Teucrium Commodity Trust S-1, filed Mar 17, 2020
Teucrium Commodity Trust (BTCK)
S-1
2020-03-17
View Original
Added on
October 21, 2026
As filed with the Securities and Exchange Commission on March 17,
2020
Registration No. 333-[__]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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)
61-1604335
(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.
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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. ☐
CALCULATION OF REGISTRATION FEE
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Amount to be
Registered
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Proposed Maximum
Offering
Price Per Share*
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Proposed Maximum Aggregate Offering
Price (2)
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Amount of
Registration Fee
(1)(2)
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Common units of Teucrium Corn
Fund,
a series of the
Registrant
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10,000,000
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$13.65
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$136,500,000
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$17,717.70**
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* Estimated
solely for the purpose of calculating the registration fee for the
10,000,000 additional shares of Teucrium Corn Fund pursuant to Rule
457(d) under the Securities Act of 1933, based on a net asset value
per share of $13.65 on March 13, 2020.
** This
Registration Statement registers 10,000,000 additional shares of
Teucrium Corn Fund and, pursuant to Rule 415(a)(6) under the
Securities Act of 1933, carries over 9,875,000 unsold securities
previously registered for sale pursuant to the Registrant’s
Registration Statement on Form S-1 (File No. 333-230626), initially
filed by the Registrant on March 29, 2019 and effective as of April
29, 2019 (“2019 Registration Statement”). The 2019
Registration Statement carried over unsold securities previously
registered for sale pursuant to the Registrant’s Registration
Statement on Form S-1 (File No. 333-210010), initially filed by the
Registrant on March 8, 2016 and effective as of April 29, 2016,
carried over unsold securities previously registered for sale
pursuant to the Registrant’s Registration Statement on Form
S-1 (File No. 333-187463), initially filed by the Registrant on
March 22, 2013 and effective as of April 30, 2013, and carried over
unsold securities previously registered for sale pursuant to the
Registrant’s Registration Statement on Form S-1 (File No.
333-162033) initially filed with the SEC on September 21, 2009 and
effective as of June 7, 2010. The unsold number of shares of common
stock (and associated filing fees paid) is being carried forward to
this Registration Statement.
This
Registration Statement contains a combined prospectus under Rule
429 of the Securities Act of 1933 which relates to the prospectus
contained in the 2019 Registration Statement. Upon effectiveness,
this Registration Statement, which is a new Registration Statement,
will also act as a post-effective amendment to the 2019
Registration Statement. Pursuant to Rule 415(a)(6), the offering of
unsold securities under the 2019 Registration Statement will be
deemed terminated as of the date of the effectiveness of this
Registration Statement.
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
17, 2020
Teucrium Corn
Fund
19,875,000
Shares
Teucrium Corn Fund (the
“Fund” or “Us” or “We”) is
designed to provide investors with a cost-effective means for
investors to gain price exposure to the corn market for future
delivery. The Fund issues shares (“Shares”) that trade
on the NYSE Arca stock exchange (“NYSE Arca”) under the
symbol “CORN” 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 corn for future delivery, as measured
by the Fund’s Benchmark (as defined below). Under normal
market conditions, the Fund invests in corn 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 corn 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 41. 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, 2023, 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.
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.
2
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 38 AND
A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE
7.
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
NON-UNITED 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.
3
TEUCRIUM CORN
FUND
TABLE OF
CONTENTS
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PAGE
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PART ONE – DISCLOSURE
DOCUMENT
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5
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5
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5
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5
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5
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6
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7
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7
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7
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9
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11
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11
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14
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21
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21
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22
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23
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25
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25
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25
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29
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30
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32
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34
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34
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34
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35
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36
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36
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40
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40
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41
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41
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42
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43
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46
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47
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47
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50
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51
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51
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51
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51
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51
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52
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52
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53
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54
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63
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66
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67
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68
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69
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70
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PART TWO – STATEMENT OF
ADDITIONAL INFORMATION
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73
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4
PROSPECTUS
SUMMARY
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 offices of
the Sponsor, the Trust and the Fund are located at Three Main
Street, Suite 215, Burlington, Vermont 05401. The telephone number
is (802) 540-0019.
Breakeven
Point
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.
Operation of the
Fund
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 corn for future delivery, as
measured by a benchmark (the “Benchmark”) as described
below. Under normal market conditions, the Fund invests in corn
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 corn 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 corn (“Corn Futures Contracts”)
that are traded on the Chicago Board of Trade (“CBOT”).
The three Corn 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 corn 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.
5
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 corn market for future delivery. The Sponsor
developed the Benchmark as a representation of the corn 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 corn 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 Corn 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.
●
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 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.
●
Investors may choose to use the
Fund as a means of investing indirectly in corn, and there are
risks involved in this investment strategy. The risks and hazards
that are inherent in corn production may cause the price of corn to
fluctuate widely.
●
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 Corn 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 corn
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 corn 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.
6
●
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 Corn 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 corn interests. To the extent
that these other corn 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?”
Determination of
NAV
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.
Defined
Terms
For a glossary of defined terms,
see Appendix A.
Breakeven
Analysis
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 $[•] (the Net Asset Value per Basket
as of [•]), to equal the
amount invested twelve months after the investment was made. The
breakeven analysis is an approximation only and assumes a constant
month-end Net Asset Value. You should note that you
may pay brokerage commissions on purchases and sales of
CORN’s shares through your broker, which are not reflected in
the table.
7
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Per Share
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Per Basket
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|
|
|
|
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Assumed selling
price
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$[•]
|
$[•]
|
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Management Fee (1.00%) (1)
|
$[•]
|
$[•]
|
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Brokerage Commissions (2)
|
$[•]
|
$[•]
|
|
Other Fund Fees and Expenses
(3)
(4)
|
$[•]
|
$[•]
|
|
Total Annual Fund Expenses
(5)
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[•]%
|
[•]%
|
|
Interest and Other Income
([•]%) (6)
|
$[•]
|
$[•]
|
|
Amount of trading income (loss)
required for the redemption value at the end of one year to equal
the selling price
|
$[•]
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$[•]
|
|
Percentage of selling price
(7)
|
[•]%
|
[•]%
|
(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 Corn 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 46.
(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 CORN 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 interest rate
currently earned on available cash balances 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.
8
The Offering
|
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
|
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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“CORN”
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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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Inter-Series
Limitation
on
Liability
|
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
|
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
|
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, 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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9
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Fund
Expenses
|
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
investors 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
|
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
Trust, voting together as a single class, to dissolve the Trust,
subject to certain conditions; (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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10
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 Corn
Investing in Benchmark Component Futures Contracts subjects the
Fund to the risks of the corn 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 corn market because it invests in Benchmark
Component Futures Contracts. The risks and hazards that are
inherent in the corn market may cause the price of corn and the
Fund’s Shares to fluctuate widely.
●
The
price and availability of corn is influenced by economic and
industry conditions, including but not limited to supply and demand
factors such as: crop disease and infestation (including, but not
limited to, Leaf Blight, Ear Rot and Root Rot); transportation
difficulties; various planting, growing, or harvesting problems;
and severe weather conditions (particularly during the spring
planting season and the fall harvest) such as drought, floods, or
frost that are difficult to anticipate and which cannot be
controlled. Demand for corn in the United States to produce ethanol
has also been a significant factor affecting the price of corn. In
turn, demand for ethanol has tended to increase when the price of
gasoline has increased and has been significantly affected by
United States governmental policies designed to encourage the
production of ethanol. Additionally, demand for corn is affected by
changes in consumer tastes, national, regional and local economic
conditions, and demographic trends. Finally, because corn is often
used as an ingredient in livestock feed, demand for corn is subject
to risks associated with the outbreak of livestock
disease.
●
Corn
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, corn 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. corn 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 corn may cause risk to an investor because of the possibility
that Share prices will be depressed because of the corn harvest
cycle. In the United States, the corn market is normally at its
weakest point, and corn prices are lowest, shortly before and
during the harvest (between September and November), due to the
high supply of corn in the market. Conversely, corn prices are
generally highest during the winter and spring (between December
and May), when farmer-owned corn has largely been sold and used.
Seasonal corn market peaks generally occur around February or
March. These normal market conditions are, however, often
influenced by weather patterns, and domestic and global economic
conditions, among other factors, and any specific year may not
necessarily follow the traditional seasonal fluctuations described
above. 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 winter and spring).
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, Corn Futures Contracts expiring in the
fall.
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 corn.
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 corn. 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.
11
The Benchmark is not designed to correlate with the spot price of
corn, and this could cause the changes in the price of the Shares
to substantially vary from the changes in the spot price of corn.
Therefore, you may not be able to effectively use the Fund to hedge
against corn related losses or to indirectly invest in
corn.
The Benchmark Component Futures
Contracts reflect the price of corn for future delivery, not the
current spot price of corn, so at best the correlation between
changes in such Corn Futures Contracts and the spot price of corn
will be only approximate. Weak correlation between the Benchmark
and the spot price of corn may result from the typical seasonal
fluctuations in corn 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 corn, then the price of Shares may not accurately
track the spot price of corn and you may not be able to effectively
use the Fund as a way to hedge the risk of losses in your corn
related transactions or as a way to indirectly invest in
corn.
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 corn
related losses or as a way to indirectly invest in
corn.
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 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 Corn Futures
Contract is for a specified amount of corn, 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 $625,000 for the sale of a Creation Basket and
that the value (i.e., the notional amount) of a Corn Futures
Contract is $20,050, the Fund could only enter into 31 Corn Futures
Contracts with an aggregate value of $621,550). While the Fund may
be better able to achieve the exact amount of exposure to the corn
market through the use of over the counter other corn interests,
there is no assurance that the Sponsor will be able to continually
adjust the Fund’s exposure to such other corn 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 Benchmark Component 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 corn market. On the other
hand, if the Fund’s NAV is equal to 100.9 times the value of
a single Corn 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 Corn 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 corn interests not subject to these position limits or
accountability levels. To the extent that the Fund invests in other
corn 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 corn related
losses or indirectly invest in corn.
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 corn related
losses or to indirectly invest in corn.
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 corn, even if the
Fund’s NAV was closely tracking movements in the spot price
of corn. If this occurs, you may not be able to effectively use the
Fund to hedge the risk of losses in your corn related transactions
or to indirectly invest in corn.
12
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 corn. The value of cash equivalents held by the Fund, generally
moves 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 corn 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 corn 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 corn 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 corn purchasers are the predominant hedgers in the market, the
Fund might have to reinvest at higher futures prices or choose
other corn interests.
The changing nature of the
participants in the corn market will influence whether futures
prices are above or below the expected future spot price. Corn
producers will typically seek to hedge against falling corn prices
by selling Corn Futures Contracts. Therefore, if corn producers
become the predominant hedgers in the futures market, prices of
Corn Futures Contracts will typically be below expected future spot
prices. Conversely, if the predominant hedgers in the futures
market are the purchasers of the corn who purchase Corn Futures
Contracts to hedge against a rise in prices, prices of Corn 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 Corn Futures Contract that is no longer a Benchmark
Component Futures Contract and purchase a new Corn Futures Contract
or to sell a Corn Futures Contract to meet redemption
requests.
Storage costs could impact the value of the Benchmark Component
Futures Contracts.
Storage costs associated with
purchasing corn could result in costs and other liabilities that
could impact the value of Corn Futures Contracts or certain other
corn interests. Storage costs include the time value of money
invested in corn as a physical commodity plus the actual costs of
storing the corn less any benefits from ownership of corn that are
not obtained by the holder of a futures contract. In general, Corn
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 corn while the
Fund holds Corn 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 Corn 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 corn price
indices.
The design of the Fund’s
Benchmark is such that the Benchmark Component Futures Contracts
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 Corn 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 corn 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 corn 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 corn 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 corn 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 corn. In the
event of a prolonged period of contango, and absent the impact of
rising or falling corn 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.
13
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 Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Dodd-Frank
Act”) in 2010. As the Dodd-Frank 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 corn and corn 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 corn 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.
14
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 limits, 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 corn
related losses or as a way to indirectly invest in
corn.
The CFTC and U.S. designated
contract markets, such as the CBOT, 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 Corn Futures Contracts
are 600 spot month contracts, 33,000 contracts expiring in any
other single month, and 33,000 total for all months. 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.
15
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.
16
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 re-invest
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 net 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.
17
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
each Fund’s service providers, each Fund pays the Sponsor a
fee of 1.00% of asset under management per annum, regardless of
Fund performance. Over time, a 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.
18
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
4,875,004 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 corn
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 corn
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 and other financial
institutions, if applicable. The insolvency of the Custodian and
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.
19
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
Funds 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 Corn Futures Contracts or
other corn 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
Corn Futures Contracts or other corn 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.
20
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
Volatility
The price of corn can be volatile which could cause large
fluctuations in the price of Shares.
As discussed in more detail above,
price movements for corn 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 corn 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 anti-manipulation
and anti-fraud provisions, forward contracts have been executed
bi-laterally 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
Dodd-Frank 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.
21
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 Corn 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 Corn
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 non-U.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 non-U.S. laws. Similarly,
the rights of market participants, such as the Fund, in the event
of the insolvency or bankruptcy of a non-U.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 non-U.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 non-U.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 non-U.S. corn
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 of
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.
22
The CFTC’s implementation of
its regulations under the Dodd-Frank 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.
Tax Risk
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 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 understatement” of
tax resulting from an adjustment as a result of an IRS audit. The
amount of the imputed understatement 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 understatement, 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 consider the amount of any imputed understatement, 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.”
23
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. 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 an investment in Shares of the
Teucrium Funds, including without limitation the federal, state,
local and foreign tax consequences.
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.
24
THE OFFERING
The Fund in
General
The Fund’s investment
objective is to provide investors with a cost-efficient way to gain
price exposure to the corn market for future delivery. The Sponsor
developed the Benchmark as a representation of the corn 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 corn 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 28 for more information about prior performance
of the Fund.
The Sponsor
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.
25
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 $758,195 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
$644,850, 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
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 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.
26
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.
Market Price of Shares
The Fund’s Shares have traded
on the NYSE Arca under the symbol “CORN” since June 9,
2010. 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
|
High
|
Low
|
|
Quarter Ended
|
|
|
|
March 31,
2019
|
$16.40
|
$15.23
|
|
June 30,
2019
|
$17.41
|
$14.67
|
|
September 30,
2019
|
$17.25
|
$14.30
|
|
December 31,
2019
|
$15.43
|
$14.24
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31, 2018
|
High
|
Low
|
|
Quarter Ended
|
|
|
|
March 31,
2018
|
$18.10
|
$16.58
|
|
June 30,
2018
|
$18.48
|
$16.21
|
|
September 30,
2018
|
$16.98
|
$15.40
|
|
December 31,
2018
|
$16.62
|
$15.81
|
As of December 31, 2019, the Fund
had approximately 7,163 Shareholders.
27
Prior Performance of the Fund
PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
The Teucrium Corn Fund commenced
trading and investment operations on June 9, 2010. The 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)
|
20,125,000
|
|
Aggregate gross sale
price for units issued
|
$550,877,559
|
|
NAV per Share as of
February 29, 2020
|
$13.79
|
|
Pool NAV as of February
29, 2020
|
$67,221,437
|
|
Worst monthly
percentage drawdown*
|
(10.66)%
|
|
July 2015
|
|
|
Worst peak-to-valley
drawdown**
|
(72.91)%
|
|
August 2012 –
February 2020
|
|
* 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 intra-month
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.
28
PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Rates of Return*
|
||||||||||||
|
Month
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
|
January
|
(6.24)
|
%
|
2.64
|
%
|
2.24
|
%
|
2.51
|
%
|
0.50
|
%
|
(2.64)
|
%
|
|
February
|
3.73
|
%
|
(5.32)
|
%
|
1.56
|
%
|
2.74
|
%
|
(3.09)
|
%
|
(4.44)
|
%
|
|
March
|
(4.40)
|
%
|
(2.13)
|
%
|
(2.36)
|
%
|
1.98
|
%
|
(3.00)
|
%
|
|
|
|
April
|
(4.89)
|
%
|
8.32
|
%
|
(1.37)
|
%
|
0.94
|
%
|
(1.12)
|
%
|
|
|
|
May
|
(3.99)
|
%
|
1.28
|
%
|
1.23
|
%
|
(0.77)
|
%
|
11.03
|
%
|
|
|
|
June
|
14.51
|
%
|
(8.17)
|
%
|
0.58
|
%
|
(8.82)
|
%
|
(1.86)
|
%
|
|
|
|
July
|
(10.66)
|
%
|
(6.78)
|
%
|
(1.36)
|
%
|
3.41
|
%
|
(3.14)
|
%
|
|
|
|
August
|
(0.95)
|
%
|
(6.43)
|
%
|
(6.00)
|
%
|
(4.71)
|
%
|
(6.86)
|
%
|
|
|
|
September
|
2.79
|
%
|
5.47
|
%
|
(0.56)
|
%
|
(2.16)
|
%
|
2.87
|
%
|
|
|
|
October
|
(1.87)
|
%
|
3.96
|
%
|
(2.27)
|
%
|
1.83
|
%
|
(0.42)
|
%
|
|
|
|
November
|
(4.68)
|
%
|
(3.60)
|
%
|
(1.28)
|
%
|
0.37
|
%
|
(4.34)
|
%
|
|
|
|
December
|
(3.59)
|
%
|
0.11
|
%
|
(1.35)
|
%
|
(0.49)
|
%
|
2.21
|
%
|
|
|
|
Annual Rate of
Return
|
(20.25)
|
%
|
(11.59)
|
%
|
(10.76)
|
%
|
(3.82)
|
%
|
(8.00)
|
%
|
(6.97)
|
%**
|
*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 Trustee
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 19890-0001. 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.
29
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.
Operation of the
Fund
The investment objective of the
Fund is to have the daily changes in the Shares’ NAV reflect
the daily changes in the corn 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:
CORN Benchmark
|
CBOT Corn 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 Corn 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, investment grade commercial paper,
and/or merely holds such assets in cash in interest-bearing
accounts. The Fund earns interest and other 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 Corn Futures Contract expires), the second
to expire Corn Futures Contract will become the next to expire Corn
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.
30
In seeking to achieve the
Fund’s investment objective of tracking the Benchmark, the
Sponsor reserves the right to enter into or hold Corn Futures
Contracts other than the Benchmark Component Futures Contracts
and/or other corn interests on behalf of the Fund. Over the counter
corn interests can generally be structured as the parties to the
contract desire. Therefore, the Fund might enter into multiple over
the counter corn interests intended to exactly replicate the
performance of each of the three Benchmark Component Futures
Contracts, or a single over the counter corn 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
corn interest, the performance of the corn 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 corn 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 corn 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 corn market for future delivery. The Sponsor
developed the Benchmark as a representation of the corn 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 corn 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 corn prices. An investment in the
Shares allows both retail and institutional investors to easily
gain this exposure to the corn 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 corn market in a cost-effective manner. Such
investors may include participants in the corn industry and other
industries seeking to hedge the risk of losses in their corn
related transactions, as well as investors seeking exposure to the
corn market. Accordingly, depending on the investment objective of
an individual investor, the risks generally associated with
investing in the corn 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 corn 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 corn, 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 corn.
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).
31
As an example, assume that a
Creation Basket is sold by the Fund, and that the Fund’s
closing NAV per Share is $25.00. In that case, the Fund would
receive $625,000 in proceeds from the sale of the Creation Basket
($25.00 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
$20,050 (or otherwise not a round number), the Fund would be unable
to buy an exact number of Corn Futures Contracts with an aggregate
market value equal to $625,000. Instead, the Fund would be able to
purchase 31 Benchmark Component Futures Contracts with an aggregate
market value of $621,550. Assuming a margin requirement equal to
10% of the value of the Corn Futures Contracts (although the actual
percentage is approximately 5%), the Fund would be required to
deposit $62,155 in cash with the FCM through which the Corn Futures
Contracts were purchased. The remainder of the proceeds from the
sale of the Creation Basket, $559,395, 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 Corn 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 Corn Futures Contracts and cash and
cash equivalents, the Sponsor reserves the right to enter into
other corn 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 corn. 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
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 corn 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 corn increases and, as a likely result of an
increase in the price of corn, the price of Corn Futures Contracts
increases, the Fund will generally be long in the market for corn
and will generally sell Corn 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.
Corn 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 corn
prices are currently available, although the Fund could enter into
such contracts should they become available in the
future.
32
Certain typical and significant
characteristics of Corn Futures Contracts are discussed below.
Additional risks of investing in Corn 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 corn related losses or as a way to
indirectly invest in corn.
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 Corn Futures Contracts on the CBOT, it
may then, if permitted under applicable regulatory requirements,
purchase other corn interests and/or Corn Futures Contracts listed
on foreign exchanges. However, the Corn Futures Contracts available
on such foreign exchanges may have different underlying sizes,
deliveries, and prices. In addition, the Corn 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 intra-day. Economic factors that may cause volatility in
Corn 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 corn
fluctuates based on a number of market factors, including demand
for corn relative to its supply. The value of Corn Futures
Contracts likewise fluctuates in reaction to a number of market
factors. Because the Fund seeks to maintain its holdings in Corn
Futures Contracts with a roughly constant expiration profile and
not take delivery of the corn, 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 corn 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 corn 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 corn 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 corn market and the corn 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.
33
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 Corn 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 Corn 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 Corn
Futures Contracts. Other corn 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 corn 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.
34
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 Corn Futures
Contracts, there are also a number of options on Corn 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 Corn Futures Contracts in pursuing its
investment objective, except that it will not sell call options
when it does not own the underlying Corn Futures Contract. The Fund
would make use of options on Corn 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 corn prices.
Liquidity
The Fund invests only in Corn
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 corn interests based on the spot price of
corn.
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.
Benchmark
Performance
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 Corn ETF Performance
as of
12/31/2019
|
|
Three
Month
|
Year
to
Date
|
3 Year
Annualized
|
5
Year
Annualized
|
Inception
Annualized
|
|
NAV
|
-2.64%
|
-7.99%
|
-7.57%
|
-11.05%
|
-5.32%
|
|
Price
|
-2.50%
|
-7.79%
|
-7.52%
|
-11.09%
|
-5.33%
|
|
Benchmark
(TCORN)
|
-2.23%
|
-6.92%
|
-5.95%
|
-8.74%
|
-1.80%
|
35
The Corn
Market
Corn is currently the most widely
produced livestock feed grain in the United States. The two largest
demands of the United States’ corn crop are used in livestock
feed and ethanol production. Corn is also processed into food and
industrial products, including starch, sweeteners, corn oil,
beverages and industrial alcohol. The United States Department of
Agriculture (“USDA”) publishes weekly, monthly,
quarterly and annual updates for U.S. domestic and worldwide corn
production and consumption, and for other grains such as soybeans
and wheat which can be used in some cases as a substitute for corn.
These reports are available on the USDA’s website,
www.usda.gov, at no charge. For more information about the Corn
Market, please see the statement of additional information that is
part of this prospectus under the heading “The Corn
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
“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.
36
Clearing Broker
Currently, 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 have been no material civil,
administrative, or criminal proceedings pending, on appeal, or
concluded against E D & 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.
37
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, 2019 to April 29, 2021
(the “two year offering period”). The fees which will
be paid to the Distributor by the Fund for distribution services
will not exceed $177,000 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 $16,000 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 $13,000
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 $195,000. The total expenses that
will be reimbursed to the Distributor over the two-year offering
period for all of its services will not exceed $19,000, $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, $235,000 and, for marketing and wholesaling purposes,
$370,000. 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 $55,000 will be paid by the Sponsor, the rest by the
Fund. Registered Representatives will also receive continuing
education valued at a maximum of $2,000 for the two-year offering
period.
|
38
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
|
Year
Ended
|
Year
Ended
|
|
|
December 31,
2019
|
December 31,
2018
|
December 31,
2017
|
|
Recognized
Related Party Transactions
|
$858,901
|
$1,004,019
|
$998,194
|
|
Waived Related
Party Transactions
|
$14,500
|
$157,258
|
$215,815
|
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 non-contractual
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 7.
|
Professional Fees1
|
$[•]
|
|
Distribution and Marketing
Fees2
|
[•]
|
|
Custodian Fees and
Expenses3
|
[•]
|
|
General and Administrative
Fees4
|
[•]
|
|
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.
39
Form of
Shares
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.
Transfer of
Shares
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.
40
Inter-Series 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 Inter-Series Limitation on Liability. The Inter-Series
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 Inter-Series
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 Inter-Series
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.
Plan of
Distribution
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
“CORN.” 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. Merrill Lynch
Professional Clearing Corp. was the initial Authorized Purchaser.
The initial Authorized Purchaser purchased two Creation Baskets of
100,000 Shares each at a per Share price of $25.00 on June 8, 2010.
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.
41
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.
Calculating
NAV
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 is released after 4:15 p.m.
(EST).
In determining the value of Corn
Futures Contracts, the Administrator uses the CBOT closing price,
except that the “fair value” of Corn Futures Contracts
(as described in more detail below) may be used when Corn 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 corn interests is determined based on the value of the
commodity or Futures Contract underlying such corn 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 corn interest. NAV includes any unrealized
profit or loss on open corn interests and any other credit or debit
accruing to the Fund but unpaid or not received by the
Fund.
The fair value of a corn interest
is determined by the Sponsor in good faith and in a manner that
assesses the corn interest’s value based on a consideration
of all available facts and all available information on the
valuation date. When a Corn Futures Contract has closed at its
price fluctuation limit, the fair value determination attempts to
estimate the price at which such Corn 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 corn interests trading in the over the counter market.
The fair value of a corn interest may not reflect such
security’s market value or the amount that the Fund might
reasonably expect to receive for the corn 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 corn 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 Corn 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 Corn 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/commodities-hours.html.
42
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 on-line
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
corn and the corn interest markets. Some Authorized Purchasers or
their affiliates may from time to time buy or sell corn or corn
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.
43
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, 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 non-refundable 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;
44
●
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 non-refundable 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.
45
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 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 corn 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 corn interest markets. While the Shares trade on the NYSE
Arca until 4:00 p.m. (EST), liquidity in the markets for corn
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.
46
Use of
Proceeds
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 corn 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 corn interests based
on changes in the value of the corn interests. Furthermore, ongoing
collateral requirements with respect to over the counter corn
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 corn interest, and each party’s creditworthiness.
In light of the differing requirements for initial payments under
exchange-traded and over the counter corn 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 both 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 Trust
Agreement
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.
47
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 also provides
that the Sponsor shall be indemnified by the Trust (or by a series
separately to the extent the matter in question relates to a single
series or disproportionately affects a specific 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 assets
of the applicable series. The Sponsor’s rights to
indemnification permitted under the Trust Agreement 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 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 (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.
48
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 the obligations of such instrument are
not binding upon the Shareholders individually but are binding only
upon the assets and property of the Fund.
49
Amendments to the Trust Agreement
Effective April 16, 2018, the
Sponsor, pursuant to its authority under the Trust Agreement, has
amended the Trust Agreement to reflect certain provisions of the
Bipartisan Budget Act of 2015 and the tax legislation commonly
referred to as the Tax Cuts and Jobs Act of 2017, each of which
became effective on January 1, 2018. The changes to the Trust
Agreement reflect changes to partnership audit rules under the Code
and reflect certain changes to partnership rules under the Code
(see “U.S. Federal Income
Tax Considerations” for additional information about
the changes to the Code.)
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.
50
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.
Books and
Records
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
make such elections, 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.
PricewaterhouseCoopers
(“PwC”), 2001 Ross Avenue, Suite 1800, Dallas, Texas
75201-2997, will provide tax information in accordance with
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.
Fiscal Year
The fiscal year of the Fund is the
calendar year.
51
Governing
Law
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
|
|
CORN
|
Sal Gilbertie
|
701 common
units
|
*
|
______________________
* Less than 1%.
The Fund is not aware of any 5%
holder of its Shares.
Legal
Matters
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
[_____] 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. [_____] has also provided the Sponsor with its opinion
with respect to federal income tax matters addressed
herein.
52
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 [_____], independent
registered public accountants, upon the authority of said firm as
experts in accounting and auditing.
Privacy
Policy
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.
53
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, P.C. (“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"). 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, 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:
54
●
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.
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 in the form of 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”).
55
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 intends
to make 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”).
56
Many of the Fund’s Corn
Futures Contracts will qualify as “section 1256
contracts” under the Code. Some other corn 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.
57
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 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.
58
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 period 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
needed. 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 information furnished to the
Fund.
59
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.
60
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. 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.
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.
61
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
will 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. 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
and proceeds from the sale of 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, 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.
62
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 (iii) 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) freely transferable (determined
based on the relevant facts and circumstances);
(2) 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) 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.
63
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:
●
exercise any discretionary
authority or discretionary control with respect to management of
the plan;
●
exercise any authority or control
with respect to management or disposition of the assets of the
plan;
●
render investment advice for a fee
or other compensation, direct or indirect, with respect to any
moneys or other property of the plan;
●
have
any authority or responsibility to render investment advice with
respect to any monies or other property of the plan;
or
●
have
any discretionary authority or discretionary responsibility in the
administration of the plan.
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.
64
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.
65
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 future filings 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:
●
our
Annual Report on Form 10-K for the fiscal year ended December 31,
2019, filed with the SEC on March 11, 2020.
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 as an exhibit in that
document) at no cost, upon written or oral request at the following
address or telephone number:
Teucrium Corn
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 10-K, 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.
66
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.
67
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
the Internet site maintained by the SEC that contains reports,
proxy and information statements and other information regarding
issuers that file electronically with the SEC.
68
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.
69
APPENDIX A
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 Corn Futures Contract traded on the CBOT, weighted 35%, (2)
the third-to-expire CBOT Corn Futures Contract, weighted 30%, and
(3) the CBOT Corn Futures Contract expiring in the December
following the expiration month of third-to-expire contract,
weighted 35%.
Benchmark Component Futures Contracts:
The three Corn 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 Corn 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,
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.
Corn Futures Contracts: Futures
contracts for corn that are traded on the CBOT or foreign
exchanges.
Creation Basket: A block of 25,000
Shares used by the Fund to issue Shares.
Custodian: U.S. Bank,
N.A.
70
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.
71
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.
You: The owner of
Shares.
72
STATEMENT OF
ADDITIONAL INFORMATION
TEUCRIUM CORN
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.
73
TEUCRIUM CORN FUND
TABLE OF
CONTENTS
|
|
Page
|
|
The Corn Market
|
75
|
|
Over the counter
Derivatives
|
79
|
|
Commodity Market
Participants
|
80
|
|
Regulation
|
80
|
|
Potential Advantages of
Investment
|
84
|
|
Fund
Performance
|
84
|
74
The Corn
Market
Corn is currently the most widely
produced livestock feed grain in the United States. The two largest
demands of the United States’ corn crop are used in livestock
feed and ethanol production. Corn is also processed into food and
industrial products, including starch, sweeteners, corn oil,
beverages and industrial alcohol. The United States Department of
Agriculture (“USDA”) publishes weekly, monthly,
quarterly and annual updates for U.S. domestic and worldwide corn
production and consumption, and for other grains such as soybeans
and wheat which can be used in some cases as a substitute for corn.
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.
The United States is the
world’s leading producer and exporter of corn. For the Crop
Year 2019-20, the United States Department of Agriculture
(“USDA”) estimates that the U.S. will produce
approximately 31% of all the corn globally, of which about 13% will
be exported. For 2019-2020, based on the January 10, 2020 USDA
reports, global consumption of 1,133 Million Metric Tons (MMT) is
expected to be slightly higher than global production of 1,111 MMT.
If the global supply of corn exceeds global demand, this may have
an adverse impact on the price of corn. Besides the United States,
other principal world corn exporters include Argentina, Brazil and
the former Soviet Union nations known as the FSU-12 which includes
the Ukraine. Major import nations include Mexico, Japan, the
European Union (EU), South Korea, Egypt and parts of Southeast
Asia. China’s production at 261 MMT is approximately 7% less
than its domestic usage.
According to the USDA, global corn
consumption has increased just over 584% from crop year 1960/1961
to 2019/2020 as demonstrated by the graph below and is projected to
continue to grow in coming years. Consumption growth is the result
of a combination of many factors including: 1) global population
growth, which, according to the U.S. Census Department, is
estimated to increase by approximately 79.6 million people in the
2019-20 time-frame and reach 9.7 billion by 2050; 2) a growing
global middle class which is increasing the demand for protein and
meat-based products globally and most significantly in developing
countries; and 3) increased use of biofuels, including ethanol in
the United States. Based on USDA estimates as of January 10, 2020,
for each person added to the population, there needs to be an
additional 5.9 bushels of corn, 1.7 bushels of soybeans and 3.6
bushels of wheat produced.
75
While global consumption of corn
has increased over the 1960/1961-2019/2020 period, so has
production, driven by increases in acres planted and yield per
acre. However, according to the USDA and United Nations, future
growth in planted acres and yield may be inhibited by lower
productive land, and lack of infrastructure and transportation. In
addition, agricultural crops such as corn are highly weather
dependent for yield and therefore susceptible to changing weather
patterns. In addition, given the current production and consumption
patterns, nearly 100% of all corn produced globally is consumed
which leaves minimal excess inventory if production issues
arise.
76
The price per bushel of corn 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
corn production.
77
78
Standard Corn Futures Contracts
trade on the CBOT in units of 5,000 bushels, although 1,000 bushels
“mini-corn” Corn Futures Contracts also trade. Three
grades of corn are deliverable under CBOT Corn Futures Contracts:
Number 1 yellow, which may be delivered at 1.5 cents over the
contract price; Number 2 yellow, which may be delivered at the
contract price; and Number 3 yellow, which may be delivered at 1.5
cents under the contract price for all contract months prior to
March 2020 or may be delivered between 2 and 4 cents per bushel
under the contract price for all contract months commencing with
March 2020 and beyond. There are five months each year in which
CBOT Corn 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 corn, 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
standardized swaps. Unlike Corn 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 corn swap, the Fund may be obligated to pay a fixed
price per bushel of corn 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 corn prices, the price of a specified
Corn Futures Contract, or the average price of a group of Corn
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.
79
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
Dodd-Frank 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 Dodd-Frank 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.
80
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.
81
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
|
|
corn
|
600 contracts
|
33,000
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.
82
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.
83
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
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
Fund
Performance
The following graph sets forth the
historical performance of the Fund from commencement of operations
on June 9, 2010 until January 31, 2020.
PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
84
PART II
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.
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.
|
|
Amount
|
|
SEC registration fee
(actual)
|
$0.00
|
|
NYSE Arca Listing Fee
(actual)
|
n/a
|
|
FINRA filing fees
(actual)
|
n/a
|
|
Blue Sky
expenses
|
n/a
|
|
Auditor’s fees and
expenses
|
$2,000
|
|
Legal fees and
expenses
|
$10,000
|
|
Printing
expenses
|
$2,000
|
|
Miscellaneous
expenses
|
n/a
|
|
Total
|
$14,000
|
|
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 theSponsor 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.
85
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. (1)
|
|
|
3.2
|
Certificate of Trust of the
Registrant. (2)
|
|
|
5.1
|
Opinion of [_____] relating to the
legality of the Shares.*
|
|
|
8.1
|
Opinion of [_____] with respect to
federal income tax consequences.*
|
|
|
10.1
|
Form of Authorized Purchaser
Agreement (included as Exhibit B to the Fifth Amended and Restated
Declaration of Trust and Trust Agreement). (1)
|
|
|
10.2
|
Amended and Restated Distribution
Services Agreement. (3)
|
|
|
10.3
|
Amendment to Amended and Restated
Distribution Services Agreement. (4)
|
|
|
10.4
|
Second Amendment to Amended and
Restated Distribution Services Agreement. (5)
|
|
|
10.5
|
Third Amendment to Amended and
Restated Distribution Services Agreement. (6)
|
|
|
10.6
|
Fourth Amendment to Amended and
Restated Distribution Services Agreement. (7)
|
|
|
10.7
|
Custody Agreement.
(8)
|
|
|
10.8
|
Fund Accounting Servicing
Agreement. (9)
|
86
(1)
Previously filed as Exhibit 3.1 to Pre-Effective Amendment No. 2 to
Registrant’s Registration Statement on Form S-1 (333-230626),
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
10.2(1) to the Registrant’s Current Report on Form 8-K for
the Teucrium Corn Fund (File No. 001-34765), filed on November 1,
2011 and incorporated by reference herein.
(4) Previously filed as Exhibit
10.2(2) to the Registrant’s Current Report on Form 8-K for
the Teucrium Corn Fund (File No. 001-34765), filed on November 1,
2011 and incorporated by reference herein.
(5) Previously filed as Exhibit
10.2(3) to the Registrant’s Current Report on Form 8-K for
the Teucrium Corn Fund (File No. 001-34756), filed on November 1,
2011 and incorporated by reference herein.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) 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.
(11) 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.
(12) 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.
87
(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 onRule 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.
88
(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.
89
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 city
of Burlington, State of Vermont, on March 17,
2020.
|
|
|
|
|
Teucrium
Commodity Trust
|
||
|
|
||
|
By: Teucrium Trading, LLC,
Sponsor
|
||
|
|
|
|
|
By:
|
/s/ Sal
Gilbertie
|
|
|
|
Sal Gilbertie
Principal Executive Officer,
Secretary and Member
|
|
|
|
Date: March 17,
2020
|
|
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. The document may be
executed by signatories hereto on any number of counterparts, all
of which shall constitute one and the same instrument. The
undersigned members and officers of Teucrium Trading, LLC, the
sponsor of Teucrium Commodity Trust, hereby constitute and appoint
Sal Gilbertie, Cory Mullen Rusin and Steve Kahler and eachof them
with full power to act with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full
power to execute in our name and behalf in the capacities indicated
below this Registration Statement on Form S-1 and any and all
amendments thereto, including post-effective amendments to this
Registration Statement and to sign any and all additional
registration statements relating to the same offering of securities
as this Registration Statement that are filed pursuant to Rule
462(b) of the Securities Act of 1933, as amended, and to file the
same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and thereby
ratify and confirm that such attorneys-in-fact, or any of them, or
their substitutes shall lawfully do or cause to be done by virtue
hereof.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Sal
Gilbertie
Sal Gilbertie
|
President/Chief Executive
Officer/Chief Investment Officer/Member of the
Sponsor
|
|
March 17, 2020
|
|
|
|
|
|
||
|
/s/ Cory
Mullen-Rusin
Cory
Mullen-Rusin
|
|
Chief Financial Officer/Chief
Accounting Officer/Chief Compliance Officer/Principal Financial
Officer
|
|
March 17, 2020
|
|
|
|
|
||
|
/s/ Steve Kahler
Steve Kahler
|
|
Chief Operating
Officer
|
|
March 17, 2020
|
|
|
|
|
||
90