December 31, 2023
Semi-Annual Report
Simplify Exchange Traded Funds
Simplify US Equity PLUS Convexity ETF (SPYC)
Simplify US Equity PLUS Downside Convexity ETF (SPD)
Simplify US Equity PLUS Upside Convexity ETF (SPUC)
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Simplify Exchange Traded Funds
Table of Contents
This report is provided for the general information of shareholders and is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus.
Simplify Exchange Traded Funds
Fees and Expenses (Unaudited)
As a shareholder of one or more of the Funds, you incur two types of costs: (1) transaction costs, including brokerage commissions paid on purchases and sales of fund shares, and (2) ongoing costs, including unitary advisory fees and other Fund expenses. In the most recent six-month period, up to October 31, 2023, the Funds limited these expenses; had they not done so, expenses would have been higher. The expense examples below are intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds.
The examples in the tables are based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2023 to December 31, 2023).
Actual expenses
The first line in the following tables 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 “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The second line in the following tables provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratios and an assumed rate of return of 5% per year before expenses (which is not the Fund’s actual 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 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 tables are meant to highlight your ongoing costs only, and do not reflect any transactional costs. Therefore the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value July 1, 2023 |
Ending Account Value December 31, 2023 |
Annualized Expense Ratio |
Expenses
Paid During the Period Per $1,000(1) |
|||||||||||||
| Simplify US Equity PLUS Convexity ETF | ||||||||||||||||
| Actual | $ | 1,000.00 | $ | 1,069.70 | 0.25 | % | $ | 1.30 | ||||||||
| Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,023.88 | 0.25 | % | $ | 1.27 | ||||||||
| Simplify US Equity PLUS Downside Convexity ETF | ||||||||||||||||
| Actual | $ | 1,000.00 | $ | 1,061.00 | 0.25 | % | $ | 1.30 | ||||||||
| Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,023.88 | 0.25 | % | $ | 1.27 | ||||||||
| Simplify US Equity PLUS Upside Convexity ETF | ||||||||||||||||
| Actual | $ | 1,000.00 | $ | 1,085.40 | 0.25 | % | $ | 1.31 | ||||||||
| Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,023.88 | 0.25 | % | $ | 1.27 | ||||||||
| (1) | Expenses are equal to each Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 366. |
4
Simplify US Equity PLUS Convexity ETF
Schedule of Investments
December 31, 2023 (Unaudited)
| Shares | Value | |||||||
| U.S. Exchange-Traded Funds – 98.9% | ||||||||
| iShares Core S&P 500 ETF(a)(b) | ||||||||
| (Cost $60,682,390) | 140,683 | $ | 67,194,421 | |||||
| Number
of Contracts |
Notional Amount |
||||||||||
| Purchased Options – 1.2% | |||||||||||
| Puts – Exchange-Traded – 0.3% | |||||||||||
| S&P 500 Index, January Strike Price $3,670, Expires 1/19/24 | 90 | $ | 33,030,000 | 4,500 | |||||||
| S&P 500 Index, February Strike Price $3,830, Expires 2/16/24 | 167 | 63,961,000 | 35,070 | ||||||||
| S&P 500 Index, March Strike Price $4,010, Expires 3/15/24 | 195 | 78,195,000 | 149,175 | ||||||||
| 188,745 | |||||||||||
| Calls – Exchange-Traded – 0.9% | |||||||||||
| S&P 500 Index, February Strike Price $4,730, Expires 2/16/24 | 26 | 12,298,000 | 325,520 | ||||||||
| S&P 500 Index, March Strike Price $4,950, Expires 3/15/24 | 67 | 33,165,000 | 288,100 | ||||||||
| 613,620 | |||||||||||
| Total Purchased Options (Cost $1,012,370) | 802,365 | ||||||||||
| Shares | ||||||||
| Money Market Funds – 0.3% | ||||||||
| Fidelity Investments Money Market Treasury Only Portfolio - Class I, 5.24%(c) | ||||||||
| (Cost $196,376) | 196,376 | 196,376 | ||||||
| Total Investments – 100.4% | ||||||||
| (Cost $61,891,136) | $ | 68,193,162 | ||||||
| Liabilities in Excess of Other Assets – (0.4)% | (263,798 | ) | ||||||
| Net Assets – 100.0% | $ | 67,929,364 | ||||||
| Number of Contracts |
Notional Amount |
||||||||||
| Written Options – (0.3)% | |||||||||||
| Puts – Exchange-Traded – (0.1)% | |||||||||||
| S&P 500 Index, January Strike Price $3,450, Expires 1/19/24 | (90) | $ | (31,050,000 | ) | $ | (2,475 | ) | ||||
| S&P 500 Index, February Strike Price $3,600, Expires 2/16/24 | (167) | (60,120,000 | ) | (22,128 | ) | ||||||
| S&P 500 Index, March Strike Price $3,775, Expires 3/15/24 | (195) | (73,612,500 | ) | (89,700 | ) | ||||||
| (114,303 | ) | ||||||||||
| Calls – Exchange-Traded – (0.2)% | |||||||||||
| S&P 500 Index, February Strike Price $4,950, Expires 2/16/24 | (26) | $ | (12,870,000 | ) | $ | (55,640 | ) | ||||
| S&P 500 Index, March Strike Price $5,200, Expires 3/15/24 | (67) | (34,840,000 | ) | (30,485 | ) | ||||||
| (86,125 | ) | ||||||||||
| Total Written Options (Premiums Received $452,825) | $ | (200,428 | ) | ||||||||
| (a) | A copy of the security’s annual report to shareholders may be obtained without charge at www.ishares.com. | |
| (b) | Securities with an aggregate market value of $23,881,500 have been pledged as collateral for options as of December 31, 2023. | |
| (c) | Rate shown reflects the 7-day yield as of December 31, 2023. |
See Notes to Financial Statements.
5
Simplify US Equity PLUS Convexity ETF
Schedule of Investments (Continued)
December 31, 2023 (Unaudited)
Summary of Investment Type
| % of | ||||
| Industry | Net Assets | |||
| U.S. Exchange-Traded Funds | 98.9 | % | ||
| Purchased Options | 1.2 | % | ||
| Money Market Funds | 0.3 | % | ||
| Total Investments | 100.4 | % | ||
| Liabilities in Excess of Other Assets | (0.4 | )% | ||
| Net Assets | 100.0 | % | ||
See Notes to Financial Statements.
6
Simplify US Equity PLUS Downside Convexity ETF
Schedule of Investments
December 31, 2023 (Unaudited)
| Shares | Value | |||||||
| U.S. Exchange-Traded Funds – 99.4% | ||||||||
| iShares Core S&P 500 ETF(a)(b) | ||||||||
| (Cost $80,299,497) | 172,152 | $ | 82,224,960 | |||||
| Number
of Contracts |
Notional Amount |
||||||||||
| Purchased Options – 0.5% | |||||||||||
| Puts – Exchange-Traded – 0.5% | |||||||||||
| S&P 500 Index, January Strike Price $3,670, Expires 1/19/24 | 260 | $ | 95,420,000 | 13,000 | |||||||
| S&P 500 Index, February Strike Price $3,830, Expires 2/16/24 | 432 | 165,456,000 | 90,720 | ||||||||
| S&P 500 Index, March Strike Price $4,010, Expires 3/15/24 | 423 | 169,623,000 | 323,595 | ||||||||
| 427,315 | |||||||||||
| Total Purchased Options (Cost $1,623,381) | 427,315 | ||||||||||
| Shares | ||||||||
| Money Market Funds – 0.2% | ||||||||
| Fidelity Investments Money Market Treasury Only Portfolio - Class I, 5.24%(c) | ||||||||
| (Cost $126,147) | 126,147 | 126,147 | ||||||
| Total Investments – 100.1% | ||||||||
| (Cost $82,049,025) | $ | 82,778,422 | ||||||
| Liabilities in Excess of Other Assets – (0.1)% | (79,088 | ) | ||||||
| Net Assets – 100.0% | $ | 82,699,334 | ||||||
| Number
of Contracts |
Notional Amount |
||||||||||
| Written Options – (0.3)% | |||||||||||
| Puts – Exchange-Traded – (0.3)% | |||||||||||
| S&P 500 Index, January Strike Price $3,450, Expires 1/19/24 | (260) | $ | (89,700,000 | ) | $ | (7,150 | ) | ||||
| S&P 500 Index, February Strike Price $3,600, Expires 2/16/24 | (432) | (155,520,000 | ) | (57,240 | ) | ||||||
| S&P 500 Index, March Strike Price $3,775, Expires 3/15/24 | (423) | (159,682,500 | ) | (194,580 | ) | ||||||
| (258,970 | ) | ||||||||||
| Total Written Options (Premiums Received $1,016,991) | $ | (258,970 | ) | ||||||||
| (a) | A copy of the security’s annual report to shareholders may be obtained without charge at www.ishares.com. | |
| (b) | Securities with an aggregate market value of $28,657,800 have been pledged as collateral for options as of December 31, 2023. | |
| (c) | Rate shown reflects the 7-day yield as of December 31, 2023. |
Summary of Investment Type
| % of | ||||
| Industry | Net Assets | |||
| U.S. Exchange-Traded Funds | 99.4 | % | ||
| Purchased Options | 0.5 | % | ||
| Money Market Funds | 0.2 | % | ||
| Total Investments | 100.1 | % | ||
| Liabilities in Excess of Other Assets | (0.1 | )% | ||
| Net Assets | 100.0 | % | ||
See Notes to Financial Statements.
7
Simplify US Equity PLUS Upside Convexity ETF
Schedule of Investments
December 31, 2023 (Unaudited)
| Shares | Value | |||||||
| U.S. Exchange-Traded Funds – 95.7% | ||||||||
| iShares Core S&P 500 ETF(a)(b) | ||||||||
| (Cost $3,807,031) | 8,262 | $ | 3,946,179 | |||||
| Number
of Contracts |
Notional Amount |
||||||||||
| Purchased Options – 3.1% | |||||||||||
| Calls – Exchange-Traded – 3.1% | |||||||||||
| S&P 500 Index, February Strike Price $4,730, Expires 2/16/24 | 6 | $ | 2,838,000 | 75,120 | |||||||
| S&P 500 Index, March Strike Price $4,950, Expires 3/15/24 | 12 | 5,940,000 | 51,600 | ||||||||
| 126,720 | |||||||||||
| Total Purchased Options (Cost $73,989) | 126,720 | ||||||||||
| Shares | ||||||||
| Money Market Funds – 0.5% | ||||||||
| Fidelity Investments Money Market Treasury Only Portfolio - Class I, 5.24%(c) | ||||||||
| (Cost $21,628) | 21,628 | 21,628 | ||||||
| Total Investments – 99.3% | ||||||||
| (Cost $3,902,648) | $ | 4,094,527 | ||||||
| Other Assets in Excess of Liabilities – 0.7% | 30,572 | |||||||
| Net Assets – 100.0% | $ | 4,125,099 | ||||||
| Number
of Contracts |
Notional Amount |
||||||||||
| Written Options – (0.4)% | |||||||||||
| Calls – Exchange-Traded – (0.4)% | |||||||||||
| S&P 500 Index, February Strike Price $4,950, Expires 2/16/24 | (6) | $ | (2,970,000 | ) | $ | (12,840 | ) | ||||
| S&P 500 Index, March Strike Price $5,200, Expires 3/15/24 | (12) | (6,240,000 | ) | (5,460 | ) | ||||||
| (18,300 | ) | ||||||||||
| Total Written Options (Premiums Received $10,838) | $ | (18,300 | ) | ||||||||
| (a) | A copy of the security’s annual report to shareholders may be obtained without charge at www.ishares.com. | |
| (b) | Securities with an aggregate market value of $3,104,595 have been pledged as collateral for options as of December 31, 2023. | |
| (c) | Rate shown reflects the 7-day yield as of December 31, 2023. |
Summary of Investment Type
| % of | ||||
| Industry | Net Assets | |||
| U.S. Exchange-Traded Funds | 95.7 | % | ||
| Purchased Options | 3.1 | % | ||
| Money Market Funds | 0.5 | % | ||
| Total Investments | 99.3 | % | ||
| Other Assets in Excess of Liabilities | 0.7 | % | ||
| Net Assets | 100.0 | % | ||
See Notes to Financial Statements.
8
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Simplify Exchange Traded Funds
Statements of Assets and Liabilities
December 31, 2023 (Unaudited)
| Simplify
US Equity PLUS Convexity ETF |
Simplify
US Equity PLUS Downside Convexity ETF |
Simplify US Equity PLUS Upside Convexity ETF |
||||||||||
| Assets | ||||||||||||
| Investments, at value | $ | 68,193,162 | $ | 82,778,422 | $ | 4,094,527 | ||||||
| Cash | — | — | 49,613 | |||||||||
| Receivables: | 14,128 | 16,576 | 881 | |||||||||
| Investment adviser | ||||||||||||
| Interest | 311 | — | 84 | |||||||||
| Prepaid expenses | 58 | 58 | 58 | |||||||||
| Dividends | — | 636 | — | |||||||||
| Due from broker | — | 195,764 | — | |||||||||
| Total assets | 68,207,659 | 82,991,456 | 4,145,163 | |||||||||
| Liabilities | ||||||||||||
| Due to custodian | 49,613 | — | — | |||||||||
| Payables: | 200,428 | 258,970 | 18,300 | |||||||||
| Written options | ||||||||||||
| Investment advisory fees | 28,254 | 33,152 | 1,764 | |||||||||
| Total liabilities | 278,295 | 292,122 | 20,064 | |||||||||
| Net Assets | $ | 67,929,364 | $ | 82,699,334 | $ | 4,125,099 | ||||||
| Net Assets Consist of | ||||||||||||
| Paid-in capital | $ | 68,085,170 | $ | 136,109,736 | $ | 4,883,654 | ||||||
| Distributable earnings (loss) | (155,806 | ) | (53,410,402 | ) | (758,555 | ) | ||||||
| Net Assets | $ | 67,929,364 | $ | 82,699,334 | $ | 4,125,099 | ||||||
| Number of Common Shares outstanding | 2,200,001 | 2,875,001 | 125,001 | |||||||||
| Net Asset Value, offering and redemption price per share | $ | 30.88 | $ | 28.76 | $ | 33.00 | ||||||
| Investments, at cost | $ | 61,891,136 | $ | 82,049,025 | $ | 3,902,648 | ||||||
| Premiums received | $ | 452,825 | $ | 1,016,991 | $ | 10,838 | ||||||
See Notes to Financial Statements.
10
Simplify Exchange Traded Funds
Statements of Operations
For the Six Months Ended December 31, 2023 (Unaudited)
| Simplify
US Equity PLUS Convexity ETF |
Simplify US Equity PLUS Downside Convexity ETF |
Simplify US Equity PLUS Upside Convexity ETF |
||||||||||
| Investment Income | 53,850 | |||||||||||
| Dividend income | $ | 568,468 | $ | 793,860 | $ | 53,850 | ||||||
| Expenses | ||||||||||||
| Investment advisory fees | 168,690 | 242,464 | 18,219 | |||||||||
| Interest expense | 558 | 1,007 | 105 | |||||||||
| Other expenses | 27 | — | — | |||||||||
| Total expenses | 169,275 | 243,471 | 18,324 | |||||||||
| Less fees waived: | ||||||||||||
| Waiver | (84,355 | ) | (121,249 | ) | (9,110 | ) | ||||||
| Net expenses | 84,920 | 122,222 | 9,214 | |||||||||
| Net investment income (loss) | 483,548 | 671,638 | 44,636 | |||||||||
| Realized and Unrealized Gain (Loss) | ||||||||||||
| Net realized gain (loss) from: | (1,314,353 | ) | (4,267,374 | ) | 13,665 | |||||||
| Investments | ||||||||||||
| In-kind redemptions | 906,358 | (737,315 | ) | 28,013 | ||||||||
| Written options | 819,679 | 2,569,191 | (5,864 | ) | ||||||||
| Net realized gain (loss) | 411,684 | (2,435,498 | ) | 35,814 | ||||||||
| Net change in unrealized appreciation (depreciation) on: | 3,371,021 | 5,596,823 | 264,880 | |||||||||
| Investments | ||||||||||||
| Written options | 43,262 | 56,549 | 1,811 | |||||||||
| Net unrealized gain (loss) | 3,414,283 | 5,653,372 | 266,691 | |||||||||
| Net realized and unrealized gain (loss) | 3,825,967 | 3,217,874 | 302,505 | |||||||||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 4,309,515 | $ | 3,889,512 | $ | 347,141 | ||||||
See Notes to Financial Statements.
11
Simplify Exchange Traded Funds
Statements of Changes in Net Assets
| Simplify US Equity
PLUS Convexity ETF |
Simplify US Equity
PLUS Downside Convexity ETF |
|||||||||||||||
| For
the Six Months Ended December 31, 2023 (Unaudited) |
Year
Ended June 30, 2023 |
For
the Six Months Ended December 31, 2023 (Unaudited) |
Year
Ended June 30, 2023 |
|||||||||||||
| Increase (Decrease) in Net Assets from Operations | ||||||||||||||||
| Net investment income (loss) | $ | 483,548 | $ | 891,070 | $ | 671,638 | $ | 3,188,274 | ||||||||
| Net realized gain (loss) | 411,684 | (5,029,008 | ) | (2,435,498 | ) | (70,678,125 | ) | |||||||||
| Net change in net unrealized appreciation (depreciation) | 3,414,283 | 11,611,947 | 5,653,372 | 57,383,667 | ||||||||||||
| Net increase (decrease) in net assets resulting from operations | 4,309,515 | 7,474,009 | 3,889,512 | (10,106,184 | ) | |||||||||||
| Distributions | (479,941 | ) | (890,883 | ) | (835,630 | ) | (3,166,409 | ) | ||||||||
| Fund Shares Transactions | ||||||||||||||||
| Proceeds from shares sold | 707,957 | 67,604,172 | 23,291,586 | 92,541,300 | ||||||||||||
| Value of shares redeemed | (10,022,700 | ) | (62,025,267 | ) | (59,260,747 | ) | (408,472,788 | ) | ||||||||
| Net increase (decrease) in net assets resulting from fund share transactions | (9,314,743 | ) | 5,578,905 | (35,969,161 | ) | (315,931,488 | ) | |||||||||
| Total net increase (decrease) in Net Assets | (5,485,169 | ) | 12,162,031 | (32,915,279 | ) | (329,204,081 | ) | |||||||||
| Net Assets | ||||||||||||||||
| Beginning of period | 73,414,533 | 61,252,502 | 115,614,613 | 444,818,694 | ||||||||||||
| End of period | $ | 67,929,364 | $ | 73,414,533 | $ | 82,699,334 | $ | 115,614,613 | ||||||||
| Changes in Shares Outstanding | ||||||||||||||||
| Shares outstanding, beginning of period | 2,525,001 | 2,304,000 | 4,225,001 | 16,800,001 | ||||||||||||
| Shares sold | 25,000 | 2,550,000 | 825,000 | 3,450,000 | ||||||||||||
| Shares redeemed | (350,000 | ) | (2,328,999 | ) | (2,175,000 | ) | (16,025,000 | ) | ||||||||
| Shares outstanding, end of period | 2,200,001 | 2,525,001 | 2,875,001 | 4,225,001 | ||||||||||||
See Notes to Financial Statements.
12
Simplify Exchange Traded Funds
Statements of Changes in Net Assets (Continued)
| Simplify US Equity
PLUS Upside Convexity ETF |
||||||||
| For
the Six Months Ended December 31, 2023 (Unaudited) |
Year
Ended June 30, 2023 |
|||||||
| Increase (Decrease) in Net Assets from Operations | ||||||||
| Net investment income (loss) | $ | 44,636 | $ | 158,690 | ||||
| Net realized gain (loss) | 35,814 | (613,652 | ) | |||||
| Net change in net unrealized appreciation (depreciation) | 266,691 | 1,807,682 | ||||||
| Net increase (decrease) in net assets resulting from operations | 347,141 | 1,352,720 | ||||||
| Distributions | (46,193 | ) | (113,758 | ) | ||||
| Fund Shares Transactions | ||||||||
| Proceeds from shares sold | — | 3,357,979 | ||||||
| Value of shares redeemed | (4,603,998 | ) | (8,136,895 | ) | ||||
| Net increase (decrease) in net assets resulting from fund share transactions | (4,603,998 | ) | (4,778,916 | ) | ||||
| Total net increase (decrease) in Net Assets | (4,303,050 | ) | (3,539,954 | ) | ||||
| Net Assets | ||||||||
| Beginning of period | 8,428,149 | 11,968,103 | ||||||
| End of period | $ | 4,125,099 | $ | 8,428,149 | ||||
| Changes in Shares Outstanding | ||||||||
| Shares outstanding, beginning of period | 275,001 | 450,001 | ||||||
| Shares sold | — | 125,000 | ||||||
| Shares redeemed | (150,000 | ) | (300,000 | ) | ||||
| Shares outstanding, end of period | 125,001 | 275,001 | ||||||
See Notes to Financial Statements.
13
Simplify Exchange Traded Funds
Financial Highlights
| Simplify US Equity PLUS Convexity ETF | For
the Six Months Ended December 31, 2023 |
Years Ended June 30 | Period
Ended June 30, |
|||||||||||||
| Selected Per Share Data | (Unaudited) | 2023 | 2022 | 2021(a) | ||||||||||||
| Net Asset Value, beginning of period | $ | 29.08 | $ | 26.59 | $ | 30.63 | $ | 25.00 | ||||||||
| Income (loss) from investment operations: | ||||||||||||||||
| Net investment income (loss)(b) | 0.21 | 0.36 | 0.33 | 0.31 | ||||||||||||
| Net realized and unrealized gain (loss) | 1.80 | 2.46 | (3.85 | ) | 5.59 | |||||||||||
| Total from investment operations | 2.01 | 2.82 | (3.52 | ) | 5.90 | |||||||||||
| Less distributions from: | ||||||||||||||||
| Net investment income | (0.21 | ) | (0.33 | ) | (0.52 | ) | (0.27 | ) | ||||||||
| Total distributions | (0.21 | ) | (0.33 | ) | (0.52 | ) | (0.27 | ) | ||||||||
| Net Asset Value, end of period | $ | 30.88 | $ | 29.08 | $ | 26.59 | $ | 30.63 | ||||||||
| Total Return (%) | 6.97 | (c) | 10.67 | (11.68 | ) | 23.68 | (c) | |||||||||
| Ratios to Average Net Assets and Supplemental Data | ||||||||||||||||
| Net Assets, end of period ($ millions) | $ | 68 | $ | 73 | $ | 61 | $ | 89 | ||||||||
| Ratio of expenses before fee waiver (%) | 0.50 | (d)(e) | 0.53 | (e)(f) | 0.50 | (e) | 0.50 | (d)(e) | ||||||||
| Ratio of expenses after fee waiver (%) | 0.25 | (d)(e) | 0.28 | (e)(f) | 0.25 | (e) | 0.25 | (d)(e) | ||||||||
| Ratio of net investment income (loss) (%) | 1.43 | (d) | 1.35 | 1.04 | 1.35 | (d) | ||||||||||
| Portfolio turnover rate (%)(g) | 0 | (c) | 1 | 3 | 6 | (c) | ||||||||||
| Simplify US Equity PLUS Downside Convexity ETF | For
the Six Months Ended December 31, 2023 |
Years Ended June 30 | Period
Ended June 30, |
|||||||||||||
| Selected Per Share Data | (Unaudited) | 2023 | 2022 | 2021(a) | ||||||||||||
| Net Asset Value, beginning of period | $ | 27.36 | $ | 26.48 | $ | 30.26 | $ | 25.00 | ||||||||
| Income (loss) from investment operations: | ||||||||||||||||
| Net investment income (loss)(b) | 0.19 | 0.30 | 0.35 | 0.36 | ||||||||||||
| Net realized and unrealized gain (loss) | 1.47 | 1.07 | (h) | (3.76 | ) | 5.14 | ||||||||||
| Total from investment operations | 1.66 | 1.37 | (3.41 | ) | 5.50 | |||||||||||
| Less distributions from: | ||||||||||||||||
| Net investment income | (0.26 | ) | (0.49 | ) | (0.37 | ) | (0.24 | ) | ||||||||
| Total distributions | (0.26 | ) | (0.49 | ) | (0.37 | ) | (0.24 | ) | ||||||||
| Net Asset Value, end of period | $ | 28.76 | $ | 27.36 | $ | 26.48 | $ | 30.26 | ||||||||
| Total Return (%) | 6.10 | (c) | 5.31 | (11.38 | ) | 22.07 | (c) | |||||||||
| Ratios to Average Net Assets and Supplemental Data | ||||||||||||||||
| Net Assets, end of period ($ millions) | $ | 83 | $ | 116 | $ | 445 | $ | 225 | ||||||||
| Ratio of expenses before fee waiver (%) | 0.50 | (d)(e) | 0.62 | (e)(i) | 0.50 | (e) | 0.50 | (d)(e) | ||||||||
| Ratio of expenses after fee waiver (%) | 0.25 | (d)(e) | 0.37 | (e)(i) | 0.25 | (e) | 0.25 | (d)(e) | ||||||||
| Ratio of net investment income (loss) (%) | 1.39 | (d) | 1.15 | 1.14 | 1.53 | (d) | ||||||||||
| Portfolio turnover rate (%)(g) | 0 | (c) | 0 | 5 | 4 | (c) | ||||||||||
| (a) | For the period September 4, 2020 (commencement of operations) through June 30, 2021. | |
| (b) | Per share numbers have been calculated using the average shares method. | |
| (c) | Not annualized. | |
| (d) | Annualized. | |
| (e) | The Fund invests in other ETFs and indirectly bears its proportionate shares of fees and expenses incurred by the Underlying Funds in which the Fund is invested. This ratio does not included these indirect fees and expenses. | |
| (f) | The ratios of expenses to average net assets includes interest expense fees of 0.03%. | |
| (g) | Excludes the impact of in-kind transactions related to the processing of capital share transactions in Creation Units. | |
| (h) | Because of the timing of subscriptions and redemptions in relation to fluctuating markets at value, the amount shown may not agree with the change in aggregate gains and losses. | |
| (i) | The ratios of expenses to average net assets includes interest expense fees of 0.12%. |
See Notes to Financial Statements.
14
Simplify Exchange Traded Funds
Financial Highlights (Continued)
| Simplify US Equity PLUS Upside Convexity ETF | For
the Six Months Ended December 31, 2023 |
Years Ended June 30 | Period
Ended June 30, |
|||||||||||||
| Selected Per Share Data | (Unaudited) | 2023 | 2022 | 2021(a) | ||||||||||||
| Net Asset Value, beginning of period | $ | 30.65 | $ | 26.60 | $ | 30.99 | $ | 25.00 | ||||||||
| Income (loss) from investment operations: | ||||||||||||||||
| Net investment income (loss)(b) | 0.19 | 0.40 | 0.36 | 0.32 | ||||||||||||
| Net realized and unrealized gain (loss) | 2.41 | 3.99 | (3.91 | ) | 6.02 | |||||||||||
| Total from investment operations | 2.60 | 4.39 | (3.55 | ) | 6.34 | |||||||||||
| Less distributions from: | ||||||||||||||||
| Net investment income | (0.25 | ) | (0.34 | ) | (0.43 | ) | (0.35 | ) | ||||||||
| Net realized gains | — | — | (0.41 | ) | — | |||||||||||
| Total distributions | (0.25 | ) | (0.34 | ) | (0.84 | ) | (0.35 | ) | ||||||||
| Net Asset Value, end of period | $ | 33.00 | $ | 30.65 | $ | 26.60 | $ | 30.99 | ||||||||
| Total Return (%) | 8.54 | (c) | 16.65 | (11.99 | ) | 25.52 | (c) | |||||||||
| Ratios to Average Net Assets and Supplemental Data | ||||||||||||||||
| Net Assets, end of period ($ millions) | $ | 4 | $ | 8 | $ | 12 | $ | 9 | ||||||||
| Ratio of expenses before fee waiver (%) | 0.50 | (d)(e) | 0.50 | (e) | 0.50 | (e) | 0.50 | (d)(e) | ||||||||
| Ratio of expenses after fee waiver (%) | 0.25 | (d)(e) | 0.25 | (e) | 0.25 | (e) | 0.25 | (d)(e) | ||||||||
| Ratio of net investment income (loss) (%) | 1.23 | (d) | 1.46 | 1.13 | 1.37 | (d) | ||||||||||
| Portfolio turnover rate (%)(f) | 1 | (c) | 0 | 4 | 5 | (c) | ||||||||||
| (a) | For the period September 4, 2020 (commencement of operations) through June 30, 2021. | |
| (b) | Per share numbers have been calculated using the average shares method. | |
| (c) | Not annualized. | |
| (d) | Annualized. | |
| (e) | The Fund invests in other ETFs and indirectly bears its proportionate shares of fees and expenses incurred by the Underlying Funds in which the Fund is invested. This ratio does not included these indirect fees and expenses. | |
| (f) | Excludes the impact of in-kind transactions related to the processing of capital share transactions in Creation Units. |
See Notes to Financial Statements.
15
Simplify Exchange Traded Funds
Notes to Financial Statements
December 31, 2023 (Unaudited)
1. Organization
Simplify Exchange Traded Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end registered management investment company organized as a Delaware statutory trust.
As of December 31, 2023, the Trust consists of twenty six investment series of exchange-traded funds (“ETFs”) (each a “Fund” and collectively, the “Funds”) in operation and trading. These financial statements report on the Funds listed below:
Simplify US Equity PLUS Convexity ETF
Simplify US Equity PLUS Downside Convexity ETF
Simplify US Equity PLUS Upside Convexity ETF
Simplify Asset Management Inc. (the “Adviser”) serves as investment adviser to the Funds and has overall responsibility for the general management and administration of the Funds, subject to the oversight of the Trust’s Board of Trustees (the “Board”).
Each Fund offers shares that are listed and traded on the NYSE Arca, Inc. (“NYSE Arca”). Unlike mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large specified lots consisting of 25,000 shares, each called a “Creation Unit”, to authorized participants who have entered into agreements with the Funds’ distributor. Shares are not individually redeemable securities of the Funds, and owners of the shares may acquire those shares from the Funds, or tender such shares for redemption to the Funds, in Creation Units only.
| Fund | Investment objectives | |
| Simplify US Equity PLUS Convexity ETF | The Fund seeks to provide capital appreciation. | |
| Simplify US Equity PLUS Downside Convexity ETF | The Fund seeks to provide capital appreciation. | |
| Simplify US Equity PLUS Upside Convexity ETF | The Fund seeks to provide capital appreciation. |
2. Significant Accounting Policies
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), which require management to make certain estimates and assumptions that affect the reported amounts and disclosures of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Funds are investment companies and accordingly follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies including Accounting Standards Update 2013-08. The following is a summary of significant accounting policies followed by the Funds.
Investment Valuation
Each Fund’s investments are valued using procedures approved by the Board and are generally valued using market valuations (Market Approach). A market valuation generally means a valuation (i) obtained from an exchange, a pricing service, or a major market maker (or dealer) or (ii) based on a price quotation or other equivalent indication of value supplied by an exchange, a pricing service, or a major market maker (or dealer). A price obtained from a pricing service based on such pricing service’s valuation matrix may be considered a market valuation. Any assets or liabilities denominated in currencies other than the U.S. dollar are converted into U.S. dollars at the current market rates on the date of valuation as quoted by one or more sources.
If market quotations are not readily available, securities will be valued at their fair market value as determined using the “fair value” procedures approved by the Board. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security may be materially different than the value that could be realized upon the sale of that security. The fair value prices can differ from market prices when they become available or when a price becomes available. The Board has delegated execution of these procedures to the Adviser, as valuation designee pursuant to Rule 2a-5 under the 1940 Act. The Adviser may also enlist third party consultants such as an audit firm or financial officer of a security issuer on an as-needed basis to assist in determining a security-specific fair value. These securities are either categorized as Level 2 or 3 of the fair value hierarchy depending on the relevant inputs used. The Board reviews and ratifies the execution of this process and the resultant fair value prices at least quarterly to assure the process produces reliable results.
Equity securities and ETFs are valued at the most recent sale price or official closing price reported on the exchange (U.S. or foreign) or over-the-counter market on which they trade. Securities or ETFs for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation. Equity securities and ETFs are generally categorized as Level 1 of the fair value hierarchy.
Exchange traded options are valued at the mean between the current bid and ask prices on the exchange on which such options are traded. If a mean price is not available, the closing price is used. Exchange trade options are categorized as Level 1. Options with international equity exposure are marked to market using closing prices for the underlying and interpolated option implied volatilities obtained from mid-market prices for options on the same underlying of similar expiries and strike prices. These securities are categorized as Level 2 in the fair value hierarchy.
16
Simplify Exchange Traded Funds
Notes to Financial Statements (Continued)
December 31, 2023 (Unaudited)
Each Fund categorizes the inputs to valuation techniques used to value its investments into a disclosure hierarchy consisting of three levels as shown below:
| ● | Level 1 – Quoted prices in active markets for identical assets that the funds have the ability to access. |
| ● | Level 2 – Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). |
| ● | Level 3 – Significant unobservable inputs (including each Fund’s own assumptions in determining the fair value of investments). |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the valuations as of December 31, 2023 for each Fund based upon the three levels defined above:
Simplify US Equity PLUS Convexity ETF
| Assets | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| U.S. Exchange-Traded Funds | $ | 67,194,421 | $ | — | $ | — | $ | 67,194,421 | ||||||||
| Purchased Options | 802,365 | — | — | 802,365 | ||||||||||||
| Money Market Funds | 196,376 | — | — | 196,376 | ||||||||||||
| TOTAL | $ | 68,193,162 | $ | — | $ | — | $ | 68,193,162 | ||||||||
| Liabilities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Written Options | $ | (200,428 | ) | $ | — | $ | — | $ | (200,428 | ) | ||||||
| TOTAL | $ | (200,428 | ) | $ | — | $ | — | $ | (200,428 | ) | ||||||
Simplify US Equity PLUS Downside Convexity ETF
| Assets | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| U.S. Exchange-Traded Funds | $ | 82,224,960 | $ | — | $ | — | $ | 82,224,960 | ||||||||
| Purchased Options | 427,315 | — | — | 427,315 | ||||||||||||
| Money Market Funds | 126,147 | — | — | 126,147 | ||||||||||||
| TOTAL | $ | 82,778,422 | $ | — | $ | — | $ | 82,778,422 | ||||||||
| Liabilities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Written Options | $ | (258,970 | ) | $ | — | $ | — | $ | (258,970 | ) | ||||||
| TOTAL | $ | (258,970 | ) | $ | — | $ | — | $ | (258,970 | ) | ||||||
Simplify US Equity PLUS Upside Convexity ETF
| Assets | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| U.S. Exchange-Traded Funds | $ | 3,946,179 | $ | — | $ | — | $ | 3,946,179 | ||||||||
| Purchased Options | 126,720 | — | — | 126,720 | ||||||||||||
| Money Market Funds | 21,628 | — | — | 21,628 | ||||||||||||
| TOTAL | $ | 4,094,527 | $ | — | $ | — | $ | 4,094,527 | ||||||||
| Liabilities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Written Options | $ | (18,300 | ) | $ | — | $ | — | $ | (18,300 | ) | ||||||
| TOTAL | $ | (18,300 | ) | $ | — | $ | — | $ | (18,300 | ) | ||||||
Cash
Cash consists of cash on deposit with a major financial institution which may exceed federally insured limits.
Investment Transactions and Related Income
For financial reporting purposes, investment transactions are reported on the trade date. However, for daily NAV determination, portfolio securities transactions are reflected no later than in the first calculation on the first business day following trade date. Dividend income
17
Simplify Exchange Traded Funds
Notes to Financial Statements (Continued)
December 31, 2023 (Unaudited)
is recorded on the ex-dividend date. Interest income is recognized on an accrual basis and includes, where applicable, the amortization of premium or accretion of discount based on effective yield. Gains or losses realized on sales of securities are determined using the specific identification method by comparing the identified cost of the security lot sold with the net sales proceeds. Dividend Income on the Statements of Operations is shown net of any foreign taxes withheld on income from foreign securities, which are provided for in accordance with each Fund’s understanding of the applicable tax rules and regulations.
Income Tax Information and Distributions to Shareholders
It is the Funds’ policy to comply with all requirements of the Internal Revenue Code of 1986, as amended (“the Code”). Each Fund intends to qualify for and to elect treatment as a separate Regulated Investment Company (“RIC”) under Subchapter M of the Code. It is each Fund’s policy is to pay out dividends from net investment income quarterly. Taxable net realized gains from investment transactions, reduced by capital loss carryforwards, if any, will be declared and distributed to shareholders at least annually. The capital loss carryforward amount, if any, will be available to offset future net capital gains. Each Fund may occasionally be required to make supplemental distributions at some other time during the year. Each Fund reserves the right to declare special distributions if, in its reasonable discretion, such action is necessary or advisable to preserve the status of a Fund as a RIC or to avoid imposition of income or excise taxes on undistributed income. Dividends and distributions to shareholders, if any, will be recorded on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains will be determined in accordance with Federal income tax regulations which may differ from U.S. GAAP. These “book/tax” differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, (e.g., return of capital and distribution reclassifications), such amounts are reclassified within the composition of net assets based on their federal tax basis treatment; temporary differences (e.g., wash sales and straddles) do not require a reclassification. Dividends and distributions, which exceed earnings and profits for the full year for tax purposes, will be reported as a tax return of capital.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed each Fund’s tax positions expected to be taken on foreign, federal and state income tax returns for all open tax years and has concluded that no provision for income tax is required in any Fund’s financial statement.
Each Fund will recognize interest and penalties, if any, related to uncertain tax positions as income tax expense on the Statement of Operations.
3. Derivative Financial Instruments
Option Contracts
A Fund may purchase and write (i.e., sell) put and call options. Such options may relate to particular securities or stock indices, and may or may not be listed on a domestic or foreign securities exchange and may or may not be issued by the Options Clearing Corporation. Options trading is a highly specialized activity that entails greater than ordinary investment risk. Options may be more volatile than the underlying instruments, and therefore, on a percentage basis, an investment in options may be subject to greater fluctuation than an investment in the underlying instruments themselves.
A call option for a particular security gives the purchaser of the option the right to buy, and the writer (seller) the obligation to sell, the underlying security at the stated exercise price at any time prior to the expiration of the option, regardless of the market price of the security. The premium paid to the writer is in consideration for undertaking the obligation under the option contract. A put option for a particular security gives the purchaser the right to sell the security at the stated exercise price at any time prior to the expiration date of the option, regardless of the market price of the security. Stock index options are put options and call options on various stock indices. In most respects, they are identical to listed options on common stocks. The primary difference between stock options and index options occurs when index options are exercised. In the case of stock options, the underlying security, common stock, is delivered. However, upon the exercise of an index option, settlement does not occur by delivery of the securities comprising the index. The option holder who exercises the index option receives an amount of cash if the closing level of the stock index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. This amount of cash is equal to the difference between the closing price of the stock index and the exercise price of the option expressed in dollars times a specified multiple. A stock index fluctuates with changes in the market value of the stocks included in the index.
Premiums paid on options purchased and premiums received on options written, as well as the daily fluctuation in market value, are included in investments at value and options written at value, respectively, in the Statements of Assets and Liabilities. When an instrument is purchased or sold through the exercise of an option, the premium is offset against the cost or proceeds of the underlying instrument. When an option expires, a realized gain or loss is recorded in the Statements of Operations to the extent of the premiums received or paid. When an option is closed or sold, a gain or loss is recorded in the Statements of Operations to the extent the cost of the closing transaction exceeds the premiums received or paid. When the Funds write a call option, such option is typically “covered,” meaning that they hold the underlying instrument subject to being called by the option counterparty. When the Funds write a put option, cash is segregated in an amount sufficient to cover the obligation. These amounts, which are considered restricted, are included in cash pledged as collateral for options written in the Statements of Assets and Liabilities.
18
Simplify Exchange Traded Funds
Notes to Financial Statements (Continued)
December 31, 2023 (Unaudited)
The following table summarizes the value of the Funds’ derivative instruments held as of December 31, 2023 and the related location in the accompanying Statement of Assets and Liabilities or Consolidated Statement of Assets and Liabilities, presented by underlying risk exposure:
| Fund | Asset Derivatives | Liability Derivatives | ||||||||||
| Simplify US Equity PLUS Convexity ETF | ||||||||||||
| Equity Contracts | Investments, at value(1) | $ | 802,365 | Investments, at value(1) | $ | — | ||||||
| Equity Contracts | Written options | $ | — | Written options | $ | 200,428 | ||||||
| Simplify US Equity PLUS Downside Convexity ETF | ||||||||||||
| Equity Contracts | Investments, at value(1) | $ | 427,315 | Investments, at value(1) | $ | — | ||||||
| Equity Contracts | Written options | $ | — | Written options | $ | 258,970 | ||||||
| Simplify US Equity PLUS Upside Convexity ETF | ||||||||||||
| Equity Contracts | Investments, at value(1) | $ | 126,720 | Investments, at value(1) | $ | — | ||||||
| Equity Contracts | Written options | $ | — | Written options | $ | 18,300 | ||||||
| (1) | Purchased option contracts are included in Investments within the Statement of Assets and Liabilities or Consolidated Statement of Assets and Liabilities. |
For the period ended December 31, 2023, realized gains/(losses) and the change in unrealized appreciation/(depreciation) on purchased option contracts (a) by risk type, as disclosed in the Statements of Operations, is as follows:
| Fund | Risk Type |
Realized |
Change in Unrealized Appreciation/ (Depreciation) |
|||||||
| Simplify US Equity PLUS Convexity ETF | Equity | $ | (1,290,078 | ) | $ | (152,639 | ) | |||
| Simplify US Equity PLUS Downside Convexity ETF | Equity | (4,161,174 | ) | (2,646 | ) | |||||
| Simplify US Equity PLUS Upside Convexity ETF | Equity | 16,576 | (34,305 | ) | ||||||
| (a) | Purchased option contracts are included in Net Realized Gain (Loss) on Investments within the Statement of Operations or Consolidated Statement of Operations. |
For the period ended December 31, 2023, realized gains/(losses) and the change in unrealized appreciation/(depreciation) on written option contracts by risk type, as disclosed in the Statements of Operations, is as follows:
| Fund | Risk Type |
Realized |
Change in Unrealized Appreciation/ (Depreciation) |
|||||||
| Simplify US Equity PLUS Convexity ETF | Equity | $ | 819,679 | $ | 43,262 | |||||
| Simplify US Equity PLUS Downside Convexity ETF | Equity | 2,569,191 | 56,549 | |||||||
| Simplify US Equity PLUS Upside Convexity ETF | Equity | (5,864 | ) | 1,811 | ||||||
19
Simplify Exchange Traded Funds
Notes to Financial Statements (Continued)
December 31, 2023 (Unaudited)
For the period ended December 31, 2023, the average fiscal quarter end balances of outstanding derivative financial instruments were as follows:
| Fund | Purchased
Option Contracts (Contract Value) |
Purchased
Swaption Contracts (Contract Value) |
Futures
Contracts (Notional Value) |
Written
Option Contracts (Contract Value) |
Swaps (Notional Value) |
|||||||||||||||
| Simplify US Equity PLUS Convexity ETF | $ | 766,832 | $ | — | $ | — | $ | (242,484 | ) | $ | — | |||||||||
| Simplify US Equity PLUS Downside Convexity ETF | 944,393 | — | — | (534,092 | ) | — | ||||||||||||||
| Simplify US Equity PLUS Upside Convexity ETF | 100,343 | — | — | (14,053 | ) | — | ||||||||||||||
4. Investment Advisory Agreement and Other Agreements
The Adviser has overall responsibility for the general management and administration of the Funds, subject to the oversight of the Board. Under an investment advisory agreement between the Trust, on behalf of the Funds, and the Adviser (the “Investment Advisory Agreement”), the Adviser is responsible for arranging sub-advisory, transfer agency, custody, fund administration, and all other non-distribution related services for the Funds to operate.
For its investment advisory services to the Funds below, the Adviser was entitled to receive a management fee based on each Fund’s average daily net assets, computed and accrued daily and payable monthly, at an annual rate equal to:
| Management | ||||
| Fund | Fee | |||
| Simplify US Equity PLUS Convexity ETF | 0.50 | % | ||
| Simplify US Equity PLUS Downside Convexity ETF | 0.50 | % | ||
| Simplify US Equity PLUS Upside Convexity ETF | 0.50 | % | ||
The Adviser for the Funds below had contractually agreed, until at least October 31, 2023, to waive its management fees to 0.25% of the Fund’s average daily net assets. For the period ended December 31, 2023, the Adviser waived expenses of the Funds as follows:
| Expenses | ||||
| Fund | Waived | |||
| Simplify US Equity PLUS Convexity ETF | $ | 84,355 | ||
| Simplify US Equity PLUS Downside Convexity ETF | 121,249 | |||
| Simplify US Equity PLUS Upside Convexity ETF | 9,110 | |||
As of December 31, 2023, the Funds no longer waive its management fees.
The Adviser may recoup from a Fund fees previously waived or expenses previously reimbursed by the Adviser with respect to that Fund pursuant to these agreements (or a previous expense limitation agreement) if: (1) such recoupment by the Adviser does not cause the Fund, at the time of recoupment, to exceed the lesser of (a) the expense limitation in effect at the time the relevant amount was waived and/ or reimbursed, or (b) the expense limitation in effect at the time of the proposed recoupment, and (2) the recoupment is made within three years after the fiscal year end date as of which the amount to be waived or reimbursed was determined and the waiver or reimbursement occurred. As of December 31, 2023, the Adviser may potentially recoup the following amounts from the Funds listed below:
| Expires June 30, | ||||||||||||||||
| Fund | 2024 | 2025 | 2026 | 2027 | ||||||||||||
| Simplify US Equity PLUS Convexity ETF | $ | 240,785 | $ | 73,345 | $ | 164,774 | $ | 84,356 | ||||||||
| Simplify US Equity PLUS Downside Convexity ETF | 985,654 | 496,206 | 695,218 | 121,249 | ||||||||||||
| Simplify US Equity PLUS Upside Convexity ETF | 33,708 | 16,003 | 27,233 | 9,110 | ||||||||||||
Under the Investment Advisory Agreement, the Adviser has agreed to pay all expenses of each Fund except for the management fee, interest, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments, acquired fund fees and expenses, and distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act.
The Board has adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1 plan, each Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to finance activities primarily intended to result in the sale of Creation Units of the Fund or the provision of investor services. No Rule 12b-1 fees are currently paid by the Funds and there are no plans to impose these fees. However, in the event Rule 12b-1 fees are charged in the future, they will be paid out of the Fund’s assets, and directly impact the NAV per share of each Fund.
20
Simplify Exchange Traded Funds
Notes to Financial Statements (Continued)
December 31, 2023 (Unaudited)
The Bank of New York Mellon, a wholly-owned subsidiary of The Bank of New York Mellon Corporation, serves as Administrator, Custodian, Accounting Agent and Transfer Agent for each Fund.
Foreside Financial Services, LLC (the “Distributor”) serves as the distributor of Creation Units for each Fund on an agency basis. The Distributor does not maintain a secondary market in shares of a Fund. Foreside Fund Officer Services, LLC a related party to the Distributor also serves as the Trust’s Compliance Officer.
A Trustee and certain Officers of the Trust are also employees of the Adviser and/or the Distributor.
5. Investment Transactions
Purchases and sales of securities, other than short-term securities, U.S. Government Securities and in-kind transactions were as follows:
| Fund | Purchases | Sales | ||||||
| Simplify US Equity PLUS Convexity ETF | $ | 143,316 | $ | 841,080 | ||||
| Simplify US Equity PLUS Downside Convexity ETF | — | 2,165,417 | ||||||
| Simplify US Equity PLUS Upside Convexity ETF | 95,315 | 179,599 | ||||||
Securities received and delivered in-kind through subscriptions and redemptions were as follows:
| Fund | Purchases | Sales | ||||||
| Simplify US Equity PLUS Convexity ETF | $ | 702,643 | $ | 9,949,833 | ||||
| Simplify US Equity PLUS Downside Convexity ETF | 23,225,289 | 58,944,626 | ||||||
| Simplify US Equity PLUS Upside Convexity ETF | — | 4,555,058 | ||||||
6. Fund Share Transactions
The Funds issue and redeem Shares at NAV only in large blocks of 25,000 Shares (each block of Shares is called a “Creation Unit”). Creation Units are issued and redeemed primarily in-kind for securities but may include cash. Individual Shares may only be purchased and sold in secondary market transactions through brokers. Except when aggregated in Creation Units in transactions with Authorized Participants, the Shares are not redeemable securities of the Fund.
Fund Shares are listed and traded on the Exchange on each day that the Exchange is open for business (“Business Day”). Each Fund’s Shares may only be purchased and sold on the Exchange through a broker-dealer. Because each Fund’s Shares trade at market prices rather than at their NAV, Shares may trade at a price equal to the NAV, greater than NAV (premium) or less than NAV (discount).
Authorized participants pay a fixed transaction fee of $500 to the shareholder servicing agent when purchasing and redeeming Creation Units of a Fund. The transaction fee is used to defray the costs associated with the issuance and redemption of Creation Units. In addition to the fixed transaction fee, the Funds may charge an additional maximum 3% of the amount invested variable fee for creations and redemptions in cash, to offset brokerage and impact expenses associated with a cash transaction.
7. Federal Income Taxes
At June 30, 2023, gross unrealized appreciation and depreciation of investments owned by each Fund, based on cost for federal income tax purposes were as follows:
| Fund | Tax Cost | Gross Unrealized Appreciation |
Gross Unrealized Depreciation |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| Simplify US Equity PLUS Convexity ETF | $ | 71,188,262 | $ | 3,307,507 | $ | (481,076 | ) | $ | 2,826,431 | |||||||
| Simplify US Equity PLUS Downside Convexity ETF | 120,116,124 | 701,473 | (4,588,546 | ) | (3,887,073 | ) | ||||||||||
| Simplify US Equity PLUS Upside Convexity ETF | 8,664,895 | — | (160,276 | ) | (160,276 | ) | ||||||||||
The differences between book-basis and tax-basis components of net assets are primarily attributable to the tax deferral of losses on wash sales, grantor trust adjustments, section 1256 mark-to-market treatment of derivatives and return of capital basis adjustments from underlying investments.
At June 30, 2023, for federal income tax purposes, the Funds had capital loss carryforwards available as shown in the table below, to the extent provided by regulations, to offset future capital gains for an unlimited period. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders.
21
Simplify Exchange Traded Funds
Notes to Financial Statements (Continued)
December 31, 2023 (Unaudited)
| Fund | Short-Term | Long-Term | Total Amount |
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| Simplify US Equity PLUS Convexity ETF | $ | 2,320,987 | $ | 1,055,532 | $ | 3,376,519 | ||||||
| Simplify US Equity PLUS Downside Convexity ETF | 33,960,066 | 18,639,010 | 52,599,076 | |||||||||
| Simplify US Equity PLUS Upside Convexity ETF | 351,002 | 548,976 | 899,978 | |||||||||
8. Subsequent Events
Management has evaluated subsequent events through the date of issuance of these financial statements and has determined that there are no subsequent events that require adjustment to, or disclosure in, the financial statement.
22
Simplify Exchange Traded Funds
Board Considerations in Approval of Advisory Agreements (Unaudited)
In connection with the meeting of the Board of Trustees (the “Board” or “Trustees”) of Simplify Exchange Traded Funds (the “Trust”) held on August 18, 2023 (the “Meeting”), the Trustees, including a majority of the Trustees who are not “interested persons” as that term is defined in the Investment Company Act of 1940, as amended, discussed the renewal of an investment management agreement (the “Management Agreement”) between the Simplify Asset Management, Inc. (the “Adviser” or “Simplify”) and the Trust, on behalf of SPYC, SPD, and SPUC (collectively the “Renewing Funds”).
Nature, Extent, and Quality of Service
The Trustees discussed the personnel who perform services for the Renewing Funds, including their qualifications and experience, noting that since the Management Agreement was first approved in 2020, the Adviser had added significantly to the personnel resources of the Adviser, including personnel performing functions related to operations, financial reporting, risk management, portfolio management and trading. They noted that each Trustee had access to the management team, and they appreciated the open lines of communication. The Board considered the quality of the operational and compliance infrastructure supporting the Renewing Funds, including the regular reports provided by the Trust’s CCO regarding compliance procedures and practices. They considered that the Adviser’s investment strategies, including its option overlay strategies that were applied to some of the Funds, were both proprietary and systematic, noting that Adviser had built an experienced team of investment professionals with diverse expertise to provide high quality services to the Funds. The Trustees considered that the Adviser conducted competitor fund research and analysis to benchmark fees and performance, worked with brokers, counterparties and custodians to implement each Fund’s strategy and provided services including trade execution, post-trade settlement and reporting and compliance monitoring to ensure the execution of each Fund’s investment objectives. He noted further that since the inception of the Renewing Funds, the Adviser further enhanced its risk management program and had provided annual Liquidity Risk Management reports to the Board. They discussed that the Adviser oversaw the activities of the Renewing Funds’ other service providers, including the sub-adviser where applicable, and monitored adherence to the Renewing Funds’ investment restrictions, compliance with various policies and procedures, and with applicable securities regulations. The Trustees reviewed other services provided by Simplify to the Renewing Funds, such as maintaining all records not maintained by a service provider or sub-adviser, overseeing all required tax returns of the Renewing Funds, assisting with the preparation of reports to existing shareholders and updating the prospectuses and statements of additional information periodically, and preparing reports to be filed with the SEC. The Trustees reviewed the financial condition of the Adviser, including the financial statement and the balance sheet and determined that the Adviser had demonstrated the ability to manage its financial obligations and had the ability to meet its capital requirements for continued operation and growth, both in the near and long term. The Trustees discussed the full scope of services provided by the Adviser and agreed that the Adviser had delivered the services consistent with its responsibilities, and that the quality of the services provided by the Adviser to the Renewing Funds had been high.
Performance
The Trustees reviewed the Adviser’s management capabilities as demonstrated by the Renewing Funds’ performance and ability to meet their respective investment objectives. The Trustees discussed the Renewing Funds’ returns versus the returns of each Renewing Fund’s index and peer groups over various time periods ended June 30. 2023. The Trustees recalled the Adviser’s discussion of the performance of each of SPYC, SPD and SPUC, and the Adviser’s observations that underperformance was predominantly due to the challenges during the fourth quarter on both the downside and upside convexity components, and that the Adviser implemented an updated algorithm to increase the probability of positive results.
The Trustees recalled that they regularly received from the Adviser performance data, analyses, and reports regarding each Renewing Fund’s index tracking, premium/discount, and intraday trading spreads, among other things, which was considered in the renewal deliberations. The Board also considered the Adviser’s commentary regarding broader market trends and macroeconomic developments and interrelationship between market conditions and each Fund’s performance. Taking all factors into consideration, the Trustees concluded that Simplify had the tools to continue to deliver favorable returns to the shareholders of the Renewing Funds and the returns of each Fund were acceptable.
Fees and Expenses
The Trustees discussed the 15(c) Materials concerning the advisory fees for the Renewing Funds. They considered the fees relative to a universe of unaffiliated comparable ETFs and mutual funds (collectively, the “Peer Groups”) and considered the Adviser’s observations and analysis of the variation among the Peer Funds, the relevant Morningstar category, and the Renewal Funds. They noted that the contractual annual advisory fee for each Renewing Fund was 0.50%. They considered that each was a unitary fee and noted that the adviser had waived a portion of its fee for the Renewing Funds during the period.
The Trustees noted that for SPYC, SPD, and SPUC the advisory fee was lower than the average fee of the funds in the peer group, and while higher than the respective Morningstar average fee, were below the highest fees of the funds in the Morningstar category.
The Trustees considered that no payments were made by the Renewing Funds to the Adviser other than the advisory fees. In its assessment of the advisory fees, the Board also considered the Adviser’s description of the resources involved in managing the Renewing Funds, as well as each Renewing Fund’s size and that the Adviser would continue to absorb certain operational expenses incurred by each Renewing Fund through the renewal term of the Advisory Agreement. The Trustees discussed the fee waivers provided by the Adviser for certain Funds. The Trustees agreed that the advisory fees were not unreasonable.
23
Simplify Exchange Traded Funds
Board Considerations in Approval of Advisory Agreements (Unaudited) (Continued)
Profitability
The Trustees reviewed the profit analysis provided by the Adviser and observed that, at current asset levels, the Adviser was not yet profitable and therefore excess profitability was not a concern with respect to any of the Renewing Funds.
Economies of Scale
The Trustees considered the potential for the Adviser to experience economies of scale in the provision of services to the Renewing Funds and the extent to which potential scale benefit were shared with shareholders. They considered the Adviser’ position that the current advisory fees already reflected the potential economies of scale that would be realized by the Adviser when the Renewing Funds are much larger funds. The Trustees determined that the Board would continue to evaluate breakpoints for each Renewing Fund as assets increased.
Conclusion
Upon reconvening, the Board unanimously determined that it had received all reasonably necessary information upon which to reach its conclusion that it was in the best interests of the Renewing Funds to renew the Management Agreement. The Board’s determination was based on the totality of the information reviewed.
24
Simplify Exchange Traded Funds
Additional Information (Unaudited)
Proxy Voting Policies and Procedures
The Funds’ policies and procedures for voting proxies for portfolio securities and information about how each Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 are available on our Web site at www.simplify.us or on the SEC’s Web site at www.sec.gov. To obtain a written copy of the Funds’ policies and procedures without charge, upon request, call us toll free at (855) 772-8488.
Portfolio Holdings Information
The Funds are required to file their complete schedule of portfolio holdings with the SEC for their first and third fiscal quarters on Form N-PORT. Copies of the filings are available without charge, upon request on the SEC’s website at www.sec.gov and are available by calling the Trust at 855-772-8488.
Discount & Premium Information
Information regarding how often shares of each Fund traded on NYSE Arca at a price above (i.e., at a premium) or below (i.e., at a discount) the NAV of the Fund can be found at www.simplify.us.
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Investment Adviser Simplify Asset Management Inc. 222 Broadway, 22nd Floor New York, NY 10038 |
Simplify Exchange Traded Funds 222 Broadway, 22nd Floor New York, NY 10038 |
Custodian, Administrator & Transfer Agent The Bank of New York Mellon 240 Greenwich Street New York, NY 10286 |
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Distributor Foreside Financial Services, LLC Three Canal Plaza, Suite 100 Portland, ME 04101 |
Independent Registered Public Accounting Firm Cohen & Company Ltd. 1350 Euclid Ave., Suite 800 Cleveland, OH 44115 |
Legal Counsel Thompson Hine LLP 41 South High Street Suite 1700 Columbus, OH 43215 |