Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
The Trust maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Principal Executive Officer and Principal Financial Officer of the Sponsor, who performs functions similar to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had officers, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of the Principal Executive Officer and Principal Financial Officer of the Sponsor, the Sponsor conducted an evaluation of the Trust’s disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e) as of March 31, 2024 and concluded that the disclosure controls and procedures operated effectively at reasonable levels of assurance.
The Trust, on behalf of the Fund, maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Trust’s Exchange Act reports with respect to the Fund is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Principal Executive Officer and Principal Financial Officer of the Sponsor, who performs functions similar to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had officers, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of the Principal Executive Officer and Principal Financial Officer of the Sponsor, the Sponsor conducted an evaluation of the Trust’s disclosure controls and procedures with respect to the Fund, as defined under Exchange Act Rule 13a-15(e) as of March 31, 2024 and concluded that the disclosure controls and procedures operated effectively at reasonable levels of assurance.
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Table of Contents
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.
Change in Internal Control Over Financial Reporting
There were no changes in the Trust’s and the Fund’s internal control over financial reporting that occurred during the fiscal period covered by this report that have materially affected, or are reasonably likely to materially affect, the Trust’s and the Fund’s internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.
Each of the Sarbanes-Oxley certifications included as exhibits to this filing apply with respect to both the operations of both the Fund, as the sole series of the Trust, and the Trust as registrant.
Item 9B. Other Information
No officers or directors of the Sponsor have adopted, modified, or terminated trading plans under either a Rule 10b5-1
or non-Rule
10b5-1
trading arrangement (as such terms are defined in Item 408 of Regulation S-K
of the Securities Act of 1933) for the three
-month period ended March 31, 2024.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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Table of Contents
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
The Trust does not have any directors, officers, or employees. The following persons, in their respective capacities as directors or executive officers of the Sponsor, a Delaware limited liability company, perform certain functions with respect to the Trust that, if the Trust had directors or executive officers, would typically be performed by them.
David Mann – President and Chief Executive Officer
Matthew Hinkle – Chief Financial Officer
Vivek Pai – Chief Accounting Officer and Treasurer
Todd Mathias – Vice President
Navid Tofigh – Vice President and Secretary
Julie Patel – Vice President and Assistant Secretary
Ryan Wheeler – Assistant Treasurer
Ajay Narayan – Assistant Treasurer
Jeff White – Assistant Treasurer
The Trust does not have a code of ethics as it does not have any directors, officers, or employees.
The Sponsor has a code of ethics (the “Code of Ethics”) that applies to its executive officers, including its Principal Executive Officer, Principal Financial Officer and Treasurer, who perform certain functions with respect to the Trust that, if the Trust had executive officers would typically be performed by them. The Code of Ethics is available at https://www.franklinresources.com/governance/corporate-governance-documents. The Sponsor’s Code of Ethics is intended to be a codification of the business and ethical principles that guide the Sponsor, and to deter wrongdoing, to promote (1) honest and ethical conduct (including the ethical handling of actual or apparent conflicts of interest), (2) full, fair, accurate, timely and understandable disclosure in public reports, documents and communications, (3) compliance with applicable laws and governmental rules and regulations, (4) the prompt internal reporting of violations of the Code of Ethics and (5) accountability for adherence to the Code of Ethics.
Item 11. Executive Compensation
The Trust does not have any directors or executive officers. The only ordinary expense paid by the Fund is the Sponsor’s fee.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Securities Authorized for Issuance under Equity Compensation Plans: Not applicable.
Security Ownership of Certain Beneficial Owners and Management:
a.)
Not applicable.
b.)
Not applicable.
Item 13. Certain Relationships and Related Transactions and Director Independence
Not applicable.
Item 14. Principal Accounting Fees and Services
Fees for services performed by PricewaterhouseCoopers LLP (“PwC”), as paid by the Sponsor from the Sponsor fee, for the period ended March 31, 2024, were:
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2024*
Audit fees
$
130,000
Audit-related fees
—
Tax fees
—
All other fees
—
Total
$
130,000
*
For the period from January 11, 2024 (Commencement of Operations) to March 31, 2024.
In the table above, in accordance with the SEC’s definitions and rules, Audit Fees are fees paid to PwC for professional services for the audit of the Trust’s and the Fund’s financial statements included in the Form 10-K and review of financial statements included in the Forms 10-Q, and for services that are normally provided by the accountants in connection with regulatory filings or engagements. Audit Related Fees are fees for assurance and related services that are reasonably related to the performance of the audit or review of the Trust’s and the Fund’s financial statements.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
Financial Statements
See Index to Financial Statements on Page F-1 for a list of the financial statements being filed herein.
Exhibit Index
Listed below are the exhibits which are filed or furnished as part of this annual report on Form 10-K (according to the number assigned to them in Item 601 of Regulation S-K):
Exhibit No.
Description of Document
1.1
Seed Capital Investor Subscription Agreement is incorporated by reference to Exhibit 1.1 of the Registration Statement on Form S-1 (File No. 333-274474) filed by the Trust on December 29, 2023.
3.1
Certificate of Trust is incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-1 (File No. 333-274474) filed by the Trust on November 28, 2023.
3.2
Amendment to Certificate of Trust is incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-1 (File No. 333-274474) filed by the Trust on January 8, 2024.
4.1
Amended and Restated Agreement and Declaration of Trust is incorporated by reference to Exhibit 4.1 of the Registration Statement on Form S-1 (File No. 333-274474) filed by the Trust on January 8, 2024.
4.2
Form of Authorized Participant Agreement is incorporated by reference to Exhibit 4.2 of the Registration Statement on Form S-1 (File No. 333-274474) filed by the Trust on January 8, 2024.
5.1
Opinion of Stradley Ronon Stevens & Young, LLP as to legality is incorporated by reference to Exhibit 5.1 of the Registration Statement on Form S-1 (File No. 333-274474) filed by the Trust on January 8, 2024.
8.1
Opinion of Stradley Ronon Stevens & Young, LLP as to tax matters is incorporated by reference to Exhibit 8.1 of the Registration Statement on Form S-1 (File No. 333-274474) filed by the Trust on January 8, 2024.
10.1
Coinbase Prime Broker Agreement is incorporated by reference to Exhibit 10.1 of the Registration Statement on Form S-1 (File No. 333-274474) filed by the Trust on December 29, 2023.
10.2
Coinbase Post-Trade Financing Agreement is incorporated by reference to Exhibit 10.2 of the Registration Statement on Form S-1 (File No. 333-274474) filed by the Trust on January 8, 2024.
10.3
Coinbase Custody Custodial Services Agreement (included in Exhibit 10.1)
10.4
Custody Agreement with the Cash Custodian is incorporated by reference to Exhibit 10.3 of the Registration Statement on Form S-1 (File No. 333-274474) filed by the Trust on December 29, 2023.
10.5
Fund Administration and Accounting Agreement with the Administrator is incorporated by reference to Exhibit 10.4 of the Registration Statement on Form S-1 (File No. 333-274474) filed by the Trust on December 29, 2023.
10.6
Transfer Agency and Service Agreement with the Administrator is incorporated by reference to Exhibit 10.5 of the Registration Statement on Form S-1 (File No. 333-274474) filed by the Trust on December 29, 2023.
10.7
Sponsor Agreement is incorporated by reference to Exhibit 10.7 of the Registration Statement on Form S-1 (File No. 333-274474) filed by the Trust on January 8, 2024.
23.2
Consents of Stradley Ronon Stevens & Young, LLP (included in Exhibits 5.1 and 8.1 )
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24.1
Powers of Attorney (included in signature page to initial Form S-1 filed on September 12, 2023)
31.1(1)
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2(1)
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1(1)
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350)
32.2(1)
Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350)
97.1(1)
Compensation Recovery Policy
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
(1)
Filed herewith.
Item 16. Form 10-K Summary
None.
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Table of Contents
GLOSSARY OF DEFINED TERMS
In this Annual Report, each of the following quoted terms has the meanings set forth after such term:
“ABRR” - Index Administrator’s Bitcoin Reference Rate.
“Administration Agreement” — The Fund Administration and Accounting Agreement between the Administrator and the Fund.
“Administrator” — The Bank of New York Mellon.
“Affiliate” — Any affiliates of the Sponsor and the Marketing Agent (including Franklin Resources, Inc., each of its affiliates, directors, partners, trustees, managing members, officers and employees).
“airdrop” — An occurrence where holders of a particular digital asset may be entitled to claim a certain amount of a new digital asset for free, based on the fact that they hold such particular digital asset.
“API” - Application Programming Interface.
“Article 8” — Article 8 of the New York Uniform Commercial Code.
“ASC Topic 820” - The Financial Accounting Standards Board Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures.”
“Authorized Participant” — A person who, at the time of submitting an order to create or redeem one or more Creation Units (i) is a registered broker-dealer, (ii) is a DTC Participant or an Indirect Participant, and (iii) has in effect a valid Authorized Participant Agreement.
“Authorized Participant Agreement” — An agreement entered into by an Authorized Participant, the Sponsor and the Administrator that provides the procedures for the creation and redemption of Creation Units.
“Bitcoin blockchain” — The blockchain ledger for Bitcoin.
“Bitcoin Custodian” or “Coinbase Custody” — Coinbase Custody Trust Company, LLC.
“Bitcoin network” — Bitcoin blockchain and any digital asset network, including the Bitcoin peer-to-peer network.
“Bitcoin Trading Counterparty” — Designated third parties who are not registered broker-dealers and transact in bitcoin pursuant to written agreements with the Fund.
“Bitlicense” — A business license under 23 New York Codes, Rules and Regulations (NYCRR) Part 200.
“BMR” — The UK Benchmarks Regulation.
“BNYM” — The Bank of New York Mellon.
“Business Day” — Any day other than: (1) a Saturday or a Sunday, or (2) a day on which the Cboe BZX Exchange is closed for regular trading.
“BRTI” - CME CF Bitcoin Real Time Index.
“BSA” - U.S. Bank Secrecy Act, as amended.
“Cash Custodian” — The Bank of New York Mellon.
“CBDCs” — Digital forms of legal tender, called central bank digital currencies, introduced by central banks in various countries.
“Cboe BZX Exchange” — Cboe BZX Exchange, Inc.
“CF Benchmarks Index” — The CME CF Bitcoin Reference Rate – New York Variant for the Bitcoin – U.S. Dollar trading pair.
“CFPB” — The Consumer Financial Protection Bureau.
“CFTC” — The U.S. Commodity Futures Trading Commission.
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“Client Account” — Other accounts for clients, such as registered and unregistered funds and owners of separately managed accounts that various divisions and units within Franklin Templeton manage or advise.
“Code” — The United States Internal Revenue Code of 1986, as amended.
“Code of Ethics” — The codification of the Sponsor’s business and ethical principles that applies to its executive officers.
“Coinbase Entities” — The Prime Broker, Bitcoin Custodian and Trade Credit Lender.
“Commodity Exchange Act” or “CEA” — The United States Commodity Exchange Act of 1936, as amended.
“Connected Trading Venue” — A venue (including third-party venues and the Prime Broker’s own execution venue) where the Prime Broker executes orders to buy and sell bitcoin on behalf of the Fund.
“Constituent Exchanges” — The constituent digital asset exchanges of the CF Benchmarks Index, which are chosen by the Index Administrator and could change over time.
“Creation Bitcoin Amount” — The amount of bitcoin to be purchased by the Fund which the Sponsor will adjust as determined on each Business Day as promptly as practicable after 4:00 PM ET, by multiplying the NAV by the number of Shares in each Creation Unit (50,000) and dividing the resulting product by that day’s CF Benchmarks Index. Fractions of a bitcoin smaller than a satoshi are disregarded for purposes of the computation of the Creation Bitcoin Amount.
“Creation Unit” — A block of 50,000 Shares.
“Creation Unit Deposit Amount” — The amount of cash to be delivered in a creation which BNYM will adjust as determined on each Business Day as promptly as practicable after 4:00 PM ET, by multiplying the NAV by the number of Shares in each Creation Unit (50,000).
“CTA” - The Consolidated Tape Association.
“Custodian Agreement” — The agreement, governed by New York law, between the Fund and the Bitcoin Custodian regarding the custody of the Fund’s bitcoin.
“Custodians” — The Cash Custodian and Bitcoin Custodian, collectively.
“Custodians’ Fee” — The fees payable to the Custodians.
“Declaration of Trust” — The Agreement and Declaration of Trust dated as of January 5, 2024, among the Sponsor, the Trust and the Trustee.
“DFPI” — The California Department of Financial Protection and Innovation.
“DOL” — The U.S. Department of Labor.
“DSTA” — The Delaware Statutory Trust Act.
“DTC” — The Depository Trust Company.
“DTC Participant” — An entity that has an account with DTC.
“ECI” — Income that is treated as “effectively connected” with the conduct of a trade or business in the United States.
“ERISA” — The Employee Retirement Income Security Act of 1974, as amended.
“ET” — Eastern Time Zone.
“Ethereum Classic” or “ETC” — The original blockchain, now referred to as “Ethereum Classic” with the digital asset on that blockchain now referred to as Ethereum Classic, or ETC.
“Exchange Act” — The United States Securities Exchange Act of 1934, as amended.
“Fair Value Event” — An event which occurs if the CF Benchmarks Index is not available or the Sponsor determines, in its sole discretion, that the CF Benchmarks Index is unreliable.
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“FBO” — For the benefit of.
“FBO Account” – An omnibus account in the Prime Broker’s name FBO its customers at each of multiple FDIC-insured banks.
“FCA” — The Financial Conduct Authority of the United Kingdom.
“FDAP” — A Non-U.S. Shareholder’s allocable share of U.S. source dividend, interest, rental and other “fixed or determinable annual or periodical gains, profits and income.”
“FDIC” — The Federal Deposit Insurance Corporation.
“FinCen” — The U.S. Department of the Treasury Financial Crimes Enforcement Network.
“FINRA” — The Financial Industry Regulatory Authority.
“Fork” — A non-backward compatible change to the original bitcoin blockchain and the source code of the original Bitcoin network which results in the original bitcoin network and the original bitcoin blockchain existing side-by-side, but incompatible, with a new network and a new blockchain, and leads to the creation of a new asset running on the new blockchain.
“FTX” — FTX Trading Ltd.
“GAAP” — The U.S. generally accepted accounting principles.
“Genesis” — Genesis Global Capital, LLC and its affiliates.
“Hard fork” — A permanent fork in a network’s blockchain that separates the network into a pre-fork digital asset and a new post-fork digital asset.
“IIV” - Intraday indicative value per share.
“Incidental Rights” — Any virtual currency or other asset or right that the Fund may be entitled to or come into possession of rights to acquire, or otherwise establish dominion and control over, any virtual currency or other asset or right, which rights are incident to the Fund’s ownership of bitcoins and arise without any action of the Fund, or of the Sponsor, Administrator or other service provider on behalf of the Fund.
“Index” — The CF Benchmarks Index shall constitute the Index, unless the CF Benchmarks Index is not available or the Sponsor in its sole discretion determines not to use the CF Benchmarks Index as the Index.
“Index Administrator” — CF Benchmarks Ltd.
“Indirect Participant” — An entity that has access to the DTC clearing system by clearing securities through, or maintaining a custodial relationship with, a DTC Participant.
“Initial Seed Shares” — $100,000 in Shares, comprising 4,000 Shares at a per-Share price equal to $25, delivered on December 15, 2023 to the Seed Capital Investor.
“Investment Company Act” — The United States Investment Company Act of 1940, as amended (the “Investment Company Act”).
“IR Virtual Currency” — A virtual currency acquired through Incidental Rights.
“IRA” — Individual retirement account.
“IRS” — The United States Internal Revenue Service.
“JOBS Act” — The Jumpstart Our Business Startups Act.
“KYC” - Know your customer.
“Money Market Fund” - A money market fund that is in compliance with Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment Company Act”) and rated “AAA” by S&P (or the equivalent from any eligible rating service).
“MSB” — A U.S.-based exchange registered as a money services business with FinCen.
“NAV” — Net asset value per Share.
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“NFA” — National Futures Association.
“Non-U.S. Shareholder” — A Shareholder that is (or is treated as), for U.S. federal income tax purposes: (1) a nonresident alien individual, (2) a foreign corporation or (3) an estate or trust whose income is not subject to U.S. federal income tax on a net income basis.
“Notice” — The 2014 notice released by the IRS.
“NYDFS” — The New York State Department of Financial Services.
“OCC” — The Office of the Comptroller of the Currency.
“OFAC” — The Office of Foreign Assets Control.
“Order Book” - A list of buy and sell orders with associated limit prices and sizes that have not yet been matched.
“Oversight Committee” - The Oversight Committee of the Index Administrator.
“Person” - Any natural person or any limited liability company, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
“Plan Assets Regulation” — Regulation 29 C.F.R. § 2510.3-101, as modified by Section 3(42) of ERISA.
“Plans” — Any (a) employee benefit plan and certain other plans and arrangements, including individual retirement accounts and annuities, (b) Keogh plans and certain collective investment funds or insurance company general or separate accounts in which such plans or arrangements are invested, that are subject to Title I of ERISA and/or Section 4975 of the Code.
“Prime Broker Agreement” — The agreement between the Sponsor, Trustee and the Prime Broker.
“Prime Broker” — Coinbase Inc., an affiliate of the Bitcoin Custodian.
“Relevant Coinbase Entities” — The Prime Broker and its parent.
“Relevant Pair” - The relevant cryptocurrency base asset against the corresponding quote asset, including markets where the quote asset is made fungible with accepted assets.
“Relevant Transaction” — Any cryptocurrency versus U.S. dollar spot trade that occurs during the observation window between 3:00 p.m. and 4:00 PM ET on a Constituent Exchange in the BTC/USD pair that is reported and disseminated by a Constituent Exchange through its publicly available API and observed by the Index Administrator.
“Ruling & FAQs” — The revenue ruling and set of “Frequently Asked Questions” released by the IRS in 2019.
“Sarbanes-Oxley Act” — The Sarbanes–Oxley Act of 2002.
“SEC” — The Securities and Exchange Commission of the United States, or any successor governmental agency in the United States.
“Secondary Index” - Lukka Digital Asset Reference Rate - Bitcoin.
“Securities Act” — The United States Securities Act of 1933, as amended.
“Seed Capital Investor” — Franklin Resources, Inc.
“Seed Creation Units” — 100,000 Shares delivered to the Seed Capital Investor on January 8 , 2024 in exchange for cash which the Fund used to purchase 58.00000000 bitcoins at the price of $ 44,973.58 per bitcoin on January 8 , 2024, all at a per-Share price based on 29.00000000 bitcoins per Creation Unit (or 0.00058 bitcoins per Share). 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).
“Settlement Deadline” - 6:00 p.m. ET of the calendar day immediately following the day the Trade Credit was extended by the Trade Credit Lender to the Fund or, if such day is not a business day, on the next business day.
“Shareholders” — Owners of beneficial interests in the Shares.
“Shares” — Units of fractional undivided beneficial interest in the net assets of the Fund.
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“SIPC” — The Securities Investor Protection Corporation.
“Sponsor” — Franklin Holdings, LLC, an indirect subsidiary of Franklin Resources, Inc.
“Sponsor’s fee” — The fees of the Sponsor accrues 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 discretion and from time to time, waive all or a portion of the Sponsor’s Fee for stated periods of time. There are no specific circumstances under which the Sponsor may determine it will waive the fee. 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. 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. In the future, if the Sponsor decides to waive all or a portion of the Sponsor’s Fee, Shareholders will be notified in a prospectus supplement, in the Fund’s periodic reports, and/or on the Fund’s website.
“SVB” — Silicon Valley Bank.
“Trade Credit Lender” — Coinbase Credit, Inc.
“Trade Credit” — The Fund may borrow bitcoin or cash as a credit on a short-term basis from the Trade Credit Lender pursuant to the Trade Financing Agreement.
“Trade Financing Agreement” — The Coinbase Credit Post-Trade Financing Agreement.
“Trading Balance” — A trading account at which, pursuant to the Prime Broker Agreement, a portion of the Fund’s bitcoin holdings and cash holdings from time to time may be held with the Prime Broker, including in connection with the sale of bitcoin to pay the Sponsor’s fee and Fund expenses not assumed by the Sponsor.
“Trading Platform” — The Prime Broker’s execution platform where the Sponsor may place an order.
“Transaction Parties” — The Sponsor, the Trustee, the Custodians and any of their respective affiliates.
“Transfer Agency and Service Agreement” The agreement between the Fund and BNYM to perform transfer agency services.
“Transfer Agent” — The Bank of New York Mellon.
“Treasury Regulations” — Tax regulations issued by the IRS.
“Trust” — Franklin Templeton Digital Holdings Trust, a Delaware statutory trust formed pursuant to the Agreement and Declaration of Trust.
“Trustee” — CSC Delaware Trust Company, a subsidiary of the Corporation Service Company.
“UBTI” — Unrelated business taxable income.
“USDC” — US Dollar Coin.
“U.S. Shareholder” — A Shareholder that is (1) an individual who is treated as a citizen or resident of the United States for U.S. federal income tax purposes; (2) a corporation (or an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; (3) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or (4) a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.
“Vault Balance” — Accounts storing the Fund’s bitcoin that are required to be segregated from the assets held by the Bitcoin Custodian as principal and the assets of its other customers.
“VWAP” - Volume Weight Average Prices.
“VWMP” - Volume Weight Median Prices.
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FRANKLIN BITCOIN ETF
FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP, PCAOB # 238 ) for Franklin Templeton Digital Holdings Trust
F-2
Combined Statement of Assets and Liabilities at March 31, 2024 for Franklin Templeton Digital Holdings Trust
F-3
Combined Schedule of Investments at March 31, 2024 for Franklin Templeton Digital Holdings Trust
F-4
Combined Statement of Operations for the period from January 11, 2024 (Commencement of operations) to March 31, 2024 for Franklin Templeton Digital Holdings Trust
F-5
Combined Statement of Cash Flows for the period from January 11, 2024 (Commencement of operations) to March 31, 2024 for Franklin Templeton Digital Holdings Trust
F-6
Combined Statement of Changes in Net Assets for the period from January 11, 2024 (Commencement of operations) to March 31, 2024 for Franklin Templeton Digital Holdings Trust
F-7
Combined Notes to Financial Statements for Franklin Templeton Digital Holdings Trust
F-8
Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP, PCAOB #238) for Franklin Bitcoin ETF
F-16
Statement of Assets and Liabilities at March 31, 2024 for Franklin Bitcoin ETF
F-17
Schedule of Investments at March 31, 2024 for Franklin Bitcoin ETF
F-18
Statement of Operations for the period from January 11, 2024 (Commencement of operations) to March 31, 2024 for Franklin Bitcoin ETF
F-19
Statement of Cash Flows for the period from January 11, 2024 (Commencement of operations) to March 31, 2024 for Franklin Bitcoin ETF
F-20
Statement of Changes in Net Assets for the period from January 11, 2024 (Commencement of operations) to March 31, 2024 for Franklin Bitcoin ETF
F-21
Notes to Financial Statements for Franklin Bitcoin ETF
F-22
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To
the
Sponsor of Franklin Templeton Digital Holdings Trust and Shareholders of Franklin Bitcoin ETF
Opinion on the Financial Statements
We have audited the accompanying combined statement of assets and liabilities, including the combined schedule of investments, of Franklin Templeton Digital Holdings Trust (the “Trust”) as of March 31, 2024, and the related combined statements of operations, of cash flows and of changes in net assets for the period January 11, 2024 (date of commencement of operations) through March 31, 2024, including the related notes (collectively referred to as the “combined financial statements”). In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Trust as of March 31, 2024, and the results of its operations, its cash flows and changes in its net assets for the period January 11, 2024 (date of commencement of operations) through March 31, 2024 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These combined financial statements are the responsibility of the Sponsor’s management. Our responsibility is to express an opinion on the Trust’s combined financial statements based on our audit. 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 Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these combined financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the combined 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 combined financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by the Sponsor’s management, as well as evaluating the overall presentation of the combined financial statements. Our procedures included confirmation of digital assets owned as of March 31, 2024 by correspondence with the custodian. We believe that our audit provides a reasonabl e
basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
June 2 8
, 2024
We have served as the auditor of one or more investment companies in Franklin Templeton Group of Funds since 1948.
F-2
Table of Contents
FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
COMBINED STATEMENT OF ASSETS AND LIABILITIES
March 31, 2024*
Assets:
Investment in bitcoin, at fair value (cost $ 280,623,942 )
$
341,901,126
Total assets
$
341,901,126
Liabilities:
Net Sponsor’s fee payable
21
Total liabilities
21
Net assets
$
341,901,105
Shares issued and outstanding, no par value ( unlimited
Shares authorized)
8,350,000
Net asset value per Share
$
40.95
*
No comparative period presented as the Fund’s operations commenced on January 11, 2024.
See accompanying notes to the financial statements.
F-3
Table of Contents
FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
COMBINED SCHEDULE OF INVESTMENTS
March 31, 2024*
Quantity of
bitcoin
Cost
Fair Value
% of Net Assets
Investment in bitcoin
4,842.9986
$
280,623,942
$
341,901,126
100.00
%
Total Investment
$
280,623,942
$
341,901,126
100.00
%
Liabilities in excess of other assets
( 21
)
( 0.00
)%
Net assets
$
341,901,105
100.00
%
*
No comparative period presented as the Fund’s operations commenced on January 11, 2024.
See accompanying notes to the financial statements.
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FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
COMBINED STATEMENT OF OPERATIONS
For the period
January 11, 2024
(Date of
commencement of
operations) through
March 31, 2024*
Expenses:
Sponsor’s fee
$
54,280
Total Expenses
( 54,280
)
Less waiver and reimbursement
54,259
Net investment loss
( 21
)
Realized and unrealized gain (loss):
Net realized gain on investment in bitcoin
—
Net change in unrealized appreciation (depreciation) on investment in bitcoin
$
61,220,195
Net realized and change in unrealized appreciation (depreciation) in bitcoin
$
61,220,195
Net increase (decrease) in net assets resulting from operations
$
61,220,174
Net increase (decrease) in Principal Market NAV resulting from operations
$
15.63
*
No comparative period presented as the Fund’s operations commenced on January 11, 2024.
See accompanying notes to the financial statements.
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FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
COMBINED STATEMENT OF CASH FLOWS
For the period
January 11,
2024 (Date of
commencement
of operations)
through March
31, 2024*^
Cash Flows from Operating Activities
Net increase in net assets resulting from operations
$
61,220,174
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchases of bitcoin
$
( 278,015,474
)
Proceeds from bitcoin sold to pay expenses
Net realized (gain) loss
Net change in unrealized appreciation/depreciation
( 61,220,195
)
Change in operating assets and liabilities:
Sponsor’s fees payable
21
Net cash used in operating activities
$
( 278,015,474
)
Cash Provided by Financing Activities
Proceeds from issuance of Shares
278,015,474
Payments on Shares redeemed
Net cash provided by financing activities
278,015,474
Cash
Net increase in cash
0
Cash, beginning of period
0
Cash, end of period
0
*
No comparative period presented as the Fund’s operations commenced on January 11, 2024 .
^
On December 15, 2023, prior to the commencement of the Fund’s operations, Franklin Resources, Inc., an affiliate of the Sponsor (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).
See accompanying notes to the financial statements.
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FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
COMBINED STATEMENT OF CHANGES IN NET ASSETS
For the period
January 11,
2024
(Commencement
of operations)
through March
31, 2024*
Net assets, beginning of period
$
2,665,457
^
Net investment loss
( 21
)
Net realized gain (loss) on investment in bitcoin
—
Net change in unrealized appreciation (depreciation) on investment in bitcoin
$
61,220,195
Net increase (decrease) in net assets resulting from operations
$
61,220,174
Increase (decrease) in net assets from capital share transactions:
Contributions for Shares issued
278,015,474
Distributions for Shares redeemed
—
Net increase in net assets resulting from capital share transactions
278,015,474
Net assets, end of period
$
341,901,105
*
No comparative period presented as the Fund’s operations commenced on January 11, 2024.
^
On December 15, 2023, prior to the commencement of the Fund’s operations, Franklin Resources, Inc., an affiliate of the Sponsor (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).
See accompanying notes to the financial statements.
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FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
COMBINED NOTES TO FINANCIAL STATEMENTS
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, as registrant 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 accompanying financial statements relate to the Trust, as registrant, and the one series that it currently offers, the Franklin Bitcoin ETF (the “Fund”) presented on a combined basis. Separate, series-level financial statements are provided for the Fund in another section of this report. The Trust had no operations prior to the Fund’s launch, other than in connection with the organization and registration of the Fund’s shares. 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”). CSC Delaware Trust Company, a subsidiary of the 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 the Shares are 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. Except when aggregated in Creation Units, the Shares are not redeemable securities.
The Trust is an “emerging growth company” as that term is used in the Securities Act of 1933, as amended (the “Securities Act”), and, as such, the Trust 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.
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The statement of assets and liabilities and schedule of investments at March 31, 2024 and the statement of operations, cash flows and changes in net assets for the period ended March 31, 2024, behalf of the Trust, as registrant, combined with its one currently offered series, the Fund, and for the Fund separately (included below in a separate section of this report), and are audited.
As the Fund had no operations prior to the initial seeding on December 15, 2023, comparative statements for prior year have not been included.
The fiscal year of the Trust and the Fund is March 31st.
2. SIGNIFICANT ACCOUNTING POLICIES
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 appropriate 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 as defined in ASC 946. 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 required to register under such act.
The financial statements are presented for the Trust, as the registrant, combined with the Fund. Financial statements for the Fund presented at the series-level are provided separately in this report. For the periods presented, there were no balances or activity for the Trust except for the Fund’s operations, as its sole series and these notes to the financial statements relate to the Trust, as the registrant, combined with the Fund. The debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Fund are enforceable only against the assets of the Fund and not against the assets of the Trust generally or any other series that the Trust may establish. Individual series-level financial statements for the Fund are presented separately within this report.
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 generally 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 PM 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 financial information. Bitcoin is priced at 11:59:59PM ET. 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.
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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
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 March 31, 2024, the value of the bitcoin held by the Fund is categorized as Level 1.
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 is 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, Marketing Agent, 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. 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. Prior to the implementation of the waiver, for the one day period January 11, 2024, the Fund accrued the Sponsor fee of 0.29 % ($ 21 ). For the period January 11, 2024 to March 31, 2024, the F
und accrued the Sponsor’s Fee of $ 54,280 .
Less waiver and reimbursement of
$ 54,259 , the net Sponsor’s Fee payable post waiver and reimbursement is $ 21 .
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
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(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 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 Trust and the Fund are 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 analyzed applicable tax laws and regulations and their application to the Trust and the Fund as of March 31, 2024, 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
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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, 2024, there was no public market for the Shares.
Changes in the Shares for the period from January 11, 2024 (Commencement of operations) to March 31, 2024 are as follows:
Shares
Amount
Balance at January 11, 2024 *
100,000
$
2,608,468
^
Creation of Shares
8,250,000
278,015,474
Redemption of Shares
—
—
Balance at March 31, 2024
8,350,000
$
280,623,942
*
The date represents commencement of operations.
^
On December 15, 2023, prior to the commencement of the Fund’s operations, Franklin Resources, Inc., an affili ate of
the Sponsor (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).
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-08,
Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60):
Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”).
ASU 2023-08
is intended to improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income. The amendments also improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period. ASU 2023-08
is effective for annual and interim reporting periods beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued. The Trust adopted this new guidance with no material impact on its financial statements and disclosures as the Trust uses fair value as its method of accounting for Bitcoin in accordance with its classification as an investment company for accounting purposes.
3. RELATED PARTIES
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 March 31, 2024, 1,010,000 shares of the Fund were held by the related party.
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Table of Contents
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: the fees charged by the Administrator, Marketing A
gent, 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.
4. CONCENTRATION OF RISK
The Fund holds 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.
5. FINANCIAL HIGHLIGHTS
For the period
January 11, 2024
(Date of
commencement
of operations)
through
March 31, 2024*
Net asset value per Share, beginning of year(a)
$
26.65
Net investment loss(b)(c)
( 0.00
)
Net realized and unrealized gain (loss) on investment in bitcoin
14.30
Net change in net assets from operations
14.30
Net asset value per Share, end of year
$
40.95
Total return, at net asset value(d)(e)(f)
53.66
%
Ratio to average net assets
Net investment loss(g)
0.00
%
Gross expenses(g)
0.19
%
Net expenses(g)
0.00
%
*
No comparative period presented as the Fund’s operations commenced on January 11, 2024.
(a)
The amount shown represents the NAV per share at commencement of the Fund’s investment operations. This amount includes proceeds to the Fund from the initial bitcoin seed creation transaction conducted on January 8, 2024. Prior to January 8, 2024, 4,000 shares were acquired on December 15, 2023 at per share value of $ 25 . 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). As of January 8, 2024, the net asset value of the Fund for transactions with Authorized Participants was $ 2,723,812.24 and the net asset value per Share of the Fund was $ 27.24 .
(b)
Calculated using average Shares outstanding.
(c)
Amount is less than $ .01 .
(d)
Total return information based on net asset values calculated for transactions with Authorized Participants was
51.61 %. Based on the change in net asset value of a Share for the period January 11, 2024 (Commencement of operations) to March 31, 2024.
(e)
Percentage is not annualized.
(f)
Certain adjustments were made to the net assets of the Fund at January 11, 2024 and at March 31, 2024 for financial reporting purposes. Accordingly, adjusted total returns disclosed in the Financial Highlights and total return information based on net asset values calculated for transactions with Authorized Participants differ.
(g)
Annualized based on the period from January 11, 2024 (Commencement of operations) to March 31, 2024.
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See accompanying notes to the financial statements.
6. COMMITMENTS 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, Marketing Agent, 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 willful misconduct.
The Sponsor and each of its shareholders, members, directors, officers, employees, affiliates and subsidiaries will be indemnified by the Trust and held harmless against any losses, liabilities or expenses incurred in the performance of its duties under the Declaration of Trust without gross negligence, bad faith, or willful misconduct. The Sponsor may rely in good faith on any paper, order, notice, list, affidavit, receipt, evaluation, opinion, endorsement, assignment, draft or any other document of any kind prima facie properly executed and submitted to it by the Trustee, the Trustee’s counsel or by any other person for any matters arising under the Declaration of Trust. The Sponsor shall in no event be deemed to have assumed or incurred any liability, duty, or obligation to any Shareholder or to the Trustee other than as expressly provided for in the Declaration of Trust. Such indemnity includes payment from the Trust of the costs and expenses incurred in defending against any indemnified claim or liability under the Declaration of Trust.
The Trustee will not be liable or accountable to the Trust or any other person or under any agreement to which the Trust or any series of the Trust is a party, except for the Trustee’s breach of its obligations pursuant to the Declaration of Trust or its own willful misconduct, bad faith or gross negligence. The Trustee and each of the Trustee’s officers, affiliates, directors, employees, and agents will be indemnified by the Trust from and against any losses, claims, taxes, damages, reasonable expenses, and liabilities incurred with respect to the creation, operation or termination of the Trust, the execution, delivery or performance of the Declaration of Trust or the transactions contemplated thereby; provided that the indemnified party acted without willful misconduct, bad faith or gross negligence.
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8. SUBSEQUENT EVENTS
The Trust and the Fund have evaluated subsequent events through the issuance of the financial statements and determined that no such events have occurred that require disclosure.
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Report of Independent Registered Public Accounting Firm
To
the
Sponsor of Franklin Templeton Digital Holdings Trust and Shareholders of Franklin Bitcoin ETF
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Franklin Bitcoin ETF (the “Fund”) as of March 31, 2024, and the related statements of operations, of cash flows and of changes in net assets for the period from January 11, 2024 (date commencement of operations) to March 31, 2024, including 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 March 31, 2024, and the results of its operations, its cash flows and changes in its net assets for the period from January 11, 2024 (date of commencement of operations) to March 31, 2024 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Sponsor’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit 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 audit also included evaluating the accounting principles used and significant estimates made by the Sponsor’s management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of digital assets owned as of March 31, 2024 by correspondence with the custodian. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
June 28, 2024
We have served as the auditor of one or more investment companies in Franklin Templeton Group of Funds since 1948.
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FRANKLIN BITCOIN ETF
A SERIES OF FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2024*
Assets:
Investment in bitcoin, at fair value (cost $ 280,623,942 )
$
341,901,126
Total assets
$
341,901,126
Liabilities:
Net Sponsor’s fee payable
21
Total liabilities
21
Net assets
$
341,901,105
Shares issued and outstanding, no par value ( unlimited
Shares authorized)
8,350,000
Net asset value per Share
$
40.95
*
No comparative period presented as the Fund’s operations commenced on January 11, 2024.
See accompanying notes to the financial statements.
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FRANKLIN BITCOIN ETF
A SERIES OF FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
SCHEDULE OF INVESTMENTS
March 31, 2024*
Quantity of
bitcoin
Cost
Fair Value
% of Net Assets
Investment in bitcoin
4,842.9986
$
280,623,942
$
341,901,126
100.00
%
Total Investment
$
280,623,942
$
341,901,126
100.00
%
Liabilities in excess of othe r asset s
( 21
)
( 0.00
)%
Net assets
$
341,901,105
100.00
%
*
No comparative period presented as the Fund’s operations commenced on January 11, 2024.
See accompanying notes to the financial statements.
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FRANKLIN BITCOIN ETF
A SERIES OF FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
STATEMENT OF OPERATIONS
For the period
January 11, 2024
(Date of
commencement of
operations) through
March 31, 2024*
Expenses:
Sponsor’s fee
$
54,280
Total Expenses
( 54,280
)
Less waiver and reimbursement
54,259
Net investment loss
( 21
)
Realized and unrealized gain (loss):
Net realized gain on investment in bitcoin
—
Net change in unrealized appreciation (depreciation) on investment in bitcoin
$
61,220,195
Net realized and change in unrealized appreciation (depreciation) in bitcoin
$
61,220,195
Net increase (decrease) in net assets resulting from operations
$
61,220,174
Net increase (decrease) in Principal Market NAV resulting from operations
$
15.63
*
No comparative period presented as the Fund’s operations commenced on January 11, 2024.
See accompanying notes to the financial statements.
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FRANKLIN BITCOIN ETF
A SERIES OF FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
STATEMENT OF CASH FLOWS
For the period
January 11,
2024 (Date of
commencement
of operations)
through March
31, 2024*^
Cash Flows from Operating Activities
Net increase in net assets resulting from operations
$
61,220,174
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchases of bitcoin
$
( 278,015,474
)
Proceeds from bitcoin sold to pay expenses
Net realized (gain) loss
Net change in unrealized appreciation/depreciation
( 61,220,195
)
Change in operating assets and liabilities:
Sponsor’s fees payable
21
Net cash used in operating activities
$
( 278,015,474
)
Cash Provided by Financing Activities
Proceeds from issuance of Shares
278,015,474
Payments on Shares redeemed
Net cash provided by financing activities
$
278,015,474
Cash
Net increase in cash
0
Cash, beginning of period
0
Cash, end of period
0
*
No comparative period presented as the Fund’s operations commenced on January 11, 2024 .
^
On December 15, 2023, prior to the commencement of the Fund’s operations, Franklin Resources, Inc., an affiliate of the Sponsor (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).
See accompanying notes to the financial statements.
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Table of Contents
FRANKLIN BITCOIN ETF
A SERIES OF FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
STATEMENT OF CHANGES IN NET ASSETS
For the period
January 11,
2024
(Commencement
of operations)
through March
31, 2024*
Net assets, beginning of period
$
2,665,457
^
Net investment loss
( 21
)
Net realized gain (loss) on investment in bitcoin
—
Net change in unrealized appreciation (depreciation) on investment in bitcoin
$
61,220,195
Net increase (decrease) in net assets resulting from operations
$
61,220,174
Increase (decrease) in net assets from capital share transactions:
Contributions for Shares issued
278,015,474
Distributions for Shares redeemed
—
Net increase in net assets resulting from capital share transactions
278,015,474
Net assets, end of period
$
341,901,105
*
No comparative period presented as the Fund’s operations commenced on January 11, 2024.
^
On December 15, 2023, prior to the commencement of the Fund’s operations, Franklin Resources, Inc., an affiliate of the Sponsor (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).
See accompanying notes to the financial statements.
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FRANKLIN BITCOIN ETF
A SERIES OF FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
NOTES TO FINANCIAL STATEMENTS
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 accompanying financial statements relate to the one series that the Trust currently offers, the Franklin Bitcoin ETF (the “Fund”). The Trust had no operations prior to the Fund’s launch, other than in connection with the organization and registration of the Fund’s shares. 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”). CSC Delaware Trust Company, a subsidiary of the 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 the Shares are 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. Except when aggregated in Creation Units, the Shares are not redeemable securities.
The Trust is an “emerging growth company” as that term is used in the Securities Act of 1933, as amended (the “Securities Act”), and, as such, the Trust 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 at March 31, 2024 and the statement of operations, cash flows and changes in net assets for the period ended March 31, 2024, behalf of the Trust, as registrant, combined with its one currently offered series, the Fund (included above in a separate section of this report), and for the Fund separately, and are audited.
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As the F
und had no operations prior to the initial seeding on December 15, 2023, comparative statements for prior year have not been included.
The fiscal year of the Trust and the Fund is March 31st.
2. SIGNIFICANT ACCOUNTING POLICIES
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 appropriate 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 as defined in ASC 946. 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 required to register under such act.
The financial statements are presented for the Trust, as the registrant, combined with the Fund (in a separate section of this report) and for the Fund individually. For the periods presented, there were no balances or activity for the Trust except for the Fund’s operations, as its sole series and these notes to the financial statements relate to the Fund individually. The debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Fund are enforceable only against the assets of the Fund and not against the assets of the Trust generally or any other series that the Trust may establish.
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 generally 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 PM 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 financial information. Bitcoin is priced at 11:59:59PM ET. 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.
F-23
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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
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 March 31, 2024, the value of the bitcoin held by the Fund is categorized as Level 1.
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 is
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, Marketing Agent, 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. 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. Prior to the implementation of the waiver, for the one day period January 11, 2024, the Fund accrued the Sponsor fee of 0.29 % ($ 21 ).
For the period January 11, 2024 to March 31, 2024, the F
und accrued the Sponsor’s Fee of $ 54,280 .
Less waiver and reimbursement of
$ 54,259 , the net Sponsor’s Fee payable post waiver and reimbursement is $ 21 .
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
F-24
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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 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 analyzed applicable tax laws and regulations and their application to the Trust and the Fund as of March 31, 2024, 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.
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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, 2024, there was no public market for the Shares.
Changes in the Shares for the period from January 11, 2024 (Commencement of operations) to March 31, 2024 are as follows:
Shares
Amount
Balance at January 11, 2024 *
100,000
$
2,608,468
^
Creation of Shares
8,250,000
278,015,474
Redemption of Shares
—
—
Balance at March 31, 2024
8,350,000
$
280,623,942
*
The date represents commencement of operations.
^
On December 15, 2023, prior to the commencement of the Fund’s operations, Franklin Resources, Inc., an affiliate of the Sponsor (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).
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-08,
Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60):
Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”).
ASU 2023-08
is intended to improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income. The amendments also improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period. ASU 2023-08
is effective for annual and interim reporting periods beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued. The Trust adopted this new guidance with no material impact on its financial statements and disclosures as the Trust uses fair value as its method of accounting for Bitcoin in accordance with its classification as an investment company for accounting purposes.
3. RELATED PARTIES
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 March 31, 2024, 1,010,000 shares of the Fund were held by the related party.
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.
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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: the fees charged by the Administrator, Marketing Agent, 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.
4. CONCENTRATION OF RISK
The Fund holds 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.
5. FINANCIAL HIGHLIGHTS
For the period
January 11, 2024
(Date of
commencement
of operations)
through
March 31, 2024*
Net asset value per Share, beginning of year(a)
$
26.65
Net investment loss(b)(c)
( 0.00
)
Net realized and unrealized gain (loss) on investment in bitcoin
14.30
Net change in net assets from operations
14.30
Net asset value per Share, end of year
$
40.95
Total return, at net asset value(d)(e)(f)
53.66
%
Ratio to average net assets
Net investment loss(g)
0.00
%
Gross expenses(g)
0.19
%
Net expenses(g)
0.00
%
*
No comparative period presented as the Fund’s operations commenced on January 11, 2024.
(a)
The amount shown represents the NAV per share at commencement of the Fund’s investment operations. This amount includes proceeds to th
e Fund from the initial bitcoin seed creation transaction conducted on January 8, 2024. Prior to January 8, 2024, 4,000 shares were acquired on December 15, 2023 at per share value of $ 25 . 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). As of January 8, 2024, the net asset value of the Fund for transactions with Authorized Participants was $ 2,723,812.24 and the net asset value per Share of the Fund was $ 27.24 .
(b)
Calculated using average Shares outstanding.
(c)
Amount is less than $ .01 .
(d)
Total return information based on net asset values calculated for transactions with Authorized Participants was
51.61 %. Based on the change in net asset value of a Share for the period January 11, 2024 (Commencement of operations) to March 31, 2024.
(e)
Percentage is not annualized.
(f)
Certain adjustments were made to the net assets of the Fund at January 11, 2024 and at March 31, 2024 for financial reporting purposes. Accordingly, adjusted total returns disclosed in the Fihi and total return information based on net asset values calculated for transactions with Authorized Participants differ.
(g)
Annualized based on the period from January 11, 2024 (Commencement of operations) to March 31, 2024.
See accompanying notes to the financial statements.
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6.
COMMITMENTS 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, Marketing Agent, 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 willful misconduct.
The Sponsor and each of its shareholders, members, directors, officers, employees, affiliates and subsidiaries will be indemnified by the Trust and held harmless against any losses, liabilities or expenses incurred in the performance of its duties under the Declaration of Trust without gross negligence, bad faith, or willful misconduct. The Sponsor may rely in good faith on any paper, order, notice, list, affidavit, receipt, evaluation, opinion, endorsement, assignment, draft or any other document of any kind prima facie properly executed and submitted to it by the Trustee, the Trustee’s counsel or by any other person for any matters arising under the Declaration of Trust. The Sponsor shall in no event be deemed to have assumed or incurred any liability, duty, or obligation to any Shareholder or to the Trustee other than as expressly provided for in the Declaration of Trust. Such indemnity includes payment from the Trust of the costs and expenses incurred in defending against any indemnified claim or liability under the Declaration of Trust.
The Trustee will not be liable or accountable to the Trust or any other person or under any agreement to which the Trust or any series of the Trust is a party, except for the Trustee’s breach of its obligations pursuant to the Declaration of Trust or its own willful misconduct, bad faith or gross negligence. The Trustee and each of the Trustee’s officers, affiliates, directors, employees, and agents will be indemnified by the Trust from and against any losses, claims, taxes, damages, reasonable expenses, and liabilities incurred with respect to the creation, operation or termination of the Trust, the execution, delivery or performance of the Declaration of Trust or the transactions contemplated thereby; provided that the indemnified party acted without willful misconduct, bad faith or gross negligence.
8. SUBSEQUENT EVENTS
The Trust and the Fund have evaluated subsequent events through the issuance of the financial statements and determined that no such events have occurred that require disclosure.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned in the capacities* indicated thereunto duly authorized.
Franklin Holdings, LLC
Sponsor of Franklin Templeton Digital Holdings Trust (Registrant)
By:
/s/ David Mann*
David Mann
President and Chief Executive Officer
(serving in the capacity of principal executive officer)
By:
/s/ Matthew Hinkle*
Matthew Hinkle
Chief Financial Officer
(serving in the capacity of principal financial officer)
Date: June 28, 2024
*
The registrant is a trust and the person is signing in his capacity as an officer of Franklin Holdings, LLC, the Sponsor of the registrant.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.