Teucrium Commodity Trust S-1/A, filed Aug 18, 2020
Teucrium Commodity Trust (BTCK)
S-1/A
2020-08-18
View Original
Added on
October 21, 2026
As filed with the Securities and Exchange Commission on August 18,
2020
Registration No. 333-241569
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Pre-Effective Amendment No. 1 to 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.
|
Large accelerated
filer ☐
|
Accelerated filer
☒
|
|
|
Non-accelerated
filer ☐
|
Smaller reporting
company ☒
Emerging growth
company ☐
|
|
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
|
|
Amount to be
Registered
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Proposed Maximum
Offering
Price Per
Share(1)
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Proposed Maximum
Aggregate Offering Price (2)
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Amount
of
Registration Fee
(1)(2)
|
|
Common units of
Teucrium Soybean Fund, a series of the Registrant
|
15,000,000
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$14.09
|
$211,350,000
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$27,433.23**
|
**
Previously paid.
(1)
Estimated solely for the purpose of calculating the registration
fee for the 15,000,000 additional shares of Teucrium Soybean Fund
pursuant to Rule 457(d) under the Securities Act of 1933, based on
a net asset value per share of $14.26 on August 3,
2020.
(2)
This Registration Statement registers 15,000,000 additional shares
of Teucrium Soybean Fund and, pursuant to Rule 415(a)(6) under the
Securities Act of 1933, carries over 5,550,000 unsold securities
previously registered for sale pursuant to the Registrant’s
Registration Statement on Form S-1 (File No. 333-223940), initially
filed by the Registrant on March 27, 2018 and effective as of April
30, 2018 (“2018 Registration Statement”). The 2018
Registration Statement carried over unsold securities previously
registered for sale pursuant to the Registrant’s Registration
Statement on Form S-1 (File No. 333-217247), initially filed by the
Registrant on April 11, 2017 and effective as of May 1, 2017,
carried over unsold securities previously registered for sale
pursuant to the Registrant’s Registration Statement on Form
S-1 (File No. 333-196210) initially filed by the Registrant on May
23, 2014 and effective as of June 30, 2014, and carried over unsold
securities previously registered for sale pursuant to the
Registrant’s Pre-Effective Amendment No. 1 to a Registration
Statement on Form S-1 (File No. 333-167590) filed by the Registrant
on March 9, 2011 and effective as of June 13, 2011. 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 2018 Registration Statement. Upon effectiveness,
this Registration Statement, which is a new Registration Statement,
will also act as a post-effective amendment to the 2018
Registration Statement. Pursuant to Rule 415(a)(6), the offering of
unsold securities under the 2018 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 August 18, 2020
Teucrium
Soybean Fund
20,550,000
Shares
Teucrium Soybean
Fund (the “Fund” or “Us” or
“We” or “SOYB”) is designed to provide
investors with a cost-effective means to gain price exposure to the
soybean market for future delivery. The Fund issues shares
(“Shares”) that trade on the NYSE Arca stock exchange
(“NYSE Arca”) under the symbol “SOYB” 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 soybeans for future delivery, as measured by the Fund’s
Benchmark (as defined below). Under normal market conditions, the
Fund invests in soybean 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 soybean 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 46. 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 August 24, 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 12.
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.
Teucrium Soybean
Fund is a commodity pool and Teucrium Trading, LLC is a commodity
pool operator subject to regulation by the Commodity Futures
Trading Commission and the National Futures Association under the
Commodity Exchange Act (“CEA”).
THE
COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS
OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE
ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
This
prospectus is in two parts: a disclosure document and a statement
of additional information. These parts are bound together, and both
contain important information.
The date of this
prospectus is August 24, 2020.
COMMODITY
FUTURES TRADING COMMISSION
RISK
DISCLOSURE STATEMENT
YOU
SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS
YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE
AWARE THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE
LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE
NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR
INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY
AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER,
COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY
FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE
SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF
THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE
DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGE 43 AND
A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE
9.
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 7.
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.
TEUCRIUM
SOYBEAN FUND
TABLE
OF CONTENTS
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PAGE
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PART ONE –
DISCLOSURE DOCUMENT
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6
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PROSPECTUS
SUMMARY
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6
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Principal Offices
of the Fund and the Sponsor
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6
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Breakeven
Point
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6
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Operation of the
Fund
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6
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Principal
Investment Risks of an Investment in the Fund
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7
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Determination of
NAV
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8
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Defined
Terms
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8
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Breakeven
Analysis
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9
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The
Offering
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10
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WHAT ARE THE RISK
FACTORS INVOLVED WITH AN INVESTMENT IN THE FUND?
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12
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Risks Associated
with Investing Directly or Indirectly in Soybeans
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12
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The Fund’s
Operating Risks
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16
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Risk of Leverage
and Volatility
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24
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Over the counter
Contract Risk
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24
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Risk of Trading in
International Markets
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25
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Tax
Risk
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26
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THE
OFFERING
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28
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The Fund in
General
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28
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The
Sponsor
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28
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Prior
Performance of the Fund
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31
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The
Trustee
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33
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Operation of the
Fund
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33
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Futures
Contracts
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36
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Over the counter
Derivatives
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38
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The Fund’s
Investments in Cash and Cash Equivalents
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38
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|
Other Trading
Policies of the Fund
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39
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Benchmark
Performance
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40
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The Soybean
Market
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40
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The Fund’s
Service Providers
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41
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Form of
Shares
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45
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Transfer of
Shares
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45
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Inter-Series
Limitation on Liability
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46
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Plan of
Distribution
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46
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Calculating
NAV
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47
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Creation and
Redemption of Shares
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48
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Secondary Market
Transactions
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52
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Use of
Proceeds
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52
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The Trust
Agreement
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53
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The Sponsor Has
Conflicts of Interest
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55
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Interests of Named
Experts and Counsel
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56
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Provisions of
Federal and State Securities Laws
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56
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Books and
Records
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56
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Statements,
Filings, and Reports to Shareholders
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57
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Fiscal
Year
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57
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Governing
Law
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57
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Legal
Matters
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58
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Privacy
Policy
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58
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U.S. Federal Income
Tax Considerations
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59
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Investment by ERISA
Accounts
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69
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INCORPORATION BY
REFERENCE OF CERTAIN INFORMATION
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72
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INFORMATION YOU
SHOULD KNOW
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73
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WHERE YOU CAN FIND
MORE INFORMATION
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74
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STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
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74
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APPENDIX A -
Glossary of Defined Terms
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75
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PART TWO –
STATEMENT OF ADDITIONAL INFORMATION
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88
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5
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 12, 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 $13.98 (the NAV per Share as of June 30, 2020), is
$0.35 or 2.50% 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 investment objective of the Fund (which may be
changed at any time at the sole discretion of the Sponsor) is to
have the daily changes in the Shares’ NAV reflect the daily
changes of the price of soybeans for future delivery, as measured
by a benchmark (the “Benchmark”) as described below.
The Benchmark for the Fund is the Teucrium Soybean Index
(“TSOYB”). Under normal market conditions, the Fund
invests in soybean 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 Trust Agreement may be
found on the SEC’s EDGAR filing database at https://www.sec.gov/Archives/edgar/data/1471824/000165495419004852/ex31.htm.
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
soybean 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 soybeans (“Soybean
Futures Contracts”) that are traded on the Chicago Board of
Trade (“CBOT”). The three Soybean 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
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.
6
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 soybean market in a cost-effective manner. The
Sponsor endeavors to place the Fund’s trades in Benchmark
Component Futures Contracts and otherwise manage the Fund’s
investments so that the Fund’s average daily tracking error
against the Benchmark will be less than 10 percent over any period
of 30 trading days. However, the Fund incurs certain expenses in
connection with its operations, which cause imperfect correlation
between changes in the Fund’s NAV and changes in the
Benchmark because the Benchmark does not reflect expenses or
income. As a result, investors may incur a partial or complete loss
of their investment even when the performance of the Benchmark is
positive.
Investors may
purchase and sell Shares through their broker-dealers. However, the
Fund creates and redeems Shares only in blocks called Creation
Baskets and Redemption Baskets, respectively, and only Authorized
Purchasers may purchase or redeem Creation Baskets or Redemption
Baskets. An Authorized Purchaser is under no obligation to create
or redeem baskets, and an Authorized Purchaser is under no
obligation to offer to the public Shares of any baskets it does
create. Baskets are generally created when there is a demand for
Shares, including, but not limited to, when the market price per
share is at (or perceived to be at) a premium to the NAV per Share.
Similarly, baskets are generally redeemed when the market price per
share is at (or perceived to be at) a discount to the NAV per
Share. Retail investors seeking to purchase or sell Shares on any
day are expected to affect such transactions in the secondary
market, on the NYSE Arca, at the market price per share, rather
than in connection with the creation or redemption of
baskets.
The 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 soybean 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 individually redeemable. 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 Soybean 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 and you could incur a partial or
total loss of your investment in the Fund. Some of the risks you
may face are summarized below. A more extensive discussion of these
risks appears beginning on page 12.
●
Unlike mutual
funds, commodity pools and other investment pools that manage their
investments so as to realize income and gains for distribution to
their investors, the Fund generally does not distribute dividends
to holders of Fund Shares (“Shareholders”). You should
not invest in the Fund if you will need cash distributions from the
Fund to pay taxes on your share of income and gains of the Fund, if
any, or for other purposes.
●
Investors may
choose to use the Fund as a means of investing indirectly in
soybeans, and there are risks involved in this investment strategy.
The risks and hazards that are inherent in soybean production may
cause the price of soybeans 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.
7
●
The price
relationship between the near month Soybean 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
soybean 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 soybean prices, this could have a significant negative
impact on the Fund’s NAV and total return, and you could
incur a partial or total loss of your investment in the
Fund.
●
You will have no
rights to participate in the management of the Fund and will have
to rely on the duties and judgment of the Sponsor to manage the
Fund.
●
The Fund pays fees
and expenses that are incurred regardless of whether it is
profitable.
●
The Fund seeks to
have the changes in its Shares’ NAV track changes in the
Benchmark, rather than profit from speculative trading of Soybean
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 soybean interests. To the extent that these
other soybean 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 or other events such as the recent COVID-19 pandemic
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.
8
Breakeven
Analysis
The breakeven
analysis set forth below is a hypothetical illustration of the
approximate dollar returns and percentage returns that an
investment in either a single Share or an entire Creation Basket
(25,000 Shares) would have to generate for an investor to break
even. The total estimated investment return that the Fund must
generate for an investor to break even are expressed as a
percentage of a single Share valued at $13.98 (the Net Asset Value
per Share on June 30, 2020) and as a percentage of an entire
Creation Basket valued at $349,500 (the Net Asset Value per Basket
on June 30, 2020). 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
SOYB’s shares through your broker, which are not reflected in
the table.
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Per
Share
|
Per
Basket
|
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Assumed selling
price
|
$13.98
|
$349,500
|
|
Management Fee
(1.00%) (1)
|
$0.14
|
$3,500
|
|
Brokerage
Commissions (2)
|
$0.01
|
$250
|
|
Other Fund Fees and
Expenses (3)
(4)
|
$0.26
|
$6,500
|
|
Interest and Other
Income (0.40%) (5)
|
$(0.06)
|
$(1,500)
|
|
Amount of trading
income (loss) required for the redemption value at the end of one
year to equal the selling price
|
$0.35
|
$8,750
|
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Percentage
of selling price (6)
|
2.50%
|
2.50%
|
(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 Soybean 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
Fund’s custodian, U.S. Bank, N.A. (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 51.
(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 $56.2 million in assets,
which was the approximate amount of assets as of June 30, 2020. 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) The Fund seeks to
earn 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 0.40% based on the
current interest rate environment and outlook as of June 30, 2020.
The actual rate may vary and not all assets of the Fund will earn
interest.
(6) This represents
the estimated approximate percentage of selling price net of any
expenses or management fees waived by the Sponsor that the Fund
would need to generate for an investor to break even after twelve
months. The estimated approximate percentage of selling price
before waived expenses is 2.72% or $0.38 per share, based on the
Fund assets, net asset value per share and shares outstanding as of
June 30, 2020. 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.
9
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
|
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The Sponsor applies substantially all of the
Fund’s assets toward investing in Benchmark Component
Futures Contracts, cash, and cash
equivalents. The Sponsor deposits a portion of the Fund’s net
assets with its futures commission merchant (“FCM”) or
other financial institutions 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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“SOYB”
|
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Creation and
Redemption
|
|
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, U.S. Bancorp Fund Services, LLC, doing
business as U.S. Bank Global Fund Services (“Global Fund
Services”), the Fund’s “Administrator”
calculates the NAV of the Fund’s Shares as of the earlier of
4:00 p.m. (EST) or the close of the New York Stock Exchange each
day. ICE Data
Indices, LLC calculates an approximate net asset value every
15 seconds throughout each day that the Fund’s Shares are
traded on the NYSE Arca for as long as the CBOT’s main
pricing mechanism is open.
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10
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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 investor relations and services;
(ix) costs of preparation of all federal, state, local and foreign
tax returns and any taxes payable on the income, assets or
operations of the Fund; (x) payment for marketing services; and
(xi) extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification
related thereto). The estimated amount of fees and expenses that
are anticipated to be incurred in a single Share during the first
twelve (12) months of ownership is $0.35 or 2.50% of the selling
price. The total estimated fees and expenses are expressed as a
percentage of the net asset value as of June 30, 2020. These fees
and expenses are net of any expenses or management fees waived by
the Sponsor. 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
|
|
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 46. 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.
|
11
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
Soybeans
Investing in Benchmark Component Futures Contracts subjects the
Fund to the risks of the soybean 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 soybean market because it invests
in Benchmark Component Futures Contracts. The risks and hazards
that are inherent in the soybean market may cause the price of
soybeans and the Fund’s Shares to fluctuate widely and you
could incur a partial or total loss of your investment in the
Fund.
●
The price and
availability of soybeans is influenced by economic and industry
conditions, including but not limited to supply and demand factors
such as: crop disease; weed control; water availability; various
planting, growing, or harvesting problems; severe weather
conditions such as drought, floods, heavy rains, frost, or natural
disasters that are difficult to anticipate and which cannot be
controlled; uncontrolled fires, including arson; challenges in
doing business with foreign companies; legal and regulatory
restrictions; transportation costs; interruptions in energy supply;
currency exchange rate fluctuations; global trade disruption due to
outbreaks; and political and economic instability. Additionally,
demand for soybeans is affected by changes in international,
national, regional, and local economic conditions, and demographic
trends. The increased production of soybean crops in South America
and the rising demand for soybeans in emerging nations such as
China and India have increased competition in the soybean
market.
●
Soybean production
is subject to United States and foreign 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,
and industry profitability. Additionally, soybean 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. Soybean producers also may need
to comply with various environmental laws and regulations, such as
those regulating the use of certain pesticides. In addition,
international trade disputes can adversely affect agricultural
commodity trade flows by limiting or disrupting trade between
countries or regions.
●
Because processing
soybean oil can create trans-fats, the demand for soybean oil may
decrease due to heightened governmental regulation of trans-fats or
trans-fatty acids. The U.S. Food and Drug Administration currently
requires food manufacturers to disclose levels of trans-fats
contained in their products, and various local governments have
enacted or are considering restrictions on the use of trans-fats in
restaurants. Several food processors have either switched or
indicated an intention to switch to oil products with lower levels
of trans-fats or trans-fatty acids.
●
In recent years,
there has been increased global interest in the production of
biofuels as alternatives to traditional fossil fuels and as a means
of promoting energy independence. Soybeans can be converted into
biofuels such as biodiesel. Accordingly, the soybean market has
become increasingly affected by demand for biofuels and related
legislation.
●
The costs related
to soybean production could increase and soybean supply could
decrease as a result of restrictions on the use of genetically
modified soybeans, including requirements to segregate genetically
modified soybeans and the products generated from them from other
soybean products.
●
Seasonal
fluctuations in the price of soybeans may cause risk to an investor
because of the possibility that Share prices will be depressed
because of the soybean harvest cycle. In the futures market,
fluctuations are typically reflected in contracts expiring in the
harvest season (i.e., contracts expiring during the fall 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, Soybean 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 soybeans.
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 soybeans. 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.
12
The Benchmark is not designed to correlate with the spot price of
soybeans, and this could cause the changes in the price of the
Shares to substantially vary from the changes in the spot price of
soybeans. Therefore, you may not be able to effectively use the
Fund to hedge against soybean related losses or to indirectly
invest in soybeans.
The Benchmark
Component Futures Contracts reflect the price of soybeans for
future delivery, not the current spot price of soybeans, so at best
the correlation between changes in such Soybean Futures Contracts
and the spot price of soybeans will be only approximate. Weak
correlation between the Benchmark and the spot price of soybeans
may result from the typical seasonal fluctuations in soybean 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 soybeans,
then the price of Shares may not accurately track the spot price of
soybeans and you may not be able to effectively use the Fund as a
way to hedge the risk of losses in your soybean related
transactions or as a way to indirectly invest in
soybeans.
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
soybean related losses or as a way to indirectly invest in
soybeans.
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
Soybean Futures Contract is for a specified amount of soybeans, 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 $562,750 for the sale of a
Creation Basket and that the value (i.e., the notional amount) of a
Soybean Futures Contract is $62,600 the Fund could only enter into
8 Soybean Futures Contracts with an aggregate value of $500,800).
While the Fund may be better able to achieve the exact amount of
exposure to the soybean market through the use of over the counter
other soybean interests, there is no assurance that the Sponsor
will be able to continually adjust the Fund’s exposure to
such other soybean 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 soybean market. On the other hand, if the
Fund’s NAV is equal to 100.9 times the value of a single
Soybean 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 Soybean 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 soybean interests not subject to these position limits or
accountability levels. To the extent that the Fund invests in other
soybean 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 soybean related losses or indirectly invest in
soybeans.
13
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 soybean related
losses or to indirectly invest in soybeans.
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
soybeans, even if the Fund’s NAV was closely tracking
movements in the spot price of soybeans. If this occurs, you may
not be able to effectively use the Fund to hedge the risk of losses
in your soybean related transactions or to indirectly invest in
soybeans.
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 soybeans. 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 soybean 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 soybean 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 soybean 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 soybean purchasers are the predominant hedgers in the market,
the Fund might have to reinvest at higher futures prices or choose
other soybean interests.
The changing nature
of the participants in the soybean market will influence whether
futures prices are above or below the expected future spot price.
Soybean producers will typically seek to hedge against falling
soybean prices by selling Soybean Futures Contracts. Therefore, if
soybean producers become the predominant hedgers in the futures
market, prices of Soybean Futures Contracts will typically be below
expected future spot prices. Conversely, if the predominant hedgers
in the futures market are the purchasers of soybeans who purchase
Soybean Futures Contracts to hedge against a rise in prices, prices
of Soybean 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 Soybean Futures Contract that is no
longer a Benchmark Component Futures Contract and purchase a new
Soybean Futures Contract or to sell a Soybean Futures Contract to
meet redemption requests.
14
Storage costs could impact the value of the Benchmark Component
Futures Contracts.
Storage costs
associated with purchasing soybeans could result in costs and other
liabilities that could impact the value of Soybean Futures
Contracts or certain other soybean interests. Storage costs include
the time value of money invested in soybeans as a physical
commodity plus the actual costs of storing the soybeans less any
benefits from ownership of soybeans that are not obtained by the
holder of a futures contract. In general, Soybean 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 soybeans while the Fund holds
Soybean 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 Soybean 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
soybean price indices.
The design of the
Fund’s Benchmark is such that the Benchmark Component Futures
Contracts will change five times per year, and the Fund’s
investments must be rolled periodically to reflect the changing
composition of the Benchmark. For example, when the second to
expire Soybean 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
soybean 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 soybean 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 soybean 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 soybean 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 soybean. In the event of a prolonged
period of contango, and absent the impact of rising or falling
soybean prices, this could have a significant negative impact on
the Fund’s NAV and total return, and you could incur a
partial or total loss of your investment in the Fund.
Regulation of the commodity interests and commodity markets is
extensive and constantly changing; future regulatory developments
are impossible to predict but may significantly and adversely
affect the Fund.
The regulation of
futures markets, futures contracts and futures exchanges has
historically been comprehensive. The CFTC and the exchanges are
authorized to take extraordinary actions in the event of a market
emergency including, for example, the retroactive implementation of
speculative position limits, increased margin requirements, the
establishment of daily price limits and the suspension of trading
on an exchange or trading facility.
The regulation of
commodity interest transactions in the United States is a rapidly
changing area of law and is subject to ongoing modification by
governmental and judicial action. Congress enacted the 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.
15
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 soybean and
soybean 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 soybeans and
prices of other financial assets, such as stocks and bonds, are
negatively correlated. In the absence of negative correlation, the
Fund cannot be expected to be automatically profitable during
unfavorable periods for the stock market, or vice
versa.
The
Fund’s Operating Risks
The Fund is not a registered investment company, so you do not have
the protections of the Investment Company Act of 1940.
The Fund is not an
investment company subject to the Investment Company Act of 1940.
Accordingly, you do not have the protections afforded by that
statute, which, for example, requires investment companies to have
a board of directors with a majority of disinterested directors and
regulates the relationship between the investment company and its
investment manager.
The Sponsor is leanly staffed and relies heavily on key personnel
to manage trading activities.
In managing and
directing the day to day activities and affairs of the Fund, the
Sponsor relies almost entirely on a small number of individuals,
including Mr. Sal Gilbertie, Mr. Steve Kahler and Ms. Cory
Mullen-Rusin. If Mr. Gilbertie, Mr. Kahler or Ms. Mullen-Rusin were
to leave or be unable to carry out their present responsibilities,
it may have an adverse effect on the management of the Fund. To the
extent that the Sponsor establishes additional commodity pools,
even greater demands will be placed on these
individuals.
The Sponsor has limited capital and may be unable to continue to
manage the Fund if it sustains continued losses.
The Sponsor was
formed for the purpose of managing the Trust, including the Fund,
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.
16
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 soybean
related losses or as a way to indirectly invest in
soybeans.
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 Soybean Futures Contracts are 600 spot month contracts,
15,000 contracts expiring in any other single month, and 15,000
total for all months. Soybean Swaps are subject to position limits
that are similar to, but currently measured separately from, the
limits on Soybean Futures Contracts. These position limits are
fixed ceilings that the Fund would not be able to exceed without
specific CFTC authorization.
Accountability
levels differ from position limits in that they do not represent a
fixed ceiling, but rather a threshold above which a futures
exchange may exercise greater scrutiny and control over an
investor’s positions. If a Fund were to exceed an applicable
accountability level for investments in futures contracts, the
exchange will monitor the Fund’s exposure and may ask for
further information on its activities, including the total size of
all positions, investment and trading strategy, and the extent of
liquidity resources of the Fund. If deemed necessary by the
exchange, the Fund could be ordered to reduce its aggregate net position back to the accountability
level.
In addition to
position limits and accountability limits, the exchanges set daily
price fluctuation limits on futures contracts. The daily price
fluctuation limit establishes the maximum amount that the price of
futures contracts may vary either up or down from the previous
day’s settlement price. Once the daily price fluctuation
limit has been reached in a particular futures contract, no trades
may be made at a price beyond that limit.
On December 16,
2016, as mandated by the Dodd-Frank Act, the CFTC adopted a final
rule that aggregate all positions, for purposes of position limits;
such positions include futures contracts, futures-equivalent
positions, over the counter swaps and options (i.e., contracts that
are not traded on exchanges). These aggregation requirements became
effective on February 14, 2017 and could limit the Fund’s
ability to establish positions in commodity over the counter
instruments if the assets of the Fund were to grow
substantially.
On January 30,
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 Limits Rules”). In
general, the Proposed Position Limit Rules do not appear to have a
substantial or adverse effect on the Fund. However, if the total
net assets of the Fund were to increase significantly from current
levels, the Position Limit Rules as proposed could negatively
impact the ability of the Fund to meet its respective investment
objectives through limits that may inhibit the Sponsor’s
ability to sell additional Creation Baskets of the Fund. However,
it is not expected that the Fund will reach asset levels that would
cause these position limits to be reached in the near
future.
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.
17
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 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.
18
The Fund could terminate at any time and cause the liquidation and
potential loss of your investment and could upset the overall
maturity and timing of your investment portfolio.
The Fund may
terminate at any time, regardless of whether the Fund has incurred
losses, subject to the terms of the Trust Agreement. For example,
the dissolution or resignation of the Sponsor would cause the Trust
to terminate unless shareholders holding a majority of the
outstanding shares of the Trust, voting together as a single class,
elect within 90 days of the event to continue the Trust and appoint
a successor Sponsor. In addition, the Sponsor may terminate the
Fund if it determines that the Fund’s aggregate net assets in
relation to its operating expenses make the continued operation of
the Fund unreasonable or imprudent. As of the date of this
prospectus, the Fund pays the fees, costs, and expenses of its
operations. If the Sponsor and the Fund are unable to raise
sufficient funds so that the Fund’s expenses are reasonable
in relation to its NAV, the Fund may be forced to terminate, and
investors may lose all or part of their investment. Any expenses
related to the operation of the Fund would need to be paid by the
Fund at the time of termination.
However, no level
of losses will require the Sponsor to terminate the Fund. The
Fund’s termination would result in the liquidation of its
investments and the distribution of its remaining assets to the
Shareholders on a pro rata basis in accordance with their Shares,
and the Fund could incur losses in liquidating its investments in
connection with a termination. Termination could also negatively
affect the overall maturity and timing of your investment
portfolio.
As a Shareholder, you will not have the rights enjoyed by investors
in certain other types of entities.
As interests in
separate series of a Delaware statutory trust, the Shares do not
involve the rights normally associated with the ownership of shares
of a corporation (including, for example, the right to bring
shareholder oppression and derivative actions). In addition, the
Shares have limited voting and distribution rights (for example,
Shareholders do not have the right to elect directors, as the Trust
does not have a board of directors, and generally will not receive
regular distributions of the net income and capital gains earned by
the Fund). The Fund is also not subject to certain investor
protection provisions of the Sarbanes Oxley Act of 2002 and the
NYSE Arca governance rules (for example, audit committee
requirements).
A court could potentially conclude that the assets and liabilities
of the Fund are not segregated from those of another series of the
Trust, thereby potentially exposing assets in the Fund to the
liabilities of another series.
The Fund is a
series of a Delaware statutory trust and not itself a legal entity
separate from the other Teucrium Funds. The Delaware Statutory
Trust Act provides that if certain provisions are included in the
formation and governing documents of a statutory trust organized in
series and if separate and distinct records are maintained for any
series and the assets associated with that series are held in
separate and distinct records and are accounted for in such
separate and distinct records separately from the other assets of
the statutory trust, or any series thereof, then the debts,
liabilities, obligations and expenses incurred by a particular
series are enforceable against the assets of such series only, and
not against the assets of the statutory trust generally or any
other series thereof. Conversely, none of the debts, liabilities,
obligations and expenses incurred with respect to any other series
thereof is enforceable against the assets of such series. The
Sponsor is not aware of any court case that has interpreted this
inter-series limitation on liability or provided any guidance as to
what is required for compliance. The Sponsor intends to maintain
separate and distinct records for the Fund and account for the Fund
separately from any other Trust series, but it is possible a court
could conclude that the methods used do not satisfy the Delaware
Statutory Trust Act, which would potentially expose assets in the
Fund to the liabilities of one or more of the Teucrium Funds and/or
any other Trust series created in the future.
The Sponsor and the Trustee are not obligated to prosecute any
action, suit or other proceeding in respect of any Fund
property.
Neither the Sponsor
nor the Trustee is obligated to, although each may in its
respective discretion, prosecute any action, suit or other
proceeding in respect of any Fund property. The Trust Agreement
does not confer upon Shareholders the right to prosecute any such
action, suit or other proceeding.
19
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 expense ratio of
approximately 2.50% of net assets, net of the expenses waived by
the Sponsor. These fees and expenses must be paid in all events,
regardless of the Fund’s total net assets.
The Fund may incur higher fees and expenses upon renewing existing
or entering into new contractual relationships.
The arrangements
between clearing brokers and counterparties on the one hand and the
Fund on the other generally are terminable by the clearing brokers
or counterparty upon notice to the Fund. In addition, the
agreements between the Fund and its third-party service providers,
such as the Distributor and the Custodian, are generally terminable
at specified intervals. Upon termination, the Sponsor may be
required to renegotiate or make other arrangements for obtaining
similar services if the Fund intends to continue to operate.
Comparable services from another party may not be available, or
even if available, these services may not be available on the terms
as favorable as those of the expired or terminated
arrangements.
The Fund may experience a higher breakeven if interest rates
decline.
The Fund earns
interest on cash balances available for investment. If actual
interest rates earned were to continue to fall and if the Sponsor
were not able to waive expenses sufficient to cover the deficit,
the breakeven estimated by the Fund in this prospectus could be
higher.
The Fund is not actively managed.
The Fund is not
actively managed and is designed to track a benchmark, regardless
of whether the price of the Benchmark Component Futures Contracts
is flat, declining or rising. As a result, the Fund may sustain
losses that may have been avoidable if the Fund was actively
managed.
The Net Asset Value calculation of the Fund may be overstated or
understated due to the valuation method employed when a settlement
price is not available on the date of net asset value
calculation.
The Fund’s
NAV includes, in part, any unrealized profits or losses on open
swap agreements, futures or forward contracts. Under normal
circumstances, the NAV reflects the quoted CBOT settlement price of
open futures contracts on the date when the NAV is being
calculated. In instances when the quoted settlement price of
futures contracts traded on an exchange may not be reflective of
fair value based on market condition, generally due to the
operation of daily limits or other rules of the exchange or
otherwise the NAV may not reflect the fair value of open futures
contracts on such date. For purposes of financial statements and
reports, the Sponsor will recalculate the NAV where necessary to
reflect the “fair value” of a Futures Contract when the
Futures Contract closes at its price fluctuation limit for the
day.
20
An unanticipated number of redemption requests during a short
period of time could have an adverse effect on the NAV of the
Fund.
If a substantial
number of requests for redemption of Redemption Baskets are
received by the Fund during a relatively short period of time, the
Fund may not be able to satisfy the requests from the Fund’s
assets not committed to trading. As a consequence, it could be
necessary to liquidate the Fund’s trading positions before
the time that its trading strategies would otherwise call for
liquidation, which may result in losses.
Fund assets may be depleted if investment performance does not
exceed fees.
In addition to
certain fees paid to the Fund’s service providers, the Fund
pays the Sponsor a fee of 1.00% of asset under management per
annum, regardless of Fund performance. Over time, the Fund’s
assets could be depleted if investment performance does not exceed
such fees.
The liquidity of the Shares may be affected by the withdrawal from
participation of Authorized Purchasers, market makers, or other
significant secondary-market participants which could adversely
affect the market price of the Shares.
Only an Authorized
Purchaser may engage in creation or redemption transactions
directly with the Fund. The Fund has a limited number of
institutions that act as Authorized Purchasers. To the extent that
these institutions exit the business or are unable to proceed with
creation and/or redemption orders with respect to the Fund and no
other Authorized Purchaser is able to step forward to create or
redeem Creation Units, Fund shares may trade at a discount to NAV
and possibly face trading halts and/or delisting. In addition, a
decision by a market maker, lead market maker, or other large
investor, to cease activities for the Fund or a decision by a
secondary market participant to sell a significant number of the
Fund’s Shares could adversely affect liquidity, the spread
between the bid and ask quotes, and potentially the price of the
Shares. The Sponsor can make no guarantees that participation by
Authorized Purchasers or market makers will continue.
If a minimum number of Shares is outstanding, market makers may be
less willing to purchase Shares in the secondary market which may
limit your ability to sell Shares.
There is a minimum
number of baskets and associated Shares specified for the Fund. If
the Fund experienced redemptions that caused the number of Shares
outstanding to decrease to the minimum level of Shares required to
be outstanding, until the minimum number of Shares is again
exceeded through the purchase of a new Creation Basket, there can
be no more redemptions by an Authorized Purchaser. In such case,
market makers may be less willing to purchase Shares from investors
in the secondary market, which may in turn limit the ability of
Shareholders of the Fund to sell their Shares in the secondary
market. These minimum levels for the Fund are 50,000 Shares
representing two baskets. The minimum level of Shares specified for
the Fund is subject to change. As of June 30, 2020, there were
4,025,004 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 soybean 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 soybean
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.
21
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.
Third parties may infringe upon or otherwise violate intellectual
property rights or assert that the Sponsor has infringed or
otherwise violated their intellectual property rights, which may
result in significant costs, litigation, and diverted attention of
Sponsor’s management.
Third parties may
assert that the Sponsor has infringed or otherwise violated their
intellectual property rights. Third parties may independently
develop business methods, trademarks or proprietary software and
other technology similar to that of the Sponsor and claim that the
Sponsor has violated their intellectual property rights, including
their copyrights, trademark rights, trade names, trade secrets and
patent rights. As a result, the Sponsor may have to litigate in the
future to determine the validity and scope of other parties’
proprietary rights or defend itself against claims that it has
infringed or otherwise violated other parties’ rights. Any
litigation of this type, even if the Sponsor is successful and
regardless of the merits, may result in significant costs, divert
resources from the Fund, or require the Sponsor to change its
proprietary software and other technology or enter into royalty or
licensing agreements.
The Sponsor has a
patent on certain business methods and procedures used with respect
to the Fund. The Sponsor utilizes certain proprietary software. Any
unauthorized use of such proprietary software business methods
and/or procedures could adversely affect the competitive advantage
of the Sponsor or the Fund and/or require the Sponsor to take legal
action to protect its rights.
The Fund may experience substantial losses on transactions if the
computer or communications system fails.
The Fund’s
trading activities depend on the integrity and performance of the
computer and communications systems supporting them. Extraordinary
transaction volume, hardware or software failure, power or
telecommunications failure, a natural disaster, cyber-attack or
other catastrophe could cause the computer systems to operate at an
unacceptably slow speed or even fail. Any significant degradation
or failure of the systems that the Sponsor uses to gather and
analyze information, enter orders, process data, monitor risk
levels and otherwise engage in trading activities may result in
substantial losses on transactions, liability to other parties,
lost profit opportunities, damages to the Sponsor’s and
Fund’s reputations, increased operational expenses and
diversion of technical resources.
If the computer and communications systems are not upgraded when
necessary, the Fund’s financial condition could be
harmed.
The development of
complex computer and communications systems and new technologies
may render the existing computer and communications systems
supporting the Fund’s trading activities obsolete. In
addition, these computer and communications systems must be
compatible with those of third parties, such as the systems of
exchanges, clearing brokers and the executing brokers. As a result,
if these third parties upgrade their systems, the Sponsor will need
to make corresponding upgrades to effectively continue its trading
activities. The Sponsor may have limited financial resources for
these upgrades or other technological changes. The Fund’s
future success may depend on the Sponsor’s ability to respond
to changing technologies on a timely and cost-effective
basis.
The Fund depends on the reliable performance of the computer and
communications systems of third parties, such as brokers and
futures exchanges, and may experience substantial losses on
transactions if they fail.
The Fund depends on
the proper and timely function of complex computer and
communications systems maintained and operated by the futures
exchanges, brokers and other data providers that the Sponsor uses
to conduct trading activities. Failure or inadequate performance of
any of these systems could adversely affect the Sponsor’s
ability to complete transactions, including its ability to close
out positions, and result in lost profit opportunities and
significant losses on commodity interest transactions. This could
have a material adverse effect on revenues and materially reduce
the Fund’s available capital. For example, unavailability of
price quotations from third parties may make it difficult or
impossible for the Sponsor to conduct trading activities so that
the Fund will closely track the Benchmark. Unavailability of
records from brokerage firms may make it difficult or impossible
for the Sponsor to accurately determine which transactions have
been executed or the details, including price and time, of any
transaction executed. This unavailability of information also may
make it difficult or impossible for the Sponsor to reconcile its
records of transactions with those of another party or to
accomplish settlement of executed transactions.
22
The occurrence of a severe weather event, natural disaster,
terrorist attack, outbreak or public health emergency as declared
by the World Health Organization, the continuation or expansion of
war or other hostilities, or a prolonged government shutdown may
have significant adverse effects on the Fund and its investments
and alter current assumptions and expectations.
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-attack, data
breach, outbreak or public health emergency as declared by the
World Health Organization (such as the recent pandemic spread of
the novel coronavirus known as COVID-19), or the continuation or
expansion of war or other hostilities. Global terrorist attacks,
anti-terrorism initiatives, and political unrest, as well as the
adverse impact the COVID-19 pandemic will have on the global and
U.S. markets and economy, continue to fuel this concern. For
example, the COVID-19 pandemic may adversely impact the level of
services currently provided by the U.S. government, 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. The types of events discussed above, including the
COVID-19 pandemic, are highly disruptive to economies and markets
and have recently led, and may continue to lead, to increased
market volatility and significant market losses.
More generally, a
climate of uncertainty and panic, including the contagion of the
COVID-19 virus and other infectious viruses or diseases, may
adversely affect global, regional, and local economies and reduce
the availability of potential investment opportunities, and
increases the difficulty of performing due diligence and modeling
market conditions, potentially reducing the accuracy of financial
projections. Under these circumstances, the Fund may have
difficulty achieving its investment objective, which may adversely
impact performance. Further, such events can be highly disruptive
to economies and markets, significantly disrupt the operations of
individual companies (including, but not limited to, the
Fund’s Sponsor and third party service providers), sectors,
industries, markets, securities and commodity exchanges,
currencies, interest and inflation rates, credit ratings, investor
sentiment, and other factors affecting the value of the
Fund’s investments. These factors could cause substantial
market volatility, exchange trading suspensions and closures that
could impact the ability of the Fund to complete redemptions and
otherwise affect Fund performance and Fund trading in the secondary
market. A widespread crisis may also affect the global economy in
ways that cannot necessarily be foreseen at the current time. How
long such events will last and whether they will continue or recur
cannot be predicted. Impacts from these events could have
significant impact on the Fund’s performance, resulting in
losses to your investment. The global economic shocks being
experienced as of the date hereof may cause the underlying
assumptions and expectations of the Fund to become outdated quickly
or inaccurate, resulting in significant losses.
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
Soybean Futures Contracts or other soybean 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 Soybean Futures Contracts
or other soybean 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’s 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.
23
The NYSE Arca may halt trading in the Shares which would adversely
impact your ability to sell Shares.
Trading
in Shares of the Fund may be halted due to market conditions or, in
light of NYSE Arca rules and procedures, for reasons that, in view
of the NYSE Arca, make trading in Shares inadvisable. In addition,
trading is subject to trading halts caused by extraordinary market
volatility pursuant to “circuit breaker” rules that
require trading to be halted for a specified period based on a
specified market decline. There can be no assurance that the
requirements necessary to maintain the listing of the Shares will
continue to be met or will remain unchanged. The Fund will be
terminated if its Shares are delisted.
The lack of active trading markets for the Shares of the Fund may
result in losses on your investment in the Fund at the time of
disposition of your Shares.
Although the Shares
of the Fund will be listed and traded on the NYSE Arca, there can
be no guarantee that an active trading market for the Shares of the
Fund will be maintained. If you need to sell your Shares at a time
when no active market for them exists, the price you receive for
your Shares, assuming that you are able to sell them, likely will
be lower than what you would receive if an active market did
exist.
Risk
of Leverage and Volatility
The Fund may become leveraged and may result in losses on all or
substantially all of your investment if the Fund’s trading
positions suddenly turn unprofitable.
Commodity
pools’ trading positions in futures contracts or other
commodity interests are typically required to be secured by the
deposit of margin funds that represent only a small percentage of a
futures contract’s (or other commodity interest’s)
entire market value. This feature permits commodity pools to
“leverage” their assets by purchasing or selling
futures contracts (or other commodity interests) with an aggregate
notional amount in excess of the commodity pool’s assets.
While this leverage can increase a pool’s profits, relatively
small adverse movements in the price of the pool’s commodity
interests can cause significant losses to the pool. While the
Sponsor does not intend to leverage the Fund’s assets, it is
not prohibited from doing so under the Trust Agreement. If the
Sponsor was to cause or permit the Fund to become leveraged, you
could lose all or substantially all of your investment if the
Fund’s trading positions suddenly turn
unprofitable.
The price of soybeans can be volatile which could cause large
fluctuations in the price of Shares.
As discussed in
more detail above, price movements for soybeans 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 soybean
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.
24
The Fund will be subject to credit risk with respect to
counterparties to over the counter contracts entered into by the
Fund.
The Fund faces the
risk of non-performance by the counterparties to the over the
counter contracts. Unlike in futures contracts, the counterparty to
these contracts is generally a single bank or other financial
institution, rather than a clearing organization backed by a group
of financial institutions. As a result, there will be greater
counterparty credit risk in these transactions. A counterparty may
not be able to meet its obligations to the Fund, in which case the
Fund could suffer significant losses on these
contracts.
If a counterparty
becomes bankrupt or otherwise fails to perform its obligations due
to financial difficulties, the Fund may experience significant
delays in obtaining any recovery in a bankruptcy or other
reorganization proceeding. During any such period, the Fund may
have difficulty in determining the value of its contracts with the
counterparty, which in turn could result in the overstatement or
understatement of the Fund’s NAV. The Fund may eventually
obtain only limited recovery or no recovery in such
circumstances.
The Fund may be subject to liquidity risk with respect to over the
counter contracts.
Over the counter
contracts may have terms that make them less marketable than
Soybean 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 Soybean 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.
25
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. soybean 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.
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.
26
Items of income, gain, deduction, loss and credit with respect to
Shares could be reallocated (or for taxable years beginning after
December 31, 2017, the Fund itself could be liable for U.S. federal
income tax along with any interest or penalties) if the IRS does
not accept the assumptions and conventions applied by the Fund in
allocating those items, with potential adverse tax consequences for
you.
The Fund is treated
as a partnership for United States federal income tax purposes. The
U.S. tax rules pertaining to entities taxed as partnerships are
complex and their application to publicly traded partnerships, such
as the Fund, is in many respects uncertain. The Fund applies
certain assumptions and conventions in an attempt to comply with
the intent of the applicable rules and to report taxable income,
gains, deductions, losses and credits in a manner that properly
reflects Shareholders’ economic gains and losses. These
assumptions and conventions may not fully comply with all aspects
of the Internal Revenue Code of 1986, as amended (the
“Code”), and applicable Treasury Regulations, however,
and it is possible that the U.S. Internal Revenue Service (the
“IRS”) will successfully challenge our allocation
methods and require us to reallocate items of income, gain,
deduction, loss or credit in a manner that adversely affects you.
If this occurs, you may be required to file an amended tax return
and to pay additional taxes plus deficiency interest.
In
addition, for taxable years beginning after December 31, 2017, the
Fund may be liable for U.S. federal income tax on any
“imputed underpayment” of tax resulting from an
adjustment as a result of an IRS audit. The amount of the imputed
underpayment generally includes increases in allocations of items
of income or gains to any investor and decreases in allocations of
items of deduction, loss, or credit to any investor without any
offset for any corresponding reductions in allocations of items of
income or gain to any investor or increases in allocations of items
of deduction, loss, or credit to any investor. If the Fund is
required to pay any U.S. federal income taxes on any imputed
underpayment, the resulting tax liability would reduce the net
assets of the Fund and would likely have an adverse impact on the
value of the Shares. In such a case, the tax liability would in
effect be borne by Shareholders that own shares at the time of such
assessment, which may be different persons, or persons with
different ownership percentages, than persons owning Shares for the
tax year under audit. Under certain circumstances, the Fund may be
eligible to make an election to cause Shareholders to take into
account the amount of any imputed underpayment, including any
interest and penalties. The ability of a publicly traded
partnership such as the Fund to make this election is uncertain. If
the election is made, the Fund would be required to provide
Shareholders who owned beneficial interests in the Shares in the
year to which the adjusted allocations relate with a statement
setting forth their proportionate shares of the adjustment
(“Adjusted K-1s”). The investors would be required to
take the adjustment into account in the taxable year in which the
Adjusted K-1s are issued. For an additional discussion please see
“U.S. Federal Income Tax Considerations – Other Tax
Matters.”
If the Fund is required to withhold tax with respect to any
Non-U.S. Shareholders, the cost of such withholding may be borne by
all Shareholders.
Under certain
circumstances, the Fund may be required to pay withholding tax with
respect to allocations to Non-U.S. Shareholders. Although the Trust
Agreement provides that any such withholding will be treated as
being distributed to the Non-U.S. Shareholder, the Fund may not be
able to cause the economic cost of such withholding to be borne by
the Non-U.S. Shareholder on whose behalf such amounts were withheld
since the Fund does not intend to make any distributions. Under
such circumstances, the economic cost of the withholding may be
borne by all Shareholders, not just the Shareholders on whose
behalf such amounts were withheld. This could have a material
impact on the value of your Shares.
The Fund could be treated as a corporation for federal income tax
purposes, which may substantially reduce the value of your
Shares.
The Trust has
received an opinion of counsel that, under current U.S. federal
income tax laws, the Fund will be treated as a partnership that is
not taxable as a corporation for U.S. federal income tax purposes,
provided that, among other things, (i) at least 90 percent of the
Fund’s annual gross income consists of “qualifying
income” as defined in the Code, (ii) the Fund is organized
and operated in accordance with its governing agreements and
applicable law, and (iii) the Fund does not elect to be taxed as a
corporation for federal income tax purposes. Although the Sponsor
anticipates that the Fund has satisfied and will continue to
satisfy the “qualifying income” requirement for all of
its taxable years, that result cannot be assured. The Fund has not
requested and will not request any ruling from the IRS with respect
to its classification as a partnership not taxable as a corporation
for federal income tax purposes. If the IRS were to successfully
assert that the Fund is taxable as a corporation for federal income
tax purposes in any taxable year, rather than passing through its
income, gains, losses and deductions proportionately to
Shareholders, the Fund would be subject to tax on its net income
for the year at corporate tax rates. In addition, although the
Sponsor does not currently intend to make distributions with
respect to Shares, any distributions would be taxable to
Shareholders as dividend income to the extent of the Fund’s
current and accumulated earnings and profits, then treated as a
tax-free return of capital to the extent of the Shareholder’s
basis in the Shares (and will reduce the basis), and, to the extent
it exceeds a Shareholder’s basis in such Shares, as capital
gain for Shareholders who hold their Shares as capital assets.
Taxation of the Fund as a corporation could materially reduce the
after-tax return on an investment in Shares and could substantially
reduce the value of your Shares.
Tax legislation that has been or could be enacted may affect you
with respect to your investment in the Fund.
Legislative,
regulatory or administrative changes could be enacted or
promulgated at any time, either prospectively or with retroactive
effect, and may adversely affect the Fund and its Shareholders.
Please consult a tax advisor regarding the implications of 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.
27
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 soybean market for future
delivery. The Sponsor developed the Benchmark as a representation
of the soybean 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 soybean 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 31 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 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.
28
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 $278,152 in management fees to the
Sponsor. The Fund is also responsible for other ongoing fees, costs
and expenses of its operations, including brokerage fees, and
legal, printing, accounting, custodial, administration and transfer
agency costs, although the Sponsor bore the costs and
expenses related to the registration of the Shares. None of the
costs and expenses related to the initial registration, offer and
sale of Shares, which totaled approximately $450,000, were or are
chargeable to the Fund, and the Sponsor did not and may not recover
any of these costs and expenses from the Fund.
Shareholders have
no right to elect the Sponsor on an annual or any other continuing
basis or to remove the Sponsor. If the Sponsor voluntarily
withdraws, the holders of a majority of the Trust’s
outstanding Shares (excluding for purposes of such determination
Shares owned by the withdrawing Sponsor and its affiliates) may
elect its successor. Prior to withdrawing, the Sponsor must give
ninety days’ written notice to the Shareholders and the
Trustee.
Ownership or
“membership” interests in the Sponsor are owned by
persons referred to as “members.” The Sponsor currently
has three voting or “Class A” members – Mr. Sal
Gilbertie, Mr. Dale Riker and Mr. Carl N. Miller III – and a
small number of non-voting or “Class B” members who
have provided working capital to the Sponsor. Messrs. Gilbertie and
Riker each currently own 45.7% of the Sponsor’s Class A
membership interests, while Mr. Miller holds the remainder, which
is 8.52%.
The Sponsor has an
information security program and policy in place. The program takes
reasonable care to look beyond the security and controls developed
and implemented for the Trust and the Funds directly to the
platforms and controls in place for the key service providers. Such
review of 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 60 years
old.
29
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 began working for the Sponsor
in September 2011 and 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 53 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 LLC is a principal for the Sponsor under CFTC Rules due to
its ownership of certain non-voting securities of the Sponsor.
NMSIC Classic LLC is a principal for the Sponsor under CFTC Rules
due to its greater than 10% capital contribution to the
Sponsor.
Market Price of Shares
The
Fund’s Shares have traded on the NYSE Arca under the symbol
“SOYB” since September 19, 2011. The following table
sets forth the range of reported high and low sales prices of the
Shares as reported on NYSE Arca for the periods indicated
below.
|
Fiscal Year Ended December 31,
2020:
|
High
|
Low
|
|
Quarter
Ended
|
|
|
|
March 31,
2020
|
$15.86
|
$13.45
|
|
June 30,
2020
|
$14.12
|
$13.34
|
|
Fiscal Year Ended December 31,
2019:
|
High
|
Low
|
|
Quarter
Ended
|
|
|
|
March 31,
2019
|
$16.72
|
$15.75
|
|
June 30,
2019
|
$16.15
|
$14.35
|
|
September 30,
2019
|
$15.89
|
$14.77
|
|
December 31,
2019
|
$16.00
|
$14.84
|
|
Fiscal Year Ended December 31,
2018:
|
High
|
Low
|
|
Quarter
Ended
|
|
|
|
March 31,
2018
|
$19.45
|
$17.65
|
|
June 30,
2018
|
$19.12
|
$16.24
|
|
September 30,
2018
|
$16.86
|
$15.30
|
|
December 31,
2018
|
$16.82
|
$15.59
|
As
of December 31, 2019, the Fund had approximately 3,512
Shareholders.
30
Prior Performance of the Fund
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS
The Teucrium
Soybean Fund commenced trading and investment operations on
September 19, 2011. 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 June 30,
2020)
|
7,825,000
|
|
|
Aggregate
gross sale price for units issued
|
$
135,010,989
|
|
|
NAV
per Share as of June 30, 2020
|
$
13.98
|
|
|
Pool
NAV as of June 30, 2020
|
$
56,286,250
|
|
|
Worst
monthly percentage drawdown*
|
(13.03)%
- June 2018
|
|
|
Worst
peak to valley drawdown**
|
(52.02)
%
|
|
|
August
2012 - May 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.
31
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS
Rates of
Return*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
|
January
|
(6.16)
|
%
|
1.44
|
%
|
1.68
|
%
|
3.31
|
%
|
2.16
|
%
|
(7.92)
|
%
|
|
February
|
6.00
|
%
|
(2.73)
|
%
|
0.52
|
%
|
3.69
|
%
|
(1.75)
|
%
|
(0.00)
|
%**
|
|
March
|
(5.13)
|
%
|
5.32
|
%
|
(7.13)
|
%
|
(0.42)
|
%
|
(2.89)
|
%
|
(4.07)
|
%
|
|
April
|
(0.41)
|
%
|
8.27
|
%
|
(0.28)
|
%
|
(0.63)
|
%
|
(4.56)
|
%
|
(2.08)
|
%
|
|
May
|
(4.96)
|
%
|
2.92
|
%
|
(3.05)
|
%
|
(1.43)
|
%
|
2.46
|
%
|
(0.50)
|
%
|
|
June
|
10.93
|
%
|
6.42
|
%
|
3.37
|
%
|
(13.03)
|
%
|
1.81
|
%
|
2.52
|
%
|
|
July
|
(8.59)
|
%
|
(10.72)
|
%
|
4.70
|
%
|
4.38
|
%
|
(3.35)
|
%
|
|
%
|
|
August
|
(4.83)
|
%
|
(4.77)
|
%
|
(3.27)
|
%
|
(7.03)
|
%
|
(1.36)
|
%
|
|
%
|
|
September
|
0.33
|
%
|
1.98
|
%
|
(2.02)
|
%
|
0.57
|
%
|
3.45
|
%
|
|
%
|
|
October
|
(1.00)
|
%
|
4.80
|
%
|
2.73
|
%
|
(1.01)
|
%
|
1.48
|
%
|
|
%
|
|
November
|
(0.22)
|
%
|
1.91
|
%
|
0.11
|
%
|
4.47
|
%
|
(5.36)
|
%
|
|
%
|
|
December
|
(2.36)
|
%
|
(3.59)
|
%
|
(3.36)
|
%
|
(1.04)
|
%
|
6.42
|
%
|
|
%
|
|
Annual
Rate of Return
|
(16.59)
|
%
|
10.03
|
%
|
(6.45)
|
%
|
(9.24)
|
%
|
(2.16)
|
%
|
(11.78)
|
%***
|
* 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.
**The February 2020
rate of return was 0.00% and did in fact trade in an active
market.
***Not
annualized.
32
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.
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 of the Shares’ NAV reflect the daily
changes in the soybean 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:
SOYB Benchmark
|
CBOT Soybean Futures Contract
|
Weighting
|
|
Second
to expire (excluding August & September)
|
35%
|
|
Third
to expire (excluding August & September)
|
30%
|
|
Expiring
in the November following the expiration of the third to expire
contract
|
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 Soybean 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.”
33
The Fund invests in
Benchmark Component Futures Contracts to the fullest extent
possible without being leveraged or unable to satisfy its current
or potential margin or collateral obligations with respect to its
investments in Benchmark Component Futures Contracts. After
fulfilling such margin and collateral requirements, the Fund
invests the remainder of its proceeds from the sale of baskets in
cash and cash equivalents, including money-market funds and
investment grade commercial paper, and/or merely holds such assets
in cash in interest-bearing accounts. The Fund earns interest 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 dates on which certain Soybean Futures Contracts
expire), a particular Soybean Futures Contract 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, the name and
value of each cash equivalent held in the Fund, and the amount of
cash held in the Fund’s portfolio. The Fund’s website
also includes the NAV, the 4 p.m. Bid/Ask Midpoint as reported by
the NYSE Arca, the last trade price as reported by the NYSE Arca,
the shares outstanding, the shares available for issuance, and the
shares created or redeemed on that day. The prospectus, Monthly
Statements of Account, Quarterly Performance of the Midpoint versus
the NAV (as required by the CFTC), and the Roll Dates, as well as
Forms 10-Q, Forms 10-K, and other SEC filings for the Fund, are
also posted on the website. The Fund’s website is publicly
accessible at no charge.
In seeking to
achieve the Fund’s investment objective of tracking the
Benchmark, the Sponsor reserves the right to enter into or hold
Soybean Futures Contracts other than the Benchmark Component
Futures Contracts and/or other soybean interests on behalf of the
Fund. Over the counter soybean interests can generally be
structured as the parties to the contract desire. Therefore, the
Fund might enter into multiple over the counter soybean interests
intended to exactly replicate the performance of each of the three
Benchmark Component Futures Contracts, or a single over the counter
soybean 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 soybean interest, the
performance of the soybean 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 soybean 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 soybean 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 soybean market for future delivery. The
Sponsor developed the Benchmark as a representation of the soybean
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 soybean market for
future delivery, as measured by the Benchmark.
34
An investment in
the Shares provides a means for diversifying an investor’s
portfolio or hedging exposure to changes in soybean prices. An
investment in the Shares allows both retail and institutional
investors to easily gain this exposure to the soybean 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 soybean market in a cost-effective manner. Such
investors may include participants in the soybean industry and
other industries seeking to hedge the risk of losses in their
soybean related transactions, as well as investors seeking exposure
to the soybean market. Accordingly, depending on the investment
objective of an individual investor, the risks generally associated
with investing in the soybean 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 soybeans 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 soybeans, 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 soybeans.
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 affected at the bid and ask prices
established by the specialist firm(s). Like any listed security,
Shares can be purchased and sold at any time a secondary market is
open.
The Fund’s Investment Strategy
In managing the
Fund’s assets, the Sponsor does not use a technical trading
system that automatically issues buy and sell orders. Instead, each
time one or more baskets are purchased or redeemed, the Sponsor
purchases or sells Benchmark Component Futures Contracts with an
aggregate market value that approximates the amount of cash
received or paid upon the purchase or redemption of the
basket(s).
As an example,
assume that a Creation Basket is sold by the Fund, and that the
Fund’s closing NAV per Share is $22.51. In that case, the
Fund would receive $562,750 in proceeds from the sale of the
Creation Basket ($22.51 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 $62,600 (or otherwise not a round
number), the Fund would be unable to buy an exact number of Soybean
Futures Contracts with an aggregate market value equal to $562,750.
Instead, the Fund would be able to purchase 8 Benchmark Component Futures
Contracts with an aggregate market value of $500,800. Assuming a
margin requirement equal to 10% of the value of the Soybean Futures
Contracts (although the actual percentage is approximately 5%), the
Fund would be required to deposit $50,080 in and cash with the FCM
through which the Soybean Futures Contracts were purchased. The
remainder of the proceeds from the sale of the Creation Basket,
$511,950, 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.
35
The specific
Soybean Futures Contracts 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
Soybean Futures Contracts and cash and cash equivalents, the
Sponsor reserves the right to enter into other soybean 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 soybeans. 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
soybeans 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 soybeans increases
and, as a likely result of an increase in the price of soybeans,
the price of Soybean Futures Contracts increases, the Fund will
generally be long in the market for soybeans and will generally
sell Soybean 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.
Soybean 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 soybean prices are currently available,
although the Fund could enter into such contracts should they
become available in the future.
Certain typical and
significant characteristics of Soybean Futures Contracts are
discussed below. Additional risks of investing in Soybean Futures
Contracts are included in “What are the Risk Factors Involved
with an Investment in the Fund?”
36
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 soybean related
losses or as a way to indirectly invest in soybeans.
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 and cash and cash equivalents. If the Fund encounters
position limits, accountability levels, or price fluctuation limits
for Soybean Futures Contracts on the CBOT, it may then, if
permitted under applicable regulatory requirements, purchase other
soybean Interests and/or Soybean Futures Contracts listed on
foreign exchanges. However, the Soybean Futures Contracts available
on such foreign exchanges may have different underlying sizes,
deliveries, and prices. In addition, the Soybean 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 Soybean 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 soybeans fluctuates based on a number of market factors,
including demand for soybeans relative to its supply. The value of
Soybean Futures Contracts likewise fluctuates in reaction to a
number of market factors. Because the Fund seeks to maintain its
holdings in Soybean Futures Contracts with a roughly constant
expiration profile and not take delivery of the soybeans, 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
soybeans 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
soybean prices or the price relationship between the 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 soybean 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 soybean 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 soybean market and the soybean
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.
37
Margin Requirements and Marking-to-Market Futures
Positions
“Initial
margin” is an amount of funds that must be deposited by a
commodity interest trader with the trader’s broker to
initiate an open position in futures contracts. A margin deposit is
like a cash performance bond. It helps assure the trader’s
performance of the futures contracts that he or she purchases or
sells. Futures contracts are customarily bought and sold on initial
margin that represents a small percentage of the aggregate purchase
or sales price of the contract. The amount of margin required in
connection with a particular futures contract is set by the
exchange on which the contract is traded. Brokerage firms, such as
the Fund’s clearing broker, carrying accounts for traders in
commodity interest contracts may require higher amounts of margin
as a matter of policy to further protect themselves.
Futures contracts
are marked to market at the end of each trading day and the margin
required with respect to such contracts is adjusted accordingly.
This process of marking to market is designed to prevent losses
from accumulating in any futures account. Therefore, if the
Fund’s futures positions have declined in value, the Fund may
be required to post “variation margin” to cover this
decline. Alternatively, if the Fund’s futures positions have
increased in value, this increase will be credited to the
Fund’s account.
Over
the counter Derivatives
Under normal market
conditions, the Fund expects that 100% of the Fund’s assets
will be used to trade futures and invest in cash and cash
equivalents; however, the Fund has the ability to trade over the
counter contracts and swaps. A description of such over the counter
derivatives is included the statement of additional information
that is part of this prospectus under the heading “Over the
counter Derivatives.”
The
Fund’s Investments in Cash and Cash Equivalents
The Fund seeks to
have the aggregate “notional” amount of the Benchmark
Component Futures Contracts it holds approximate at all times the
Fund’s aggregate NAV. At any given time, however, most of the
Fund’s investments are in cash and cash equivalents that
support the Fund’s positions in Benchmark Component Futures
Contracts. For example, the purchase of a Soybean 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 Soybean 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 Soybean
Futures Contracts. Other soybean 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 Soybean Interests are also held in short-term Treasury
Securities, 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 grade
credit quality.
38
Other
Trading Policies of the Fund
Exchange for Related Position
An “exchange
for related position” (“EFRP”) can be used by the
Fund as a technique to facilitate the exchanging of a futures hedge
position against a creation or redemption order, and thus the Fund
may use an EFRP transaction in connection with the creation and
redemption of shares. The market specialist/market maker that is
the ultimate purchaser or seller of shares in connection with the
creation or redemption basket, respectively, agrees to sell or
purchase a corresponding offsetting shares or futures position
which is then settled on the same business day as a cleared futures
transaction by the FCMs. The Fund will become subject to the credit
risk of the market specialist/market maker until the EFRP is
settled within the business day, which is typically 7 hours or
less. The Fund reports all activity related to EFRP transactions
under the procedures and guidelines of the CFTC and the exchanges
on which the futures are traded.
EFRPs are subject
to specific rules of the CME and CFTC guidance. It is likely that
EFRP mechanisms will significantly change in the future which may
make it uneconomical or impossible from a regulatory perspective
for the Fund to utilize these mechanisms.
Options on Futures Contracts
An option on a
futures contract gives the buyer of the option the right, but not
the obligation, to buy or sell a futures contract at a specified
price on or before a specified date. The option buyer deposits the
purchase price or “premium” for the option with his
broker, and the money goes to the option seller. Regardless of how
much the market swings, the most an option buyer can lose is the
option premium and the commissions and fees associated with the
transaction. However, the buyer will typically lose the premium if
the exercise price of the option is above (in the case of an option
to buy or “call” option) or below (in the case of an
option to sell or “put” option) the market value at the
time of exercise. Option sellers, on the other hand, face risks
similar to participants in the futures markets. For example, since
the seller of a call option is assigned a short futures position if
the option is exercised, his risk is the same as someone who
initially sold a futures contract. Because no one can predict
exactly how the market will move, the option seller posts margin to
demonstrate his ability to meet any potential contractual
obligations.
In addition to
Soybean Futures Contracts, there are also a number of options on
Soybean 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 Soybean Futures Contracts in pursuing
its investment objective, except that it will not sell call options
when it does not own the underlying Soybean Futures Contract. The
Fund would make use of options on Soybean 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 Soybean prices.
Liquidity
The Fund invests
only in Soybean 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 soybean interests based on the spot price of
soybeans.
39
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 the Benchmark
(“TSOYB”) 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 Soybean
ETF Performance as of
6/30/2020
|
|
Three
Month
|
Year
to
Date
|
3
Year Annualized
|
5
Year
Annualized
|
Inception
Annualized
|
|
NAV
|
-0.12%
|
-11.78%
|
-8.23%
|
-7.46%
|
-6.40%
|
|
Price
|
-0.57%
|
-11.75%
|
-8.19%
|
-7.37%
|
-6.41%
|
|
Benchmark
(TSOYB)
|
0.77%
|
-10.62%
|
-6.57%
|
-5.23%
|
-2.67%
|
The
Soybean Market
Global soybean
production is concentrated in the U.S., Brazil, Argentina, and
China. The United States Department of Agriculture
(“USDA”) has estimated that, for the Crop Year 2020-21,
the United States will produce approximately 113 MMT of soybeans or
approximately 31% of estimated world production, with Brazil
production at 131 MMT. Argentina is projected to produce about 54
MMT. For 2020-21, based on the July 2020 USDA report, global
consumption of 364 MMT is estimated slightly higher than global
production of 363 MMT. If the global supply of soybeans exceeds
global demand, this may have an adverse impact on the price of
soybeans. The USDA publishes weekly, monthly, quarterly and annual
updates for U.S. domestic and worldwide soybean production and
consumption. These reports are available on the USDA’s
website, www.usda.gov, at no charge. For more information about the
Soybean Market, please see the statement of additional information
that is part of this prospectus under the heading “The
Soybean Market.”
40
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.
41
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 ED&F Man Capital Markets Inc. or
its principals in the past five (5) years. For a list of concluded
actions, please go to
http://www.nfa.futures.org/basicnet/welcome.aspx. This link will
take you to the Welcome Page of the NFA’s Background
Affiliation Status Information Center (“BASIC”). At
this page, there is a box where you can enter the NFA ID of
ED&F Man Capital Markets Inc. (0002613) and then click
“Go”. You will be transferred to the NFA’s
information specific to ED&F Man Capital Markets Inc. Under the
heading “Regulatory Actions”, click
“details” and you will be directed to the full list of
regulatory actions brought by the CFTC and exchanges.
ED&F Man, in
its capacity as a registered FCM, will serve as the Fund's clearing
broker and, as such, will arrange for the execution and clearing of
the Fund's futures and options on futures transactions. ED&F
Man acts as clearing broker for many other funds and
individuals.
The investor should
be advised that ED&F Man is not affiliated with and does not
act as a supervisor of the Fund or the Fund's Sponsor, investment
managers, members, officers, administrators, transfer agents,
registrars or organizers. Additionally, ED&F Man is not acting
as an underwriter or sponsor of the offering of any shares or
interests in the Fund and has not passed upon the adequacy of this
prospectus, the merits of participating in this offering or on the
accuracy of the information contained herein.
Additionally,
ED&F Man does not provide any commodity trading advice
regarding the Fund's trading activities. Investors should not rely
upon ED&F Man in deciding whether to invest in the Fund or
retain their interests in the Fund. Investors should also note that
the Fund may select additional clearing brokers or replace ED&F
Man as the Fund's clearing broker.
Marketing Agent
Currently, Thales
Capital Partners LLC (TCP) serves as the Fund’s Marketing
Agent. TCP is registered as a Broker-Dealer with the SEC and a
member of Financial Industry Regulatory Authority (FINRA) and SIPC.
The Fund pays the Marketing Agent an annual fee for distribution
and solicitation-related services. Additionally, the Marketing
Agent will receive an additional 0.0015% of the Fund’s average daily net assets in
referred accounts. This additional fee is determined by an
agreed upon level of assets at the time of signing the
contract.
Commodity Trading Advisor
Currently, the
Sponsor does not employ commodity trading advisors. If, in the
future, the Sponsor does employ commodity trading advisors, it will
choose each advisor based on arm’s length negotiations and
will consider the advisor’s experience, fees, and
reputation.
42
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 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 asset-based fees which will be paid to the
Distributor by the Fund for distribution services will not exceed
$85,000 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 $10,000 for the two-year offering period. The total
expenses payable to the Distributor relating to the registration,
continuing education and other administrative expenses of the
Registered Representatives for this offering will not exceed
$10,000 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 $111,000. The total
expenses that will be reimbursed to the Distributor over the
two-year offering period for all of its services will not exceed
$16,000, $6,000 of which are issuer costs for sales and advertising
materials.
|
|
Thales Capital
Partners LLC,
Marketing
Agent
ED&F Man
Capital Markets Inc.
Futures Commission
Merchant and
Clearing
Broker
|
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.
$4.50 per Soybean
Futures Contract half-turn
|
|
Wilmington Trust
Company, Trustee
Employees of the
Sponsor Registered with the Distributor (the “Registered
Representatives”)
|
$3,300 annually for
the Trust
For non-marketing
services to the Fund, $150,000 and, for marketing and wholesaling
purposes, $145,000. 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 $30,000 will be paid by the Sponsor, the rest
by the Fund. Registered Representatives will also receive
continuing education valued at a maximum of $600 for the two-year
offering period.
|
43
Other Non-Contractual Payments by the Fund
The Fund pays for
all brokerage fees, taxes and other expenses, including licensing
fees for the use of intellectual property, registration or other
fees paid to the SEC, FINRA, or any other regulatory agency in
connection with the offer and sale of subsequent Shares after its
initial registration and all legal, accounting, printing and other
expenses associated therewith. The Fund also pays its portion of
the fees and expenses for services directly attributable to the
Fund such as accounting, financial reporting, regulatory compliance
and trading activities, which the Sponsor elected not to outsource.
Certain aggregate expenses common to all Teucrium Funds within the
Trust are allocated by the Sponsor to the respective funds based on
activity drivers deemed most appropriate by the Sponsor for such
expenses, including but not limited to relative assets under
management and creation order activity. These aggregate common
expenses include, but are not limited to, legal, auditing,
accounting and financial reporting, tax-preparation, regulatory
compliance, trading activities, and insurance costs, as well as
fees paid to the Distributor. A portion of these aggregate common
expenses are related to the Sponsor or related parties of
principals of the Sponsor; these are necessary services to the
Teucrium Funds, which are primarily the cost of performing certain
accounting and financial reporting, regulatory compliance, and
trading activities that are directly attributable to the Fund and
are included, primarily, in distribution and marketing
fees.
|
|
Year
Ended
December 31,
2019
|
Year
Ended
December
31, 2018
|
Year
Ended
December
31, 2017
|
|
Recognized
Related Party Transactions
|
$379,031
|
$444,365
|
$183,076
|
|
Waived
Related Party Transactions
|
$31,537
|
$192,822
|
$45,597
|
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
9.
|
|
Per
Share
|
Per
Basket
|
|
Professional Fees1
|
$0.07
|
$1,750
|
|
Distribution and Marketing Fees2
|
0.15
|
3,750
|
|
Custodian Fees and Expenses3
|
0.02
|
500
|
|
General and Administrative Fees4
|
0.01
|
250
|
|
Business
Permits and Licenses
|
0.01
|
250
|
|
Other
Expenses
|
-
|
-
|
|
Total
Other Fund Fees and Expenses
|
$0.26
|
$6,500
|
(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.
44
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.
45
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 “SOYB.” Shares are bought and sold throughout
the trading day like other publicly traded securities. When buying
or selling Shares through a broker, most investors incur customary
brokerage commissions and charges. Investors are encouraged to
review the terms of their brokerage account for details on
applicable charges and, as discussed below under “U.S.
Federal Income Tax Considerations,” any provisions
authorizing the broker to borrow Shares held on your
behalf.
Distributor and Authorized Purchasers
The offering of the
Fund’s Shares is a best efforts offering. The Fund
continuously offers Creation Baskets consisting of 25,000 Shares at
their NAV through the Distributor to Authorized Purchasers.
Deutsche Bank Securities, Inc. was the initial Authorized
Purchaser. The initial Authorized Purchaser purchased two Creation
Baskets of 50,000 Shares each at a per Shares price of $25.00 on
September 16, 2011. All Authorized Purchasers pay a $250 fee for
each Creation Basket order.
The following
entities have entered into Authorized Purchaser Agreements with
respect to the Fund: Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Merrill Lynch
Professional Clearing Corp., Goldman Sachs & Co., Citadel
Securities, LLC, and Virtu Americas LLC.
Because new Shares
can be created and issued on an ongoing basis, at any point during
the life of the Fund, a “distribution,” as such term is
used in the 1933 Act, will be occurring. Authorized Purchasers,
other broker-dealers and other persons are cautioned that some of
their activities may result in their being deemed participants in a
distribution in a manner that would render them statutory
underwriters and subject them to the prospectus-delivery and
liability provisions of the 1933 Act. For example, an Authorized
Purchaser, other broker-dealer firm or its client will be deemed a
statutory underwriter if it purchases a basket from the Fund,
breaks the basket down into the constituent Shares and sells the
Shares to its customers; or if it chooses to couple the creation of
a supply of new Shares with an active selling effort involving
solicitation of secondary market demand for the Shares. In
contrast, Authorized Purchasers may engage in secondary market or
other transactions in Shares that would not be deemed
“underwriting.” For example, an Authorized Purchaser
may act in the capacity of a broker or dealer with respect to
Shares that were previously distributed by other Authorized
Purchasers. A determination of whether a particular market
participant is an underwriter must take into account all the facts
and circumstances pertaining to the activities of the broker-dealer
or its client in the particular case, and the examples mentioned
above should not be considered a complete description of all the
activities that would lead to designation as an underwriter and
subject them to the prospectus-delivery and liability provisions of
the 1933 Act.
46
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 Soybean Futures Contracts, the Administrator uses the CBOT
closing price, except that the “fair value” of a
Soybean Futures Contract (as described in more detail below) may be
used when Soybean 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 soybean interests is
determined based on the value of the commodity or Futures Contract
underlying such soybean 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
soybean interest. NAV includes any unrealized profit or loss on
open soybean interests and any other credit or debit accruing to
the Fund but unpaid or not received by the Fund.
The fair value of a
soybean interest shall be determined by the Sponsor in good faith
and in a manner that assesses the soybean interest’s value
based on a consideration of all available facts and all available
information on the valuation date. When a Soybean Futures Contract
has closed at its price fluctuation limit, the fair value
determination attempts to estimate the price at which such Soybean
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 soybean interests trading in
the over the counter market. The fair value of a soybean interest
may not reflect such security’s market value or the amount
that the Fund might reasonably expect to receive for the Soybean
Interest upon its current sale.
In addition, in
order to provide updated information relating to the Fund for use
by investors and market professionals, ICE Data Indices, LLC
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 soybean
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.
47
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 Soybean 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 Soybean 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.
ICE Data Indices,
LLC 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 to 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
physical soybeans and the soybean interest markets. Some Authorized
Purchasers or their affiliates may from time to time buy or sell
soybeans or soybean 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.
48
The following
description of the procedures for the creation and redemption of
baskets is only a summary and an investor should refer to the
relevant provisions of the Trust Agreement and the form of
Authorized Purchaser Agreement for more detail, each of which has
been incorporated by reference as an exhibit to the registration
statement of which this prospectus is a part. See “Where You
Can Find More Information” for information about where you
can obtain the registration statement.
Creation Procedures
On any business
day, an Authorized Purchaser may place an order with Global Fund
Services in their capacity as the transfer agent to create one or
more baskets. For purposes of processing purchase and redemption
orders, a “business day” means any day other than a day
when any of the NYSE Arca, 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, including the remaining maturities of the cash
equivalents, 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.
49
Rejection of Purchase Orders
The Sponsor acting
by itself or through the Distributor or Custodian may reject a
purchase order or a Creation Basket Deposit if:
●
it determines that,
due to position limits or otherwise, investment alternatives that
will enable the Fund to meet its investment objective are not
available or practicable at that time;
●
it determines that
the purchase order or the Creation Basket Deposit is not in proper
form;
●
it believes that
acceptance of the purchase order or the Creation Basket Deposit
would have adverse tax consequences to the Fund or its
Shareholders;
●
the acceptance or
receipt of the Creation Basket Deposit would, in the opinion of
counsel to the Sponsor, be unlawful;
●
circumstances
outside the control of the Sponsor, Distributor or transfer agent
make it, for all practical purposes, not feasible to process
creations of baskets;
●
there is a
possibility that any or all of the Benchmark Component Futures
Contracts of the Fund on the CBOT from which the NAV of the Fund is
calculated will be priced at a daily price limit restriction;
or
●
if, in the sole
discretion of the Sponsor, the execution of such an order would not
be in the best interest of the Fund or its
Shareholders.
None of the
Sponsor, Distributor or transfer agent will be liable for the
rejection of any purchase order or Creation Basket
Deposit.
Redemption Procedures
The procedures by
which an Authorized Purchaser can redeem one or more baskets mirror
the procedures for the creation of baskets. On any business day, an
Authorized Purchaser may place an order with the transfer agent to
redeem one or more baskets. Redemption orders must be placed by
1:15 p.m. (EST) or the close of regular trading on the New York
Stock Exchange, whichever is earlier. A redemption order so
received will be effective on the date it is received in
satisfactory form by the Distributor. The redemption procedures
allow Authorized Purchasers to redeem baskets and do not entitle an
individual Shareholder to redeem any Shares in an amount less than
a Redemption Basket, or to redeem baskets other than through an
Authorized Purchaser. By placing a redemption order, an Authorized
Purchaser agrees to deliver the baskets to be redeemed through
DTC’s book-entry system to the Fund by the end of the next
business day following the effective date of the redemption order
or by the end of such later business day. Prior to the delivery of
the redemption distribution for a redemption order, the Authorized
Purchaser must also have wired to the Sponsor’s account at
the Custodian the 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 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 Administrator will publish an
estimate of the redemption distribution composition as of the
beginning of such day.
50
Delivery of Redemption Distribution
The redemption
distribution due from a Fund will be delivered to the Authorized
Purchaser on the Redemption Settlement Date if the Fund’s DTC
account has been credited with the baskets to be redeemed. If the
Fund’s DTC account has not been credited with all of the
baskets to be redeemed by the end of such date, the redemption
distribution will be delivered to the extent of whole baskets
received. Any remainder of the redemption distribution will be
delivered on the next business day after the Redemption Settlement
Date to the extent of remaining whole baskets received. Pursuant to
information from the Sponsor, the Custodian will also be authorized
to deliver the redemption distribution notwithstanding that the
baskets to be redeemed are not credited to the Fund’s DTC
account by 1:15 p.m. (EST) on the Redemption Settlement Date if the
Authorized Purchaser has collateralized its obligation to deliver
the baskets through DTC’s book entry-system on such terms as
the Sponsor may from time to time determine.
Suspension or Rejection of Redemption Orders
The Sponsor may, in
its discretion, suspend the right of redemption, or postpone the
redemption settlement date, (1) for any period during which the
NYSE Arca or CBOT is closed other than customary weekend or holiday
closings, or trading on the NYSE Arca or CBOT, is suspended or
restricted, (2) for any period during which an emergency exists as
a result of which delivery, disposal or evaluation of cash
equivalents is not reasonably practicable, (3) for such other
period as the Sponsor determines to be necessary for the protection
of the Shareholders, (4) if there is a possibility that any or all
of the Benchmark Component Futures Contracts of the Fund on the
CBOT from which the NAV of the Fund is calculated will be priced at
a daily price limit restriction, or (5) if, in the sole discretion
of the Sponsor, the execution of such an order would not be in the
best interest of the Fund or its Shareholders. For example, the
Sponsor may determine that it is necessary to suspend redemptions
to allow for the orderly liquidation of the Fund’s assets at
an appropriate value to fund a redemption. If the Sponsor has
difficulty liquidating the Fund’s positions, e.g., because of
a market disruption event in the futures markets or an
unanticipated delay in the liquidation of a position in an over the
counter contract, it may be appropriate to suspend redemptions
until such time as such circumstances are rectified. None of the
Sponsor, the Distributor, or the transfer agent will be liable to
any person or in any way for any loss or damages that may result
from any such suspension or postponement.
Redemption orders
must be made in whole baskets. The Sponsor will reject a redemption
order if the order is not in proper form as described in the
Authorized Purchaser Agreement or if the fulfillment of the order,
in the opinion of its counsel, might be unlawful.
The Sponsor may
also reject a redemption order if the number of Shares being
redeemed would reduce the remaining outstanding Shares to 50,000
Shares (i.e., two baskets of 25,000 Shares each) or less, unless
the Sponsor has reason to believe that the placer of the redemption
order does in fact possess all the outstanding Shares 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.
51
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 soybean 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 soybean interest markets. While the Shares trade on the NYSE
Arca until 4:00 p.m. (EST), liquidity in the markets for soybean
interests may be reduced after the close of regular CBOT. As a
result, during this time, trading spreads, and the resulting
premium or discount, on the Shares may widen.
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 Benchmark Component Futures
Contracts and 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 soybean 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 soybean
interests based on changes in the value of the soybean interests.
Furthermore, ongoing collateral requirements with respect to over
the counter soybean 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 soybean interest, and each
party’s creditworthiness. In light of the differing
requirements for initial payments under exchange-traded and over
the counter soybean 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.
52
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.
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.
53
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.
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.
54
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.
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.
55
The Sponsor serves
as the Sponsor to the Teucrium Funds and may in the future serve as
the Sponsor or investment adviser to commodity pools other than the
Teucrium Funds. The Sponsor may have a conflict to the extent that
its trading decisions for the Fund may be influenced by the effect
they would have on the other pools it manages. In addition, the
Sponsor may be required to indemnify the officers and directors of
the other pools, if the need for indemnification arises. This
potential indemnification will cause the Sponsor’s assets to
decrease. If the Sponsor’s other sources of income are not
sufficient to compensate for the indemnification, it could cease
operations, which could in turn result in Fund losses and/or
termination of the Fund.
If the Sponsor
acquires knowledge of a potential transaction or arrangement that
may be an opportunity for the Fund, it shall have no duty to offer
such opportunity to the Fund. The Sponsor will not be liable to the
Fund or the Shareholders for breach of any fiduciary or other duty
if the Sponsor pursues such opportunity or directs it to another
person or does not communicate such opportunity to the Fund, and is
not required to share income or profits derived from such business
ventures with the Fund.
Resolution of Conflicts Procedures
The Trust Agreement
provides that whenever a conflict of interest exists between the
Sponsor or any of its Affiliates, on the one hand, and the Trust,
any shareholder of a Trust series, or any other person, on the
other hand, the Sponsor shall resolve such conflict of interest,
take such action or provide such terms, considering in each case
the relative interest of each party (including its own interest) to
such conflict, agreement, transaction or situation and the benefits
and burdens relating to such interests, any customary or accepted
industry practices, and any applicable generally accepted
accounting practices or principles. In the absence of bad faith by
the Sponsor, the resolution, action or terms so made, taken or
provided by the Sponsor shall not constitute a breach of the Trust
Agreement or any other agreement contemplated therein or of any
duty or obligation of the Sponsor at law or in equity or
otherwise.
Interests
of Named Experts and Counsel
No expert hired by
the Fund to give advice on the preparation of this offering
document has been hired on a contingent fee basis, nor do any of
them have any present or future expectation of interest in the
Sponsor, Distributor, Authorized Purchasers,
Custodian/Administrator or other service providers to the
Fund.
Provisions
of Federal and State Securities Laws
This offering is
made pursuant to federal and state securities laws. The SEC and
state securities agencies take the position that indemnification of
the Sponsor that arises out of an alleged violation of such laws is
prohibited unless certain conditions are met. Those conditions
require that no indemnification of the Sponsor or any underwriter
for the Fund may be made in respect of any losses, liabilities or
expenses arising from or out of an alleged violation of federal or
state securities laws unless: (i) there has been a successful
adjudication on the merits of each count involving alleged
securities law violations as to the party seeking indemnification
and the court approves the indemnification; (ii) such claim has
been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the party seeking indemnification; or (iii) a
court of competent jurisdiction approves a settlement of the claims
against the party seeking indemnification and finds that
indemnification of the settlement and related costs should be made,
provided that, before seeking such approval, the Sponsor or other
indemnitee must apprise the court of the position held by
regulatory agencies against such indemnification.
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 777 E. Wisconsin Ave,
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.
56
Statements,
Filings, and Reports to Shareholders
The Trust will
furnish to DTC Participants for distribution to Shareholders annual
reports (as of the end of each fiscal year) for the Fund as are
required to be provided to Shareholders by the CFTC and the NFA.
These annual reports will contain financial statements prepared by
the Sponsor and audited by an independent registered public
accounting firm designated by the Sponsor. The Trust will also post
monthly reports to the Fund’s website (www.teucrium.com).
These monthly reports will contain certain unaudited financial
information regarding the Fund, including the Fund’s NAV. The
Sponsor will furnish to the Shareholders other reports or
information which the Sponsor, in its discretion, determines to be
necessary or appropriate. In addition, under SEC rules the Trust
will be required to file quarterly and annual reports for the Fund
with the SEC, which need not be sent to Shareholders but will be
publicly available through the SEC. The Trust will post the same
information that would otherwise be provided in the Trust’s
CFTC, NFA and SEC reports on the Fund’s website www.teucrium.com.
The
accountants’ report on its audit of the Fund’s
financial statements will be furnished by the Trust to Shareholders
upon request. The Trust will file such tax returns, and prepare,
disseminate and file such tax reports for the Fund as it is advised
by its counsel or accountants are from time to time required by any
applicable statute, rule or regulation and will make such tax
elections for the Fund as it deems advisable.
PricewaterhouseCoopers
(“PwC”), 2001 Ross Avenue, Suite 1800, Dallas, Texas
75201-2997, will provide tax information in accordance with the
Code and applicable U.S. Treasury Regulations. Persons treated as
middlemen for purposes of these regulations may obtain tax
information regarding the Fund from PwC or from the Fund’s
website, www.teucrium.com.
Fiscal
Year
The fiscal year of
the Fund is the calendar year.
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 with respect to each person or entity known
to own beneficially more than 5% of the outstanding shares of SOYB
as of December 31, 2019, based on information known to the
Sponsor.
|
(2)
Name
and Address of
Beneficial
Owner
|
(3)
Amount
and Nature of
Beneficial
Ownership
|
(4)
Percent
of Class
|
|
Flow Traders US
LLC,
New York,
NY
|
119,230 common
units
|
6.72%
|
(1)
These individuals and entities have not filed any public reports
with the SEC.
57
The following table
sets forth information regarding the beneficial ownership of shares
of SOYB by the executive officers of the Sponsor as of June 30,
2020. 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
|
|
SOYB
|
Sal
Gilbertie
|
100 common
units
|
*
|
______________________
* Less than
1%.
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
Vedder Price P.C.
("Vedder Price") has been retained to advise the Trust and the
Sponsor with respect to the Shares being offered hereby and has
passed upon the validity of the Shares being issued hereunder.
Vedder Price has also provided the Sponsor with its opinion with
respect to federal income tax matters addressed below in "U.S.
Federal Income Tax Considerations."
Experts
The financial
statements of the Trust and the Fund and management’s
assessment of the effectiveness of internal control over financial
reporting of the Trust and the Fund incorporated by reference in
this prospectus and elsewhere in the registration statement have
been so incorporated by reference in reliance upon the reports of
Grant Thornton, 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 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.
58
Use and Disclosure of Nonpublic Personal Information
The Sponsor does
not sell nonpublic personal information to any third parties. The
Sponsor primarily uses investors’ nonpublic personal
information to complete financial transactions that may be
requested. The Sponsor may disclose investors’ nonpublic
personal information to third parties under specific circumstances
described in the privacy policy. These circumstances include, among
others, information needed to complete financial transactions,
information released at the direction of an investor, and certain
information requested by courts, regulators, law enforcement, or
tax authorities. Investors may not opt out of these
disclosures.
Investors’
nonpublic personal information, particularly information about
investors’ holdings and transactions in shares of the
Teucrium Funds, may be shared between and amongst the Sponsor and
the Teucrium Funds. An investor
cannot opt-out of the sharing of nonpublic personal information
between and amongst the Sponsor and the Teucrium Funds.
However, the Sponsor and the Teucrium Funds will not use this
information for any cross-marketing purposes. In other words, all investors will be treated
as having “opted out” of receiving marketing
solicitations from Teucrium Funds other than the Teucrium Fund(s)
in which it invests.
Protection of Nonpublic Personal Information
As described in the
privacy policy, the Sponsor takes safeguards to protect
investors’ nonpublic personal information, which include,
among others, restricting access to such information, requiring
third parties to follow appropriate standards of security and
confidentiality, and maintaining physical, technical,
administrative, and procedural safeguards
Teucrium’s
Website is hosted in the United States and any data provided to
Teucrium is stored in the United States. If you choose to provide
Personal Data from regions outside of the United States, then by
your submission of such data, you acknowledge and agree that: (a)
you are transferring your personal information outside of those
regions to the United States voluntarily and with consent; (b) the
laws and regulations of the United States shall govern your use of
the provision of your information, which laws and regulations may
differ from those of your country of residence; and (c) you permit
your personal information to be used for the purposes herein and in
the Privacy Policy above.
U.S.
Federal Income Tax Considerations
The following
discussion summarizes the material U.S. federal income tax
consequences of the purchase, ownership and disposition of Shares
of the Fund and the U.S. federal income tax treatment of the Fund.
Except where noted otherwise, it deals only with the tax
consequences relating to Shares held as capital assets by U.S.
Shareholders (as defined below) who are not subject to special tax
treatment. For example, in general it does not address the tax
consequences, such as, but not limited to dealers in securities or
currencies or commodities, traders in securities or dealers or
traders in commodities that elect to use a mark to market method of
accounting, financial institutions, tax-exempt entities (except as
discussed below), insurance companies, persons holding Shares as a
part of a position in a “straddle” or as part of a
“hedging,” “conversion” or other integrated
transaction for federal income tax purposes, persons with
“applicable financial statements" within the meaning of
Section 451(b) of the Internal Revenue Code of 1986, as amended
(the “Code”), or holders of Shares whose
“functional currency” is not the U.S. dollar.
Furthermore, the discussion below is based on the provisions of the
Code, and regulations (“Treasury Regulations”), rulings
and judicial decisions thereunder as of the date hereof, and such
authorities may be repealed, revoked or modified (possibly with
retroactive effect) so as to result in U.S. federal income tax
consequences different from those discussed below.
The Sponsor has
received the opinion of Vedder Price, counsel to the Trust, that
the material U.S. federal income tax consequences to the Fund and
to U.S. Shareholders and Non-U.S. Shareholders (as defined below)
will be as described in the following paragraphs. In rendering its
opinion, Vedder Price has relied on the facts and assumptions
described in this prospectus as well as certain factual
representations made by the Trust, the Fund and the Sponsor. This
opinion is not binding on the Internal Revenue Service (the "IRS")
and is not a guarantee of the results. No ruling has been requested
from the IRS with respect to any matter affecting the Fund or
prospective investors, and the IRS may disagree with the tax
positions taken by the Trust. If the IRS were to challenge the
Trust’s tax positions in litigation, they might not be
sustained by the courts.
59
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 (a) 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 (b) has a valid election in effect under applicable
Treasury Regulations to be treated as a United States person. A
“Non-U.S. Shareholder” is a holder that is not a U.S.
Shareholder. If a partnership or other entity or arrangement
treated as a partnership holds our Shares, the tax treatment of a
partner will generally depend upon the status of the partner and
the activities of the partnership. If you are a partner of a
partnership holding our Shares, the discussion below may not be
applicable to you and you should consult your own tax advisor
regarding the tax consequences of acquiring, owning and disposing
of Shares.
EACH PROSPECTIVE
INVESTOR IS ADVISED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE
U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN SHARES, AS
WELL AS ANY APPLICABLE STATE, LOCAL OR FOREIGN TAX CONSEQUENCES, IN
LIGHT OF ITS PARTICULAR CIRCUMSTANCES.
Tax Classification of the Trust and the Fund
The Trust is
organized and will be operated as a statutory trust in accordance
with the provisions of the Trust Agreement and applicable Delaware
law. Notwithstanding the Trust’s status as a statutory trust
and the Fund’s status as a series of the Trust, due to the
nature of its activities the Fund will be treated as a partnership
rather than a trust for U.S. federal income tax purposes. In
addition, the trading of Shares on the NYSE Arca will cause the
Fund to be classified as a “publicly traded
partnership” for federal income tax purposes. Under the Code,
a publicly traded partnership is generally taxable as a
corporation. In the case of an entity (such as the Fund) not
registered under the Investment Company Act of 1940 as amended, and
not meeting certain other conditions, however, an exception to this
general rule applies if at least 90% of the entity’s gross
income is “qualifying income” for each taxable year of
its existence (the “qualifying income exception”). For
this purpose, qualifying income is defined as including, in
pertinent part, interest (other than from a financial business),
dividends, and gains from the sale or disposition of capital assets
held for the production of interest or dividends. In the case of a
partnership of which a principal activity is the buying and selling
of commodities other than as inventory or of futures, forwards and
options with respect to commodities, “qualifying
income” also includes income and gains from commodities and
from such futures, forwards, options, and, provided the partnership
is a trader or investor with respect to such assets, swaps and
other notional principal contracts with respect to commodities. The
Trust and the Sponsor have represented the following to Vedder
Price:
|
|
●
|
at least 90% of the
Fund’s gross income for each taxable year will constitute
“qualifying income” within the meaning of Code section
7704 (as described above);
|
|
|
●
|
the Fund is
organized and will be operated in accordance with its governing
documents and applicable law; and
|
|
|
●
|
the Fund has not
elected, and will not elect, to be classified as a corporation for
U.S. federal income tax purposes.
|
Based in part on
these representations, Vedder Price is of the opinion that the Fund
will be treated as a partnership that it is not taxable as a
corporation for U.S. federal income tax purposes. The Fund’s
taxation as a partnership rather than a corporation will require
the Sponsor to conduct the Fund’s business activities in such
a manner that it satisfies the requirements of the qualifying
income exception on a continuing basis. No assurances can be given
that the Fund’s operations for any given year will produce
income that satisfies these requirements. Vedder Price will not
review the Fund’s ongoing compliance with these requirements
and will have no obligation to advise the Trust, the Fund or the
Fund’s Shareholders in the event of any subsequent change in
the facts, representations or applicable law relied upon in
reaching its opinion.
If the Fund failed
to satisfy the qualifying income exception in any year, other than
a failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery (in which case,
as a condition of relief, the Fund could be required to pay the
government amounts determined by the IRS), the Fund would be
taxable as a corporation for federal income tax purposes and would
pay federal income tax on its income at regular corporate rates. In
that event, Shareholders would not report their share of the
Fund’s income or loss on their tax returns. Distributions by
the Fund (if any) would be treated as dividend income to the
Shareholders to the extent of the Fund’s current and
accumulated earnings and profits, then treated as a tax-free return
of capital to the extent of the Shareholder’s basis in the
Shares (and will reduce the basis), and, to the extent it exceeds a
Shareholder’s basis in such Shares, as capital gain for
Shareholders who hold their Shares as capital assets. Accordingly,
if the Fund were to be taxable as a corporation, it would likely
have a material adverse effect on the economic return from an
investment in the Fund and on the value of the Shares.
The remainder of
this summary assumes that the Fund is classified for federal income
tax purposes as a partnership that it is not taxable as a
corporation.
60
U.S. Shareholders
Tax Consequences of Ownership of Shares
Taxation of the Fund’s Income. No
U.S. federal income tax is paid by the Fund on its income. Instead,
the Fund files annual partnership returns, and each U.S.
Shareholder is required to report on its U.S. federal income tax
return its allocable share of the income, gain, loss, deductions
and credits reflected on such returns. If the Fund recognizes
income, including interest on cash equivalents and net capital
gains from cash settlement of Benchmark Component Futures
Contracts, for a taxable year, Shareholders must report their share
of these items even though the Fund makes no distributions of cash
or property during the taxable year. Consequently, a Shareholder
may be taxable on income or gain recognized by the Fund but receive
no cash distribution with which to pay the resulting tax liability
or may receive a distribution that is insufficient to pay such
liability. Because the Sponsor currently does not intend to make
distributions, it is likely that a U.S. Shareholder that realizes
net income or gain with respect to Shares for a taxable year will
be required to pay any resulting tax from sources other than Fund
distributions. Additionally, individuals with modified adjusted
gross income in excess of $200,000 ($250,000 in the case of married
individuals filing jointly) and certain estates and trusts are
subject to an additional 3.8% tax on their “net investment
income,” which generally includes net income from interest,
dividends, annuities, royalties, and rents, and net capital gains
(other than certain amounts earned from trades or businesses). Also
included as income subject to the additional 3.8% tax is income
from businesses involved in the trading of financial instruments or
commodities.
Monthly Conventions for Allocations of the
Fund’s Profit and Loss and Capital Account
Restatements. Under Code section 704, the determination of a
partner’s distributive share of any item of income, gain,
loss, deduction or credit is governed by the applicable
organizational document unless the allocation provided by such
document lacks “substantial economic effect.” An
allocation that lacks substantial economic effect nonetheless will
be respected if it is in accordance with the partners’
interests in the partnership, determined by considering all facts
and circumstances relating to the economic arrangements among the
partners. Subject to the possible exception for certain conventions
to be used by the Fund as discussed below, allocations pursuant to
the Trust Agreement should be considered as having substantial
economic effect or being in accordance with Shareholders’
interests in the Fund.
In situations where
a partner’s interest in a partnership is redeemed or sold
during a taxable year, the Code generally requires that partnership
tax items for the year be allocated to the partner using either an
interim closing of the books or a daily proration method. The Fund
intends to allocate tax items using an interim closing of the
book’s method under which income, gains, losses and
deductions will be determined on a monthly basis, taking into
account the Fund’s accrued income and deductions and gains
and losses (both realized and unrealized) for the month. The tax
items for each month during a taxable year will then be allocated
among the holders of Shares in proportion to the number of Shares
owned by them as of the close of trading on the last trading day of
the preceding month (the “monthly allocation
convention”).
Under the monthly
allocation convention, an investor who disposes of a Share during
the current month will be treated as disposing of the Share as of
the end of the last day of the calendar month. For example, an
investor who buys a Share on April 10 of a year and sells it on May
20 of the same year will be allocated all of the tax items
attributable to May (because it is deemed to hold the Share through
the last day of May) but none of those attributable to April. The
tax items attributable to that Share for April will be allocated to
the person who held 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.
61
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. As
one example, a Shareholder could be allocated income accruing after
it sold its Shares, resulting in an increase in the basis of the
Shares (see “Tax Basis of
Shares”, below). In connection with the disposition of
the Shares, the additional basis might produce a capital loss the
deduction of which may be limited (see “Limitations on Deductibility of Losses and
Certain Expenses”, below).
Section 754 election. The Fund has made
the election permitted by section 754 of the Code, which election
is irrevocable without the consent of the IRS. The effect of this
election is that when a secondary market sale of Shares occurs, the
Fund adjusts the purchaser’s proportionate share of the tax
basis of the Fund’s assets to fair market value, as reflected
in the price paid for the Shares, as if the purchaser had directly
acquired an interest in the Fund’s assets. The section 754
election is intended to eliminate disparities between a
partner’s basis in its partnership interest and its share of
the tax basis of the partnership’s assets, so that the
partner’s allocable share of taxable gain or loss on a
disposition of an asset will correspond to its share of the
appreciation or depreciation in the value of the asset since it
acquired its interest. Depending on the price paid for Shares and
the tax basis of the Fund’s assets at the time of the
purchase, the effect of the section 754 election on a purchaser of
Shares may be favorable or unfavorable. In order to make the
appropriate basis adjustments in a cost-effective manner, the Fund
will use certain simplifying conventions and assumptions. In
particular, the Fund will obtain information regarding secondary
market transactions in its Shares and use this information to
adjust the Shareholders’ indirect basis in the Fund’s
assets. It is possible the IRS could successfully assert that the
conventions and assumptions applied are improper and require
different basis adjustments to be made, which could adversely
affect some Shareholders.
Section 1256 Contracts. Under the Code,
special rules apply to instruments constituting “section 1256
contracts.” A section 1256 contract is defined as including,
in relevant part: (1) a futures contract that is traded on or
subject to the rules of a national securities exchange which is
registered with the SEC, a domestic board of trade designated as a
contract market by the CFTC, or any other board of trade or
exchange designated by the Secretary of the Treasury, and with
respect to which the amount required to be deposited and the amount
that may be withdrawn depends on a system of “marking to
market”; and (2) a non-equity option traded on or subject to
the rules of a qualified board or exchange. Section 1256 contracts
held at the end of each taxable year are treated as if they were
sold for their fair market value on the last business day of the
taxable year (i.e., are
“marked to market”). In addition, any gain or loss
realized from a disposition, termination or marking to market of a
section 1256 contract is treated as long-term capital gain or loss
to the extent of 60% thereof, and as short-term capital gain or
loss to the extent of 40% thereof, without regard to the actual
holding period (“60-40 treatment”).
Many of the
Fund’s Soybean Futures Contracts will qualify as
“section 1256 contracts” under the Code. Some other
soybean 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.
62
Individuals and
other non-corporate taxpayers are permitted to deduct capital
losses only to the extent of their capital gains for the taxable
year plus $3,000 of other income. Unused capital losses can be
carried forward and used in future years, subject to these same
limitations. In addition, an individual taxpayer may elect to carry
back net losses on section 1256 contracts to each of the three
preceding years and use them to offset section 1256 contract gains
in those years, subject to certain limitations. Corporate taxpayers
generally may deduct capital losses only to the extent of capital
gains, subject to special carryback and carryforward
rules.
The deduction for
expenses incurred by non-corporate taxpayers constituting
“miscellaneous itemized deductions,” generally
including investment-related expenses (other than interest and
certain other specified expenses), is suspended for taxable years
beginning after December 31, 2017 and before January 1, 2026.
During these taxable years, non-corporate taxpayers will not be
able to deduct miscellaneous itemized deductions. Provided the
suspension is not extended, for taxable years ending on or after
January 1, 2026, miscellaneous itemized deductions are deductible
only to the extent they exceed 2% of the taxpayer’s adjusted
gross income for the year. Although the matter is not free from
doubt, we believe management fees the Fund pays to the Sponsor and
other expenses of the Fund constitute investment-related expenses
subject to this miscellaneous itemized deduction limitation, rather
than expenses incurred in connection with a trade or business and
will report these expenses consistent with that interpretation. For
taxable years beginning on or after January 1, 2026, the Code
imposes additional limitations on the amount of certain itemized
deductions allowable to individuals with adjusted gross income in
excess of certain amounts by reducing the otherwise allowable
portion of such deductions by an amount equal to the lesser
of:
● 3% of the
individual’s adjusted gross income in excess of certain
threshold amounts; or
● 80% of the
amount of certain itemized deductions otherwise allowable for the
taxable year.
Non-corporate
Shareholders generally may deduct “investment interest
expense” only to the extent of their “net investment
income.” Investment interest expense of a Shareholder will
generally include any interest expense accrued by the Fund and any
interest paid or accrued on direct borrowings by a Shareholder to
purchase or carry its Shares, such as interest with respect to a
margin account. Net investment income generally includes gross
income from property held for investment (including
“portfolio income” under the passive loss rules but
not, absent an election, long-term capital gains or certain
qualifying dividend income) less deductible expenses other than
interest directly connected with the production of investment
income.
If
the Fund incurs indebtedness, the Fund’s ability to deduct
interest on its indebtedness allocable to its trade or business is
limited to an amount equal to the sum of (1) the Fund’s
business interest income during the year and (2) 30% of the
Fund’s adjusted taxable income for such taxable year, subject
to the exception in the Coronavirus Aid, Relief, and Economic
Security Act ("CARES Act") discussed below. 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.
For
the Fund’s taxable year beginning in 2020, the CARES Act
increases the 30% adjusted taxable income limitation to 50% unless
the Fund elects to have the 30% limitation apply. For purposes of
determining the Fund’s 50% adjusted taxable income
limitation, the Fund may elect to substitute the Fund’s 2019
adjusted taxable income for the Fund’s 2020 adjusted taxable
income, which could result in a greater business interest expense
deduction if the Fund has business interest expense. In addition,
Shareholders may treat 50% of the excess business interest
allocated to them in 2019, if any, as deductible in the
Shareholder’s first taxable year beginning in 2020 without
regard to the 2020 business interest expense limitation. The
remaining 50% of such Shareholder’s excess business interest
is carried forward and subject to the same limitations as other
taxable years.
To the extent that
the Fund allocates losses or expenses to you that must be deferred
or are disallowed as a result of these or other limitations in the
Code, you may be taxed on income in excess of your economic income
or distributions (if any) on your Shares. As one example, you could
be allocated and required to pay tax on your share of interest
income accrued by the Fund for a particular taxable year, and in
the same year be allocated a share of a capital loss that you
cannot deduct currently because you have insufficient capital gains
against which to offset the loss. As another example, you could be
allocated and required to pay tax on your share of interest income
and capital gain for a year but be unable to deduct some or all of
your share of management fees and/or margin account interest
incurred by you with respect to your Shares. Shareholders are urged
to consult their own professional tax advisor regarding the effect
of limitations under the Code on their ability to deduct their
allocable share of the Fund’s losses and
expenses.
63
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 federal income 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 certain affiliates of the Shareholder is the
creditor (a “partner nonrecourse liability”) and (ii) a
pro rata share of any nonrecourse liabilities of the Fund that are
not partner nonrecourse liabilities as to any
Shareholder.
A
Shareholder’s tax basis in its Shares generally will be (1)
increased by (a) its allocable share of the Fund’s taxable
income and gain and (b) any additional contributions by the
Shareholder to the Fund and (2) decreased (but not below zero) by
(a) its allocable share of the Fund’s tax deductions and
losses and (b) any distributions by the Fund to the Shareholder.
For this purpose, an increase in a Shareholder’s share of the
Fund’s liabilities will be treated as a contribution of cash
by the Shareholder to the Fund and a decrease in that share will be
treated as a distribution of cash by the Fund to the Shareholder.
Pursuant to certain IRS rulings, a Shareholder will be required to
maintain a single, “unified” basis in all Shares that
it owns. As a result, when a Shareholder that acquired its Shares
at different prices sells less than all of its Shares, such
Shareholder will not be entitled to specify particular Shares
(e.g., those with a higher
basis) as having been sold. Rather, it must determine its gain or
loss on the sale by using an “equitable apportionment”
method to allocate a portion of its unified basis in its Shares to
the Shares sold.
Treatment of Fund Distributions. If the
Fund makes non-liquidating distributions to Shareholders, such
distributions generally will not be taxable to the Shareholders for
federal income tax purposes except to the extent that the amount of
money distributed exceeds the Shareholder’s adjusted basis of
its interest in the Fund immediately before the distribution. Any
money distributed that is in excess of a Shareholder’s tax
basis generally will be treated as gain from the sale or exchange
of Shares. For purposes of determining the gain recognized on a
distribution from a partnership, a marketable security distributed
to a partner is generally treated as money. This treatment,
however, does not apply to distributions to “eligible
partners” of an “investment partnership,” as
those terms are defined in the Code.
Tax Consequences of
Disposition of Shares
If a Shareholder
sells its Shares, it will recognize gain or loss equal to the
difference between the amount realized and its adjusted tax basis
for the Shares sold. A Shareholder’s amount realized will be
the sum of the cash or the fair market value of other property
received plus its share of the Fund's liabilities.
Gain or loss
recognized by a Shareholder on the sale or exchange of Shares held
for more than one year will generally be taxable as long-term
capital gain or loss; otherwise, such gain or loss will generally
be taxable as short-term capital gain or loss. A special election
is available under the Treasury Regulations that allows
Shareholders to identify and use the actual holding periods for the
Shares sold for purposes of determining whether the gain or loss
recognized on a sale of Shares will give rise to long-term or
short-term capital gain or loss. It is expected that most
Shareholders will be eligible to elect, and generally will elect,
to identify and use the actual holding period for Shares sold. If a
Shareholder who has differing holding periods 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.
64
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 —
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the Shareholder may
recognize taxable gain or loss to the same extent as if it had sold
the Shares for cash;
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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
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any distributions
the Shareholder receives with respect to the Shares under the loan
agreement will be fully taxable to the Shareholder, most likely as
ordinary income.
|
Shareholders
desiring to avoid these and other possible consequences of a deemed
disposition of their Shares should consider modifying any
applicable brokerage account agreements to prohibit the lending of
their Shares.
Other Tax Matters
Information
Reporting. The Fund provides tax information to the Shareholders
and to the IRS, as required. Shareholders of the Fund are treated
as partners for federal income tax purposes. Accordingly, the Fund
will furnish Shareholders each year, with tax information on IRS
Schedule K-1 (Form 1065), which will be used by the Shareholders in
completing their tax returns. The IRS has ruled that assignees of
partnership interests who have not been admitted to a partnership
as partners but who have the capacity to exercise substantial
dominion and control over the assigned partnership interests will
be considered partners for federal income tax purposes. On the
basis of this ruling, except as otherwise provided herein, we will
treat as a Shareholder any person whose shares are held on their
behalf by a broker or other nominee if that person has the right to
direct the nominee in the exercise of all substantive rights
attendant to the ownership of the Shares.
Persons who hold an
interest in the Fund as a nominee for another person are required
to furnish to us the following information: (1) the name, address
and taxpayer identification number of the beneficial owner and the
nominee; (2) whether the beneficial owner is (a) a person that is
not a U.S. person, (b) a foreign government, an international
organization or any wholly-owned agency or instrumentality of
either of the foregoing, or (c) a tax-exempt entity; (3) the number
and a description of Shares acquired or transferred for the
beneficial owner; and (4) certain information including the dates
of acquisitions and transfers, means of acquisitions and transfers,
and acquisition cost for purchases, as well as the amount of net
proceeds from sales. Brokers and financial institutions are
required to furnish additional information, including whether they
are U.S. persons and certain information on Shares they acquire,
hold or transfer for their own account. A penalty of $250 per
failure (as adjusted for inflation), up to a maximum of $3,000,000
per calendar year (as adjusted for inflation), is imposed by the
Code for failure to report such information correctly to the Fund.
If the failure to furnish such information correctly is determined
to be willful, the per failure penalty increases to $500 (as
adjusted for inflation) or, if greater, 10% of the aggregate amount
of items required to be reported, and the $3,000,000 maximum does
not apply. The nominee is required to supply the beneficial owner
of the Shares with the federal income tax information furnished by
the Fund.
Partnership Audit
Procedures. The IRS may audit the federal income tax returns filed
by the Fund. Adjustments resulting from any such audit may require
a Shareholder to adjust a prior year’s tax liability and
could result in an audit of the Shareholder’s own return. Any
audit of a Shareholder’s return could result in adjustments
of non-partnership items as well as Fund items. Partnerships are
generally treated as separate entities for purposes of federal tax
audits, judicial review of administrative adjustments by the IRS,
and tax settlement proceedings. The tax treatment of partnership
items of income, gain, loss and deduction are determined at the
partnership level in a unified partnership proceeding rather than
in separate proceedings with the partners. The Code provides for
one partner to be designated as the “tax matters
partner” and to represent the partnership for purposes of
these proceedings. The Trust Agreement appoints the Sponsor as the
tax matters partner of the Fund.
65
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 generally 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, which could result in an exempt organization Shareholder
having UBTI. In addition, an exempt organization Shareholder that
incurs acquisition indebtedness to purchase its Shares in the Fund
may have UBTI.
66
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 the United States. However, there can be
no assurance that the IRS would not successfully assert that the
Fund’s activities constitute a U.S. trade or
business.
In the event that
the Fund’s activities were considered to constitute a U.S.
trade or business, the Fund would be required to withhold at the
highest rate specified in Code section 1 (currently 37%) on
allocations of our income to non-corporate Non-U.S. Shareholders
and the highest rate specified in Code section 11(b) (currently
21%) on allocations of our income to corporate Non-U.S.
Shareholders, when such income is distributed. Non-U.S.
Shareholders would also be subject to a 10% withholding tax on the
consideration payable upon a sale or exchange of such Non-U.S.
Shareholder’s Shares, although the IRS has temporarily
suspended this withholding for interests in publicly traded
partnerships until regulations implementing such withholding are
issued. If recently promulgated regulations are finalized as
proposed, such regulations would provide, with respect to transfers
of publicly traded interests in publicly traded partnerships
effected through a broker, that the obligation to withhold is
imposed on the transferor’s broker. However, it is not clear
when such regulations will be finalized and if they will be
finalized in their current form. A Non-U.S. Shareholder with ECI
will generally be required to file a U.S. federal income tax
return, and the return will provide the Non-U.S. Shareholder with
the mechanism to seek a refund of any withholding in excess of such
Shareholder’s actual U.S. federal income tax liability. Any
amount withheld by the Fund will be treated as a distribution to
the Non-U.S. Shareholder to the extent possible. In some cases, the
Fund may not be able to match the economic cost of satisfying its
withholding obligations to a particular Non-U.S. Shareholder, which
may result in said cost being borne by the Fund, generally, and
accordingly, by all Shareholders.
67
If the Fund is not
treated as engaged in a U.S. trade or business, a Non-U.S.
Shareholder may nevertheless be treated as having FDAP income,
which would be subject to a 30% withholding tax (possibly subject
to reduction by treaty), with respect to some or all of its
distributions from the Fund or its allocable share of Fund income.
Amounts withheld on behalf of a Non-U.S. Shareholder will be
treated as being distributed to such Shareholder. If the Fund is
not able to match the economic cost of satisfying its withholding
obligation to a particular Non-U.S. Shareholder, said cost may have
to be borne by the Fund and accordingly by all
Shareholders.
To the extent any
interest income allocated to a Non-U.S. Shareholder that otherwise
constitutes FDAP is considered “portfolio interest,”
neither the allocation of such interest income to the Non-U.S.
Shareholder nor a subsequent distribution of such interest income
to the Non-U.S. Shareholder will be subject to withholding,
provided that the Non-U.S. Shareholder is not otherwise engaged in
a trade or business in the U.S. and provides the Fund with a timely
and properly completed and executed IRS Form W-8BEN or other
applicable form. In general, portfolio interest is interest paid on
debt obligations issued in registered form, unless the recipient
owns 10% or more of the voting power of the issuer. A Non-U.S.
Shareholder’s allocable share of interest on U.S. bank
deposits, certificates of deposit and discount obligations with
maturities from original issue of 183 days or less should also not
be subject to withholding. Generally, other interest from U.S.
sources paid to the Fund and allocable to Non-U.S. Shareholders
will be subject to withholding.
In order for the
Fund to avoid withholding on any interest income allocable to
Non-U.S. Shareholders that would qualify as portfolio interest, it
will be necessary for all Non-U.S. Shareholders to provide the Fund
with a timely and properly completed and executed Form W-8BEN (or
other applicable form).
Gain from Sale of
Shares. Gain from the sale or exchange of Shares may be taxable to
a Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident
alien individual who is present in the U.S. for 183 days or more
during the taxable year. In such case, the nonresident alien
individual may be subject to a 30% withholding tax on the amount of
such individual’s gain.
Branch Profits Tax
on Corporate Non-U.S. Shareholders. In addition to the taxes noted
above, any Non-U.S. Shareholders that are corporations may also be
subject to an additional tax, the branch profits tax, at a rate of
30%. The branch profits tax is imposed on a non-U.S.
corporation’s dividend equivalent amount, which generally
consists of the corporation’s after-tax earnings and profits
that are effectively connected with the corporation’s U.S.
trade or business but are not reinvested in a U.S. business. This
tax may be reduced or eliminated by an income tax treaty between
the United States and the country in which the Non-U.S. Shareholder
is a “qualified resident.”
Foreign
Account Tax Compliance Act. Legislation commonly referred to
as the Foreign Account Tax Compliance Act or "FATCA", generally
imposes a 30% U.S. withholding tax on payments of certain types of
income to foreign financial institutions that fail to enter into an
agreement with the United States Treasury to report certain
required information with respect to accounts held by U.S. persons
(or held by foreign entities that have U.S. persons as substantial
owners). The types of income subject to the withholding tax include
U.S.-source interest and dividends and the gross proceeds from the
sale of any property that could produce U.S.-source interest or
dividends. Proposed Treasury Regulations, however, generally
eliminate withholding under FATCA on gross proceeds. Taxpayers
generally may rely on these proposed Treasury Regulations until
final Treasury Regulations are issued. The information required to
be reported includes the identity and taxpayer identification
number of each account holder that is a U.S. person and transaction
activity within the holder’s account. In addition, subject to
certain exceptions, this legislation also imposes a 30% U.S.
withholding tax on payments to foreign entities that are not
financial institutions unless the foreign entity certifies that it
does not have a greater than 10% U.S. owner or provides the
withholding agent with identifying information on each greater than
10% U.S. owner. Depending on the status of a Non-U.S. Shareholder
and the status of the intermediaries through which it holds Shares,
a Non-U.S. Shareholder could be subject to this 30% U.S.
withholding tax with respect to distributions on its
Shares.
Under certain
circumstances, a Non-U.S. Shareholder may be eligible for a refund
or credit of such taxes.
Prospective
Non-U.S. Shareholders should consult their own tax advisor
regarding these and other tax issues unique to Non-U.S.
Shareholders.
68
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, gift, 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 under the heading "U.S. Federal Income
Tax Considerations."
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.
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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:
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(1)
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freely
transferable (determined based on the relevant facts and
circumstances);
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(2)
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part of a class of
securities that is widely held (meaning that the class of
securities is owned by 100 or more investors independent of the
issuer and of each other); and
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(3)
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either (a) part of
a class of securities registered under Section 12(b) or 12(g) of
the Exchange Act or (b) sold to the plan as part of a public
offering pursuant to an effective registration statement under the
1933 Act and the class of which such security is a part is
registered under the Exchange Act within 120 days (or such later
time as may be allowed by the SEC) after the end of the fiscal year
of the issuer in which the offering of such security
occurred.
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The plan asset
regulations under ERISA state that the determination of whether a
security is freely transferable is to be made based on all the
relevant facts and circumstances. In the case of a security that is
part of an offering in which the minimum investment is $10,000 or
less, the following requirements, alone or in combination,
ordinarily will not affect a finding that the security is freely
transferable: (1) a requirement that no transfer or assignment of
the security or rights relating to the security be made that would
violate any federal or state law; and (2) a requirement that no
transfer or assignment be made without advance written notice given
to the entity that issued the security.
The Sponsor
believes that the conditions described above are satisfied with
respect to the Shares. The Sponsor believes that the Shares
therefore constitute publicly offered securities, and the
underlying assets of the Fund should not be considered to
constitute plan assets of any plan that purchases
Shares.
Prohibited Transactions
ERISA and the Code
generally prohibit certain transactions involving a plan and
persons who have certain specified relationships to the plan. In
general, Shares may not be purchased with the assets of a plan if
the Sponsor, the clearing brokers, the trading advisors (if any),
or any of their affiliates, agents or employees
either:
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exercise any
discretionary authority or discretionary control with respect to
management of the plan;
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exercise
any authority or control with respect to management or disposition
of the assets of the plan;
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render investment
advice for a fee or other compensation, direct or indirect, with
respect to any moneys or other property of the plan;
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have any authority
or responsibility to render investment advice with respect to any
monies or other property of the plan; or
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have any
discretionary authority or discretionary responsibility in the
administration of the plan.
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70
Also, a prohibited
transaction may occur under ERISA or the Code when circumstances
indicate that (1) the investment in Shares is made or retained for
the purpose of avoiding application of the fiduciary standards of
ERISA, (2) the investment in Shares constitutes an arrangement
under which the Fund is expected to engage in transactions that
would otherwise be prohibited if entered into directly by the plan
purchasing the Shares, (3) the investing plan, by itself, has the
authority or influence to cause the Fund to engage in such
transactions, or (4) a person who is prohibited from transacting
with the investing plan may, but only with the aid of certain of
its affiliates and the investing plan, cause the Fund to engage in
such transactions with such person.
Special IRA Rules
IRAs are not
subject to ERISA’s fiduciary standards, but are subject to
their own rules, including the prohibited transaction rules of
Section 4975 of the Code, which generally mirror ERISA’s
prohibited transaction rules. For example, IRAs are subject to
special custody rules and must maintain a qualifying IRA custodial
arrangement separate and distinct from the Fund and its custodial
arrangement. If a separate qualifying custodial arrangement is not
maintained, an investment in the Shares will be treated as a
distribution from the IRA. Second, IRAs are prohibited from
investing in certain commingled investments, and the Sponsor makes
no representation regarding whether an investment in Shares is an
inappropriate commingled investment for an IRA. Third, in applying
the prohibited transaction provisions of Section 4975 of the Code,
in addition to the rules summarized above, the individual for whose
benefit the IRA is maintained is also treated as the creator of the
IRA. For example, if the owner or beneficiary of an IRA enters into
any transaction, arrangement, or agreement involving the assets of
his or her IRA to benefit the IRA owner or beneficiary (or his or
her relatives or business affiliates) personally, or with the
understanding that such benefit will occur, directly or indirectly,
such transaction could give rise to a prohibited transaction that
is not exempted by any available exemption. Moreover, in the case
of an IRA, the consequences of a non-exempt prohibited transaction
are that the IRA’s assets will be treated as if they were
distributed, causing immediate taxation of the assets (including
any early distribution penalty tax applicable under Section 72 of
the Code), in addition to any other fines or penalties that may
apply.
Exempt Plans
Certain employee
benefit plans may be governmental plans or church plans.
Governmental plans and church plans are generally not subject to
ERISA, nor do the prohibited transaction provisions described above
apply to them. These plans are, however, subject to prohibitions
against certain related-party transactions under Section 503 of the
Code, which are similar to the prohibited transaction rules
described above. In addition, the fiduciary of any governmental or
church plan must consider any applicable state or local laws and
any restrictions and duties of common law imposed upon the
plan.
No view is
expressed as to whether an investment in the Fund (and any
continued investment in the Fund), or the operation and
administration of the fund, is appropriate or permissible for any
governmental plan or church plan under Code Section 503, or under
any state, county, local or other law relating to that type of
plan.
Allowing
an investment in the Fund is not to be construed as a
representation by the Trust, the Fund, the Sponsor, any trading
advisor, any clearing broker, the Distributor or legal counsel or
other advisors to such parties or any other party that this
investment meets some or all of the relevant legal requirements
with respect to investments by any particular plan or that this
investment is appropriate for any such particular plan. The person
with investment discretion should consult with the plan’s
attorney and financial advisors as to the propriety of an
investment in the Fund in light of the circumstances of the
particular plan, current tax law and ERISA.
71
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:
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our Annual Report
on Form 10-K for the fiscal year ended December 31, 2019, filed
with the SEC on March 11, 2020; and
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our Quarterly
Reports on Form 10-Q for the quarterly periods ended March 31, 2020
and June 30, 2020, filed with the SEC on May 8, 2020 and August 7,
2020, respectively.
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Any statement
contained in a document incorporated by reference in this
prospectus shall be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement
contained in this prospectus or in any other subsequently filed
document that also is or is deemed to be incorporated by reference
in this prospectus modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this
prospectus.
We will provide to
each person to whom a prospectus is delivered, including any
beneficial owner, a copy of any document incorporated by reference
in the prospectus (excluding any exhibits to those documents unless
the exhibit is specifically incorporated by reference as an exhibit
in that document) at no cost, upon written or oral request at the
following address or telephone number:
Teucrium Soybean
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.
72
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.
73
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.
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.
74
APPENDIX
A
Glossary
of Defined Terms
In this prospectus,
each of the following terms have the meanings set forth after such
term:
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Administrator:
U.S. Bancorp Fund Services,
LLC, doing business as U.S. Bank Global Fund
Services
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Authorized Purchaser:
One that purchases or redeems Creation
Baskets or Redemption Baskets, respectively, from or to the
Fund.
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Benchmark: A weighted average of the closing settlement
prices for three Soybean Futures Contracts that are traded on the
CBOT: (1) the second to expire Soybean Futures Contract, weighted
35%, (2) the third to expire Soybean Futures Contract, weighted
30%, and (3) the Soybean Futures Contract expiring in the November
following the expiration month of the third to expire contract,
weighted 35%, except that the Benchmark will never include Soybean
Futures Contracts expiring in August or
September.
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Benchmark Component Futures
Contracts: The three Soybean
Futures Contracts that at any given time make up the
Benchmark.
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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.
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CFTC: Commodity Futures Trading Commission, an
independent federal agency with the mandate to regulate commodity
futures and options in the United States.
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Chicago Board of Trade
(CBOT): The primary exchange on
which Soybean 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.
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Code: Internal Revenue Code of 1986, as
amended.
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Commodity Pool:
An enterprise in which several
individuals contribute funds in order to trade futures contracts or
options on futures contracts collectively.
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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.
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Creation Basket:
A block of 25,000 Shares used by the
Fund to issue Shares.
Custodian: U.S. Bank, N.A.
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Distributor:
Foreside Fund Services,
LLC.
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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.
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Exchange Act:
The Securities Exchange Act of
1934.
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75
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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.
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FINRA: Financial Industry Regulatory
Authority.
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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.
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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.
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Indirect Participants:
Banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship
with a DTC Participant, either directly or
indirectly.
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Limited Liability Company
(LLC): A type of business
ownership combining several features of corporation and partnership
structures.
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Margin: The amount of equity required for an investment in
futures contracts.
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NAV: Net Asset Value of the Fund.
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NFA: National Futures Association.
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NSCC: National Securities Clearing
Corporation.
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1933 Act: The Securities Act of 1933.
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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.
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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.
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Redemption Basket:
A block of 25,000 Shares used by the
Fund to redeem Shares.
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SEC: Securities and Exchange
Commission.
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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.
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Shareholders:
Holders of Shares.
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Shares: Common units representing fractional undivided
beneficial interests in the Fund.
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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.
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76
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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.
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Soybean Futures
Contracts: Futures contracts
for soybeans that are traded on CBOT or foreign
exchanges.
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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.
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Tracking Error:
Possibility that the daily NAV of the
Fund will not track the Benchmark.
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Trust Agreement:
The Fifth Amended and Restated
Declaration of Trust and Trust Agreement of the Trust effective as
of April 26, 2019.
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Valuation Day:
Any day as of which the Fund
calculates its NAV.
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You: The owner of Shares.
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77
STATEMENT
OF ADDITIONAL INFORMATION
TEUCRIUM
SOYBEAN 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 12.
This statement of
additional information and accompanying disclosure document are
both dated August 24, 2020.
78
TEUCRIUM SOYBEAN
FUND
TABLE
OF CONTENTS
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Page
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The
Soybean Market
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80
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Over the counter Derivatives
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83
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Commodity Market
Participants
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84
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Regulation
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84
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Potential
Advantages of Investment
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87
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Fund
Performance
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79
The
Soybean Market
Global soybean
production is concentrated in the U.S., Brazil, Argentina, and
China. The United States Department of Agriculture
(“USDA”) has estimated that, for the Crop Year 2020-21,
the United States will produce approximately 113 MMT of soybeans or
approximately 31% of estimated world production, with Brazil
production at 131 MMT. Argentina is projected to produce about 54
MMT. For 2020-21, based on the July 2020 USDA report, global
consumption of 364 MMT is estimated slightly higher than global
production of 363 MMT. If the global supply of soybeans exceeds
global demand, this may have an adverse impact on the price of
soybeans. The USDA publishes weekly, monthly, quarterly and annual
updates for U.S. domestic and worldwide soybean production and
consumption. These reports are available on the USDA’s
website, www.usda.gov, at no charge. The outlook provided below is
from the July 2020 USDA report.
The soybean
processing industry converts soybeans into soybean meal, soybean
hulls, and soybean oil. Soybean meal and soybean hulls are
processed into soy flour or soy protein, which are used, along with
other commodities, by livestock producers and the fish farming
industry as feed. Soybean oil is sold in multiple grades and is
used by the food, petroleum and chemical industries. The food
industry uses soybean oil in cooking and salad dressings, baking
and frying fats, and butter substitutes, among other uses. In
addition, the soybean industry continues to introduce soy-based
products as substitutes to various petroleum-based products
including lubricants, plastics, ink, crayons and candles. Soybean
oil is also converted to biodiesel for use as fuel.
Standard Soybean
Futures Contracts trade on the CBOT in units of 5,000 bushels.
Three grades of soybeans are deliverable under CBOT Soybean Futures
Contracts: Number 1 yellow, which may be delivered at 6 cents per
bushel over the contract price; Number 2 yellow, which may be
delivered at the contract price; and Number 3 yellow, which may be
delivered at 6 cents per bushel under the contract price. There are
seven months each year in which CBOT Soybean Futures Contracts
expire: January, March, May, July, August, September and
November.
If the futures
market is in a state of backwardation (i.e., when the price of
soybeans 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
soybean prices or the price relationship between immediate
delivery, soon to expire contracts and later to expire contracts,
the value of a contract will rise as it approaches expiration. If
the futures market is in contango, the Fund will buy later to
expire contracts for a higher price than the sooner to expire
contracts that it sells. Hypothetically, and assuming no other
changes to either prevailing soybean prices or the price
relationship between the spot price, soon to expire contracts and
later to expire contracts, the value of a contract will fall as it
approaches expiration. Historically, the soybean 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 soybean market and
the soybean 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.
80
The price per
bushel of soybeans 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 June 2020.
Futures contracts
may be either bought or sold long or short. The U.S Commodity
Futures Trading Commission weekly releases the “Commitment of
Traders” (COT) report, which depicts the open interest as
well as long and short positions in the market. Market participants
may use this report to gauge market sentiment.
81
On July 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 soybean production.
82
Over
the counter Derivatives
In addition to
futures contracts, options on futures contracts, derivative
contracts that are tied to various commodities, including soybeans,
are entered into outside of public exchanges. These “over the
counter” contracts are entered into between two parties in
private contracts or on a recently formed swap execution facility
(“SEF”) for certain standardized swaps. Unlike Soybean
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 soybean swap, the Fund may be obligated
to pay a fixed price per bushel of soybeans and be entitled to
receive an amount per bushel equal to the current value of an index
of soybean prices, the price of a specified Soybean Futures
Contract, or the average price of a group of Soybean Futures
Contracts such as the Benchmark. Each party to the swap is subject
to the credit risk of the other party. The Fund only enters into
over the counter swaps on a net basis, where the two payment
streams are netted out on a daily basis, with the parties receiving
or paying, as the case may be, only the net amount of the two
payments. Swaps do not generally involve the delivery of underlying
assets or principal and are therefore financially settled.
Accordingly, the Fund’s risk of loss with respect to an over
the counter swap generally is limited to the net amount of payments
that the counterparty is contractually obligated to make less any
collateral deposits the Fund is holding.
To reduce the
credit risk that arises in connection with over the counter
contracts, the Fund generally enters into an agreement with each
counterparty based on the Master Agreement published by the
International Swaps and Derivatives Association, Inc. that provides
for the netting of the Fund’s overall exposure to its
counterparty and for daily payments based on the marked to market
value of the contract.
The
creditworthiness of each potential counterparty will be assessed by
the Sponsor. The Sponsor assesses or reviews, as appropriate, the
creditworthiness of each potential or existing counterparty to an
over the counter contract pursuant to guidelines approved by the
Sponsor. The creditworthiness of existing counterparties will be
reviewed periodically by the Sponsor. The Sponsor’s
President, Chief Investment Officer, and Chief Executive Officer
has over 25 years of experience in over the counter derivatives
trading, including the counterparty creditworthiness analysis
inherent therein. There is no guarantee that the Sponsor’s
creditworthiness analysis will be successful and that
counterparties selected for Fund transactions will not default on
their contractual obligations.
83
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.
84
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.
85
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
|
|
soybeans
|
600
contracts
|
15,000
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. The proposed rule, if adopted, could impact the
Fund. For a discussion generally regarding the risks that position
limits may pose for the Fund, see the risk factor in “WHAT
ARE THE RISK FACTORS INVOLVED WITH AN INVESTMENT IN THE FUND”
regarding position limits, accountability levels and daily price
fluctuation limits.
With the exception
of the nine legacy agricultural contracts, the CFTC’s
position limits would apply only in the spot month. These limits
would generally be set at 25 percent of the deliverable supply, but
may be higher or lower for certain contracts. With respect to the
non-legacy contracts, the rule would require the relevant exchange
on which the contracts are traded to adopt either position limits
or position accountability levels.
The proposed rules
also would expand the current list of enumerated bona fide hedges
to include, for example, hedges of anticipated merchandizing. To
provide market participants with greater flexibility on managing
their business risks, the proposal also provides guidance on
whether and when market participants are permitted to measure risk
on a gross basis rather than a net basis. However, firms will be
required to measure risk on a consistent basis. Enumerated hedges
are self-effectuating. That is, no prior approval would be required
from the CFTC, although a market participant would be required to
obtain approval from the relevant exchange. Self-effectuating hedge
exemptions also would be available for other transactions such as
spreads and pass-through swaps as approved by exchanges. With
respect to non-enumerated hedge exemptions, a market participant
would be required to file a request to exceed the position limit
with the relevant exchange. If the exchange grants the request for
a non-enumerated hedge exemption, the exchange will forward its
decision to the CFTC for review. The exemption will be deemed
granted provided the CFTC does not intervene during a 10-day review
period. The market participant would not be permitted to exceed the
applicable position limit until the 10-day review period lapses.
Importantly, the CFTC may act solely through its commissioners and
not through staff. In terms of process changes, the CFTC is
proposing to eliminate Form 204 cash positions report and the cash
information reported under Form 304. Comments on the proposed rule
must be submitted no later than 90 days after approval of the
proposal by the CFTC (i.e., April 29, 2020). The CFTC does not
intend to extend the comment period
It is unknown at
this time the effect that such passage, adoption or modification
will have, positively or negatively, on our industry or on a Fund.
The size or duration of positions available to a Fund may be
severely limited. Pursuant to the CFTC’s and the
exchanges’ aggregation requirements, all accounts owned or
managed by the Sponsor are likely to be combined for speculative
position limits purposes. The Funds could be required to liquidate
positions it holds in order to comply with such limits, or may not
be able to fully implement trading instructions generated by its
trading models, in order to comply with such limits. Any such
liquidation or limited implementation could result in substantial
costs to a Fund.
86
These new
regulations and the resulting increased costs and regulatory
oversight requirements may result in market participants being
required or deciding to limit their trading activities, which could
lead to decreased market liquidity and increased market volatility.
In addition, transaction costs incurred by market participants are
likely to be higher due to the increased costs of compliance with
the new regulations. These consequences could adversely affect a
Fund’s returns.
Margin for OTC Uncleared Swaps
During 2015 and
2016, the CFTC and the US bank prudential regulators completed
their rulemakings under the Dodd-Frank Act on margin for uncleared
over the counter swaps (and option agreements that qualify as
swaps). Margin requirements went into effect for the largest swap
entities in September 2016 and went into effect for financial end
users in March 2017. Under these regulations, swap dealers (such as
sell-side counterparties to swaps), major swap participants, and
financial end users (such as buy-side counterparties to swaps who
are not physical traders) are required in most instances, to post
and collect initial and variation margin, depending on the
regulatory classification of their counterparty. European and Asian
regulators are also implementing similar regulations, which were
scheduled to become effective on the same dates as the
US-promulgated rules. As a result of these requirements, additional
capital will be required to be committed to the margin accounts to
support transactions involving uncleared over the counter swaps
and, consequently, these transactions may become more expensive.
While the Fund currently does not generally engage in uncleared
over the counter swaps, to the extent they do so in the future, the
additional margin required to be posted could adversely impact the
profitability (if any) to the Fund from entering into these
transactions.
FCMs
The CEA requires
all FCMs, such as the Teucrium Funds’ clearing brokers, to
meet and maintain specified fitness and financial requirements, to
segregate customer funds from proprietary funds and account
separately for all customers’ funds and positions, and to
maintain specified books and records open to inspection by the
staff of the CFTC. The CFTC has similar authority over introducing
brokers, or persons who solicit or accept orders for commodity
interest trades but who do not accept margin deposits for the
execution of trades. The CEA authorizes the CFTC to regulate
trading by FCMs and by their officers and directors, permits the
CFTC to require action by exchanges in the event of market
emergencies, and establishes an administrative procedure under
which customers may institute complaints for damages arising from
alleged violations of the CEA. The CEA also gives the states powers
to enforce its provisions and the regulations of the
CFTC.
On November 14,
2013, the CFTC published final regulations that require enhanced
customer protections, risk management programs, internal monitoring
and controls, capital and liquidity standards, customer disclosures
and auditing and examination programs for FCMs. The rules are
intended to afford greater assurances to market participants that
customer segregated funds and secured amounts are protected,
customers are provided with appropriate notice of the risks of
futures trading and of the FCMs with which they may choose to do
business, FCMs are monitoring and managing risks in a robust
manner, the capital and liquidity of FCMs are strengthened to
safeguard the continued operations and the auditing and examination
programs of the CFTC and the SROs are monitoring the activities of
FCMs in a thorough manner.
Potential
Advantages of Investment
Interest Income and Expense
Unlike some
alternative investment funds, the Fund does not borrow money in
order to obtain leverage, so the Fund does not incur any interest
expense. Rather, the Fund’s margin deposits, and cash
reserves are maintained in cash and cash equivalents and interest
is generally earned on available assets, which include unrealized
profits credited to the Fund’s accounts.
Fund
Performance
The following graph
sets forth the historical performance of the Fund from commencement
of operations on September 19, 2011 until June 30,
2020.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS.
87
PART
II
Information
Not Required in the Prospectus
|
Item
13.
|
Other Expenses of Issuance and Distribution.
|
Set forth below is
an estimate (except as indicated) of the amount of fees and
expenses (other than underwriting commissions and discounts)
payable by the registrant in connection with the issuance and
distribution of the units pursuant to the prospectus contained in
this registration statement.
|
|
Amount
|
|
SEC registration
fee (actual)
|
$27,433
|
|
NYSE Arca Listing
Fee (actual)
|
n/a
|
|
FINRA filing fees
(actual)
|
n/a
|
|
Blue Sky
expenses
|
n/a
|
|
Auditor’s
fees and expenses
|
$10,000
|
|
Legal fees and
expenses
|
$5,000
|
|
Printing
expenses
|
$3,000
|
|
Miscellaneous
expenses
|
n/a
|
|
Total
|
$45,433
|
|
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, willfulmisconduct,
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.
88
The Trust and its
series shall not incur the cost of that portion of any insurance
which insures any party against any liability, the indemnification
of which is prohibited by the Trust Agreement.
Expenses incurred
in defending a threatened or pending civil, administrative or
criminal action, suit or proceeding against the Sponsor shall be
paid by the Trust or the applicable series of the Trust in advance
of the final disposition of such action, suit or proceeding, if (i)
the legal action relates to the performance of duties or services
by the Sponsor on behalf of the Trust or a series of the Trust;
(ii) the legal action is initiated by a party other than the Trust;
and (iii) the Sponsor undertakes to repay the advanced funds with
interest to the Trust or the applicable series of the Trust in
cases in which it is not entitled to indemnification under the
Trust Agreement.
For purposes of the
indemnification provisions of the Trust Agreement, the term
“Sponsor” includes, in addition to the Sponsor, any
other covered person performing services on behalf of the Trust and
acting within the scope of the Sponsor’s authority as set
forth in the Trust Agreement.
In the event the
Trust or a series of the Trust is made a party to any claim,
dispute, demand or litigation or otherwise incurs any loss,
liability, damage, cost or expense as a result of or in connection
with any Shareholder’s (or assignee’s) obligations or
liabilities unrelated to Trust business, such Shareholder (or
assignees cumulatively) shall indemnify, defend, hold harmless, and
reimburse the Trust or the applicable series of the Trust for all
such loss, liability, damage, cost and expense incurred, including
attorneys’ and accountants’ fees.
The payment of any
amount pursuant to the Trust Agreement shall take into account the
allocation of liabilities and other amounts, as appropriate, among
the series of the Trust.
|
Item
15
|
Recent Sales of Unregistered Securities.
|
Not
applicable.
|
Item
16
|
Exhibits and Financial Statement Schedules.
|
(a) Exhibits
|
|
Fifth Amended and
Restated Declaration of Trust and Trust Agreement. (1)
|
|
|
|
|
Certificate of
Trust of the Registrant. (2)
|
|
|
|
Opinion of Vedder
Price P.C. relating to the legality of the Shares.*
|
|
|
|
Opinion of Vedder
Price P.C. with respect to federal income tax
consequences.*
|
|
|
|
Form of Authorized
Purchaser Agreement (included as Exhibit B to the Fifth Amended and
Restated Declaration of Trust and Trust Agreement).
(1)
|
|
|
|
Amended and
Restated Distribution Services Agreement. (3)
|
|
|
|
Amendment to
Amended and Restated Distribution Services Agreement.
(4)
|
|
|
|
Second Amendment to
Amended and Restated Distribution Services Agreement.
(5)
|
|
|
|
Third Amendment to
Amended and Restated Distribution Services Agreement.
(6)
|
|
|
|
Fourth Amendment to
Amended and Restated Distribution Services Agreement.
(7)
|
|
|
|
Custody Agreement.
(8)
|
|
|
|
Fund Accounting
Servicing Agreement. (9)
|
|
|
Transfer Agent
Servicing Agreement. (10)
|
|
|
|
|
Fund Administration
Servicing Agreement. (11)
|
|
|
|
Distribution
Consulting and Marketing Services Agreement. (12)
|
|
|
23.1
|
Consents of Vedder
Price P.C. (included in Exhibits 5.1 and 8.1).*
|
|
|
|
Consent of Grant
Thornton, Independent Registered Public Accounting
Firm.*
|
|
|
Power of Attorney
(included on signature page to this Registration Statement as filed
herein).
|
89
* Filed
herein.
(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. 001-34765), 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.
(b) Financial Statement
Schedules
The financial
statement schedules are either not applicable or the required
information is included in the financial statements and footnotes
related thereto.
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Item
17.
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Undertakings.
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(a) The undersigned
registrant hereby undertakes:
(1) To file, during
any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
(i) To include any
prospectus required by section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in
the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration
statement.
(iii) To include
any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any
material change to such information in the registration
statement.
Provided, however,
that paragraphs (a)(1)(i), (ii), and (iii) of this section do not
apply if the registration statement is on Form S-1, Form S-3, Form
SF-3 or Form F-3 and the information required to be included in a
post-effective amendment by those paragraphs is contained in
reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration
statement, or, as to a registration statement on Form S-3, is
contained in a form of prospectus filed pursuant to §
230.424(b) that is part of the registration statement.
(2) That, for the
purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona
fide offering thereof.
(3) To remove from
registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination
of the offering.
(4) That, for the
purpose of determining liability under the Securities Act of 1933
to any purchaser:
(i) If the
registrant is subject to Rule 430C, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements relying on Rule 430B
or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as
of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first use.
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(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.
92
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 August 18, 2020.
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Teucrium
Commodity Trust
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By: Teucrium
Trading, LLC, Sponsor
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By:
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/s/ Sal
Gilbertie
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Date: August 18,
2020
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Sal
Gilbertie
Principal Executive
Officer, Secretary and Member
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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.
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Signature
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Title
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Date
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/s/ Sal
Gilbertie
Sal
Gilbertie
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President/Chief
Executive Officer/Chief Investment Officer/Member of the
Sponsor
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August 18,
2020
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/s/ Cory
Mullen-Rusin
Cory
Mullen-Rusin
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Chief Financial
Officer/Chief Accounting Officer/Chief Compliance Officer/Principal
Financial Officer
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August 18,
2020
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/s/ Steve
Kahler
Steve
Kahler
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Chief Operating
Officer
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August 18,
2020
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Exhibit
Index
93
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
have issued our reports dated March 11, 2020, with respect to the
combined financial statements and internal control over financial
reporting of Teucrium Commodity Trust and the financial statements
and internal control over financial reporting of Teucrium Corn
Fund, Teucrium Soybean Fund, Teucrium Sugar Fund, Teucrium Wheat
Fund, and Teucrium Agricultural Fund included in the Annual Report
on Form 10-K for the year ended December 31, 2019, which are
incorporated by reference in this Registration Statement. We
consent to the incorporation by reference of the aforementioned
reports in this Registration Statement, and to the use of our name
as it appears under the caption
“Experts”.
/s/ GRANT THORNTON
LLP
New York, New
York
August 18, 2020
Exhibit 5.1
August
18, 2020
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Teucrium
Trading, LLC
as
Sponsor to Teucrium Commodity Trust
Three
Main Street, Suite 215
Burlington,
VT 05401
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Re:
Teucrium
Commodity Trust, and
Teucrium Soybean Fund, a series of the Trust
Ladies
and Gentlemen:
We have
acted as counsel to Teucrium Commodity Trust, a Delaware statutory
trust (the “Trust”), and to Teucrium Trading, LLC, a
Delaware limited liability company (the “Sponsor”) in
its capacity as the sponsor of the Trust, in connection with the
filing with the Securities and Exchange Commission
(“SEC”) of its Registration Statement on Form S-1 (the
“Registration Statement”) relating to the issuance and
sale by the Trust of 20,550,000 common units of fractional
undivided beneficial interest (the “Shares”) in the
Teucrium Soybean Fund, a series of the Trust (the
“Fund”), under the Securities Act of 1933, as amended
(the “1933 Act”).
You
have requested our opinion as to the matters set forth below in
connection with the filing of the Registration Statement. In
connection with rendering this opinion, we have
examined:
(a)
the Registration
Statement;
(b)
the Certificate of
Trust of the Trust, as filed with the Secretary of State of the
State of Delaware (the “Secretary of State”) on
September 11, 2009;
(c)
the Fifth Amended
and Restated Declaration of Trust and Trust Agreement of the Trust,
dated April 26, 2019, between the Sponsor and Wilmington Trust
Company, a Delaware banking corporation, as trustee of the
Trust;
(d)
the Certificate of
Formation of the Sponsor, as filed with the Secretary of State on
July 28, 2009;
(e)
the Amended and
Restated Limited Liability Company Agreement of the Sponsor, dated
October 26, 2009, as amended by the First Amendment to the Amended
and Restated Limited Liability Company Agreement of the Sponsor,
dated September 30, 2011, Second Amendment to the Amended and
Restated Limited Liability Company Agreement of the Sponsor, dated
May 24, 2012 and Third Amendment to the Amended and Restated
Limited Liability Company Agreement of the Sponsor, dated July 8,
2019;
(f)
the action by the
Executive Committee of the Sponsor acting on behalf of the Trust
relating to the authorization, issuance, offer and sale of the
Shares pursuant to the Registration Statement;
(g)
a form of
Authorized Purchaser Agreement entered into by the Trust, the
Sponsor and each Authorized Purchaser filed as an exhibit to the
Registration Statement;
(h)
a Certificate of
Good Standing for the Trust, dated August 17, 2020, obtained from
the Secretary of State;
(i)
a Certificate of
Good Standing for the Sponsor, dated August 17, 2020, obtained from
the Secretary of State; and
(j)
such other
instruments, documents and records of the Trust and others as we,
in our professional judgment, have deemed necessary or appropriate
as a basis for the opinion set forth below.
In
examining the documents referred to above, we have assumed the
genuineness of all signatures, the legal capacity of all natural
persons, the authenticity of documents purporting to be originals
and the conformity to originals of all documents submitted to us as
copies. As to questions of fact material to our opinion, we have
relied (without investigation or independent confirmation) upon the
representations contained in the above-described documents and on
certificates and other communications from public officials, and
officers and the Trustee of the Trust.
Our
opinion, as set forth herein, is based on the facts in existence on
the date hereof, and is limited to the Delaware Statutory Trust Act
as in effect on the date hereof. We express no opinion with respect
to any other laws or regulations.
Based
upon and subject to the foregoing and the qualifications set forth
below, we are of the opinion that (a) the Shares to be issued
pursuant to the Registration Statement have been duly authorized
for issuance by the Trust; and (b) when issued and paid for
upon the terms provided in the Registration Statement, such Shares
will be validly issued, fully paid and non-assessable.
This
opinion is rendered solely for your use in connection with the
filing of the Registration Statement and supersedes any previous
opinions of this firm in connection with the issuance of the
Shares. We hereby consent to the filing of this opinion with the
SEC in connection with the Registration Statement. In giving our
consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the 1933
Act or the rules and regulations of the SEC thereunder. Except as
specifically authorized above in this paragraph, this opinion is
not to be quoted in whole or in part or otherwise referred to, nor
is it to be filed with any government agency or any other person,
without, in each case, our prior written consent. This opinion is
given to you as of the date hereof, and we assume no obligation to
advise you of any change that may hereafter be brought to our
attention. The opinions expressed herein are matters of
professional judgment and are not a guarantee of
result.
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Very
truly yours,
/s/
Vedder Price P.C.
VEDDER
PRICE P.C.
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1401 I Street NW, Suite 1100 | Washington, DC 20005 | T +1 202 312
3320 | F +1 202 312 3322
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Vedder
Price P.C. is affiliated with Vedder Price LLP, which operates in
England and Wales, Vedder Price (CA), LLP, which operates in
California, and Vedder Price Pte. Ltd., which operates in
Singapore.
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Exhibit 8.1
August
18, 2020
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Teucrium
Commodity Trust
c/o
Teucrium Trading, LLC
Three
Main Street, Suite 215
Burlington,
Vermont 05401
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Re:
Teucrium Soybean
Fund
Registration Statement on Form
S-1
Ladies
and Gentlemen:
We have
acted as counsel to Teucrium Commodity Trust, a Delaware statutory
trust with multiple series (the “Trust”), in connection
with the preparation and filing with the Securities and Exchange
Commission (the “SEC”) under the Securities Act of
1933, as amended, of a Registration Statement on Form S-1 (the
“Registration Statement”) relating to the registration
of common units representing fractional undivided beneficial
interests (“Shares”) in the series of the Trust
designated as Teucrium Soybean Fund (the
“Fund”).
In
rendering this opinion, we have examined the Registration Statement
and have reviewed and relied upon representations made to us by a
duly authorized officer of Teucrium Trading, LLC, the sponsor of
the Trust (the “Sponsor”), concerning the organization
and operation of the Trust and the Fund, the nature of the
Fund’s annual gross income and certain other factual matters
in a letter dated as of the date hereof (the “Representation
Letter”). We have also examined such other agreements,
documents and records and other materials as we have deemed
necessary in order for us to render the opinion referred to in this
letter. In such review and examination, we have assumed the
genuineness of all signatures, the legal capacity and authority of
the parties who executed such documents, the authenticity of all
documents submitted to us as originals, the conformity to originals
of all documents submitted to us as copies and the authenticity of
the originals of such latter documents.
In
addition, in rendering this opinion, we have relied upon and have
assumed, with your permission, (i) the accuracy and completeness of
the statements contained in the Registration Statement, (ii) that
the Fund will operate at all times in the manner discussed in its
organizational documents, the prospectus included in the
Registration Statement (the “Prospectus”) and the
Representation Letter, (iii) the accuracy and completeness of the
facts, representations and assumptions set forth or referenced
herein being accurate and (iv) that any representation qualified by
knowledge, intention, belief, disclaimer of responsibility or any
similar qualification is true, correct and complete without such
qualification. You have not requested that we undertake, and we
have not undertaken, any independent investigation of the accuracy
of the facts, representations and assumptions set forth or referred
to herein. Any inaccuracy or subsequent change in such facts,
representations or assumptions could adversely affect our
opinion.
The
opinion expressed in this letter is based on the Internal Revenue
Code of 1986, as amended, the Income Tax Regulations promulgated by
the Treasury Department thereunder and judicial authority reported
as of the date hereof. We have also considered the positions of the
Internal Revenue Service (the “Service”) reflected in
published and private rulings. There can be no assurances that
future legislative or administrative changes, court decisions or
Service interpretations will not significantly modify the
statements or opinions expressed herein. We do not undertake to
make any continuing analysis of the facts or relevant law following
the date of this letter or to notify you of any changes to such
facts or law.
Based
on and subject to the foregoing, we confirm that the discussion in
the Prospectus under the heading “U.S. Federal Income Tax
Considerations,” to the extent it consists of statements of
U.S. federal income tax law and legal conclusions with respect
thereto, and subject to the limitations and qualifications set
forth therein, constitutes our opinion as to the material U.S.
federal income tax consequences that will apply under currently
applicable law to the purchase, ownership and disposition of the
Shares.
Our
opinion is limited to the specific U.S. federal income tax
consequences set forth above. We do not express any opinion as to
any other federal tax issues, or any state, local or foreign tax
law issues. Although the discussion herein is based upon our best
interpretation of existing sources of law and expresses what we
believe a court would properly conclude if presented with these
issues, no assurance can be given that such interpretations would
be followed if they were to become the subject of judicial or
administrative proceedings.
We
hereby consent to the filing of this letter with the SEC as an
exhibit to the Registration Statement and to the references to this
letter and to us under the heading “U.S. Federal Income Tax
Considerations” in the Prospectus. In giving such consent, we
do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of
1933, as amended.
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Very
truly yours,
/s/
Vedder Price P.C.
VEDDER
PRICE P.C.
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Vedder
Price P.C. is affiliated with Vedder Price LLP, which operates in
England and Wales, Vedder Price (CA), LLP, which operates in
California, and Vedder Price Pte. Ltd., which operates in
Singapore.
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