N-CSR 1 easeries-dscf_ncsr.htm N-CSR

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number 811-22961

 

EA Series Trust
(Exact name of registrant as specified in charter)

 

19 E. Eagle Road

Havertown, PA 19083
(Address of principal executive offices) (Zip code)

 

19 E. Eagle Road

Havertown, PA 19083

(Name and address of agent for service)

 

215-882-9983

Registrant’s telephone number, including area code

 

Date of fiscal year end: July 31, 2022

 

Date of reporting period: July 31, 2022

 

 

 

 

 

 

Item 1. Reports to Stockholders.

 

 

 

 

 

 

 

 

 

 

 

 

 

Discipline Fund ETF

 

 

Annual Report

 

July 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

DISCIPLINE FUND ETF

 

TABLE OF CONTENTS

 

    Page
Letter to Shareholders   1 – 2
Performance Summary and Portfolio Allocation   3 – 4
Index Overview   5
Schedule of Investments   6
Statement of Assets and Liabilities   7
Statement of Operations   8
Statement of Changes in Net Assets   9
Financial Highlights   10
Notes to Financial Statements   11 – 19
Report of Independent Registered Public Accounting Firm   20 – 21
Expense Example   22
Liquidity Risk Management Program   23
Federal Tax Information   24
Management of the Fund   25 – 26
Board Review and Approval of Advisory Agreement   27 – 28
Information About Portfolio Holdings   29
Information About Proxy Voting   29
Privacy Policy   29

 

i

 

 

DISCIPLINE FUND ETF

 

LETTER TO SHAREHOLDERS

JULY 31, 2022

 

Dear Discipline Fund Shareholders, November 22, 2021

 

Thank you for your investment in the Discipline Fund ETF (“DSCF” or the “Fund”). The information presented in this letter relates to the operations of the Fund for its fiscal period beginning on its inception on September 21, 2021 through July 31, 2022.

 

The Fund is an actively-managed exchange-traded fund (“ETF”) that provides investors with global long only stock/bond exposure. The Fund is designed to provide investors with more balanced exposures to these asset classes over entire market cycles. Most multi-asset stock/bond funds expose investors to unbalanced levels of equity market risk because the equity sleeve generates 80%+ of the volatility in the portfolio over time. Although the underlying market capitalizations of stocks and bonds change dramatically over market cycles most multi-asset index funds rebalance back to a fixed weighting of stocks and bonds thereby deviating from market cap in an active manner and doing so in a way that exposes them to outsized equity market risk at certain times across market cycles.

 

These funds also often provide these exposures in an inefficient tax structure. Discipline Fund ETF offers investors a highly tax efficient fund of funds structure while rebalancing in a countercyclical manner over time that we believe provides a more balanced exposure to stocks and bonds across market cycles.

 

The last few years have been unusually challenging due to the COVID pandemic. Calendar year 2022 has been particularly challenging given the volatility in all asset classes. The Nasdaq-1001 was down nearly -32% as of its calendar year low on June 16, 2022, while the S&P 5002 was down over -23% as of its calendar year low on June 16, 2022. Bitcoin has fallen over -61% in 2022 as of its calendar year low on June 18. Bonds are red with the Bloomberg US Aggregate Bond Index3 off by over -12% as of the calendar year 2022 low on June 14. Even the gold standard of portfolios, the Bloomberg US EQ:FI 60:40 Index4 (“60/40 index”) was off nearly -19% at its calendar year low on June 16, 2022. The Discipline Fund was down -16.36% as of its calendar year low on June 14, 2022.

 

For the fiscal period, DSCF was down -10.35% at its market price and -10.40% at net asset value (NAV).

 

Despite this broad turbulence Discipline Fund ETF has provided investors with more stable performance when compared to broader markets. In addition to its smaller max drawdown the Fund had a monthly standard deviation5 of 10.26% compared to 22.8% for the S&P 500 and 16% for the 60/40 index. While the Fund did not avoid the broad downturn in all markets it did achieve its goal of maintaining long only stock/bond exposure in a more balanced and stable manner. This is primarily attributable to our countercyclical indexing approach which has resulted in the portfolio being underweight equities in 2022 with an average equity weighting of 40%.

 

Bonds have performed better than equities in 2022 but they have not provided us with the ballast that we are historically accustomed to. However, we are confident that fixed income markets are normalizing and while higher interest rates are bad for the impatient investor, we know they are a benefit to the patient long-term investor.

 

While short-term instability is expected in financial markets, we believe that the goal to long-term investing success is staying the course and we are proud to provide superior stability during a period of elevated short-term uncertainty.

 

The economy and markets remain challenging. Inflation is elevated while growth is moderating. Meanwhile, financial markets are digesting a long period of very high returns and high valuations. The Fed remains aggressive with tighter Monetary Policy and the housing market is growing increasingly unstable. We expect the coming years to remain challenging and volatile and warrants broad diversification.

 

We are confident that we can continue to provide investors with a more stable asset allocation that helps them stay the course during these unpredictable times.

 

Stay Disciplined!

 

 

Cullen Roche

Chief Investment Officer

 

1

 

 

DISCIPLINE FUND ETF

 

LETTER TO SHAREHOLDERS (CONTINUED)

JULY 31, 2022

 

This communication must be preceded or accompanied by a prospectus.

 

Investments involve risk. Principal loss is possible. The Discipline Fund ETF has the same risks as the underlying securities traded on the exchange throughout the day. Investments in foreign securities involve political, economic and currency risks, greater volatility, and differences in accounting methods. These risks are magnified in emerging markets. The Discipline Fund is inherently “countercyclical” and may underperform its benchmark for long periods of time. Please see the prospectus for more details of these and other risks.

 

Unlike mutual funds, ETFs may trade at a premium or discount to their net asset value. ETF shares may only be redeemed at NAV by authorized participants in large creation units. There can be no guarantee that an active trading market for shares will exist. The trading of shares may incur brokerage commissions.

 

The Fund is distributed by Quasar Distributors, LLC.

 

1 The Nasdaq-100 is a stock market index made up of 102 equity securities issued by 101 of the largest non-financial companies listed on the Nasdaq Stock Market. It is a modified capitalization-weighted index. Index performance includes the reinvestment of dividends and capital gains. It is not possible to invest directly in the index.
   
2 The Standard and Poor’s 500 (“S&P 500”) is a stock market index tracking the stock performance of 500 large companies listed on exchanges in the United States. It is a capitalization-weighted index. Index performance includes the reinvestment of dividends and capital gains. It is not possible to invest directly in the index.
   
3 The Bloomberg US Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. Investors frequently use the index as a stand-in for measuring the performance of the US bond market. Index performance is based on total returns. It is not possible to invest directly in the index.
   
4 The Bloomberg US EQ:FI 60:40 Index is designed to measure cross-asset market performance in the US. The index rebalances monthly to 60% equities and 40% fixed income. The equity and fixed income allocation is represented by the Bloomberg US Large Cap Total Return Index and the Bloomberg US Aggregate Bond Index respectively. The Bloomberg US Large Cap Total Return Index is a float market-cap-weighted benchmark of the 500 most highly capitalized US companies. Index performance is based on total returns. It is not possible to invest directly in the index.
   
5 Standard deviation of returns measures the average a return series deviates from its mean. It is often used as a measure of risk. When a fund has a high standard deviation, the predicted range of performance implies greater volatility.

 

2

 

 

DISCIPLINE FUND ETF

 

Growth of $10,000 (Unaudited)

 

 

   Average
Annual Return*
 
   Since
Inception
 
Discipline Fund ETF   (10.40)%
      
20.25% Solactive GBS United States 1000 Index, 20.25% Solactive GBS Developed Markets ex North America Large & Mid Cap Index (NTR), 4.5% Solactive GBS Emerging Markets Large & Mid Cap Index (NTR), 55% The Solactive US Aggregate Bond Index   (10.23)%

 

* This chart assumes an initial gross investment of $10,000 made on September 20, 2021. Returns shown include the reinvestment of all dividends. Past performance does not guarantee future results. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost.

 

3

 

 

DISCIPLINE FUND ETF

 

Tabular Presentation of Schedule of Investments

As of July 31, 2022 (Unaudited)

Discipline Fund ETF

 

Sector1  % Net
Assets
 
Investment Companies   99.8%2
Other 3   0.2%
Total   100.0%

 

1. Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment adviser’s internal sector classifications.
2. For purposes of the Fund’s compliance with its concentration limits, the Fund uses various sub-classifications and none of the Fund’s holdings in the sub-classifications exceed 25% of the Fund’s total assets.
3. Cash, cash equivalents, short-term investments and other assets less liabilities.

 

4

 

 

DISCIPLINE FUND ETF

 

INDEX OVERVIEW

JULY 31, 2022 (UNAUDITED)

 

20.25% Solactive GBS United States 1000 Index, 20.25% Solactive GBS Developed Markets ex North America Large & Mid Cap Index (NTR), 4.5% Solactive GBS Emerging Markets Large & Mid Cap Index (NTR), 55% The Solactive US Aggregate Bond Index

 

The Solactive GBS United States 1000 Index intends to track the performance of the largest 1000 companies from the US stock market and is based on the Solactive Global Benchmark Series. Constituents are selected based on company market capitalization and weighted by free float market capitalization. The index is calculated as a net total return index in USD and is reconstituted quarterly.

 

The Solactive GBS Developed Markets ex North America Large & Mid Cap USD Index (CA NTR) is part of the Solactive Global Benchmark Series which includes benchmark indices for developed and emerging market countries. The index tracks the performance of the large and mid cap segment covering approximately the largest 85% of the free-float market capitalization in the Developed Markets excluding North America. It is calculated as a Net Total Return index in CAD and weighted by free-float market capitalization.

 

The Solactive GBS Emerging Markets Large & Mid Cap USD Index NTR is part of the Solactive Global Benchmark Series. The index intends to track the performance of the large and mid-cap segment covering approximately the largest 85% of the free-float market capitalization in the Emerging Markets. It is calculated as a Net Total Return index in USD and weighted by free-float market capitalization.

 

The Solactive US Aggregate Bond Index is a total return index that aims to track the performance of the USD denominated bond market. The index includes instruments of the following indices: Solactive MBS USD Index, Solactive Agency Bond USD Index, Solactive Developed Government USD Bond Index, Solactive Development Bank Bond USD TR Index, Solactive Select USD Investment Grade Corporate TR Index, and Solactive US Treasury Bond Index.

 

5

 

 

Discipline Fund ETF
Schedule of Investments
July 31, 2022

 

Shares      Value 
INVESTMENT COMPANIES - 99.8%     
 191,770   SPDR Portfolio Developed World ex-US ETF  $5,825,973 
 29,706   Vanguard FTSE Emerging Markets ETF   1,227,452 
 148,614   Vanguard Intermediate-Term Treasury ETF   9,251,222 
 65,905   Vanguard Long-Term Treasury ETF   4,735,274 
 15,970   Vanguard S&P 500 ETF   6,049,276 
 76,709   Vanguard Short-Term Treasury ETF   4,528,899 
     TOTAL INVESTMENT COMPANIES (Cost $35,155,940)   31,618,096 
           
MONEY MARKET FUNDS - 0.2%     
 62,018   First American Government Obligations Fund - Class X, 1.44% (a)   62,018 
     TOTAL MONEY MARKET FUNDS (Cost $62,018)   62,018 
           
     TOTAL INVESTMENTS (Cost $35,217,958) - 100.0%   31,680,114 
     Other Liabilities in Excess of Assets - (0.0%) (b)   (7,833)
     TOTAL NET ASSETS - 100.0%  $31,672,281 

 

Percentages are stated as a percent of net assets.

 

(a) Rate shown is the 7-day effective yield.
(b) Represents less than 0.05% of net assets.

 

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

 

6

 

 

DISCIPLINE FUND ETF

 

STATEMENT OF ASSETS AND LIABILITIES

JULY 31, 2022

 

   Discipline
Fund ETF
 
Assets:     
Investments in securities, at value  $31,680,114 
Securities lending income receivable (Note 4)   1,056 
Dividends and interest receivable   68 
Total assets   31,681,238 
Liabilities:     
Accrued investment advisory fees   8,957 
Total liabilities   8,957 
Net Assets  $31,672,281 
      
Net Assets Consist of:     
Paid-in capital  $35,458,036 
Total distributable earnings (accumulated deficit)   (3,785,755)
Net Assets:  $31,672,281 
      
Calculation of Net Asset Value Per Share:     
Net Assets  $31,672,281 
Shares Outstanding (unlimited shares of beneficial interest authorized, no par value)   1,430,000 
Net Asset Value per Share  $22.15 
      
Cost of Investments in Securities  $35,217,958 

 

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

 

7

 

 

DISCIPLINE FUND ETF

 

STATEMENT OF OPERATIONS

For the Period Ended July 31, 2022

 

   Discipline
Fund ETF(1)
 
Investment Income:     
Dividend income  $505,168 
Securities lending income   2,526 
Interest income   256 
Total investment income   507,950 
      
Expenses:     
Investment advisory fees   86,763 
Less: Reimbursement of expenses from Advisor (Note 3)   (9,705)
Net expenses   77,058 
      
Net Investment Income (Loss)   430,892 
      
Realized and Unrealized Loss on Investments:     
Net realized loss on:     
Investments   (477,286)
    (477,286)
Net change in unrealized depreciation on:     
Investments   (3,537,844)
    (3,537,844)
Net realized and unrealized loss on investments:   (4,015,130)
Net Decrease in Net Assets Resulting from Operations  $(3,584,238)

 

(1) The Fund commenced operations on September 21, 2021.

 

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

 

8

 

 

DISCIPLINE FUND ETF

 

STATEMENT OF CHANGES IN NET ASSETS

 

   Discipline
Fund ETF
 
   For the
Period Ended
July 31,
2022(1)
 
Increase (Decrease) in Net Assets from:     
Operations:     
Net investment income  $430,892 
Net realized loss on investments   (477,286)
Net change in unrealized depreciation on investments   (3,537,844)
Net decrease in net assets resulting from operations   (3,584,238)
      
Distributions to Shareholders:     
Net investment income   (281,882)
Total distributions to shareholders   (281,882)
      
Capital Share Transactions:     
Proceeds from shares sold   39,765,221 
Payments for shares redeemed   (4,226,820)
Net increase in net assets derived from net change in capital share transactions   35,538,401 
Net Increase in Net Assets   31,672,281 
Net Assets:     
Beginning of period   - 
End of period  $31,672,281 
      
Changes in Shares Outstanding     
Shares outstanding, beginning of period   - 
Shares sold   1,620,000 
Shares redeemed   (190,000)
Shares outstanding, end of period   1,430,000 

 

(1) The Fund commenced operations on September 21, 2021.

 

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

 

9

 

 

DISCIPLINE FUND ETF

 

FINANCIAL HIGHLIGHTS

For the Period Ended July 31, 2022

 

   Net Asset Value, Beginning of Period   Net Investment Income(1)   Net Realized and Unrealized Gain (Loss) on Investments   Net Increase (Decrease) in Net Asset Value Resulting from Operations   Distributions from Net Investment Income   Total Distributions   Net Asset Value, End of Period   Total Return(2)   Net Assets, End of Period (000’s)   Net Expenses(3)(4)   Gross Expenses(3)   Net Investment Income(3)   Portfolio Turnover Rate(5) 
Discipline Fund ETF                                                    
September 21, 2021(6) to July 31, 2022  $25.00   0.39   (2.96)  (2.57)  (0.28)  (0.28)  $22.15   (10.40%)  $31,672   0.35%  0.39%  1.94%   25% 

 

(1) Net investment income per share represents net investment income divided by the daily average shares of beneficial interest outstanding throughout the period.
(2) All returns reflect reinvested dividends, if any, but do not reflect the impact of taxes. Total return for a period of less than one year is not annualized.
(3) For periods of less than one year, these ratios are annualized.
(4) Net expenses include effects of any reimbursement or recoupment.
(5) Portfolio turnover is not annualized and is calculated without regard to short-term securities having a maturity of less than one year.
(6) Commencement of operations.

 

The accompanying Notes to the Financial Statements are an integral part of these Financial Statements.

 

10

 

 

DISCIPLINE FUND ETF

 

NOTES TO THE FINANCIAL STATEMENTS

JULY 31, 2022

 

NOTE 1 – ORGANIZATION

 

Discipline Fund ETF (the “Fund”) is a series of the EA Series Trust (the “Trust”), which was organized as a Delaware statutory trust on October 11, 2013. The Trust is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and the offering of the Fund’s shares (“Shares”) is registered under the Securities Act of 1933, as amended (the “Securities Act”). The Fund is considered diversified under the 1940 Act. The Fund commenced operations on September 21, 2021. The Fund qualifies as an investment company as defined in the Financial Accounting Standards Codification Topic 946-Financial Services - Investment Companies. The Fund’s investment objective is to achieve long-term capital growth.

 

The Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve its investment objective by investing in a portfolio of other large, broad-based ETFs that Orcam Financial Group, LLC, d/b/a Discipline Funds (the “Sub-Adviser”), believes can reduce the Fund’s relative stock and bond risks when compared to a traditional diversified market cap-weighted index fund. The Fund will provide a globally diversified portfolio, which will be systematically reallocated depending on the Sub-Adviser’s assessment of the risks in the then-current market environment. The Fund will seek long-term growth of capital with reduced investment volatility.

 

Shares of the Discipline Fund ETF are listed and traded on the NYSE ARCA Exchange, Inc. (“NYSE”). Market prices for the shares may be different from their net asset value (“NAV”). The Fund issues and redeems shares on a continuous basis at NAV only in blocks of 10,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified universe. Once created, shares generally trade in the secondary market at market prices that change throughout the day in share amounts less than a Creation Unit. Except when aggregated in Creation Units, shares are not redeemable securities of the Fund. Shares of the Fund may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the shares directly from the Fund. Rather, most retail investors may purchase shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees.

 

Authorized Participants may be required to pay a transaction fee to compensate the Trust or its custodian for costs incurred in connection with creation and redemption transactions. The standard transaction fee, which is payable to the Trust’s custodian, typically applies to in-kind purchases of the Fund effected through the clearing process on any business day, regardless of the number of Creation Units purchased or redeemed that day (“Standard Transaction Fees”). Variable fees are imposed to compensate the Fund for the transaction costs associated with the cash transactions fees. Certain fund deposits consisting of cash-in-lieu or cash value may be subject to a variable charge (“Variable Transaction Fees”), which is payable to the Fund, of up to 2.00% of the value of the order in addition to the Standard Transaction Fees. Variable Transaction Fees received by the Fund, if any, are displayed in the Capital Share Transactions sections of the Statements of Changes in Net Assets.

 

Because, among other things, the Fund imposes transaction fees on purchases and redemptions of Shares to cover the custodial and other costs incurred by the Fund in effecting trades, the Board determined that it is not necessary to adopt policies and procedures to detect and deter market timing of the Fund’s Shares.

 

11

 

 

DISCIPLINE FUND ETF

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2022

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

A. Security Valuation. Equity securities that are traded on a national securities exchange, except those listed on the NASDAQ Global Market® (“NASDAQ”) are valued at the last reported sale price on the exchange on which the security is principally traded. Securities traded on NASDAQ will be valued at the NASDAQ Official Closing Price (“NOCP”). If, on a particular day, an exchange-traded or NASDAQ security does not trade, then the most recent quoted bid for exchange-traded or the mean between the most recent quoted bid and ask price for NASDAQ securities will be used. Equity securities that are not traded on a listed exchange are generally valued at the last sale price in the over-the-counter market. If a non-exchange traded security does not trade on a particular day, then the mean between the last quoted closing bid and asked price will be used. Prices denominated in foreign currencies are converted to U.S. dollar equivalents at the current exchange rate, which approximates fair value. Redeemable securities issued by open-end investment companies are valued at the investment company’s applicable net asset value, with the exception of exchange-traded open-end investment companies which are priced as equity securities.

 

Securities for which quotations are not readily available are valued by a committee established by the Trust’s Board of Trustees (the “Board”) in accordance with procedures established by the Board. This “fair valuation” process is designed to value the subject security at the price the Trust would reasonably expect to receive upon its current sale. When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Board. The use of “fair value” pricing by the Fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated without regard to such considerations. As of July 31, 2022, the Fund did not hold any securities valued by an investment committee.

 

As described above, the Fund may use various methods to measure the fair value of their investments on a recurring basis. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:

 

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.

 

Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.

 

Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability and would be based on the best information available.

 

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

 

12

 

 

DISCIPLINE FUND ETF

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2022

 

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

 

The following is a summary of the fair value classification of the Fund’s investments as of July 31, 2022:

 

  DESCRIPTION  LEVEL 1   LEVEL 2   LEVEL 3   TOTAL 
  Discipline Fund ETF                    
  Assets*                    
  Investment Companies  $31,618,096   $-   $-   $31,618,096 
  Money Market Funds   62,018    -    -    62,018 
  Total Investments in Securities  $31,680,114   $-   $-   $31,680,114 

 

* For further detail on each asset class, see the Schedule of Investments

 

During the fiscal period ended July 31, 2022, the Fund did not invest in any Level 3 investments and recognized no transfers to/from Level 3. Transfers between levels are recognized at the end of the reporting period.

 

B. Risks. Markets may perform poorly and the returns from the securities in which the Fund invests may underperform returns from the general securities markets. Securities markets may experience periods of high volatility and reduced liquidity in response to governmental actions or intervention, economic or market developments, or other external factors. The value of a company’s securities may rise or fall in response to company, market, economic or other news.

 

Foreign securities may underperform U.S. securities and may be more volatile than U.S. securities. Risks relating to investments in foreign securities (including, but not limited to, depositary receipts and participation certificates) and to securities of issuers with significant exposure to foreign markets include: currency exchange rate fluctuation; less available public information about the issuers of securities; less stringent regulatory standards; lack of uniform accounting, auditing and financial reporting standards; and country risks including less liquidity, high inflation rates, unfavorable economic practices, political instability and expropriation and nationalization risks.

 

The risks of foreign securities typically are greater in emerging and less developed markets. For example, in addition to the risks associated with investments in any foreign country, political, legal and economic structures in these less developed countries may be new and changing rapidly, which may cause instability and greater risk of loss. These securities markets may be less developed and securities in those markets are generally more volatile and less liquid than those in developed markets. Investing in emerging market countries may involve substantial risk due to, among other reasons, limited information; higher brokerage costs; different accounting, auditing and financial reporting standards; less developed legal systems and thinner trading markets as compared to those in developed countries; different clearing and settlement procedures and custodial services; and currency blockages or transfer restrictions. Emerging market countries also are more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. Certain emerging markets also may face other significant internal or external risks, including a heightened risk of war and ethnic, religious and racial conflicts. In addition, governments in many emerging market countries participate to a significant degree in their economies and securities markets, which may impair investment and economic growth of companies in those markets. Such markets may also be heavily reliant on foreign capital and, therefore, vulnerable to capital flight.

 

13

 

 

DISCIPLINE FUND ETF

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2022

 

The risks of investing in investment companies typically reflect the risks of the types of instruments in which the investment companies invest. By investing in another investment company, the Funds become a shareholder of that investment company and bear their proportionate share of the fees and expenses of the other investment company. The Funds may be subject to statutory limits with respect to the amount they can invest in other ETFs, which may adversely affect the Funds’ ability to achieve their investment objective.

 

Investments in ETFs are also subject to the following risks: (i) the market price of an ETF’s shares may trade above or below their NAV; (ii) an active trading market for an ETF’s shares may not develop or be maintained; and (iii) trading of an ETF’s shares may be halted for various reasons.

 

See the Fund’s Prospectus and Statement of Additional Information regarding the risks of investing in shares of the Fund.

 

C. Foreign Currency. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts using the spot rate of exchange at the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions.

 

The Fund isolates the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. That portion of gains (losses) attributable to the changes in market prices and the portion of gains (losses) attributable to changes in foreign exchange rates are included on the “Statement of Operations” under “Net realized gain (loss) – Foreign currency” and “Change in Net Unrealized Appreciation (Depreciation) – Foreign Currency,” respectively.

 

The Fund reports net realized foreign exchange gains or losses that arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.

 

D. Federal Income Taxes. The Fund intends to continue to comply with the requirements of subchapter M of the Internal Revenue Code of 1986, as amended, as necessary to qualify as a regulated investment company and distribute substantially all net taxable investment income and net realized gains to shareholders in a manner which results in no tax cost to the Fund. Therefore, no federal income tax provision is required. As of and during the fiscal period ended July 31, 2022, the Fund did not have any tax positions that did not meet the “more-likely-than-not” threshold of being sustained by the applicable tax authority. As of and during the fiscal period ended July 31, 2022, the Fund did not have liabilities for any unrecognized tax benefits. The Fund would/will recognize interest and penalties, if any, related to unrecognized tax benefits on uncertain tax positions as income tax expense in the Fund’s Statement of Operations. During the fiscal period ended July 31, 2022, the Fund did not incur any interest or penalties. The Fund is subject to examination by U.S. taxing authorities for the tax periods since the Fund’s commencement of operations.

 

The Fund may be subject to taxes imposed on realized and unrealized gains on securities of certain foreign countries in which the Fund invests. The foreign tax expense, if any, was recorded on an accrual basis and is included in “Net realized gain (loss) on investments” and “Net increase (decrease) in unrealized appreciation or depreciation on investments” on the accompanying Statements of Operations. The amount of foreign tax owed, if any, is included in “Payable for foreign taxes” on the accompanying Statements of Assets and Liabilities and is comprised of withholding taxes on foreign dividends and taxes on unrealized gains.

 

14

 

 

DISCIPLINE FUND ETF

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2022

 

E. Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Dividend income is recorded on the ex-dividend date, net of any foreign taxes withheld at source. Interest income is recorded on an accrual basis. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable tax rules and regulations.

 

Distributions to shareholders from net investment income and from net realized gains on securities for the Fund are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. The Fund may distribute more frequently, if necessary, for tax purposes.

 

F. Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of increases and decreases in net assets from operations during the period. Actual results could differ from those estimates.

 

G. Share Valuation. The NAV per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for the Fund, rounded to the nearest cent. The Fund’s shares will not be priced on the days on which the New York Stock Exchange (“NYSE”) is closed for regular trading. The offering and redemption price per share for the Fund is equal to the Fund’s net asset value per share.

 

H. Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. Additionally, as is customary, the Trust’s organizational documents permit the Trust to indemnify its officers and trustees against certain liabilities under certain circumstances. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be against the Fund that have not yet occurred. As of the date of this Report, no claim has been made for indemnification pursuant to any such agreement of the Fund.

 

I. Reclassification of Capital Accounts. GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. In addition, the Fund’s realized net capital gains resulting from in-kind redemptions, in which shareholders exchanged Fund shares for securities held by the Fund rather than for cash. Because such gains are not taxable to the Fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized losses to paid-in capital. For the fiscal period ended July 31, 2022 the following table shows the reclassifications made:

 

   Undistributed Net
Investment Gain (Loss)
   Accumulated Net
Realized Gain (Loss)
   Paid in
Capital
 
  Discipline Fund ETF  $(43,561)  $123,926   $(80,365)

 

15

 

 

DISCIPLINE FUND ETF

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2022

 

NOTE 3 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.

 

Empowered Funds, LLC d/b/a EA Advisers (the “Adviser”) serves as the investment adviser to the Fund. Pursuant to an investment advisory agreement (the “Advisory Agreement”) between the Trust, on behalf of the Fund, and the Adviser, the Adviser provides investment advice to the Fund and oversees the day-to-day operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Adviser is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate. The Adviser administers the Fund’s business affairs, provides office facilities and equipment and certain clerical, bookkeeping and administrative services. The Adviser agrees to pay all expenses incurred by the Fund except for the fee paid to the Adviser pursuant to the Advisory Agreement, payments under any distribution plan adopted pursuant to Rule 12b-1, brokerage expenses, acquired fund fees and expenses, taxes (including tax-related services), interest (including borrowing costs), litigation expense (including class action-related services) and other non-routine or extraordinary expenses.

 

U.S. Bancorp Fund Services, LLC (“Fund Services” or “Administrator”), doing business as U.S. Bank Global Fund Services, acts as the Fund’s Administrator and, in that capacity, performs various administrative and accounting services for the Fund. The Administrator prepares various federal and state regulatory filings, reports and returns for the Fund, including regulatory compliance monitoring and financial reporting; prepares reports and materials to be supplied to the trustees; monitors the activities of the Fund’s Custodian, transfer agent and fund accountant. Fund Services also serves as the transfer agent and fund accountant to the Fund. U.S. Bank N.A. (the “Custodian”), an affiliate of the Administrator, serves as the Fund’s Custodian.

 

The Custodian acts as the securities lending agent (the “Securities Lending Agent”) for the Fund.

 

Orcam Financial Group, LLC, d/b/a Discipline Funds, serves as a non-discretionary investment sub-adviser to the Fund. Pursuant to an investment sub-advisory agreement (the “Sub-Advisory Agreement”) among the Trust, the Adviser and the Sub-Adviser, the Sub-Adviser is responsible for determining the investment exposures for the Fund, subject to the overall supervision and oversight of the Adviser and the Board.

 

At a Board meeting held on September 15, 2021, the Board of Trustees of the Trust (the “Trustees”) including each Trustee who is not an “interested person” of the Trust, as defined in the 1940 Act, approved the Advisory Agreement and Sub-Advisory Agreement. Per the Advisory Agreement, the Fund pays an annual rate of 0.39% to the Adviser monthly based on average daily net assets. The Fund’s investment adviser has contractually agreed to waive all or a portion of its management fee for the Fund until at least one year from the date of the Fund’s commencement of operations. The waiver of $9,705 of actual AFFE fees equated to approximately 0.04% on an annual basis, bringing the net Advisory fee to an annual rate of 0.35%. A description of the Board’s consideration was included in the Fund’s semi-annual report dated January 31, 2022.

 

NOTE 4 – SECURITIES LENDING

 

On October 1, 2021, the Board approved the use of securities lending. The Fund may lend up to 33⅓% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program administered by the Securities Lending Agent. The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any domestic loaned securities at the time of the loan, plus accrued interest. The use of loans of foreign securities, which are denominated and payable in U.S. dollars, shall be collateralized in an amount equal to 105% of the value of any loaned securities at the time of the loan plus accrued interest. The Fund receives compensation in the form of fees and earns interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss on the value of securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand.

 

16

 

 

DISCIPLINE FUND ETF

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2022

 

The securities lending agreement provides that, in the event of a borrower’s material default, the Securities Lending Agent shall take all actions the Securities Lending Agent deems appropriate to liquidate the collateral, purchase replacement securities at the Securities Lending Agent’s expense, or pay the Fund an amount equal to the market value of the loaned securities, subject to certain limitations which are set forth in detail in the securities lending agreement between the Fund and the Securities Lending Agent.

 

As of the end of the current fiscal period, the Fund had loaned securities and received cash collateral for the loans. The cash collateral is invested by the Securities Lending Agent in accordance with the Trust approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the Securities Lending Agent.

 

As of the end of the current fiscal period, the Fund did not have any securities on loan.

 

The interest income earned by the Fund on the investment of cash collateral received from borrowers for the securities loaned to them (“Securities Lending Income, Net”) is reflected in the Fund’s Statement of Operations. Net securities lending income earned on collateral investments and recognized by the Fund during the current fiscal period, was as follows:

 

Discipline Fund ETF   $2,526 

 

NOTE 5 – PURCHASES AND SALES OF SECURITIES

 

For the fiscal period ended July 31, 2022, purchases and sales of securities for the Fund, excluding short-term securities and in-kind transactions, were as follows:

 

    Purchases   Sales 
Discipline Fund ETF   $6,715,834   $5,920,865 

 

For the fiscal period ended July 31, 2022, in-kind transactions associated with creations and redemptions were as follows:

 

    Purchases   Sales 
Discipline Fund ETF   $39,039,836   $4,201,580 

 

For the fiscal period ended July 31, 2022, short term and long-term losses on in-kind transactions were as follows:

 

     Short Term   Long Term  
Discipline Fund ETF    $(80,365)  $ -  

 

There were no purchases or sales of U.S. Government securities during the fiscal period.

 

17

 

 

DISCIPLINE FUND ETF

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2022

 

NOTE 6 – TAX INFORMATION

 

The components of tax basis cost of investments and net unrealized appreciation (depreciation) for federal income tax purposes at July 31, 2022 were as follows:

 

   Discipline
Fund ETF
 
Tax cost of Investments  $35,280,955 
Gross tax unrealized appreciation   49,754 
Gross tax unrealized depreciation   (3,650,595)
Net tax unrealized appreciation (depreciation)  $(3,600,841)
Undistributed ordinary income   105,449 
Undistributed long-term gain   - 
Total distributable earnings   105,449 
Other accumulated gain (loss)   (290,363)
Total accumulated gain (loss)  $(3,785,755)

 

The difference between book and tax-basis cost is attributable to the realization for tax purposes of unrealized gains on investments in REITs, partnerships, passive foreign investment companies and wash sales. Under tax law, certain capital and foreign currency losses realized after October 31 and within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year.

 

For the fiscal period ended July 31, 2022, the Fund did not defer any qualified late year losses.

 

At July 31, 2022, the Fund had the following capital loss carryforwards:

 

   Unlimited Short-
Term
   Unlimited Long-
Term
 
Discipline Fund ETF  $(290,363)  $ -  

 

NOTE 7 – DISTRIBUTIONS TO SHAREHOLDERS

 

The tax character of distributions paid by the Fund during the fiscal period ended July 31, 2022, was as follows:

 

   Fiscal
Period Ended
July 31,
2022
 
  

Ordinary
Income

 
Discipline Fund ETF  $281,882 

 

18

 

 

DISCIPLINE FUND ETF

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2022

 

NOTE 8 – SUBSEQUENT EVENTS

 

In preparing these financial statements, management of the Fund has evaluated events and transactions for potential recognition or disclosure through date the financial statements were issued. There were no transactions that occurred during the period subsequent to July 31, 2022, that materially impacted the amounts or disclosures in the Fund’s financial statements.

 

19

 

 

DISCIPLINE FUND ETF

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

SPICER JEFFRIES LLP
 

Certified Public Accountants

4601 DTC BOULEVARD ● SUITE 700

DENVER, COLORADO 80237

TELEPHONE: (303) 753-1959

FAX: (303) 753-0338
www.spicerjeffries.com

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and

Board of Trustees of

EA Series Trust

 

Opinion on the Financial Statements

 

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Discipline Fund ETF (the “Fund”, a series of EA Series Trust, the “Trust”) as of July 31, 2022, and the related statements of operations, changes in net assets, and financial highlights for the period from September 21, 2021 (commencement of operations) through July 31, 2022, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position as of July 31, 2022, and the results its operations, changes in net assets, and financial highlights, of the Fund, for the period from September 21, 2021 (commencement of operations) through July 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements and financial highlights are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Trust’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 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 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. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, 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 and financial highlights. Our procedures included confirmation of securities owned as of July 31, 2022, by correspondence with the custodian. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audit provides a reasonable basis for our opinion.

 

 

20

 

 

DISCIPLINE FUND ETF

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (CONTINUED)

 

We have served as the auditor of one or more of the investment companies within the EA Series Trust since 2016.

 

 

Denver, Colorado

September 28, 2022

 

21

 

 

DISCIPLINE FUND ETF

 

EXPENSE EXAMPLE

JULY 31, 2022 (UNAUDITED)

 

As a shareholder of the Discipline Fund ETF, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

 

The example is based on an investment of $1,000 invested at the beginning of the most recent six-month period and held the entire period (February 1, 2022 to July 31, 2022).

 

Actual Expenses

 

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period February 1, 2022 to July 31, 2022” to estimate the expenses you paid on your account during this period.

 

Hypothetical Example for Comparison Purposes

 

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund’s and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher. The information assumes the reinvestment of all dividends and distributions.

 

   Annualized
Expense
Ratio
   Beginning
Account
Value
February 1,
2022
   Ending
Account
Value
July 31,
2022
   Expenses
Paid
During
Period
February 1,
2022 to
July 31,
2022
 
Discipline Fund ETF                    
Actual   0.35%  $1,000.00   $914.80   $1.66 
Hypothetical (5% annual return before expenses)   0.35%   1,000.00    1,023.06    1.76 

 

1. The dollar amounts shown as expenses paid during the period are equal to the annualized six-month expense ratio multiplied by the average account value during the period, multiplied by 181/365, to reflect the one-half year period.

 

22

 

 

DISCIPLINE FUND ETF

 

REVIEW OF LIQUIDITY RISK MANAGEMENT PROGRAM (UNAUDITED)

 

Pursuant to Rule 22e-4 under the Investment Company Act of 1940, the Trust, on behalf of the series of the Trust covered by this shareholder report (the “Fund”), has adopted a liquidity risk management program (“the Program”) to govern the Trust’s approach to managing liquidity risk. Rule 22e-4 seeks to promote effective liquidity risk management, thereby reducing the risk that the Fund will be unable to meet its redemption obligations and mitigating dilution of the interests of fund shareholders. The Trust’s liquidity risk management program is tailored to reflect the Fund’s particular risks, but not to eliminate all adverse impacts of liquidity risk, which would be incompatible with the nature of the Fund.

 

The Trust’s Board of Trustees has designated the Chief Executive Officer of Empowered Funds LLC (the “Adviser”) as the Program Administrator, responsible for administering the Program and its policies and procedures.

 

At the July 26, 2022, meeting of the Board of Trustees of the Trust, the Program Administrator provided the Trustees with a report pertaining to the operation, adequacy, and effectiveness of implementation of the Program for the period ended March 31, 2022. The report concluded that the Program appeared effectively tailored to identify potential illiquid scenarios and to enable the Fund to deliver appropriate reporting. In addition, the report concluded that the Program is adequately operating and its implementation has been effective. The report reflected that there were no liquidity events that impacted the Fund’s ability to timely meet redemptions without dilution to existing shareholders. The report further described material changes that were made to the Program since its implementation.

 

There can be no assurance that the Program will achieve its objectives in the future. Please refer to the prospectus for more information regarding the Fund’s exposure to liquidity risk and other principal risks to which an investment in the Fund may be subject.

 

23

 

 

DISCIPLINE FUND ETF

 

FEDERAL TAX INFORMATION (UNAUDITED)

 

For the fiscal period ended July 31, 2022, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.8%, as provided for by the Tax Cuts and Jobs Act of 2017. The percentage of dividends declared from ordinary income designated as qualified dividend income was as follows:

 

Discipline Fund ETF    49.33%

 

For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal period ended July 31, 2022 was as follows:

 

Discipline Fund ETF    0.26%

 

SHORT TERM CAPITAL GAIN

 

The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under the Internal Revenue Section 871 (k)(2)(C) for the Fund was 0.00% (unaudited).

 

24

 

 

DISCIPLINE FUND ETF

 

MANAGEMENT OF THE FUND

 

The table below sets forth certain information about each of the Trust’s executive officers as well as its affiliated and independent Trustees.

 

Name, Address,
and Year of
Birth
Position(s)
Held with
Trust
Term of
Office and
Length of
Time
Served
Principal Occupation During
Past 5 Years
Number of
Funds in
Fund
Complex
Overseen
by Trustee
Other
Directorships
Held by Trustee
During Past 5 Years
Independent Trustees

Daniel Dorn

Born: 1975

Trustee Since 2014 Associate Professor of Finance, Drexel University, LeBow College of Business (2003 – present). 24 None

Michael S. Pagano, Ph.D., CFA

Born: 1962

Trustee Since 2014 The Robert J. and Mary Ellen Darretta Endowed Chair in Finance, Villanova University (1999 – present); Founder, Michael S. Pagano, LLC (business consulting firm) (2008 – present); 24 Citadel Federal Credit Union (pro bono service for non- profit)

Chukwuemeka (Emeka) O. Oguh

Born: 1983

Trustee Since 2018 Co-founder and CEO, PeopleJoy (2016 – present). 24 None
Interested Trustee*

Wesley R. Gray, Ph.D.

Born: 1980

Trustee and President Since 2014 Founder and Executive Managing Member, EA Advisers (2013 – present); Founder and Executive Managing Member, Empirical Finance, LLC d/b/a Alpha Architect (2010 – present). 24 None

 

* Dr. Gray is an “interested person,” as defined by the Investment Company Act, because of his employment with and ownership interest in the Adviser.

 

Additional information about the Affiliated Trustee and Independent Trustees is available in the Statement of Additional Information (SAI).

 

25

 

 

DISCIPLINE FUND ETF

 

MANAGEMENT OF THE FUND (CONTINUED)

 

Officers

 

Name, Address,
and Year of
Birth
Position(s)
Held with
Trust
Term of
Office and
Length of
Time
Served
Principal Occupation During Past 5 Years

John Vogel, Ph.D.

Born: 1983

Treasurer and Chief Financial Officer Since 2014 Managing Member, EA Advisers (2013 – present); Managing Member, Empirical Finance, LLC d/b/a Alpha Architect (2012 – present).

Patrick R. Cleary

Born: 1982

Secretary and
Chief Compliance Officer
Since 2015 Chief Operating Officer and Managing Member, Alpha Architect, LLC (2014 – present); Chief Executive Officer of EA Advisers (2021 – present).

Sean Hegarty

Born: 1993

Assistant Treasurer Since 2022 Chief Operating Officer, EA Advisers (2022 – present); Assistant Vice President – Fund Administration, U.S. Bank Global Fund Services (2018 – 2022); Staff Accountant, Cohen & Company (2015 – 2018)

 

26

 

 

DISCIPLINE FUND ETF

 

BOARD REVIEW AND APPROVAL OF ADVISORY AGREEMENT AND SUB-ADVISORY AGREEMENT (UNAUDITED)

 

The Board (the members of which are referred to as “Trustees”) of the EA Series Trust (the “Trust”) met virtually on September 15, 2021 to consider the approval of Advisory Agreement between the Trust, on behalf of the Discipline Fund ETF (the “Fund”), and Empowered Funds, LLC (the “Adviser”), as well as to consider the approval of the Sub-Advisory Agreement between the Adviser and Orcam Financial Group, LLC (the “Sub-Adviser”). In accordance with Section 15(c) of the 1940 Act, the Board requested, reviewed and considered materials furnished by the Adviser and Sub-Adviser relevant to the Board’s consideration of whether to approve the Advisory Agreement and Sub-Advisory Agreement. In connection with considering approval of both the Advisory Agreement and Sub-Advisory Agreement, the Trustees who are not “interested persons” of the Trust, as that term is defined in the 1940 Act (the “Independent Trustees”), met in executive session with counsel to the Trust, who provided assistance and advice. In reaching the decision to approve both the Advisory Agreement and Sub-Advisory Agreement, the Board considered and reviewed information provided by the Adviser and Sub-Adviser, including among other things information about its personnel, operations, financial condition, and compliance and risk management. The Board also reviewed copies of the proposed Advisory Agreement and Sub-Advisory Agreement. During their review and consideration, the Board focused on and reviewed the factors they deemed relevant, including:

 

Nature, Quality and Extent of Services. The Board was presented and considered information concerning the nature, quality and extent of the overall services expected to be provided by the Adviser to the Fund. In this connection, the Board considered the responsibilities of the Adviser, recognizing that the Adviser had invested significant time and effort in structuring the Trust and the Fund, obtaining the necessary exemptive relief from the Securities and Exchange Commission (“SEC”) and arranging service providers for the Fund. In addition, the Board considered that, the Adviser is responsible for providing investment advisory services to the Fund, monitoring compliance with the Fund’s objectives, policies and restrictions, and carrying out directives of the Board. The Board also considered the services expected to be provided by the Adviser in the oversight of the Trust’s administrator, transfer agent and custodian. In addition, the Board evaluated the integrity of the Adviser’s and Sub-Adviser’s personnel, the experience of the portfolio management team in managing assets and the adequacy of the Adviser’s and Sub-Adviser’s resources. In addition, the Board evaluated the integrity of each of the Adviser’s and Sub-Advisers’ personnel, the experience of the portfolio management team in managing assets and the adequacy of each of the Adviser’s and Sub-Adviser’s resources. The Board also considered the Adviser’s ongoing oversight responsibilities of the Sub-Adviser and the adequacy of the Adviser’s resources. The Board considered that the Sub-Adviser would provide its services as a non-discretionary investment sub-adviser and that the Adviser would be each the Fund’s discretionary investment adviser and responsible for all trading and compliance for the Fund.

 

Performance. Performance information was not available for the Fund as it had not yet commenced operations.

 

Comparative Fees and Expenses.

 

In considering the advisory fee and sub-advisory fee, the Board reviewed and considered the fees in light of the nature, quality and extent of the services expected to be provided by the Adviser and the Sub-Adviser, respectively. With respect to the advisory fee and expense ratio for the Fund, the Board also considered the fees and expense ratios versus the fees and expenses charged to other exchange-traded funds and mutual funds. The Board noted that there were no directly comparable passively managed and actively managed ETFs or mutual funds using as strategy comparable to the proposed strategy, and it was therefore difficult to compare the Fund’s management fee and estimated expenses with the fees and expenses of other passively managed and actively managed ETFs and mutual funds. With respect to the sub-advisory fee, the Board noted that they were payable solely out of the unitary management fee payable to the Adviser.

 

The Board considered, among other information, the data provided in the third-party report. Fee information was provided in quartiles, ranging from quartile one (the least expensive) to quartile four (the most expensive). The Board considered the third-party peer group analysis that included comparison of the Fund’s anticipated net expense ratio against funds that were both exchanged-traded funds and mutual funds. The Fund’s total expense ratio (for both gross and net fees) were in the fourth (highest) quartile for ETFs and first (lowest) quartile for mutual funds. The Fund’s management fee was in the fourth quartile for ETFs and first quartile for mutual funds. The Board determined that the Fund’s proposed fee level was reasonable.

 

27

 

 

DISCIPLINE FUND ETF

 

BOARD REVIEW AND APPROVAL OF ADVISORY AGREEMENT AND SUB-ADVISORY AGREEMENT (UNAUDITED) (CONTINUED)

 

Costs and Profitability. The Board further considered information regarding the potential profits, if any, that may be realized by each of the Adviser and Sub-Adviser in connection with providing their respective services to the Fund. The Board reviewed estimated profit and loss information provided by the Adviser with respect to the Fund and estimated data regarding the proposed Sub-Advisory fee and the costs associated with the personnel, systems and equipment necessary to manage the Fund and to meet the regulatory and compliance requirements adopted by the SEC and other regulatory bodies as well as other expenses the Adviser would pay in accordance with the Advisory Agreement. The Board also took into consideration that the Adviser agreed to pay all expenses incurred by the Fund except for the fees paid to the Adviser pursuant to the Advisory Agreement, payments under any distribution plan adopted pursuant to Rule 12b-1, brokerage expenses, acquired fund fees and expenses, taxes, interest (including borrowing costs), litigation expenses and other non-routine or extraordinary expenses. The Board also considered the respective financial obligations of the Adviser and the Sub-Adviser, as sponsor of the Fund. They considered the Sub-Adviser’s projected Fund asset totals over the first three years of operations. The Board also considered the ownership structure of the Sub-Adviser and the assets committed by the ownership group to support the Fund.

 

Other Benefits. The Board further considered the extent to which the Adviser or Sub-Adviser might derive ancillary benefits from Fund operations. For example, the Adviser and Sub-Adviser may engage in soft dollar transactions in the future, although it did not currently plan to do so. In addition, the Adviser may benefit from continued growth in the Trust by potentially negotiating better fee arrangements with key vendors serving all of the funds in the Trust.

 

Economies of Scale. The Board also considered whether economies of scale would be realized by the Fund as it its assets grow, including the extent to which this is reflected in the level of fees to be charged. The Board noted that the advisory and sub-advisory fees for the Fund do not include breakpoints but concluded that it was premature to meaningfully evaluate potential economies of scale.

 

Conclusion. No single factor was determinative of the Board’s decision to approve both the Advisory Agreement and Sub-Advisory Agreement; rather, the Board based its determination on the total mix of information available to it. Based on a consideration of all the factors in their totality, the Board, including a majority of the Independent Trustees, approved both the Advisory Agreement and Sub-Advisory Agreement, including the compensation payable under the Agreements.

 

28

 

 

DISCIPLINE FUND ETF

 

INFORMATION ABOUT PORTFOLIO HOLDINGS (UNAUDITED)

 

The Fund files its complete schedule of portfolio holdings for its first and third fiscal quarters with the Securities and Exchange Commission (“SEC”) on Part F of Form N-PORT. The Fund’s Form N-PORT is available without charge, upon request, by calling (215) 882-9983. Furthermore, you may obtain the Form N-PORT on the SEC’s website at www.sec.gov. The Fund’s portfolio holdings are posted on its website at https://disciplinefunds.com/dscf/.

 

INFORMATION ABOUT PROXY VOTING (UNAUDITED)

 

A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is provided in the Statement of Additional Information (“SAI”). The SAI is available without charge upon request by calling (215) 882-9983, by accessing the SEC’s website at www.sec.gov, or by accessing the Fund’s website at https://disciplinefunds.com/dscf/.

 

When available, information regarding how the Fund’s voted proxies relating to portfolio securities during the twelve months ending June 30 is (1) available by calling (215) 882-9983 and (2) the SEC’s website at www.sec.gov.

 

FREQUENCY DISTRIBUTION OF PREMIUMS AND DISCOUNTS (UNAUDITED)

 

Information regarding how often shares of the Fund trades on an exchange at a price above (i.e., at premium) or below (i.e., at a discount) the NAV of the Fund is available, without charge, on the Fund’s website at https://disciplinefunds.com/dscf/.

 

PRIVACY POLICY (UNAUDITED)

 

EA Series Trust (the “Trust”) is strongly committed to preserving and safeguarding the personal financial information of any customers of the Trust. Confidentiality is extremely important to us.

 

Regulation S-P requires, among others, each investment company to “adopt written policies and procedures that address administrative, technical, and physical safeguards for the protection of customer records and information.” However, Pursuant to Regulation S-P’s definition of “customer,” the Trust currently does not have, nor does it anticipate having in the future, any customers. In addition, the Trust does not collect any non-public personal information from any consumers.

 

Nonetheless, the Trust has instituted certain technical, administrative and physical safeguards through which the Trust would seek to protect personal financial information about any customers from unauthorized use and access. First, technical procedures are used in order to limit the accessibility and exposure of Trust-maintained information contained in electronic form. If customer information were obtained by the Trust, such technical procedures would cover such information.

 

Second, administrative procedures that are in place, would be used to control the number and type of employees, affiliated and nonaffiliated persons, to whom customer information (if the Trust were to obtain any) would be accessible.

 

Third, physical safeguards have been established, which if customer information were obtained by the Trust, to prevent access to such information contained in hard-copy form.

 

As these procedures illustrate, the Trust realizes the importance of information confidentiality and security and emphasizes practices which are aimed at achieving those goals.

 

29

 

 

 

 

 

 

 

 

 

 

 

Adviser

Empowered Funds, LLC d/b/a EA Advisers

19 East Eagle Road

Havertown, Pennsylvania 19083

 

Distributor

Quasar Distributors, LLC

111 East Kilbourn Avenue, Suite 2200

Milwaukee, Wisconsin 53202

 

Custodian and Securities Lending Agent

U.S. Bank National Association

Custody Operations

1555 North River Center Drive, Suite 302

Milwaukee, Wisconsin 53212

 

Transfer Agent

U.S. Bank Global Fund Services, LLC

615 East Michigan Street

Milwaukee, Wisconsin 53202

 

Independent Registered Public Accounting Firm

Spicer Jeffries LLP

4601 DTC Boulevard, Suite 700

Denver, Colorado 80237

 

Legal Counsel

Practus, LLC
11300 Tomahawk Creek Parkway, Suite 310

Leawood, Kansas 66211

 

Discipline Fund ETF

Symbol – DSCF
CUSIP – 02072L748

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 2. Code of Ethics.

 

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

 

A copy of the registrant’s Code of Ethics is incorporated by reference.

 

Item 3. Audit Committee Financial Expert.

 

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

 

Item 4. Principal Accountant Fees and Services.

 

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

 

Discipline Fund ETF

 

  FYE 7/31/2022 FYE 7/31/2021
Audit Fees $8,750 N/A
Audit-Related Fees N/A N/A
Tax Fees $2,250 N/A
All Other Fees N/A N/A

 

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

 

The percentage of fees billed by Spicer Jeffries LLP applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:

 

Discipline Fund ETF

 

  FYE 7/31/2022 FYE 7/31/2021
Audit-Related Fees 0% N/A
Tax Fees 0% N/A
All Other Fees 0% N/A

 

 

 

 

All of the principal accountant’s hours spent on auditing the registrant’s financial statements were attributed to work performed by full-time permanent employees of the principal accountant. (If more than 50 percent of the accountant’s hours were spent to audit the registrant’s financial statements for the most recent fiscal year, state how many hours were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.)

 

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

 

Discipline Fund ETF

 

Non-Audit Related Fees FYE 7/31/2022 FYE 7/31/2021
Registrant N/A N/A
Registrant’s Investment Adviser N/A N/A

 

Item 5. Audit Committee of Listed Registrants.

 

The registrant is an issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934, (the “Act”) and has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Act. The independent members of the committee are as follows: Daniel Dorn, Chukwuemeka (Emeka) Oguh, and Michael Pagano.

 

Item 6. Investments.

 

Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

 

Not applicable to open-end investment companies.

 

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

 

Not applicable to open-end investment companies.

 

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

 

Not applicable to open-end investment companies.

 

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

 

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

 

 

 

 

Item 11. Controls and Procedures.

 

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

 

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

 

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

 

Not applicable to open-end investment companies.

 

Item 13. Exhibits.

 

(a)(1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Filed herewith.

 

(2) A separate certification for each principal executive and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

 

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

 

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

 

(b)Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

 

 

 

 

SIGNATURES

 

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

 

(Registrant) EA Series Trust  
   
By (Signature and Title) /s/ Wesley Gray  
  Wesley Gray, President, Principal Executive Officer  
   
Date: September 29, 2022  

 

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

 

By (Signature and Title) /s/ Wesley Gray  
Wesley Gray, President, Principal Executive Officer  
     
Date: September 29, 2022  
     
By (Signature and Title) /s/ John R. Vogel  
  John R. Vogel, Principal Financial Officer and Treasurer  
     
Date: September 29, 2022