Franklin Templeton Digital Holdings Trust 10-Q

Item 1. Financial Statements (Unaudited) FRANKLIN BITCOIN ETF A SERIES OF FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST Index to Unaudited Financial Statements Page Statement of Assets and Liabilities at December 31, 2023 (Unaudited) 2 Schedule of Investments at December 31, 2023 (Unaudited) 3 Statement of Changes in Net Assets (Unaudited) for the period from December 15, 2023 (Date of Inception) to December 31, 2023 4 Statement of Cash Flows (Unaudited) for the period from December 15, 2023 (Date of Inception) to December 31, 2023 5 Notes to Financial Statements (Unaudited) 6 1 Table of Contents FRANKLIN BITCOIN ETF A SERIES OF FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST STATEMENT OF ASSETS AND LIABILITIES December 31, 2023* (Unaudited) Assets: Investment in bitcoin, at fair value (cost $ - ) $ —   Cash 100,000 Total assets $ 100,000 Liabilities: Sponsor’s fee payable $ —   Total liabilities —   Net assets $ 100,000 Net assets consist of: Paid-in-capital $ 100,000 Distributable earnings (loss) —   $ 100,000 Shares issued and outstanding, no par value ( unlimited Shares authorized) 4,000 Net asset value per Share $ 25.00 See accompanying notes to the unaudited financial statements. * No comparative period presented as fund inception was December 15, 2023. 2 Table of Contents FRANKLIN BITCOIN ETF A SERIES OF FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST SCHEDULE OF INVESTMENTS December 31, 2023* (Unaudited) Quantity of bitcoin Cost Fair Value % of Net Assets Investment in bitcoin 0.00000000 $ —   $ —   0.00 % Total Investment —   $ —   0.00 Assets in excess of other liabilities 100,000 100.00 Net assets $ 100,000 100.00 % See notes to the unaudited financial statements. * No comparative period presented as fund inception was December 15, 2023. 3 Table of Contents FRANKLIN BITCOIN ETF A SERIES OF FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST STATEMENT OF CHANGES IN NET ASSETS (Unaudited) For the period December 15, 2023 (Initial Seed Creation Date) through December 31, 2023* Net assets, beginning of period Net investment loss $ –   Net realized gain on investment in bitcoin –   Net change in unrealized appreciation (depreciation) –   Net increase (decrease) in net assets resulting from operations –   Increase (decrease) in net assets from capital share transactions: Creation of Units 100,000 ^ Redemption of Units –   Net increase in net assets resulting from capital share transactions 100,000 Total increase (decrease) in net assets from financing and capital share transactions 100,000 Net assets, end of period 100,000 Changes in Shares outstanding Shares outstanding at beginning of period Shares issued 4,000 Shares redeemed –   Net increase (decrease) in Shares 4,000 Shares outstanding at end of period 4,000 ^ The amount represents the initial seed on December 15, 2023. See accompanying notes to the unaudited financial statements. * No comparative period presented as fund inception was December 15, 2023. 4 Table of Contents FRANKLIN BITCOIN ETF A SERIES OF FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST STATEMENT OF CASH FLOWS (Unaudited) For the period December 15, 2023 (Initial Seed Creation Date) through December 31, 2023* Cash Flows from Financing Activities: Proceeds from creation or redemption of units $ 100,000 ^ Net cash provided by (used in) financing activities 100,000 Increase (decrease) in cash 100,000 Cash, beginning of period –   Cash, end of period $ 100,000 Reconciliation of Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions to Net Cash Provided by (Used in) Financing Activities: Net increase (decrease) in net assets resulting from capital share transactions $ 100,000 Adjustments to reconcile net increase (decrease) in net assets resulting from capital share transactions to net cash provided by (used in) financing activities: + Proceeds from creation or redemption of units 100,000 Net realized gain (loss) –  Net change in unrealized appreciation (depreciation) –  Net cash provided by (used in) financing activities $ 100,000 ^ The amount represents the initial seed on December 15, 2023. See accompanying notes to the unaudited financial statements. * No comparative period presented as fund inception was December 15, 2023. 5 Table of Contents FRANKLIN BITCOIN ETF A SERIES OF FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION The Franklin Templeton Digital Holdings Trust (the “Trust”) was formed as a Delaware statutory trust on September 6, 2023 , and is governed by the provisions of an Agreement and Declaration of Trust dated as of January 5, 2024. The Trust is not registered as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”) and is not a commodity pool for purposes of the Commodity Exchange Act (“CEA”). The Trust currently offers a single series, the Franklin Bitcoin ETF (the “Fund”). The accompanying unaudited financial statements relate to the Trust and the Fund, which is currently the only series of the Trust. The Trust had no operations prior to the commencement of operations of the Fund on January 11, 2024, other than matters relating to its organization and the registration of the Fund under the Securities Act of 1933, as amended (the “Securities Act”). The Sponsor of the Trust and the Fund (the “Sponsor”) is Franklin Holdings, LLC. The Sponsor is a Delaware limited liability company formed on July 21, 2021. The Sponsor is not subject to regulation by the Commodity Futures Trading Commission (“CFTC”) as a commodity pool operator with respect to the Fund, or a commodity trading advisor with respect to the Fund. The Fund issues shares (the “Shares”), which represent units of fractional undivided beneficial interest in the Fund. The Shares of the Fund are listed on the Cboe BZX Exchange, Inc. (“ Cboe BZX Exchange ” or the “Exchange”). The Fund seeks to reflect generally the performance of the price of bitcoin. The Fund seeks to reflect such performance before payment of the Fund’s expenses and liabilities. The Shares are intended to constitute a simple means of making an investment similar to an investment in bitcoin rather than by acquiring, holding, and trading bitcoin directly on a peer-to-peer or other basis or via a digital asset exchange. The Fund is a passive investment vehicle and is not a leveraged product. The Sponsor does not actively manage the bitcoin held by the Fund. The Bank of New York Mellon (“BNYM”) serves as the Fund’s Administrator, Transfer Agent and the Cash Custodian. The Administrator is generally responsible for the day-to-day administration of the Fund, including the calculation of the Fund’s NAV per Share. The Bitcoin Custodian is responsible for safekeeping the bitcoin owned by the Fund. The Bitcoin Custodian is Coinbase Custody Trust Company, LLC (“Coinbase Custody”). Delaware Trust Company, a subsidiary of Corporation Service Company (the “Trustee”), is the sole trustee of the Trust. Franklin Distributors, LLC is the marketing agent of the Fund (the “Marketing Agent”). The Fund issues Shares only in Creation Units of 50,000 or multiples thereof. Creation Units are issued and redeemed in exchange for cash. Individual Shares will not be redeemed by the Fund but will be listed and traded on the Exchange under the ticker symbol “ EZBC .” The Fund issues Shares in Creation Units on a continuous basis at the applicable NAV per Share on the creation order date. The Fund is an “emerging growth company” as that term is used in the Securities Act, and, as such, the Fund may elect to comply with certain reduced public company reporting requirements. On December 15, 2023, the Seed Capital Investor purchased 4,000 Shares at a per-Share price equal to $ 25.00 (the “Initial Seed Shares”). Delivery of the Initial Seed Shares was made on December 15, 2023. Total proceeds to the Fund from the sale of the Initial Seed Shares were $ 100,000 . On January 8, 2024, the Initial Seed Shares were redeemed for $ 100,000 and the Seed Capital Investor purchased two creation units in a cash transaction comprised of a total of 100,000 Shares at a per-Share price based on 29.00000000 bitcoins per Creation Unit (or 0.00058 bitcoins per Share), for a total of 58.00000000 bitcoins (the “Seed Creation Units”). The cash proceeds to the Fund from the sale of the Seed Creation Units were used by the Fund to purchase 58.00000000 bitcoins at the price of $ 44,973.58 per bitcoin on January 8, 2024. The transaction and other costs incurred in connection with the Seed Creation Units were paid by the Seed Capital Investor and not borne by the Fund. Thus, the ultimate total proceeds to the Fund from the sale of the Seed Creation Units were $ 2,608,467.81 (an amount representing 58.00000000 bitcoins). The Shares were first listed for trading and the Fund commenced operations on January 11, 2024. The statement of assets and liabilities and schedule of investments on December 31, 2023, and the statements of cash flows and changes in net assets for the period December 15, 2023 to December 31, 2023, have been prepared for the Trust on behalf of the Fund and are unaudited. The Fund had no operations prior to the commencement of operations of the Fund on January 11, 2024, and hence the statements of operations is not prepared. In the opinion of management of the Sponsor of the Trust, all adjustments (which include normal recurring adjustments) necessary to state fairly the financial position for the period ended December 31, 2023, have been made. In addition, interim period results are not necessarily indicative of results for a full-year period. 6 Table of Contents The fiscal year-end of the Fund is March 31st. 2. SIGNIFICANT ACCOUNTING POLICIES As of the date of this report, U.S. GAAP (“GAAP”) contains no authoritative guidance related to the accounting for digital assets. As a result, transactions of bitcoin will be accounted for analogizing to existing accounting standards that management of the Sponsor believes are appropr i ate to the circumstances. There can be no certainty as to when the FASB or other standards setter will issue accounting standards for bitcoin, if at all. In preparing financial statements in conformity with GAAP, management of the Sponsor makes estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amount of revenue and expenses reported during the period. Actual results could differ from these estimates. The following is a summary of significant accounting policies followed by the Trust and the Fund. 2.1. Basis of Presentation The Sponsor has determined that the Trust falls within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services—Investment Companies, and has concluded that solely for accounting purposes, the Trust is classified as an Investment Company. The Trust is not registered as an investment company under the Investment Company Act of 1940 and is not required to register under such act. 2.2. Calculation of NAV and NAV per Share The Sponsor has the exclusive authority to determine the Fund’s net asset value (“NAV”). The Sponsor has delegated to the Administrator the responsibility to calculate the NAV of the Fund, based on a pricing source selected by the Sponsor. In determining the Fund’s NAV, the Administrator will value the bitcoin held by the Fund based on the Index, unless the Sponsor in its sole discretion determines that the index is unreliable. The CF Benchmarks Index shall constitute the Index, unless the CF Benchmarks Index is not available or the Sponsor in its sole discretion determines the CF Benchmarks Index is unreliable as the Index and therefore determines not to use the CF Benchmarks Index as the Index. If the CF Benchmarks Index is not available or the Sponsor determines, in its sole discretion, that the CF Benchmarks Index is unreliable (referred to herein as a “Fair Value Event”), the Fund’s holdings may be fair valued by the Sponsor. On each Business Day, as soon as practicable after 4:00 p.m. Eastern Time (“ET”), the Administrator evaluates the bitcoin held by the Fund as reflected by the CF Benchmarks Index and determines the NAV of the Fund. For purposes of making these calculations, a Business Day means any day other than a day when the Cboe BZX Exchange is closed for regular trading. 2.3. Valuation The Fund’s financial statements are prepared in accordance GAAP for interim financial information. With respect to the Fund’s bitcoin holdings, the Trust will follow the provisions of the Financial Accounting Standards Board Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures” (“ASC Topic 820”) and utilize an exchange-traded price from the Fund’s principal market (or in the absence of a principal market, the most advantageous market) for bitcoin as of the Fund’s financial statement measurement date. ASC 820 established a hierarchy that prioritized inputs to valuation techniques used to measure fair value. The three levels of inputs are: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means; and 7 Table of Contents Level 3: Inputs that are unobservable for the asset or liability, including the Fund’s assumptions used in determining the fair value of investments. On December 31, 2023, the Fund had no holdings other than cash received in connection with the initial seed transaction. The cost basis of the investment in bitcoin recorded by the Trust on behalf of the Fund for financial reporting purposes is the fair value of bitcoin at the time of transfer. 2.4. Fees, Expenses and Realized Gain (Loss) The Fund’s only ordinary recurring expense will be the Sponsor’s fee. In exchange for the Sponsor’s fee, the Sponsor has agreed to assume the ordinary fees and expenses incurred by the Fund, including but not limited to the following: the fees charged by the Administrator, the Custodians and the Trustee, Cboe BZX Exchange listing fees, typical maintenance and transaction fees of the DTC, SEC registration fees, printing and mailing costs, tax reporting fees, audit fees, license fees and expenses, up to $ 500,000 per annum in ordinary legal fees and expenses. The Sponsor will also pay the costs of the Fund’s organization and the initial offering costs and may not seek reimbursement of such costs. The Sponsor’s fee is accrued daily at an annualized rate equal to 0.19 % of the net asset value of the Fund and is payable at least quarterly in arrears in U.S. dollars or in-kind or any combination thereof. The Sponsor may, at its sole discretion and from time to time, waive all or a portion of the Sponsor’s fee for stated periods of time. The Sponsor is under no obligation to waive any portion of its fees and any such waiver shall create no obligation to waive any such fees during any period not covered by the waiver. The Fund will sell bitcoin as needed to pay the Sponsor’s fee. The Fund bears transaction costs, including any bitcoin network fees or other similar transaction fees, in connection with any sales of bitcoin necessary to pay the Sponsor’s fee, as well as other Fund expenses (if any) that are not assumed by the Sponsor (expenses assumed by the Sponsor are specified above). Any bitcoin network fees and similar transaction fees incurred in connection with the creation or redemption of Creation Units are borne by the Authorized Participant. For a period from January 12, 2024 to August 2, 2024, the Sponsor will waive a portion of the Sponsor’s Fee so that the Sponsor’s Fee after the fee waiver will be equal to 0.00 % of the net asset value of the Fund for the first $ 10.0 billion of the Fund’s assets. As of December 31, 2023, the Fund had not yet incurred or paid any fee to the Sponsor because the Fund had not yet commenced operations. Shares of the Fund were first listed for trading on the Exchange on January 11, 2024. The Sponsor is not required to pay any extraordinary or non-routine expenses. Extraordinary expenses are fees and expenses which are unexpected or unusual in nature, such as legal claims and liabilities and litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses also include material expenses which are not currently anticipated obligations of the Fund. The Fund will be responsible for the payment of such expenses to the extent any such expenses are incurred. Routine operational, administrative and other ordinary expenses are not deemed extraordinary expenses. In addition, the Fund may incur certain other non-recurring expenses that are not assumed by the Sponsor (expenses assumed by the Sponsor are described above), including but not limited to, taxes and governmental charges, any applicable brokerage commissions, bitcoin network fees and similar transaction fees that qualify as extraordinary or non-routine expenses as described above, financing fees, expenses and costs of any extraordinary services performed by the Sponsor (or any other service provider) on behalf of the Fund to protect the Fund or the interests of Shareholders (including, for example, in connection with any fork of the bitcoin blockchain, any Incidental Rights and any IR Virtual Currency), any indemnification of the Cash Custodian, Bitcoin Custodian, Prime Broker, Administrator or other agents, service providers or counterparties of the Trust or the Fund and extraordinary legal fees and expenses, including any legal fees and expenses incurred in connection with litigation, regulatory enforcement or investigation matters or legal expenses in excess of $ 500,000 per year. The Sponsor may determine in its sole discretion to assume legal fees and expenses of the Fund in excess of the $ 500,000 per annum stipulated in the Sponsor Agreement. To the extent that the Sponsor does not voluntarily assume such fees and expenses, they will be the responsibility of the Fund. The Fund’s organizational and offering costs are borne by the Sponsor and, as such, are the sole responsibility of the Sponsor. The Sponsor will not seek reimbursement or otherwise require the Fund, the Trust, the Trustee, or any Shareholder to assume any liability, duty or obligation in connection with any such organizational and offering costs. Because the Fund does not have any income, it will need to sell bitcoin to cover the Sponsor’s fee and expenses not assumed by the Sponsor, if any. Fund expenses not assumed by the Sponsor shall accrue daily and be payable by the Fund to the Sponsor at least quarterly in 8 Table of Contents arrears. The Fund may also be subject to other liabilities (for example, as a result of litigation) that have also not been assumed by the Sponsor. The only source of funds to cover those liabilities will be sales of bitcoin held by the Fund. Even if there are no expenses other than those assumed by the Sponsor, and there are no other liabilities of the Fund, the Fund will still need to sell bitcoin to pay the Sponsor’s fee. The result of these sales is a decrease in the amount of bitcoin represented by each Share. To cover the Sponsor’s fee and expenses not assumed by the Sponsor, the Sponsor or its delegate will cause the Fund to convert bitcoin into U.S. dollars generally at the price available through the Prime Broker’s Coinbase Prime service (less applicable trading fees) through the Trading Platform which the Sponsor is able to obtain using commercially reasonable efforts. The number of bitcoins represented by a Share will decline each time the Fund pays the Sponsor’s fee or any Fund expenses not assumed by the Sponsor by transferring or selling bitcoins. The quantity of bitcoins to be sold to permit payment of the Sponsor’s fee or Fund expenses not assumed by the Sponsor, will vary from time to time depending on the level of the Fund’s expenses and the value of bitcoins held by the Fund. 2.5. Income Taxes The Fund is classified as a “grantor trust” for United States federal income tax purposes. As a result, the Fund itself is not subject to United States federal income tax. Instead, the Fund’s income, gain, losses, and expenses will “flow through” to the shareholders, and the Administrator reports these to the Internal Revenue Service on that basis. The Sponsor has analysed applicable tax laws and regulations and their application to the Fund as of December 31, 2023, and does not believe that there are any uncertain tax positions that require recognition of a tax liability. . 2.6. Creation and Redemption of Shares The Fund issues and redeems Creation Units on a continuous basis. Creation Units are issued or redeemed in exchange for an amount of cash as determined by the Administrator on each day that Cboe BZX Exchange is open for regular trading. For creation transactions, the amount of cash required to be delivered to the Fund will equal the amount of cash needed to purchase the amount of bitcoin represented by the Creation Unit(s) being created, as calculated by the Administrator, plus applicable fees, costs and adjustments. For redemption transactions, the Sponsor will arrange for the bitcoin represented by the Creation Unit(s) being redeemed to be sold and the cash proceeds, after applicable fees, costs and adjustments, distributed. No Shares are issued until the corresponding amount of bitcoin has been received in the Fund’s Trading Balance. Creation Units may be created or redeemed only by Authorized Participants, who pay (1) a transaction fee for each order to create or redeem Creation Units; (2) transfer, processing and other transaction costs charged by the Bitcoin Custodian in connection with the issuance or redemption of Creation Units for such order; and (3) any other expenses, taxes, charges or adjustments. The Authorized Participants will deliver only cash to create Shares and will receive only cash when redeeming Shares. Further, Authorized Participants will not directly or indirectly purchase, hold, deliver, or receive bitcoin as part of the creation or redemption process or otherwise direct the Fund or a third-party with respect to purchasing, holding, delivering, or receiving bitcoin as part of the creation or redemption process. The Fund will create Shares by receiving bitcoin from a third-party that is not the Authorized Participant and the Fund—not the Authorized Participant—is responsible for selecting the third-party to deliver the bitcoin. Further, the third-party will not be acting as an agent of the Authorized Participant with respect to the delivery of the bitcoin to the Fund or acting at the direction of the Authorized Participant with respect to the delivery of the bitcoin to the Fund. The Fund will redeem shares by delivering bitcoin to a third-party that is not the Authorized Participant and the Fund—not the Authorized Participant—is responsible for selecting the third-party to receive the bitcoin. Further, the third-party will not be acting as an agent of the Authorized Participant with respect to the receipt of the bitcoin from the Fund or acting at the direction of the Authorized Participant with respect to the receipt of the bitcoin from the Fund. The third-party will be unaffiliated with the Fund and the Sponsor. Creation Units will be sold at a per-Share offering price that will vary depending on, among other things, the price of bitcoin and the trading price of the Shares on the Cboe BXZ Exchange Inc. at the time of the offer. Shares offered at different times may have different offering prices. Prior to the Fund’s launch on January 11, 2023, there was no public market for the Shares. 9 Table of Contents 3. RELATED PARTIES - SPONSOR The Sponsor is a related party of the Trust and the Fund. The Marketing Agent is an affiliate of the Sponsor. Expenses payable to the Marketing Agent, if any, are paid through the Sponsor’s fee. The Trust also considers Franklin Resources, Inc., the ultimate parent company of the Sponsor, to be a related party of the Trust and the Fund. As of December 31, 2023, 100 % of the outstanding shares of the Fund (the “Initial Seed Shares”) were held by Franklin Resources, Inc. in its capacity as the Seed Capital Investor pursuant to the initial seed transaction. See note [8] for additional information. The Sponsor of the Trust is Franklin Holdings, LLC. The Sponsor is responsible for establishing the Trust and for the registration of the Shares. The Sponsor generally oversees the performance of the Fund’s principal service providers but does not exercise day-to-day oversight over such service providers. The Sponsor, with assistance and support from the Administrator, is responsible for preparing and filing periodic reports on behalf of the Fund with the SEC and will provide any required certification for such reports. The Sponsor has designated the independent registered public accounting firm of the Trust on behalf of the Fund and may from time to time employ legal counsel for the Fund. Franklin Distributors, LLC serves as the Marketing Agent of the Fund. The Sponsor and the Marketing Agent are affiliates, and each is considered to be a related party to the Trust and the Fund. Franklin Resources, Inc. (“FRI”) is the ultimate parent company of the Sponsor and the Marketing Agent. FRI is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. In exchange for the Sponsor’s fee, the Sponsor has agreed to assume the ordinary fees and expenses incurred by the Fund, including but not limited to the following: fees charged by the Administrator, the Custodian and the Trustee, NYSE Arca listing fees, typical maintenance and transaction fees of the DTC, SEC registration fees, printing and mailing costs, audit fees and expenses, up to $ 500,000 per annum in legal fees and expenses and applicable license fees. The Sponsor bears expenses in connection with the issuance and distribution of the securities being registered. The Sponsor is not required to pay any extraordinary or non-routine expenses. 4. CONCENTRATION OF RISK As of December 31, 2023, the Fund had not yet launched and held only cash in connection with its initial organization. At launch and thereafter, the Fund will hold only bitcoin and cash, which creates a concentration risk associated with fluctuations in the price of bitcoin. Accordingly, a decline in the price of bitcoin will have an adverse effect on the value of the Shares of the Fund. The trading prices of bitcoin have experienced extreme volatility in recent periods and may continue to fluctuate significantly. Extreme volatility in the future, including substantial, sustained, or rapid declines in the trading prices of bitcoin, could have a material adverse effect on the value of the Shares and the Shares could lose all or substantially all of their value. Factors adversely impacting the value of bitcoin and the Shares may include an increase in the global bitcoin supply or a decrease in global bitcoin demand; market conditions of, and overall sentiment towards, the digital assets and blockchain technology industry; trading activity on digital asset exchanges, which, in many cases, are largely unregulated or may be subject to manipulation; the adoption of bitcoin as a medium of exchange, store-of-value or other consumptive asset and the maintenance and development of the open-source software protocol of the bitcoin network, and their ability to meet user demands; manipulative trading activity on digital asset exchanges, which, in many cases, are largely unregulated; and forks in the bitcoin network, among other things. 10 Table of Contents 5. FINANCIAL HIGHLIGHTS For the period December 15, 2023 (Initial Seed Creation Date) through December 31, 2023* Net asset value per Share, beginning of period $ 25 (1) Net investment loss (2) –   Net realized and unrealized gain (loss) –   Net change in net assets from operations –   Net asset value per Share, end of period $ 25 (1) Net asset, beginning of period Net asset, end of period Total return, at net asset value - % Ratio to average net assets Net investment loss - % (3) Net expenses - % (3) 1 The amount represents the initial seed creation and the NAV at which the initial shares were acquired on December 15, 2023. 2 Calculated using average Shares outstanding. 3 Annualized based on the period from December 15, 2023 (initial seed creation) to December 31, 2023. * No comparative period presented fund inception was December 15, 2023. 6. COMMITMENT AND CONTINGENT LIABILITIES In the normal course of business, the Trust, on behalf of the Fund, may enter 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 made against the Fund that have not yet occurred. 7. INDEMNIFICATION Under the Trust’s organizational documents, the Sponsor and its shareholders, members, directors, affiliates, officers, employees and subsidiaries are indemnified by the Trust against certain liabilities. The Fund has also agreed to indemnify certain of its other service providers, including the Administrator, Custodians and the Trustee (including its officers, affiliates, directors, employees, and agents), for certain liabilities incurred by such parties in connection with their respective agreements to provide services for the Fund. The Sponsor will not be liable to the Trust, the Trustee or any Shareholder for any action taken or for refraining from taking any action in good faith, or for errors in judgment or for depreciation or loss incurred by reason of the sale of any bitcoin or other assets of the Fund or the Trust. However, the preceding liability exclusion will not protect the Sponsor against any liability resulting from its own gross negligence, bad faith, or wilful misconduct. 11 Table of Contents 8. SUBSEQUENT EVENTS On January 8 , 2024, 4,000 Shares owned by the Seed Capital Investor (the “Initial Seed Shares”) were redeemed for $ 100,000 and the Seed Capital Investor purchased two creation units in a cash transaction comprised of a total of 100,000 Shares at a per-Share price based on 29.00000000 bitcoins per Creation Unit (or 0.00058 bitcoins per Share), for a total of 58.00000000 bitcoins (the “Seed Creation Units”). The cash proceeds to the Fund from the sale of the Seed Creation Units were used by the Fund to purchase 58.00000000 bitcoins at the price of $ 44,973.58 per bitcoin on January 8 , 2024. The transaction and other costs incurred in connection with the Seed Creation Units were paid by the Seed Capital Investor and not borne by the Fund. Thus, the ultimate total proceeds to the Fund from the sale of the Seed Creation Units were $ 2,608,467.81 (an amount representing 58.00000000 bitcoins). The Seed Capital Investor will act as a statutory underwriter with respect to the Seed Creation Units. See “Seed Capital Investor” and “Plan of Distribution” in the Fund’s Prospectus for further information. The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no subsequent events other than the foregoing have occurred that require disclosure. 12 Table of Contents