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 811-22961
EA Series Trust
(Exact name of registrant as specified in charter)
19 E. Eagle Road
Havertown, PA 19083
(Address of principal executive offices) (Zip code)
19 E. Eagle Road
Havertown, PA 19083
(Name and address of agent for service)
(215) 330-4476
Registrant’s telephone number, including area code
Date of fiscal year end: September 30, 2024
Date of reporting period: September 30, 2024
Item 1. Report to Stockholders.
(a)
| | | | | | | | |
| Gadsden Dynamic Multi-Asset ETF Ticker: GDMA Listed on: Cboe BZX Exchange, Inc. | September 30, 2024 Annual Shareholder Report www.gadsdenfunds.com |
|
This annual shareholder report contains important information about the Gadsden Dynamic Multi-Asset ETF (the “Fund”) for the period of October 1, 2023 to September 30, 2024 (the “Period”). You can find additional information about the Fund at www.gadsdenfunds.com. You can also request this information by contacting us at (215) 330-4476. This report describes changes to the Fund that occurred during the Period.
| | | | | | | | | | | |
WHAT WERE THE FUND COSTS FOR THE PERIOD?
(based on a hypothetical $10,000 investment) |
| COST OF $10,000 INVESTMENT | COST PAID AS A PERCENTAGE OF $10,000 INVESTMENT |
| $63 | 0.59% |
| | | | | | | | | | | |
| PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT |
| | | | | | | | | | | | | | | | | | | | |
| AVERAGE ANNUAL TOTAL RETURNS |
| | 1 Year | | 5 Year | | Since Inception (11/14/2018) |
| Gadsden Dynamic Multi-Asset ETF - NAV | | 12.41% | | 6.94% | | 6.78% |
| Solactive US Aggregate Bond Index | | 11.25% | | 0.40% | | 2.24% |
| Solactive GBS Global Markets All Cap Index | | 31.34% | | 12.19% | | 12.02% |
60% Dow Jones Global Index/
40% ICE BofA 0-3 Month US Treasury Bill Index | | 20.53% | | 8.46% | | 8.36% |
| ICE BofA 0-3 Month US Treasury Bill Index | | 5.51% | | 2.33% | | 2.34% |
| Dow Jones Global Index | | 31.29% | | 12.05% | | 11.89% |
| | | | | | |
| The Solactive US Aggregate Bond Index and the Solactive GBS Global Markets All Cap Index are provided as broad measures of market performance. The 60% Dow Jones Global Index/40% ICE BofA 0-3 Month US Treasury Bill Index is provided as a measure of the Fund’s investment strategy and universe. |
| | | | | | |
The Fund’s past performance is not a good predictor of how the Fund will perform in the future. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. Visit www.gadsdenfunds.com for more recent performance information. |
Annual Shareholder Report: September 30, 2024
| | | | | | | | |
| Gadsden Dynamic Multi-Asset ETF Ticker: GDMA Listed on: Cboe BZX Exchange, Inc. | September 30, 2024 Annual Shareholder Report www.gadsdenfunds.com |
|
| | | | | | | | | | | |
| WHAT FACTORS INFLUENCED PERFORMANCE FOR THE PERIOD? |
The Fund generated positive performance for the Period amidst broadly positive global equity and bond markets, with mixed results in commodities. The Fund’s performance for the Period was most hurt by its conservative risk positioning in the first three months, particularly in November 2023, when both global stocks and bonds rallied strongly. Due to a significant underweight to global equities during the first three months, the Fund underperformed relative to global equities, maintaining an average of 50% exposure to global equities throughout the Period. The Fund’s equity allocation underperformed due to a lack of total exposure during the November 2023 equity rally and less favorable timing of the Fund’s European equities allocation.
During the Period, the Fund outperformed a broad bond index, where the Fund was significantly underweight duration risk. Within fixed income, the greatest underperformance came from inverse Treasury positions in November 2023 but otherwise benefited from overweight high-yield credit exposures. The Fund’s allocation to commodities also added value, as underweight positions in broad commodities and commodity producers, along with long positions in precious metals, proved beneficial.
The Fund’s strategic asset allocation process seeks to roughly balance the Fund’s sensitivity to both rising and falling market expectations for growth and inflation. It seeks this balance by strategically distributing the risk-taking of the portfolio across globally diversified equities, bond duration, TIPS, commodities, and commodity producers. The Fund’s tactical approach then adjusts these longer-term strategic allocation weights, either higher or lower, to reflect what the manager believes have the best risk-reward potential given the prevailing market environment. Tactical adjustments are formed from qualitative and quantitative techniques that attempt to merge a fundamental understanding of market dynamics with technical and momentum signals.
| | | | | | | | | | | | | | | | | | | | |
| KEY FUND STATISTICS (as of Period End) |
| Net Assets | | $154,153,311 | | Portfolio Turnover Rate* | | 674% |
| # of Portfolio Holdings | | 22 | | Advisory Fees Paid | | $884,671 |
| *Excludes impact of in-kind transactions. |
| | | | | | |
| | | | | |
| ASSET CLASSES (as a % of Net Assets) |
| Global ETFs | 59.3% |
| Fixed Income ETFs | 23.4% |
| Commodity ETFs | 12.8% |
| Common Stocks | 3.0% |
| Cash & Cash Equivalents | 1.5% |
Material Fund Changes
This is a summary of certain changes to the Fund since October 1, 2023. For more complete information, you may review the Fund’s next prospectus, which we expect to be available by January 31, 2025, at www.gadsdenfunds.com or by calling (215) 330-4476.
The Fund changed its principal investment strategies to no longer invest directly in futures contracts or engage in short sales of securities. However, the Fund may continue to have indirect exposure to derivatives or short positions through its investments in other exchange-traded vehicles.
Availability of Additional Information
For additional information about the Fund, including its prospectus, financial information, holdings, and proxy information, visit www.gadsdenfunds.com. You can also request information by calling (215) 330-4476.
Householding
Householding is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested in enrolling in householding and receiving a single copy of prospectuses and other shareholder documents or you are currently enrolled in householding and wish to change your householding status, please contact your broker-dealer.
Annual Shareholder Report: September 30, 2024
(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 year covered by this report. The registrant has not granted any waivers from any provisions of the code of ethics during the year covered by this report.
A copy of the registrant’s Code of Ethics is incorporated by reference.
Item 3. Audit Committee Financial Expert.
The registrant’s Board of Trustees of the Trust has determined that there is at least one audit committee financial expert serving on its audit committee. Dr. Michael Pagano is an “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 fiscal year. “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, including review of the registrant’s tax returns and calculations of required income, capital gain, and excise distributions. 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 fiscal year for audit fees, audit-related fees, tax fees, and other fees by the principal accountant.
| | | | | | | | | |
| | FYE 9/30/2024 | FYE 9/30/2023 | |
| (a) Audit Fees | $8,750 | $8,750 | |
| (b) Audit-Related Fees | N/A | N/A | |
| (c)Tax Fees | $2,250 | $2,250 | |
| (d) All Other Fees | N/A | N/A | |
(e)(1) 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.
(e)(2) None of the fees billed by any Fund’s principal accountant were applicable to non-audit services pursuant to a waiver of the pre-approval requirement.
(f) 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.
(g) None of the fees billed by any Fund’s principal accountant were applicable to non-audit services billed or expected to be billed to any Fund’s investment adviser.
(h) 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.
(i) 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.
(j) 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: Daniel Dorn, Chukwuemeka (Emeka) Oguh, and Michael Pagano.
(b) Not applicable.
Item 6. Investments.
(a)
| | |
| GADSDEN DYNAMIC MULTI-ASSET ETF |
| SCHEDULE OF INVESTMENTS |
| September 30, 2024 |
| | | | | | | | | | | | | | |
| EXCHANGE TRADED FUNDS - 95.5% |
| Shares |
| Value |
abrdn Physical Gold Shares ETF (a) |
| 633,273 | |
| $ | 15,914,150 | |
abrdn Physical Silver Shares ETF (a)(b) |
| 25,644 | |
| 762,909 | |
| Franklin FTSE India ETF |
| 36,180 | |
| 1,515,942 | |
iShares Bitcoin Trust ETF (a) |
| 63,600 | |
| 2,297,868 | |
iShares China Large-Cap ETF (b) |
| 103,348 | |
| 3,284,399 | |
| iShares iBoxx $ High Yield Corporate Bond ETF |
| 95,006 | |
| 7,628,982 | |
| iShares J.P. Morgan EM High Yield Bond ETF |
| 296,037 | |
| 11,551,364 | |
| iShares MSCI Emerging Markets ex China ETF |
| 99,077 | |
| 6,054,595 | |
iShares Silver Trust (a)(b) |
| 28,919 | |
| 821,589 | |
| Schwab US TIPS ETF |
| 85,187 | |
| 4,568,579 | |
| SPDR Portfolio MSCI Global Stock Market ETF |
| 119,369 | |
| 7,731,530 | |
| VanEck Emerging Markets High Yield Bond ETF |
| 231,722 | |
| 4,608,951 | |
| Vanguard Total Bond Market ETF |
| 102,052 | |
| 7,665,126 | |
Vanguard Total World Stock ETF (c) |
| 608,179 | |
| 72,799,026 | |
TOTAL EXCHANGE TRADED FUNDS (Cost $141,659,535) | | |
| 147,205,010 | |
|
|
|
|
|
| COMMON STOCKS - 3.0% |
| | | |
| Broadline Retail - 0.5% | | | |
|
Amazon.com, Inc. (a) |
| 4,018 | |
| 748,674 | |
|
|
|
|
|
| Coal & Consumable Fuels - 0.5% | | | |
|
| Cameco Corp. |
| 16,071 | |
| 767,551 | |
|
|
|
|
|
| Interactive Media & Services - 1.0% | | | |
|
| Alphabet, Inc. - Class C |
| 4,649 | |
| 777,266 | |
| Meta Platforms, Inc. - Class A |
| 1,360 | |
| 778,519 | |
|
|
|
| 1,555,785 | |
|
|
|
|
|
| Semiconductors - 0.5% | | | |
|
| NVIDIA Corp. |
| 6,489 | |
| 788,024 | |
|
|
|
|
|
| Systems Software - 0.5% | | | |
|
| Microsoft Corp. |
| 1,743 | |
| 750,013 | |
TOTAL COMMON STOCKS (Cost $4,575,258) | | |
| 4,610,047 | |
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
1
| | |
| GADSDEN DYNAMIC MULTI-ASSET ETF |
| SCHEDULE OF INVESTMENTS (CONTINUED) |
| September 30, 2024 |
| | | | | | | | | | | | | | |
| | | | |
| SHORT-TERM INVESTMENTS - 4.5% | | Shares |
| Value |
| Investments Purchased with Proceeds from Securities Lending - 3.0% |
| |
| |
First American Government Obligations Fund - Class X, 4.82% (d) |
| 4,611,753 | |
| $ | 4,611,753 | |
|
|
|
|
|
| Money Market Funds - 1.5% |
| |
| |
First American Government Obligations Fund - Class X, 4.82% (d) |
| 2,286,004 | |
| 2,286,004 | |
TOTAL SHORT-TERM INVESTMENTS (Cost $6,897,757) | | |
| 6,897,757 | |
|
|
|
|
|
TOTAL INVESTMENTS - 103.0% (Cost $153,132,550) | | |
| $ | 158,712,814 | |
| Liabilities in Excess of Other Assets - (3.0)% | | |
| (4,559,503) | |
| TOTAL NET ASSETS - 100.0% |
| |
| $ | 154,153,311 | |
Percentages are stated as a percent of net assets.
| | | | | | | | |
| (a) |
| Non-income producing security. |
| (b) |
| All or a portion of this security is on loan as of September 30, 2024. The total market value of these securities was $4,439,373 which represented 2.9% of net assets. |
| (c) |
| Fair value of this security exceeds 25% of the Fund’s net assets. Additional information for this security, including the financial statements, is available from the SEC’s EDGAR database at www.sec.gov. |
| (d) |
| The rate shown represents the 7-day effective yield as of September 30, 2024. |
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS is a service mark of MSCI, Inc. and S&P and has been licensed for use by U.S. Bank Global Fund Services.
(b) Not applicable
The accompanying notes are an integral part of these financial statements.
2
GADSDEN DYNAMIC MULTI-ASSET ETF
Item 7. Financial Statements and Financial Highlights for Open-End Management Investment
Companies.
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2024
| | | | | |
| Assets: | |
| Investments in securities, at value (See Note 2) | $ | 158,712,814 | |
| Cash | 114,311 | |
| Dividends and interest receivable | 7,179 | |
| Securities lending income receivable (See Note 5) | 3,925 | |
| Total assets | 158,838,229 | |
| |
| Liabilities: | |
| Due to securities lending agent (See Note 5) | 4,611,753 | |
| Accrued investment advisory fees (See Note 4) | 73,165 | |
| Total liabilities | 4,684,918 | |
| Net Assets | $ | 154,153,311 | |
| | |
| Net Assets Consist of: | |
| Paid-in capital | $ | 177,846,340 | |
| Total distributable earnings (accumulated deficit) | (23,693,029) | |
| Net Assets: | $ | 154,153,311 | |
| |
| Calculation of Net Asset Value Per Share: | |
| Net Assets | $ | 154,153,311 | |
| Shares Outstanding (unlimited shares of beneficial interest authorized, no par value) | 4,720,000 | |
| Net Asset Value per Share | $ | 32.66 | |
| |
| Cost of Investments in Securities | $ | 153,132,550 | |
(1) Includes loaned securities with a value of | $ | 4,439,373 | |
The accompanying notes are an integral part of these financial statements.
1
GADSDEN DYNAMIC MULTI-ASSET ETF
STATEMENT OF OPERATIONS
For the Period Ended September 30, 2024
| | | | | | | | |
| Investment Income: | | |
| Dividend income | | $ | 5,225,620 | |
| Securities lending income, net (See Note 5) | | 98,557 | |
| Interest income | | 72,412 | |
| Total investment income | | 5,396,589 | |
| | |
| Expenses: | | |
| Investment advisory fees (See Note 4) | | 884,671 | |
| Net expenses | | 884,671 | |
| | |
| Net Investment Income (Loss) | | 4,511,918 | |
| | |
| Realized and Unrealized Gain (Loss) on Investments: | | |
| Net realized gain (loss) on: | | |
| Investments | | 10,677,863 | |
| | 10,677,863 | |
| Net change in unrealized appreciation (depreciation) on: | | |
| Investments | | 2,497,660 | |
| | 2,497,660 | |
| Net realized and unrealized gain (loss) on investments: | | 13,175,523 | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | | $ | 17,687,441 | |
The accompanying notes are an integral part of these financial statements.
2
GADSDEN DYNAMIC MULTI-ASSET ETF
STATEMENT OF CHANGES IN NET ASSETS
| | | | | | | | | | | | | | |
| | For the Year Ended September 30, 2024 | | For the Year Ended September 30, 2023 |
| Increase (Decrease) in Net Assets from: | | | | |
| Operations: | | | | |
| Net investment income (loss) | | $ | 4,511,918 | | | $ | 4,994,790 | |
| Net realized gain (loss) on investments | | 10,677,863 | | (14,221,040) |
| Net change in unrealized appreciation (depreciation) on investments | | 2,497,660 | | (38,198) |
| Net increase (decrease) in net assets resulting from operations | | 17,687,441 | | (9,264,448) |
| | | | | |
| Distributions to Shareholders: | | | | |
| Distributable earnings | | (6,113,035) | | (1,795,055) |
| Total distributions to shareholders | | (6,113,035) | | (1,795,055) |
| | | | | |
| Capital Share Transactions: | | | | |
| Proceeds from shares sold | | 299,699,272 | | 238,182,588 |
| Payments for shares redeemed | | (311,420,250) | | (215,591,254) |
| Net increase (decrease) in net assets derived from net change in capital share transactions | | (11,720,978) | | 22,591,334 |
| Net Increase (Decrease) in Net Assets | | (146,572) | | 11,531,831 |
| | | | |
| Net Assets: | | | | |
| Beginning of period | | 154,299,883 | | 142,768,052 |
| End of period | | $ | 154,153,311 | | | $ | 154,299,883 | |
| | | | |
| Changes in Shares Outstanding: | | | | |
| Shares outstanding, beginning of period | | 5,100,000 | | 4,400,000 |
| Shares sold | | 9,700,000 | | 7,780,000 |
| Shares repurchased | | (10,080,000) | | (7,080,000) |
| Shares outstanding, end of period | | 4,720,000 | | 5,100,000 |
The accompanying notes are an integral part of these financial statements.
3
GADSDEN DYNAMIC MULTI-ASSET ETF
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Asset Value, Beginning of Period | | Net Investment Income (Loss)(1) | | Net Realized and Unrealized Gain (Loss) on Investments | | Net Increase (Decrease) in Net Asset Value Resulting from Operations | | Distributions from Net Investment Income | | Distributions from Realized Gains | | Return of Capital Distribution | | Total Distributions | | Transaction Fees (See Note 1) | | Net Asset Value, End of Period | | Total Return(2) | | Net Assets, End of Period (000's) | | Net Expenses(3)(4)(6) | | Net Investment Income(3) | | Portfolio Turnover Rate(5) |
| For the Year Ended September 30, 2024 | $30.25 | | 0.93 | | 2.73 | | 3.66 | | (1.25) | | - | | - | | (1.25) | | - | | $32.66 | | 12.41% | | $154,153 | | 0.59% | | 3.01% | | 674% |
| For the Year Ended September 30, 2023 | $32.45 | | 0.96 | | (2.80) | | (1.84) | | (0.36) | | | | | | (0.36) | | - | | $30.25 | | -5.66% | | $154,300 | | 0.59% | | 3.19% | | 542% |
| For the Year Ended September 30, 2022 | $31.20 | | 0.81 | | 1.01 | | 1.82 | | (0.57) | | - | | - | | (0.57) | | - | | $32.45 | | 5.87% | | $142,768 | | 0.59% | | 2.54% | | 219% |
| For the Period November 1, 2020 to September 30, 2021 | $28.30 | | 0.21 | | 2.91 | | 3.12 | | (0.19) | | - | | (0.03) | | (0.22) | | (0.00)(7) | | $31.20 | | 10.13% | | $117,005 | | 0.59% | | 0.73% | | 99% |
For the Year Ended October 31, 2020(8) | $25.99 | | 0.24 | | 2.68 | | 2.92 | | (0.28) | | (0.33) | | - | | (0.61) | | (0.00)(7) | | $28.30 | | 11.46% | | $83,471 | | 0.59% | | 0.91% | | 536% |
For the Period November 14, 2018(9) to October 31, 2019 | $25.00 | | 0.47 | | 0.95 | | 1.42 | | (0.43) | | - | | - | | (0.43) | | (0.00)(7) | | $25.99 | | 5.79% | | $30,542 | | 0.59% | | 1.95% | | 369% |
| | | | | |
| (1) | Net investment income per share represents net investment income divided by the daily average shares of beneficial interest outstanding throughout the period. |
| (2) | All returns reflect reinvested dividends, if any, but do not reflect the impact of taxes. Total return for a period of less than one year is not annualized. |
| (3) | For periods of less than one year, these ratios are annualized. |
| (4) | Net expenses include effects of any reimbursement or recoupment. |
| (5) | Portfolio turnover is not annualized and is calculated without regard to short-term securities having a maturity of less than one year. Excludes impact of in-kind transactions. |
| (6) | Net and gross expenses do not include expenses of the investment companies in which the Fund invests. |
| (7) | Rounds to less than $.005. |
| (8) | Gadsden Dynamic Multi-Asset ETF previously used an October 31st fiscal year end. The Fund moved to the EA Series Trust on November 2, 2020 and currently uses a September 30th fiscal year end. |
| (9) | Commencement of operations. |
The accompanying notes are an integral part of these financial statements.
4
GADSDEN DYNAMIC MULTI-ASSET ETF
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2024
NOTE 1 – ORGANIZATION
Gadsden Dynamic Multi-Asset ETF (the “Fund”) is a series of the EA Series Trust (the “Trust”), which was organized as a Delaware statutory trust on October 11, 2013. The Trust is registered with the 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 (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”). The Fund is considered diversified under the 1940 Act. The Fund commenced operations on November 14, 2018, and became a series of the Trust via a merger on November 2, 2020. The Fund qualifies as an investment company as defined in the Financial Accounting Standards Codification Topic 946-Financial Services-Investment Companies. The Fund’s investment objective is to seek total return.
Shares of the Fund are listed and traded on Cboe BZX Exchange, Inc. (“Cboe”). Market prices for the shares may be different from their net asset value (“NAV”). The Fund issues and redeems shares on a continuous basis at NAV only in blocks of 10,000 shares, 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 in share amounts less than a Creation Unit. Except when aggregated in Creation Units, shares are not redeemable securities of the Fund. Shares of the Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is a participant of a clearing agency registered with the SEC, which has a written agreement with the Trust or one of its service providers that allows the authorized participant to place orders for the purchase and redemption of creation units. 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.
Authorized Participants may be required to pay a transaction fee to compensate the Trust or its custodian for costs incurred in connection with creation and redemption transactions. Certain transactions consisting all or partially of cash may also be subject to a variable charge, which is payable to the relevant Fund, of up to 2.00% of the value of the order in addition to the transaction fee. A Fund may determine to waive the variable charge on certain orders when such waiver is determined to be in the best interests of Fund shareholders. Transaction fees received by a Fund, if any, are displayed in the Capital Share Transactions sections of the Statements of Changes in Net Assets.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
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 (“GAAP”).
A.Security Valuation. Equity securities that are traded on a national securities exchange, except those listed on the NASDAQ Global Market® (“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 most recent quoted bid for exchange-traded or the mean between the most recent quoted bid and ask price for NASDAQ securities will be used. Equity securities that are not traded on a listed exchange are generally 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. Redeemable securities issued by open-end investment companies are valued at the investment company’s applicable net asset value, with the exception of exchange-traded open-end investment companies which are priced as equity securities.
Subject to its oversight, the Trust’s Board of Trustees (the “Board”) has delegated primary responsibility for determining or causing to be determined the value of the Fund’s investments to Empowered Funds, LLC dba EA Advisers (the “Adviser”), pursuant to the Trust’s valuation policy and procedures, which have been adopted by the Trust and approved by the Board. In accordance with Rule 2a-5 under the 1940 Act, the Board designated the Adviser as the “valuation designee” of the Fund. If the Adviser, as valuation designee, determines that reliable
GADSDEN DYNAMIC MULTI-ASSET ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
September 30, 2024
market quotations are not readily available for an investment, the investment is valued at fair value as determined in good faith by the Adviser in accordance with the Trust’s fair valuation policy and procedures. The Adviser will provide the Board with periodic reports, no less frequently than quarterly, that discuss the functioning of the valuation process, if applicable, and that identify issues and valuation problems that have arisen, if any. As appropriate, the Adviser and the Board will review any securities valued by the Adviser in accordance with the Trust’s valuation policies during these periodic reports. The use of fair value pricing by the Fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated without regard to such considerations. As of September 30, 2024, the Fund did not hold any securities that required fair valuation due to unobservable inputs.
As described above, the Fund may use various methods to measure the fair value of their investments on a recurring basis. GAAP establishes a hierarchy that prioritizes inputs to valuation 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.
The following is a summary of the fair value classification of the Fund’s investments as of September 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| DESCRIPTION | | LEVEL 1 | | LEVEL 2 | | LEVEL 3 | | TOTAL |
| Assets | | | | | | | | |
| Exchange Traded Funds | | $ | 147,205,010 | | | $ | — | | | $ | — | | | $ | 147,205,010 | |
| Common Stocks | | 4,610,047 | | | — | | | — | | | 4,610,047 | |
| Investments Purchased with Proceeds from Securities Lending | | 4,611,753 | | | — | | | — | | | 4,611,753 | |
| Money Market Funds | | 2,286,004 | | | — | | | — | | | 2,286,004 | |
| Total Investments in Securities | | $ | 158,712,814 | | | $ | — | | | $ | — | | | $ | 158,712,814 | |
Refer to the Schedule of Investments for additional information.
During the fiscal year ended September 30, 2024, the Fund did not invest in any Level 3 investments and recognized no transfers to/from Level 3. Transfers between levels are recognized at the end of the reporting period.
GADSDEN DYNAMIC MULTI-ASSET ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
September 30, 2024
B.Foreign Currency. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts using the spot rate of exchange at the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions.The Fund isolates the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. That portion of gains (losses) attributable to the changes in market prices and the portion of gains (losses) attributable to changes in foreign exchange rates are included on the “Statement of Operations” under “Net realized gain (loss) – Foreign currency” and “Change in Net Unrealized Appreciation (Depreciation) – Foreign Currency,” respectively.
The Fund reports net realized foreign exchange gains or losses that arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.
C.Federal Income Taxes. The Fund intends to continue to comply with the requirements of subchapter M of the Internal Revenue Code of 1986, as amended, as necessary to qualify as a regulated investment company and distribute substantially all net taxable investment income and net realized gains to shareholders in a manner which results in no tax cost to the Fund. Therefore, no federal income tax provision is required. As of and during the fiscal year ended September 30, 2024, the Fund did not have any tax positions that did not meet the “more-likely-than-not” threshold of being sustained by the applicable tax authority. As of and during the fiscal year ended September 30, 2024, the Fund did not have liabilities for any unrecognized tax benefits. The Fund would/will recognize interest and penalties, if any, related to unrecognized tax benefits on uncertain tax positions as income tax expense in the Statement of Operations. During the fiscal year ended September 30, 2024, the Fund did not incur any interest or penalties. The Fund is subject to examination by U.S. taxing authorities for the tax periods since the Fund’s commencement of operations.
The Fund may be subject to taxes imposed on realized and unrealized gains on securities of certain foreign countries in which the Fund invests. The foreign tax expense, if any, was recorded on an accrual basis and is included in “Net realized gain (loss) on investments” and “Net increase (decrease) in unrealized appreciation or depreciation on investments” on the accompanying Statements of Operations. The amount of foreign tax owed, if any, is included in“Payable for foreign taxes” on the accompanying Statements of Assets and Liabilities and is comprised of and taxes on unrealized gains.
D.Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Dividend income is recorded on the ex-dividend date, net of any foreign taxes withheld at source. Interest income is recorded on an accrual basis. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable tax rules and regulations.
Distributions to shareholders from net investment income and net realized gains for the Fund are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. The Fund may distribute more frequently, if necessary, for tax purposes.
E.Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of increases and decreases in net assets from operations 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
GADSDEN DYNAMIC MULTI-ASSET ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
September 30, 2024
number of shares outstanding for 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 (“NYSE”) is closed for regular trading. The offering and redemption price per share for the Fund is equal to the Fund’s net asset value 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. Additionally, as is customary, the Trust’s organizational documents permit the Trust to indemnify its officers and trustees against certain liabilities under certain circumstances. 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. As of the date of this report, no claim has been made for indemnification pursuant to any such agreement of the Fund.
H.Reclassification of Capital Accounts. 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 net asset value per share. The Fund’s realized net capital gains resulting from in-kind redemptions, in which shareholders exchanged Fund shares for securities held by the Fund rather than for cash, are not taxable to the Fund and are not distributed to shareholders. As such, they have been reclassified from distributable earnings to paid-in capital. For the fiscal year ended September 30, 2024, the following table shows the reclassifications made:
| | | | | | | | |
Distributable
Earnings | | Paid-in
Capital |
| $(12,218,867) | | $12,218,867 |
NOTE 3 – RISKS
An investment in the Fund involves risk, including those described below. There is no assurance that the Fund will achieve its investment objective. An investor may lose money by investing in the Fund. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency.
Equity Investing Risk. An investment in the Fund involves risks similar to those of investing in any fund holding equity securities, such as market fluctuations, changes in interest rates and perceived trends in stock prices. The values of equity securities could decline generally or could underperform other investments. In addition, securities may decline in value due to factors affecting a specific issuer, market or securities markets generally.
Foreign Investment Risk. Returns on investments in foreign securities could be more volatile than, or trail the returns on, investments in U.S. securities. Investments in or exposures to foreign securities are subject to special risks, including risks associated with foreign securities generally. Those special risks may arise due to differences in information available about issuers of securities and investor protection standards applicable in other jurisdictions; capital controls risks, including the risk of a foreign jurisdiction imposing restrictions on the ability to repatriate or transfer currency or other assets; currency risks; political, diplomatic and economic risks; regulatory risks; and foreign market and trading risks, including the costs of trading and risks of settlement in foreign jurisdictions.
Fixed Income Securities Risk. Changes in interest rates generally will cause the value of fixed-income and bond instruments held by the Fund to vary inversely to those changes. Prices of longer-term fixed-income instruments generally fluctuate more than the prices of shorter-term fixed income instruments as interest rates change. Fixed-income instruments that are fixed-rate are generally more susceptible than floating rate loans to price volatility related to changes in prevailing interest rates. The prices of floating rate fixed-income instruments tend to have less fluctuation in response to changes in interest rates, but will have some fluctuation, particularly when the next interest rate adjustment on the security is further away in time or adjustments are limited in amount over time.
The Fund may invest in short-term securities that, when interest rates decline, affect the Fund’s value as these securities mature or are sold and the Fund purchases new short-term securities with lower yields. An obligor’s willingness and ability to pay interest or to repay principal due in a timely manner may be affected by, among other factors, its cash flow.
GADSDEN DYNAMIC MULTI-ASSET ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
September 30, 2024
In addition, the Fund may invest in various fixed income and floating rate securities, including high-yield (junk) bond securities, inflation-linked securities, Sovereign debt securities, and U.S. Government obligations) that are subject to additional risks. Those risks may be material and the risks differ for each of the types of underlying investments. An overview of some of the fixed income and floating rate risks is under the heading - Additional Information about the Fund’s Investment Objective and Strategies.
Investment Risk. When you sell your Shares of the Fund, they could be worth less than what you paid for them. The Fund could lose money due to short-term market movements and over longer periods during market downturns. Securities may decline in value due to factors affecting securities markets generally or particular asset classes or industries represented in the markets. The value of a security may decline due to general market conditions, economic trends or events that are not specifically related to the issuer of the security or to factors that affect a particular industry or group of industries. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Therefore, you may lose money by investing in the Fund.
Commodities Risk. If the Fund invests in physical commodities, those investments will subject the Fund to greater volatility than investments in traditional securities, like stocks and bonds. Investing in physical commodities, including through exchange-traded commodities (“ETCs”) or indirectly through commodity-linked derivative instruments, such as commodity-linked futures, forwards, and swaps, is speculative and can be extremely volatile. The commodities markets may fluctuate rapidly based on a variety of factors, including overall market movements; economic events and policies; changes in interest rates or inflation rates; changes in monetary and exchange control programs; war; acts of terrorism; natural disasters; and technological developments. Variables like disease, drought, floods, weather, trade, embargoes, tariffs, and other political events may have a larger impact on commodity prices than on traditional securities. The prices of commodities can also fluctuate widely due to supply and demand disruptions in major producing or consuming regions.
Because some commodities may be produced in a limited number of countries and may be controlled by a small number of producers, political, economic, and supply-related events in those countries could have a disproportionate impact on the prices of those commodities. These factors may affect the value of the Fund in varying ways, and different factors may cause the value and the volatility of the Fund to move in inconsistent directions at inconsistent rates. The current or “spot” prices of physical commodities may also affect, in a volatile and inconsistent manner, the prices of futures contracts in respect of the relevant commodity. The Fund’s exposure to physical commodities, ETCs, and other commodity-related investments presents tax risks because income and gains from these investments are treated as non-qualifying income for purposes of the Fund’s qualification as a regulated investment company, the Fund might fail to qualify as a regulated investment company, and be subject to U.S. federal income tax at the Fund level.
U.S. Government Obligations Risk. Obligations of U.S. Government agencies and authorities receive varying levels of support and may not be backed by the full faith and credit of the U.S. Government, which could affect the Fund’s ability to recover should they default. No assurance can be given that the U.S. Government will provide financial support to its agencies and authorities if it is not obligated by law to do so. Additionally, market prices and yields of securities supported by the full faith and credit of the U.S. government or other countries may decline or be negative for short or long periods of time.
Cash and Cash Equivalents Risk. Holding cash or cash equivalents rather than securities or other instruments in which the Fund primarily invests, even for short periods, may cause the Fund to risk losing opportunities to participate in market appreciation, and may cause the Fund to experience potentially lower returns than the Fund’s benchmark or other funds that remain fully invested. In rising markets, holding cash or cash equivalents will negatively affect the Fund’s performance relative to its benchmark.
Commodity-Linked Derivatives Tax Risk. The tax treatment of commodity-linked derivative instruments is currently uncertain and may be adversely affected by changes in legislation, regulations, or other legally binding authority. As a regulated investment company (“RIC”), the Fund must derive at least 90% of its gross income each taxable year from certain qualifying sources of income under the U.S. Internal Revenue Code of 1986, as amended (the “Code”).
On May 1, 2017, the Internal Revenue Service (the “IRS”) published a series of revocations of private letter rulings that had been issued to RICs. In each of the revocations, at least one of the rulings requested in the original private letter ruling was
GADSDEN DYNAMIC MULTI-ASSET ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
September 30, 2024
that the income from a commodity-linked note was qualified income for the purposes of 90% gross income test. Although the original rulings were favorable, the IRS indicated in the revocations that the rulings were not in accord with the current views of the IRS. If, as a result of any adverse future legislation, U.S. Treasury regulations, and/or guidance issued by the IRS, the income of the Fund from certain commodity-linked derivatives were treated as non-qualifying income, the Fund may fail to qualify as RIC and/or be subject to U.S. federal income tax at the Fund level. The uncertainty surrounding the treatment of certain derivative instruments under the qualification tests for a RIC may limit the Fund’s use of those types of derivative instruments.
Currency Risk. Changes in currency exchange rates and the relative value of non-U.S. currencies may affect the value of the Fund’s foreign investments and the value of your Shares. Currency exchange rates can be very volatile and can change quickly and unpredictably. As a result, the value of an investment in the Fund may change quickly and without warning and you may lose money.
Geopolitical/Natural Disaster Risks. The Fund’s investments are subject to geopolitical and natural disaster risks, such as war, terrorism, trade disputes, political or economic dysfunction within some nations, public health crises and related geopolitical events, as well as environmental disasters, epidemics and/or pandemics, which may add to instability in world economies and volatility in markets. The impact may be short-term or may last for extended periods.
Emerging Markets Risk. The Fund may invest in companies organized in emerging market nations. Investments in securities and instruments traded in developing or emerging markets, or that provide exposure to those securities or markets, can involve additional risks relating to political, economic, or regulatory conditions not associated with investments in U.S. securities and instruments or investments in more developed international markets. Those conditions may impact the ability of the Fund to buy, sell or otherwise transfer securities, adversely affect the trading market and price for Fund shares and cause the Fund to decline in value.
See the Fund’s Prospectus and Statement of Additional Information regarding the risks of investing in shares of the Fund.
NOTE 4 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
Empowered Funds, LLC dba EA Advisers (the “Adviser”) serves as the investment adviser to the Fund. Pursuant to an investment advisory agreement (the “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 is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate. The Adviser administers the Fund’s business affairs, provides office facilities and equipment and certain clerical, bookkeeping and administrative services. The Adviser agrees to pay all expenses incurred by the Fund except for the fee paid to the Adviser pursuant to the Advisory Agreement, payments under any distribution plan adopted pursuant to Rule 12b-1, brokerage expenses, acquired fund fees and expenses, taxes (including tax-related services), interest (including borrowing costs), litigation expense (including class action-related services) and other non-routine or extraordinary expenses.
Gadsden, LLC ("Gadsden"), serves as a non-discretionary investment sub-adviser to the Fund. Pursuant to an investment sub-advisory agreement (the “Sub-Advisory Agreement”) among the Trust, the Adviser, and the Sub-Adviser, the Sub-Adviser is responsible for determining the investment exposures for the Fund, subject to the overall supervision and oversight of the Adviser and the Board. Gadsden will not be responsible for selecting brokers or placing the Fund’s trades. Rather, Gadsden will provide trade recommendations to the Adviser and, in turn, the Adviser will be responsible for selecting brokers and placing the Fund’s trades. It is anticipated that the Adviser will generally adhere to Gadsden’s recommendations.
At a Board meeting held on September 5-6, 2024, the Board of Trustees of the Trust (the “Trustees”) including each Trustee who is not an “interested person” of the Trust, as defined in the 1940 Act (the “Independent Trustees”), approved the continuation of the Advisory and Sub-Advisory Agreement. Per the Advisory Agreement, the Fund pays an annual rate of 0.59% to the Adviser monthly based on average daily net assets.
GADSDEN DYNAMIC MULTI-ASSET ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
September 30, 2024
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 for the Fund, including regulatory compliance monitoring and financial reporting; prepares reports and materials to be supplied to the trustees; 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 the Administrator, serves as the Fund’s Custodian.
The Custodian acts as the securities lending agent (the “Securities Lending Agent”) for the Fund.
NOTE 5 – 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 program administered by 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 on 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.
During the fiscal period, the Fund loaned securities and received cash collateral for the loans. The cash collateral was invested by the Securities Lending Agent in accordance with the Trust 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 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.
For the fiscal year ended September 30, 2024, the value of the securities on loan and payable for collateral due to broker were as follows:
| | | | | | | | | | | |
Value of Securities
on Loan | | Payable for
Collateral Received* | Percentage of Net Assets of Securities On Loan |
| $4,439,373 | | $4,611,753 | 2.9% |
| | | | | | | | |
| * | The cash collateral received was invested in the First American Money Market Government Obligations Fund as shown on the Schedule of Investments. The investment objective is to seek maximum current income to the extent consistent with the preservation of capital and maintenance of liquidity. |
The interest income earned by the Fund on the investment of cash collateral received from borrowers for the securities loaned to them (“Securities lending income, net”) is reflected in the Fund’s Statement of Operations. Net securities lending income earned on collateral investments and recognized by the Fund during the fiscal year ended September 30, 2024 was $98,557.
GADSDEN DYNAMIC MULTI-ASSET ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
September 30, 2024
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 for the total borrowings listed above.
NOTE 6 – PURCHASES AND SALES OF SECURITIES
For the fiscal year ended September 30, 2024, purchases and sales of securities for the Fund, excluding short-term securities and in-kind transactions, were as follows:
| | | | | | | | |
| Purchases | | Sales |
| $ | 1,248,425,298 | | | $ | 1,000,682,254 | |
For the fiscal year ended September 30, 2024, in-kind transactions associated with creations and redemptions were as follows:
| | | | | | | | |
| Purchases | | Sales |
| $ | 49,040,831 | | | $ | 310,421,242 | |
For the fiscal year ended September 30, 2024, short-term and long-term gains on in-kind transactions were as follows:
| | | | | | | | |
| Short Term | | Long Term |
| $ | 12,395,448 | | | $ | — | |
There were no purchases or sales of U.S. Government securities during the fiscal year.
GADSDEN DYNAMIC MULTI-ASSET ETF
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
September 30, 2024
NOTE 7 – TAX INFORMATION
The components of tax basis cost of investments and net unrealized appreciation (depreciation) for federal income tax purposes at September 30, 2024, were as follows:
| | | | | | | | |
| Tax cost of Investments | | $ | 153,369,470 | |
| Gross tax unrealized appreciation | | 5,656,844 | |
| Gross tax unrealized depreciation | | (313,500) | |
| Net tax unrealized appreciation (depreciation) | | $ | 5,343,344 | |
| Undistributed ordinary income | | 2,927,282 | |
| Undistributed long-term gain | | — | |
| Total distributable earnings | | 2,927,282 | |
| Other accumulated gain (loss) | | (31,963,655) | |
| Total accumulated gain (loss) | | $ | (23,693,029) | |
Under tax law, certain capital and foreign currency losses realized after October 31st and within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year.
For the fiscal period ended September 30, 2024, the Fund did not defer any post-October capital or late-year losses.
At September 30, 2024, the Fund had the following capital loss carryforwards that do not expire:
| | | | | | | | |
Unlimited
Short-Term | | Unlimited
Long-Term |
| $ | (31,963,655) | | | $ | — | |
NOTE 8 – DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid by the Fund during the fiscal years ended September 30, 2024, and September 30, 2023, were as follows:
| | | | | | | | |
Fiscal Year Ended
September 30, 2024 | | Fiscal Year Ended
September 30, 2023 |
| Ordinary Income | | Ordinary Income |
| $ | 6,113,035 | | | $ | 1,795,055 | |
NOTE 9 – SUBSEQUENT EVENTS
In preparing these financial statements, management of the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. There were no transactions that occurred during the year subsequent to September 30, 2024, that materially impacted the amounts or disclosures in the Fund’s financial statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
Gadsden Dynamic Multi-Asset ETF and
The Board of Trustees of
EA Series Trust
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Gadsden Dynamic Multi-Asset ETF (the “Fund”), a series of EA Series Trust (the “Trust”), including the schedule of investments, as of September 30, 2024, the related statement of operations for the year ended September 30, 2024, the statements of changes in net assets and the financial highlights for each of the two years ended September 30, 2024, and the related notes (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 September 30, 2024, the results of its operations for the year ended September 30, 2024, and the changes in its net assets and the financial highlights for the each of the two years ended September 30, 2024, in conformity with accounting principles generally accepted in the United States of America.
The financial highlights for the year ended September 30, 2022, the period from November 1, 2020 to September 30, 2021, the year ended October 31, 2020, and the period from November 14, 2018 (commencement of operations) to October 31, 2019, were audited by other auditors, whose reports dated November 29, 2022 and December 23, 2020 expressed an unqualified opinion on the financial statements and financial highlights.
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 have served as the auditor of one or more of the funds in the Trust since 2023.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
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 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. Our procedures included confirmation of securities owned as of September 30, 2024, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
November 27, 2024
GADSDEN DYNAMIC MULTI-ASSET ETF
FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended September 30, 2024, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.8%, as provided for by the Tax Cuts and Jobs Act of 2017. The percentage of dividends declared from ordinary income designated as qualified dividend income for the Fund was 6.95%.
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended September 30, 2024, for the Fund was 16.40%.
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under the Internal Revenue Section 871 (k)(2)(C) for the Fund was 0.00%.
Item 8. Changes in and Disagreements with Accountants for Open-End Management Investment
Companies.
There were no matters concerning changes in and disagreements with Accountants on accounting and financial disclosures required by Item 304 of Regulation S-K.
Item 9. Proxy Disclosures for Open-End Management Investment Companies.
There were no matters submitted during the period covered by the report to a vote of shareholders.
Item 10. Remuneration Paid to Directors, Officers, and Others of Open-End Management
Investment Companies
Not applicable. The Independent Trustees are paid by the Adviser out of the advisory fee. See Note 4 to the Financial Statements under Item 7.
Item 11. Statement Regarding Basis for Approval of Investment Advisory Contracts.
The Board (the members of which are referred to as “Trustees”) of the EA Series Trust (the “Trust”) met in-person on September 5-6, 2024 to consider the approval of the continuation of the Advisory Agreement between the Trust, on behalf of the Gadsden Dynamic Multi-Asset ETF (the “Fund”), and Empowered Funds, LLC dba EA Advisers (the “Adviser”), as well as to consider the approval of the continuation of the Sub-Advisory Agreement between the Adviser and Gadsden, LLC (the “Sub-Adviser”), each for an additional annual term. In accordance with Section 15(c) of the 1940 Act, the Board requested, reviewed and considered materials furnished by the Adviser and Sub-Adviser relevant to the Board’s consideration of whether to approve the continuation of the Advisory Agreement and Sub-Advisory Agreement. In connection with considering the approval of both the Advisory Agreement and Sub-Advisory Agreement, the Trustees who are not “interested persons” of the Trust, as that term is defined in the 1940 Act (the “Independent Trustees”), met in executive session with counsel to the Trust, who provided assistance and advice. In reaching the decision to approve both the Advisory Agreement and Sub-Advisory Agreement, the Board considered and reviewed information provided by the Adviser and Sub-Adviser at this meeting and throughout the year, including among other things information about their respective personnel, operations, financial condition, and compliance and risk management. The Board also reviewed the Advisory Agreement and Sub-Advisory Agreement. During its review and consideration, the Board focused on and reviewed the factors it deemed relevant, including:
Nature, Quality, and Extent of Services. The Board was presented with and considered information concerning the nature, quality, and extent of the overall services provided by the Adviser to the Fund. In this connection, the Board considered the responsibilities of the Adviser, recognizing that the Adviser had invested significant time and effort in structuring the Trust and the Fund, and arranging service providers for the Fund. In addition, the Board considered that the Adviser is responsible for providing investment advisory oversight services to the Fund, executing all Fund transactions, monitoring compliance with the Fund’s objectives, policies and restrictions, and carrying out directives of the Board. The Board also considered the services provided by the Adviser in the oversight of the Trust’s administrator, transfer agent and custodian. In addition, the Board evaluated the integrity of each of the Adviser’s and Sub-Adviser’s personnel, the experience of the portfolio managers in managing assets and the adequacy of each of the Adviser’s and the Sub-Adviser’s resources to perform the services provided under the Advisory Agreement and Sub-Advisory Agreement. The Board also considered the Adviser’s ongoing oversight responsibilities vis-à-vis the Sub-Adviser.
Performance. The Board considered the third-party peer group analysis comparing the Fund’s performance to the performance of other ETFs that the third-party deemed to be comparable to the Fund. It was determined that the Adviser and the Sub-Adviser have consistently managed the Fund’s portfolio in accordance with its stated investment objective and strategies. The Board noted that the Fund underperformed the average total return of its peer group by 57 (0.57%) basis points over the past 12 months ended June 30, 2024. The Board also noted that the Fund underperformed the average total return of its peer group by 1424 (14.24%) basis points over the past 24 months ended June 30, 2024. The Board further noted that the Fund underperformed the average total return of its peer group by 187 (1.87%) basis points over the past 36 months ended June 30, 2024. The Board noted that while the Fund significantly underperformed for the 24-month period, the Sub-Adviser’s assertion that the Fund’s underperformance was due to its concerns over economic uncertainty, tight monetary policy, and a perceived elevated risk of recession that ultimately proved incorrect was acceptable to the Board. The Board
further noted the Sub-Adviser’s assertion that the risk/return profile of the Fund is lower than those included in the peer group. The Board concluded that the Fund’s overall performance record was reasonable.
Comparative Fees and Expenses. In considering the advisory fees and sub-advisory fees, the Board reviewed and considered the fees in light of the nature, quality, and extent of the services being provided by the Adviser and the Sub-Adviser, respectively. With respect to the advisory fees and expense ratio for the Fund, the Board also considered the third-party peer group analysis that included a comparison of the Fund’s advisory fee and expense ratio versus the fees and expenses charged to other comparable ETFs. The Board also considered the allocation of fees between the Adviser and the Sub-Adviser.
The Board compared the Fund’s gross total expense ratio, net total expense ratio, and management fee to those of its peer group, as shown in the third-party report. The Fund’s gross total expense ratio (0.80%) was lower than the peer group average (1.89%); the Fund’s net total expense ratio (0.80%) was lower than the peer group average (1.13%); and the Fund’s management fee (0.59%) was lower than the peer group average (0.79%). The Board considered that the Fund’s fee arrangement in which the Adviser is responsible for paying most of the Fund’s operating expenses out of its resources, noting that comparisons with the Fund’s overall expense ratio may be more relevant than comparisons to management fees only. They stated that such a comparison demonstrates the Fund’s overall cost structure is within the range of expense ratios of its peers.
The Board considered, among other information, the data provided in the third-party report comparing the Fund’s fees to those of other ETFs that the third-party deemed to be comparable to the Fund. Fee information was provided in quartiles, ranging from quartile one (the least expensive) to quartile four (the most expensive). This data included a comparison of the Fund’s expense ratio against its peers. The Fund’s total expense ratio (for both gross and net) and management fee were in the following quartiles:
| | | | | | | | | | | |
| Fund | Total Expense Ratio | Net Expense Ratio | Management Fee Only |
| GDMA | Quartile 1 | Quartile 1 | Quartile 2 |
With respect to the sub-advisory fee, the Board noted that it was payable solely out of the unitary management fee payable to the Adviser. The Board considered the representations from the Adviser that it does not manage any other accounts that follow a similar strategy. The Board was agreeable to the fee levels.
Costs and Profitability. The Board further considered information regarding the potential profits, if any, that may be realized by each of the Adviser and the Sub-Adviser in connection with providing their respective services to the Fund. The Board reviewed the profit and loss information provided by the Adviser with respect to the Fund, noting that the Fund is profitable to the Adviser at this time. The Board also reviewed the same type of information provided by the Sub-Adviser that showed it was profitable. The Board discussed the financial condition of the Sub-Adviser, noting that the Sub-Adviser has sufficient capital to maintain its commitment to the Fund for an additional annual period. The Board also reviewed the costs associated with the personnel, systems and equipment necessary to manage the Fund and to meet the regulatory and compliance requirements adopted by the SEC and other regulatory bodies. The Board also considered other expenses of the Fund the Adviser would pay in accordance with the Advisory Agreement. The Board took into consideration that, pursuant to the Advisory Agreement, the Adviser agreed to pay all expenses incurred by the Fund except for the fees paid to the Adviser pursuant to the Advisory Agreement, payments under any distribution plan adopted pursuant to Rule 12b-1, brokerage expenses, acquired fund fees and expenses, taxes, interest (including borrowing costs), the fees and expenses associated with the Fund’s securities lending program, litigation expenses and other non-routine or extraordinary expenses. The Board also considered the respective financial obligations of the Adviser, as well as the Sub-Adviser, who serves as the sponsor of the Fund.
Other Benefits. The Board further considered the extent to which the Adviser or the Sub-Adviser might derive ancillary benefits from the Fund’s operations. For example, the Adviser may engage in soft dollar transactions in the future, although it did not currently plan to do so. In addition, the Adviser may benefit from continued growth in the Trust by potentially negotiating better fee arrangements with key vendors serving the Fund and other series in the Trust.
Economies of Scale. The Board also considered whether economies of scale would be realized by the Fund as its assets grow larger, including the extent to which this is reflected in the level of fees to be charged. The Board also noted that the advisory and sub-advisory fees do not include breakpoints but concluded that it was premature to meaningfully evaluate potential economies of scale given the Fund’s current assets.
Conclusion. No single factor was determinative of the Board’s decision to approve the continuation of the Advisory Agreement and Sub-Advisory Agreement for an additional annual term; rather, the Board based its determination on the total mix of information available to it. Based on a consideration of all the factors in their totality, the Board, including the Independent Trustees, unanimously determined that the Advisory Agreement and Sub-Advisory Agreement, including the compensation payable under each Agreement, were fair and reasonable to the Fund. The Board, including the Independent Trustees, unanimously determined that the approval of the continuation of each of the Advisory Agreement and the Sub-Advisory Agreement was in the best interests of the Fund and its shareholders.
Item 12. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 13. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 14. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable to open-end investment companies.
Item 15. 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 16. 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 are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 17. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
Not applicable to open-end investment companies.
Item 18. Recovery of Erroneously Awarded Compensation.
(a) Not applicable.
(b) Not applicable.
Item 19. Exhibits.
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) | EA Series Trust | |
| | |
| By (Signature and Title) | /s/ Michael D. Barolsky | |
| | Michael D. Barolsky, President (principal executive officer) | |
| | |
| Date: | December 4, 2024 | |
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/ Michael D. Barolsky | |
| | Michael D. Barolsky, President (principal executive officer) | |
| | | |
| Date: | December 4, 2024 | |
| | | |
| By (Signature and Title) | /s/ Sean R. Hegarty | |
| | Sean R. Hegarty, Treasurer (principal financial officer) | |
| | | |
| Date: | December 4, 2024 | |
