weatposam
As filed with the Securities and
Exchange Commission on March 31,
2020
Registration No. 333-230623
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Post-Effective Amendment No. 1
to
Registration Statement on
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
Teucrium Commodity Trust
(Registrant)
Delaware
(State or other jurisdiction of incorporation or
organization)
6799
(Primary Standard Industrial Classification Code
Number)
27-6715895
(I.R.S. Employer Identification No.)
c/o Teucrium Trading, LLC
Three Main Street
Suite 215
Burlington, VT 05401
Phone: (802) 540-0019
(Address, including zip code, and telephone number, including area
code, of Registrant’s principal executive
offices)
Sal Gilbertie
Chief Executive Officer
Teucrium Trading, LLC
Three Main Street
Suite 215
Burlington, VT 05401
Phone: (802) 540-0019
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
W. Thomas Conner, Esq.
VedderPrice P.C.
1401 I Street NW
Suite 1100
Washington, DC 20005
Approximate
date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the following
box. ☒
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. ☐
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer ☐
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Accelerated
filer ☒
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Non-accelerated
filer ☐
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Smaller
reporting company ☒
Emerging
growth company ☐
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If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 7(a)(2)(B) of the
Securities Act. ☐
The
registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act or until this
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated March
31, 2020
Teucrium Wheat
Fund
42,700,000
Shares
Teucrium Wheat Fund
(the “Fund” or “Us” or “We”) is
designed to provide investors with a cost-effective means to gain
price exposure to the wheat market for future delivery. The Fund
issues shares (“Shares”) that trade on the NYSE Arca
stock exchange (“NYSE Arca”) under the symbol
“WEAT” and that can be purchased and sold by investors
through their broker-dealer. The Fund’s investment objective
is for changes in the Shares’ NAV to reflect the daily
changes of the price of wheat for future delivery, as measured by
the Fund’s Benchmark (as defined below). Under normal market
conditions, the Fund invests in wheat futures contracts and cash
and cash equivalents. The sponsor to the Fund is Teucrium Trading,
LLC (the “Sponsor”), which receives a management fee.
The principal office address and telephone number of both the Fund
and the Sponsor is Three Main Street, Suite 215, Burlington,
Vermont 05401 and (802) 540-0019.
While
most investors will purchase and sell Shares through their
broker-dealer, the Fund continuously offers creation baskets
consisting of 25,000 Shares (“Creation Baskets”) at
their net asset value (“NAV”) to certain parties who
have entered into an agreement with the Sponsor (“Authorized
Purchasers”). Authorized Purchasers, in turn, may sell such
Shares, which are listed on NYSE Arca, to the public at per-Share
offering prices that are expected to reflect, among other factors,
the trading price of the Shares on the NYSE Arca, the NAV of the
Fund at the time the Authorized Purchaser purchased the Creation
Baskets and the NAV at the time of the offer of the Shares to the
public, the supply of and demand for Shares at the time of sale,
and the liquidity of the markets for wheat futures contracts in
which the Fund invests. A list of the Fund’s Authorized
Purchasers as of the date of this Prospectus can be found under
“Plan of Distribution – Distributor and Authorized
Purchasers,” on page 45. The prices of Shares offered
by Authorized Purchasers are expected to fall between the
Fund’s NAV and the trading price of the Shares on the NYSE
Arca at the time of sale. The Fund’s Shares may trade in the
secondary market on the NYSE Arca at prices that are lower or
higher than their NAV per Share
This is
a best efforts offering; the distributor, Foreside Fund Services,
LLC (the “Distributor”) is not required to sell any
specific number or dollar amount of Shares but will use its best
efforts to sell Shares. An Authorized Purchaser is under no
obligation to purchase Shares. This is intended to be a continuous
offering that will terminate on April 29, 2022 unless suspended or
terminated at any earlier time for certain reasons specified in
this prospectus or unless extended as permitted under the rules of
the Securities Act of 1933. See “Prospectus Summary –
The Shares” and “Creation and Redemption of Shares
– Rejection of Purchase Orders” below.
Investing
in the Fund involves significant risks. See “What Are the
Risk Factors Involved with an Investment in the Fund?”
beginning on page 11. The Fund is not a mutual fund registered
under the Investment Company Act of 1940 and is not subject to
regulation under such Act.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE
SECURITIES OFFERED IN THIS PROSPECTUS OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
WEAT is a commodity pool and Teucrium Trading, LLC is a commodity
pool operator subject to regulation by the Commodity Futures
Trading Commission and the National Futures Association under the
Commodity Exchange Act
(“CEA”).
THE
COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS
OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE
ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
This
prospectus is in two parts: a disclosure document and a statement
of additional information. These parts are bound together, and both
contain important information.
The
date of this prospectus is April 29, 2020.
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU
SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS
YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE
AWARE THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE
LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE
NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR
INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY
AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER,
COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY
FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE
SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF
THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE
DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGE 41 AND
A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE
8.
THIS
BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL.
THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL,
YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A
DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT
PAGE 6.
YOU
SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN
FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED
OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A
UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER
DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS
PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY
AUTHORITIES OR MARKETS IN NONUNITED STATES JURISDICTIONS
WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.
SWAPS
TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A VARIETY
OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A PARTICULAR
SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE
TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS
TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK,
COUNTERPARTY CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND
OPERATIONAL RISK.
HIGHLY
CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE LIQUIDITY
RISK, WHICH MAY RESULT IN A SUSPENSION OF REDEMPTIONS. HIGHLY
LEVERAGED TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL GAINS OR LOSSES
IN VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE OR
LEVEL OF AN UNDERLYING OR RELATED MARKET FACTOR.
IN
EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED WITH A
PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT A
SWAP TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL
CONSENT OF THE ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON
INDIVIDUALLY NEGOTIATED TERMS. THEREFORE, IT MAY NOT BE POSSIBLE
FOR THE COMMODITY POOL OPERATOR TO MODIFY, TERMINATE, OR OFFSET THE
POOL'S OBLIGATIONS OR THE POOL'S EXPOSURE TO THE RISKS ASSOCIATED
WITH A TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION
DATE.
TEUCRIUM WHEAT FUND
TABLE OF CONTENTS
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5
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11
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81
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This is only a summary of the prospectus and,
while it contains material information about the Fund and its
Shares, it does not contain or summarize all of the information
about the Fund and the Shares contained in this prospectus that is
material and/or which may be important to you. You should read this
entire prospectus, including “What Are the Risk Factors
Involved with an Investment in the Fund?” beginning on
page 11, before making an
investment decision about the Shares. In addition, this prospectus
includes a statement of additional information that follows and is
bound together with the primary disclosure document. Both the
primary disclosure document and the statement of additional
information contain important information.
Principal Offices of the
Fund and the Sponsor
The
Fund is a series of Teucrium Commodity Trust (the
“Trust”). The principal office of the Sponsor, the
Trust and the Fund is located at Three Main Street, Suite 215,
Burlington, Vermont 05401. The telephone number is (802)
540-0019.
The
amount of trading income required for the redemption value of a
Share at the end of one year to equal the selling price of the
Share, assuming a selling price of $[•] (the NAV per Share as
of [•]), is $[•]or [•]% of the selling price. For
more information, see “Breakeven Analysis”
below.
The
Fund is a commodity pool that issues Shares that may be purchased
and sold on NYSE Arca. The Fund seeks to have the daily changes in
the Shares’ NAV reflect the daily changes of the price of
wheat for future delivery, as measured by a benchmark (the
“Benchmark”) as described below. Under normal market
conditions, the Fund invests in wheat futures contracts and cash
and cash equivalents. The Fund is organized as a series of the
Trust, a Delaware statutory trust organized on September 11, 2009.
The Trust and the Fund operate pursuant to the Trust’s Fifth
Amended and Restated Declaration of Trust and Trust Agreement (the
“Trust Agreement”), dated April 26, 2019. The Fund was
formed and is managed and controlled by the Sponsor, a limited
liability company formed in Delaware on July 28, 2009. The Sponsor
is registered as a commodity pool operator (“CPO”) and
a commodity trading adviser (“CTA”) with the Commodity
Futures Trading Commission (“CFTC”) and is a member of
the National Futures Association (“NFA”).
As
noted, the investment objective of the Fund is to have the daily
changes in the NAV of the Fund’s Shares reflect the daily
changes in the wheat market for future delivery as measured by the
Benchmark. The Benchmark is a weighted average of the closing
settlement prices for three futures contracts for wheat
(“Wheat Futures Contracts”) that are traded on the
Chicago Board of Trade (“CBOT”). The three Wheat
Futures Contracts that at any given time make up the Benchmark are
referred to herein as the “Benchmark Component Futures
Contracts.”
The
Fund seeks to achieve its investment objective by investing in
Benchmark Component Futures Contracts. Under normal market
conditions, the Fund expects that 100% of the Fund’s assets
will be invested in Benchmark Component Futures Contracts and in
cash and cash equivalents. The Fund reserves the right to invest in
swap agreements, forward contracts and options, a brief description
of which may be found in “Appendix A – “Glossary
of Defined Terms.”
The
Fund invests in Benchmark Component Futures Contracts to the
fullest extent possible without being leveraged or unable to
satisfy its expected current or potential margin or collateral
obligations with respect to its investments in Benchmark Component
Futures Contracts. After fulfilling such margin and collateral
requirements, the Fund invests the remainder of its proceeds from
the sale of baskets in income producing, short term financial
instruments of the type commonly known as “cash and cash
equivalents.” Cash and cash equivalents may include
short-term Treasury bills, money market funds, demand deposit
accounts, and commercial paper.
The
Sponsor employs a “neutral” investment strategy
intended to track the changes in the Benchmark regardless of
whether the Benchmark goes up or goes down. The Fund’s
“neutral” investment strategy is designed to permit
investors generally to purchase and sell the Fund’s Shares
for the purpose of investing indirectly in the wheat market in a
cost-effective manner. The Sponsor endeavors to place the
Fund’s trades in Benchmark Component Futures Contracts and
otherwise manage the Fund’s investments so that the
Fund’s average daily tracking error against the Benchmark
will be less than 10 percent over any period of 30 trading days.
However, the Fund incurs certain expenses in connection with its
operations, which cause imperfect correlation between changes in
the Fund’s NAV and changes in the Benchmark because the
Benchmark does not reflect expenses or income. As a result,
investors may incur a partial or complete loss of their investment
even when the performance of the Benchmark is
positive.
Investors may
purchase and sell Shares through their broker-dealers. However, the
Fund creates and redeems Shares only in blocks called Creation
Baskets and Redemption Baskets, respectively, and only Authorized
Purchasers may purchase or redeem Creation Baskets or Redemption
Baskets. An Authorized Purchaser is under no obligation to create
or redeem baskets, and an Authorized Purchaser is under no
obligation to offer to the public Shares of any baskets it does
create. Baskets are generally created when there is a demand for
Shares, including, but not limited to, when the market price per
share is at (or perceived to be at) a premium to the NAV per Share.
Similarly, baskets are generally redeemed when the market price per
share is at (or perceived to be at) a discount to the NAV per
Share. Retail investors seeking to purchase or sell Shares on any
day are expected to affect such transactions in the secondary
market, on the NYSE Arca, at the market price per share, rather
than in connection with the creation or redemption of
baskets.
The
Fund’s investment objective is to provide investors with a
cost-efficient way to gain price exposure to the wheat market for
future delivery. The Sponsor developed the Benchmark as a
representation of the wheat market for future
delivery.
The
Sponsor believes that by investing in Benchmark Component Futures
Contracts, the Fund’s net asset value (“NAV”)
will closely track the Benchmark. The Sponsor also believes that
because of market arbitrage opportunities, the market price at
which investors will purchase and sell Shares through their
broker-dealer will closely track the Fund’s NAV. The Sponsor
believes that the net effect of these relationships is that the
Fund’s market price on the NYSE Arca at which investors
purchase and sell Shares will closely track the wheat market for
future delivery, as measured by the Benchmark.
The
Sponsor maintains a public website on behalf of the Fund,
www.teucrium.com,
which contains information about the Trust, the Fund, and the
Shares.
Note to Secondary Market Investors: Except when aggregated in Redemption Baskets,
Shares are not redeemable securities. Shares can be directly
purchased from the Fund only in Creation Baskets, and only by
Authorized Purchasers. Each Creation Basket consists of 25,000
Shares and therefore requires a significant financial commitment to
purchase. Accordingly, investors who do not have such resources or
who are not Authorized Purchasers should be aware that some of the
information contained in this prospectus, including information
about purchases and redemptions of Shares directly with the Fund,
is only relevant to Authorized Purchasers. There is no guarantee
that Shares will trade at prices that are at or near the per-Share
NAV. When buying or selling Shares on the secondary market through
a broker, most investors incur customary brokerage commissions and
charges.
As
noted, the Fund invests in Wheat Futures Contracts, including those
traded on the CBOT or its affiliates. The Fund expressly disclaims
any association with the CBOT or endorsement of the Fund by such
exchange and acknowledges that “CBOT” and
“Chicago Board of Trade” are registered trademarks of
such exchange.
Principal Investment Risks of an
Investment in the Fund
An
investment in the Fund involves a degree of risk. Some of the risks
you may face are summarized below. A more extensive discussion of
these risks appears beginning on page 11.
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Unlike mutual
funds, commodity pools and other investment pools that manage their
investments so as to realize income and gains for distribution to
their investors, the Fund generally does not distribute dividends
to holders of Fund Shares ("Shareholders"). You should not invest
in the Fund if you will need cash distributions from the Fund to
pay taxes on your share of income and gains of the Fund, if any, or
for other purposes.
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Investors may
choose to use the Fund as a means of investing indirectly in wheat,
and there are risks involved in this investment strategy. The risks
and hazards that are inherent in wheat production may cause the
price of wheat to fluctuate widely.
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Only an Authorized
Purchaser may engage in creation or redemption transactions with
the Fund. The Fund has a limited number of institutions that act as
Authorized Purchasers. To the extent that these institutions exit
the business or are unable or unwilling to proceed with creation
and/or redemption orders with respect to the Fund, Fund Shares may,
particularly in times of market stress, trade at a discount to the
NAV per Share and possibly face trading halts and/or
delisting.
●
The price
relationship between the near month Wheat Futures Contract to
expire and the Benchmark Component Futures Contracts will vary and
may impact both the Fund’s total return over time and the
degree to which such total return tracks the total return of wheat
price indices. In some cases, the near month contract’s price
is lower than later-expiring contracts’ prices (a situation
known as “contango” in the futures markets). In the
event of a prolonged period of contango, and absent the impact of
rising or falling wheat prices, this could have a significant
negative impact on the Fund’s NAV and total return, and you
could incur a partial or total loss of your investment in the
Fund.
●
You will have no
rights to participate in the management of the Fund and will have
to rely on the duties and judgment of the Sponsor to manage the
Fund.
●
The Fund pays fees
and expenses that are incurred regardless of whether it is
profitable.
●
The Fund seeks to
have the changes in its Shares’ NAV track changes in the
Benchmark, rather than profit from speculative trading of Wheat
Futures Contracts or from the use of leverage (i.e., the Sponsor
manages the Fund so that the aggregate value of the Fund’s
exposure to losses from its investments in Benchmark Component
Futures Contracts at any time will not exceed the value of the
Fund’s assets). There is no assurance that the Sponsor will
successfully implement this investment strategy, and if the Fund
becomes leveraged, you could lose all or substantially all of your
investment if the Fund’s trading positions suddenly turn
unprofitable.
●
In addition to
Benchmark Component Futures Contracts, the Fund reserves the right
to invest in other wheat interests. To the extent that these other
wheat interests are contracts individually negotiated between their
parties, they may not be as liquid as Benchmark Component Futures
Contracts and will expose the Fund to credit risk that its
counterparty may not be able to satisfy its obligations to the
Fund.
●
The regulation of
commodity interest transactions in the United States has
historically been comprehensive and is a rapidly changing area of
law and is subject to ongoing modification by governmental and
judicial action. Future U.S. or foreign regulatory changes may
alter the nature of an investment in the Fund, or the ability of
the Fund to continue to implement its investment
strategy.
●
Failures or
breaches of the electronic systems of the Fund, the Sponsor, or
third parties have the ability to cause disruptions and negatively
impact the Fund’s business operations, potentially resulting
in financial losses to the Fund and its shareholders.
For
additional risks, see “What Are the Risk Factors Involved
with an Investment in the Fund?”
The
Fund’s NAV is determined as of the earlier of the close of
the New York Stock Exchange or 4:00 p.m. (EST) on each day that the
NYSE Arca is open for trading.
For a
glossary of defined terms, see Appendix A.
The
breakeven analysis shows the approximate dollar returns and
percentage returns required for an investor in a single Share and
the redemption of a Basket (25,000 Shares) by Authorized Purchasers
during the first twelve months of ownership. This hypothetical
initial investment in a single Share and in a Basket, assumes a
selling price of $[•] (the NAV per Share as of [•]) or
$[•] (the Net Asset Value per Basket as of [•]), to
equal the amount invested twelve months after the investment was
made. The breakeven analysis is an approximation only and assumes a
constant month-end Net Asset Value. You should note that you
may pay brokerage commissions on purchases and sales of
WEAT’s shares through your broker, which are not reflected in
the table.
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Assumed selling
price
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$[•]
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$[•]
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Management Fee
(1.00%) (1)
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$[•]
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$[•]
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Brokerage
Commissions (2)
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$[•]
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$[•]
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Other Fund Fees and
Expenses (3)
(4)
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$[•]
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$[•]
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Total Annual Fund
Expenses (5)
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[•]%
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[•]%
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Interest and Other
Income ([•]%) (6)
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$[•]
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$[•]
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Amount of trading
income (loss) required for the redemption value at the end of one
year to equal the selling price
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$[•]
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$[•]
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Percentage of
selling price (7)
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[•]%
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[•]%
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(1) The Fund is obligated to pay the Sponsor a management
fee at the annual rate of 1.00% of the Fund’s average daily
net assets, payable monthly. The Sponsor can elect to waive the
payment of the fee in any amount at its sole discretion, at any
time and from time to time, in order to reduce the Fund’s
expenses or for any other purpose.
(2) The Fund will pay $4.50 per half-turn for Wheat Futures
Contract purchase or sale and reflected on a per trade basis. The
estimated fee is based on the actual brokerage commissions and
trading fees paid for the year ending December 31,
2019.
(3) In connection with orders to create or redeem baskets,
Authorized Purchasers will pay a transaction fee in the amount of
$250 per order. Because these transaction fees are de minimis in
amount, are paid to the custodian and charged on a
transaction-by-transaction basis (and not on a Basket by Basket
basis), and are borne by the Authorized Participants, they have not
been included in the Breakeven Table. See “Creation and Redemption Transaction
Fees,” page 50.
(4) Other Fund Fees and Expenses are an estimate based on an
allocation to the Fund of the total estimated expenses anticipated
to be incurred by the Trust on behalf of the Fund, net of any
expenses or management fee waived by the Sponsor, and include:
Professional fees (primarily legal, auditing and tax-preparation
related costs); Custodian and Administrator fees and expenses,
Distribution and Marketing fees (primarily fees paid to the
Distributor, costs related to regulatory compliance activities and
other costs related to the trading activities of the Fund);
Business Permits and Licenses; General and Administrative expenses
(primarily insurance and printing), and Other Expenses. The
expenses presented are based on estimated expenses for the current
fiscal year, and do not represent the maximum amounts payable under
the contracts with third-party service providers, as discussed
below in the section of this disclosure document entitled
“Contractual Fees and Compensation Arrangements with the
Sponsor and Third-Party Service Providers.” The cost of these
fixed or estimated fees has been calculated assuming that the Fund
has $[•]million in assets, which was the approximate amount
of assets as of [•]. The Sponsor can elect to pay (or waive
reimbursement for) certain fees or expenses that would generally be
paid by the Fund, although it has no contractual obligation to do
so. Any election to pay or waive reimbursement for fees and
expenses that would generally be paid by the Fund can be changed at
the discretion of the Sponsor.
(5) Estimated amount of fees and expenses that are
anticipated to be incurred in a single Share and Redemption Basket
(25,000 Shares) of WEAT during the first twelve (12) months of
ownership. The total estimated fees and expenses are expressed as a
percentage of the net asset value as of [•]. These fees and
expenses are net of any expenses or management fees waived by the
Sponsor. The fees waived by the Sponsor is an estimate, can be
applied to any expense related to the Fund, and may be terminated
at any time at the discretion of the Sponsor.
(6) The Fund earns interest and other income in high credit
quality, short-duration instruments or deposits associated with the
pool’s buy-and-hold cash management strategy that may be used
to offset expenses. These investments may include, but are not
limited to, short-term Treasury Securities, demand deposits, money
market funds and investments in commercial paper. Management
estimates that the blended interest rate will be [•]% based
on the current interest rate enviornment and outlook as of
[•]. The actual rate may vary and not all assets of the Fund
will earn interest.
(7) This represents the estimated approximate percentage of
selling price net of any expenses or management fees waived by the
Sponsor. The estimated approximate percentage of selling price
before waived expenses is [•]% or $[•]per share, based
on the Fund assets, net asset value per share and shares
outstanding as of [•]. The fees waived by the Sponsor
is an estimate, can be applied to any expense related to the Fund,
and may be terminated at any time at the discretion of the
Sponsor.
Offering
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The Fund’s Shares are listed on the NYSE Arca and investors
may purchase and sell Shares through their broker-dealer. The Fund
only offers Creation Baskets consisting of 25,000 Shares through
the Distributor to Authorized Purchasers. Authorized Purchasers may
purchase Creation Baskets consisting of 25,000 Shares at the
Fund’s NAV.
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Use of Proceeds
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The Sponsor applies substantially all of the Fund’s assets
toward investing in Benchmark Component Futures
Contracts, cash, and cash equivalents.
The Sponsor deposits a portion of the Fund’s net assets with
its futures commission merchant (“FCM”) or other
custodians to be used to meet its current or potential margin or
collateral requirements in connection with its investment in
Benchmark Component Futures Contracts.
The Fund uses only cash and cash equivalents to satisfy these
requirements. The Sponsor expects that all entities that will hold
or trade the Fund’s assets will be based in the United States
and will be subject to United States regulations. The Sponsor
believes that approximately 4-6% of the Fund’s assets will
normally be committed as margin for Benchmark Component
Futures Contracts. However, from time
to time, the percentage of assets committed as margin/collateral
may be substantially more, or less, than such range. The remaining
portion of the Fund’s assets is held in cash or cash
equivalents. All interest or other income earned on these
investments is retained for the Fund’s
benefit.
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NYSE Arca Symbol
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“WEAT”
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Creation and Redemption
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Authorized Purchasers pay a $250 fee per order to create Creation
Baskets, and a $250 fee per order for Redemption Baskets, which is
paid to the Custodian. Authorized Purchasers are not required to
sell any specific number or dollar amount of Shares. The per share
price of Shares offered in Creation Baskets is the total NAV of the
Fund calculated as of the close of the NYSE Arca on that day,
divided by the number of issued and outstanding
Shares.
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InterSeries Limitation on Liability
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While the Fund is currently one of five separate series of the
Trust, additional series may be created in the future. The Trust
has been formed and will be operated with the goal that the Fund
and any other series of the Trust will be liable only for
obligations of such series, and a series will not be responsible
for or affected by any liabilities or losses of or claims against
any other series. If any creditor or shareholder in any particular
series (such as the Fund) were to successfully assert against a
series a claim with respect to its indebtedness or Shares, the
creditor or shareholder could recover only from that particular
series and its assets. Accordingly, the debts and other obligations
incurred, contracted for or otherwise existing solely with respect
to a particular series will be enforceable only against the assets
of that series, and not against any other series or the Trust
generally or any of their respective assets. The assets of the Fund
and any other series will include only those funds and other assets
that are paid to, held by or distributed to the series on account
of and for the benefit of that series, including, without
limitation, amounts delivered to the Trust for the purchase of
Shares in a series.
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Registration Clearance and Settlement
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Individual certificates are not issued for the Shares. Instead,
Shares will be represented by one or more global certificates,
which are deposited by the transfer agent with the Depository Trust
Company (“DTC”) and registered in the name of Cede
& Co., as nominee for DTC. The global certificates evidence all
of the Shares outstanding at any time. Beneficial interests in
Shares are held through DTC’s book-entry system, which means
that Shareholders are limited to: (1) participants in DTC such as
banks, brokers, dealers and trust companies (“DTC
Participants”), (2) those who maintain, either directly or
indirectly, a custodial relationship with a DTC Participant
(“Indirect Participants”), and (3) those who hold
interests in the Shares through DTC Participants or Indirect
Participants, in each case who satisfy the requirements for
transfers of Shares. DTC Participants acting on behalf of investors
holding Shares through such DTC Participants’ accounts in DTC
will follow the delivery practice applicable to securities eligible
for DTC’s Same-Day Funds Settlement System. Shares are
credited to DTC Participants’ securities accounts following
confirmation of receipt of payment.
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Net Asset Value
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The NAV is calculated by taking the current market
value of the Fund’s total assets and subtracting any
liabilities and dividing the balance by the number of Shares. Under
the Fund’s current operational procedures, U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund
Services (“Global Fund Services”), the Fund’s
“Administrator” calculates
the NAV of the Fund’s Shares as of the earlier of 4:00 p.m.
(EST) or the close of the New York Stock Exchange each day. ICE
Data Indices, LLC calculates an approximate net asset value every
15 seconds throughout each day that the Fund’s Shares are
traded on the NYSE Arca for as long as the CBOT’s main
pricing mechanism is open.
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Fund Expenses
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The Fund pays the Sponsor a management fee at an annual rate of
1.00% of the Fund’s average daily net assets. The Fund is
also responsible for other ongoing fees, costs and expenses of its
operations, including (i) brokerage and other fees and commissions
incurred in connection with the trading activities of the Fund;
(ii) expenses incurred in connection with registering additional
Shares of the Fund or offering Shares of the Fund; (iii) the
routine expenses associated with the preparation and, if required,
the printing and mailing of monthly, quarterly, annual and other
reports required by applicable U.S. federal and state regulatory
authorities, Trust meetings and preparing, printing and mailing
proxy statements to Shareholders; (iv) the payment of any
distributions related to redemption of Shares; (v) payment for
routine services of the Trustee, legal counsel and independent
accountants; (vi) payment for routine accounting, bookkeeping,
custody and transfer agency services, whether performed by an
outside service provider or by Affiliates of the Sponsor; (vii)
postage and insurance; (viii) costs and expenses associated with
investor relations and services; (ix) costs of preparation of all
federal, state, local and foreign tax returns and any taxes payable
on the income, assets or operations of the Fund; (x) payment for
marketing services; and (xi) extraordinary expenses (including, but
not limited to, legal claims and liabilities and litigation costs
and any indemnification related thereto). Total fees to be paid by the Fund, net of the
expenses waived by the Sponsor, are currently estimated to be
approximately [•]% of the
daily net assets of the Fund for the twelve-month period
ending [•], 2021,
though this amount may change in future years. The Sponsor may, in
its discretion, pay or reimburse the Fund for, or waive a portion
of its management fee to offset, expenses that would otherwise be
borne by the Fund.
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General expenses of the Trust will be allocated among the existing
Teucrium Funds and any future series of the Trust as determined by
the Sponsor in its discretion. The Trust may be required to
indemnify the Sponsor, and the Trust and/or the Sponsor may be
required to indemnify the Trustee, Distributor or Administrator,
under certain circumstances.
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Termination Events
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The Trust and the Fund shall continue in existence from the date of
their formation in perpetuity, unless the Trust or the Fund, as the
case may be, is sooner terminated upon the occurrence of certain
events specified in the Trust Agreement, including the following:
(1) the filing of a certificate of dissolution or cancellation of
the Sponsor or revocation of the Sponsor’s charter or the
withdrawal of the Sponsor, unless shareholders holding a majority
of the outstanding shares of the Trust, voting together as a single
class, elect within ninety (90) days after such event to continue
the business of the Trust and appoint a successor Sponsor. (2) the
occurrence of any event which would make the existence of the Trust
or the Fund unlawful. (3) the suspension, revocation, or
termination of the Sponsor’s registration as a CPO with the
CFTC or membership with the NFA. (4) the insolvency or bankruptcy
of the Trust or the Fund. (5) a vote by the shareholders holding at
least seventy five percent (75%) of the outstanding shares of
the, voting together as a single class, Trust to dissolve the Trust
subject to certain conditions. and (6) the determination by the
Sponsor to dissolve the Trust or the Fund, subject to certain
conditions. (7) the Trust is required to be registered as an
investment company under the Investment Company Act of 1940, and
(8) DTC is unable or unwilling to continue to perform its functions
and a comparable replacement is unavailable. Upon termination of
the Fund, the affairs of the Fund shall be wound up and all of its
debts and liabilities discharged or otherwise provided for in the
order of priority as provided by law. The fair market value of the
remaining assets of the Fund shall then be determined by the
Sponsor. Thereupon, the assets of the Fund shall be distributed pro
rata to the Shareholders in accordance with their
Shares.
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Authorized Purchasers
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A list of Authorized Purchasers is available from the Distributor.
Authorized Purchasers must be (1) registered broker-dealers or
other securities market participants, such as banks and other
financial institutions, that are not required to register as broker
dealers to engage in securities transactions, and (2) DTC
Participants. To become an Authorized Purchaser, a person must
enter into an Authorized Purchaser Agreement with the
Sponsor.
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WHAT
ARE THE RISK FACTORS INVOLVED WITH AN INVESTMENT IN THE
FUND?
You should consider carefully the risks described below before
making an investment decision. You should also refer to the other
information included in this prospectus, and the Fund’s and
the Trust’s financial statements and the related notes
incorporated by reference herein. See “Incorporation by
Reference of Certain Information.”
Risks Associated with Investing
Directly or Indirectly in Wheat
Investing in Benchmark Component Futures Contracts subjects the
Fund to the risks of the wheat market, and this could result in
substantial fluctuations in the price of the Fund’s
Shares.
The
Fund is subject to the risks and hazards of the wheat market
because it invests in Benchmark Component Futures Contracts. The
risks and hazards that are inherent in the wheat market may cause
the price of wheat and the Fund’s Shares to fluctuate
widely.
●
The price and
availability of wheat is influenced by economic and industry
conditions, including but not limited to supply and demand factors
such as: crop disease, weed control, water availability, various
planting, growing, or harvesting problems, severe weather
conditions such as drought, floods, or frost that are difficult to
anticipate and which cannot be controlled. Demand for food products
made from wheat flour is affected by changes in consumer tastes,
national, regional and local economic conditions, and demographic
trends. More specifically, demand for such food products in the
United States is relatively unaffected by changes in wheat prices
or disposable income but is closely tied to tastes and preferences.
Export demand for wheat fluctuates yearly, based largely on crop
yields in the importing countries.
●
Wheat production is
subject to United States federal, state and local policies and
regulations that materially affect operations. Governmental
policies affecting the agricultural industry, such as taxes,
tariffs, duties, subsidies, incentives, acreage control, and import
and export restrictions on agricultural commodities and commodity
products, can influence the planting of certain crops, the location
and size of crop production, the volume and types of imports and
exports, the availability and competitiveness of feedstocks as raw
materials, and industry profitability. Additionally, wheat
production is affected by laws and regulations relating to, but not
limited to, the sourcing, transporting, storing and processing of
agricultural raw materials as well as the transporting, storing and
distributing of related agricultural products. U.S. Wheat producers
also must comply with various environmental laws and regulations,
such as those regulating the use of certain pesticides, and local
laws that regulate the production of genetically modified crops. In
addition, international trade disputes can adversely affect
agricultural commodity trade flows by limiting or disrupting trade
between countries or regions.
●
Seasonal
fluctuations in the price of wheat may cause risk to an investor
because of the possibility that Share prices will be depressed
because of the wheat harvest cycle. In the United States, the
market for winter wheat, the type of wheat upon which CBOT Wheat
Futures Contracts are based, is generally at its lowest point, and
wheat prices are generally lowest, shortly before and during the
harvest (in the spring or early summer), due to the high supply of
wheat in the market. Conversely, winter wheat prices are generally
highest in the fall or early winter, when the wheat harvested that
year has largely been sold and used. In the futures market, these
seasonal fluctuations are typically reflected in contracts expiring
in the relevant season (e.g., contracts expiring during the harvest
season are typically priced lower than contracts expiring in the
fall and early winter). Thus, seasonal fluctuations could result in
an investor incurring losses upon the sale of Fund Shares,
particularly if the investor needs to sell Shares when the
Benchmark Component Futures Contracts are in whole or part, Wheat
Futures Contracts expiring in the spring.
An investment in the Fund is subject to correlation risk. Your
return on an investment in the Fund may differ from the return of
the Benchmark, changes in the Fund’s NAV and the spot price
of wheat.
There
is a risk that changes in the price of Shares on the NYSE Arca will
not correlate with changes in the Fund’s NAV; that changes in
the NAV will not correlate with changes in the price of the
Benchmark; and/or changes in the price of the Benchmark will not
correlate with changes in the spot price of wheat. Depending on
certain factors associated with each of these correlations which
are discussed in more detail below, you could incur a partial or
total loss of your investment in the Fund.
The Benchmark is not designed to correlate with the spot price of
wheat, and this could cause the changes in the price of the Shares
to substantially vary from the changes in the spot price of wheat.
Therefore, you may not be able to effectively use the Fund to hedge
against wheat related losses or to indirectly invest in
wheat.
The
Benchmark Component Futures Contracts reflect the price of wheat
for future delivery, not the current spot price of wheat, so at
best the correlation between changes in such Wheat Futures
Contracts and the spot price of wheat will be only approximate.
Weak correlation between the Benchmark and the spot price of wheat
may result from the typical seasonal fluctuations in wheat prices
discussed above. Imperfect correlation may also result from
speculation in Benchmark Component Futures Contracts, technical
factors in the trading of Benchmark Component Futures Contracts and
expected inflation in the economy as a whole. If there is a weak
correlation between the Benchmark and the spot price of wheat, then
the price of Shares may not accurately track the spot price of
wheat and you may not be able to effectively use the Fund as a way
to hedge the risk of losses in your wheat related transactions or
as a way to indirectly invest in wheat.
Changes in the Fund’s NAV may not correlate well with changes
in the price of the Benchmark. If this were to occur, you may not
be able to effectively use the Fund as a way to hedge against wheat
related losses or as a way to indirectly invest in
wheat.
The
Sponsor endeavors to invest the Fund’s assets as fully as
possible in Benchmark Component Futures Contracts so that the
changes in the NAV closely correlate with the changes in percentage
terms in the Benchmark. However, changes in the Fund’s NAV
may not correlate with the changes in the Benchmark for various
reasons, including those set forth below.
The
Fund incurs certain expenses in connection with its operations and
holds most of its assets in income-producing, short-term financial
instruments for margin and other liquidity purposes and to meet
redemptions that may be necessary on an ongoing basis. These
expenses and income cause imperfect correlation between changes in
the Fund’s NAV and changes in the Benchmark.
The
Sponsor may not be able to invest the Fund’s assets in
Benchmark Component Futures Contracts having an aggregate notional
amount exactly equal to the Fund’s NAV. As a standardized
contract, a single Wheat Futures Contract is for a specified amount
of wheat, and the Fund’s NAV and the proceeds from the sale
of a Creation Basket is unlikely to be an exact multiple of that
amount. In such case, the Fund could not invest the entire proceeds
from the purchase of the Creation Basket in such futures contracts.
(For example, assuming the Fund receives $375,000 for the sale of a
Creation Basket and that the value (i.e., the notional amount) of a
Wheat Futures Contract is $32,500, the Fund could only enter into
11 Wheat Futures Contracts with an aggregate value of $357,500).
While the Fund may be better able to achieve the exact amount of
exposure to the wheat market through the use of over the counter
other wheat interests, there is no assurance that the Sponsor will
be able to continually adjust the Fund’s exposure to such
other wheat interests to maintain such exact exposure. Any amounts
not invested in Benchmark Component Futures Contracts are held in
cash and cash equivalents.
As Fund
assets increase, there may be more or less correlation. On the one
hand, as the Fund grows it should be able to invest in Wheat
Futures Contracts with a notional amount that is closer on a
percentage basis to the Fund’s NAV. For example, if the
Fund’s NAV is equal to 4.9 times the value of a single
futures contract, it can purchase only four futures contracts,
which would cause only 81.6% of the Fund’s assets to be
exposed to the wheat market. On the other hand, if the Fund’s
NAV is equal to 100.9 times the value of a single Wheat Futures
Contract, it can purchase 100 such contracts, resulting in 99.1%
exposure. However, at certain asset levels the Fund may be limited
in its ability to purchase Wheat Futures Contracts due to position
limits imposed by the CFTC or position limits or accountability
levels imposed by the relevant exchanges. In these instances, the
Fund would likely invest to a greater extent in wheat interests not
subject to these position limits or accountability levels. To the
extent that the Fund invests in other wheat interests, the
correlation between the Fund’s NAV and the Benchmark may be
lower. In certain circumstances, position limits or accountability
levels could limit the number of Creation Baskets that will be
sold.
If
changes in the Fund’s NAV do not correlate with changes in
the Benchmark, then investing in the Fund may not be an effective
way to hedge against wheat related losses or indirectly invest in
wheat.
Changes in the price of the Fund’s Shares on the NYSE Arca
may not correlate perfectly with changes in the NAV of the
Fund’s Shares. If this variation occurs, then you may not be
able to effectively use the Fund to hedge against wheat related
losses or to indirectly invest in wheat.
While
it is expected that the trading prices of the Shares will fluctuate
in accordance with the changes in the Fund’s NAV, the prices
of Shares may also be influenced by other factors, including the
supply of and demand for the Shares, whether for the short term or
the longer term. There is no guarantee that the Shares will not
trade at appreciable discounts from, and/or premiums to, the
Fund’s NAV. This could cause the changes in the price of the
Shares to substantially vary from the changes in the spot price of
wheat, even if the Fund’s NAV was closely tracking movements
in the spot price of wheat. If this occurs, you may not be able to
effectively use the Fund to hedge the risk of losses in your wheat
related transactions or to indirectly invest in wheat.
The Fund may experience a loss if it is required to sell cash
equivalents at a price lower than the price at which they were
acquired.
If the
Fund is required to sell its cash equivalents at a price lower than
the price at which they were acquired, the Fund will experience a
loss. This loss may adversely impact the price of the Shares and
may decrease the correlation between the price of the Shares, the
Benchmark, and the spot price of wheat. The value of cash
equivalents held by the Fund generally move inversely with
movements in interest rates. The prices of longer maturity
securities are subject to greater market fluctuations as a result
of changes in interest rates. While the short-term nature of the
Fund’s investments in cash equivalents should minimize the
interest rate risk to which the Fund is subject, it is possible
that the cash equivalents held by the Fund will decline in
value.
Certain of the Fund’s investments could be illiquid, which
could cause large losses to investors at any time or from time to
time.
The
Fund may not always be able to liquidate its positions in its
investments at the desired price for reasons including, among
others, insufficient trading volume, limits imposed by exchanges or
other regulatory organizations, or lack of liquidity. As to futures
contracts, it may be difficult to execute a trade at a specific
price when there is a relatively small volume of buy and sell
orders in a market. Limits imposed by futures exchanges or other
regulatory organizations, such as accountability levels, position
limits and price fluctuation limits, may contribute to a lack of
liquidity with respect to some exchange traded wheat interests. In
addition, over the counter contracts may be illiquid because they
are contracts between two parties and generally may not be
transferred by one party to a third party without the
counterparty’s consent. Conversely, a counterparty may give
its consent, but the Fund still may not be able to transfer an over
the counter wheat interest to a third party due to concerns
regarding the counterparty’s credit risk.
A
market disruption, such as a foreign government taking political
actions that disrupt the market in its currency, its wheat
production or exports, or in another major export, can also make it
difficult to liquidate a position. Unexpected market illiquidity
may cause major losses to investors at any time or from time to
time. In addition, the Fund does not intend at this time to
establish a credit facility, which would provide an additional
source of liquidity, but instead will rely only on the cash and
cash equivalents that it holds to meet its liquidity needs. The
anticipated value of the positions in Benchmark Component Futures
Contracts that the Sponsor will acquire or enter into for the Fund
increases the risk of illiquidity. Because Benchmark Component
Futures Contracts may be illiquid, the Fund’s holdings may be
more difficult to liquidate at favorable prices in periods of
illiquid markets and losses may be incurred during the period in
which positions are being liquidated.
If the nature of the participants in the futures market shifts such
that wheat purchasers are the predominant hedgers in the market,
the Fund might have to reinvest at higher futures prices or choose
other wheat interests.
The
changing nature of the participants in the wheat market will
influence whether futures prices are above or below the expected
future spot price. Wheat producers will typically seek to hedge
against falling wheat prices by selling Wheat Futures Contracts.
Therefore, if wheat producers become the predominant hedgers in the
futures market, prices of Wheat Futures Contracts will typically be
below expected future spot prices. Conversely, if the predominant
hedgers in the futures market are the purchasers of the wheat who
purchase Wheat Futures Contracts to hedge against a rise in prices,
prices of Wheat Futures Contracts will likely be higher than
expected future spot prices. This can have significant implications
for the Fund when it is time to sell a Wheat Futures Contract that
is no longer a Benchmark Component Futures Contract and purchase a
new Wheat Futures Contract or to sell a Wheat Futures Contract to
meet redemption requests.
Storage costs could impact the value of the Benchmark Component
Futures Contracts.
Storage
costs associated with purchasing wheat could result in costs and
other liabilities that could impact the value of Wheat Futures
Contracts or certain other wheat interests. Storage costs include
the time value of money invested in wheat as a physical commodity
plus the actual costs of storing the wheat less any benefits from
ownership of wheat that are not obtained by the holder of a futures
contract. In general, Wheat Futures Contracts have a one-month
delay for contract delivery and the pricing of back month contracts
(the back month is any future delivery month other than the spot
month) includes storage costs. To the extent that these storage
costs change for wheat while the Fund holds Wheat Interests, the
value of the Benchmark Component Futures Contracts, and therefore
the Fund’s NAV, may change as well.
The price relationship between the Benchmark Component Futures
Contracts at any point in time and the Wheat Futures Contracts that
will become Benchmark Component Futures Contracts on the next roll
date will vary and may impact both the Fund’s total return
and the degree to which its total return tracks that of wheat price
indices.
The
design of the Fund’s Benchmark is such that the Benchmark
Component Futures Contracts will change five times per year, and
the Fund’s investments must be rolled periodically to reflect
the changing composition of the Benchmark. For example, when the
second to expire Wheat Futures Contract becomes the first to expire
contract, such contract will no longer be a Benchmark Component
Futures Contract and the Fund’s position in it will no longer
be consistent with tracking the Benchmark. In the event of a wheat
futures market where near to expire contracts trade at a higher
price than longer to expire contracts, a situation referred to as
“backwardation,” then absent the impact of the overall
movement in wheat prices the value of the Benchmark Component
Futures Contracts would tend to rise as they approach expiration.
As a result, the Fund may benefit because it would be selling more
expensive contracts and buying less expensive ones on an ongoing
basis. Conversely, in the event of a wheat futures market where
near to expire contracts trade at a lower price than longer to
expire contracts, a situation referred to as
“contango,” then absent the impact of the overall
movement in wheat prices the value of the Benchmark Component
Futures Contracts would tend to decline as they approach
expiration. As a result, the Fund’s total return may be lower
than might otherwise be the case because it would be selling less
expensive contracts and buying more expensive ones. The impact of
backwardation and contango may lead the total return of the Fund to
vary significantly from the total return of other price references,
such as the spot price of wheat. In the event of a prolonged period
of contango, and absent the impact of rising or falling wheat
prices, this could have a significant negative impact on the
Fund’s NAV and total return, and you could incur a partial or
total loss of your investment in the Fund.
Regulation of the commodity interests and commodity markets is
extensive and constantly changing. future regulatory developments
are impossible to predict but may significantly and adversely
affect the Fund.
The
regulation of futures markets, futures contracts and futures
exchanges has historically been comprehensive. The CFTC and the
exchanges are authorized to take extraordinary actions in the event
of a market emergency including, for example, the retroactive
implementation of speculative position limits, increased margin
requirements, the establishment of daily price limits and the
suspension of trading on an exchange or trading
facility.
The
regulation of commodity interest transactions in the United States
is a rapidly changing area of law and is subject to ongoing
modification by governmental and judicial action. Congress enacted
the DoddFrank Wall Street Reform and Consumer Protection Act
(the “DoddFrank Act”) in 2010 As the
DoddFrank Act continues to be implemented by the CFTC and the
SEC, there is a possibility of future regulatory changes within the
United States altering, perhaps to a material extent, the nature of
an investment in the Fund, or the ability for the Fund to continue
to implement its investment strategy. In addition, various national
governments outside of the United States have expressed concern
regarding the disruptive effects of speculative trading in the
commodities markets and the need to regulate the derivatives
markets in general. The effect of any future regulatory change on
the Fund is impossible to predict but could be substantial and
adverse.
If you are investing in the Fund for purposes of hedging, you might
be subject to several risks unique to the fund, and the fund may
not be appropriate for hedging purposes. The fund was not designed
for hedging purposes; those using the fund as a hedge of any kind
do so exclusively at their own risk.
An investment in the Fund may provide you little or no
diversification benefits. Thus, in a declining market, the Fund may
have no gains to offset your losses from other investments, and you
may suffer losses on your investment in the Fund at the same time
you incur losses with respect to other asset classes.
It
cannot be predicted to what extent the performance of Benchmark
Component Futures Contracts will or will not correlate to the
performance of other broader asset classes such as stocks and
bonds. If the Fund’s performance were to move more directly
with the financial markets, you will obtain little or no
diversification benefits from an investment in the Shares. In such
a case, the Fund may have no gains to offset your losses from other
investments, and you may suffer losses on your investment in the
Fund at the same time you incur losses with respect to other
investments.
Variables such as
drought, floods, weather, embargoes, market disruptions, tariffs
and other political events may have a larger impact on wheat and
wheat interest prices than on traditional securities and broader
financial markets. These additional variables may create additional
investment risks that subject the Fund’s investments to
greater volatility than investments in traditional
securities.
Lower
correlation should not be confused with negative correlation, where
the performance of two asset classes would be opposite of each
other. There is no historic evidence that the spot price of wheat
and prices of other financial assets such as stocks and bonds are
negatively correlated. In the absence of negative correlation, the
Fund cannot be expected to be automatically profitable during
unfavorable periods for the stock market, or vice
versa.
The
Fund’s Operating Risks
The Fund is not a registered investment company, so you do not have
the protections of the Investment Company Act of 1940.
The
Fund is not an investment company subject to the Investment Company
Act of 1940. Accordingly, you do not have the protections afforded
by that statute, which, for example, requires investment companies
to have a board of directors with a majority of disinterested
directors and regulates the relationship between the investment
company and its investment manager.
The Sponsor is leanly staffed and relies heavily on key personnel
to manage trading activities.
In
managing and directing the day to day activities and affairs of the
Fund, the Sponsor relies almost entirely on a small number of
individuals including Mr. Sal Gilbertie, Mr. Steve Kahler and Ms.
Cory Mullen-Rusin. If Mr. Gilbertie, Mr. Kahler or Ms. Mullen-Rusin
were to leave or be unable to carry out their present
responsibilities, it may have an adverse effect on the management
of the Fund. To the extent that the Sponsor establishes additional
commodity pools, even greater demands will be placed on these
individuals.
The Sponsor has limited capital and may be unable to continue to
manage the Fund if it sustains continued losses.
The
Sponsor was formed for the purpose of managing the Trust, including
the Fund and the other Teucrium Funds, and any other series of the
Trust that may be formed in the future, and has been provided with
capital primarily by its principals and a small number of outside
investors. If the Sponsor operates at a loss for an extended
period, its capital will be depleted, and it may be unable to
obtain additional financing necessary to continue its operations.
If the Sponsor were unable to continue to provide services to the
Fund, the Fund would be terminated if a replacement sponsor could
not be found. Any expenses related to the operation of the Fund
would need to be paid by the Fund at the time of
termination.
Position limit, accountability levels and daily price fluctuation
limits set by the CFTC and the exchanges have the potential to
cause tracking error, which could cause the price of Shares to
substantially vary from the Benchmark and prevent you from being
able to effectively use the Fund as a way to hedge against wheat
related losses or as a way to indirectly invest in
wheat.
The
CFTC and U.S. designated contract markets may establish position
limits on the maximum net long or net short futures contracts in
commodity interests that any person or group of persons under
common trading control (other than as a hedge, which an investment
by the Fund is not) may hold, own or control. For example, the
current position limit for investments at any one time in the Wheat
Futures Contracts are 600 spot month contracts, 12,000 contracts
expiring in any other single month, and 12,000 total for all
months. Wheat Swaps are subject to position limits that are similar
to, but currently measured separately from, the limits on Wheat
Futures Contracts. These position limits are fixed ceilings that
the Fund would not be able to exceed without specific CFTC
authorization
Accountability
levels differ from position limits in that they do not represent a
fixed ceiling, but rather a threshold above which a futures
exchange may exercise greater scrutiny and control over an
investor’s positions. If a Fund were to exceed an applicable
accountability level for investments in futures contracts, the
exchange will monitor the Fund’s exposure and may ask for
further information on its activities, including the total size of
all positions, investment and trading strategy, and the extent of
liquidity resources of the Fund. If deemed necessary by the
exchange, the Fund could be ordered to reduce its aggregate net position back to the accountability
level.
In
addition to position limits and accountability limits, the
exchanges set daily price fluctuation limits on futures contracts.
The daily price fluctuation limit establishes the maximum amount
that the price of futures contracts may vary either up or down from
the previous day’s settlement price. Once the daily price
fluctuation limit has been reached in a particular futures
contract, no trades may be made at a price beyond that
limit.
On
December 16, 2016, as mandated by the Dodd-Frank Act, the CFTC
adopted a final rule that aggregate all positions, for purposes of
position limits; such positions include futures contracts,
futures-equivalent positions, over the counter swaps and options
(i.e., contracts that are not traded on exchanges). These
aggregation requirements became effective on February 14, 2017 and
could limit the Fund’s ability to establish positions in
commodity over the counter instruments if the assets of the Fund
were to grow substantially.
On
January 31, 2020, the CFTC re-proposed regulations that would
establish revised specific limits on speculative positions in
futures contracts, option contracts and swaps on 25 agricultural,
energy and metals commodities (the “Proposed Position Limit
Rules”).
There are technical and fundamental risks inherent in the trading
system the Sponsor intends to employ.
The
Sponsor’s trading system is quantitative in nature and it is
possible that the Sponsor may make errors. Any errors or
imperfections in the Sponsor’s trading system’s
quantitative models, or in the data on which they are based, could
adversely affect the Sponsor’s effective use of such trading
systems. It is not possible or practicable for the Sponsor’s
trading system to factor all relevant, available data into
quantitative systems and/or trading decision. There is no guarantee
that the Sponsor will use any specific data or type of data in
making trading decisions on behalf of the Fund, nor is there any
guarantee that the data actually utilized in making trading
decisions on behalf of the Fund will be the most accurate data or
free from errors. In addition, it is possible that a computer or
software program may malfunction and cause an error in
computation.
The Fund and the Sponsor may have conflicts of interest, which may
cause them to favor their own interests to your
detriment.
The
Fund and the Sponsor may have inherent conflicts to the extent the
Sponsor attempts to maintain the Fund’s asset size in order
to preserve its fee income and this may not always be consistent
with the Fund’s objective of having the value of its
Shares’ NAV track changes in the Benchmark. The
Sponsor’s officers and employees do not devote their time
exclusively to the Fund. These persons may be directors, officers
or employees of other entities. They could have a conflict between
their responsibilities to the Fund and to those other
entities.
In
addition, the Sponsor’s principals, officers or employees may
trade securities and futures and related contracts for their own
accounts. A conflict of interest may exist if their trades are in
the same markets and occur at the same time as the Fund trades
using the clearing broker to be used by the Fund. A potential
conflict also may occur if the Sponsor’s principals, officers
or employees trade their accounts more aggressively or take
positions in their accounts that are opposite, or ahead of, the
positions taken by the Fund.
The
Sponsor has sole current authority to manage the investments and
operations of the Fund, and this may allow it to act in a way that
furthers its own interests and in conflict with your best
interests, including the authority of the Sponsor to allocate
expenses to and between the Teucrium Funds. Shareholders have very
limited voting rights, which will limit the ability to influence
matters such as amendment of the Trust Agreement, changes in the
Fund’s basic investment policies, dissolution of the Fund, or
the sale or distribution of the Fund’s assets.
Shareholders have only very limited voting rights and generally
will not have the power to replace the Sponsor. Shareholders will
not participate in the management of the Fund and do not control
the Sponsor so they will not have influence over basic matters that
affect the Fund.
Shareholders will
have very limited voting rights with respect to the Fund’s
affairs. Shareholders may elect a replacement sponsor only if the
current Sponsor resigns voluntarily or loses its corporate charter.
Shareholders will not be permitted to participate in the management
or control of the Fund or the conduct of its business. Shareholders
must therefore rely upon the duties and judgment of the Sponsor to
manage the Fund’s affairs.
The Sponsor may manage a large amount of assets and this could
affect the Fund’s ability to trade profitably.
Increases in assets
under management may affect trading decisions. While the
Fund’s assets are currently at manageable levels, the Sponsor
does not intend to limit the amount of Fund assets. The more assets
the Sponsor manages, the more difficult it may be for it to trade
profitably because of the difficulty of trading larger positions
without adversely affecting prices and performance and of managing
risk associated with larger positions.
The liability of the Sponsor and the Trustee are limited, and the
value of the Shares will be adversely affected if the Fund is
required to indemnify the Trustee or the Sponsor.
Under
the Trust Agreement, the Trustee and the Sponsor are not liable,
and have the right to be indemnified, for any liability or expense
incurred absent gross negligence or willful misconduct on the part
of the Trustee or Sponsor, as the case may be. That means the
Sponsor may require the assets of the Fund to be sold in order to
cover losses or liability suffered by the Sponsor or by the
Trustee. Any sale of that kind would reduce the NAV of the Fund and
the value of its Shares.
Although the Shares of the Fund are limited liability investments,
certain circumstances such as bankruptcy could increase a
Shareholder’s liability.
The
Shares of the Fund are limited liability investments. Shareholders
may not lose more than the amount that they invest plus any profits
recognized on their investment. However, Shareholders could be
required, as a matter of bankruptcy law, to return to the estate of
the Fund any distribution they received at a time when the Fund was
in fact insolvent or that was made in violation of its Trust
Agreement.
You cannot be assured of the Sponsor’s continued services,
and discontinuance may be detrimental to the Fund.
You
cannot be assured that the Sponsor will be willing or able to
continue to service the Fund for any length of time. The Sponsor
was formed for the purpose of sponsoring the Fund and other
commodity pools and has limited financial resources and no
significant source of income apart from its management fees from
such commodity pools to support its continued service for the Fund.
If the Sponsor discontinues its activities on behalf of the Fund or
another series of the Trust, the Fund may be adversely affected. If
the Sponsor’s registrations with the CFTC or memberships in
the NFA were revoked or suspended, the Sponsor would no longer be
able to provide services to the Fund.
The Fund could terminate at any time and cause the liquidation and
potential loss of your investment and could upset the overall
maturity and timing of your investment portfolio.
The
Fund may terminate at any time, regardless of whether the Fund has
incurred losses, subject to the terms of the Trust Agreement. For
example, the dissolution or resignation of the Sponsor would cause
the Trust to terminate unless shareholders holding a majority of
the outstanding shares of the Trust, voting together as a single
class, elect within 90 days of the event to continue the Trust and
appoint a successor Sponsor. In addition, the Sponsor may terminate
the Fund if it determines that the Fund’s aggregate net
assets in relation to its operating expenses make the continued
operation of the Fund unreasonable or imprudent. As of the date of
this prospectus, the Fund pays the fees, costs, and expenses of its
operations. If the Sponsor and the Fund are unable to raise
sufficient funds so that the Fund’s expenses are reasonable
in relation to its NAV, the Fund may be forced to terminate, and
investors may lose all or part of their investment. Any expenses
related to the operation of the Fund would need to be paid by the
Fund at the time of termination.
However, no level
of losses will require the Sponsor to terminate the Fund. The
Fund’s termination would result in the liquidation of its
investments and the distribution of its remaining assets to the
Shareholders on a pro rata basis in accordance with their Shares,
and the Fund could incur losses in liquidating its investments in
connection with a termination. Termination could also negatively
affect the overall maturity and timing of your investment
portfolio.
As a Shareholder, you will not have the rights enjoyed by investors
in certain other types of entities.
As
interests in separate series of a Delaware statutory trust, the
Shares do not involve the rights normally associated with the
ownership of shares of a corporation (including, for example, the
right to bring shareholder oppression and derivative actions). In
addition, the Shares have limited voting and distribution rights
(for example, Shareholders do not have the right to elect
directors, as the Trust does not have a board of directors, and
generally will not receive regular distributions of the net income
and capital gains earned by the Fund). The Fund is also not subject
to certain investor protection provisions of the Sarbanes Oxley Act
of 2002 and the NYSE Arca governance rules (for example, audit
committee requirements).
A court could potentially conclude that the assets and liabilities
of the Fund are not segregated from those of another series of the
Trust, thereby potentially exposing assets in the Fund to the
liabilities of another series.
The
Fund is a series of a Delaware statutory trust and not itself a
legal entity separate from the other Teucrium Funds. The Delaware
Statutory Trust Act provides that if certain provisions are
included in the formation and governing documents of a statutory
trust organized in series and if separate and distinct records are
maintained for any series and the assets associated with that
series are held in separate and distinct records and are accounted
for in such separate and distinct records separately from the other
assets of the statutory trust, or any series thereof, then the
debts, liabilities, obligations and expenses incurred by a
particular series are enforceable against the assets of such series
only, and not against the assets of the statutory trust generally
or any other series thereof. Conversely, none of the debts,
liabilities, obligations and expenses incurred with respect to any
other series thereof is enforceable against the assets of such
series. The Sponsor is not aware of any court case that has
interpreted this inter-series limitation on liability or provided
any guidance as to what is required for compliance. The Sponsor
intends to maintain separate and distinct records for the Fund and
account for the Fund separately from any other Trust series, but it
is possible a court could conclude that the methods used do not
satisfy the Delaware Statutory Trust Act, which would potentially
expose assets in the Fund to the liabilities of one or more of the
Teucrium Funds and/or any other Trust series created in the
future.
The Sponsor and the Trustee are not obligated to prosecute any
action, suit or other proceeding in respect of any Fund
property.
Neither
the Sponsor nor the Trustee is obligated to, although each may in
its respective discretion, prosecute any action, suit or other
proceeding in respect of any Fund property. The Trust Agreement
does not confer upon Shareholders the right to prosecute any such
action, suit or other proceeding.
The Fund does not expect to make cash distributions.
The
Sponsor intends to reinvest any income and realized gains of
the Fund in additional Benchmark Component Futures Contracts or
cash and cash equivalents rather than distributing cash to
Shareholders. Therefore, unlike mutual funds, commodity pools or
other investment pools that generally distribute income and gains
to their investors, the Fund generally will not distribute cash to
Shareholders. You should not invest in the Fund if you will need
cash distributions from the Fund to pay taxes on your share of
income and gains of the Fund, if any, or for any other reason.
Although the Fund does not intend to make cash distributions, it
reserves the right to do so in the Sponsor’s sole discretion,
in certain situations, including for example, if the income earned
from its investments held directly or posted as margin may reach
levels that merit distribution, e.g., at levels where such income
is not necessary to support its underlying investments in Benchmark
Component Futures Contracts and investors adversely react to being
taxed on such income without receiving distributions that could be
used to pay such tax. Cash distributions may be made in these and
similar instances.
There is a risk that the Fund will not have sufficient total net
assets to compensate for the fees and expenses that it must pay and
as such the expense ratio of the Fund may be higher than that filed
in this document.
The
Fund pays management fees at an annual rate of 1.00% of its average
net assets, brokerage commissions and various other expenses from
its ongoing operations (e.g., fees of the Administrator, Trustee
and Distributor), resulting in a total estimated expense ratio of
approximately [•]% of net assets, net of the expenses waived
by the Sponsor. These fees and expenses must be paid in all events,
regardless of the Fund’s total net assets.
The Fund may incur higher fees and expenses upon renewing existing
or entering into new contractual relationships.
The
arrangements between clearing brokers and counterparties on the one
hand and the Fund on the other generally are terminable by the
clearing brokers or counterparty upon notice to the Fund. In
addition, the agreements between the Fund and its third-party
service providers, such as the Distributor and the Custodian, are
generally terminable at specified intervals. Upon termination, the
Sponsor may be required to renegotiate or make other arrangements
for obtaining similar services if the Fund intends to continue to
operate. Comparable services from another party may not be
available, or even if available, these services may not be
available on the terms as favorable as those of the expired or
terminated arrangements.
The Fund may experience a higher breakeven if interest rates
decline.
The
Fund earns interest on cash balances available for investment. If
actual interest rates earned were to continue to fall and if the
Sponsor were not able to waive expenses sufficient to cover the
deficit, the breakeven estimated by the Fund in this prospectus
could be higher.
The Fund is not actively managed.
The
Fund is not actively managed and is designed to track a benchmark,
regardless of whether the price of the Benchmark Component Futures
Contracts is flat, declining or rising. As a result, the Fund may
sustain losses that may have been avoidable if the Fund was
actively managed.
The Net Asset Value calculation of the Fund may be overstated or
understated due to the valuation method employed when a settlement
price is not available on the date of net asset value
calculation.
The
Fund’s NAV includes, in part, any unrealized profits or
losses on open swap agreements, futures or forward contracts. Under
normal circumstances, the NAV reflects the quoted CBOT settlement
price of open futures contracts on the date when the NAV is being
calculated. In instances when the quoted settlement price of
futures contracts traded on an exchange may not be reflective of
fair value based on market condition, generally due to the
operation of daily limits or other rules of the exchange or
otherwise, the NAV may not reflect the fair value of open futures
contracts on such date. For purposes of financial statements and
reports, the Sponsor will recalculate the NAV where necessary to
reflect the “fair value” of a Futures Contract when the
Futures Contract closes at its price fluctuation limit for the
day.
An unanticipated number of redemption requests during a short
period of time could have an adverse effect on the NAV of the
Fund.
If a
substantial number of requests for redemption of Redemption Baskets
are received by the Fund during a relatively short period of time,
the Fund may not be able to satisfy the requests from the
Fund’s assets not committed to trading. As a consequence, it
could be necessary to liquidate the Fund’s trading positions
before the time that its trading strategies would otherwise call
for liquidation, which may result in losses.
Fund assets may be depleted if investment performance does not
exceed fees.
In
addition to certain fees paid to the Fund’s service
providers, the Fund pays the Sponsor a fee of 1.00% of asset under
management per annum, regardless of Fund performance. Over time,
the Fund’s assets could be depleted if investment performance
does not exceed such fees.
The liquidity of the Shares may be affected by the withdrawal from
participation of Authorized Purchasers, market makers, or other
significant secondary-market participants which could adversely
affect the market price of the Shares.
Only an
Authorized Purchaser may engage in creation or redemption
transactions directly with the Fund. The Fund has a limited number
of institutions that act as Authorized Purchasers. To the extent
that these institutions exit the business or are unable to proceed
with creation and/or redemption orders with respect to the Fund and
no other Authorized Purchaser is able to step forward to create or
redeem Creation Units, Fund shares may trade at a discount to NAV
and possibly face trading halts and/or delisting. In addition, a
decision by a market maker, lead market maker, or other large
investor, to cease activities for the Fund or a decision by a
secondary market participant to sell a significant number of the
Fund’s Shares could adversely affect liquidity, the spread
between the bid and ask quotes, and potentially the price of the
Shares. The Sponsor can make no guarantees that participation by
Authorized Purchasers or market makers will continue.
If a minimum number of Shares is outstanding, market makers may be
less willing to purchase Shares in the secondary market which may
limit your ability to sell Shares.
There
is a minimum number of baskets and associated Shares specified for
the Fund. If the Fund experienced redemptions that caused the
number of Shares outstanding to decrease to the minimum level of
Shares required to be outstanding, until the minimum number of
Shares is again exceeded through the purchase of a new Creation
Basket, there can be no more redemptions by an Authorized
Purchaser. In such case, market makers may be less willing to
purchase Shares from investors in the secondary market, which may
in turn limit the ability of Shareholders of the Fund to sell their
Shares in the secondary market. These minimum levels for the Fund
are 50,000 Shares representing two baskets. The minimum level of
Shares specified for the Fund is subject to change. As of February
29, 2020, there were 8,850,004 Shares outstanding. (The current
number of Shares outstanding is posted daily on our website,
www.teucrium.com.)
The postponement, suspension or rejection of redemption orders
could adversely affect a shareholder redeeming their Shares in the
Fund.
The
resulting delay of any postponement, suspension or rejection may
adversely affect the value of the Shareholders’ redemption
proceeds if the NAV of the Fund declines during the period of
delay.
The failure or bankruptcy of a clearing broker could result in
substantial losses for the Fund; the clearing broker could be
subject to proceedings that impair its ability to execute the
Fund’s trades.
Under
CFTC regulations, a clearing broker with respect to the
Fund’s exchange traded wheat interests must maintain
customers’ assets in a bulk segregated account. If a clearing
broker fails to do so or is unable to satisfy a substantial deficit
in a customer account, its other customers may be subject to risk
of a substantial loss of their funds in the event of that clearing
broker’s bankruptcy. In that event, the clearing
broker’s customers, such as the Fund, are entitled to
recover, even in respect of property specifically traceable to
them, only a proportional share of all property available for
distribution to all of that clearing broker’s customers. The
Fund also may be subject to the risk of the failure of, or delay in
performance by, any exchanges and markets and their clearing
organizations, if any, on which wheat interests are
traded.
From
time to time, the clearing brokers may be subject to legal or
regulatory proceedings in the ordinary course of their business. A
clearing broker’s involvement in costly or time-consuming
legal proceedings may divert financial resources or personnel away
from the clearing broker’s trading operations, which could
impair the clearing broker’s ability to successfully execute
and clear the Fund’s trades.
The failure or insolvency of the Fund’s Custodian or other
financial institution in which the Fund has deposits could result
in a substantial loss of the Fund’s assets.
As
noted above, the vast majority of the Fund’s assets are held
in cash and cash equivalents with the Custodian, other financial
institutions, if applicable. The insolvency of the Custodian, any
financial institution in which the Fund holds cash and cash
equivalents could result in a complete loss of the Fund’s
assets. The Fund currently has cash and cash equivalents at the
Custodian, Mechanics Bank, in commercial paper, and in United
States short-term Treasury obligations held by the
FCM.
Third parties may infringe upon or otherwise violate intellectual
property rights or assert that the Sponsor has infringed or
otherwise violated their intellectual property rights, which may
result in significant costs, litigation and diverted attention of
Sponsor’s management.
Third
parties may assert that the Sponsor has infringed or otherwise
violated their intellectual property rights. Third parties may
independently develop business methods, trademarks or proprietary
software and other technology similar to that of the Sponsor and
claim that the Sponsor has violated their intellectual property
rights, including their copyrights, trademark rights, trade names,
trade secrets and patent rights. As a result, the Sponsor may have
to litigate in the future to determine the validity and scope of
other parties’ proprietary rights or defend itself against
claims that it has infringed or otherwise violated other
parties’ rights. Any litigation of this type, even if the
Sponsor is successful and regardless of the merits, may result in
significant costs, divert resources from the Fund, or require the
Sponsor to change its proprietary software and other technology or
enter into royalty or licensing agreements.
The
Sponsor has a patent on certain business methods and procedures
used with respect to the Fund. The Sponsor utilizes certain
proprietary software. Any unauthorized use of such proprietary
software, business methods and/or procedures could adversely affect
the competitive advantage of the Sponsor or the Fund and/or require
the Sponsor to take legal action to protect its
rights.
The Fund may experience substantial losses on transactions if the
computer or communications system fails.
The
Fund’s trading activities depend on the integrity and
performance of the computer and communications systems supporting
them. Extraordinary transaction volume, hardware or software
failure, power or telecommunications failure, a natural disaster,
cyber-attack or other catastrophe could cause the computer systems
to operate at an unacceptably slow speed or even fail. Any
significant degradation or failure of the systems that the Sponsor
uses to gather and analyze information, enter orders, process data,
monitor risk levels and otherwise engage in trading activities may
result in substantial losses on transactions, liability to other
parties, lost profit opportunities, damages to the Sponsor’s
and Fund’s reputations, increased operational expenses and
diversion of technical resources.
If the computer and communications systems are not upgraded when
necessary, the Fund’s financial condition could be
harmed.
The
development of complex computer and communications systems and new
technologies may render the existing computer and communications
systems supporting the Fund’s trading activities obsolete. In
addition, these computer and communications systems must be
compatible with those of third parties, such as the systems of
exchanges, clearing brokers and the executing brokers. As a result,
if these third parties upgrade their systems, the Sponsor will need
to make corresponding upgrades to effectively continue its trading
activities. The Sponsor may have limited financial resources for
these upgrades or other technological changes. The Fund’s
future success may depend on the Sponsor’s ability to respond
to changing technologies on a timely and cost-effective
basis.
The Fund depends on the reliable performance of the computer and
communications systems of third parties, such as brokers and
futures exchanges, and may experience substantial losses on
transactions if they fail.
The
Fund depends on the proper and timely function of complex computer
and communications systems maintained and operated by the futures
exchanges, brokers and other data providers that the Sponsor uses
to conduct trading activities. Failure or inadequate performance of
any of these systems could adversely affect the Sponsor’s
ability to complete transactions, including its ability to close
out positions, and result in lost profit opportunities and
significant losses on commodity interest transactions. This could
have a material adverse effect on revenues and materially reduce
the Fund’s available capital. For example, unavailability of
price quotations from third parties may make it difficult or
impossible for the Sponsor to conduct trading activities so that
the Fund will closely track the Benchmark. Unavailability of
records from brokerage firms may make it difficult or impossible
for the Sponsor to accurately determine which transactions have
been executed or the details, including price and time, of any
transaction executed. This unavailability of information also may
make it difficult or impossible for the Sponsor to reconcile its
records of transactions with those of another party or to
accomplish settlement of executed transactions.
The occurrence of a severe weather event, natural disaster,
terrorist attack, outbreak or public health emergency as declared
by the World Health Organization, continuation or expansion of war
or other hostilities could disrupt the Fund’s trading
activity and materially affect the Fund’s
profitability.
The
operations of the Fund, the exchanges, brokers and counterparties
with which the Fund does business, and the markets in which the
Fund does business could be severely disrupted in the event of a
severe weather event, natural disaster, major terrorist attack,
cyber-attacks, data breach, outbreak or public health emergency as
declared by the World Health Organization, continuation or
expansion of war or other hostilities. Global terrorist attacks,
anti-terrorism initiatives, and political unrest continue to fuel
this concern. In addition, a prolonged U.S. government shutdown
could weaken the U.S. economy, interfere with the commodities
markets that rely upon data published by U.S. federal government
agencies, and prevent the Fund from receiving necessary regulatory
review or approvals.
Failures or breaches of electronic systems could disrupt the
Fund’s trading activity and materially affect the
Fund’s profitability.
Failures or
breaches of the electronic systems of the Fund, the Sponsor, the
Custodian or other financial institutions in which the Fund
invests, or the Fund’s other service providers, market
makers, Authorized Purchasers, NYSE Arca, exchanges on which Wheat
Futures Contracts or other wheat interests are traded or cleared,
or counterparties have the ability to cause disruptions and
negatively impact the Fund’s business operations, potentially
resulting in financial losses to the Fund and its shareholders.
Such failures or breaches may include intentional cyber-attacks
that may result in an unauthorized party gaining access to
electronic systems in order to misappropriate the Fund’s
assets or sensitive information. While the Fund has established
business continuity plans and risk management systems seeking to
address system breaches or failures, there are inherent limitations
in such plans and systems. Furthermore, the Fund cannot control the
cyber security plans and systems of the Custodian or other
financial institutions in which the Fund invests, or the
Fund’s other service providers, market makers, Authorized
Purchasers, NYSE Arca, exchanges on which Wheat Futures Contracts
or other wheat interests are traded or cleared, or
counterparties.
An investment in a Fund faces numerous risks from its shares being
traded in the secondary market, any of which may lead to the
Fund’s shares trading at a premium or discount to
NAV.
Although the
Fund’s shares are listed for trading on the NYSE Arca, there
can be no assurance that an active trading market for such shares
will develop or be maintained. Trading in the Fund’s shares
may be halted due to market conditions or for reasons that, in the
view of the NYSE Arca, make trading in shares inadvisable. There
can be no assurance that the requirements of the NYSE Arca
necessary to maintain the listing of the Fund will continue to be
met or will remain unchanged or that the shares will trade with any
volume, or at all. The NAV of the Fund’s shares will
generally fluctuate with changes in the market value of the
Fund’s portfolio holdings. The market prices of shares will
generally fluctuate in accordance with changes in the Fund’s
NAV and supply and demand of shares on the NYSE Arca. It cannot be
predicted whether the Fund’s shares will trade below, at or
above their NAV. Investors buying or selling Fund shares in the
secondary market will pay brokerage commissions or other charges
imposed by brokers as determined by that broker. Brokerage
commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively
small amounts of shares.
The NYSE Arca may halt trading in the Shares which would adversely
impact your ability to sell Shares.
Trading
in Shares of the Fund may be halted due to market conditions or, in
light of NYSE Arca rules and procedures, for reasons that, in view
of the NYSE Arca, make trading in Shares inadvisable. In addition,
trading is subject to trading halts caused by extraordinary market
volatility pursuant to “circuit breaker” rules that
require trading to be halted for a specified period based on a
specified market decline. There can be no assurance that the
requirements necessary to maintain the listing of the Shares will
continue to be met or will remain unchanged. The Fund will be
terminated if its Shares are delisted.
The lack of active trading markets for the Shares of the Fund may
result in losses on your investment in the Fund at the time of
disposition of your Shares.
Although the Shares
of the Fund will be listed and traded on the NYSE Arca, there can
be no guarantee that an active trading market for the Shares of the
Fund will be maintained. If you need to sell your Shares at a time
when no active market for them exists, the price you receive for
your Shares, assuming that you are able to sell them, likely will
be lower than what you would receive if an active market did
exist.
Risk of Leverage and Volatility
If the Sponsor causes or permits the Fund to become leveraged, you
could lose all or substantially all of your investment if the
Fund’s trading positions suddenly turn
unprofitable.
Commodity
pools’ trading positions in futures contracts or other
commodity interests are typically required to be secured by the
deposit of margin funds that represent only a small percentage of a
futures contract’s (or other commodity interest’s)
entire market value. This feature permits commodity pools to
“leverage” their assets by purchasing or selling
futures contracts (or other commodity interests) with an aggregate
notional amount in excess of the commodity pool’s assets.
While this leverage can increase a pool’s profits, relatively
small adverse movements in the price of the pool’s commodity
interests can cause significant losses to the pool. While the
Sponsor does not intend to leverage the Fund’s assets, it is
not prohibited from doing so under the Trust Agreement. If the
Sponsor was to cause or permit the Fund to become leveraged, you
could lose all or substantially all of your investment if the
Fund’s trading positions suddenly turn
unprofitable.
The price of wheat can be volatile which could cause large
fluctuations in the price of Shares.
As
discussed in more detail above, price movements for wheat are
influenced by, among other things, weather conditions, crop
disease, crop failure, transportation and storage difficulties,
production decisions, various planting, growing and harvesting
problems, governmental policies, various economic and monetary
events, changing demand, and seasonal fluctuations in supply. More
generally, commodity prices may be influenced by economic and
monetary events such as changes in interest rates, changes in
balances of payments and trade, U.S. and international inflation
rates, currency valuations and devaluations, U.S. and international
economic events, and changes in the philosophies and emotions of
market participants. Because the Fund invests primarily in
interests in a single commodity, it is not a diversified investment
vehicle, and therefore may be subject to greater volatility than a
diversified portfolio of stocks or bonds or a more diversified
commodity pool.
Over the counter Contract
Risk
Over the counter transactions are subject to changing
regulation.
A
portion of the Fund’s assets may be used to trade over the
counter wheat interests, such as forward contracts or swaps. The
markets for over the counter contracts will continue to rely upon
the integrity of market participants in lieu of the additional
regulation imposed by the CFTC on participants in the futures
markets. To date, the forward markets have been largely
unregulated, except for antimanipulation and antifraud
provisions, forward contracts have been executed bilaterally
and, in general historically, forward contracts have not been
cleared or guaranteed by a third party. While increased regulation
of over the counter commodity interests is likely to result from
changes that are required to be effectuated by the DoddFrank
Act, there is no guarantee that such increased regulation will be
effective to reduce these risks.
The Fund will be subject to credit risk with respect to
counterparties to over the counter contracts entered into by the
Fund.
The
Fund faces the risk of non-performance by the counterparties to the
over the counter contracts. Unlike in futures contracts, the
counterparty to these contracts is generally a single bank or other
financial institution, rather than a clearing organization backed
by a group of financial institutions. As a result, there will be
greater counterparty credit risk in these transactions. A
counterparty may not be able to meet its obligations to the Fund,
in which case the Fund could suffer significant losses on these
contracts.
If a
counterparty becomes bankrupt or otherwise fails to perform its
obligations due to financial difficulties, the Fund may experience
significant delays in obtaining any recovery in a bankruptcy or
other reorganization proceeding. During any such period, the Fund
may have difficulty in determining the value of its contracts with
the counterparty, which in turn could result in the overstatement
or understatement of the Fund’s NAV. The Fund may eventually
obtain only limited recovery or no recovery in such
circumstances.
The Fund may be subject to liquidity risk with respect to over the
counter contracts.
Over
the counter contracts may have terms that make them less marketable
than Wheat Futures Contracts. Over the counter contracts are less
marketable because they are not traded on an exchange, do not have
uniform terms and conditions, and are entered into based upon the
creditworthiness of the parties and the availability of credit
support, such as collateral, and in general, they are not
transferable without the consent of the counterparty. These
conditions make such contracts less liquid than standardized
futures contracts traded on a commodities exchange and diminish the
ability to realize the full value of such contracts. In addition,
even if collateral is used to reduce counterparty credit risk,
sudden changes in the value of over the counter transactions may
leave a party open to financial risk due to a counterparty default
since the collateral held may not cover a party’s exposure on
the transaction in such situations.
In
general, valuing OTC derivatives is less certain than valuing
actively traded financial instruments such as exchange traded
futures contracts and securities because the price and terms on
which such OTC derivatives are entered into or can be terminated
are individually negotiated, and those prices and terms may not
reflect the best price or terms available from other sources. In
addition, while market makers and dealers generally quote
indicative prices or terms for entering into or terminating OTC
contracts, they typically are not contractually obligated to do so,
particularly if they are not a party to the transaction. As a
result, it may be difficult to obtain an independent value for an
outstanding OTC derivatives transaction.
The
foregoing liquidity risks could impact adversely affect the
Fund’s ability to meet its investment objective.
In
addition, regulations adopted by global prudential regulators that
are now in effect require certain prudentially regulated entities
and certain of their affiliates and subsidiaries (including swap
dealers) to include in their derivatives contracts and certain
other financial contracts, terms that delay or restrict the rights
of counterparties (such as the Funds) to terminate such contracts,
foreclose upon collateral, exercise other default rights or
restrict transfers of credit support in the event that the
prudentially regulated entity and/or its affiliates are subject to
certain types of resolution or insolvency proceedings. Similar
regulations and laws have been adopted in non-US jurisdictions that
may apply to a Fund’s counterparties located in those
jurisdictions. It is possible that these new requirements, as well
as potential additional related government regulation, could
adversely affect a Fund’s ability to terminate existing
derivatives contracts, exercise default rights or satisfy
obligations owed to it with collateral received under such
contracts.
Risk of Trading in
International Markets
Trading in international markets would expose the Fund to credit
and regulatory risk.
A
significant portion of the Wheat Futures Contracts entered into by
the Fund are traded on United States exchanges including the CBOT.
However, a portion of the Fund’s trades may take place on
markets or exchanges outside the United States. Some nonU.S.
markets present risks because they are not subject to the same
degree of regulation as their U.S. counterparts. None of the CFTC,
NFA, or any domestic exchange regulates activities of any foreign
boards of trade or exchanges, including the execution, delivery and
clearing of transactions, has the power to compel enforcement of
the rules of a foreign board of trade or exchange or of any
applicable nonU.S. laws. Similarly, the rights of market
participants, such as the Fund, in the event of the insolvency or
bankruptcy of a nonU.S. market or broker are also likely to
be more limited than in the case of U.S. markets or brokers. As a
result, in these markets, the Fund has less legal and regulatory
protection than it does when it trades domestically. Currently the
Fund does not place trades on any markets or exchanges outside of
the United States and does not anticipate doing so in the
foreseeable future.
In some
of these nonU.S. markets, the performance on a futures
contract is the responsibility of the counterparty and is not
backed by an exchange or clearing corporation and therefore exposes
the Fund to credit risk. Additionally, trading on nonU.S.
exchanges is subject to the risks presented by exchange controls,
expropriation, increased tax burdens and exposure to local economic
declines and political instability. An adverse development with
respect to any of these variables could reduce the profit or
increase the loss earned on trades in the affected international
markets.
International trading activities subject the Fund to foreign
exchange risk.
The
price of any nonU.S. wheat interest and, therefore, the
potential profit and loss on such investment, may be affected by
any variance in the foreign exchange rate between the time the
order is placed and the time it is liquidated, offset or exercised.
However, a portion of the trades for the Fund may take place in
markets and on exchanges outside the U.S. Some non-U.S. markets
present risks because they are not subject to the same degree of
regulation as their U.S. counterparts. As a result, changes in the
value of the local currency relative to the U.S. dollar may cause
losses to the Fund even if the contract is profitable.
The
CFTC’s implementation of its regulations under the
DoddFrank Act may further affect the Fund’s ability to
enter into foreign exchange contracts and to hedge its exposure to
foreign exchange losses.
The Fund’s international trading could expose it to losses
resulting from non-U.S. exchanges that are less developed or less
reliable than United States exchanges.
Some
non-U.S. exchanges also may be in a more developmental stage so
that prior price histories may not be indicative of current price
dynamics. In addition, the Fund may not have the same access to
certain positions on foreign trading exchanges as do local traders,
and the historical market data on which the Sponsor bases its
strategies may not be as reliable or accessible as it is for U.S.
exchanges.
Please
refer to “U.S. Federal Income Tax Considerations” for
information regarding the U.S. federal income tax consequences of
the purchase, ownership and disposition of Shares.
Your tax liability from holding Shares may exceed the amount of
distributions, if any, on your Shares.
Cash or
property will be distributed by the Fund at the sole discretion of
the Sponsor, and the Sponsor currently does not intend to make cash
or other distributions with respect to Shares. You will be required
to pay U.S. federal income tax and, in some cases, state, local, or
foreign income tax, on your allocable share of the Fund’s
taxable income, without regard to whether you receive distributions
or the amount of any distributions. Therefore, the tax liability
resulting from your ownership of Shares may exceed the amount of
cash or value of property (if any) distributed.
Your allocable share of income or loss for U.S. federal income tax
purposes may differ from your economic income or loss on your
Shares.
Due to
the application of the assumptions and conventions applied by the
Fund in making allocations for U.S. federal income tax purposes and
other factors, your allocable share of the Fund’s income,
gain, deduction or loss may be different than your economic profit
or loss from your Shares for a taxable year. This difference could
be temporary or permanent and, if permanent, could result in your
being taxed on amounts in excess of your economic
income.
Items of income, gain, deduction, loss and credit with respect to
Shares could be reallocated (or for taxable years beginning after
December 31, 2017, the Fund itself could be liable for U.S. federal
income tax along with any interest or penalties) if the IRS does
not accept the assumptions and conventions applied by the Fund in
allocating those items, with potential adverse tax consequences for
you.
The
Fund is treated as a partnership for United States federal income
tax purposes. The U.S. tax rules pertaining to entities taxed as
partnerships are complex and their application to publicly traded
partnerships such as the Fund, is in many respects uncertain. The
Fund applies certain assumptions and conventions in an attempt to
comply with the intent of the applicable rules and to report
taxable income, gains, deductions, losses and credits in a manner
that properly reflects Shareholders’ economic gains and
losses. These assumptions and conventions may not fully comply with
all aspects of the Internal Revenue Code of 1986, as amended (the
“Code”), and applicable Treasury Regulations, however,
and it is possible that the U.S. Internal Revenue Service (the
“IRS”) will successfully challenge our allocation
methods and require us to reallocate items of income, gain,
deduction, loss or credit in a manner that adversely affects you.
If this occurs, you may be required to file an amended tax return
and to pay additional taxes plus deficiency interest.
In addition, for
taxable years beginning after December 31, 2017, the Fund may be
liable for U.S. federal income tax on any “imputed
underpayment” of tax resulting from an adjustment as a result
of an IRS audit. The amount of the imputed underpayment generally
includes increases in allocations of items of income or gains to
any investor and decreases in allocations of items of deduction,
loss, or credit to any investor without any offset for any
corresponding reductions in allocations of items of income or gain
to any investor or increases in allocations of items of deduction,
loss, or credit to any investor. If the Fund is required to pay any
U.S. federal income taxes on any imputed underpayment, the
resulting tax liability would reduce the net assets of the Fund and
would likely have an adverse impact on the value of the Shares. In
such a case, the tax liability would in effect be borne by
Shareholders that own shares at the time of such assessment, which
may be different persons, or persons with different ownership
percentages, then persons owning Shares for the tax year under
audit. Under certain circumstances, the Fund may be eligible to
make an election to cause Shareholders to take into account the
amount of any imputed underpayment, including any interest and
penalties. The ability of a publicly traded partnership such as the
Fund to make this election is uncertain. If the election is made,
the Fund would be required to provide Shareholders who owned
beneficial interests in the Shares in the year to which the
adjusted allocations relate with a statement setting forth their
proportionate shares of the adjustment (“Adjusted
K-1s”). The investors would be required to take the
adjustment into account in the taxable year in which the Adjusted
K-1s are issued. For an additional discussion please see
“U.S. Federal Income Tax Considerations – Other Tax
Matters.”
If the Fund is required to withhold tax with respect to any
Non-U.S. Shareholders, the cost of such withholding may be borne by
all Shareholders.
Under
certain circumstances, the Fund may be required to pay withholding
tax with respect to allocations to Non-U.S. Shareholders. Although
the Trust Agreement provides that any such withholding will be
treated as being distributed to the Non-U.S. Shareholder, the Fund
may not be able to cause the economic cost of such withholding to
be borne by the Non-U.S. Shareholder on whose behalf such amounts
were withheld since the Fund does not intend to make any
distributions. Under such circumstances, the economic cost of the
withholding may be borne by all Shareholders, not just the
Shareholders on whose behalf such amounts were withheld. This could
have a material impact on the value of your Shares.
The Fund could be treated as a corporation for federal income tax
purposes, which may substantially reduce the value of your
Shares.
The Trust has
received an opinion of counsel that, under current U.S. federal
income tax laws, the Fund will be treated as a partnership that is
not taxable as a corporation for U.S. federal income tax purposes,
provided that (i) at least 90 percent of the Fund’s annual
gross income consists of “qualifying income” as defined
in the Code, (ii) the Fund is organized and operated in accordance
with its governing agreements and applicable law, and (iii) the
Fund does not elect to be taxed as a corporation for federal income
tax purposes. Although the Sponsor anticipates that the Fund has
satisfied and will continue to satisfy the “qualifying
income” requirement for all of its taxable years, that result
cannot be assured. The Fund has not requested and will not request
any ruling from the IRS with respect to its classification as a
partnership not taxable as a corporation for federal income tax
purposes. If the IRS were to successfully assert that the Fund is
taxable as a corporation for federal income tax purposes in any
taxable year, rather than passing through its income, gains, losses
and deductions proportionately to Shareholders, the Fund would be
subject to tax on its net income for the year at corporate tax
rates. In addition, although the Sponsor does not currently intend
to make distributions with respect to Shares, any distributions
would be taxable to Shareholders as dividend income to the extent
of the Fund’s current and accumulated earnings and profits,
then treated as a tax-free return of capital to the extent of the
Shareholder’s basis in the Shares (and will reduce the
basis), and, to the extent it exceeds a Shareholder’s basis
in such Shares, as capital gain for Shareholders who hold their
Shares as capital assets. Taxation of the Fund as a corporation
could materially reduce the after-tax return on an investment in
Shares and could substantially reduce the value of your
Shares.
Tax legislation that has been or could be enacted may affect you
with respect to your investment in the Fund.
Legislative,
regulatory or administrative changes could be enacted or
promulgated at any time, either prospectively or with retroactive
effect, and may adversely affect the Fund and its Shareholders.
Please consult a tax advisor regarding the implications of the 2017
Tax Cuts and Jobs Act on an investment in Shares of the Teucrium
Funds.
PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF
AN INVESTMENT IN SHARES. SUCH TAX CONSEQUENCES MAY DIFFER IN
RESPECT OF DIFFERENT INVESTORS.
The
Fund’s investment objective is to provide investors with a
cost-efficient way to gain price exposure to the wheat market for
future delivery. The Sponsor developed the Benchmark as a
representation of the wheat market for future
delivery.
Under
normal market conditions, the Fund will invest in the Benchmark
Component Futures Contracts and cash and cash equivalents. The
Sponsor believes that by investing in Benchmark Component Futures
Contracts, the Fund’s net asset value (“NAV”)
will closely track the Benchmark. The Sponsor also believes that
because of market arbitrage opportunities, the market price at
which investors will purchase and sell Shares through their
broker-dealer will closely track the Fund’s NAV. The Sponsor
believes that the net effect of these relationships is that the
Fund’s market price on the NYSE Arca at which investors
purchase and sell Shares will closely track the wheat market for
future delivery, as measured by the Benchmark.
The
Fund is organized as a series of the Teucrium Commodity Trust, a
statutory trust organized under the laws of the State of Delaware
on September 11, 2009. Currently, the Trust has five series that
are separate operating commodity pools: the Teucrium Corn Fund, the
Teucrium Wheat Fund, the Teucrium Soybean Fund, the Teucrium Sugar
Fund, and the Teucrium Agricultural Fund. Additional series of the
Trust may be created in the future at the Sponsor’s
discretion. The Fund maintains its main business office at Three
Main Street, Suite 215, Burlington Vermont 05401. The Fund is a
commodity pool. It operates pursuant to the terms of the Trust
Agreement, which is dated as of April 26, 2019 and grants full
management control to the Sponsor.
See
“Prior Performance of the Fund” on page 29 for more information about prior
performance of the Fund.
The
Sponsor of the Trust is Teucrium Trading, LLC, a Delaware limited
liability company. The principal office of the Sponsor and the
Trust are located at Three Main Street, Suite 215, Burlington,
Vermont 05401. The Sponsor registered as a CPO with the CFTC and
became a member of the NFA on November 10, 2009. The Sponsor also
registered as a Commodity Trading Advisor (“CTA”) with
the CFTC effective September 8, 2017.
Aside
from establishing the series of the Trust, operating those series
that have commenced offering their shares, and obtaining capital
from a small number of outside investors in order to engage in
these activities, the Sponsor has not engaged in any other business
activity prior to the date of this prospectus. Under the Trust
Agreement, the Sponsor is solely responsible for management and
conducts or directs the conduct of the business of the Trust, the
Fund, and any series of the Trust that may from time to time be
established and designated by the Sponsor. The Sponsor is required
to oversee the purchase and sale of Shares by Authorized Purchasers
and to manage the Fund’s investments, including to evaluate
the credit risk of FCMs and swap counterparties and to review daily
positions and margin/collateral requirements. The Sponsor has the
power to enter into agreements as may be necessary or appropriate
for the offer and sale of the Fund’s Shares and the conduct
of the Trust’s activities. Accordingly, the Sponsor is
responsible for selecting the Trustee, Administrator, Distributor,
the independent registered public accounting firm of the Trust, and
any legal counsel employed by the Trust. The Sponsor is also
responsible for preparing and filing periodic reports on behalf of
the Trust with the SEC and will provide any required certification
for such reports. No person other than the Sponsor and its
principals was involved in the organization of the Trust or the
Fund.
The
Sponsor may determine to engage marketing agents who will assist
the Sponsor in marketing the Shares. See “Plan of
Distribution” for more information.
The
Sponsor maintains a public website on behalf of the Fund,
www.teucrium.com,
which contains information about the Trust, the Fund, and the
Shares, and oversees certain services for the benefit of
Shareholders.
The
Sponsor has discretion to appoint one or more of its affiliates as
additional Sponsors.
The
Sponsor receives a fee as compensation for services performed under
the Trust Agreement. The Sponsor’s fee accrues daily and is
paid monthly at an annual rate of 1.00% of the average daily net
assets of the Fund. For the period from January 1, 2019 through
December 31, 2019, the Fund recognized $534,850 in management fees
to the Sponsor. The Fund is also responsible for other ongoing
fees, costs and expenses of its operations, including brokerage
fees, and legal, printing, accounting, custodial, administration
and transfer agency costs, although the Sponsor bore the costs and
expenses related to the registration of the Shares. None of the
costs and expenses related to the initial registration, offer and
sale of Shares, which totaled approximately $450,000, were or are
chargeable to the Fund, and the Sponsor did not and may not recover
any of these costs and expenses from the Fund.
Shareholders have
no right to elect the Sponsor on an annual or any other continuing
basis or to remove the Sponsor. If the Sponsor voluntarily
withdraws, the holders of a majority of the Trust’s
outstanding Shares (excluding for purposes of such determination
Shares owned by the withdrawing Sponsor and its affiliates) may
elect its successor. Prior to withdrawing, the Sponsor must give
ninety days’ written notice to the Shareholders and the
Trustee.
Ownership or
“membership” interests in the Sponsor are owned by
persons referred to as “members.” The Sponsor currently
has three voting or “Class A” members – Mr. Sal
Gilbertie, Mr. Dale Riker and Mr. Carl N. Miller III – and a
small number of non-voting or “Class B” members who
have provided working capital to the Sponsor. Messrs. Gilbertie and
Riker each currently own 45.7% of the Sponsor’s Class A
membership interests, while Mr. Miller holds the remainder, which
is 8.52%.
The
Sponsor has an information security program and policy in place.
The program takes reasonable care to look beyond the security and
controls developed and implemented for the Trust and the Funds
directly to the platforms and controls in place for the key service
providers. Such review of the cybersecurity and information
technology plans of key service providers are part of the
Sponsor’s disaster recovery and business continuity planning.
The Sponsor provides regular training to all employees of the
Sponsor regarding cybersecurity topics, in addition to real-time
dissemination of information regarding cybersecurity matters as
needed. The information security plan is reviewed and updated as
needed, but at a minimum on an annual basis.
Management of the Sponsor
In
general, under the Sponsor’s Amended and Restated Limited
Liability Company Operating Agreement, as amended from time to
time, the Sponsor (and as a result the Trust and each Fund) is
managed by the officers of the Sponsor. The Chief
Executive Officer of the Sponsor is responsible for the overall
strategic direction of the Sponsor and has general control of its
business. The Chief Investment Officer and President of the Sponsor
is primarily responsible for new investment product development
with respect to the Funds. The Chief Operating Officer has primary
responsibility for trade operations, trade execution, and portfolio
activities with respect to the Fund. The Chief Financial Officer,
Chief Accounting Officer and Chief Compliance Officer acts as the
Sponsor’s principal financial and accounting officer.
Furthermore, certain fundamental actions regarding the Sponsor,
such as the removal of officers, the addition or substitution of
members, or the incurrence of liabilities other than those incurred
in the ordinary course of business and de minimis liabilities, may not be
taken without the affirmative vote of a majority of the Class A
members (which is generally defined as the affirmative vote of Mr.
Gilbertie and one of the other two Class A members). The
Sponsor has no board of directors, and the Trust has no board of
directors or officers. The three Class A members of the Sponsor are
Sal Gilbertie, Dale Riker and Carl N. Miller III.
The
Officers of the Sponsor, one of whom is also a Class A Member of
the Sponsor, are the following:
Sal Gilbertie has been the President of the Sponsor since
its inception, its Chief Investment Officer since September 2011,
and its Chief Executive Officer and Secretary since September 17,
2018, and was approved by the NFA as a principal of the Sponsor on
September 23, 2009 and registered as an associated person of the
Sponsor on November 10, 2009. He maintains his main business
office at 65 Adams Road, Easton, Connecticut 06612. Effective
July 16, 2012, Mr. Gilbertie was registered with the NFA as the
Branch Manager for this location. Since October 18, 2010, Mr.
Gilbertie has been an associated person of the Distributor under
the terms of the Securities Activities and Services Agreement
(“SASA”) between the Sponsor and the Distributor.
Additional information regarding the SASA can be found in the
section of this disclosure document entitled “Plan of
Distribution.” From October 2005 until December 2009,
Mr. Gilbertie was employed by Newedge USA, LLC, an FCM and
broker-dealer registered with the CFTC and the SEC, where he headed
the Renewable Fuels/Energy Derivatives OTC Execution Desk and was
an active futures contract and over the counter derivatives trader
and market maker in multiple classes of commodities. (Between
January 2008 and October 2008, he also held a comparable position
with Newedge Financial, Inc., an FCM and an affiliate of Newedge
USA, LLC.) From October 1998 until October 2005, Mr.
Gilbertie was principal and co-founder of Cambial Asset Management,
LLC, an adviser to two private funds that focused on equity
options, and Cambial Financing Dynamics, a private boutique
investment bank. While at Cambial Asset Management, LLC and
Cambial Financing Dynamics, Mr. Gilbertie served as principal and
managed the day to day activities of the business and the portfolio
of both companies. Mr. Gilbertie is 59 years
old.
Cory Mullen-Rusin, has been the Chief Financial Officer,
Chief Accounting Officer and Chief Compliance Officer of the
Sponsor since September 17, 2018 and Ms. Mullen-Rusin has primary
responsibility for the financial management, compliance and
reporting of the Sponsor and is in charge of its books of account
and accounting records, and its accounting procedures. She
maintains her main business office at Three Main Street, Suite 215,
Burlington, Vermont 05401. Ms. Mullen-Rusin was approved by the NFA
as a Principal of the Sponsor on October 8, 2018. Ms. Mullen-Rusin
worked directly with the former CFO at Teucrium for seven years.
Her responsibilities included aspects of financial planning,
financial operations, and financial reporting for the Trust and the
Sponsor. Additionally, Ms. Mullen-Rusin assisted in developing,
instituting, and monitoring the effectiveness of processes and
procedures to comply with all regulatory agency requirements. Ms.
Mullen-Rusin graduated from Boston College with a Bachelor of Arts
and Science in Communications in 2009, where she was a four-year
scholarship player on the NCAA Division I Women’s Basketball
team. In 2017, she earned a Master of Business Administration
from Nichols College. Ms. Mullen-Rusin is 32 years
old.
Steve Kahler, Chief Operating Officer, began working for the
Sponsor in November 2011 as Managing Director in the trading
division. He became the Chief Operating Officer on May 24, 2012 and
served in that capacity through September 6, 2018, at which time he
resigned. Mr. Kahler was unemployed from September 7, 2018 until
October 10, 2018, when he was reappointed as Chief Operating
Officer. Mr. Kahler has primary responsibility for the Trade
Operations for the Funds. He maintains his main business
office at 13520 Excelsior Blvd., Minnetonka, MN 55345. Mr.
Kahler was registered as an Associated Person of the Sponsor on
November 25, 2011, approved as a Branch Manager of the Sponsor on
March 16, 2012 and approved by the NFA as a Principal of the
Sponsor on May 16, 2012. These NFA registrations were withdrawn on
September 7, 2018 and then he re-registered as an Associated Person
and Branch Office Manager of the Sponsor on October 5, 2018 and as
a Principal of the Sponsor on October 16, 2018. Since January 18,
2012, Mr. Kahler has been an associated person of the Distributor
under the terms of the SASA between the Sponsor and the
Distributor. Additional information regarding the SASA can be
found in the section of this disclosure document entitled
“Plan of Distribution.” Prior to his employment with
the Sponsor, Mr. Kahler worked for Cargill Inc., an international
producer and marketer of food, agricultural, financial and
industrial products and services, from April 2006 until November
2011 in the Energy Division as Senior Petroleum Trader. In October
2006 and while employed at Cargill Inc., Mr. Kahler was approved as
an Associated Person of Cargill Commodity Services Inc., a
commodity trading affiliate of Cargill Inc. from September 13, 2006
to November 9, 2011. Mr. Kahler graduated from the University of
Minnesota with a Bachelors of Agricultural Business Administration
and is 52 years old. Mr. Kahler is primarily responsible for making
trading and investment decisions for the Fund and other Teucrium
Funds, and for directing Fund and other Teucrium Fund trades for
execution.
Messrs. Gilbertie,
Riker, and Kahler and Ms. Mullen-Rusin are individual
“principals,” as that term is defined in CFTC Rule 3.1,
of the Sponsor. These individuals are principals due to their
positions and/or due to their ownership interests in the Sponsor.
Beneficial ownership interests of the principals, if any, are shown
under the section entitled “Security Ownership of Principal
Shareholders and Management” below and any of the principals
may acquire beneficial interests in the Fund in the future. GFI
Group Inc. is a principal for the Sponsor under CFTC Rules due to
its ownership of certain non-voting securities of the Sponsor.
NMSIC Classic LLC is a principal for the Sponsor under CFTC Rules
due to its greater than 10% financial capital contribution to the
Company.
Market Price of Shares
The
Fund’s Shares have traded on the NYSE Arca under the symbol
“WEAT” since September 19, 2011. The following table
sets forth the range of reported high and low sales prices of the
Shares as reported on NYSE Arca for the periods indicated
below.
Fiscal Year Ended December 31,
2019:
|
|
|
Quarter
Ended
|
|
|
March 31,
2019
|
$6.15
|
$5.03
|
June 30,
2019
|
$5.94
|
$4.88
|
September 30,
2019
|
$5.74
|
$4.90
|
December 31,
2019
|
$5.85
|
$5.24
|
Fiscal Year Ended December 31,
2018:
|
|
|
Quarter
Ended
|
|
|
March 31,
2018
|
$6.98
|
$5.88
|
June 30,
2018
|
$7.06
|
$6.15
|
September 30,
2018
|
$7.18
|
$6.07
|
December 31,
2018
|
$6.43
|
$5.93
|
As of
December 31, 2019, the Fund had approximately 4,160
Shareholders.
Prior Performance of the Fund
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS
The
Teucrium Wheat Fund commenced trading and investment operations on
September 19, 2011. The Teucrium Wheat Fund is listed on NYSE Arca
and is neither: (i) a privately offered pool pursuant to Section
4(a)(2) of the Securities Act of 1933, as amended. (ii) a
multi-advisor pool as defined in CFTC Regulation 4.10(d)(2). or
(iii) a principal protected pool as defined in CFTC Regulation
4.10(d)(3).
Units of beneficial interest issued (from inception until February
29, 2020)
|
21,350,000
|
Aggregate gross sale price for units issued
|
$ 182,865,496
|
NAV per Share as of February 29, 2020
|
$ 5.45
|
Pool NAV as of February 29, 2020
|
$ 48,246,791
|
Worst monthly percentage drawdown*
|
(18.10) % July
2015
|
Worst peak to valley drawdown**
|
(80.30) %
|
September 2011 – April 2019
|
* A
drawdown is a loss experienced by the fund over a specified period.
Drawdowns are measured on the basis of monthly returns only and do
not reflect intramonth figures. The worst monthly percentage
drawdown reflects the largest single month loss sustained over the
most recent five calendar years and the current year to
date.
** The
worst peak to valley drawdown is the largest percentage
decline in the NAV per unit over the most recent five calendar
years and the current year to date. This need not be a continuous
decline but can be a series of positive and negative returns. Worst
peak to valley drawdown represents the greatest percentage decline
from any month end NAV per unit that occurs without such
month end NAV per unit being equaled or exceeded as of a subsequent
month end. For example, if the NAV per unit declined by $1 in each
of January and February, increased by $1 in March and declined
again by $2 in April, a “peak to valley drawdown”
analysis conducted as of the end of April would consider that
“drawdown” to be continuing and to be $3 in amount,
whereas if the NAV per unit had increased by $2 in March, the
drawdown would have ended as of the end of February at the $2
level.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS
Rates of Return*
Month
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
January
|
(14.39)
|
%
|
1.09
|
%
|
2.90
|
%
|
5.68
|
%
|
1.51
|
%
|
(1.87)
|
%
|
February
|
0.92
|
%
|
(6.27)
|
%
|
2.26
|
%
|
5.85
|
%
|
(11.26)
|
%
|
(4.81)
|
%
|
March
|
(0.73)
|
%
|
3.92
|
%
|
(4.41)
|
%
|
(7.61)
|
%
|
(1.12)
|
%
|
|
%
|
April
|
(7.52)
|
%
|
1.55
|
%
|
(1.73)
|
%
|
8.40
|
%
|
(6.98)
|
%
|
|
%
|
May
|
(1.29)
|
%
|
(5.03)
|
%
|
(0.29)
|
%
|
2.53
|
%
|
14.00
|
%
|
|
%
|
June
|
22.59
|
%
|
(5.41)
|
%
|
15.46
|
%
|
(7.41)
|
%
|
2.31
|
%
|
|
%
|
July
|
(18.10)
|
%
|
(5.47)
|
%
|
(7.02)
|
%
|
8.95
|
%
|
(7.47)
|
%
|
|
%
|
August
|
(4.10)
|
%
|
(9.78)
|
%
|
(11.52)
|
%
|
(4.18)
|
%
|
(6.38)
|
%
|
|
%
|
September
|
5.11
|
%
|
2.57
|
%
|
1.86
|
%
|
(6.17)
|
%
|
6.57
|
%
|
|
%
|
October
|
0.50
|
%
|
2.09
|
%
|
(6.09)
|
%
|
(1.92)
|
%
|
2.21
|
%
|
|
%
|
November
|
(8.00)
|
%
|
(6.95)
|
%
|
(1.30)
|
%
|
(1.14)
|
%
|
4.23
|
%
|
|
%
|
December
|
(1.82)
|
%
|
0.88
|
%
|
(1.64)
|
%
|
(1.65)
|
%
|
3.12
|
%
|
|
%
|
Annual Rate of Return
|
(28.07)
|
%
|
(24.70)
|
%
|
(13.06)
|
%
|
(0.67)
|
%
|
(1.91)
|
%
|
(6.59)
|
%
|
** The
monthly rate of return is calculated by dividing the ending NAV for
a given month by the ending NAV for the previous month, subtracting
1 and multiplying this number by 100 to arrive at a percentage
increase or decrease.
** Not
annualized.
The
sole Trustee of the Trust is Wilmington Trust Company, a Delaware
banking corporation. The Trustee’s principal offices are
located at 1100 North Market Street, Wilmington, Delaware
198900001. The Trustee is unaffiliated with the Sponsor. The
Trustee’s duties and liabilities with respect to the offering
of Shares and the management of the Trust and the Fund are limited
to its express obligations under the Trust Agreement.
The
Trustee will accept service of legal process on the Trust in the
State of Delaware and will make certain filings under the Delaware
Statutory Trust Act. The Trustee does not owe any other duties to
the Trust, the Sponsor or the Shareholders. The Trustee is
permitted to resign upon at least sixty (60) days’ notice to
the Sponsor. If no successor trustee has been appointed by the
Sponsor within such sixty day period, the Trustee may, at the
expense of the Trust, petition a court to appoint a successor. The
Trust Agreement provides that the Trustee is entitled to reasonable
compensation for its services from the Sponsor or an affiliate of
the Sponsor (including the Trust), and is indemnified by the
Sponsor against any expenses it incurs relating to or arising out
of the formation, operation or termination of the Trust, or any
action or inaction of the Trustee under the Trust Agreement, except
to the extent that such expenses result from the gross negligence
or willful misconduct of the Trustee. The Sponsor has the
discretion to replace the Trustee.
The
Trustee has not signed the registration statement of which this
prospectus is a part and is not subject to issuer liability under
the federal securities laws for the information contained in this
prospectus and under federal securities laws with respect to the
issuance and sale of the Shares. Under such laws, neither the
Trustee, either in its capacity as Trustee or in its individual
capacity, nor any director, officer or controlling person of the
Trustee is, or has any liability as, the issuer or a director,
officer or controlling person of the issuer of the
Shares.
Under
the Trust Agreement, the Trustee has delegated to the Sponsor the
exclusive management and control of all aspects of the business of
the Trust and the Fund. The Trustee has no duty or liability to
supervise or monitor the performance of the Sponsor, nor does the
Trustee have any liability for the acts or omissions of the
Sponsor.
Because
the Trustee has delegated substantially all of its authority over
the operation of the Trust to the Sponsor, the Trustee itself is
not registered in any capacity with the CFTC.
The
investment objective of the Fund is to have the daily changes the
Shares’ NAV reflect the daily changes in the wheat market for
future delivery, as measured by the Fund’s Benchmark. The
Benchmark is a weighted average of the closing settlement prices
for the Benchmark Component Futures Contracts
WEAT Benchmark
CBOT Wheat Futures Contract
|
Weighting
|
Second
to expire
|
35%
|
Third
to expire
|
30%
|
December
following the third to expire
|
35%
|
The
Fund seeks to achieve its investment objective by investing under
normal market conditions in Benchmark Component Futures Contracts.
Under normal market conditions, the Fund expects that 100% of the
Fund’s assets will be used to trade Wheat Futures Contracts
and invest in cash and cash equivalents. The Fund reserves the
right to invest in swap agreements, forward contracts and options,
a brief description of which may be found in “Appendix A
– “Glossary of Defined Terms.”
The
Fund invests in Benchmark Component Futures Contracts to the
fullest extent possible without being leveraged or unable to
satisfy its current or potential margin or collateral obligations
with respect to its investments in Benchmark Component Futures
Contracts. After fulfilling such margin and collateral
requirements, the Fund invests the remainder of its proceeds from
the sale of baskets in cash and cash equivalents, including money
market funds and investment grade commercial paper, and/or merely
holds such assets in cash in interest-bearing accounts. The Fund
earns interest income from the cash equivalents that it purchases,
and on the cash, it holds at financial institutions.
The
Fund seeks to achieve its investment objective primarily by
investing in Benchmark Component Futures Contracts such that the
changes in its NAV are expected to closely track the changes in the
Benchmark. The Fund’s positions in Benchmark Component
Futures Contracts are changed or “rolled” on a regular
basis in order to track the changing nature of the Benchmark. For
example, five times a year (on the date on which a Wheat Futures
Contract expires), the second to expire Wheat Futures Contract will
become the next to expire Wheat Futures Contract and will no longer
be a Benchmark Component Futures Contract, and the Fund’s
investments will have to be changed accordingly. In order that the
Fund’s trading does not cause unwanted market movements and
to make it more difficult for third parties to profit by trading
based on such expected market movements, the Fund’s
investments may not be rolled entirely on that day, but rather may
be rolled over a period of days.
The
Fund’s total portfolio composition is disclosed each business
day that the NYSE Arca is open for trading on the Fund’s
website at www.teucrium.com. The website disclosure of portfolio
holdings is made daily and includes, as applicable, the name and
value of each commodity futures contract held and those that are
pending, and the value of cash and cash equivalents held in the
Fund. The Fund’s website also includes the NAV, the 4 p.m.
Bid/Ask Midpoint as reported by the NYSE Arca, the last trade price
as reported by the NYSE Arca, the shares outstanding, the shares
available for issuance, and the shares created or redeemed on that
day. The prospectus, Monthly Statements of Account, Quarterly
Performance of the Midpoint versus the NAV (as required by the
CFTC), and the Roll Dates, as well as Forms 10-Q, Forms 10-K, and
other SEC filings for the Fund, are also posted on the website. The
Fund’s website is publicly accessible at no
charge.
In
seeking to achieve the Fund’s investment objective of
tracking the Benchmark, the Sponsor reserves the right to enter
into or hold Wheat Futures Contracts other than the Benchmark
Component Futures Contracts and/or other wheat interests on behalf
of the Fund. Over the counter wheat interests can generally be
structured as the parties to the contract desire. Therefore, the
Fund might enter into multiple over the counter wheat interests
intended to exactly replicate the performance of each of the three
Benchmark Component Futures Contracts, or a single over the counter
wheat interest designed to replicate the performance of the
Benchmark as a whole. Assuming that there is no default by a
counterparty to an over the counter wheat interest, the performance
of the wheat interest will necessarily correlate exactly with the
performance of the Benchmark or the applicable Benchmark Component
Futures Contract. The Fund might also enter into or hold wheat
interests other than the Benchmark Component Futures Contracts to
facilitate effective trading, consistent with the discussion of the
Fund’s “roll” strategy discussed in the preceding
paragraph. In addition, the Fund might enter into or hold wheat
interests that would be expected to alleviate overall deviation
between the Fund’s performance and that of the Benchmark that
may result from certain market and trading inefficiencies or other
reasons.
The
Sponsor endeavors to place the Fund’s trades in Benchmark
Component Futures Contracts and otherwise manage the Fund’s
investments so that the Fund’s average daily tracking error
against the Benchmark is less than 10 percent over any period of 30
trading days.
The
Fund’s investment objective is to provide investors with a
cost-efficient way to gain exposure to the wheat market for future
delivery. The Sponsor developed the Benchmark as a representation
of the wheat market for future delivery. Under normal market
conditions, the Fund will invest in the Benchmark Component Futures
Contracts. The Sponsor believes that by investing in Benchmark
Component Futures Contracts, the Fund’s net asset value
(“NAV”) will closely track the Benchmark. The Sponsor
also believes that because of market arbitrage opportunities, the
market price at which investors will purchase and sell Shares
through their broker-dealer will closely track the Fund’s
NAV. The Sponsor believes that the net effect of these
relationships is that the Fund’s market price on the NYSE
Arca at which investors purchase and sell Shares will closely track
the wheat market for future delivery, as measured by the
Benchmark.
An
investment in the Shares provides a means for diversifying an
investor’s portfolio or hedging exposure to changes in wheat
prices. An investment in the Shares allows both retail and
institutional investors to easily gain this exposure to the wheat
market in a transparent, cost-effective manner.
The
Sponsor employs a “neutral” investment strategy
intended to track changes in the Benchmark regardless of whether
the Benchmark goes up or goes down. The Fund’s
“neutral” investment strategy is designed to permit
investors generally to purchase and sell the Fund’s Shares
for the purpose of investing indirectly in the wheat market in a
cost-effective manner. Such investors may include participants in
the wheat industry and other industries seeking to hedge the risk
of losses in their wheat related transactions, as well as investors
seeking exposure to the wheat market. Accordingly, depending on the
investment objective of an individual investor, the risks generally
associated with investing in the wheat market and/or the risks
involved in hedging may exist. In addition, the Fund does not
expect there to be any meaningful correlation between the
performance of the Fund’s investments in cash and cash
equivalents and the changes in the price of wheat or Benchmark
Component Futures Contracts. While the level of interest earned on,
or the market price of, these investments may in some respects
correlate to changes in the price of wheat, this correlation is not
anticipated as part of the Fund’s efforts to meet its
objective. This and certain risk factors discussed in this
prospectus may cause a lack of correlation between changes in the
Fund’s NAV and changes in the price of wheat.
The
Shares issued by the Fund may only be purchased by Authorized
Purchasers and only in blocks of 25,000 Shares called Creation
Baskets. The amount of the purchase payment for a Creation Basket
is equal to the aggregate NAV of Shares in the Creation Basket.
Similarly, only Authorized Purchasers may redeem Shares and only in
blocks of 25,000 Shares called Redemption Baskets. The amount of
the redemption proceeds for a Redemption Basket is equal to the
aggregate NAV of Shares in the Redemption Basket. The purchase
price for Creation Baskets and the redemption price for Redemption
Baskets are the actual NAV calculated at the end of the business
day when a request for a purchase or redemption is received by the
Fund. The NYSE Arca publishes an approximate NAV intra-day based on
the prior day’s NAV and the current price of the Benchmark
Component Futures Contracts, but the price of Creation Baskets and
Redemption Baskets is determined based on the actual NAV calculated
at the end of each trading day.
While
the Fund issues Shares only in Creation Baskets, Shares may also be
purchased and sold in much smaller increments on the NYSE Arca.
These transactions, however, are effected at the bid and ask prices
established by the specialist firm(s). Like any listed security,
Shares can be purchased and sold at any time a secondary market is
open.
The Fund’s Investment Strategy
In
managing the Fund’s assets, the Sponsor does not use a
technical trading system that automatically issues buy and sell
orders. Instead, each time one or more baskets are purchased or
redeemed, the Sponsor purchases or sells Benchmark Component
Futures Contracts with an aggregate market value that approximates
the amount of cash received or paid upon the purchase or redemption
of the basket(s).
As an
example, assume that a Creation Basket is sold by the Fund, and
that the Fund’s closing NAV per Share is $15.00. In that
case, the Fund would receive $375,000 in proceeds from the sale of
the Creation Basket ($15.00 NAV per Share multiplied by 25,000
Shares and ignoring the Creation Basket fee of $250). If one were
to assume further that the Sponsor wants to invest the entire
proceeds from the Creation Basket in the Benchmark Component
Futures Contracts and that the market value of each such Benchmark
Component Futures Contracts is $32,500 (or otherwise not a round
number), the Fund would be unable to buy an exact number of Wheat
Futures Contracts with an aggregate market value equal to $375,000.
Instead, the Fund would be able to purchase 11 Benchmark Component
Futures Contracts with an aggregate market value of $357,500.
Assuming a margin requirement equal to 10% of the value of the
Wheat Futures Contracts (although the actual percentage is
approximately 5%), the Fund would be required to deposit $35,750 in
cash with the FCM through which the Wheat Futures Contracts were
purchased. The remainder of the proceeds from the sale of the
Creation Basket, $339,250, would remain invested in cash, and/or
cash equivalents as determined by the Sponsor from time to time
based on factors such as potential calls for margin or anticipated
redemptions.
The
specific Wheat Futures Contract purchased depend on various
factors, including a judgment by the Sponsor as to the appropriate
diversification of the Fund’s investments. While the Sponsor
anticipates that under normal market conditions, a substantial
majority of the Fund’s assets will be invested in CBOT Wheat
Futures Contracts and cash and cash equivalents, the Sponsor
reserves the right to enter into other wheat interests on behalf of
the Fund, including swaps in the over the counter
market.
The
Sponsor does not anticipate letting its Benchmark Component Futures
Contracts expire and taking delivery of wheat. Instead, the Sponsor
will close out existing positions, e.g., in response to ongoing
changes in the Benchmark or if it otherwise determines it would be
appropriate to do so and reinvest the proceeds in new Benchmark
Component Futures Contracts. Positions may also be closed out to
meet orders for Redemption Baskets, in which case the proceeds from
closing the positions will not be reinvested.
Futures
contracts are agreements between two parties that are executed on a
designated contract market (“DCM”), i.e., a commodity
futures exchange, and that are cleared and margined through a
derivatives clearing organization (“DCO”), i.e., a
clearing house. One party agrees to buy a commodity such as wheat
from the other party at a later date at a price and quantity agreed
upon when the contract is made. In market terminology, a party who
purchases a futures contract is long in the market and a party who
sells a futures contract is short in the market. The contractual
obligations of a buyer or seller may generally be satisfied by
taking or making physical delivery of the underlying commodity or
by making an offsetting sale or purchase of an identical futures
contract on the same or linked exchange before the designated date
of delivery. The difference between the price at which the futures
contract is purchased or sold and the price paid for the offsetting
sale or purchase, after allowance for brokerage commissions,
constitutes the profit or loss to the trader.
If the
price of the commodity increases after the original futures
contract is entered into, the buyer of the futures contract will
generally be able to sell a futures contract to close out its
original long position at a price higher than that at which the
original contract was purchased, generally resulting in a profit to
the buyer. Conversely, the seller of a futures contract will
generally profit if the price of the underlying commodity
decreases, as it will generally be able to buy a futures contract
to close out its original short position at a price lower than that
at which the original contract was sold. Because the Fund seeks to
track the Benchmark directly and profit when the price of wheat
increases and, as a likely result of an increase in the price of
wheat, the price of Wheat Futures Contracts increases, the Fund
will generally be long in the market for wheat and will generally
sell Wheat Futures Contracts only to close out existing long
positions.
Futures
contracts are typically traded on futures exchanges (i.e. DCMs),
such as the CBOT, which provide centralized market facilities in
which multiple persons may trade contracts. Members of a particular
futures exchange and the trades executed on such exchange are
subject to the rules of that exchange. Futures exchanges and their
related clearing organizations (i.e., DCOs) are given reasonable
latitude in promulgating rules and regulations to control and
regulate their members.
Trades
on a futures exchange are generally cleared by the DCO, which
provides services designed to mutualize or transfer the credit risk
arising from the trading of contracts on an exchange. The clearing
organization effectively becomes the other party to the trade, and
each clearing member party to the trade looks only to the clearing
organization for performance.
Wheat
Futures Contracts are traded on the CBOT (which is part of the CME
Group) in units of 5,000 bushels. Generally, futures contracts
traded on the CBOT are priced by floor brokers and other exchange
members through an electronic, screen-based system that
electronically determines the price by matching offers to purchase
and sell. Futures contracts may also be based on commodity indices,
in that they call for a cash payment based on the change in the
value of the specified index during a specified period. No futures
contracts based on an index of wheat prices are currently
available, although the Fund could enter into such contracts should
they become available in the future.
Certain
typical and significant characteristics of Wheat Futures Contracts
are discussed below. Additional risks of investing in Wheat Futures
Contracts are included in “What are the Risk Factors Involved
with an Investment in the Fund?”
Impact of Position Limits, Accountability Levels, and Price
Fluctuation Limits.
Position Limits,
Accountability Levels, and Price Fluctuation Limits may potentially
cause a tracking error between the price of the Shares and the
Benchmark. This may in turn prevent you from being able to
effectively use the Fund as a way to hedge against wheat related
losses or as a way to indirectly invest in wheat.
The
Fund does not intend to limit the size of the offering and will
attempt to expose substantially all of its proceeds to Benchmark
Component Futures Contracts. If the Fund encounters position
limits, accountability levels, or price fluctuation limits for
Wheat Futures Contracts on the CBOT, it may then, if permitted
under applicable regulatory requirements, purchase other wheat
interests and/or Wheat Futures Contracts listed on foreign
exchanges. However, the Wheat Futures Contracts available on such
foreign exchanges may have different underlying sizes, deliveries,
and prices. In addition, the Wheat Futures Contracts available on
these exchanges may be subject to their own position limits and
accountability levels. In any case, notwithstanding the potential
availability of these instruments in certain circumstances,
position limits could force the Fund to limit the number of
Creation Baskets that it sells.
Price Volatility
Despite
daily price limits, the price volatility of futures contracts
generally has been historically greater than that for traditional
securities such as stocks and bonds. Price volatility often is
greater day to day as opposed to intraday. Economic factors
that may cause volatility in Wheat Futures Contracts include
changes in interest rates. governmental, agricultural, trade,
fiscal, monetary and exchange control programs and policies;
weather and climate conditions; changing supply and demand
relationships; changes in balances of payments and trade; U.S. and
international rates of inflation; currency devaluations and
revaluations; U.S. and international political and economic events;
global trade disruption due to outbreaks or public health emergency
as declared by the World Health Organization; and changes in
philosophies and emotions of market participants. Because the Fund
invests a significant portion of its assets in futures contracts,
the assets of the Fund, and therefore the price of the Fund’s
Shares, may be subject to greater volatility than traditional
securities.
Term Structure of Futures Contracts and the Impact on Total
Return
Over
time, the price of wheat fluctuates based on a number of market
factors, including demand for wheat relative to its supply. The
value of Wheat Futures Contracts likewise fluctuates in reaction to
a number of market factors. Because the Fund seeks to maintain its
holdings in Wheat Futures Contracts with a roughly constant
expiration profile and not take delivery of the wheat, the Fund
must periodically “roll” futures contract positions,
closing out soon to expire contracts that are no longer part of the
Benchmark and entering into subsequent to expire contracts. One
factor determining the total return from investing in futures
contracts is the price relationship between soon to expire
contracts and later to expire contracts.
If the
futures market is in a state of backwardation (i.e., when the price
of wheat in the future is expected to be less than the current
price), the Fund will buy later to expire contracts for a lower
price than the sooner to expire contracts that it sells.
Hypothetically, and assuming no changes to either prevailing wheat
prices or the price relationship between immediate delivery, soon
to expire contracts and later to expire contracts, the value of a
contract will rise as it approaches expiration. Over time, if
backwardation remained constant, the differences would continue to
increase. If the futures market is in contango, the Fund will buy
later to expire contracts for a higher price than the sooner to
expire contracts that it sells. Hypothetically, and assuming no
other changes to either prevailing corn prices or the price
relationship between the spot price, soon to expire contracts and
later to expire contracts, the value of a contract will fall as it
approaches expiration. Over time, if contango remained constant,
the difference would continue to increase. Historically, the wheat
futures markets have experienced periods of both contango and
backwardation. Frequently, whether contango or backwardation exists
is a function, among other factors, of the seasonality of the wheat
market and the wheat harvest cycle. All other things being equal, a
situation involving prolonged periods of contango may adversely
impact the returns of the Fund; conversely a situation involving
prolonged periods of backwardation may positively impact the
returns of the Fund.
Margin Requirements and Marking to Market Futures
Positions
“Initial
margin” is an amount of funds that must be deposited by a
commodity interest trader with the trader’s broker to
initiate an open position in futures contracts. A margin deposit is
like a cash performance bond. It helps assure the trader’s
performance of the futures contracts that he or she purchases or
sells. Futures contracts are customarily bought and sold on initial
margin that represents a small percentage of the aggregate purchase
or sales price of the contract. The amount of margin required in
connection with a particular futures contract is set by the
exchange on which the contract is traded. Brokerage firms, such as
the Fund’s clearing broker, carrying accounts for traders in
commodity interest contracts may require higher amounts of margin
as a matter of policy to further protect themselves.
Futures
contracts are marked to market at the end of each trading day and
the margin required with respect to such contracts is adjusted
accordingly. This process of marking to market is
designed to prevent losses from accumulating in any futures
account. Therefore, if the Fund’s futures positions have
declined in value, the Fund may be required to post
“variation margin” to cover this decline.
Alternatively, if the Fund’s futures positions have increased
in value, this increase will be credited to the Fund’s
account.
Over
the counter Derivatives
Under
normal market conditions, the Fund expects that 100% of the
Fund’s assets will be used to trade futures and invest in
cash and cash equivalents; however, the Fund has the ability to
trade over the counter contracts and swaps. A description of such
over the counter derivatives is included the statement of
additional information that is part of this prospectus under the
heading “Over the counter Derivatives.”
The Fund’s Investments
in Cash and Cash Equivalents
The
Fund seeks to have the aggregate “notional” amount of
the Benchmark Component Futures Contracts it holds approximate at
all times the Fund’s aggregate NAV. At any given time,
however, most of the Fund’s investments are in cash and cash
equivalents that support the Fund’s positions in Benchmark
Component Futures Contracts. For example, the purchase of a Wheat
Futures Contract with a stated or notional amount of $10 million
would not require the Fund to pay $10 million upon entering into
the contract; rather, only a margin deposit, approximately 4-6% of
the notional amount, would be required. To secure its Wheat Futures
Contract obligations, the Fund would deposit the required margin
with the FCM and would separately hold its remaining assets through
its Custodian or other financial institution in cash and cash
equivalents, specifically in demand deposits, in short-term
Treasury Securities held by the FCM, in money-market funds or in
commercial paper. Such remaining assets may be used to meet future
margin payments that the Fund is required to make on its Wheat
Futures Contracts. Other wheat interests typically also involve
collateral requirements that represent a small fraction of their
notional amounts, so most of the Fund’s assets dedicated to
these wheat interests are also held in cash and cash
equivalents.
The
Fund earns interest and other income from the cash equivalents that
it purchases, and on the cash, it holds through the Custodian or
other financial institutions. The earned interest and other income
increase the Fund’s NAV. The Fund applies the earned interest
and other income to the acquisition of additional investments or
uses it to pay its expenses. When the Fund reinvests the earned
interest and other income, it makes investments that are consistent
with its investment objectives.
Any
cash equivalent invested in by the Fund will have a remaining
maturity of less than 3 months at the time of investment or will be
subject to a demand feature that enables that Fund to sell the
security within that time period at approximately the
security’s face value (plus accrued interest). Any cash
equivalents invested in by the Fund will be or will be deemed by
the Sponsor to be of investment-credit quality.
Other Trading Policies of the
Fund
Exchange for Related Position
An
“exchange for related position” (“EFRP”)
can be used by the Fund as a technique to facilitate the exchanging
of a futures hedge position against a creation or redemption order,
and thus the Fund may use an EFRP transaction in connection with
the creation and redemption of shares. The market specialist/market
maker that is the ultimate purchaser or seller of shares in
connection with the creation or redemption basket, respectively,
agrees to sell or purchase a corresponding offsetting shares or
futures position which is then settled on the same business day as
a cleared futures transaction by the FCMs. The Fund will become
subject to the credit risk of the market specialist/market maker
until the EFRP is settled within the business day, which is
typically 7 hours or less. The Fund reports all activity related to
EFRP transactions under the procedures and guidelines of the CFTC
and the exchanges on which the futures are traded.
EFRPs
are subject to specific rules of the CME and CFTC guidance. It is
likely that EFRP mechanisms will significantly change in the future
which may make it uneconomical or impossible from a regulatory
perspective for the Fund to utilize these mechanisms.
Options on Futures Contracts
An
option on a futures contract gives the buyer of the option the
right, but not the obligation, to buy or sell a futures contract at
a specified price on or before a specified date. The option buyer
deposits the purchase price or “premium” for the option
with his broker, and the money goes to the option seller.
Regardless of how much the market swings, the most an option buyer
can lose is the option premium and the commissions and fees
associated with the transaction. However, the buyer will typically
lose the premium if the exercise price of the option is above (in
the case of an option to buy or “call” option) or below
(in the case of an option to sell or “put” option) the
market value at the time of exercise. Option sellers, on the other
hand, face risks similar to participants in the futures markets.
For example, since the seller of a call option is assigned a short
futures position if the option is exercised, his risk is the same
as someone who initially sold a futures contract. Because no one
can predict exactly how the market will move, the option seller
posts margin to demonstrate his ability to meet any potential
contractual obligations.
In
addition to Wheat Futures Contracts, there are also a number of
options on Wheat Futures Contracts listed on the CBOT. These
contracts offer investors and hedgers another set of financial
vehicles to use in managing exposure to the commodities market. The
Fund may purchase and sell (write) options on Wheat Futures
Contracts in pursuing its investment objective, except that it will
not sell call options when it does not own the underlying Wheat
Futures Contract. The Fund would make use of options on Wheat
Futures Contracts if, in the opinion of the Sponsor, such an
approach would cause the Fund to more closely track its Benchmark
or if it would lead to an overall lower cost of trading to achieve
a given level of economic exposure to movements in wheat
prices.
Liquidity
The
Fund invests only in Wheat Futures Contracts that, in the opinion
of the Sponsor, are traded in sufficient volume to permit the ready
taking and liquidation of positions in these financial interests
and in over the counter commodity interests that, in the opinion of
the Sponsor, may be readily liquidated with the original
counterparty or through a third party assuming the Fund’s
position.
Spot Commodities
While
most futures contracts can be physically settled, the Fund does not
intend to take or make physical delivery. However, the Fund may
from time to time trade in other wheat interests based on the spot
price of wheat.
Leverage
The
Sponsor endeavors to have the value of the Fund’s cash and
cash equivalents, whether held by the Fund or posted as margin or
collateral, at all times approximate the aggregate market value of
its obligations under the Fund’s Benchmark Component Futures
Contracts. Commodity pools’ trading positions in futures
contracts are typically required to be secured by the deposit of
margin funds that represent only a small percentage of a futures
contract’s (or other commodity interest’s) entire
market value.
Borrowings
The
Fund does not intend to nor foresee the need to borrow money or
establish credit lines. The Fund maintains cash and cash
equivalents, either held by the Fund or posted as margin or
collateral, with a value that at all times approximates the
aggregate market value of its obligations under Benchmark Component
Futures Contracts. The Fund meets its liquidity needs in the normal
course of business from the proceeds of the sale of its investments
or from the cash and cash equivalents that it intends to hold at
all times.
The
chart below shows the percent change in the NAV per share for the
Fund, the market price of the Fund shares, represented by the
closing price of the Fund on the NYSE Arca, and TCORN for five
specific periods. The Benchmark does not reflect any impact of
expenses, which would generally reduce the Fund’s NAV, or
interest income, which would generally increase the NAV. The actual
results for the NAV include the impacts of both expenses and
interest income.
Teucrium
Wheat ETF Performance as of
12/31/2019
|
|
|
|
|
|
NAV
|
9.86%
|
-1.84%
|
-5.38%
|
-14.43%
|
-16.09%
|
Price
|
10.38%
|
-1.35%
|
-5.26%
|
-14.41%
|
-16.07%
|
Benchmark
(TWEAT)
|
10.18%
|
-0.82%
|
-3.72%
|
-12.26%
|
-12.59%
|
Wheat
is used to produce flour, the key ingredient for breads, pasta,
crackers and many other food products, as well as several
industrial products such as starches and adhesives. Wheat
by-products are used in livestock feeds. The United States
Department of Agriculture (“USDA”) publishes weekly,
monthly, quarterly and annual updates for U.S. domestic and
worldwide wheat production and consumption, and for other grains
such as soybeans and corn. These reports are available on the
USDA’s website, www.usda.gov, at no charge. For more
information about the Wheat Market, please see the statement of
additional information that is part of this prospectus under the
heading “The Wheat Market.”
The Fund’s Service
Providers
Contractual Arrangements with the Sponsor and Third-party Service
Providers
Sponsor
The
Sponsor is responsible for investing the assets of the Fund in
accordance with the objectives and policies of the Fund. In
addition, the Sponsor arranges for one or more third parties to
provide administrative, custodial, accounting, transfer agency and
other necessary services to the Fund. For these third-party
services, the Fund pays the fees set forth in the table below
entitled “Contractual Fees and Compensation Arrangements with
the Sponsor and Third-Party Service Providers.” For the
Sponsor’s services, the Fund is contractually obligated to
pay a monthly management fee to the Sponsor, based on average daily
net assets, at a rate equal to 1.00% per annum. The Sponsor can
elect to waive the payment of this fee in any amount at its sole
discretion, at any time and from time to time, in order to reduce
the Fund’s expenses or for any other purpose.
Custodian, Registrar, Transfer Agent, Fund Accountant, and Fund
Administrator
In its
capacity as the Fund’s custodian, the Custodian, currently
U.S. Bank, N.A., holds the Fund’s securities, cash and/or
cash equivalents pursuant to a custodial agreement. U.S. Bancorp
Fund Services, LLC, doing business as U.S. Bank Global Fund
Services (“Global Fund Services”), an entity affiliated
with U.S. Bank, N.A., is the registrar and transfer agent for the
Fund’s Shares. In addition, Global Fund Services also serves
as Administrator for the Fund, performing certain administrative
and accounting services and preparing certain SEC and CFTC reports
on behalf of the Fund. The Custodian is located at 1555 North
Rivercenter Drive, Suite 302, Milwaukee, Wisconsin 53212. U.S. Bank
N.A. is a nationally chartered bank, regulated by the Office of the
Comptroller of the Currency, Department of the Treasury, and is
subject to regulation by the Board of Governors of the Federal
Reserve System. The principal address for Global Fund Services is
615 East Michigan Street, Milwaukee, WI, 53202.
Distributor
The
Fund employs Foreside Fund Services, LLC as the Distributor for the
Fund. Pursuant to a Consulting Services Agreement, Foreside
Consulting Services, LLC, performs certain consulting support
services for the Trust’s Sponsor, Teucrium Trading, LLC.
Additionally, Foreside Distributors, LLC performs certain
distribution consulting services pursuant to a Distribution
Consulting Agreement with the Trust’s Sponsor, Teucrium
Trading, LLC.
The
Distribution Services Agreement among the Distributor, the Sponsor,
and the Trust calls for the Distributor to work with the Custodian
in connection with the receipt and processing of orders for
Creation Baskets and Redemption Baskets and the review and approval
of all Fund sales literature and advertising materials. The
Distributor and the Sponsor have also entered into a Securities
Activities and Service Agreement (the “SASA”) under
which certain employees and officers of the Sponsor are licensed as
registered representatives or registered principals of the
Distributor, under the FINRA rules (“Registered
Representatives”). As Registered Representatives of the
Distributor, these persons are permitted to engage in certain
marketing activities for the Fund that they would otherwise not be
permitted to engage in. Under the SASA, the Sponsor is obligated to
ensure that such marketing activities comply with applicable law
and are permitted by the SASA and the Distributor’s internal
procedures.
The
Distributor’s principal business address is Three Canal
Plaza, Suite 100, Portland, Maine 04101. The Distributor is a
broker-dealer registered with the U.S. Securities and Exchange
Commission (“SEC”) and a member of FINRA.
Clearing Broker
ED&F Man
Capital Markets, Inc. (“ED&F Man”) serves as the
Fund’s clearing broker to execute and clear the Fund’s
futures and provide other brokerage related services. ED&F Man
is registered as an FCM with the CFTC, is a member of the National
Futures Association (“NFA”) and is a clearing member of
all major U.S. futures exchanges. The Firm’s Designated
Self-Regulatory Organization is the Chicago Mercantile Exchange
Inc. (www.cmegroup.com).
The Firm is also registered as a broker-dealer (“BD”)
with the U.S. Securities and Exchange Commission
(“SEC”) and is a member of the Financial Industry
Regulatory Authority, Inc. (“FINRA”).
There
has been no material civil, administrative, or criminal proceedings
pending, on appeal, or concluded against ED&F Man Capital
Markets Inc. or its principals in the past five (5) years. For a
list of concluded actions, please go to http://www.nfa.futures.org/basicnet/welcome.aspx.
This link will take you to the Welcome Page of the NFA’s
Background Affiliation Status Information Center
(“BASIC”). At this page, there is a box where you can
enter the NFA ID of ED&F Man Capital Markets Inc. (0002613) and
then click “Go”. You will be transferred to the
NFA’s information specific to ED&F Man Capital Markets
Inc. Under the heading “Regulatory Actions”, click
“details” and you will be directed to the full list of
regulatory actions brought by the CFTC and exchanges.
ED&F Man, in
its capacity as a registered FCM, will serve as the Fund's clearing
broker and, as such, will arrange for the execution and clearing of
the Fund's futures and options on futures transactions. ED&F
Man acts as clearing broker for many other funds and
individuals.
The
investor should be advised that ED&F Man is not affiliated with
and does not act as a supervisor of the Fund or the Fund's Sponsor,
investment managers, members, officers, administrators, transfer
agents, registrars or organizers. Additionally, ED&F Man is not
acting as an underwriter or sponsor of the offering of any shares
or interests in the Fund and has not passed upon the adequacy of
this prospectus, the merits of participating in this offering or on
the accuracy of the information contained herein.
Additionally,
ED&F Man does not provide any commodity trading advice
regarding the Fund's trading activities. Investors should not rely
upon ED&F Man in deciding whether to invest in the Fund or
retain their interests in the Fund. Investors should also note that
the Fund may select additional clearing brokers or replace ED&F
Man as the Fund's clearing broker.
Marketing Agent
Currently, Thales
Capital Partners LLC (TCP) serves as the Fund’s Marketing
Agent. TCP is registered as a Broker-Dealer with the SEC and a
member of Financial Industry Regulatory Authority (FINRA) and SIPC.
The Fund pays the Marketing Agent an annual fee for distribution
and solicitation-related services. Additionally, the Marketing
Agent will receive an additional 0.0015% of the Fund’s average daily net assets in
referred accounts. This additional fee is determined by an
agreed upon level of assets at the time of signing the
contract.
Commodity Trading Advisor
Currently, the
Sponsor does not employ commodity trading advisors. If, in the
future, the Sponsor does employ commodity trading advisors, it will
choose each advisor based on arm’s length negotiations and
will consider the advisor’s experience, fees, and
reputation.
Contractual Fees and Compensation Arrangements with the Sponsor and
Third Party Service Providers
Service Provider
|
Compensation Paid by the Fund
|
Teucrium
Trading, LLC, Sponsor
|
1.00%
of average net assets annually
|
U.S.
Bank N.A., Custodian
U.S.
Bancorp Fund Services, LLC,
doing
business as U.S. Bank Global Fund Services, Transfer Agent, Fund
Accountant and Fund Administrator
|
For
custody services: 0.0075% of average gross assets up to $1 billion,
and .0050% of average gross assets over $1 billion, annually, plus
certain per-transaction charges
For
Transfer Agency, Fund Accounting and Fund Administration services,
based on the total assets for all the Teucrium Funds in the Trust:
0.06% of average gross assets on the first $250 million, 0.05% on
the next $250 million, 0.04% on the next $500 million and 0.03% on
the balance over $1 billion annually
A
combined minimum annual fee of $64,500 for custody, transfer
agency, accounting and administrative services is assessed per
Fund.
|
Foreside
Fund Services, LLC, Distributor
|
The
Distributor receives a fee of 0.01% of the Fund’s average
daily net assets and an aggregate annual fee of $100,000 for all
Teucrium Funds, along with certain expense reimbursements. Expense
reimbursements consist of issuer costs for sales and advertising
review fees and will not exceed $6,000 for the two-year period of
April 29, 2020 to April 29, 2022 (the “two year offering
period”). The fees which will be paid to the Distributor by
the Fund for distribution services will not exceed $132,000 for the
two-year offering period.
Under
the Securities Activities and Service Agreement (the
“SASA”), the Distributor receives compensation from the
fund for its activities on behalf of all the Teucrium Funds. The
fees paid to the Distributor pursuant to the SASA for this offering
will not exceed $12,000 for the two-year offering period. In
addition, the Distributor receives certain expense reimbursements
relating to the registration, continuing education and other
administrative expenses of the Registered Representatives in
relation to the Teucrium Funds. The expense reimbursements for this
offering will not exceed $9,500 for the two-year offering
period.
In sum,
the total fees the Distributor will receive over the two-year
offering period for all of its services will not exceed $145,000.
The total expenses that will be reimbursed to the Distributor over
the two-year offering period for all of its services will not
exceed $15,500, $6,000 of which are issuer costs for sales and
advertising materials.
|
Thales
Capital Partners LLC,
Marketing
Agent
|
The
marketing agent shall receive an annual fee of $90,000.
Additionally, the marketing agent will receive an additional
0.0015% of the Fund’s average
daily net assets in referred accounts. This additional fee
is determined by an agreed upon level of assets at the time
of signing the contract.
|
ED&F
Man Capital Markets, Inc., Futures Commission Merchant and Clearing
Broker
|
$4.50
per Corn Futures Contract half-turn
|
Wilmington
Trust Company, Trustee
|
$3,300
annually for the Trust
|
Employees
of the Sponsor Registered with the Distributor (the
“Registered Representatives”)
|
For
non-marketing services to the Fund, $168,000 and, for marketing and
wholesaling purposes, $265,000. These amounts include expenses that
will be reimbursed to the Registered Representatives for travel and
other expenses related to their activities for the Fund. Of the
total amount, approximately $38,000 will be paid by the Sponsor,
the rest by the Fund. Registered Representatives will also receive
continuing education valued at a maximum of $1,500 for the two-year
offering period.
|
Other Non-Contractual Payments by the Fund
The
Fund pays for all brokerage fees, taxes and other expenses,
including licensing fees for the use of intellectual property,
registration or other fees paid to the SEC, FINRA, or any other
regulatory agency in connection with the offer and sale of
subsequent Shares after its initial registration and all legal,
accounting, printing and other expenses associated therewith. The
Fund also pays its portion of the fees and expenses for services
directly attributable to the Fund such as accounting, financial
reporting, regulatory compliance and trading activities, which the
Sponsor elected not to outsource. Certain aggregate expenses common
to all Teucrium Funds within the Trust are allocated by the Sponsor
to the respective funds based on activity drivers deemed most
appropriate by the Sponsor for such expenses, including but not
limited to relative assets under management and creation order
activity. These aggregate common expenses include, but are not
limited to, legal, auditing, accounting and financial reporting,
tax-preparation, regulatory compliance, trading activities, and
insurance costs, as well as fees paid to the Distributor. A portion
of these aggregate common expenses are related to the Sponsor or
related parties of principals of the Sponsor; these are necessary
services to the Teucrium Funds, which are primarily the cost of
performing certain accounting and financial reporting, regulatory
compliance, and trading activities that are directly attributable
to the Fund and are included, primarily, in distribution and
marketing fees.
|
Year Ended
December 31, 2019
|
Year Ended
December 31, 2018
|
Year Ended
December 31, 2017
|
Recognized Related Party Transactions
|
$ 557,131
|
$ 966,288
|
$ 893,340
|
Waived Related Party Transactions
|
$ 2,500
|
$ 99,345
|
$ 125,219
|
The
Sponsor can elect to pay (or waive reimbursement for) certain fees
or expenses that would generally be paid for by the Fund, although
it has no contractual obligation to do so. Any election to pay or
waive reimbursement for fees that would generally be paid by the
Fund, can be changed at the discretion of the Sponsor. All
asset-based fees and expenses are calculated on the prior day's net
assets
The
contractual and noncontractual fees and expenses paid by the
Fund as described above (exclusive of the Sponsor’s
management fee and estimated brokerage fees) are as follows, net of
any expenses waived by the Sponsor. These are also the “Other
Fund Fees and Expenses” included in the section entitled
“Breakeven Analysis” in this prospectus on page
8.
Professional Fees (1)
|
$[•]
|
Distribution and
Marketing Fees (2)
|
[•]
|
Custodian Fees and
Expenses (3)
|
[•]
|
General and
Administrative Fees (4)
|
[•]
|
Business Permits
and Licenses
|
[•]
|
Other
Expenses
|
[•]
|
Total
Other Fund Fees and Expenses
|
$[•]
|
(1) Professional
fees consist of primarily, but not entirely, legal, auditing and
tax preparation related costs.
(2) Distribution
and marketing fees consist of primarily, but not entirely, fees
paid to the Distributor (Foreside Fund Services, LLC), costs
related to regulatory compliance activities, costs related to
marketing and solicitation services, and other costs related to the
trading activities of the Fund.
(3)
Custodian and Administrator fees consist of fees to the
Administrator and the Custodian for accounting, transfer agent and
custodian activities.
(4)
General and Administrative fees consist of primarily, but not
entirely, insurance and printing costs.
Asset-based fees
are calculated on a daily basis (accrued at 1/365 of the applicable
percentage of NAV on that day) and paid on a monthly basis. NAV is
calculated by taking the current market value of the Fund’s
total assets and subtracting any liabilities.
Registered Form
Shares
are issued in registered form in accordance with the Trust
Agreement. Global Fund Services has been appointed registrar and
transfer agent for the purpose of transferring Shares in
certificated form. Global Fund Services keeps a record of all
Shareholders and holders of the Shares in certificated form in the
registry (“Register”). The Sponsor recognizes transfers
of Shares in certificated form only if done in accordance with the
Trust Agreement. The beneficial interests in such Shares are held
in book-entry form through participants and/or accountholders in
DTC.
Book Entry
Individual
certificates are not issued for the Shares. Instead, Shares are
represented by one or more global certificates, which are deposited
by the Administrator with DTC and registered in the name of Cede
& Co., as nominee for DTC. The global certificates evidence all
of the Shares outstanding at any time. Shareholders are limited to
(1) participants in DTC such as banks, brokers, dealers and trust
companies (“DTC Participants”), (2) those who maintain,
either directly or indirectly, a custodial relationship with a DTC
Participant (“Indirect Participants”), and (3) those
who hold interests in the Shares through DTC Participants or
Indirect Participants, in each case who satisfy the requirements
for transfers of Shares. DTC Participants acting on behalf of
investors holding Shares through such participants’ accounts
in DTC will follow the delivery practice applicable to securities
eligible for DTC’s Same-Day Funds Settlement System. Shares
are credited to DTC Participants’ securities accounts
following confirmation of receipt of payment.
DTC
DTC is
a limited purpose trust company organized under the laws of the
State of New York and is a member of the Federal Reserve System, a
“clearing corporation” within the meaning of the New
York Uniform Commercial Code and a “clearing agency”
registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC holds securities for DTC Participants and
facilitates the clearance and settlement of transactions between
DTC Participants through electronic book-entry changes in accounts
of DTC Participants.
The
Shares are only transferable through the book-entry system of DTC.
Shareholders who are not DTC Participants may transfer their Shares
through DTC by instructing the DTC Participant holding their Shares
(or by instructing the Indirect Participant or other entity through
which their Shares are held) to transfer the Shares. Transfers are
made in accordance with standard securities industry
practice.
Transfers of
interests in Shares with DTC are made in accordance with the usual
rules and operating procedures of DTC and the nature of the
transfer. DTC has established procedures to facilitate transfers
among the participants and/or accountholders of DTC. Because DTC
can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants, the ability of a person or entity
having an interest in a global certificate to pledge such interest
to persons or entities that do not participate in DTC, or otherwise
take actions in respect of such interest, may be affected by the
lack of a certificate or other definitive document representing
such interest.
DTC has
advised us that it will take any action permitted to be taken by a
Shareholder (including, without limitation, the presentation of a
global certificate for exchange) only at the direction of one or
more DTC Participants in whose account with DTC interests in global
certificates are credited and only in respect of such portion of
the aggregate principal amount of the global certificate as to
which such DTC Participant or Participants has or have given such
direction.
InterSeries Limitation on Liability
Because
the Trust was established as a Delaware statutory trust, each
Teucrium Fund and each other series that may be established under
the Trust in the future will be operated so that it will be liable
only for obligations attributable to such series and will not be
liable for obligations of any other series or affected by losses of
any other series. If any creditor or shareholder of any particular
series (such as the Fund) asserts against the series a valid claim
with respect to its indebtedness or shares, the creditor or
shareholder will only be able to obtain recovery from the assets of
that series and not from the assets of any other series or the
Trust generally.
The
assets of the Fund and any other series will include only those
funds and other assets that are paid to, held by or distributed to
the series on account of and for the benefit of that series,
including, without limitation, amounts delivered to the Trust for
the purchase of shares in a series. This limitation on liability is
referred to as the InterSeries Limitation on Liability. The
InterSeries Limitation on Liability is expressly provided for
under the Delaware Statutory Trust Act, which provides that if
certain conditions (as set forth in Section 3804(a)) are met, then
the debts of any particular series will be enforceable only against
the assets of such series and not against the assets of any other
series or the Trust generally. In furtherance of the
InterSeries Limitation on Liability, every party providing
services to the Trust, the Fund or the Sponsor on behalf of the
Trust or the Fund, will acknowledge and consent in writing to the
InterSeries Limitation on Liability with respect to such
party’s claims.
The
existence of a Trustee should not be taken as an indication of any
additional level of management or supervision over the Fund.
Consistent with Delaware law, the Trustee acts in an entirely
passive role, delegating all authority for the management and
operation of the Fund and the Trust to the Sponsor. The Trustee
does not provide custodial services with respect to the assets of
the Fund.
Buying and Selling Shares
Most
investors buy and sell Shares of the Fund in secondary market
transactions through brokers. Shares trade on the NYSE Arca under
the ticker symbol “WEAT.” Shares are bought and sold
throughout the trading day like other publicly traded securities.
When buying or selling Shares through a broker, most investors
incur customary brokerage commissions and charges. Investors are
encouraged to review the terms of their brokerage account for
details on applicable charges and, as discussed below under
“U.S. Federal Income Tax Considerations,” any
provisions authorizing the broker to borrow Shares held on your
behalf.
Distributor and Authorized Purchasers
The
offering of the Fund’s Shares is a best efforts offering. The
Fund continuously offers Creation Baskets consisting of 25,000
Shares at their NAV through the Distributor to Authorized
Purchasers. Deutsche Bank Securities, Inc. was the initial
Authorized Purchaser. The initial Authorized Purchaser purchased
two Creation Baskets of 50,000 Shares each at a per Share price of
$25.00 on September 18, 2011. All Authorized Purchasers pay a $250
fee for each Creation Basket order.
The
following entities have entered into Authorized Purchaser
Agreements with respect to the Fund: Deutsche Bank Securities Inc.,
J.P. Morgan Securities LLC, Merrill Lynch Professional Clearing
Corp., Goldman Sachs & Co., Citadel Securities, LLC, and Virtu
Americas LLC.
Because
new Shares can be created and issued on an ongoing basis, at any
point during the life of the Fund, a “distribution,” as
such term is used in the 1933 Act, will be occurring. Authorized
Purchasers, other broker-dealers and other persons are cautioned
that some of their activities may result in their being deemed
participants in a distribution in a manner that would render them
statutory underwriters and subject them to the prospectus delivery
and liability provisions of the 1933 Act. For example, an
Authorized Purchaser, other broker-dealer firm or its client will
be deemed a statutory underwriter if it purchases a basket from the
Fund, breaks the basket down into the constituent Shares and sells
the Shares to its customers. or if it chooses to couple the
creation of a supply of new Shares with an active selling effort
involving solicitation of secondary market demand for the Shares.
In contrast, Authorized Purchasers may engage in secondary market
or other transactions in Shares that would not be deemed
“underwriting.” For example, an Authorized Purchaser
may act in the capacity of a broker or dealer with respect to
Shares that were previously distributed by other Authorized
Purchasers. A determination of whether a particular market
participant is an underwriter must take into account all the facts
and circumstances pertaining to the activities of the broker-dealer
or its client in the particular case, and the examples mentioned
above should not be considered a complete description of all the
activities that would lead to designation as an underwriter and
subject them to the prospectus delivery and liability provisions of
the 1933 Act.
Dealers
who are neither Authorized Purchasers nor
“underwriters” but are nonetheless participating in a
distribution (as contrasted to ordinary secondary trading
transactions), and thus dealing with Shares that are part of an
“unsold allotment” within the meaning of Section
4(a)(3)(C) of the 1933 Act, would be unable to take advantage of
the prospectus delivery exemption provided by Section 4(a)(3) of
the 1933 Act.
The
Sponsor expects that any broker-dealers selling Shares will be
members of FINRA. Investors intending to create or redeem baskets
through Authorized Purchasers in transactions not involving a
broker dealer registered in such investor’s state of
domicile or residence should consult their legal advisor regarding
applicable broker-dealer regulatory requirements under the state
securities laws prior to such creation or redemption.
While
the Authorized Purchasers may be indemnified by the Sponsor, they
will not be entitled to receive a discount or commission from the
Trust or the Sponsor for their purchases of Creation
Baskets.
The
Fund’s NAV per Share is calculated by:
●
taking the current
market value of its total assets, and
●
subtracting any
liabilities and dividing the balance by the number of
Shares.
Global
Fund Services, in its capacity as the “Administrator”,
calculates the NAV of the Fund once each trading day. It calculates
NAV as of the earlier of the close of the New York Stock Exchange
or 4:00 p.m. (EST). The NAV for a particular trading day will is
released after 4:15 p.m. (EST).
In
determining the value of Wheat Futures Contracts, the Administrator
uses the CBOT closing price, except that the “fair
value” of a Wheat Futures Contract (as described in more
detail below) may be used when Wheat Futures Contracts close at
their price fluctuation limit for the day. The Administrator
determines the value of all other Fund investments as of the
earlier of the close of the New York Stock Exchange or 4:00 p.m.
(EST), in accordance with the current Services Agreement between
the Administrator and the Trust. The value of over the counter
wheat interests is determined based on the value of the commodity
or Futures Contract underlying such wheat interest, except that a
fair value may be determined if the Sponsor believes that the Fund
is subject to significant credit risk relating to the counterparty
to such wheat interest. NAV includes any unrealized profit or loss
on open wheat interests and any other credit or debit accruing to
the Fund but unpaid or not received by the Fund.
The
fair value of a wheat interest shall be determined by the Sponsor
in good faith and in a manner that assesses the wheat
interest’s value based on a consideration of all available
facts and all available information on the valuation date. When a
Wheat Futures Contract has closed at its price fluctuation limit,
the fair value determination attempts to estimate the price at
which such Wheat Futures Contract would be trading in the absence
of the price fluctuation limit (either above such limit when an
upward limit has been reached or below such limit when a downward
limit has been reached). Typically, this estimate will be made
primarily by reference to the price of comparable wheat interests
trading in the over the counter market. The fair value of a wheat
interest may not reflect such security’s market value or the
amount that the Fund might reasonably expect to receive for the
wheat interest upon its current sale.
In
addition, in order to provide updated information relating to the
Fund for use by investors and market professionals, NYSE Arca
calculates and disseminates throughout the trading day an updated
“indicative fund value.” The indicative fund value is
calculated by using the prior day’s closing NAV per Share of
the Fund as a base and updating that value throughout the trading
day to reflect changes in the value of the Fund’s wheat
interests during the trading day. Changes in the value of cash
equivalents are not included in the calculation of indicative
value. For this and other reasons, the indicative fund value
disseminated during NYSE Arca trading hours should not be viewed as
an actual real time update of the NAV. NAV is calculated only once
at the end of each trading day.
The
indicative fund value is disseminated on a per Share basis every 15
seconds during regular NYSE Arca trading hours of 9:30
a.m. (EST) to 4:00 p.m.
(EST). The normal trading hours for Wheat Futures Contracts on the
CBOT are generally shorter than those of the NYSE Arca. This means
that there is a gap in time at the beginning and the end of each
day during which the Fund’s Shares are traded on the NYSE
Arca, but real-time CBOT trading prices for Wheat Futures Contracts
traded on such exchange are not available. As a result, during
those gaps there is no update to the indicative fund value. The
trading hours for the CBOT can be found at http://www.cmegroup.com/trading_hours/commoditieshours.html.
The
NYSE Arca disseminates the indicative fund value through the
facilities of CTA/CQ High Speed Lines. In addition, the indicative
fund value is published on the NYSE Arca’s website and is
available through online information services such as
Bloomberg and Reuters.
Dissemination of
the indicative fund value provides additional information that is
not otherwise available to the public and is useful to investors
and market professionals in connection with the trading of Fund
Shares on the NYSE Arca. Investors and market professionals are
able throughout the trading day to compare the market price of the
Fund and the indicative fund value. If the market price of Fund
Shares diverges significantly from the indicative fund value,
market professionals may have an incentive to execute arbitrage
trades. For example, if the Fund appears to be trading at a
discount compared to the indicative fund value, a market
professional could buy Fund Shares on the NYSE Arca, aggregate them
into Redemption Baskets, and receive the NAV of such Shares by
redeeming them to the Trust, provided that there is not a minimum
number of shares outstanding for the Fund. Such arbitrage trades
can tighten the tracking between the market price of the Fund and
the indicative fund value.
Creation and Redemption of
Shares
The
Fund creates and redeems Shares from time to time, but only in one
or more Creation Baskets or Redemption Baskets. The creation and
redemption of baskets are only made in exchange for delivery to the
Fund or the distribution by the Fund of the amount of cash, cash
equivalents and/or commodity futures equal to the combined NAV of
the number of Shares included in the baskets being created or
redeemed determined as of 4:00 p.m. (EST) on the day the order to
create or redeem baskets is properly received.
Authorized
Purchasers are the only persons that may place orders to create and
redeem baskets. Authorized Purchasers must be (1) either registered
broker dealers or other securities market participants, such as
banks and other financial institutions, that are not required to
register as broker-dealers to engage in securities transactions as
described below, and (2) DTC Participants. To become an Authorized
Purchaser, a person must enter into an Authorized Purchaser
Agreement with the Sponsor. The Authorized Purchaser Agreement
provides the procedures for the creation and redemption of baskets
and for the delivery of the cash, cash equivalents and/or commodity
futures required for such creations and redemptions. The Authorized
Purchaser Agreement and the related procedures attached thereto may
be amended by the Sponsor without the consent of any Shareholder,
and the related procedures may generally be amended by the Sponsor
without the consent of the Authorized Purchaser. Authorized
Purchasers pay a transaction fee of $250 to the Custodian for each
creation order they place and a fee of $250 per order for
redemptions. Authorized Purchasers who make deposits with the Fund
in exchange for baskets receive no fees, commissions or other form
of compensation or inducement of any kind from either the Trust or
the Sponsor, and no such person will have any obligation or
responsibility to the Trust or the Sponsor to effect any sale or
resale of Shares.
Certain
Authorized Purchasers are expected to be capable of participating
directly in the physical wheat and the wheat interest markets. Some
Authorized Purchasers or their affiliates may from time to time buy
or sell wheat or wheat interests and may profit in these
instances.
Each
Authorized Purchaser will be required to be registered as a
broker-dealer under the Exchange Act and a member in good standing
with FINRA, or be exempt from being or otherwise not required to be
registered as a broker-dealer or a member of FINRA, and will be
qualified to act as a broker or dealer in the states or other
jurisdictions where the nature of its business so requires. Certain
Authorized Purchasers may also be regulated under federal and state
banking laws and regulations. Each Authorized Purchaser has its own
set of rules and procedures, internal controls and information
barriers it deems appropriate in light of its own regulatory
regime.
Under
the Authorized Purchaser Agreement, the Sponsor has agreed to
indemnify the Authorized Purchasers against certain liabilities,
including liabilities under the 1933 Act, and to contribute to the
payments the Authorized Purchasers may be required to make in
respect of those liabilities.
The
following description of the procedures for the creation and
redemption of baskets is only a summary and an investor should
refer to the relevant provisions of the Trust Agreement and the
form of Authorized Purchaser Agreement for more detail, each of
which has been incorporated by reference as an exhibit to the
registration statement of which this prospectus is a part. See
“Where You Can Find More Information” for information
about where you can obtain the registration statement.
Creation Procedures
On any
business day, an Authorized Purchaser may place an order with
Global Fund Services in their capacity as the transfer agent to
create one or more baskets. For purposes of processing purchase and
redemption orders, a “business day” means any day other
than a day when any of the NYSE Arca, the CBOT or the New York
Stock Exchange is closed for regular trading. Purchase orders must
be placed by 1:15 p.m. (EST) or the close of regular trading on the
New York Stock Exchange, whichever is earlier. The day on which the
Distributor receives a valid purchase order is referred to as the
purchase order date.
By
placing a purchase order, an Authorized Purchaser agrees to deposit
cash, cash equivalents, commodity futures and/or a combination
thereof with the Fund, as described below. Prior to the delivery of
baskets for a purchase order, the Authorized Purchaser must also
have wired to the Sponsor the nonrefundable transaction fee
due for the purchase order. Authorized Purchasers may not withdraw
a purchase order without the prior consent of the Sponsor in its
discretion.
Determination of Required Deposits
The
total deposit required to create each basket (“Creation
Basket Deposit”) is the amount of cash, cash equivalents
and/or commodity futures that is in the same proportion to the
total assets of the Fund (net of estimated accrued but unpaid fees,
expenses and other liabilities) on the purchase order date as the
number of Shares to be created under the purchase order is in
proportion to the total number of Shares outstanding on the
purchase order date. The Sponsor determines, directly in its sole
discretion or in consultation with the Custodian and the
Administrator, the requirements for cash, cash equivalents and/or
commodity futures that may be included in deposits to create
baskets. If cash equivalents are to be included in a Creation
Basket Deposit for orders placed on a given business day, the
Administrator will publish an estimate of the Creation Basket
Deposit requirements at the beginning of such day.
Delivery of Required Deposits
An
Authorized Purchaser who places a purchase order is responsible for
transferring to the Fund’s account with the Custodian the
required amount of cash, cash equivalents and/or commodity futures
by the end of the next business day following the purchase order
date or by the end of such later business day, not to exceed three
business days after the purchase order date, as agreed to between
the Authorized Purchaser and the Custodian when the purchase order
is placed (the “Purchase Settlement Date”). Upon
receipt of the deposit amount, the Custodian directs DTC to credit
the number of baskets ordered to the Authorized Purchaser’s
DTC account on the Purchase Settlement Date.
Because
orders to purchase baskets must be placed by 1:15 p.m., (EST), but
the total payment required to create a basket during the continuous
offering period will not be determined until 4:00 p.m., (EST), on
the date the purchase order is received, Authorized Purchasers will
not know the total amount of the payment required to create a
basket at the time they submit an irrevocable purchase order for
the basket. The Fund’s NAV and the total amount of the
payment required to create a basket could rise or fall
substantially between the time an irrevocable purchase order is
submitted and the time the amount of the purchase price in respect
thereof is determined.
Rejection of Purchase Orders
The
Sponsor acting by itself or through the Distributor or transfer
agent may reject a purchase order or a Creation Basket Deposit
if:
●
it determines that,
due to position limits or otherwise, investment alternatives that
will enable the Fund to meet its investment objective are not
available or practicable at that time;
●
it determines that
the purchase order or the Creation Basket Deposit is not in proper
form;
●
it believes that
acceptance of the purchase order or the Creation Basket Deposit
would have adverse tax consequences to the Fund or its
Shareholders;
●
the acceptance or
receipt of the Creation Basket Deposit would, in the opinion of
counsel to the Sponsor, be unlawful;
●
circumstances
outside the control of the Sponsor, Distributor or transfer agent
make it, for all practical purposes, not feasible to process
creations of baskets;
●
there is a
possibility that any or all of the Benchmark Component Futures
Contracts of the Fund on the CBOT from which the NAV of the Fund is
calculated will be priced at a daily price limit restriction;
or
●
if, in the sole
discretion of the Sponsor, the execution of such an order would not
be in the best interest of the Fund or its
Shareholders.
None of
the Sponsor, Distributor or transfer agent will be liable for the
rejection of any purchase order or Creation Basket
Deposit.
Redemption Procedures
The
procedures by which an Authorized Purchaser can redeem one or more
baskets mirror the procedures for the creation of baskets. On any
business day, an Authorized Purchaser may place an order with the
transfer agent to redeem one or more baskets. Redemption orders
must be placed by 1:15 p.m. (EST) or the close of regular trading
on the New York Stock Exchange, whichever is earlier. A redemption
order so received will be effective on the date it is received in
satisfactory form by the Distributor. The redemption procedures
allow Authorized Purchasers to redeem baskets and do not entitle an
individual Shareholder to redeem any Shares in an amount less than
a Redemption Basket, or to redeem baskets other than through an
Authorized Purchaser. By placing a redemption order, an Authorized
Purchaser agrees to deliver the baskets to be redeemed through
DTC’s book-entry system to the Fund by the end of the next
business day following the effective date of the redemption order
or by the end of such later business day. Prior to the delivery of
the redemption distribution for a redemption order, the Authorized
Purchaser must also have wired to the Sponsor’s account at
the Custodian the nonrefundable transaction fee due for the
redemption order. An Authorized Purchaser may not withdraw a
redemption order without the prior consent of the Sponsor in its
discretion.
Determination of Redemption Distribution
The
redemption distribution from the Fund consists of a transfer to the
redeeming Authorized Purchaser of an amount of cash, cash
equivalents and/or commodity futures that is in the same proportion
to the total assets of the Fund (net of estimated accrued but
unpaid fees, expenses and other liabilities) on the date the order
to redeem is properly received as the number of Shares to be
redeemed under the redemption order is in proportion to the total
number of Shares outstanding on the date the order is received. The
Sponsor, directly or in consultation with the Custodian and the
Administrator, determines the requirements for cash, cash
equivalents and/or commodity futures, including the remaining
maturities of the cash equivalents and proportions of cash
equivalents and cash, that may be included in distributions to
redeem baskets. If cash equivalents are to be included in a
redemption distribution for orders placed on a given business day,
the Custodian and the Administrator will publish an estimate of the
redemption distribution composition as of the beginning of such
day.
Delivery of Redemption Distribution
The
redemption distribution due from a Fund will be delivered to the
Authorized Purchaser on the Redemption Settlement Date if the
Fund’s DTC account has been credited with the baskets to be
redeemed. If the Fund’s DTC account has not been credited
with all of the baskets to be redeemed by the end of such date, the
redemption distribution will be delivered to the extent of whole
baskets received. Any remainder of the redemption distribution will
be delivered on the next business day after the Redemption
Settlement Date to the extent of remaining whole baskets received.
Pursuant to information from the Sponsor, the Custodian will also
be authorized to deliver the redemption distribution
notwithstanding that the baskets to be redeemed are not credited to
the Fund’s DTC account by 1:15 p.m. (EST) on the Redemption
Settlement Date if the Authorized Purchaser has collateralized its
obligation to deliver the baskets through DTC’s book-entry
system on such terms as the Sponsor may from time to time
determine.
Suspension or Rejection of Redemption Orders
The
Sponsor may, in its discretion, suspend the right of redemption, or
postpone the redemption settlement date, (1) for any period during
which the NYSE Arca or CBOT is closed other than customary weekend
or holiday closings, or trading on the NYSE Arca or CBOT is
suspended or restricted, (2) for any period during which an
emergency exists as a result of which delivery, disposal or
evaluation of cash equivalents is not reasonably practicable, (3)
for such other period as the Sponsor determines to be necessary for
the protection of the Shareholders, (4) if there is a possibility
that any or all of the Benchmark Component Futures Contracts of the
Fund on the CBOT from which the NAV of the Fund is calculated will
be priced at a daily price limit restriction, or (5) if, in the
sole discretion of the Sponsor, the execution of such an order
would not be in the best interest of the Fund or its Shareholders.
For example, the Sponsor may determine that it is necessary to
suspend redemptions to allow for the orderly liquidation of the
Fund’s assets at an appropriate value to fund a redemption.
If the Sponsor has difficulty liquidating the Fund’s
positions, e.g., because of a market disruption event in the
futures markets or an unanticipated delay in the liquidation of a
position in an over the counter contract, it may be appropriate to
suspend redemptions until such time as such circumstances are
rectified. None of the Sponsor, the Distributor, or the transfer
agent will be liable to any person or in any way for any loss or
damages that may result from any such suspension or
postponement.
Redemption orders
must be made in whole baskets. The Sponsor will reject a redemption
order if the order is not in proper form as described in the
Authorized Purchaser Agreement or if the fulfillment of the order,
in the opinion of its counsel, might be unlawful.
The
Sponsor may also reject a redemption order if the number of Shares
being redeemed would reduce the remaining outstanding Shares to
50,000 Shares (i.e., two baskets of 25,000 Shares each) or less,
unless the Sponsor has reason to believe that the placer of the
redemption order does in fact possess all the outstanding Shares of
the Fund and can deliver them.
Creation and Redemption Transaction Fees
To
compensate for expenses in connection with the creation and
redemption of baskets, an Authorized Purchaser is required to pay a
transaction fee of $250 per order to the Custodian. The transaction
fees may be reduced, increased or otherwise changed by the
Sponsor.
Tax Responsibility
Authorized
Purchasers are responsible for any transfer tax, sales or use tax,
stamp tax, recording tax, value added tax or similar tax or
governmental charge applicable to the creation or redemption of
baskets, regardless of whether or not such tax or charge is imposed
directly on the Authorized Purchaser, and agree to indemnify the
Sponsor and the Fund if they are required by law to pay any such
tax, together with any applicable penalties, additions to tax and
interest thereon.
Secondary Market
Transactions
As
noted, the Fund will create and redeem Shares from time to time,
but only in one or more Creation Baskets or Redemption Baskets. The
creation and redemption of baskets are only made in exchange for
delivery to the Fund or the distribution by the Fund of the amount
of cash, cash equivalents and/or commodity futures equal to the
aggregate NAV of the number of Shares included in the baskets being
created or redeemed determined on the day the order to create or
redeem baskets is properly received.
As
discussed above, Authorized Purchasers are the only persons that
may place orders to create and redeem baskets. Authorized
Purchasers must be registered broker-dealers or other securities
market participants, such as banks and other financial institutions
that are not required to register as broker-dealers to engage in
securities transactions. An Authorized Purchaser is under no
obligation to create or redeem baskets, and an Authorized Purchaser
is under no obligation to offer to the public Shares of any baskets
it does create. Authorized Purchasers that do offer to the public
Shares from the baskets they create will do so at per Share
offering prices that are expected to reflect, among other factors,
the trading price of the Shares on the NYSE Arca, the NAV of the
Shares at the time the Authorized Purchaser purchased the Creation
Baskets, the NAV of the Shares at the time of the offer of the
Shares to the public, the supply of and demand for Shares at the
time of sale, and the liquidity of the wheat interest markets. The
prices of Shares offered by Authorized Purchasers are expected to
fall between the Fund’s NAV and the trading price of the
Shares on the NYSE Arca at the time of sale. Shares initially
comprising the same basket but offered by Authorized Purchasers to
the public at different times may have different offering prices.
An order for one or more baskets may be placed by an Authorized
Purchaser on behalf of multiple clients. Shares are expected to
trade in the secondary market on the NYSE Arca. Shares may trade in
the secondary market at prices that are lower or higher relative to
their NAV per Share. The amount of the discount or premium in the
trading price relative to the NAV per Share may be influenced by
various factors, including the number of investors who seek to
purchase or sell Shares in the secondary market and the liquidity
of the wheat interest markets. While the Shares trade on the NYSE
Arca until 4:00 p.m. (EST), liquidity in the markets for Wheat
Interests may be reduced after the close of the CBOT. As a result,
during this time, trading spreads, and the resulting premium or
discount, on the Shares may widen.
The
Sponsor causes the Fund to transfer the proceeds of the sale of
Creation Baskets to the Custodian or another financial institution
for use in trading activities and/or investment in cash and cash
equivalents. Under normal market conditions, the Sponsor invests
the Fund’s assets in Benchmark Component Futures Contracts
and cash and cash equivalents. When the Fund purchases Benchmark
Component Futures Contracts, the Fund is required to deposit with
the FCM on behalf of the exchange a portion of the value of the
contract or other interest as security to ensure payment for the
obligation under the Benchmark Component Futures Contracts at
maturity. This deposit is known as initial margin. Counterparties
in transactions in over the counter wheat interests will generally
impose similar collateral requirements on the Fund. The Sponsor
invests the Fund’s assets that remain after margin and
collateral is posted in cash and cash equivalents. Subject to these
margin and collateral requirements, the Sponsor has sole authority
to determine the percentage of assets that will be:
●
|
held as
margin or collateral with the FCM or other custodian.
|
●
|
used
for other investments; and
|
●
|
held in
bank accounts to pay current obligations and as
reserves.
|
In
general, the Fund expects that it will be required to post
approximately 4-6% of the notional amount of a Benchmark Component
Futures Contracts as initial margin when entering into such
Benchmark Component Futures Contracts. Ongoing margin and
collateral payments will generally be required for both
exchange-traded and over the counter wheat interests based on
changes in the value of the wheat interests. Furthermore, ongoing
collateral requirements with respect to over the counter wheat
interests are negotiated by the parties, and may be affected by
overall market volatility, volatility of the underlying commodity
or index, the ability of the counterparty to hedge its exposure
under the wheat interest, and each party’s creditworthiness.
In light of the differing requirements for initial payments under
exchange-traded and over the counter wheat interests and the
fluctuating nature of ongoing margin and collateral payments, it is
not possible to estimate what portion of the Fund’s assets
will be posted as margin or collateral at any given time. Cash and
cash equivalents held by the Fund constitute reserves that are
available to meet ongoing margin and collateral requirements. All
interest or other income is used for the Fund’s
benefit.
An FCM,
counterparty, government agency or commodity exchange could
increase margin or collateral requirements applicable to the Fund
to hold trading positions at any time. Moreover, margin is merely a
security deposit and has no bearing on the profit or loss potential
for any positions held. Further, under recently adopted CFTC rules,
the Fund may be obligated to post initial and variation margin with
respect to swaps (and options that qualify as swaps) and traded
over the counter, and, where applicable, on SEFs.
The
approximate 4-6% of the Fund’s assets held by the FCM are
held in segregation pursuant to the CEA and CFTC
regulations.
The
following paragraphs are a summary of certain provisions of the
Trust Agreement. The following discussion is qualified in its
entirety by reference to the Trust Agreement.
Authority of the Sponsor
The
Sponsor is generally authorized to perform all acts deemed
necessary to carry out the purposes of the Trust and to conduct the
business of the Trust. The Trust and the Fund will continue to
exist until terminated in accordance with the Trust
Agreement.
The Sponsor’s Obligations
In
addition to the duties imposed by the Delaware Trust Statute, under
the Trust Agreement the Sponsor has obligations as a Sponsor of the
Trust, which include, among others, responsibility for certain
organizational and operational requirements of the Trust, as well
as fiduciary responsibility for the safekeeping and use of the
Trust’s assets, whether or not in the Sponsor’s
immediate possession or control.
To the
extent that, at law (common or statutory) or in equity, the Sponsor
has duties (including fiduciary duties) and liabilities relating
thereto to the Trust, the Fund, the Shareholders or to any other
person, the Sponsor will not be liable to the Trust, the Fund, the
Shareholders or to any other person for its good faith reliance on
the provisions of the Trust Agreement or this prospectus unless
such reliance constitutes gross negligence or willful misconduct on
the part of the Sponsor. The provisions of the Trust Agreement, to
the extent they restrict or eliminate the duties and liabilities of
the Sponsor otherwise existing at law or in equity, replace such
other duties and liabilities of the Sponsor.
Liability and Indemnification
Under
the Trust Agreement, the Sponsor, the Trustee and their respective
Affiliates (collectively, “Covered Persons”) shall have
no liability to the Trust, the Fund, or to any Shareholder for any
loss suffered by the Trust or the Fund which arises out of any
action or inaction of such Covered Person if such Covered Person,
in good faith, determined that such course of conduct was in the
best interest of the Trust or the Fund and such course of conduct
did not constitute gross negligence or willful misconduct of such
Covered Person. Subject to the foregoing, neither the Sponsor nor
any other Covered Person shall be personally liable for the return
or repayment of all or any portion of the capital or profits of any
Shareholder or assignee thereof, it being expressly agreed that any
such return of capital or profits made pursuant to the Trust
Agreement shall be made solely from the assets of the applicable
Teucrium Fund without any rights of contribution from the Sponsor
or any other Covered Person. A Covered Person shall not be liable
for the conduct or willful misconduct of any administrator or other
delegate selected by the Sponsor with reasonable care, provided,
however, that the Trustee and its Affiliates shall not, under any
circumstances be liable for the conduct or willful misconduct of
any administrator or other delegate or any other person selected by
the Sponsor to provide services to the Trust.
The
Trust Agreement provides that the Sponsor and the Trust shall
indemnify the Trustee and its successors, assigns, legal
representatives, officers, directors, shareholders, employees,
agents and servants (the “Trustee Indemnified Parties”)
against any liabilities, obligations, losses, damages, penalties,
taxes (excluding any taxes on the compensation received for
services as Trustee or on indemnity payments received), claims,
actions, suits, costs, expenses or disbursements which may be
imposed on a Trustee Indemnified Party relating to or arising out
of the formation, operation or termination of the Trust, the
execution, delivery and performance of any other agreements to
which the Trust is a party, or the action or inaction of the
Trustee under the Trust Agreement or any other agreement, except
for expenses resulting from the gross negligence or willful
misconduct of a Trustee Indemnified Party. Further, certain
officers of the Sponsor are insured against liability for certain
errors or omissions which an officer may incur or that may arise
out of his or her capacity as such.
Notwithstanding the
above, the Sponsor shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation
of U.S. federal or state securities laws unless (i) there has been
a successful adjudication on the merits of each count involving
alleged securities law violations as to the particular indemnitee
and the court approves the indemnification of such expenses
(including, without limitation, litigation costs), (ii) such claims
have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee and the
court approves the indemnification of such expenses (including,
without limitation, litigation costs), or (iii) a court of
competent jurisdiction approves a settlement of the claims against
a particular indemnitee and finds that indemnification of the
settlement and related costs should be made.
The
payment of any indemnification shall be allocated, as appropriate,
among the Trust’s series. The Trust and its series shall not
incur the cost of that portion of any insurance which insures any
party against any liability, the indemnification of which is
prohibited under the Trust Agreement.
Expenses incurred
in defending a threatened or pending action, suit or proceeding
against the Sponsor shall be paid by the Trust in advance of the
final disposition of such action, suit or proceeding, if (i) the
legal action relates to the performance of duties or services by
the Sponsor on behalf of the Trust. (ii) the legal action is
initiated by a party other than the Trust. and (iii) the Sponsor
undertakes to repay the advanced funds with interest to the Trust
in cases in which it is not entitled to
indemnification.
The
Trust Agreement provides that the Sponsor and the Trust shall
indemnify the Trustee and its successors, assigns, legal
representatives, officers, directors, shareholders, employees,
agents and servants (the “Trustee Indemnified Parties”)
against any liabilities, obligations, losses, damages, penalties,
taxes, claims, actions, suits, costs, expenses or disbursements
which may be imposed on a Trustee Indemnified Party relating to or
arising out of the formation, operation or termination of the
Trust, the execution, delivery and performance of any other
agreements to which the Trust is a party, or the action or inaction
of the Trustee under the Trust Agreement or any other agreement,
except for expenses resulting from the gross negligence or willful
misconduct of a Trustee Indemnified Party. Further, certain
officers of the Sponsor are insured against liability for certain
errors or omissions which an officer may incur or that may arise
out of his or her capacity as such.
In the
event the Trust is made a party to any claim, dispute, demand or
litigation or otherwise incurs any liability or expense as a result
of or in connection with any Shareholder’s (or
assignee’s) obligations or liabilities unrelated to the Trust
business, such Shareholder (or assignees cumulatively) is required
under the Trust Agreement to indemnify the Trust for all such
liability and expense incurred, including attorneys’ and
accountants’ fees.
Withdrawal of the Sponsor
The
Sponsor may withdraw voluntarily as the Sponsor of the Trust only
upon ninety (90) days’ prior written notice to the holders of
the Trust’s outstanding shares and the Trustee. If the
withdrawing Sponsor is the last remaining Sponsor, shareholders
holding a majority (over 50%) of the outstanding shares of the
Teucrium Funds, voting together as a single class (not including
shares acquired by the Sponsor through its initial capital
contribution) may vote to elect a successor Sponsor. The successor
Sponsor will continue the business of the Trust. Shareholders have
no right to remove the Sponsor.
In the
event of withdrawal, the Sponsor is entitled to a redemption of the
shares it acquired through its initial capital contribution to any
of the series of the Trust at their NAV per Share. If the Sponsor
withdraws and a successor Sponsor is named, the withdrawing Sponsor
shall pay all expenses as a result of its withdrawal.
Meetings
Meetings of the
Trust’s shareholders may be called by the Sponsor and will be
called by it upon the written request of Shareholders holding at
least 25% of the outstanding Shares of the Trust or the Fund, as
applicable (not including Shares acquired by the Sponsor through
its initial capital contribution. The Sponsor shall deposit in the
United States mail or electronically transmit written notice to all
Shareholders of the Fund of the meeting and the purpose of the
meeting, which shall be held on a date not less than 30 nor more
than 60 days after the date of mailing of such notice, at a
reasonable time and place. Where the meeting is called upon the
written request of the shareholders of the Fund, or any other
Teucrium Fund, as applicable, such written notice shall be mailed
or transmitted not more than 45 days after such written request for
a meeting was received by the Sponsor.
Voting Rights
Shareholders have
no voting rights with respect to the Trust or the Fund except as
expressly provided in the Trust Agreement. The Trust Agreement
provides that shareholders representing at least a majority (over
50%) of the outstanding shares of the Teucrium Funds voting
together as a single class (excluding shares acquired by the
Sponsor in connection with its initial capital contribution to any
Trust series) may vote to (i) continue the Trust by electing a
successor Sponsor as described above, and (ii) approve amendments
to the Trust Agreement that impair the right to surrender
Redemption Baskets for redemption. (Trustee consent to any
amendment to the Trust Agreement is required if the Trustee
reasonably believes that such amendment adversely affects any of
its rights, duties or liabilities.) In addition, shareholders
holding shares representing seventy-five percent (75%) of the
outstanding shares of the Teucrium Funds, voting together as a
single class (excluding shares acquired by the Sponsor in
connection with its initial capital contribution to any Trust
series) may vote to dissolve the Trust upon not less than ninety
(90) days’ notice to the Sponsor.
Limited Liability of Shareholders
Shareholders shall
be entitled to the same limitation of personal liability extended
to stockholders of private corporations for profit organized under
the general corporation law of Delaware, and no Shareholder shall
be liable for claims against, or debts of the Trust or the Fund in
excess of his share of the Fund’s assets. The Trust or the
Fund shall not make a claim against a Shareholder with respect to
amounts distributed to such Shareholder or amounts received by such
Shareholder upon redemption unless, under Delaware law, such
Shareholder is liable to repay such amount.
The
Trust or the Fund shall indemnify to the full extent permitted by
law and the Trust Agreement each Shareholder (excluding the Sponsor
to the extent of its ownership of any Shares acquired through its
initial capital contribution) against any claims of liability
asserted against such Shareholder solely because of its ownership
of Shares (other than for taxes on income from Shares for which
such Shareholder is liable).
The
Trust Agreement provides that every written note, bond, contract,
instrument, certificate or undertaking made or issued by or on
behalf of the Fund shall give notice to the effect that that the
obligations of such instrument are not binding upon the
Shareholders individually but are binding only upon the assets and
property of the Fund.
The Sponsor Has Conflicts of
Interest
There
are present and potential future conflicts of interest in the
Trust’s structure and operation you should consider before
you purchase Shares. The Sponsor may use this notice of conflicts
as a defense against any claim or other proceeding
made.
The
Sponsor’s principals, officers and employees, do not devote
their time exclusively to the Funds. Notwithstanding obligations
and expectations related to the management of the Sponsor, the
Sponsor’s principals, officers and employees may be
directors, officers or employees of other entities, and may manage
assets of other entities, including the other Teucrium Funds,
through the Sponsor or otherwise. As a result, the principals could
have a conflict between responsibilities to the Fund on the one
hand and to those other entities on the other.
The
Sponsor and its principals, officers and employees may trade
securities, futures and related contracts for their own accounts,
creating the potential for preferential treatment of their own
accounts. Shareholders will not be permitted to inspect the trading
records of such persons or any written policies of the Sponsor
related to such trading. A conflict of interest may exist if their
trades are in the same markets and at approximately the same times
as the trades for the Fund. A potential conflict also may occur
when the Sponsor’s principals trade their accounts more
aggressively or take positions in their accounts which are
opposite, or ahead of, the positions taken by the
Fund.
The
Sponsor has sole current authority to manage the investments and
operations of the Fund, and this may allow it to act in a way that
furthers its own interests which may create a conflict with your
best interests, including the authority of the Sponsor to allocate
expenses to and between the Teucrium Funds. Shareholders have very
limited voting rights with respect to the Fund, which will limit
the ability to influence matters such as amendment of the Trust
Agreement, change in the Fund’s basic investment policies, or
dissolution of the Fund or the Trust.
The
Sponsor serves as the Sponsor to the Teucrium Funds and may in the
future serve as the Sponsor or investment adviser to commodity
pools other than the Teucrium Funds. The Sponsor may have a
conflict to the extent that its trading decisions for the Fund may
be influenced by the effect they would have on the other pools it
manages. In addition, the Sponsor may be required to indemnify the
officers and directors of the other pools, if the need for
indemnification arises. This potential indemnification will cause
the Sponsor’s assets to decrease. If the Sponsor’s
other sources of income are not sufficient to compensate for the
indemnification, it could cease operations, which could in turn
result in Fund losses and/or termination of the Fund.
If the
Sponsor acquires knowledge of a potential transaction or
arrangement that may be an opportunity for the Fund, it shall have
no duty to offer such opportunity to the Fund. The Sponsor will not
be liable to the Fund or the Shareholders for breach of any
fiduciary or other duty if the Sponsor pursues such opportunity or
directs it to another person or does not communicate such
opportunity to the Fund, and is not required to share income or
profits derived from such business ventures with the
Fund.
Resolution of Conflicts Procedures
The
Trust Agreement provides that whenever a conflict of interest
exists between the Sponsor or any of its Affiliates, on the one
hand, and the Trust, any shareholder of a Trust series, or any
other person, on the other hand, the Sponsor shall resolve such
conflict of interest, take such action or provide such terms,
considering in each case the relative interest of each party
(including its own interest) to such conflict, agreement,
transaction or situation and the benefits and burdens relating to
such interests, any customary or accepted industry practices, and
any applicable generally accepted accounting practices or
principles. In the absence of bad faith by the Sponsor, the
resolution, action or terms so made, taken or provided by the
Sponsor shall not constitute a breach of the Trust Agreement or any
other agreement contemplated therein or of any duty or obligation
of the Sponsor at law or in equity or otherwise.
Interests of Named Experts
and Counsel
No
expert hired by the Fund to give advice on the preparation of this
offering document has been hired on a contingent fee basis, nor do
any of them have any present or future expectation of interest in
the Sponsor, Distributor, Authorized Purchasers,
Custodian/Administrator or other service providers to the
Fund.
Provisions of Federal and
State Securities Laws
This
offering is made pursuant to federal and state securities laws. The
SEC and state securities agencies take the position that
indemnification of the Sponsor that arises out of an alleged
violation of such laws is prohibited unless certain conditions are
met. Those conditions require that no indemnification of the
Sponsor or any underwriter for the Fund may be made in respect of
any losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws unless: (i)
there has been a successful adjudication on the merits of each
count involving alleged securities law violations as to the party
seeking indemnification and the court approves the indemnification.
(ii) such claim has been dismissed with prejudice on the merits by
a court of competent jurisdiction as to the party seeking
indemnification. or (iii) a court of competent jurisdiction
approves a settlement of the claims against the party seeking
indemnification and finds that indemnification of the settlement
and related costs should be made, provided that, before seeking
such approval, the Sponsor or other indemnitee must apprise the
court of the position held by regulatory agencies against such
indemnification.
The
Trust keeps its books of record and account at its office located
at Three Main Street, Suite 215, Burlington, VT 05401 or at the
offices of the Administrator, U.S. Bancorp, Fund Services, LLC,
doing business as U.S. Bank Global Fund Services, located at 615
East Michigan Street, Milwaukee, Wisconsin 53202, or such office,
including of an administrative agent, as it may subsequently
designate upon notice. The books of account of the Fund are open to
inspection by any Shareholder (or any duly constituted designee of
a Shareholder) at all times during the usual business hours of the
Fund upon reasonable advance notice to the extent such access is
required under CFTC rules and regulations. In addition, the Trust
keeps a copy of the Trust Agreement on file in its office which
will be available for inspection by any Shareholder at all times
during its usual business hours upon reasonable advance
notice.
Statements, Filings, and
Reports to Shareholders
The
Trust will furnish to DTC Participants for distribution to
Shareholders annual reports (as of the end of each fiscal year) for
the Fund as are required to be provided to Shareholders by the CFTC
and the NFA. These annual reports will contain financial statements
prepared by the Sponsor and audited by an independent registered
public accounting firm designated by the Sponsor. The Trust will
also post monthly reports to the Fund’s website (www.teucrium.com). These
monthly reports will contain certain unaudited financial
information regarding the Fund, including the Fund’s NAV. The
Sponsor will furnish to the Shareholders other reports or
information which the Sponsor, in its discretion, determines to be
necessary or appropriate. In addition, under SEC rules the Trust
will be required to file quarterly and annual reports for the Fund
with the SEC, which need not be sent to Shareholders but will be
publicly available through the SEC. The Trust will post the same
information that would otherwise be provided in the Trust’s
CFTC, NFA and SEC reports on the Fund’s website www.teucrium.com.
The
accountants’ report on its audit of the Fund’s
financial statements will be furnished by the Trust to Shareholders
upon request. The Trust will file such tax returns, and prepare,
disseminate and file such tax reports for the Fund as it is advised
by its counsel or accountants are from time to time required by any
applicable statute, rule or regulation and will make such tax
elections for the Fund as it deems advisable.
PricewaterhouseCoopers
(“PwC”), 2001 Ross Avenue, Suite 1800, Dallas, Texas
75201-2997, will provide tax information in accordance with the
Code and applicable U.S. Treasury Regulations. Persons treated as
middlemen for purposes of these regulations may obtain tax
information regarding the Fund from PwC or from the Fund’s
website, www.teucrium.com.
The
fiscal year of the Fund is the calendar year.
The
rights of the Sponsor, the Trust, the Fund, DTC (as registered
owner of the Fund’s global certificate for Shares) and the
Shareholders are governed by the laws of the State of Delaware,
except with respect to causes of action for violations of U.S.
federal or state securities laws. The Trust Agreement and the
effect of every provision thereof shall control over any contrary
or limiting statutory or common law of the State of Delaware, other
than the Delaware Trust Statute.
Security Ownership of
Principal Shareholders and Management
The
following table sets forth information regarding the beneficial
ownership of shares by the executive officers of the Sponsor as of
December 31, 2019. Except as listed, no other executive officer of
the Sponsor is a beneficial owner of shares of the
Fund.
(1)
Title of Class
|
(2)
Name of Beneficial Owner
|
(3)
Amount and nature of Beneficial Ownership
|
(4)
Percent of Class
|
WEAT
|
Sal
Gilbertie
|
200 common
units
|
*
|
__________________
*Less
than 1%.
The
Fund is not aware of any 5% holder of its Shares.
Litigation and Claims
Within
the past 10 years of the date of this prospectus, there have been
no material administrative, civil or criminal actions against the
Sponsor, the Trust or the Fund, or any principal or affiliate of
any of them. This includes any actions pending, on appeal,
concluded, threatened, or otherwise known to them.
Legal Opinion
Vedder
Price P.C. ("Vedder Price") has been retained to advise the Trust
and the Sponsor with respect to the Shares being offered hereby and
has passed upon the validity of the Shares being issued hereunder.
Vedder Price has also provided the Sponsor with its opinion with
respect to federal income tax matters addressed
herein.
Experts
The
financial statements of the Trust and the Fund, and
management’s assessment of the effectiveness of internal
control over financial reporting of the Trust and the Fund
incorporated by reference in this prospectus and elsewhere in the
registration statement have been so incorporated by reference in
reliance upon the reports of Grant Thornton LLP, independent
registered public accountants, upon the authority of said firm as
experts in accounting and auditing.
The
following discussion is qualified in its entirety by reference to
the privacy policy. A copy of the privacy policy is available at
www.teucrium.com.
The
Sponsor, the Trust, and the Teucrium Funds have adopted a privacy
policy relating to the collection, maintenance, and use of
nonpublic personal information about the Teucrium Funds’
current and former investors, as required under federal law.
Federal law gives investors the
right to limit some but not all sharing of their nonpublic personal
information. Federal law also requires the Sponsor to tell
investors how it collects, shares, and protects such nonpublic
personal information.
Collection of Nonpublic Personal Information
The
Sponsor may collect or have access to nonpublic personal
information about current and former Fund investors for certain
purposes relating to the operation of the Teucrium Funds. This
information may include information received from investors, such
as their name, social security number, telephone number, and
address, and information about investors’ holdings and
transactions in shares of the Teucrium Funds.
Use and Disclosure of Nonpublic Personal Information
The
Sponsor does not sell nonpublic personal information to any third
parties. The Sponsor primarily uses investors’ nonpublic
personal information to complete financial transactions that may be
requested. The Sponsor may disclose investors’ nonpublic
personal information to third parties under specific circumstances
described in the privacy policy. These circumstances include, among
others, information needed to complete financial transactions,
information released at the direction of an investor, and certain
information requested by courts, regulators, law enforcement, or
tax authorities. Investors may not opt out of these
disclosures.
Investors’
nonpublic personal information, particularly information about
investors’ holdings and transactions in shares of the
Teucrium Funds, may be shared between and amongst the Sponsor and
the Teucrium Funds. An investor
cannot opt-out of the sharing of nonpublic personal information
between and amongst the Sponsor and the Teucrium Funds.
However, the Sponsor and the Teucrium Funds will not use this
information for any cross-marketing purposes. In other words, all investors will be treated
as having “opted out” of receiving marketing
solicitations from Teucrium Funds other than the Teucrium Fund(s)
in which it invests.
Protection of Nonpublic Personal Information
As
described in the privacy policy, the Sponsor takes safeguards to
protect investors’ nonpublic personal information, which
include, among others, restricting access to such information,
requiring third parties to follow appropriate standards of security
and confidentiality, and maintaining physical, technical,
administrative, and procedural safeguards.
Teucrium’s
Website is hosted in the United States and any data provided to
Teucrium is stored in the United States. If you choose to provide
Personal Data from regions outside of the United States, then by
your submission of such data, you acknowledge and agree that: (a)
you are transferring your personal information outside of those
regions to the United States voluntarily and with consent; (b) the
laws and regulations of the United States shall govern your use of
the provision of your information, which laws and regulations may
differ from those of your country of residence; and (c) you permit
your personal information to be used for the purposes herein and in
the Privacy Policy above.
U.S. Federal Income Tax
Considerations
The
following discussion summarizes the material U.S. federal income
tax consequences of the purchase, ownership and disposition of
Shares of the Fund and the U.S. federal income tax treatment of the
Fund. Except where noted otherwise, it deals only with the tax
consequences relating to Shares held as capital assets by U.S.
Shareholders (as defined below) who are not subject to special tax
treatment. For example, in general it does not address the tax
consequences, such as, but not limited to dealers in securities or
currencies or commodities, traders in securities or dealers or
traders in commodities that elect to use a mark to market method of
accounting, financial institutions, tax-exempt entities (except as
discussed below), insurance companies, persons holding Shares as a
part of a position in a “straddle” or as part of a
“hedging,” “conversion” or other integrated
transaction for federal income tax purposes, persons with
“applicable financial statements within the meaning of
Section 451 (b) of the Internal Revenue Code of 1986, as amended
(the “Code”), or holders of Shares whose
“functional currency” is not the U.S. dollar.
Furthermore, the discussion below is based upon the provisions of
the Code, and regulations (“Treasury Regulations”),
rulings and judicial decisions thereunder as of the date hereof,
and such authorities may be repealed, revoked or modified (possibly
with retroactive effect) so as to result in U.S. federal income tax
consequences different from those discussed below.
The Sponsor has
received the opinion of Vedder Price, counsel to the Trust, that
the material U.S. federal income tax consequences to the Fund and
to U.S. Shareholders and Non-U.S. Shareholders (as defined below)
will be as described in the following paragraphs. In rendering its
opinion, Vedder Price has relied on the facts and assumptions
described in this prospectus as well as certain factual
representations made by the Trust and the Sponsor. This opinion is
not binding on the Internal Revenue Service (the "IRS") and is not
a guarantee of the results. No ruling has been requested from the
IRS with respect to any matter affecting the Fund or prospective
investors, and the IRS may disagree with the tax positions taken by
the Trust. If the IRS were to challenge the Trust’s tax
positions in litigation, they might not be sustained by the
courts.
As used
herein, the term “U.S. Shareholder” means a Shareholder
that is, for United States federal income tax purposes, (i) a
citizen or resident of the United States, (ii) a corporation
created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of
which is subject to United States federal income taxation
regardless of its source or (iv) a trust that (X) is subject to the
supervision of a court within the United States and the control of
one or more United States persons as described in section
7701(a)(30) of the Code, or (Y) has a valid election in effect
under applicable Treasury Regulations to be treated as a United
States person. A “Non-U.S. Shareholder” is a holder
that is not a U.S. Shareholder. If a partnership or other entity or
arrangement treated as a partnership holds our Shares, the tax
treatment of a partner will generally depend upon the status of the
partner and the activities of the partnership. If you are a partner
of a partnership holding our Shares, the discussion below may not
be applicable to you and you should consult your own tax advisor
regarding the tax consequences of acquiring, owning and disposing
of Shares.
EACH
PROSPECTIVE INVESTOR IS ADVISED TO CONSULT ITS OWN TAX ADVISOR
REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT
IN SHARES, AS WELL AS ANY APPLICABLE STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES, IN LIGHT OF ITS PARTICULAR
CIRCUMSTANCES.
Tax Classification of the Trust and the Fund
The Trust is
organized and will be operated as a statutory trust in accordance
with the provisions of the Trust Agreement and applicable Delaware
law. Notwithstanding the Trust’s status as a statutory trust
and the Fund’s status as a series of the Trust, due to the
nature of its activities the Fund will be treated as a partnership
rather than a trust for U.S. federal income tax purposes. In
addition, the trading of Shares on the NYSE Arca will cause the
Fund to be classified as a “publicly traded
partnership” for federal income tax purposes. Under the Code,
a publicly traded partnership is generally taxable as a
corporation. In the case of an entity (such as the Fund) not
registered under the Investment Company Act of 1940 as amended, and
not meeting certain other conditions, however, an exception to this
general rule applies if at least 90% of the entity’s gross
income is “qualifying income” for each taxable year of
its existence (the “qualifying income exception”). For
this purpose, qualifying income is defined as including, in
pertinent part, interest (other than from a financial business),
dividends, and gains from the sale or disposition of capital assets
held for the production of interest or dividends. In the case of a
partnership of which a principal activity is the buying and selling
of commodities other than as inventory or of futures, forwards and
options with respect to commodities, “qualifying
income” also includes income and gains from commodities and
from futures, forwards, options, and, provided the partnership is a
trader or investor with respect to such assets, swaps and other
notional principal contracts with respect to commodities. The Trust
and the Sponsor have represented the following to Vedder
Price:
●
at least 90% of the
Fund’s gross income for each taxable year will constitute
“qualifying income” within the meaning of Code section
7704 (as described above);
●
the Fund is
organized and will be operated in accordance with its governing
documents and applicable law; and
●
the Fund has not
elected, and will not elect, to be classified as a corporation for
U.S. federal income tax purposes.
Based
in part on these representations, Vedder Price is of the opinion
that the Fund will be treated as a partnership that it is not
taxable as a corporation for U.S. federal income tax purposes. The
Fund’s taxation as a partnership rather than a corporation
will require the Sponsor to conduct the Fund’s business
activities in such a manner that it satisfies the requirements of
the qualifying income exception on a continuing basis. No
assurances can be given that the Fund’s operations for any
given year will produce income that satisfies these requirements.
Vedder Price will not review the Fund’s ongoing compliance
with these requirements and will have no obligation to advise the
Trust, the Fund or the Fund’s Shareholders in the event of
any subsequent change in the facts, representations or applicable
law relied upon in reaching its opinion.
If the Fund failed
to satisfy the qualifying income exception in any year, other than
a failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery (in which case,
as a condition of relief, the Fund could be required to pay the
government amounts determined by the IRS), the Fund would be
taxable as a corporation for federal income tax purposes and would
pay federal income tax on its income at regular corporate rates. In
that event, Shareholders would not report their share of the
Fund’s income or loss on their tax returns. Distributions by
the Fund (if any) would be treated as dividend income to the
Shareholders to the extent of the Fund’s current and
accumulated earnings and profits, then treated as a tax-free return
of capital to the extent of the Shareholder’s basis in the
Shares (and will reduce the basis), and, to the extent it exceeds a
Shareholder’s basis in such Shares, as capital gain for
Shareholders who hold their Shares as capital assets. Accordingly,
if the Fund were to be taxable as a corporation, it would likely
have a material adverse effect on the economic return from an
investment in the Fund and on the value of the
Shares.
The
remainder of this summary assumes that the Fund is classified for
federal income tax purposes as a partnership that it is not taxable
as a corporation.
U.S. Shareholders
Tax Consequences of Ownership of Shares
Taxation of the Fund’s Income. No
U.S. federal income tax is paid by the Fund on its income. Instead,
the Fund files annual partnership returns, and each U.S.
Shareholder is required to report on its U.S. federal income tax
return its allocable share of the income, gain, loss, deductions
and credits reflected on such returns. If the Fund recognizes
income, including interest on cash equivalents and net capital
gains from cash settlement of Benchmark Component Futures Contracts
for a taxable year, Shareholders must report their share of these
items even though the Fund makes no distributions of cash or
property during the taxable year. Consequently, a Shareholder may
be taxable on income or gain recognized by the Fund but receive no
cash distribution with which to pay the resulting tax liability or
may receive a distribution that is insufficient to pay such
liability. Because the Sponsor currently does not intend to make
distributions, it is likely that a U.S. Shareholder that realizes
net income or gain with respect to Shares for a taxable year will
be required to pay any resulting tax from sources other than Fund
distributions. Additionally, individuals with modified adjusted
gross income in excess of $200,000 ($250,000 in the case of married
individuals filing jointly) and certain estates and trusts are
subject to an additional 3.8% tax on their “net investment
income,” which generally includes net income from interest,
dividends, annuities, royalties, and rents, and net capital gains
(other than certain amounts earned from trades or businesses). Also
included as income subject to the additional 3.8% tax is income
from businesses involved in the trading of financial instruments or
commodities.
Monthly Conventions for Allocations of the
Fund’s Profit and Loss and Capital Account
Restatements. Under Code section 704, the determination of a
partner’s distributive share of any item of income, gain,
loss, deduction or credit is governed by the applicable
organizational document unless the allocation provided by such
document lacks “substantial economic effect.” An
allocation that lacks substantial economic effect nonetheless will
be respected if it is in accordance with the partners’
interests in the partnership, determined by considering all facts
and circumstances relating to the economic arrangements among the
partners. Subject to the possible exception for certain conventions
to be used by the Fund as discussed below, allocations pursuant to
the Trust Agreement should be considered as having substantial
economic effect or being in accordance with Shareholders’
interests in the Fund.
In
situations where a partner’s interest in a partnership is
redeemed or sold during a taxable year, the Code generally requires
that partnership tax items for the year be allocated to the partner
using either an interim closing of the books or a daily proration
method. The Fund intends to allocate tax items using an interim
closing of the book’s method under which income, gains,
losses and deductions will be determined on a monthly basis, taking
into account the Fund’s accrued income and deductions and
gains and losses (both realized and unrealized) for the month. The
tax items for each month during a taxable year will then be
allocated among the holders of Shares in proportion to the number
of Shares owned by them as of the close of trading on the last
trading day of the preceding month (the “monthly allocation
convention”).
Under
the monthly allocation convention, an investor who disposes of a
Share during the current month will be treated as disposing of the
Share as of the end of the last day of the calendar month. For
example, an investor who buys a Share on April 10 of a year and
sells it on May 20 of the same year will be allocated all of the
tax items attributable to May (because it is deemed to hold the
Share through the last day of May) but none of those attributable
to April. The tax items attributable to that Share for April will
be allocated to the person who is the actual or deemed holder of
the Share as of the close of trading on the last trading day of
March. Under the monthly allocation convention, an investor who
purchases and sells a Share during the same month, and therefore
does not hold (and is not deemed to hold) the Share at the close of
the last trading day of either that month or the previous month,
will receive no allocations with respect to that Share for any
period. Accordingly, investors may receive no allocations with
respect to Shares that they actually held or may receive
allocations with respect to Shares attributable to periods that
they did not actually hold the Shares.
By
investing in Shares, a U.S. Shareholder agrees that, in the absence
of new legislation, regulatory or administrative guidance, or
judicial rulings to the contrary, it will file its U.S. income tax
returns in a manner that is consistent with the monthly allocation
convention as described above and with the IRS Schedule K-1 or any
successor form provided to Shareholders by the Fund or the
Trust.
For any
month in which a Creation Basket is issued or a Redemption Basket
is redeemed, the Fund will credit or debit the “book”
capital accounts of existing Shareholders with the amount of any
unrealized gain or loss, respectively, on Fund assets. For this
purpose, unrealized gain or loss will be computed based on the
lowest NAV of the Fund’s assets during the month in which
Shares are issued or redeemed, which may be different than the
value of the assets on the date of an issuance or redemption. The
capital accounts as adjusted in this manner will be used in making
tax allocations intended to account for differences between the tax
basis and fair market value of property owned by the Fund at the
time new Shares are issued or outstanding Shares are redeemed
(so-called “reverse Code section 704(c) allocations”).
The intended effect of these adjustments is to equitably allocate
among Shareholders any unrealized appreciation or depreciation in
the Fund’s assets existing at the time of a contribution or
redemption for book and tax purposes.
The
conventions used by the Fund, as noted above, in making tax
allocations may cause a Shareholder to be allocated more or less
income or loss for U.S. federal income tax purposes than its
proportionate share of the economic income or loss realized by the
Fund during the period it held its Shares. This mismatch between
taxable and economic income or loss in some cases may be temporary,
reversing itself in a later year when the Shares are sold, but
could be permanent. For example, a Shareholder could be allocated
income accruing after it sold its Shares, resulting in an increase
in the basis of the Shares (see “Tax Basis of Shares”, below). In
connection with the disposition of the Shares, the additional basis
might produce a capital loss the deduction of which may be limited
(see “Limitations on
Deductibility of Losses and Certain Expenses”,
below).
Section 754 election. The Fund has made
the election permitted by section 754 of the Code, which election
is irrevocable without the consent of the IRS. The effect of this
election is that when a secondary market sale of Shares occurs, the
Fund adjusts the purchaser’s proportionate share of the tax
basis of the Fund’s assets to fair market value, as reflected
in the price paid for the Shares, as if the purchaser had directly
acquired an interest in the Fund’s assets. The section 754
election is intended to eliminate disparities between a
partner’s basis in its partnership interest and its share of
the tax basis of the partnership’s assets, so that the
partner’s allocable share of taxable gain or loss on a
disposition of an asset will correspond to its share of the
appreciation or depreciation in the value of the asset since it
acquired its interest. Depending on the price paid for Shares and
the tax basis of the Fund’s assets at the time of the
purchase, the effect of the section 754 election on a purchaser of
Shares may be favorable or unfavorable. In order to make the
appropriate basis adjustments in a cost-effective manner, the Fund
will use certain simplifying conventions and assumptions. In
particular, the Fund will obtain information regarding secondary
market transactions in its Shares and use this information to
adjust the Shareholders’ indirect basis in Fund assets. It is
possible the IRS could successfully assert that the conventions and
assumptions applied are improper and require different basis
adjustments to be made, which could adversely affect some
Shareholders.
Section 1256 Contracts. Under the Code,
special rules apply to instruments constituting “section 1256
contracts.” A section 1256 contract is defined as including,
in relevant part: (1) a futures contract that is traded on or
subject to the rules of a national securities exchange which is
registered with the SEC, a domestic board of trade designated as a
contract market by the CFTC, or any other board of trade or
exchange designated by the Secretary of the Treasury, and with
respect to which the amount required to be deposited and the amount
that may be withdrawn depends on a system of “marking to
market”; and (2) a non-equity option traded on or subject to
the rules of a qualified board or exchange. Section 1256 contracts
held at the end of each taxable year are treated as if they were
sold for their fair market value on the last business day of the
taxable year (i.e., are
“marked to market”). In addition, any gain or loss
realized from a disposition, termination or marking to market of a
section 1256 contract is treated as long-term capital gain or loss
to the extent of 60% thereof, and as short-term capital gain or
loss to the extent of 40% thereof, without regard to the actual
holding period (“60-40 treatment”).
Many of
the Fund’s Wheat Futures Contracts will qualify as
“section 1256 contracts” under the Code. Some other
wheat interests that are cleared through a qualified board or
exchange will also constitute section 1256 contracts. Gain or loss
recognized as a result of the disposition, termination or marking
to market of the Fund’s section 1256 contracts during a
calendar month will be subject to 60-40 treatment and allocated to
Shareholders in accordance with the monthly allocation convention.
Commodity swaps will most likely not qualify as section 1256
contracts. If a commodity swap is not taxable as a section 1256
contract, any gain or loss on the swap will be recognized at the
time of disposition or termination as long-term or short-term
capital gain or loss depending on the holding period of the swap in
the Fund’s hands.
Foreign
exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt
securities, certain futures contracts, forward contracts, options
and similar investments denominated in a foreign currency, and
payables or receivables denominated in a foreign currency are
subject to section 988 of the Code, which generally causes such
gain and loss to be treated as ordinary income or loss. To the
extent the Fund hold foreign investments, it may be subject to
withholding and other taxes imposed by foreign countries. Tax
treaties between certain countries and the United States may reduce
or eliminate such taxes. Because the amount of the Fund’s
investments in various countries will change from time to time, it
is not possible to determine the effective rate of such taxes in
advance.
Limitations on Deductibility of Losses and
Certain Expenses. A number of different provisions of the
Code may defer or disallow the deduction of losses or expenses
allocated to Shareholders by the Fund, including but not limited to
those described below.
A
Shareholder’s deduction of its allocable share of any loss of
the Fund is limited to the lesser of (1) the tax basis in its
Shares or (2) in the case of a Shareholder that is an individual or
a closely held corporation, the amount which the Shareholder is
considered to have “at risk” with respect to the
Fund’s activities. In general, the amount at risk initially
will be a Shareholder’s invested capital. Losses in excess of
the amount at risk must be deferred until years in which the Fund
generates additional taxable income against which to offset such
carryover losses or until additional capital is placed at
risk.
Individuals and
other non-corporate taxpayers are permitted to deduct capital
losses only to the extent of their capital gains for the taxable
year plus $3,000 of other income. Unused capital losses can be
carried forward and used in future years, subject to these same
limitations. In addition, an individual taxpayer may elect to carry
back net losses on section 1256 contracts to each of the three
preceding years and use them to offset section 1256 contract gains
in those years, subject to certain limitations. Corporate taxpayers
generally may deduct capital losses only to the extent of capital
gains, subject to special carryback and carryforward
rules.
The
deduction for expenses incurred by non-corporate taxpayers
constituting “miscellaneous itemized deductions,”
generally including investment-related expenses (other than
interest and certain other specified expenses), is suspended for
taxable years beginning after December 31, 2017 and before January
1, 2026. During these taxable years, non-corporate taxpayers will
not be able to deduct miscellaneous itemized deductions. Provided
the suspension is not extended, for taxable years ending on or
after January 1, 2026, miscellaneous itemized deductions are
deductible only to the extent they exceed 2% of the
taxpayer’s adjusted gross income for the year. Although the
matter is not free from doubt, we believe management fees the Fund
pays to the Sponsor and other expenses of the Fund constitute
investment-related expenses subject to this miscellaneous itemized
deduction limitation, rather than expenses incurred in connection
with a trade or business and will report these expenses consistent
with that interpretation. For taxable years beginning on or after
January 1, 2026, the Code imposes additional limitations on the
amount of certain itemized deductions allowable to individuals with
adjusted gross income in excess of certain amounts by reducing the
otherwise allowable portion of such deductions by an amount equal
to the lesser of:
●
3% of the individual’s adjusted gross income in excess of
certain threshold amounts; or
●
80% of the amount of certain itemized deductions otherwise
allowable for the taxable year.
Non-corporate
Shareholders generally may deduct “investment interest
expense” only to the extent of their “net investment
income.” Investment interest expense of a Shareholder will
generally include any interest expense accrued by the Fund and any
interest paid or accrued on direct borrowings by a Shareholder to
purchase or carry its Shares, such as interest with respect to a
margin account. Net investment income generally includes gross
income from property held for investment (including
“portfolio income” under the passive loss rules but
not, absent an election, long-term capital gains or certain
qualifying dividend income) less, deductible expenses other than
interest directly connected with the production of investment
income.
If
the Fund incurs indebtedness, the Fund’s ability to deduct
interest on its indebtedness allocable to its trade or business is
limited to an amount equal to the sum of (1) the Fund’s
business interest income during the year and (2) 30% of the
Fund’s adjusted taxable income for such taxable year. If the
Fund is not entitled to fully deduct its business interest in any
taxable year, such excess business interest expense will be
allocated to each Shareholder as excess business interest and can
be carried forward by the Shareholder to successive taxable years
and used to offset any excess taxable income allocated by the Fund
to such Shareholder. Any excess business interest expense allocated
to a Shareholder will reduce such Shareholder’s basis in its
Shares in the year of the allocation even if the expense does not
give rise to a deduction to the Shareholder in that year.
Immediately prior to a Shareholder’s disposition of its
Shares, the Shareholder’s basis will be increased by the
amount by which such basis reduction exceeds the excess interest
expense that has been deducted by such Shareholder.
To the
extent that the Fund allocates losses or expenses to you that must
be deferred or are disallowed as a result of these or other
limitations in the Code, you may be taxed on income in excess of
your economic income or distributions (if any) on your Shares. As
one example, you could be allocated and required to pay tax on your
share of interest income accrued by the Fund for a particular
taxable year, and in the same year be allocated a share of a
capital loss that you cannot deduct currently because you have
insufficient capital gains against which to offset the loss. As
another example, you could be allocated and required to pay tax on
your share of interest income and capital gain for a year but be
unable to deduct some or all of your share of management fees
and/or margin account interest incurred by you with respect to your
Shares. Shareholders are urged to consult their own professional
tax advisor regarding the effect of limitations under the Code on
their ability to deduct their allocable share of the Fund’s
losses and expenses.
Tax Basis of Shares
A
Shareholder’s tax basis in its Shares is important in
determining (1) the amount of taxable gain or loss it will realize
on the sale or other disposition of its Shares, (2) the amount of
non-taxable distributions that it may receive from the Fund, and
(3) its ability to utilize its distributive share of any losses of
the Fund on its tax return. A Shareholder’s initial tax basis
of its Shares will equal its cost for the Shares plus its share of
the Fund’s liabilities (if any) at the time of purchase. In
general, a Shareholder’s “share” of those
liabilities will equal the sum of (i) the entire amount of any
otherwise nonrecourse liability of the Fund as to which the
Shareholder or an affiliate of the Shareholder is the creditor (a
“partner nonrecourse liability”) and (ii) a pro rata
share of any nonrecourse liabilities of the Fund that are not
partner nonrecourse liabilities as to any Shareholder.
A
Shareholder’s tax basis in its Shares generally will be (1)
increased by (a) its allocable share of the Fund’s taxable
income and gain and (b) any additional contributions by the
Shareholder to the Fund and (2) decreased (but not below zero) by
(a) its allocable share of the Fund’s tax deductions and
losses and (b) any distributions by the Fund to the Shareholder.
For this purpose, an increase in a Shareholder’s share of the
Fund’s liabilities will be treated as a contribution of cash
by the Shareholder to the Fund and a decrease in that share will be
treated as a distribution of cash by the Fund to the Shareholder.
Pursuant to certain IRS rulings, a Shareholder will be required to
maintain a single, “unified” basis in all Shares that
it owns. As a result, when a Shareholder that acquired its Shares
at different prices sells less than all of its Shares, such
Shareholder will not be entitled to specify particular Shares
(e.g., those with a higher
basis) as having been sold. Rather, it must determine its gain or
loss on the sale by using an “equitable apportionment”
method to allocate a portion of its unified basis in its Shares to
the Shares sold.
Treatment of Fund Distributions. If the
Fund makes non-liquidating distributions to Shareholders, such
distributions generally will not be taxable to the Shareholders for
federal income tax purposes except to the extent that the amount of
money distributed exceeds the Shareholder’s adjusted basis of
its interest in the Fund immediately before the distribution. Any
money distributed that is in excess of a Shareholder’s tax
basis generally will be treated as gain from the sale or exchange
of Shares. For purposes
of determining the gain recognized on a distribution from a
partnership, a marketable security distributed to a partner is
generally treated as money. This treatment, however, does not apply
to distributions to “eligible partners” of an
“investment partnership,” as those terms are defined in
the Code.
Tax Consequences of
Disposition of Shares
If a
Shareholder sells its Shares, it will recognize gain or loss equal
to the difference between the amount realized and its adjusted tax
basis for the Shares sold. A Shareholder’s amount realized
will be the sum of the cash or the fair market value of other
property received plus its share of the Fund's
liabilities.
Gain or
loss recognized by a Shareholder on the sale or exchange of Shares
held for more than one year will generally be taxable as long-term
capital gain or loss; otherwise, such gain or loss will generally
be taxable as short-term capital gain or loss. A special election
is available under the Treasury Regulations that allows
Shareholders to identify and use the actual holding periods for the
Shares sold for purposes of determining whether the gain or loss
recognized on a sale of Shares will give rise to long-term or
short-term capital gain or loss. It is expected that most
Shareholders will be eligible to elect, and generally will elect,
to identify and use the actual holding periods for Shares sold. If
a Shareholder who has differing holding period for its Shares fails
to make the election or is not able to identify the holding periods
of the Shares sold, the Shareholder will have a split holding
period in the Shares sold. Under such circumstances, a Shareholder
will be required to determine its holding period in the Shares sold
by first determining the portion of its entire interest in the Fund
that would give rise to long-term capital gain or loss if its
entire interest were sold and the portion that would give rise to
short-term capital gain or loss if the entire interest were sold.
The Shareholder would then treat each Share sold as giving rise to
long-term capital gain or loss and short-term capital gain or loss
in the same proportions as if it had sold its entire interest in
the Fund.
Under
Section 751 of the Code, a portion of a Shareholder’s gain or
loss from the sale of Shares (regardless of the holding period for
such Shares), will be separately computed and taxed as ordinary
income or loss to the extent attributable to “unrealized
receivables” or “inventory” owned by the Fund.
The term “unrealized receivables” includes, among other
things, market discount bonds and short-term debt instruments to
the extent such items would give rise to ordinary income if sold by
the Fund. However, the short-term capital gain on section 1256
contracts resulting from 60-40 treatment, described above, should
not be subject to this rule.
If some
or all of a Shareholder’s Shares are lent by its broker or
other agent to a third party — for example, for use by the
third party in covering a short sale — the Shareholder may be
considered as having made a taxable disposition of the loaned
Shares, in which case —
|
●
|
the
Shareholder may recognize taxable gain or loss to the same extent
as if it had sold the Shares for cash;
|
|
●
|
any of
the income, gain, loss or deduction allocable to those Shares
during the period of the loan is not reportable by the Shareholder
for tax purposes; and
|
|
●
|
any
distributions the Shareholder receives with respect to the Shares
under the loan agreement will be fully taxable to the Shareholder,
most likely as ordinary income.
|
Shareholders
desiring to avoid these and other possible consequences of a deemed
disposition of their Shares should consider modifying any
applicable brokerage account agreements to prohibit the lending of
their Shares.
Other Tax Matters
Information
Reporting. The Fund provides tax information to the Shareholders
and to the IRS, as required. Shareholders of the Fund are treated
as partners for federal income tax purposes. Accordingly, the Fund
will furnish Shareholders each year, with tax information on IRS
Schedule K-1 (Form 1065), which will be used by the Shareholders in
completing their tax returns. The IRS has ruled that assignees of
partnership interests who have not been admitted to a partnership
as partners but who have the capacity to exercise substantial
dominion and control over the assigned partnership interests will
be considered partners for federal income tax purposes. On the
basis of this ruling, except as otherwise provided herein, we will
treat as a Shareholder any person whose shares are held on their
behalf by a broker or other nominee if that person has the right to
direct the nominee in the exercise of all substantive rights
attendant to the ownership of the Shares.
Persons
who hold an interest in the Fund as a nominee for another person
are required to furnish to us the following information: (1) the
name, address and taxpayer identification number of the beneficial
owner and the nominee; (2) whether the beneficial owner is (a) a
person that is not a U.S. person, (b) a foreign government, an
international organization or any wholly-owned agency or
instrumentality of either of the foregoing, or (c) a tax-exempt
entity; (3) the number and a description of Shares acquired or
transferred for the beneficial owner; and (4) certain information
including the dates of acquisitions and transfers, means of
acquisitions and transfers, and acquisition cost for purchases, as
well as the amount of net proceeds from sales. Brokers and
financial institutions are required to furnish additional
information, including whether they are U.S. persons and certain
information on Shares they acquire, hold or transfer for their own
account. A penalty of $250 per failure (as adjusted for inflation),
up to a maximum of $3,000,000 per calendar year (as adjusted for
inflation), is imposed by the Code for failure to report such
information correctly to the Fund. If the failure to furnish such
information correctly is determined to be willful, the per failure
penalty increases to $500 (as adjusted for inflation) or, if
greater, 10% of the aggregate amount of items required to be
reported, and the $3,000,000 maximum does not apply. The nominee is
required to supply the beneficial owner of the Shares with
the federal income tax information furnished by the
Fund.
Partnership Audit
Procedures. The IRS may audit the federal income tax returns filed
by the Fund. Adjustments resulting from any such audit may require
a Shareholder to adjust a prior year’s tax liability and
could result in an audit of the Shareholder’s own return. Any
audit of a Shareholder’s return could result in adjustments
of non-partnership items as well as Fund items. Partnerships are
generally treated as separate entities for purposes of federal tax
audits, judicial review of administrative adjustments by the IRS,
and tax settlement proceedings. The tax treatment of partnership
items of income, gain, loss and deduction are determined at the
partnership level in a unified partnership proceeding rather than
in separate proceedings with the partners. The Code provides for
one partner to be designated as the “tax matters
partner” and to represent the partnership for purposes of
these proceedings. The Trust Agreement appoints the Sponsor as the
tax matters partner of the Fund.
The
Bipartisan Budget Act of 2015 adopted a new partnership-level audit
and assessment procedure for all entities treated as partnerships
for U.S. federal income tax purposes. These new rules generally
apply to partnership taxable years beginning after December 31,
2017. Under these rules, tax deficiencies (including interest and
penalties) that arise from an adjustment to partnership items
generally would be assessed and collected from the partnership
(rather than from the partners), and generally would be calculated
using maximum applicable tax rates (although such partnership level
tax may be reduced or eliminated under limited circumstances). A
narrow category of partnerships (generally, partnerships having no
more than 100 partners that consist exclusively of individuals, C
corporations, S corporations and estates) are permitted to elect
out of the new partnership-level audit rules. As an alternative to
partnership-level tax liability, a partnership may elect to furnish
adjusted Schedule K-1s to the IRS and to each person who was a
partner in the audit year, stating such partner’s share of
any partnership adjustments, and each such partner would then take
the adjustments into account on its tax returns in the year in
which it receives its adjusted Schedule K-1 (rather than by
amending their tax returns for the audited year). If the Fund were
subject to a partnership level tax as a result of these new rules,
the economic return of all Shareholders (including Shareholders
that did not own Shares in the Fund during the taxable year to
which the audit relates) may be affected.
To
address these new rules, the Sponsor amended the Trust Agreement so
that if the Fund becomes subject to any tax as a result of any
adjustment to taxable income, gain, loss, deduction or credit for
any taxable year of the Fund (pursuant to a tax audit or
otherwise), such Shareholder (and each former Shareholder) is
obligated to indemnify the Fund and the Sponsor against any such
taxes (including any interest and penalties) to the extent such tax
(or portion thereof) is properly attributable to such Shareholder
(or former Shareholder). In addition, the Sponsor, on behalf of the
Fund, will be authorized to take any action permitted under
applicable law to avoid the assessment of any such taxes against
the Fund (including an election to issue adjusted Schedule K-1s to
the Shareholders (and/or former Shareholders) which takes such
adjustments to taxable income, gain, loss, deduction or credit into
account.
Reportable Transaction Rules. In
certain circumstances the Code and Treasury Regulations require
that the IRS be notified of transactions through a disclosure
statement attached to a taxpayer’s United States federal
income tax return. These disclosure rules may apply to transactions
irrespective of whether they are structured to achieve particular
tax benefits. They could require disclosure by the Trust or
Shareholders if a Shareholder incurs a loss in excess of a
specified threshold from a sale or redemption of its Shares and
possibly in other circumstances. While these rules generally do not
require disclosure of a loss recognized on the disposition of an
asset in which the taxpayer has a “qualifying basis”
(generally a basis equal to the amount of cash paid by the taxpayer
for such asset), they apply to a loss recognized with respect to
interests in a pass-through entity, such as the Shares, even if the
taxpayer’s basis in such interests is equal to the amount of
cash it paid. In addition, significant monetary penalties may be
imposed in connection with a failure to comply with these reporting
requirements. Investors should consult their own tax advisor
concerning the application of these reporting requirements to their
specific situation.
Tax-Exempt Organizations. Subject to
numerous exceptions, qualified retirement plans and individual
retirement accounts, charitable organizations and certain other
organizations that otherwise are exempt from U.S. federal income
tax (collectively, “exempt organizations”) nonetheless
are subject to the tax on unrelated business taxable income
(“UBTI”). Generally, UBTI means the gross income
derived by an exempt organization from a trade or business that it
regularly carries on, the conduct of which is not substantially
related to the exercise or performance of its exempt purpose or
function, less allowable deductions directly connected with that
trade or business. If the Fund were to regularly carry on (directly
or indirectly) a trade or business that is unrelated with respect
to an exempt organization Shareholder, then in computing its UBTI,
the Shareholder must include its share of (1) the Fund’s
gross income from the unrelated trade or business, whether or not
distributed, and (2) the Fund’s allowable deductions directly
connected with that gross income. An exempt organization that has
more than one unrelated trade or business must compute its UBTI
separately for each such trade or business.
UBTI
generally does not include dividends, interest, or payments with
respect to securities loans and gains from the sale of property
(other than property held for sale to customers in the ordinary
course of a trade or business). Nonetheless, income on, and gain
from the disposition of, “debt-financed property” is
UBTI. Debt-financed property generally is income-producing property
(including securities), the use of which is not substantially
related to the exempt organization’s tax-exempt purposes, and
with respect to which there is “acquisition
indebtedness” at any time during the taxable year (or, if the
property was disposed of during the taxable year, the 12-month
period ending with the disposition). Acquisition indebtedness
includes debt incurred to acquire property, debt incurred before
the acquisition of property if the debt would not have been
incurred but for the acquisition, and debt incurred subsequent to
the acquisition of property if the debt would not have been
incurred but for the acquisition and at the time of acquisition the
incurrence of debt was foreseeable. The portion of the income from
debt-financed property attributable to acquisition indebtedness is
equal to the ratio of the average outstanding principal amount of
acquisition indebtedness over the average adjusted basis of the
property for the year. The Fund currently does not anticipate that
it will borrow money to acquire investments; however, the Fund
cannot be certain that it will not borrow for such purpose in the
future. In addition, an exempt organization Shareholder that incurs
acquisition indebtedness to purchase its Shares in the Fund may
have UBTI.
The
federal tax rate applicable to an exempt organization Shareholder
on its UBTI generally will be either the corporate or trust tax
rate, depending upon the Shareholder’s form of organization.
The Fund may report to each such Shareholder information as to the
portion, if any, of the Shareholder’s income and gains from
the Fund for any year that will be treated as UBTI; the calculation
of that amount is complex, and there can be no assurance that the
Fund’s calculation of UBTI will be accepted by the IRS. An
exempt organization Shareholder will be required to make payments
of estimated federal income tax with respect to its
UBTI.
Regulated
Investment Companies. Interests in and income from “qualified
publicly traded partnerships” satisfying certain gross income
tests are treated as qualifying assets and income, respectively,
for purposes of determining eligibility for regulated investment
company (“RIC”) status. A RIC may invest up to 25% of
its assets in interests in qualified publicly traded partnerships.
The determination of whether a publicly traded partnership such as
the Fund is a qualified publicly traded partnership is made on an
annual basis. The Fund expects to be a qualified publicly traded
partnership in each of its taxable years. However, such
qualification is not assured.
Non-U.S. Shareholders
Generally, non-U.S.
persons who derive U.S. source income or gain from investing or
engaging in a U.S. business are taxable on two categories of
income. The first category consists of amounts that are fixed or
determinable, annual or periodic income, such as interest,
dividends and rent that are not connected with the operation of a
U.S. trade or business (“FDAP”). The second category is
income that is effectively connected with the conduct of a U.S.
trade or business (“ECI”). FDAP income (other than
interest that is considered “portfolio interest;” as
discussed below) is generally subject to a 30% withholding tax,
which may be reduced for certain categories of income by a treaty
between the U.S. and the recipient’s country of residence. In
contrast, ECI is generally subject to U.S. tax on a net basis at
graduated rates upon the filing of a U.S. tax return. Where a
non-U.S. person has ECI as a result of an investment in a
partnership, the ECI is currently subject to a withholding tax at a
rate of 37% for individual Shareholders and a rate of 21% for
corporate Shareholders. The tax withholding on ECI, which is the
highest tax rate under Code section 1 for non-corporate Non-U.S.
Shareholders and Code section 11(b) for corporate Non-U.S.
Shareholders, may increase in future tax years if tax rates
increase from their current levels.
Withholding on
Allocations and Distributions. The Code provides that a non-U.S.
person who is a partner in a partnership that is engaged in a U.S.
trade or business during a taxable year will also be considered to
be engaged in a U.S. trade or business during that year.
Classifying an activity by a partnership as an investment or an
operating business is a factual determination. Under certain safe
harbors in the Code, an investment fund whose activities consist of
trading in stocks, securities, or commodities for its own account
generally will not be considered to be engaged in a U.S. trade or
business unless it is a dealer is such stocks, securities, or
commodities. This safe harbor applies to investments in commodities
only if the commodities are of a kind customarily dealt in on an
organized commodity exchange and if the transaction is of a kind
customarily consummated at such place. Although the matter is not
free from doubt, the Fund believes that the activities directly
conducted by the Fund do not result in the Fund being engaged in a
trade or business within in the United States. However, there can
be no assurance that the IRS would not successfully assert that the
Fund’s activities constitute a U.S. trade or
business.
In the event that
the Fund’s activities were considered to constitute a U.S.
trade or business, the Fund would be required to withhold at the
highest rate specified in Code section 1 (currently 37%) on
allocations of our income to non-corporate Non-U.S. Shareholders
and the highest rate specified in Code section 11(b) (currently
21%) on allocations of our income to corporate Non-U.S.
Shareholders, when such income is distributed. Non-U.S.
Shareholders would also be subject to a 10% withholding tax on the
consideration payable upon a sale or exchange of such Non-U.S.
Shareholder’s Shares, although the IRS has temporarily
suspended this withholding for interests in publicly traded
partnerships until regulations implementing such withholding are
issued. If recently promulgated regulations are finalized as
proposed, such regulations would provide, with respect to transfers
of publicly traded interest in publicly traded partnerships
effected through a broker, that the obligation to withhold is
imposed on the transferor’s broker. However, it is not clear
when such regulations will be finalized and if they will be
finalized in their current form. A Non-U.S. Shareholder with ECI
will generally be required to file a U.S. federal income tax
return, and the return will provide the Non-U.S. Shareholder with
the mechanism to seek a refund of any withholding in excess of such
Shareholder’s actual U.S. federal income tax liability. Any
amount withheld by the Fund will be treated as a distribution to
the Non-U.S. Shareholder to the extent possible. In some cases, the
Fund may not be able to match the economic cost of satisfying its
withholding obligations to a particular Non-U.S. Shareholder, which
may result in said cost being borne by the Fund, generally, and
accordingly, by all Shareholders.
If the Fund is not
treated as engaged in a U.S. trade or business, a Non-U.S.
Shareholder may nevertheless be treated as having FDAP income,
which would be subject to a 30% withholding tax (possibly subject
to reduction by treaty), with respect to some or all of its
distributions from the Fund or its allocable share of Fund income.
Amounts withheld on behalf of a Non-U.S. Shareholder will be
treated as being distributed to such Shareholder. If the Fund is
not able to match the economic cost of satisfying its withholding
obligation to a particular Non-U.S. Shareholder, said cost may have
to be borne by the Fund and accordingly by all
Shareholders.
To the
extent any interest income allocated to a Non-U.S. Shareholder that
otherwise constitutes FDAP is considered “portfolio
interest,” neither the allocation of such interest income to
the Non-U.S. Shareholder nor a subsequent distribution of such
interest income to the Non-U.S. Shareholder will be subject to
withholding, provided that the Non-U.S. Shareholder is not
otherwise engaged in a trade or business in the U.S. and provides
the Fund with a timely and properly completed and executed IRS Form
W-8BEN or other applicable form. In general, portfolio interest is
interest paid on debt obligations issued in registered form, unless
the recipient owns 10% or more of the voting power of the issuer. A
Non-U.S. Shareholder’s allocable share of interest on U.S.
bank deposits, certificates of deposit and discount obligations
with maturities from original issue of 183 days or less should also
not be subject to withholding. Generally, other interest from U.S.
sources paid to the Fund and allocable to Non-U.S. Shareholders
will be subject to withholding.
In
order for the Fund to avoid withholding on any interest income
allocable to Non-U.S. Shareholders that would qualify as portfolio
interest, it will be necessary for all Non-U.S. Shareholders to
provide the Fund with a timely and properly completed and executed
Form W-8BEN (or other applicable form).
Gain
from Sale of Shares. Gain from the sale or exchange of Shares may
be taxable to a Non-U.S. Shareholder if the Non-U.S. Shareholder is
a nonresident alien individual who is present in the U.S. for 183
days or more during the taxable year. In such case, the nonresident
alien individual may be subject to a 30% withholding tax on the
amount of such individual’s gain.
Branch
Profits Tax on Corporate Non-U.S. Shareholders. In addition to the
taxes noted above, any Non-U.S. Shareholders that are corporations
may also be subject to an additional tax, the branch profits tax,
at a rate of 30%. The branch profits tax is imposed on a non-U.S.
corporation’s dividend equivalent amount, which generally
consists of the corporation’s after-tax earnings and profits
that are effectively connected with the corporation’s U.S.
trade or business but are not reinvested in a U.S. business. This
tax may be reduced or eliminated by an income tax treaty between
the United States and the country in which the Non-U.S. Shareholder
is a “qualified resident.”
Foreign Account Tax Compliance
Act. Legislation
commonly referred to as the Foreign Account Tax Compliance Act or
"FACTA", generally imposes a 30% U.S. withholding tax on payments
of certain types of income to foreign financial institutions that
fail to enter into an agreement with the United States Treasury to
report certain required information with respect to accounts held
by U.S. persons (or held by foreign entities that have U.S. persons
as substantial owners). The types of income subject to the
withholding tax include U.S.-source interest and dividends and the
gross proceeds from the sale of any property that could produce
U.S.-source interest or dividends. Proposed Treasury Regulations,
however, generally eliminate withholding under FATCA on gross
proceeds. Taxpayers generally may rely on these proposed Treasury
Regulations until final Treasury Regulations are issued. The
information required to be reported includes the identity and
taxpayer identification number of each account holder that is a
U.S. person and transaction activity within the holder’s
account. In addition, subject to certain exceptions, this
legislation also imposes a 30% U.S. withholding tax on payments to
foreign entities that are not financial institutions unless the
foreign entity certifies that it does not have a greater than 10%
U.S. owner or provides the withholding agent with identifying
information on each greater than 10% U.S. owner. Depending on the
status of a Non-U.S. Shareholder and the status of the
intermediaries through which it holds Shares, a Non-U.S.
Shareholder could be subject to this 30% U.S. withholding tax with
respect to distributions on its Shares. Under certain
circumstances, a Non-U.S. Shareholder may be eligible for a refund
or credit of such taxes.
Prospective
Non-U.S. Shareholders should consult their own tax advisor
regarding these and other tax issues unique to Non-U.S.
Shareholders.
Backup Withholding
The
Fund may be required to withhold U.S. federal income tax
(“backup withholding”) from payments to: (1) any
Shareholder who fails to furnish the Fund with his, her or its
correct taxpayer identification number or a certificate that the
Shareholder is exempt from backup withholding, and (2) any
Shareholder with respect to whom the IRS notifies the Fund that the
Shareholder is subject to backup withholding. Backup withholding is
not an additional tax and may be returned or credited against a
taxpayer’s regular federal income tax liability if
appropriate information is provided to the IRS. The backup
withholding rate is the fourth lowest rate applicable to
individuals under Code section 1(c) (currently 24%) and may
increase in future tax years.
Other Tax Considerations
In
addition to federal income taxes, Shareholders may be subject to
other taxes, such as state and local income taxes, unincorporated
business taxes, business franchise taxes, and estate, gifts,
inheritance or intangible taxes that may be imposed by the various
jurisdictions in which the Fund does business or owns property or
where the Shareholders reside. Although an analysis of those
various taxes is not presented here, each prospective Shareholder
should consider their potential impact on its investment in the
Fund. It is each Shareholder’s responsibility to file the
appropriate U.S. federal, state, local, and foreign tax returns.
Vedder Price has not provided an opinion concerning any aspects of
state, local or foreign tax or U.S. federal tax other than those
U.S. federal income tax issues discussed herein.
Investment by ERISA
Accounts General
Most
employee benefit plans and individual retirement accounts
(“IRAs”) are subject to the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), or the
Code, or both. This section discusses certain considerations that
arise under ERISA and the Code that a fiduciary of: (i) an employee
benefit plan as defined in ERISA. (ii) a plan as defined in Section
4975 of the Code. or (ii) any collective investment vehicle,
business trust, investment partnership, pooled separate account or
other entity the assets of which are treated as comprised (at least
in part) of “plan assets” under the ERISA “plan
assets” rules (“plan asset entity”) who has
investment discretion should take into account before deciding to
invest the plan’s assets in the Fund. Employee benefit plans
under ERISA, plans under the Code and plan asset entities are
collectively referred to below as “plans,” and
fiduciaries with investment discretion are referred to below as
“plan fiduciaries.”
This
summary is based on the provisions of ERISA and the Code as of the
date hereof. This summary is not intended to be complete, but only
to address certain questions under ERISA and the Code likely to be
raised by your advisors. The summary does not include state or
local law.
Potential plan investors are
urged to consult with their own professional advisors concerning
the appropriateness of an investment in the Fund and the manner in
which Shares should be purchased.
Special Investment Considerations
Each
plan fiduciary must consider the facts and circumstances that are
relevant to an investment in the Fund, including the role that an
investment in the Fund would play in the plan’s overall
investment portfolio. Each plan fiduciary, before deciding to
invest in the Fund, must be satisfied that the investment is
prudent for the plan, that the investments of the plan are
diversified so as to minimize the risk of large losses, and that an
investment in the Fund complies with the terms of the plan. The
Sponsor is not undertaking to provide investment advice, or to give
advice in a fiduciary capacity, in connection with a plan’s
investment in the Fund.
The Fund and Plan Assets
A
regulation issued under ERISA contains rules for determining when
an investment by a plan in an equity interest of a statutory trust
will result in the underlying assets of the statutory trust being
deemed plan assets for purposes of ERISA and Section 4975 of the
Code. Those rules provide that assets of a statutory trust will not
be plan assets of a plan that purchases an equity interest in the
statutory trust if the equity interest purchased is a publicly
offered security. If the underlying assets of a statutory trust are
considered to be assets of any plan for purposes of ERISA or
Section 4975 of the Code, the operations of that trust would be
subject to and, in some cases, limited by the provisions of ERISA
and Section 4975 of the Code.
The
publicly offered security exception described above applies if the
equity interest is a security that is:
(1)
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freely
transferable (determined based on the relevant facts and
circumstances).
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(2)
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part of
a class of securities that is widely held (meaning that the class
of securities is owned by 100 or more investors independent of the
issuer and of each other). and
|
(3)
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either
(a) part of a class of securities registered under Section 12(b) or
12(g) of the Exchange Act or (b) sold to the plan as part of a
public offering pursuant to an effective registration statement
under the 1933 Act and the class of which such security is a part
is registered under the Exchange Act within 120 days (or such later
time as may be allowed by the SEC) after the end of the fiscal year
of the issuer in which the offering of such security
occurred.
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The
plan asset regulations under ERISA state that the determination of
whether a security is freely transferable is to be made based on
all the relevant facts and circumstances. In the case of a security
that is part of an offering in which the minimum investment is
$10,000 or less, the following requirements, alone or in
combination, ordinarily will not affect a finding that the security
is freely transferable: (1) a requirement that no transfer or
assignment of the security or rights relating to the security be
made that would violate any federal or state law. and (2) a
requirement that no transfer or assignment be made without advance
written notice given to the entity that issued the
security.
The
Sponsor believes that the conditions described above are satisfied
with respect to the Shares. The Sponsor believes that the Shares
therefore constitute publicly offered securities, and the
underlying assets of the Fund should not be considered to
constitute plan assets of any plan that purchases
Shares.
Prohibited Transactions
ERISA
and the Code generally prohibit certain transactions involving a
plan and persons who have certain specified relationships to the
plan. In general, Shares may not be purchased with the assets of a
plan if the Sponsor, the clearing brokers, the trading advisors (if
any), or any of their affiliates, agents or employees
either:
●
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exercise
any discretionary authority or discretionary control with respect
to management of the plan.
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●
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exercise
any authority or control with respect to management or disposition
of the assets of the plan.
|
●
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render
investment advice for a fee or other compensation, direct or
indirect, with respect to any moneys or other property of the
plan.
|
●
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have
any authority or responsibility to render investment advice with
respect to any monies or other property of the plan.
or
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●
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have
any discretionary authority or discretionary responsibility in the
administration of the plan.
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Also, a
prohibited transaction may occur under ERISA or the Code when
circumstances indicate that (1) the investment in Shares is made or
retained for the purpose of avoiding application of the fiduciary
standards of ERISA, (2) the investment in Shares constitutes an
arrangement under which the Fund is expected to engage in
transactions that would otherwise be prohibited if entered into
directly by the plan purchasing the Shares, (3) the investing plan,
by itself, has the authority or influence to cause the Fund to
engage in such transactions, or (4) a person who is prohibited from
transacting with the investing plan may, but only with the aid of
certain of its affiliates and the investing plan, cause the Fund to
engage in such transactions with such person.
Special IRA Rules
IRAs
are not subject to ERISA’s fiduciary standards, but are
subject to their own rules, including the prohibited transaction
rules of Section 4975 of the Code, which generally mirror
ERISA’s prohibited transaction rules. For example, IRAs are
subject to special custody rules and must maintain a qualifying IRA
custodial arrangement separate and distinct from the Fund and its
custodial arrangement. If a separate qualifying custodial
arrangement is not maintained, an investment in the Shares will be
treated as a distribution from the IRA. Second, IRAs are prohibited
from investing in certain commingled investments, and the Sponsor
makes no representation regarding whether an investment in Shares
is an inappropriate commingled investment for an IRA. Third, in
applying the prohibited transaction provisions of Section 4975 of
the Code, in addition to the rules summarized above, the individual
for whose benefit the IRA is maintained is also treated as the
creator of the IRA. For example, if the owner or beneficiary of an
IRA enters into any transaction, arrangement, or agreement
involving the assets of his or her IRA to benefit the IRA owner or
beneficiary (or his or her relatives or business affiliates)
personally, or with the understanding that such benefit will occur,
directly or indirectly, such transaction could give rise to a
prohibited transaction that is not exempted by any available
exemption. Moreover, in the case of an IRA, the consequences of a
non-exempt prohibited transaction are that the IRA’s assets
will be treated as if they were distributed, causing immediate
taxation of the assets (including any early distribution penalty
tax applicable under Section 72 of the Code), in addition to any
other fines or penalties that may apply.
Exempt Plans
Certain
employee benefit plans may be governmental plans or church plans.
Governmental plans and church plans are generally not subject to
ERISA, nor do the prohibited transaction provisions described above
apply to them. These plans are, however, subject to prohibitions
against certain related-party transactions under Section 503 of the
Code, which are similar to the prohibited transaction rules
described above. In addition, the fiduciary of any governmental or
church plan must consider any applicable state or local laws and
any restrictions and duties of common law imposed upon the
plan.
No view
is expressed as to whether an investment in the Fund (and any
continued investment in the Fund), or the operation and
administration of the fund, is appropriate or permissible for any
governmental plan or church plan under Code Section 503, or under
any state, county, local or other law relating to that type of
plan.
Allowing
an investment in the Fund is not to be construed as a
representation by the Trust, the Fund, the Sponsor, any trading
advisor, any clearing broker, the Distributor or legal counsel or
other advisors to such parties or any other party that this
investment meets some or all of the relevant legal requirements
with respect to investments by any particular plan or that this
investment is appropriate for any such particular plan. The person
with investment discretion should consult with the plan’s
attorney and financial advisors as to the propriety of an
investment in the Fund in light of the circumstances of the
particular plan, current tax law and ERISA.
INCORPORATION BY REFERENCE OF
CERTAIN INFORMATION
We are
a reporting company and file annual, quarterly and current reports
and other information with the SEC. The rules of the SEC allow us
to “incorporate by reference” information that we file
with them, which means that we can disclose important information
to you by referring you to those documents. The information
incorporated by reference is an important part of this prospectus.
This prospectus incorporates by reference the documents set forth
below that have been previously filed with the SEC and any other
future filing that we make with the SEC under Section 13(a), 13(c),
14 and 15(d) of the Securities Exchange Act of 1934 (in each case
other than those documents or portions of those documents not
deemed to have been filed in accordance with SEC rules) between the
date of this prospectus and the termination of the offering of the
securities to be issued under the registration
statement:
●
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our
Annual Report on Form 10-K for the fiscal year ended December 31,
2019, filed with the SEC on March 11, 2020.
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Any
statement contained in a document incorporated by reference in this
prospectus shall be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement
contained in this prospectus or in any other subsequently filed
document that also is or is deemed to be incorporated by reference
in this prospectus modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this
prospectus.
We will
provide to each person to whom a prospectus is delivered, including
any beneficial owner, a copy of any document incorporated by
reference in the prospectus (excluding any exhibits to those
documents unless the exhibit is specifically incorporated by
reference in that document) at no cost, upon written or oral
request at the following address or telephone number:
Teucrium
Wheat Fund
Attention:
Cory Mullen-Rusin
Three
Main Street Suite 215
Burlington,
VT 05401
(802)
540-0019
Our
Internet website is www.teucrium.com. We make our
electronic filings with the SEC, including our annual reports on
Form 10K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to these reports available on our website
free of charge as soon as practicable after we file or furnish them
with the SEC. The information contained on our website is not
incorporated by reference in this prospectus and should not be
considered a part of this prospectus.
INFORMATION YOU SHOULD KNOW
This
prospectus contains information you should consider when making an
investment decision about the Shares. You should rely only on the
information contained in this prospectus or any applicable
prospectus supplement. None of the Trust, the Fund or the Sponsor
has authorized any person to provide you with different information
and, if anyone provides you with different or inconsistent
information, you should not rely on it. This prospectus is not an
offer to sell the Shares in any jurisdiction where the offer or
sale of the Shares is not permitted.
The
information contained in this prospectus was obtained from us and
other sources believed by us to be reliable.
You
should disregard anything we said in an earlier document that is
inconsistent with what is included in this prospectus or any
applicable prospectus supplement. Where the context requires, when
we refer to this “prospectus,” we are referring to this
prospectus and (if applicable) the relevant prospectus
supplement.
You
should not assume that the information in this prospectus or any
applicable prospectus supplement is current as of any date other
than the date on the front page of this prospectus or the date on
the front page of any applicable prospectus
supplement.
We
include cross references in this prospectus to captions in these
materials where you can find further related discussions. The table
of contents tells you where to find these captions.
WHERE YOU CAN FIND MORE
INFORMATION
The
Trust has filed on behalf of the Fund a registration statement with
the SEC under the 1933 Act. This prospectus does not contain all of
the information set forth in the registration statement (including
the exhibits to the registration statement), parts of which have
been omitted in accordance with the rules and regulations of the
SEC. For further information about the Trust, the Fund or the
Shares, please refer to the registration statement, which you may
inspect online at www.sec.gov. Information about the Trust, the
Fund and the Shares can also be obtained from the Fund’s
website, which is www.teucrium.com.
The Fund’s website address is only provided here as a
convenience to you and the information contained on or connected to
the website is not part of this prospectus or the registration
statement of which this prospectus is part. The Trust is subject to
the informational requirements of the Exchange Act and will file
certain reports and other information with the SEC under the
Exchange Act. The Sponsor will file an updated prospectus annually
for the Fund pursuant to the 1933 Act. The reports and other
information can be inspected online at www.sec.gov which is an
Internet site maintained by the SEC that contains reports, proxy
and information statements and other information regarding issuers
that file electronically with the SEC.
STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus includes “forward-looking statements” which
generally relate to future events or future performance. In some
cases, you can identify forward-looking statements by terminology
such as “may,” “will,”
“should,” “expect,” “plan,”
“anticipate,” “believe,”
“estimate,” “predict,”
“potential” or the negative of these terms or other
comparable terminology. All statements (other than statements of
historical fact) included in this prospectus that address
activities, events or developments that will or may occur in the
future, including such matters as movements in the commodities
markets and indexes that track such movements, the Fund’s
operations, the Sponsor’s plans and references to the
Fund’s future success and other similar matters, are
forward-looking statements. These statements are only predictions.
Actual events or results may differ materially. These statements
are based upon certain assumptions and analyses the Sponsor has
made based on its perception of historical trends, current
conditions and expected future developments, as well as other
factors appropriate in the circumstances. Whether or not actual
results and developments will conform to the Sponsor’s
expectations and predictions, however, is subject to a number of
risks and uncertainties, including the special considerations
discussed in this prospectus, general economic, market and business
conditions, changes in laws or regulations, including those
concerning taxes, made by governmental authorities or regulatory
bodies, and other world economic and political developments. See
“What Are the Risk Factors Involved with an Investment in the
Fund?” Consequently, all the forward-looking statements made
in this prospectus are qualified by these cautionary statements,
and there can be no assurance that actual results or developments
the Sponsor anticipates will be realized or, even if substantially
realized, that they will result in the expected consequences to, or
have the expected effects on, the Fund’s operations or the
value of its Shares.
Glossary of Defined Terms
In this
prospectus, each of the following terms have the meanings set forth
after such term:
Administrator: U.S. Bancorp Fund
Services, LLC, doing business as U.S. Bank Global Fund
Services.
Authorized Purchaser: One that purchases or redeems Creation
Baskets or Redemption Baskets, respectively, from or to the
Fund.
Benchmark: A weighted average of daily changes in the
closing settlement prices of (1) the second to expire Wheat Futures
Contract traded on the CBOT, weighted 35%, (2) the third to expire
CBOT Wheat Futures Contract, weighted 30%, and (3) the CBOT Wheat
Futures Contract expiring in the December following the expiration
month of third to expire contract, weighted 35%
Benchmark Component Futures Contracts: The three Wheat
Futures Contracts that at any given time make up the
Benchmark.
Business Day: Any day other than a day when any of the NYSE
Arca, the CBOT or the New York Stock Exchange is closed for regular
trading.
CFTC: Commodity Futures Trading Commission, an independent
federal agency with the mandate to regulate commodity futures and
options in the United States.
Chicago Board of Trade (CBOT): The primary exchange on which
Wheat Futures Contracts are traded in the U.S. The Fund expressly
disclaims any association with the CBOT or endorsement of the Fund
by the CBOT and acknowledges that “CBOT” and
“Chicago Board of Trade” are registered trademarks of
such exchange. The CBOT is part of the CME Group.
Code: Internal Revenue Code of 1986, as
amended.
Commodity Pool: An enterprise in which several individuals
contribute funds in order to trade futures contracts or options on
futures contracts collectively.
Commodity Pool Operator or CPO: Any person engaged in a
business which is of the nature of an investment trust, syndicate,
or similar enterprise, and who, in connection therewith, solicits,
accepts, or receives from others, funds, securities, or property,
either directly or through capital contributions, the sale of stock
or other forms of securities, or otherwise, for the purpose of
trading in any swap or commodity for future delivery or commodity
option on or subject to the rules of any contract
market.
Creation Basket: A block of 25,000 Shares used by the Fund
to issue Shares.
Custodian: U.S. Bank, N.A.
Distributor: Foreside Fund Services, LLC.
DTC: The Depository Trust Company. DTC will act as the
securities depository for the Shares.
DTC Participant: An entity that has an account with
DTC.
Exchange Act: The Securities Exchange Act of
1934.
Exchange for Related Position: A
privately negotiated and simultaneous exchange of a futures
contract position for a swap or other over the counter instrument
on the corresponding commodity.
FINRA: Financial Industry Regulatory Authority.
Forward Contract: an over the counter bilateral contract for
the purchase or sale of a specified quantity of a commodity at a
specified price, on a specified date and at a specified location.
Forwards are almost always settled by delivery of the underlying
commodity. Although not impossible, it is unusual to settle a
Forward financially; therefore, Forwards are generally
illiquid.
Futures Contract: an exchange-traded contract traded with
standard terms that calls for the delivery of a specified quantity
of a commodity at a specified price, on a specified date and at a
specified location. Typically, a futures contract is traded out or
rolled on an exchange before delivery or receipt of the underlying
commodity is required.
Indirect Participants: Banks, brokers,
dealers and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or
indirectly.
Limited Liability Company (LLC): A type
of business ownership combining several features of corporation and
partnership structures.
Margin: The amount of equity required
for an investment in futures contracts.
NAV: Net Asset Value of the
Fund.
NFA: National Futures Association.
NSCC: National Securities Clearing
Corporation.
1933 Act: The Securities Act of
1933.
Option: The right, but not the
obligation, to buy or sell a futures contract, swap agreement,
forward contract or commodity, as applicable, at a specified price
on or before a specified date.
Over the counter Derivative: A financial
contract, whose value is designed to track the return on stocks,
bonds, currencies, commodities, or some other benchmark, that is
traded over the counter or off organized
exchanges.
Redemption Basket: A block of 25,000
Shares used by the Fund to redeem Shares.
SEC: Securities and Exchange
Commission.
Secondary Market: The stock exchanges
and the over the counter market. Securities are first issued as a
primary offering to the public. When the securities are traded from
that first holder to another, the issues trade in these secondary
markets.
Shareholders: Holders of Shares.
Shares: Common units representing fractional undivided
beneficial interests in the Fund.
Sponsor: Teucrium Trading, LLC, a
Delaware limited liability company, which is registered as a
Commodity Pool Operator, who controls the investments and other
decisions of the Fund.
Spot Contract: A cash market transaction in which the buyer
and seller agree to the immediate purchase and sale of a commodity,
usually with a two-day settlement.
Swap Agreement: An over the counter
derivative that generally involves an exchange of a stream of
payments between the contracting parties based on a notional amount
and a specified index.
Tracking Error: Possibility that the daily NAV of the Fund
will not track the Benchmark.
Trust Agreement: The Fifth Amended and
Restated Declaration of Trust and Trust Agreement of the Trust
effective as of April 26, 2019.
Valuation Day: Any day as of which the Fund calculates its
NAV.
Wheat Futures Contracts: Futures
contracts for wheat that are traded on the CBOT, the Kansas City
Board of Trade, the Minneapolis Grain Exchange, or foreign
exchanges.
You: The owner of Shares.
STATEMENT OF ADDITIONAL
INFORMATION
TEUCRIUM WHEAT FUND
This
statement of additional information is the second part of a
two-part document. The first part is the Fund’s disclosure
document. The disclosure document and this statement of additional
information are bound together, and both parts contain important
information. This statement of additional information should be
read in conjunction with the disclosure document. To obtain a copy
of the disclosure document without charge, call the Fund at
802-540-0019. Before you decide whether to invest, you should read
the entire prospectus carefully and consider the risk factors
beginning on page 11.
This
statement of additional information and accompanying disclosure
document are both dated April 29, 2020.
TEUCRIUM
WHEAT FUND
TABLE OF CONTENTS
Wheat
is used to produce flour, the key ingredient for breads, pasta,
crackers and many other food products, as well as several
industrial products such as starches and adhesives. Wheat
by-products are used in livestock feeds. Wheat is the principal
food grain produced in the United States, and the United
States’ output of wheat is typically exceeded only by that of
China, the European Union, the former Soviet nations, known as the
FSU-12, including the Ukraine, and India. The United States
Department of Agriculture (“USDA”) estimates that for
2019-20, the principal global producers of wheat will be the EU,
the former Soviet nations known as the FSU-12, China, India, the
United States, Australia and Canada. The U.S. generates
approximately 7% of the global production, with approximately 51%
of that being exported. For 2019-20, based on the January 10, 2020
USDA report, global consumption of 754 MMT is estimated to be
slightly lower than production of 764 MMT. If the global supply of
wheat exceeds global demand, this may have an adverse impact on the
price of wheat. The USDA publishes weekly, monthly, quarterly and
annual updates for U.S. domestic and worldwide wheat production and
consumption. These reports are available on the USDA’s
website, www.usda.gov, at no charge. The outlook provided below is
from the January 10, 2020 USDA report.
If the
futures market is in a state of backwardation (i.e., when the price
of wheat in the future is expected to be less than the current
price), the Fund will buy later to expire contracts for a lower
price than the sooner to expire contracts that it sells.
Hypothetically, and assuming no changes to either prevailing wheat
prices or the price relationship between immediate delivery, soon
to expire contracts and later to expire contracts, the value of a
contract will rise as it approaches expiration. If the futures
market is in contango, the Fund will buy later to expire contracts
for a higher price than the sooner to expire contracts that it
sells. Hypothetically, and assuming no other changes to either
prevailing wheat prices or the price relationship between the spot
price, soon to expire contracts and later to expire contracts, the
value of a contract will fall as it approaches expiration.
Historically, the wheat futures markets have experienced periods of
both contango and backwardation. Frequently, whether contango or
backwardation exists is a function, among other factors, of the
seasonality of the wheat market and the wheat harvest cycle. All
other things being equal, a situation involving prolonged periods
of contango may adversely impact the returns of the Fund;
conversely a situation involving prolonged periods of backwardation
may positively impact the returns of the Fund.
The
price per bushel of wheat in the United States is primarily a
function of both U.S. and global production, as well as U.S. and
global demand. The graph below shows the USDA published price per
bushel by month for the period January 2007 to December
2019.
On
January 10, 2020, the USDA released its monthly World Agricultural
Supply and Demand Estimates (WASDE) for the Crop Year 2019-20. The
exhibit below provides a summary of historical and current
information for United States wheat production.
![](weatposam001.jpg)
Standard Wheat
Futures Contracts trade on the CBOT in units of 5,000 bushels,
although 1,000 bushel “mini-wheat” Wheat Futures
Contracts also trade. There are several types of wheat grown in the
U.S., which are classified in terms of color, hardness, and growing
season. CBOT Wheat Futures Contracts call for delivery of #2 soft
red winter wheat, which is generally grown in the eastern third of
the United States, but other types and grades of wheat may also be
delivered (Grade #1 soft red winter wheat, Hard Red Winter, Dark
Northern Spring and Northern Spring wheat may be delivered at 3
cents premium per bushel over the contract price and #2 soft red
winter wheat, Hard Red Winter, Dark Northern Spring and Northern
Spring wheat may be delivered at the contract price.) Winter wheat
is planted in the fall and is harvested in the late spring or early
summer of the following year, while spring wheat is planted in the
spring and harvested in late summer or fall of the same year. There
are five months each year in which CBOT Wheat Futures Contracts
expire: March, May, July, September and December.
Over the counter
Derivatives
In
addition to futures contracts, options on futures contracts,
derivative contracts that are tied to various commodities,
including wheat, are entered into outside of public exchanges.
These “over the counter” contracts are entered into
between two parties in private contracts, or on a recently formed
swap execution facility (“SEF”) for certain
standardized swaps. Unlike Wheat Futures Contracts, which are
guaranteed by a clearing organization, each party to an over the
counter derivative contract bears the credit risk of the other
party (unless such over the counter swap is cleared through a DCO),
i.e., the risk that the
other party will not be able to perform its obligations under its
contract.
Some
over the counter derivatives contracts contain relatively
standardized terms and conditions and are available from a wide
range of participants. Others have highly customized terms and
conditions and are not as widely available. While the Fund may
enter into these more customized contracts, the Fund will only
enter into over the counter contracts containing certain terms and
conditions, as discussed further below, that are designed to
minimize the credit risk to which the Fund will be subject and only
if the terms and conditions of the contract are consistent with
achieving the Fund’s investment objective of tracking the
Benchmark. The over the counter contracts that the Fund
may enter into will take the form of either forward contracts,
swaps or options.
A
forward contract is a contractual obligation to purchase or sell a
specified quantity of a commodity at or before a specified date in
the future at a specified price and, therefore, is economically
similar to a futures contract except that, unlike a futures
contract it cannot be financially settled (i.e., one must intend to
make or take delivery of a commodity under a forward contract).
Unlike futures contracts, however, forward contracts are typically
privately negotiated or are traded in the over the counter markets.
Forward contracts for a given commodity are generally available for
various amounts and maturities and are subject to individual
negotiation between the parties involved. Moreover, generally there
is no direct means of offsetting or closing out a forward contract
by taking an offsetting position as one would a futures contract on
a U.S. exchange. If a trader desires to close out a forward
contract position, he generally will establish an opposite position
in the contract but will settle and recognize the profit or loss on
both positions simultaneously on the delivery date. Thus, unlike in
the futures contract market where a trader who has offset positions
will recognize profit or loss immediately, in the forward market a
trader with a position that has been offset at a profit will
generally not receive such profit until the delivery date, and
likewise a trader with a position that has been offset at a loss
will generally not have to pay money until the delivery date.
However, in some very limited instances such contracts may provide
a right of look out that will allow for the receipt of profit and
payment for losses prior to the delivery date.
An over
the counter swap agreement is a bilateral contract to exchange a
periodic stream of payments determined by reference to a notional
amount, with payment typically made between the parties on a net
basis. For instance, in the case of a wheat swap, the Fund may be
obligated to pay a fixed price per bushel of wheat multiplied by a
notional number of bushels and be entitled to receive an amount per
bushel equal to the current value of an index of wheat prices, the
price of a specified Wheat Futures Contract, or the average price
of a group of Wheat Futures Contracts such as the Benchmark (times
the same notional number of bushels). Each party to the swap is
subject to the credit risk of the other party.
The
Fund only enters into over the counter swaps on a net basis, where
the two payment streams are netted out on a daily basis, with the
parties receiving or paying, as the case may be, only the net
amount of the two payments. Swaps do not generally involve the
delivery of underlying assets or principal and are therefore
financially settled. Accordingly, the Fund’s risk of loss
with respect to an over the counter swap generally is limited to
the net amount of payments that the counterparty is contractually
obligated to make less any collateral deposits the Fund is
holding.
To
reduce the credit risk that arises in connection with over the
counter contracts, the Fund generally enters into an agreement with
each counterparty based on the Master Agreement published by the
International Swaps and Derivatives Association, Inc. that provides
for the netting of the Fund’s overall exposure to its
counterparty and for daily payments based on the marked to market
value of the contract.
The
creditworthiness of each potential counterparty will be assessed by
the Sponsor. The Sponsor assesses or reviews, as appropriate, the
creditworthiness of each potential or existing counterparty to an
over the counter contract pursuant to guidelines approved by the
Sponsor. The creditworthiness of existing counterparties will be
reviewed periodically by the Sponsor. The Sponsor’s
President, Chief Investment Officer, and Chief Executive Officer
has over 25 years of experience in over the counter derivatives
trading, including the counterparty creditworthiness analysis
inherent therein. There is no guarantee that the Sponsor’s
creditworthiness analysis will be successful and that
counterparties selected for Fund transactions will not default on
their contractual obligations.
The
Fund also may require that a counterparty be highly rated and/or
provide collateral or other credit support. The Sponsor on behalf
of the Fund may enter into over the counter contracts with various
types of counterparties, including: (a) entities registered as swap
dealers (“SD”) or major swap participants
(“MSP”), or (b) any other entities that qualify as
eligible contract participants (“ECP”).
After
the enactment of the DoddFrank Act, swaps (and options that
are regulated as swaps) are subject to the CFTC’s exclusive
jurisdiction and are regulated as rigorously as futures. Generally,
however, if a swap is entered into with an SD or MSP, such
counterparty will conduct all necessary compliance with respect to
swaps and options under the DoddFrank Act.
Commodity Market
Participants
The two
broad classes of persons who trade commodities are hedgers and
speculators. Hedgers include financial institutions that manage or
deal in interest rate-sensitive instruments, foreign currencies or
stock portfolios, and commercial market participants, such as
farmers and manufacturers, that market or process commodities.
Hedging is a protective procedure designed to effectively lock in
prices that would otherwise change due to an adverse movement in
the price of the underlying commodity, such as the adverse price
movement between the time a merchandiser or processor enters into a
contract to buy or sell a raw or processed commodity at a certain
price and the time he must perform the contract. For example, if a
hedger contracts to physically sell the commodity at a future date,
he may simultaneously buy a futures or forward contract for the
necessary equivalent quantity of the commodity. At the time for
performance of the physical contract, the hedger may accept
delivery under his futures contract and sell the commodity quantity
as required by the physical contract or he may buy the actual
commodity, sell it under the physical contract and close out his
futures contract position by making an offsetting
sale.
The
Commodity Interest markets enable the hedger to shift the risk of
price fluctuations. The usual objective of the hedger is to protect
the profit that he expects to earn from farming, merchandising, or
processing operations rather than to profit from his trading.
However, at times the impetus for a hedge transaction may result in
part from speculative objectives and hedgers can end up paying
higher prices than they would have if they did not enter into a
Commodity Interest transaction if current market prices are lower
than the locked-in price.
Unlike
the hedger, the speculator generally expects neither to make nor
take delivery of the underlying commodity. Instead, the speculator
risks his capital with the hope of making profits from price
fluctuations in the commodities. The speculator is, in effect, the
risk bearer who assumes the risks that the hedger seeks to avoid.
Speculators rarely make or take delivery of the underlying
commodity; rather they attempt to close out their positions prior
to the delivery date. A speculator who takes a long position
generally will make a profit if the price of the underlying
commodity goes up and incur a loss if the price of the underlying
commodity goes down, while a speculator who takes a short position
generally will make a profit if the price of the underlying
commodity goes down and incur a loss if the price of the underlying
commodity goes up.
Regulation
The regulation of futures markets, futures
contracts, and futures exchanges has historically been
comprehensive. The CFTC and the exchanges are authorized to take
extraordinary actions in the event of a market emergency including,
for example, the retroactive implementation of speculative position
limits, increased margin requirements, the establishment of daily
price limits and the suspension of trading on an exchange or
trading facility.
Pursuant to
authority in the CEA, the NFA has been formed and registered with
the CFTC as a registered futures association. At the present time,
the NFA is the only SRO for commodity interest professionals, other
than futures exchanges. The CFTC has delegated to the NFA
responsibility for the registration of CPOs and FCMs and their
respective associated persons. The Sponsor and the Fund’s
clearing broker are members of the NFA. As such, they will be
subject to NFA standards relating to fair trade practices,
financial condition and consumer protection. The NFA also
arbitrates disputes between members and their customers and
conducts registration and fitness screening of applicants for
membership and audits of its existing members. Neither the Trust
nor the Teucrium Funds are required to become a member of the NFA.
The regulation of commodity interest transactions in the United
States is a rapidly changing area of law and is subject to ongoing
modification by governmental and judicial action. Considerable
regulatory attention has been focused on non-traditional investment
pools that are publicly distributed in the United States. There is
a possibility of future regulatory changes within the United States
altering, perhaps to a material extent, the nature of an investment
in the Fund, or the ability of a Fund to continue to implement its
investment strategy. In addition, various national governments
outside of the United States have expressed concern regarding the
disruptive effects of speculative trading in the commodities
markets and the need to regulate the derivatives markets in
general. The effect of any future regulatory change on the Teucrium
Funds is impossible to predict but could be substantial and
adverse.
The
CFTC possesses exclusive jurisdiction to regulate the activities of
commodity pool operators and commodity trading advisors with
respect to "commodity interests," such as futures and swaps and
options, and has adopted regulations with respect to the activities
of those persons and/or entities. Under the Commodity Exchange Act
(“CEA”), a registered commodity pool operator, such as
the Sponsor, is required to make annual filings with the CFTC and
the NFA describing its organization, capital structure, management
and controlling persons. In addition, the CEA authorizes the CFTC
to require and review books and records of, and documents prepared
by, registered commodity pool operators. Pursuant to this
authority, the CFTC requires commodity pool operators to keep
accurate, current and orderly records for each pool that they
operate. The CFTC may suspend the registration of a commodity pool
operator (1) if the CFTC finds that the operator’s trading
practices tend to disrupt orderly market conditions, (2) if any
controlling person of the operator is subject to an order of the
CFTC denying such person trading privileges on any exchange, and
(3) in certain other circumstances. Suspension, restriction or
termination of the Sponsor’s registration as a commodity pool
operator would prevent it, until that registration were to be
reinstated, from managing the Fund, and might result in the
termination of the Fund if a successor sponsor is not elected
pursuant to the Trust Agreement. Neither the Trust nor the Fund is
required to be registered with the CFTC in any
capacity.
The
Fund’s investors are afforded prescribed rights for
reparations under the CEA. Investors may also be able to maintain a
private right of action for violations of the CEA. The CFTC has
adopted rules implementing the reparation provisions of the CEA,
which provide that any person may file a complaint for a
reparations award with the CFTC for violation of the CEA against a
floor broker or an FCM, introducing broker, commodity trading
advisor, CPO, and their respective associated persons.
The
regulations of the CFTC and the NFA prohibit any representation by
a person registered with the CFTC or by any member of the NFA, that
registration with the CFTC, or membership in the NFA, in any
respect indicates that the CFTC or the NFA has approved or endorsed
that person or that person’s trading program or objectives.
The registrations and memberships of the parties described in this
summary must not be considered as constituting any such approval or
endorsement. Likewise, no futures exchange has given or will give
any similar approval or endorsement.
Trading
venues in the United States are subject to varying degrees of
regulation under the CEA depending on whether such exchange is a
designated contract market (i.e. a futures exchange) or a swap
execution facility. Clearing organizations are also subject to the
CEA and the rules and regulations adopted thereunder as
administered by the CFTC. The CFTC’s function is to implement
the CEA’s objectives of preventing price manipulation and
excessive speculation and promoting orderly and efficient commodity
interest markets. In addition, the various exchanges and clearing
organizations themselves as SROs exercise regulatory and
supervisory authority over their member firms.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act (the
“Dodd-Frank Act”) was enacted in response to the
economic crisis of 2008 and 2009 and it significantly altered the
regulatory regime to which the securities and commodities markets
are subject. To date, the CFTC has issued proposed or final
versions of almost all of the rules it is required to promulgate
under the Dodd-Frank Act, and it continues to issue proposed
versions of additional rules that it has authority to promulgate.
Provisions of the new law include the requirement that position
limits be established on a wide range of commodity interests,
including agricultural, energy, and metal-based commodity futures
contracts, options on such futures contracts and uncleared swaps
that are economically equivalent to such futures contracts and
options (“Reference Contracts”); new registration and
recordkeeping requirements for swap market participants; capital
and margin requirements for “swap dealers” and
“major swap participants,” as determined by the new law
and applicable regulations; reporting of all swap transactions to
swap data repositories; and the mandatory use of clearinghouse
mechanisms for sufficiently standardized swap transactions that
were historically entered into in the over the counter market, but
are now designated as subject to the clearing requirement; and
margin requirements for over the counter swaps that are not subject
to the clearing requirements.
In
addition, considerable regulatory attention has recently been
focused on non-traditional publicly distributed investment pools
such as the Fund. Furthermore, various national governments have
expressed concern regarding the disruptive effects of speculative
trading in certain commodity markets and the need to regulate the
derivatives markets in general. The effect of any future regulatory
change on the Teucrium Funds is impossible to predict but could be
substantial and adverse.
The
Dodd-Frank Act was intended to reduce systemic risks that may have
contributed to the 2008/2009 financial crisis. Since the first
draft of what became the Dodd-Frank Act, supporters and opponents
have debated the scope of the legislation. As the Administrations
of the U.S. change, the interpretation and implementation will
change along with them. Nevertheless, regulatory reform of any kind
may have a significant impact on U.S. regulated
entities.
Position Limits, Aggregation Limits, Price Fluctuation
Limits
The
CFTC and US futures exchanges impose limits on the maximum net long
or net short speculative positions that any person may hold or
control in any particular futures or options contracts traded on US
futures exchanges. For example, the CFTC currently imposes
speculative position limits on a number of agricultural commodities
(e.g., corn, oats, wheat, soybeans and cotton) and US futures
exchanges currently impose speculative position limits on many
other commodities. A Fund could be required to liquidate positions
it holds in order to comply with position limits or may not be able
to fully implement trading instructions generated by its trading
models, in order to comply with position limits. Any such
liquidation or limited implementation could result in substantial
costs to a Fund.
The
Dodd-Frank Act significantly expanded the CFTC’s authority to
impose position limits with respect to futures contracts and
options on futures contracts, swaps that are economically
equivalent to futures or options on futures, and swaps that are
traded on a regulated exchange and certain swaps that perform a
significant price discovery function. On December 16, 2016, the
CFTC issued a final rule to amend part 150 of the CFTC’s
regulations with respect to the policy for aggregation under the
CFTC’s position limits regime for futures and option
contracts on nine agricultural commodities (“the Aggregation
Requirements”). This final rule addressed the circumstances
under which market participants would be required to aggregate all
their positions, for purposes of the position limits, of all
positions in Reference Contracts of the 9 agricultural commodities
held by a single entity and its affiliates, regardless of whether
such positions exist on US futures exchanges, non-US futures
exchanges, or in over the counter swaps. An affiliate of a market
participant is defined as two or more persons acting pursuant to an
express or implied agreement or understanding. The Aggregation
Requirements became effective on February 14, 2017. On August 10,
2017, the CFTC issued a No-Action Relief Letter No. 17-37 to
clarify several provisions under Regulation 150.4, regarding
position aggregation filing requirements of market participants.
The Sponsor does not anticipate that this order will have an impact
on the ability of a Fund to meet its respective investment
objectives.
The
aggregate position limits currently in place under the current
position limits and the Aggregation Requirements are as follows for
each of the commodities traded by the Fund:
Commodity
Future
|
Spot
Month Position Limit
|
All
Month Aggregate Position Limit
|
wheat
|
600
contracts
|
12,000
contracts
|
The
CFTC has attempted to exercise authority to enact additional and
more restricted speculative position limits with respect to futures
and options on futures on so-called “exempt
commodities” (which includes most energy and metals
contracts) and with respect to agricultural commodities, but those
proposed limits were vacated by a United States District Court. The
CFTC has once again attempted to enact additional and more
restrictive limits. On January 30, 2020, the CFTC proposed a rule
which is intended to replace the CFTC’s current rules on
position limits. The proposed rules would establish position limits
with respect to 25 “core referenced futures contracts,”
identified as the most liquid, physically settled exchange-traded
futures contracts. The 25 contracts include the nine
“legacy” agricultural futures contracts that are
currently subject to CFTC position limits, seven additional
agricultural futures contracts, five metals futures contracts and
four energy futures contracts. With certain exceptions,
cash-settled futures contracts that are directly or indirectly
linked to the to the price of the physically settled contract or
the underlying commodity and economically equivalent swaps, as
defined, also would be subject to the proposed position
limits.
With
the exception of the nine legacy agricultural contracts, the
CFTC’s position limits would apply only in the spot month.
These limits would generally be set at 25 percent of the
deliverable supply but may be higher or lower for certain
contracts. With respect to the non-legacy contracts, the rule would
require the relevant exchange on which the contracts are traded to
adopt either position limits or position accountability
levels.
The
proposed rules also would expand the current list of enumerated
bona fide hedges to include, for example, hedges of anticipated
merchandizing. To provide market participants with greater
flexibility on managing their business risks, the proposal also
provides guidance on whether and when market participants are
permitted to measure risk on a gross basis rather than a net basis.
However, firms will be required to measure risk on a consistent
basis. Enumerated hedges are self-effectuating. That is, no prior
approval would be required from the CFTC, although a market
participant would be required to obtain approval from the relevant
exchange. Self-effectuating hedge exemptions also would be
available for other transactions such as spreads, and pass-through
swaps as approved by exchanges. With respect to non-enumerated
hedge exemptions, a market participant would be required to file a
request to exceed the position limit with the relevant exchange. If
the exchange grants the request for a non-enumerated hedge
exemption, the exchange will forward its decision to the CFTC for
review. The exemption will be deemed granted provided the CFTC does
not intervene during a 10-day review period. The market participant
would not be permitted to exceed the applicable position limit
until the 10-day review period lapses. Importantly, the CFTC may
act solely through its commissioners and not through staff. In
terms of process changes, the CFTC is proposing to eliminate Form
204 cash positions report and the cash information reported under
Form 304. Comments on the proposed rule must be submitted no later
than 90 days after approval of the proposal by the CFTC (i.e.,
April 29, 2020). The CFTC does not intend to extend the comment
period
It is
unknown at this time the effect that such passage, adoption or
modification will have, positively or negatively, on our industry
or on a Fund. The size or duration of positions available to a Fund
may be severely limited. Pursuant to the CFTC’s and the
exchanges’ aggregation requirements, all accounts owned or
managed by the Sponsor are likely to be combined for speculative
position limits purposes. The Funds could be required to liquidate
positions it holds in order to comply with such limits or may not
be able to fully implement trading instructions generated by its
trading models, in order to comply with such limits. Any such
liquidation or limited implementation could result in substantial
costs to a Fund.
These
new regulations and the resulting increased costs and regulatory
oversight requirements may result in market participants being
required or deciding to limit their trading activities, which could
lead to decreased market liquidity and increased market volatility.
In addition, transaction costs incurred by market participants are
likely to be higher due to the increased costs of compliance with
the new regulations. These consequences could adversely affect a
Fund’s returns.
Margin for OTC Uncleared Swaps
During
2015 and 2016, the CFTC and the US bank prudential regulators
completed their rulemakings under the Dodd-Frank Act on margin for
uncleared over the counter swaps (and option agreements that
qualify as swaps). Margin requirements went into effect for the
largest swap entities in September 2016 and went into effect for
financial end users in March 2017. Under these regulations, swap
dealers (such as sell-side counterparties to swaps), major swap
participants, and financial end users (such as buy-side
counterparties to swaps who are not physical traders) are required
in most instances, to post and collect initial and variation
margin, depending on the regulatory classification of their
counterparty. European and Asian regulators are also implementing
similar regulations, which were scheduled to become effective on
the same dates as the US-promulgated rules. As a result of these
requirements, additional capital will be required to be committed
to the margin accounts to support transactions involving uncleared
over the counter swaps and, consequently, these transactions may
become more expensive. While the Fund currently does not generally
engage in uncleared over the counter swaps, to the extent they do
so in the future, the additional margin required to be posted could
adversely impact the profitability (if any) to the Fund from
entering into these transactions.
FCMs
The CEA
requires all FCMs, such as the Teucrium Funds’ clearing
brokers, to meet and maintain specified fitness and financial
requirements, to segregate customer funds from proprietary funds
and account separately for all customers’ funds and
positions, and to maintain specified books and records open to
inspection by the staff of the CFTC. The CFTC has similar authority
over introducing brokers, or persons who solicit or accept orders
for commodity interest trades but who do not accept margin deposits
for the execution of trades. The CEA authorizes the CFTC to
regulate trading by FCMs and by their officers and directors,
permits the CFTC to require action by exchanges in the event of
market emergencies, and establishes an administrative procedure
under which customers may institute complaints for damages arising
from alleged violations of the CEA. The CEA also gives the states
powers to enforce its provisions and the regulations of the
CFTC.
On
November 14, 2013, the CFTC published final regulations that
require enhanced customer protections, risk management programs,
internal monitoring and controls, capital and liquidity standards,
customer disclosures and auditing and examination programs for
FCMs. The rules are intended to afford greater assurances to market
participants that customer segregated funds and secured amounts are
protected, customers are provided with appropriate notice of the
risks of futures trading and of the FCMs with which they may choose
to do business, FCMs are monitoring and managing risks in a robust
manner, the capital and liquidity of FCMs are strengthened to
safeguard the continued operations and the auditing and examination
programs of the CFTC and the SROs are monitoring the activities of
FCMs in a thorough manner.
Potential Advantages of
Investment
Interest Income and Expense
Unlike
some alternative investment funds, the Fund does not borrow money
in order to obtain leverage, so the Fund does not incur any
interest expense. Rather, the Fund’s margin deposits, and
cash reserves are maintained in cash and cash equivalents and
interest is generally earned on available assets, which include
unrealized profits credited to the Fund’s
accounts
The
following graph sets forth the historical performance of the Fund
from commencement of operations on September 19, 2011 until January
31, 2020.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS
PART II
Information Not Required in the Prospectus
Item
13. Other Expenses of Issuance and
Distribution.
Set
forth below is an estimate (except as indicated) of the amount of
fees and expenses (other than underwriting commissions and
discounts) payable by the registrant in connection with the
issuance and distribution of the units pursuant to the prospectus
contained in this registration statement.
|
|
SEC registration
fee (actual)
|
$19,711
|
NYSE Arca Listing
Fee (actual)
|
n/a
|
FINRA filing fees
(actual)
|
n/a
|
Blue Sky
expenses
|
n/a
|
Auditor’s
fees and expenses
|
$3,000
|
Legal fees and
expenses
|
$6,000
|
Printing
expenses
|
$2,000
|
Miscellaneous
expenses
|
n/a
|
Total
|
$30,711
|
Item 14. Indemnification
of Directors and Officers
The
Trust’s Fifth Amended and Restated Declaration of Trust and
Trust Agreement (the “Trust Agreement”) provides that
the Sponsor shall be indemnified by the Trust (or, by a series of
the Trust separately to the extent the matter in question relates
to a single series or disproportionately affects a series in
relation to other series) against any losses, judgments,
liabilities, expenses and amounts paid in settlement of any claims
sustained by it in connection with its activities for the Trust,
provided that (i) the Sponsor was acting on behalf of or performing
services for the Trust and has determined, in good faith, that such
course of conduct was in the best interests of the Trust and such
liability or loss was not the result of gross negligence, willful
misconduct, or a breach of the Trust Agreement on the part of the
Sponsor and (ii) any such indemnification will only be recoverable
from the applicable trust estate or trust estates. All
rights to indemnification permitted by the Trust Agreement and
payment of associated expenses shall not be affected by the
dissolution or other cessation to exist of the Sponsor, or the
withdrawal, adjudication of bankruptcy or insolvency of the
Sponsor, or the filing of a voluntary or involuntary petition in
bankruptcy under Title 11 of the Bankruptcy Code by or against the
Sponsor.
Notwithstanding
the foregoing, the Sponsor shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation
of U.S. federal or state securities laws unless (i) there has been
a successful adjudication on the merits of each count involving
alleged securities law violations as to the particular indemnitee
and the court approves the indemnification of such expenses
(including, without limitation, litigation costs), (ii) such claims
have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee and the
court approves the indemnification of such expenses (including,
without limitation, litigation costs) or (iii) a court of competent
jurisdiction approves a settlement of the claims against a
particular indemnitee and finds that indemnification of the
settlement and related costs should be made.
The
Trust and its series shall not incur the cost of that portion of
any insurance which insures any party against any liability, the
indemnification of which is prohibited by the Trust
Agreement.
Expenses
incurred in defending a threatened or pending civil, administrative
or criminal action, suit or proceeding against the Sponsor shall be
paid by the Trust or the applicable series of the Trust in advance
of the final disposition of such action, suit or proceeding, if (i)
the legal action relates to the performance of duties or services
by the Sponsor on behalf of the Trust or a series of the Trust;
(ii) the legal action is initiated by a party other than the Trust;
and (iii) the Sponsor undertakes to repay the advanced funds with
interest to the Trust or the applicable series of the Trust in
cases in which it is not entitled to indemnification under the
Trust Agreement.
For
purposes of the indemnification provisions of the Trust Agreement,
the term “Sponsor” includes, in addition to the
Sponsor, any other covered person performing services on behalf of
the Trust and acting within the scope of the Sponsor’s
authority as set forth in the Trust Agreement.
In
the event the Trust or a series of the Trust is made a party to any
claim, dispute, demand or litigation or otherwise incurs any loss,
liability, damage, cost or expense as a result of or in connection
with any Shareholder’s (or assignee’s) obligations or
liabilities unrelated to Trust business, such Shareholder (or
assignees cumulatively) shall indemnify, defend, hold harmless, and
reimburse the Trust or the applicable series of the Trust for all
such loss, liability, damage, cost and expense incurred, including
attorneys’ and accountants’ fees.
The
payment of any amount pursuant to the Trust Agreement shall take
into account the allocation of liabilities and other amounts, as
appropriate, among the series of the Trust.
Item 15. Recent
Sales of Unregistered Securities
Not
applicable.
Item 16.
|
Exhibits and Financial Statement Schedules
|
(a) Exhibits
|
3.1
|
Fifth
Amended and Restated Declaration of Trust and Trust Agreement of
the Registrant. (1)
|
|
|
Certificate
of Trust of the Registrant. (2)
|
|
|
Instrument
Establishing the Fund. (3)
|
|
5.1
|
Opinion
of Vedder Price P.C. relating to the legality of the Shares.
(1)
|
|
|
Opinion
of Vedder Price P.C. with respect to federal income tax
consequences. (4)
|
|
10.1
|
Form of
Authorized Purchaser Agreement.(including as Exhibit B to the Fifth
Amended and Restated Declaration of Trust and Trust Agreement)
(1)
|
|
|
Amended
and Restated Distribution Services Agreement. (5)
|
|
|
Amendment
to Amended and Restated Distribution Services Agreement.
(6)
|
|
|
Second
Amendment to Amended and Restated Distribution Services Agreement.
(7)
|
|
|
Third
Amendment to Amended and Restated Distribution Services Agreement.
(8)
|
|
|
Fourth
Amendment to Amended and Restated Distribution Services Agreement.
(9)
|
|
|
Custody
Agreement. (10)
|
|
|
Fund
Accounting Servicing Agreement. (11)
|
|
|
Transfer
Agent Servicing Agreement. (12)
|
|
|
Fund
Administration Servicing Agreement. (13)
|
|
|
Distribution
Consulting and Marketing Services Agreement. (14)
|
|
23.1
|
Consents
of Vedder Price P.C. (included in Exhibits 5.1 and
8.1)
|
|
23.2
|
Consent
of [____], Independent Registered Public Accounting Firm.
*
|
|
24.1
|
Power
of Attorney. (1)
|
* To be filed by amendment.
(1) Previously filed as like-numbered exhibit to Pre-Effective
Amendment No. 2 to Registrant’s Registration Statement on
Form S-1 (333-230623), filed on April 26, 2019 and incorporated by
reference herein.
(2) Previously filed as Exhibit 3.2 to Registrant’s
Registration Statement on Form S-1 (333-162033), filed on September
21, 2009 and incorporated by reference herein.
(3) Previously filed as Exhibit 3.3 to Pre-Effective Amendment No.
1 to Registrant’s Registration Statement on Form S-1
(333-167591), filed on March 9, 2011 and incorporated by reference
herein.
(4) Previously filed as Exhibit 8.1 to Pre-Effective Amendment
No. 1 to Registrant’s Registration Statement on Form S-1
(333-230623), filed on April 22, 2019 and incorporated by reference
herein.
(5) Previously filed as Exhibit 10.2(1) to the Registrant’s
Current Report on Form 8-K for the Teucrium Corn Fund, filed on
November 1, 2011 and incorporated by reference
herein.
(6) Previously filed as Exhibit 10.2(2) to the Registrant’s
Current Report on Form 8-K for the Teucrium Corn Fund, filed on
November 1, 2011 and incorporated by reference
herein.
(7) Previously filed as Exhibit 10.2(3) to the Registrant’s
Current Report on Form 8-K for the Teucrium Corn Fund, filed on
November 1, 2011 and incorporated by reference
herein.
(8) Previously filed as like-numbered exhibit to
Pre-Effective Amendment No. 1 to Registrant’s Registration
Statement on Form S-1 (333-187463), filed on April 26, 2013 and
incorporated by reference herein.
(9) Previously filed as Exhibit 10.9 to Registrant’s
Registration Statement on Form S-1 (File No. 333-201953) filed on
February 9, 2015 and incorporated by reference
herein.
(10) Previously filed as Exhibit 10.8 to the Registrant’s
Annual Report on Form 10-K for the year ended December 31, 2015,
filed on March 15, 2016, and incorporated by reference
herein.
(11) Previously filed as Exhibit 10.9 to the Registrant’s
Annual Report on Form 10-K for the year ended December 31, 2015,
filed on March 15, 2016, and incorporated by reference
herein.
(12) Previously filed as Exhibit 10.10 to the Registrant’s
Annual Report on Form 10-K for the year ended December 31, 2015,
filed on March 15, 2016, and incorporated by reference
herein.
(13) Previously filed as Exhibit 10.11 to the Registrant’s
Annual Report on Form 10-K for the year ended December 31, 2015,
filed on March 15, 2016, and incorporated by reference
herein.
(14) Previously filed as Exhibit 10.6 to Post-Effective Amendment
No. 1 to Registrant’s Registration Statement on Form S-1
(333-162033) filed on October 22, 2010 and incorporated by
reference herein.
(b) Financial Statement
Schedules
The
financial statement schedules are either not applicable or the
required information is included in the financial statements and
footnotes related thereto.
Item 17. Undertakings
(a)
The undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers, or sales are being made, a
post-effective amendment to this registration
statement:
(i) To
include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To
reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the
effective registration statement.
(iii) To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
Provided, however, that
paragraphs (a)(1)(i), (ii), and (iii) of this section do not apply
if the registration statement is on Form S-1, Form S-3, Form SF-3
or Form F-3 and the information required to be included in a
post-effective amendment by those paragraphs is contained in
reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration
statement, or, as to a registration statement on Form S-3, is
contained in a form of prospectus filed pursuant to §
230.424(b) that is part of the registration statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To
remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) That,
for the purpose of determining liability under the Securities Act
of 1933 to any purchaser:
(i) If
the registrant is subject to Rule 430C, each prospectus filed
pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying
on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of
first use.
(5) That,
for the purpose of determining liability of the registrant under
the Securities Act of 1933 to any purchaser in the initial
distribution of the securities: The undersigned
registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities
to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will
be considered to offer or sell such securities to such
purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to
Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the
undersigned registrant;
(iii) The
portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
(b) Insofar as
indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the town of Burlington, state of Vermont, on
March
31, 2020.
|
|
|
|
Teucrium Commodity Trust
|
|
|
|
|
By:
Teucrium Trading, LLC, Sponsor
|
|
|
|
Date:
March
31, 2020
|
By:
|
/s/ Sal
Gilbertie
|
|
|
Sal
Gilbertie
Principal
Executive Officer, Secretary and Member
|
Pursuant
to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in
the capacities* and on the dates as indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Sal
Gilbertie
Sal
Gilbertie
|
|
President/Chief
Executive Officer/Investment Officer/Member of the
Sponsor
|
|
March
31, 2020
|
|
|
|
/s/
Cory Mullen-Rusin
Cory
Mullen-Rusin
|
|
Chief
Financial Officer/Chief Accounting Officer/Chief Compliance
Officer/Principal Financial Officer
|
|
March 31, 2020
|
|
/s/
Steve Kahler
Steve
Kahler
|
|
Chief
Operating Officer
|
|
March 31, 2020
|
* The
registrant is a trust and the persons are signing in their
capacities as officers of Teucrium Trading, LLC, the Sponsor of the
registrant.