nelson
President
Indefinite
Senior Vice President, U.S. Bancorp Fund Services, LLC
Born: 1982
 
term;
(since 2020); Vice President, U.S. Bancorp Fund Services,
   
since 2019
LLC (2014–2020).
       
Alyssa M. Bernard
Vice
Indefinite
Vice President, U.S. Bancorp Fund Services, LLC
Born: 1988
President
term;
(since 2021); Assistant Vice President, U.S. Bancorp Fund
   
since 2014
Services, LLC (2018–2021); Attorney, Waddell & Reed
     
Financial, Inc. (2017–2018).
       
Elizabeth B. Scalf
Chief
Indefinite
Senior Vice President, U.S. Bancorp Fund Services, LLC
Born: 1985
Compliance
term;
(since 2017); Vice President and Assistant CCO,
 
Officer and
since 2021
Heartland Advisors, Inc. (2016–2017); Vice President
 
Anti-Money
 
and CCO, Heartland Group, Inc. (2016).
 
Laundering
   
 
Officer
   
       
Kristen M. Weitzel
Treasurer
Indefinite
Vice President, U.S. Bancorp Fund Services, LLC
Born: 1977
 
term;
(since 2015); Assistant Vice President, U.S. Bancorp Fund
   
since 2014
Services, LLC (2011–2015); Manager,
   
(other roles
PricewaterhouseCoopers LLP (accounting firm)
   
since 2013)
(2005–2011).
       
Jessica L. Vorbeck
Assistant
Indefinite
Officer, U.S. Bancorp Fund Services, LLC (since 2018,
Born: 1984
Treasurer
term;
2014–2017).
   
since 2020
 
       
Elizabeth A. Winske
Assistant
Indefinite
Vice President, U.S. Bancorp Fund Services, LLC
Born: 1983
Treasurer
term;
(since 2020); Assistant Vice President, U.S. Bancorp Fund
   
since 2017
Services, LLC (2016–2020).
       
Jason E. Shlensky
Assistant
Indefinite
Assistant Vice President, U.S. Bancorp Fund Services, LLC
Born: 1987
Treasurer
term;
(since 2019); Officer, U.S. Bancorp Fund Services, LLC
   
since 2019
(2014–2019).
       
Isabella K. Zoller
Assistant
Indefinite
Assistant Vice President, U.S. Bancorp Fund Services, LLC
Born: 1994
Secretary
term;
(since 2021), Regulatory Administration Attorney, U.S.
   
since 2020
Bancorp Fund Services, LLC (since 2019), Regulatory
     
Administration Intern, U.S. Bancorp Fund Services, LLC
     
(2018–2019) and Law Student (2016–2019).


30

U.S. DIVERSIFIED REAL ESTATE ETF

TRUSTEES AND OFFICERS
(Unaudited) (Continued)
   
Term of
 
   
Office
 
   
and
 
Name
Position(s)
Length
 
and Year
Held with
of Time
Principal Occupation(s)
of Birth
the Trust
Served
During Past 5 Years
Cynthia L. Andrae
Deputy
Indefinite
Vice President, U.S. Bancorp Fund Services, LLC
Born: 1971
Chief
term;
(since 2019); Compliance Officer, U.S. Bancorp Fund

Compliance
since 2021
Services, LLC (2015–2019).

Officer
   

The Statement of Additional Information (“SAI”) includes additional information about the Trustees and is available without charge, upon request, by calling toll free (800) 617-0004, by accessing the SEC’s website at www.sec.gov, or by accessing the Fund’s website at www.videntfunds.com.
 



31

U.S. DIVERSIFIED REAL ESTATE ETF

EXPENSE EXAMPLE
For the Six-Months Ended February 28, 2022 (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including management fees and other Fund expenses.  This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.  The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
 
Actual Expenses
 
The first line of the table provides information about actual account values based on actual returns and actual expenses.  You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period.  Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.
 
Hypothetical Example for Comparison Purposes
 
The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund’s actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual returns.  The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds.  To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.  Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares.  Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.  If these transactional costs were included, your costs would have been higher.
 
 
Beginning
Ending
 
 
Account
Account
 
 
Value
Value
Expenses
 
September 1,
February 28,
Paid During
 
2021
2022
the Period(a)
Actual
$1,000.00
$1,004.30
$2.44
Hypothetical (5% annual return
     
  before expenses)
$1,000.00
$1,022.36
$2.46

(a)
The dollar amounts shown as expenses paid during the period are equal to the annualized net expense ratio, 0.49%, multiplied by the average account value during the period, multiplied by 181/365, to reflect the one-half year period.


32

U.S. DIVERSIFIED REAL ESTATE ETF

REVIEW OF LIQUIDITY RISK MANAGEMENT PROGRAM
(Unaudited)
Pursuant to Rule 22e-4 under the Investment Company Act of 1940, the Trust, on behalf of the series of the Trust covered by this shareholder report (the “Series”), has adopted a liquidity risk management program to govern the Trust’s approach to managing liquidity risk. Rule 22e-4 seeks to promote effective liquidity risk management, thereby reducing the risk that a fund will be unable to meet its redemption obligations and mitigating dilution of the interests of fund shareholders. The Trust’s liquidity risk management program is tailored to reflect the Series’ particular risks, but not to eliminate all adverse impacts of liquidity risk, which would be incompatible with the nature of such Series.
 
The investment adviser to the Series has adopted and implemented its own written liquidity risk management program (the “Program”) tailored specifically to assess and manage the liquidity risk of the Series.
 
At a recent meeting of the Board of Trustees of the Trust, the Trustees received a report pertaining to the operation, adequacy, and effectiveness of implementation of the Program for the period ended December 31, 2021. The report concluded that the Program is reasonably designed to assess and manage the Series’ liquidity risk and has operated adequately and effectively to manage such risk. The report reflected that there were no liquidity events that impacted the Series’ ability to timely meet redemptions without dilution to existing shareholders. The report further noted that no material changes have been made to the Program since its implementation.
 
There can be no assurance that the Program will achieve its objectives in the future. Please refer to the prospectus for more information regarding the Series’ exposure to liquidity risk and other principal risks to which an investment in the Series may be subject.


33

U.S. DIVERSIFIED REAL ESTATE ETF

APPROVAL OF ADVISORY AGREEMENT & BOARD CONSIDERATIONS (Unaudited)
Pursuant to Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”), at a meeting held on January 19-20, 2022 (the “Meeting”), the Board of Trustees (the “Board”) of ETF Series Solutions (the “Trust”) considered the approval of the Investment Advisory Agreement (the “Advisory Agreement”) between Vident Advisory, LLC (the “Adviser”) and the Trust, on behalf of U.S. Diversified Real Estate ETF (the “Fund”).
 
Prior to the Meeting, the Board, including the Trustees who are not parties to the Advisory Agreement or “interested persons” of any party thereto, as defined in the 1940 Act (the “Independent Trustees”), reviewed written materials from the Adviser (the “Materials”) regarding, among other things: (i) the nature, extent, and quality of the services provided by the Adviser; (ii) the historical performance of the Fund; (iii) the cost of the services provided and the profits realized by the Adviser from services rendered to the Fund; (iv) comparative fee and expense data for the Fund and other investment companies with similar investment objectives; (v) the extent to which any economies of scale realized by the Adviser in connection with its services to the Fund are shared with Fund shareholders; and (vi) other factors the Board deemed to be relevant.
 
The Board also considered that the Adviser, along with other service providers of the Fund, presented written information to help the Board evaluate the Adviser’s fees and other aspects of the Advisory Agreement. Additionally, a representative from the Adviser provided an oral overview of the Fund’s strategy, the services provided to the Fund by the Adviser, and additional information about the Adviser’s personnel and operations. The Board then discussed the written materials and oral presentation that it had received and any other information that the Board received at the Meeting and deliberated on the approval of the Advisory Agreement in light of this information.
 
Approval of the Continuation of the Advisory Agreement with the Adviser
 
Nature, Extent, and Quality of Services Provided. The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser would continue to provide investment management services to the Fund. In considering the nature, extent, and quality of the services provided by the Adviser, the Board considered the quality of the Adviser’s compliance program and past reports from the Trust’s Chief Compliance Officer (“CCO”) regarding the CCO’s review of the Adviser’s compliance program. The Board also considered its previous experience with the Adviser providing investment management services to the Fund. The Board noted that it had previously received a copy of the Adviser’s registration form, as well as the response of the Adviser to a detailed series of questions which included, among other things, information about the background and experience of the firm’s key personnel, the firm’s cybersecurity policy, and the services provided by the Adviser.
 
The Board also considered other services currently provided by the Adviser to the Fund, such as monitoring adherence to the Fund’s investment restrictions, sub-adviser oversight, monitoring compliance with various Fund policies and with applicable
34

U.S. DIVERSIFIED REAL ESTATE ETF

APPROVAL OF ADVISORY AGREEMENT & BOARD CONSIDERATIONS (Unaudited) (Continued)
securities regulations, and monitoring the extent to which the Fund achieves its investment objective as a passively managed fund. The Board further considered the oral information provided by the Adviser with respect to the impact of the COVID-19 pandemic on the Adviser’s operations.
 
Additionally, the Board considered that Vident Financial, LLC (“Vident Financial”), an affiliate of the Adviser, acts as index provider to the Fund, which tracks an index created by Vident Financial based on its intellectual property. The Board noted the Adviser’s belief that shareholders invest in the Fund based on the investment principles incorporated into the index methodology and the expectation that the Adviser will provide advisory services to the Fund based on the index.
 
Historical Performance. The Board noted that information regarding the Fund’s performance for various time periods had been included in the Materials. The Board considered the Fund’s past investment performance, including for periods ended September 30, 2021. The Board noted that, for the one-year period, the Fund underperformed its underlying index, before fees and expenses, but outperformed its underlying index for the three-year and since inception periods. The Board further noted that the Fund outperformed its benchmark index, the MSCI US REIT Gross Index, which provides an indication of the performance of the U.S. real estate investment trust (“REIT”) market, for the one-year, three-year, and since inception periods. The Board further noted that, for the one-year period ended September 30, 2021, the Fund outperformed the median for the other funds in the universe of Real Estate ETFs as reported by Morningstar (the “Category Peer Group”). The Board also considered that, for the one-year and three-year periods ended September 30, 2021, the Fund’s performance was within the range of returns of its most direct competitors as identified by the Adviser at the Board’s request based on other funds with a similar investment universe, index philosophy, REIT sector exposure, and historical turnover (the “Selected Peer Group”).
 
Cost of Services to be Provided and Economies of Scale. The Board then reviewed the Fund’s expense ratio, the full amount of which was the “unified fee” described below, and compared the Fund’s expense ratio to its Category Peer Group and Selected Peer Group. The Board noted that the expense ratio for the Fund was higher than the median of the Category Peer Group and was the highest in the range of expense ratios for the Selected Peer Group. The Board also noted that, because both peer groups included a number of significantly larger, low-cost, passively managed ETFs, the peer groups may not allow for an apt comparison by which to judge the Fund’s expense ratio.
 
The Board took into consideration that the Adviser would continue to charge a “unified fee,” meaning the Fund pays no expenses other than the advisory fee and 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
35

U.S. DIVERSIFIED REAL ESTATE ETF

APPROVAL OF ADVISORY AGREEMENT & BOARD CONSIDERATIONS (Unaudited) (Continued)
Shareholder Servicing (12b‑1) Plan. The Board noted that the Adviser continued to be responsible for compensating the Trust’s other service providers and paying the Fund’s other expenses out of its own fee and resources. The Board also evaluated the compensation and benefits received by the Adviser from its relationship with the Fund, taking into account analyses of the Adviser’s profitability with respect to the Fund.
 
The Board expressed the view that it currently appeared that the Adviser might realize economies of scale in managing the Fund as assets grow in size. The Board noted that, should the Adviser realize economies of scale in the future, the amount and structure of the Fund’s unitary fee might result in a sharing of those economies with Fund shareholders. The Board noted its intention to monitor fees as the Fund grows in size and assess whether fee breakpoints may be warranted.
 
Conclusion. No single factor was determinative of the Board’s decision to approve the continuation of the 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 a majority of the Independent Trustees, determined that the Advisory Agreement, including the compensation payable under the agreement, was fair and reasonable to the Fund. The Board, including a majority of the Independent Trustees, therefore determined that the approval of the continuation of the Advisory Agreement was in the best interests of the Fund and its shareholders.


36

U.S. DIVERSIFIED REAL ESTATE ETF

FEDERAL TAX INFORMATION
(Unaudited)
QUALIFIED DIVIDEND INCOME
(Unaudited)

For the fiscal year ended February 28, 2022, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.8%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003.
 
The percentage of dividends declared from ordinary income designated as qualified dividend income was 3.91%.
 
DIVIDENDS RECEIVED DEDUCTION

For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended February 28, 2022 was 3.11%.
 
SHORT TERM CAPITAL GAIN

For the fiscal year ended February 28, 2022, the percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871(k)(2)(C) for the Fund was 0.00%.
 

INFORMATION ABOUT PORTFOLIO HOLDINGS
(Unaudited)
The Fund files its complete schedule of portfolio holdings for its first and third fiscal quarters with the SEC on Part F of Form N-PORT. The Fund’s Part F of Form N-PORT is available without charge, upon request, by calling toll-free at (800) 617-0004. Furthermore, you may obtain Part F of Form N-PORT on the SEC’s website at www.sec.gov or the Fund’s website at www.videntfunds.com. The Fund’s portfolio holdings are posted on their website at www.videntfunds.com daily.
 

INFORMATION ABOUT PROXY VOTING
(Unaudited)

A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is provided in the SAI. The SAI is available without charge upon request by calling toll-free at (800) 617-0004, by accessing the SEC’s website at www.sec.gov, or by accessing the Fund’s website at www.videntfunds.com.
 
Information regarding how the Fund voted proxies relating to portfolio securities during the twelve-months ending June 30 will be available by calling toll-free at (800) 617-0004 and the SEC’s website at www.sec.gov.
 

FREQUENCY DISTRIBUTION OF PREMIUMS AND DISCOUNTS
(Unaudited)

Information regarding how often shares of the Fund trade on the exchange at a price above (i.e., at a premium) or below (i.e., at a discount) to their daily NAV is available, without charge, on the Fund’s website at www.videntfunds.com.

37

Adviser
Vident Advisory, LLC
1125 Sanctuary Parkway, Suite 515
Alpharetta, Georgia 30009

Sub-Adviser
Vident Investment Advisory, LLC
1125 Sanctuary Parkway, Suite 515
Alpharetta, Georgia 30009

Index Provider
Vident Financial, LLC
1125 Sanctuary Parkway, Suite 515
Alpharetta, Georgia 30009

Distributor
ALPS Distributors, Inc.
1290 Broadway, Suite 1000
Denver, Colorado 80203

Custodian
U.S. Bank National Association
1555 North Rivercenter Drive, Suite 302
Milwaukee, Wisconsin 53212

Transfer Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street
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

U.S. Diversified Real Estate ETF
Symbol – PPTY
CUSIP – 26922A511



(b)
Not applicable.

Item 2. Code of Ethics.

The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer and principal financial officer. The registrant has not made any amendments to its code of ethics during the period covered by this report. The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report. A copy of the registrant’s Code of Ethics is filed herewith.

Item 3. Audit Committee Financial Expert.

The registrant’s board of trustees has determined that there is at least one audit committee financial expert serving on its audit committee. Mr. Leonard Rush is the “audit committee financial expert” and is considered to be “independent” as each term is defined in Item 3 of Form N-CSR.

Item 4. Principal Accountant Fees and Services.

The registrant has engaged its principal accountant to perform audit services, audit-related services, tax services and other services during the past two fiscal years. “Audit services” refer to performing an audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. “Audit-related services” refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit. “Tax services” refer to professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. There were no “Other services” provided by the principal accountant. The following table details the aggregate fees billed or expected to be billed for the last two fiscal years for audit fees, audit-related fees, tax fees and other fees by the principal accountant.

 
FYE  2/28/2022
FYE  2/28/2021
Audit Fees
$ 14,500
$14,500
Audit-Related Fees
$ 0
$0
Tax Fees
$   4,500
$4,500
All Other Fees
$ 0
$0

The audit committee has adopted pre-approval policies and procedures that require the audit committee to pre-approve all audit and non-audit services of the registrant, including services provided to any entity affiliated with the registrant.

The percentage of fees billed by Cohen & Company, Ltd. applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:

 
FYE  2/28/2022
FYE  2/28/2021
Audit-Related Fees
0%
0%
Tax Fees
0%
0%
All Other Fees
0%
0%

All of the principal accountant’s hours spent on auditing the registrant’s financial statements were attributed to work performed by full-time permanent employees of the principal accountant.

The following table indicates the non-audit fees billed or expected to be billed by the registrant’s accountant for services to the registrant and to the registrant’s investment adviser (and any other controlling entity, etc.—not sub-adviser) for the last two years. The audit committee of the board of trustees/directors has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser is compatible with maintaining the principal accountant's independence and has concluded that the provision of such non-audit services by the accountant has not compromised the accountant’s independence.

Non-Audit Related Fees
FYE  2/28/2022
FYE  2/28/2021
Registrant
N/A
N/A
Registrant’s Investment Adviser
N/A
N/A

The registrant has not been identified by the U.S. Securities and Exchange Commission as having filed an annual report issued by a registered public accounting firm branch or office that is located in a foreign jurisdiction where the Public Company Accounting Oversight Board is unable to inspect or completely investigate because of a position taken by an authority in that jurisdiction.

The registrant is not a foreign issuer.

Item 5. Audit Committee of Listed Registrants.

(a)
The registrant is an issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934, (the “Act”) and has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Act. The independent members of the committee are as follows: Leonard M. Rush, David A. Massart, and Janet D. Olsen.

(b)
Not applicable.

Item 6. Investments.

Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.
 
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable to open-end investment companies.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable to open-end investment companies.

Item 9. Purchases of Equity Securities by Closed‑End Management Investment Company and Affiliated Purchasers.

Not applicable to open-end investment companies.

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of trustees.

Item 11. Controls and Procedures.

(a)
The Registrant’s President (principal executive officer) and Treasurer (principal financial officer) have reviewed the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d‑15(b) under the Securities Exchange Act of 1934.  Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant’s service provider.

(b)
There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the period covered by this report that have materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.

Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.

Not applicable to open-end investment companies.

Item 13. Exhibits.



(3) Any written solicitation to purchase securities under Rule 23c‑1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons.  Not applicable to open-end investment companies.

(4) Change in the registrant’s independent public accountant.  There was no change in the registrant’s independent public accountant for the period covered by this report.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


(Registrant)  ETF Series Solutions 

By (Signature and Title)*    /s/Kristina R. Nelson
Kristina R. Nelson, President (principal executive officer)

Date    5/4/2022



Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title)*    /s/Kristina R. Nelson
Kristina R. Nelson, President (principal executive officer)

Date    5/4/2022

By (Signature and Title)*    /s/Kristen M. Weitzel
Kristen M. Weitzel, Treasurer (principal financial officer)

Date    5/4/2022

* Print the name and title of each signing officer under his or her signature.